Clause 4 — Duty stamps for spirits etc

Orders of the Day — Finance Bill — [1st Allotted Day] – in the House of Commons at 6:11 pm on 6th July 2004.

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Photo of Michael Lord Michael Lord Second Deputy Chairman of Ways and Means

With this it will be convenient to discuss the following amendments: No. 41, in page 265, line 2, leave out schedule 1.

Government amendments Nos. 50 to 70.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

The previous time we debated this issue in detail was on 27 April on the Floor of the House. The debate lasted some four hours, which was more than 50 per cent. of the deliberations. I hope that the debate today will be somewhat shorter, although, with the number of hon. Members from Scottish constituencies here, that is not guaranteed.

It was appropriate that we had a detailed debate about the issue, because it has caused much concern in the spirits industry in the United Kingdom, across all parties. I do not intend to go over all the ground that we covered on 27 April because that has already been written into the record, but it is worth reminding the House of the conclusion of the all-party Select Committee on Scottish Affairs, which reported prior to the debate in April. It concluded:

"Until definitive figures are available" on the extent of fraud in the spirits industry,

"no estimate, whether from Customs or from the industry, can be accepted as accurate. For any Government to introduce important measures which could have major implications for industry and employment, based on what could be inaccurate figures, might be considered precipitate to the point of being reckless."

Since that debate, there have been two developments that are relevant to our discussions. The first is that the Lords Select Committee on Economic Affairs has had an opportunity to debate the issue in detail and to take evidence from the industry and others about the potential implications of the measures that the Government intend to take. Secondly, amendments have been tabled by the Government. Perhaps you, Mr. Deputy Speaker, will allow me to turn to the Government amendments first because, to the extent that they address this particular issue and concern, they will limit the rest of the debate, particularly the debate about the different estimates of the extent of the fraud in the sector and the cost that will fall on the spirits industry and particularly smaller producers as a consequence of the measures that the Government envisage.

We have already had some feedback from one of the major industries that will be affected by the measure and by the amendments that the Government have tabled in the past few days. In an e-mail on 5 July to my hon. Friend Mr. Reid, who has been particularly active in lobbying on the issue alongside many other Scottish MPs from all political parties, the Scotch Whisky Association set out its view about the Government amendments. It says that in the first instance, contrary to some weekend newspaper reports, largely in the Scottish media, the amendments do not mean that the Chancellor is abandoning strip stamps either in principle or in terms of the conclusion that the Government have so far reached. It goes on to say that the amendments are positive in that they allow the industry and the Government to continue discussions about whether an alternative route to a piece of paper over the top of the bottle can be found and that this "might"—it underlines "might"—in the type B variant include a tax stamp appearing within the back label of a bottle, for example, or even under the type A proposal, the ability to attach a self-adhesive label somewhere on the bottle. The SWA goes on to say that such a solution would incur expenditure on the redesign of labels, but that that would be minor compared with companies having to buy strip stamp application machines, which was the Government's previous proposal. The SWA's assessment is that the amendments offer an important opportunity for ongoing discussions to take place against legislation that gives the chance of flexibility in design of the final tax stamp scheme. However, it points out that it has received no concrete assurance that the original preference will not in fact be the one that we end up with. It says that we need to satisfy Customs and Excise over the security aspects of the alternative and ensure that there is sufficiently broad support across the industry.

However, this is certainly a step in the right direction, and I welcome the fact that the Economic Secretary and his colleagues have had detailed discussions with the industry on reducing compliance costs, and on the principle of the scheme. My colleagues and I certainly will not oppose the Government amendments tabled today. If they are accepted, the compliance burden on the industry will potentially be significantly less than it would otherwise be.

That said, we have tabled a couple of amendments that would delete clause 4 and the associated schedule. We continue to table such amendments, and currently intend to vote on them, because we are still unconvinced that the Government have proven the case for introducing proposals of any kind.

Alongside the Government's proposals, which are a small step in the right direction, there has been another major development since we debated this issue in April: the assessment by the Lords Select Committee on Economic Affairs of various key aspects of the Finance Bill. It is a cross-party Committee, and in reporting on this matter it has come up with some clear—and very critical—conclusions. One of my colleagues on that Committee told me the other day that he considered this the most deficient aspect of the Finance Bill, and that the Committee was perhaps more concerned about the estimate of fraud than about any of the other salient elements of the Bill that they looked at in detail.

Photo of Mr John Lyons Mr John Lyons Labour, Strathkelvin and Bearsden 6:30 pm, 6th July 2004

The hon. Gentleman should consider the fact that the argument has moved on somewhat, as his earlier comments about the SWA e-mail underlined. The Scottish Affairs Committee, among others, was deeply concerned that because the stamp is designed to go over the top of the bottle, the costs for distilleries such as Bushmills would be rather high. So we were happy that the SWA endorsed a flexible approach, and that the Government were able to discuss with it an alternative to placing the stamp over the top of the bottle.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I am grateful to the hon. Gentleman for that intervention, which highlights where the debate is now. It is clear that the measures proposed in the Government amendments are a clear step forward. They have the potential to reduce the compliance burden associated with the measures that the Government are seeking to implement, but they still leave the SWA, the spirits industry and ourselves with an underlying worry about whether the Government have justified introducing this additional burden at all.

I remind Mr. Lyons of the Scottish Affairs Committee's conclusion, and underline the quotation that I referred to earlier:

"Until the definitive figures are available, no estimate, whether from Customs or from industry, can be accepted."

The hon. Gentleman will recollect that the Committee continued:

"Introducing changes of any kind would be considered precipitate to the point of being reckless, without actually understanding the extent of the fraud and getting some greater agreement over the figures."

The Lords Select Committee on Economic Affairs discussed the fact that Customs and Excise and the industry have given various estimates of the extent of fraud, and it discussed the National Audit Office assessment of those estimates. It refers to the fact that the potential variation in the estimate of fraud is between £10 million at the bottom end and £1,060 million at the top end, a huge amount. I do not know whether the hon. Gentleman has had a chance to see the report from the House of Lords Economic Affairs Committee, but it would be useful for him to do so.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills

Does my hon. Friend agree that we have to put this into context? I have 12 distilleries in my constituency, and the spirits industry makes a huge contribution to the economy and is our major export. Yet the Government seem to be obsessed with a fraud they cannot prove and a mechanism that would affect the industry's competitiveness. We are the leading marketeer of branded spirits in the world. Is it really necessary for the Government to impose this kind of extra cost on the industry unless they can justify it in terms of fraud? The figures quoted by my hon. Friend show that the parameters are ridiculous.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

My hon. Friend is right. Although the Scotch Whisky Association and the spirits industry may prefer the Government amendments to the original proposals, that does not mean that they support even the amended proposals on the basis of the available evidence. The House of Lords Economic Affairs Committee concluded:

"While we accept that estimates of the scale of fraud are always uncertain, we are concerned by the extent of the differences in the estimates between those of the industry and those of the Government. Clearly the question whether the compliance costs of duty stamps represent a reasonable burden depends in part on the extent of the fraud. In this context we are particularly disturbed at the size of the statistical range in the Government's own figures, and have some sympathy for the view urged on us by the industry that uncertainty over the measure of the fraud means that a necessary pre-condition for the introduction of so burdensome a measure has not been met."

The Committee added that there was an urgent need for additional work to establish whether the cost estimates of the Exchequer were reliable, adding that it would be dangerous to introduce the additional potential costs without a clear understanding of the extent of fraud and, therefore, the extent of the benefit.

The House of Lords Economic Affairs Committee raised a number of important points that we discussed on 27 April; important issues but, compared with the overall issue of the amount of fraud, second-order issues. One is the question of the counterfeiting of tax stamps, about which representatives from Customs and Excise gave evidence to the House of Lords Committee. After considerable debate and consideration, the Committee concluded:

"We note the confident note struck by HMCE in respect of the risks of counterfeiting and that this reflected the reassuring tone of the Economic Secretary's response to the Scottish Affairs Committee, who, however, felt such a response to be verging on the complacent. Counterfeiting of stamps could in the event add to the overall burden of costs of the measure, and in this instance too, it is difficult to evaluate against the background of uncertainty over the measure of spirits diversion fraud."

In other words, the House of Lords Committee was not persuaded by the case that the Government were making on counterfeiting.

There are other points on which we would like clarification from the Economic Secretary. In particular, we need an update on the discussions taking place with the industry and the extent of progress in agreeing steps to reduce the compliance burden. The Economic Secretary said that he hoped that smaller producers—who might be particularly hard hit by the measure—would introduce some targeted measures to reduce the costs.

There has been some discussion about the cost of the stamps being borne entirely by the Government rather than falling upon the industry. I understand that there is scope within the Bill for debate about whether that will happen. I hope that the Economic Secretary will make it clear today that all of the cost of the stamps will be borne by the Government.

I hope that I have not been too ungenerous to the Economic Secretary, who has made some progress since we debated the issue about a month ago. He is bringing forward measures that address some of the concerns of the industry and therefore we will not oppose the amendments that he has tabled today. However, the big issue that remains, as identified by the House of Lords Economic Affairs Committee and in the Scottish Affairs Committee report, is what is a reasonable estimate of fraud in this sector. Is there not a real risk of introducing measures, in either their amended or original form, which will impose costs on the industry that are much more significant than the benefits that we could potentially secure?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I rise to explain the Government amendments in the group, but I welcome their approval by Mr. Laws and I hope to give him the progress report that he seeks. He said that he did not want to go over the ground covered by the Committee of the whole House on 27 April, but his amendments are drafted in such a way that other hon. Members may want to take advantage of them and go over those arguments, even though the debate was in a sense settled a couple of months ago.

I hope that hon. Members will recall that, as the hon. Gentleman said, that debate lasted for nearly four hours. It was a debate in which 22 Members took part, with me playing my part by taking 49 minutes for my opening speech. Much to the displeasure of my colleagues in the Whips Office, I took 23 interventions, and a further 20 minutes responding to the points raised in the debate.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury)

In remembering that debate, as I do, does the Economic Secretary recall how many of the 22 speeches made from both sides of the House were enthusiastically in favour of the Government's proposals?

Photo of John Healey John Healey The Economic Secretary to the Treasury

Even my own speech was not enthusiastically in favour of the Government's proposals. I made it very clear that it was a step that we did not wish to take, but that, having exhausted more than two years of work with the industry, we had come to the conclusion that there was simply no other way of trying to tackle the levels of fraud in the spirits sector. After the Committee of the whole House, the industry accepted that tax stamps were part of the Bill. It said afterwards that it would work with the Government to introduce the duty stamps—and it has. The Scotch Whisky Association said that the important thing was that the industry should be involved in detailed discussions with Customs and Excise and the Treasury to ensure that a workable regime was introduced. As my hon. Friend Mr. Lyons has just said, the argument has moved on.

In case hon. Members are not aware of it, let me explain that, soon after the Committee of the whole House debate a couple of months ago, the trade formally proposed to Customs the solution of back labels. The case was prepared well and some of the security features that we were keen to see incorporated in any tax stamp were examined. The Government amendments before us this evening are the result of the detailed and constructive work that has taken place during 16 separate meetings between the Government and the industry since the Committee of the whole House.

During that debate on clause 4 and schedule 1, I emphasised the commitment made in the Budget that, while we would press ahead with the duty stamps regime, we would aim to ensure that the duty stamps were implemented in such a way that additional costs and complexity to the industry were minimised. I also welcomed in that debate the report of the Scottish Affairs Committee, chaired by my hon. Friend Mrs. Adams, and I committed the Government to give due consideration to the Scottish Affairs Committee's advice that

"it would be far less disruptive to the industry for a tax stamp to be incorporated into the front or the back label of a bottle."

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills

The Economic Secretary is explaining the justification for the Government amendments, but does he not acknowledge that the industry is trying to secure the least bad solution? The industry would prefer not to have any sort of requirement that would add costs, so the Economic Secretary is being rather disingenuous in suggesting that this is the industry's preferred solution. It is the least bad one, given that the Government want to press ahead.

Photo of John Healey John Healey The Economic Secretary to the Treasury

The hon. Gentleman needs to be a little patient. The industry has not let the Government forget that it would rather not have tax stamps. I make no bones about that but, since this matter was last discussed in the Committee of the whole House, the argument has changed. The industry has fulfilled its undertaking to work with us, and we have done much detailed and constructive work on the logistics of implementing the tax stamps regime. The introduction of the scheme is still 20 months away, and I look forward to the continuation of the consultation and the detailed discussion that we have had so far.

Photo of Mrs Irene Adams Mrs Irene Adams Chair, Scottish Affairs Committee

The industry was well aware of the problems with whisky fraud. In two years, it took no steps to produce suggestions about how to tackle that fraud.

Photo of John Healey John Healey The Economic Secretary to the Treasury 6:45 pm, 6th July 2004

My hon. Friend is right. She is Chair of the Scottish Affairs Committee, which pointed out the industry's lack of action in its report. The media did not give that element of the report much attention, but it was a central part of the Committee's analysis. It remains an important consideration.

In the earlier debate, I warned that the back label approach might not deliver the degree of simplicity that we hoped for without compromising the regime's effectiveness in tackling fraud, or suffering some of the other flaws of conventional strip stamps. Over the past three months, however, representatives of Customs and the industry have met regularly to look at the details of implementing a duty stamp regime.

As happened before the Budget, we have conducted consultations through the joint alcohol and tobacco consultative group. That industry forum is made up of representatives from producers, importers, retailers, travel retailers and warehouse keepers. Customs officials have worked with the JATCG's spirits group, and with two specially constituted specialist sub-groups looking at the detailed technical design of the tax stamp system, and at payments and compliance costs issues.

Work has also continued, again in discussion with the industry through the JATCG, on the package of regulatory measures announced in last year's pre-Budget report. The measures complement the duty stamp system in clamping down on the opportunities for spirits fraud, and in helping to prevent the possible displacement of the fraud, from the spirits sector to other parts of the drinks industry.

I pay tribute to the industry's approach to the work. It has never let us forget that it does not like tax stamps, but it has continued to emphasise its support for clamping down on fraud. Also, it has carried out its undertaking to work with us constructively to find a workable and effective duty stamps regime.

The progress that has been made over the past three months means that I have been able to table these Government amendments, which will do two things. First, they will build into the legislation the flexibility that will allow us to adopt a system for incorporating duty stamps into the labels on the back of bottles of spirits, if that can be made to work. Secondly, and consequently, they will provide flexibility to enable arrangements for payment of duty stamps to reflect that decision on the duty stamps.

I make it clear to the hon. Member for Yeovil that that does not affect the Government's commitment to bear the costs of printing and distributing tax stamps. If we decide to take the back label route, I do not think that the Government can be expected to pay for more than the duty stamp element of the back labels, as those labels serve much broader purposes for the industry, including product branding. However, I emphasise that the Government have not yet made a firm decision to go ahead with the back label system. Indeed, we are not yet in a position to make such a decision. There would be obvious concerns about the integrity and security of a duty stamps regime that permitted the full range of printers who currently supply labels to the UK spirits industry—and to those producers who supply to the UK market—to have access to the facilities that produced the tax stamps. However, it is at present uncertain whether any restrictions on the supply of labels would be compatible with EU law or World Trade Organisation rules. That is the issue that we need to examine further.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury)

Given the unwillingness of the industry to accept strip stamps, given the uncertainty about the estimates that attempt to quantify the fraud, and given the new uncertainty that the Economic Secretary has spoken of—whether the proposal can be mitigated by the back label scheme—does he agree that we should not legislate on the issue? Everything he says suggests that the matter should still be at the discussion and formulation stage, not being considered during the Report stage of the Finance Bill.

Photo of John Healey John Healey The Economic Secretary to the Treasury

It is just three months since the Budget confirmation that we wanted to press ahead with tax stamps and 20 months until their implementation, and now is the time that we must put the legislative framework in place. That framework needs to allow sufficient flexibility for us to make decisions that we are not yet in a position to make.

I do not believe that the SWA would press us for early decisions on the matter. If it had done so before, the early decision would have been to proceed with strip stamps, not back label stamps. We should consider the legislation now and build in the flexibility that we may need in the future.

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

I congratulate my hon. Friend on what he has said, but will he assure me and the whisky industry that his proposals are not just words to appease politicians and companies to stave off the fateful day, but a proper attempt to try to save the industry money and solve the problem of fraud? We want to see deeds, not words.

Photo of John Healey John Healey The Economic Secretary to the Treasury

I do not believe that my hon. Friend could have picked up any doubt on the part of the industry about the seriousness with which Customs staff, Treasury officials and I have entered into detailed discussions on several occasions since the Budget and the debate in Committee on the Floor of the House. Together with the trade, we have been able to establish the potential benefits of a back label system.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I appreciate that the Economic Secretary does not believe that the proposals are yet ready to be approved, but can he tell us how long it will be before he decides whether the amendments that he has tabled today can be implemented or that he will need to revert to the original proposals? How many months will it be before we know?

Photo of John Healey John Healey The Economic Secretary to the Treasury

We are not in a position at this stage to make a decision. I hope that within two to three months we will be able to reach a firmer decision.

Photo of Mark Prisk Mark Prisk Conservative, Hertford and Stortford

The amendments mention label type A and label type B as the two options available. Are those options mutually exclusive or would they run side by side?

Photo of John Healey John Healey The Economic Secretary to the Treasury

We have not made those decisions yet. The purpose of the amendments is to give us the flexibility to make those decisions in due course, when we are in a position to do so.

My hon. Friends have been supportive of our efforts to find a workable solution for the introduction of the tax stamp regime and I am sure that they would be interested to hear about the conclusions that we have been able to reach about the potential benefits of back labels. I know that Labour Members who have played a big part in discussion of the issue on the Scottish Affairs Committee will certainly want to hear those conclusions.

Let me make three things clear. First, we have been able to establish that, as the vast majority of spirits products already carry back labels, both the initial and the ongoing compliance costs of the option would be significantly less for the industry than strip stamps. In particular, the requirement for new machinery for the industry to apply stamps would be substantially reduced.

Secondly, as duty stamps would in the vast majority of cases be incorporated in labels that already bore the product's brand name, a back label system could help to reduce the incentive for the counterfeiting and theft of duty stamps. Obviously, a potential fraudster would need to match a stolen or counterfeited stamp to something that could pass for the matching product. Thirdly, Customs is satisfied that a back label stamp could incorporate the full range of security and anti-counterfeiting measures that are vital for the prevention of stamp duty fraud.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Health)

The Minister has rather skimmed over the discussions held with the industry about other aspects of fraud in the supply chain. When the Scottish Affairs Committee looked at that matter, it found that a key element was that fraud did not arise at the distillery but further down in the supply chain. Whether the Minister opts for a back label or an over-bottle strip stamp, he needs to explain how either would necessarily deal with that problem. Can he be more specific about that?

Photo of John Healey John Healey The Economic Secretary to the Treasury

To give the hon. Gentleman credit, he attended most of the debate on 27 April when we covered that issued comprehensively. As I have already made clear, alongside our detailed discussions with the industry about the potential for the use of back labels instead of strip stamps, we have been discussing compliance costs and how to reduce them, and looking into other regulations and measures that will help to deal with the sort of problems that he is concerned about.

Our amendments are intended to create scope for the design of the stamp to be determined once we have made the fullest possible assessment of the relative merits of a strip stamp and a back label scheme and, most important, when we have clarified the legal position. I commend the amendments to the House.

Photo of Mark Prisk Mark Prisk Conservative, Hertford and Stortford

The United Kingdom whisky and spirits industry is important for exports and for jobs. Scotch whisky exports alone are worth more than £2 billion a year, and many jobs in the industry are located in communities where there are few other employment opportunities.

Throughout the passage of the Bill, the Government have told us that they want to impose tax stamps on spirits because they believe it is the only way to prevent fraud in the UK spirits market. The Opposition do not doubt that there is fraud. What is at question, however, is the scale of the fraud and whether strip stamps will deal with it without unduly harming the industry.

That is why, throughout the Bill's proceedings, we have urged the Government not to press ahead with the scheme. It is an impractical policy, based on questionable statistics, and it has been rejected by many of our competitors, which is why we support the amendment moved by Mr. Laws.

The Government's briefing to Members of 18 March shows that, depending on the assumptions made, the fraud the scheme seeks to curtail could be as little as £10 million or as much as £1,080 million. In short, no one really knows the scale of the problem.

We fully accept that there is a problem and that action is required. However, the very uncertainty about the nature of the problem means that it is even more important that the Government work closely with the industry. To that end, I note the 21 amendments that the Government have tabled. I also thank the Economic Secretary for his letter to my right hon. Friend the shadow Chancellor of 2 July, which indicates acceptance of many of the points that we raised in earlier exchanges, both on Second Reading and in Committee.

The decision to respond positively to the suggestion that a duty stamp might be incorporated in existing product labels is to be welcomed. It could remove the danger, which we described, of small businesses having to buy expensive equipment simply to comply with Government regulations.

I have discussed the decision with the Scotch Whisky Association, which, among others, speaks positively about it—although, frankly, like us, the association would prefer the whole scheme to be replaced with something more practical. However, the Government are not committed to such an amendment. For the benefit of hon. Members, I shall quote the Economic Secretary's letter to the shadow Chancellor, in which he states:

"You should note that this does not mean that the Government will implement the industry proposal for a label mark. There are still a number of concerns over the label mark proposals, to which we need to give further detailed consideration with the industry and with Government lawyers."

He then sets out some of those practical problems, including the danger that such a scheme could be open to scrutiny, as it might create barriers to trade. Indeed, that is a significant problem. I hope that he will give those matters due care, and his record suggests that he will. The industry has made it clear to me and many other hon. Members right from the beginning that, if handled badly, the scheme could make UK production in the whisky market less competitive. Of course, it has also stressed that there are important legal hurdles in a single market.

When the Chancellor announced the scheme, he expressed a wish to hear alternatives. Despite what has been said earlier, the spirits industry has, in fact, suggested 17 alternative anti-fraud packages since then. In particular, the industry has based its approach on what, to be fair, in most other cases, the Government usually applaud—a risk-based strategy. By focusing on the higher risk movements, there would be a better chance of securing lost revenue, without unfairly burdening legitimate traders.

I hope that in his reply the Minister will be able to set out what progress is being made. He has mentioned some of it, but I hope that he can elaborate further. In addition, of course, as we learned during the earlier consideration of the Bill, the Minister has already made a series of valuable concessions. The combined cost of the capital fund, the printing support and a two-year tax freeze is approximately £123 million. Given that the Government expect to claw back only about £160 million in lost revenue, the net gain seems remarkably small. Will the Minister say whether those figures have changed?

The scheme remains, in our view, unduly onerous and based on uncertain evidence. We would rather that the Government listened to the industry before taking any further step. Despite the concessions that the Minister has made, to which he has referred, it remains our view that, on this scheme, in principle and in practice, it is time for the Government to think again.

Photo of Ms Annabelle Ewing Ms Annabelle Ewing Spokesperson (Social Security (SNP Shadow Scottish Minister); Education & Skills; Home Office; Law Officers; Work & Pensions) 7:00 pm, 6th July 2004

I, too, rise to support amendments Nos. 35 and 41, tabled by Mr. Laws. As we have heard, those amendments would delete clause 4, thereby scrapping the Government's proposed tax stamp scheme. Like many hon. Members—certainly those who represent constituencies in Scotland—I have a direct whisky interest in my constituency: the headquarters of the Edrington Group is based in Perth. I can also lay claim to the oldest, albeit the smallest, distillery in Scotland—the Glenturret distillery, just outside Crieff, which is also in my constituency.

We have heard much about the importance of the Scotch whisky industry to the Scottish economy and that some 40,000 jobs are dependent on the industry throughout the length and breadth of Scotland. Indeed, it is one of Scotland's premier industries, so it is absolutely incredible that, notwithstanding all the uncertainties about the scheme, the UK Government still propose to go ahead with a damaging tax stamp scheme that has won no support outside the Treasury in London. I should have thought that the Government's role is to support our key industries, not actively to adopt measures that will damage them.

As the debate has unfolded over the past months, we have heard pronouncement after pronouncement against the adoption of the scheme in principle at this time. All the key players have made those pronouncements, including the industry, the unions, the Scottish Parliament and the Select Committee on Scottish Affairs. Even Scotland's estimable First Minister expressed his disappointment that the UK Government would proceed.

When I said a moment ago that the Treasury had no allies, I was perhaps not being 100 per cent. accurate because it has one ally—the Scottish Socialist party. It was the only party in the Scottish Parliament that failed to support a cross-party motion that called on the UK Government to reverse the damaging scheme. The fact that the Government have to rely on the support of the Trots says a lot about the unsoundness of their proposal.

Why is there such united opposition in Scotland? The introduction of the tax stamp scheme is seen as damaging to the industry because the case on which it is based involves figures that have been criticised as unreliable. We have heard today about the House of Lords Economic Affairs Committee report and previously about the comments of the National Audit Office—the Economic Secretary is smiling about that for some reason. There has been no proper rigorous analysis of the likely effectiveness of the proposals. Indeed, the Economic Secretary admitted on Second Reading that the Government intended to go ahead with the tax stamp scheme despite the fact that no proper assessment had been made of the risk of counterfeiting. At the same time, however, the UK Government were quick to reject out of hand the industry's entirely reasonable alternative proposals.

It is correct to say that Government amendments Nos. 50 to 70 offer the possibility of mitigating the significant cost of the scheme to the industry, but I would say no more than that, not least due to the lack of detail and the absence of any assurance from the Economic Secretary tonight about the back-label option. The fundamental point remains that the UK Government have not made an unarguable case for legislating for tax stamps in principle at this time. It is clear that tax stamps will cost the industry; the question is, "How much?"

Amendment Nos. 35 and 41 represent one last opportunity to scrap the daft and damaging proposals, which is why my Scottish National party colleagues and I will support them. I urge Scottish Labour Members to consider doing the same because in a democratic society, surely the vote should follow the voice. For once, I would have thought it would be important for them to put the interests of their constituents and country ahead of those of the London Chancellor.

Photo of Alan Reid Alan Reid Opposition Whip (Commons)

It is quite clear that the case for tax stamps on bottles of spirits has not been made. Having said that, I am pleased that the Economic Secretary has held discussions with the spirits industry and tabled amendments that allow for the alternative option of incorporating the stamps on labels. I suggested in Committee that that option would not be as bad as the strip stamp proposal, so I am pleased that the amendments have been tabled.

Although the alternative proposal of incorporating stamps on labels would be less costly for the industry, I am still firmly of the view that the case for tax stamps has not been made for other reasons. For example, the industry will still face the problems and cost involved in keeping the tax stamps secure, and it might yet be faced with the cost of buying the stamps up front.

In response to the Scottish Affairs Committee report, the Government said that they were

"seeking to implement tax stamps without requiring upfront payment for stamps".

That sounded good, but they went on to say:

"Realising this ambition is not straightforward".

That wording is worrying. The Government want to pass the Bill without giving us any assurances that they will come up with a scheme for the deferred payment of duty. In fact, they may not be able to come up with a scheme for deferred payment of duty, which is extremely worryingly and reinforces the argument that it is premature to pass legislation today to introduce a tax stamp scheme.

Despite all the spin in the press over the weekend, and even though they have undertaken to consider the label stamp alternative, the Government have not abandoned the idea of putting strip stamps on top of bottles. Even if the Chancellor's amendments are made, clause 4 would still allow him to put strip stamps on top of bottles and compel the industry to buy the stamps up front. The Government have not given a satisfactory answer on the threat of forgery. The experience of other countries shows that if tax stamps are introduced, high-quality forgeries will quickly appear. An experienced customs officer could doubtless spot the forgeries, but a tax stamp scheme is meant to ensure that retailers and customers can tell at a glance whether duty has been paid on a bottle. Given that high-quality forgeries are likely to appear, they will probably be good enough to fool retailers and customers, so the scheme would fail.

There is a wide range of estimates on the extent of duty fraud, and that is no basis on which to introduce tax stamps. The Government should establish a methodology to provide an accurate estimate for the levels of fraud. Once they have done so, they should examine the many alternative anti-fraud measures proposed by the industry. I shall vote for amendment No. 35, because the case for tax stamps has not been made. I am pleased that the Government amendments leave the door open so that they can adopt the industry's suggestion of label stamps. I shall not oppose them because they would make the position less bad, but even with those improvements the case for tax stamps has not been made. The Government have not dealt adequately with security costs, the fact that the industry might have to pay for tax stamps up front and the risk of forged stamps, so I appeal to the House to vote to ditch clause 4.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons)

I welcome the fact that my hon. Friend Mr. Laws has tabled amendments Nos. 35 and 41, as they allow us, even at this late stage, to say no to the Government proposal.

The Government have not made the case for imposing such a burden on the industry, but they have tabled amendments to improve a bad situation. My hon. Friend reminded the Economic Secretary of his wish to address the concerns of smaller producers and small businesses that produce specialist spirits in small production runs. The Government have not yet shown how they plan to address concerns about the burden on that sector, and there is a limited chance that it will be involved in duty fraud or importing and substitution fraud. Those businesses produce spirits that may, or may not, be aimed at the export market, so they will not know at the time of production whether they want to put labels on the bottles. There will therefore be added problems in the production process.

I hope that in their discussions with the industry the Government will propose ways of tackling the concerns of one or two-person businesses with small production runs of specialist spirits. Fraud is not a major concern for them, and they do not show up in the statistics on the problem. If the House supports the amendments tabled by my hon. Friend it can show that the Government have not yet made the case for their proposals.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

It was useful to have an update from the Economic Secretary on the discussions he has been holding with the Scotch Whisky Association and the wider industry about the Government's proposals. We welcome the Government amendments moved today, which are certainly an improvement on the proposals that the Government put to us when we debated the issue in April. However, two facts remain that make us inclined still to press our amendment to a Division.

First, there is still no guarantee that the Government will not go ahead with the same proposals that were put to us before and rejected by all the bodies that considered them, including the all-party Scottish Affairs Committee. There is no guarantee that those measures will not go through. Secondly and most decisively, I come back to the conclusion of the Scottish Affairs Committee, which stated in its report just a couple of months ago that, without accurate figures on the extent of fraud, it could be considered precipitate to the point of reckless to continue. We still have no reliable information on which to base an assessment of the balance of costs and benefits. For that reason we intend to press our amendment No. 35 to a Division.

Question put, That the amendment be made:—

The House divided: Ayes 147, Noes 252.

Division number 216

See full list of votes (From The Public Whip)

Question accordingly negatived.