I beg to move,
“That this House
has considered Alcohol Duty and tax on alcohol.”
I am grateful to Ian Mearns and the Backbench Business Committee for selecting this important topic for consideration, and to all Members across the House who supported the case that it should be considered. This debate is hugely important to a large number of businesses across the country—the hospitality sector in general, brewers, vineyards, distillers and retailers, employing hundreds of thousands of people. A disproportionate amount of them will be small businesses with younger employees, so getting this policy right really matters.
I start by paying tribute to the Government for recognising this Brexit opportunity. Taxation and alcohol duty has been needlessly complicated for too long, yet the UK was tied to EU restrictions preventing change. The Government set out their intentions to review the structures in March 2020, followed by a consultation on their proposals in October last year. The Government’s stated aims are to make the system simpler, more economically rational and less distortive, and to reduce the administrative burden. It is fair to say that these positive intentions are included in the thrust of the proposals. The consultation is welcome because it creates the opportunity for hon. and right hon. Members, and the industry, to respond and to further develop the plans. My comments are aimed at encouraging the Minister to refine the proposals further now that the industry, consumers and officials have considered how they would work in practice.
On beer duty, there has rightly been a warm welcome for the lower duty on draught beer. There has also been a recognition that the proposed 5% reduction should also apply to kegs and casks of 20 litres rather than the 40 litres set out. There has been a strong indication from the Treasury that this may happen, and I ask the Minister to confirm her intentions. I would also press for a greater reduction than 5% a pint in order to further support the industry, and pubs in particular. New research published this week highlighted that England and Wales have 7,000 fewer pubs than just 10 years ago. We all recognise the important role pubs play in our community and society at large, and also in providing a watching influence on people who enjoy having a drink rather than their being encouraged by the cost incentive to drink at home.
The plan to widen the reduced rate from 2.8% to 3.4% ABV is also a positive move, but a minor adjustment to 3.5% would resonate much better, and enable the industry to innovate further. To help to protect smaller brewers from the larger operators who may simply adjust their recipes to take advantage, it is important that the relief that they currently receive under the small brewers relief fully applies at this level. It would also make this element competitive with EU directives, and provide further support to small businesses within the industry.
I commend the right hon. Member on bringing forward this debate on an important issue. The past few years have impacted greatly on local pubs, bars and restaurants—they are the ones who have suffered. At the same time, Tesco and Asda, to take just two examples, can sell exorbitant amounts of alcohol with low tax while others are left suffering. Does he feel that with the Government’s proposed steps, which he will speak about later—lowering alcohol taxation and encouraging people to support local—pubs can pick up the business they once had and have lost? Does he agree that that is a positive way forward?
The hon. Member makes an extremely important point. As I said, some people are encouraged to drink more at home by the discounted prices offered by the large retailers. I would add that in Scotland and Wales—I am not so familiar with the position in Northern Ireland—the retailers receive the extra differential with minimum alcohol pricing, in comparison with what is available in England. That gives some room for the Treasury to react positively to support the pubs and brewers, as he and I seek to underline.
The small brewers relief has been proven to deliver major benefits. It enables small brewers to compete with larger operators and to innovate and generate new options for consumers. It will be replaced by the small producers relief to offer similar or common benefits to the wider sector and to prevent the current cliff edge. Again, the Government’s objectives are positive, but I am concerned that the proposed changes introduce significant complexity to the process. Moving from 5,000 hectolitres at a 50% discount, to a maximum of 2,500 hectolitres at a 50% discount, tapering up to a 100,000 hectolitre maximum at up to 8.5% ABV, along with a cash limit and an average ABV measure, is much more complex than it needs to be. It is hard enough to say, let alone follow the process. It also makes it much more unpredictable for the businesses we are seeking to encourage to innovate, to invest and to create wealth at the smaller end of the scale.
I congratulate my right hon. Friend on securing this debate on an important issue, and he is making a powerful speech. I was particularly interested in his point about broadening the duty from brewers across to the wider sector. In particular, the cider sector is important in the west country. Thatchers Cider, based in my constituency, is complaining, both on its behalf and that of many other small producers, about the massive increase in complexity that this collective set of changes has introduced. It may be easier to understand at a high level, but Martin Thatcher has written to me saying that for individual firms the
“huge increase in red tape and bureaucracy brought in as a result of these proposals will result in a need for increased staff to manage monthly excise duty returns”, and he goes on to talk about the increased costs of that burden. I hope my right hon. Friend will address that and persuade the Minister to respond.
I am grateful to my hon. Friend for his point. The significant advantage that the cider industry receives—the differential in taxation status— is testament to the campaigning that my hon. and right hon. Friends have done for the industry. Some have called for that to be addressed, but that is not proposed in the Government’s plans, and I am not suggesting that should change. He makes an extremely important point about the complexity. Even when there are potential advantages for some sectors over others, the complexity detracts from that. The simpler the process, the better that would be.
I hope that the Minister agrees that the current proposal is too complex, and a simplified approach would work much better. The principles or broad approach of this incentive are important. Why is there no similar support for UK vineyards as well, all of which in the UK are small operators? These businesses invest for many years before receiving a return on that investment. The quality of wine competes on par with traditional winemaking countries and wins.
Llanerch Vineyard and Glyndwr Vineyard in my constituency are excellent examples. They invest heavily, have long lead times, are excellent employers and are great visitor attractions. In reality, they are small operators, and extending either the principle of the small producers relief to include vineyards or simply increasing the current arrangement—albeit simplified from the 8.5% ABV limit—would make a major difference and provide significant advantage to wines made in England and Wales. Support for such vineyards in the UK would not pose risks or undermine the Treasury’s ambitions and can be met within the World Trade Organisation rules.
This issue has been specifically raised with me by Bolney Wine Estate, on which the duty particularly impacts, along with other nearby producers, such as Ridgeview, which is on the edge of my pitch in the constituency of my hon. Friend Maria Caulfield, and Kingscote in East Grinstead. There is a collective ask across the English and Welsh wine industry, and I hope that the Minister, my right hon. and learned Friend Lucy Frazer will be able to help these businesses to grow. They are small producers and tourist attractions, but above all they are businesses.
I thank the right hon. Gentleman for giving way. As a member of the Campaign for Real Ale, I welcome his comments about the brewing industry. If we get the reduction to 22%, it will be welcome. On wine, he rightly references British vineyards, which are a great success story. Is he concerned about our trading relationships with many of our strongest allies, particularly when the Government are undertaking a trade deal with Australia? Australian winemakers are seeking to diversify from their market in China and are concerned about the new complexities being introduced. Does he think that the Government ought to engage with the Governments of Australia and other similar countries where our trade and security relationships are important?
The right hon. Gentleman makes an extremely important point. That is important for businesses, as he recognises, and because of the international influence that such policies have. His wider experience, geographically and on security issues, is recognised on both sides of the House.
I warmly welcome the proposed abolition of the additional tax on sparkling wine, which is particularly helpful to producers in England and Wales. Some 70% of wines from the UK are sparkling and the current EU system works against them, particularly as smaller operators, so that is another Brexit dividend.
The wider proposals for duty changes on wine also have positive intentions, but in practical terms, as they stand, they will leave more complexity in the system. The three current rates per bottle will be replaced by a total of 27 separate amounts per bottle, assuming that it applies to the labelled ABV. We must recognise that winemakers cannot dictate the specific level of ABV. It depends on seasonal factors, and the structure of taxation should take that into account.
The administrative burden will fall particularly hard on UK retailers, particularly specialist merchants that tend to carry small supplies of a wider range of products. For example, a small retailer could have a range of 2,000 to 3,000 different products. The variation between different vintages means that they would become swamped in red tape—a policy that runs against the positive intentions of the Minister and the Treasury. There would also be a need to take into account permitted tolerances.
The good news is that minor adjustments could achieve the Government’s objectives and simplify the structure for the industry. All wines fall within a spread of 8.5% to 15% ABV. Establishing such a spread and applying a common rate would simplify the process and give the Treasury the clarity it needs. For example, the industry believes that a rate of 12%—a 4% increase on current rate—would be a win for the Treasury and for it because of the reduced red tape. That demonstrates the earlier point about the cost of red tape.
It might sound logical to compromise—for example, to have just two splits instead of the high number of splits in the range of 8.5% to 15% ABV—but that would not work either. The complexity would remain and it would leave similar tolerance challenges. Taxing at one rate would help the Treasury to achieve its objective of providing clarity, as well as significantly supporting the industry.
I entirely agree with my right hon. Friend, particularly on this point. A company in my constituency, Direct Wines, has stressed the dangers to its business if the changes go ahead. Does he agree that they should be delayed until we have had more chance to talk to people about how they will affect their business?
My hon. Friend makes an important point about the complexity of the system, particularly in relation to wines and the variation of ABV, which depends on circumstances. I am torn about delaying, because if we can get this right—the industry needs only minor changes—let us do it as quickly as possible. Clearly, however, we would not want the proposals for wine to be introduced as they stand, so if they have to remain, it would be better for them to be delayed. It is a challenge, and perhaps the Minister can indicate how long she expects it to take to see the changes.
These issues are technical and complex, but they are hugely important to industries that employ and entertain millions of people across the UK. Previous Chancellors have often made a name for themselves by working closely with the drinks industry on such technical issues and have delivered a huge boost to employment, investment and society at large. It has also gone down very well with the popular press when they got it right because of the popularity of the alcohol sector, and rightly so. This is an opportunity to do the same. The intentions are right and the structure is logical, but changes along the lines I have highlighted would ensure that this important industry can continue to develop, grow and deliver for all our constituents.
I am incredibly pleased to be able to speak in this debate. I would like to speak about beer, cider and fortified wine—sometimes known in parts of Westminster as a work event.
The former Chancellor’s relief scheme for draught beer and cider excludes far too many of the small brewers and cider producers that need the most help. The ill-thought-out proposal to impose the 40 litre minimum container size to qualify for help has obviously been dreamt up by someone who has absolutely no knowledge at all about how pubs up and down our country operate. Almost all craft and small batch beers are kegged into a 30 litre container, which is 6.6 gallons for anyone who still wants to reintroduce imperial measurements. A small 4.5 gallon cask for real ale—a pin—holds just 20 litres, and many ciders are delivered to pubs to dispense in 20 litre bag-in-box containers.
Some 34% of licensees stock products in containers smaller than 40 litres to improve beer quality and choice for customers, while 46% of venues said that some products are only available to them in containers of less than 40 litres and one in 10 venues can only stock containers of less than 40 litres as they do not have the cellar space to sell the larger ones. I hope that the Treasury can finally own up to the fact that it plucked this figure out of the air, and instead give small brewers, cider makers and our struggling hospitality industry the break they need. Will the Minister confirm today that the industry will get the much-needed assurance that the threshold will be lowered to 20 litres after all?
I also want to talk about fortified wines because the forthcoming changes to the duty regime will have a significant and arguably disproportionate effect on port producers in particular. In my constituency, I have one of the UK’s leading distributors, Fells—a major employer in my constituency and in Hertfordshire more broadly—which is braced to see a dramatic decline in its sales should this go ahead. Aside from the dramatic price increase that will follow the changes, there are very real and legitimate concerns about the implementation costs and the increased red tape. The system changes, administrative burden and ongoing compliance with such a system will have further negative effects. The Government’s objectives for the alcohol duty reform consultation were welcome. They want to simplify the regime and reduce red tape, but the proposals simply do not do that. For wine, the proposed model cannot be described as simpler. Introducing taxation by degree will be complicated, costly and impractical. Unlike other categories of alcoholic drink, there is a far greater permitted tolerance for the alcohol content of wine made from fresh grapes, meaning that without testing every wine at the point excise duty becomes payable, it is not possible to determine alcoholic strength accurately.
Introducing such a system will disproportionately hit wine-dominant or wine-exclusive small and medium-sized enterprises, importers and retailers, which are an important element of the customer base for my constituency business, Fells. It is requesting that the Government conduct a full and thorough cost-benefit analysis of the impact on the wine sector and that this analysis should be undertaken as a matter of urgency before any such system is introduced. I would be grateful for assurances from the Minister that they would indeed consider running such an analysis.
Additionally, under the current proposals the suggested model penalises warmer climates. There are limited tools available to vineyard managers to keep ABV down to an acceptable degree, and production rules forbid winemakers from removing more than 2% of ABV. I understand that the Minister has met the Wine and Spirit Trade Association; it is also seeking further meetings because it is looking for an assurance that the Government will instead consider a more workable way of taxing wine by applying a flat rate based on 12% ABV for all wine and 18% ABV for all fortified wine.
The Government’s proposals would have a particularly negative impact on the fortified wine business. The total UK market for fortified wine is £311 million. Port accounts for £82 million of that, and Fells in my constituency is the leading UK importer and distributor. The Government proposals would add £1.09 duty to a bottle of port, resulting in an 11 % increase on the average price per bottle. Fells estimates that in such a highly price-sensitive market this increase could lead to an 11% decline in sales, or approximately 1 million bottles per annum. Fortified wines such as port and sherry are generally not consumed irresponsibly; they are bought and consumed at festive occasions, to mark exams and graduations, weddings and anniversaries, and at Christmas—they are an occasional treat. But we are in a cost of living emergency when treats are often the first things to go, and therefore this regime could have a huge impact on this market. So I ask the Government to think again, to consult more and not rush this through, and to do that cost-benefit analysis.
Overall, the alcohol duty reforms proposed by the Government just tinker around the edges in dealing with the pressures facing hospitality. We have a broken business rate system that penalises pubs, restaurants and high street shops. We have spiralling energy costs which remain uncapped for small businesses. We have food inflation and labour shortages. I ask the Government to seriously consider bringing forward a proper plan to protect British brewers, distillers, winemakers and their distributors.
I congratulate my right hon. Friend Alun Cairns on securing this important debate.
It is a pleasure to speak in this debate on the taxation of alcohol and the Government review, and I should first declare that I am the chair of the all-party group on wine of Great Britain. I am also fortunate to have some fantastic producers in my Meon Valley constituency, who will have an interest in these policies, including brewers of beer, cider makers and, most importantly, vineyards. I have kept in close touch with them throughout the process of the consultations and review, and the points I make here are heavily influenced by their comments to me over many months.
In Britain we are increasingly a maker and exporter of wine. Our tastes as consumers, technological advances, and—we must face it—climate change have driven change and growth in the industry. I very much welcome the removal of the supertax on English sparkling wine. We have some brilliant vineyards around the UK. Hambledon Vineyard in my constituency is at the forefront with its award-winning wines. This will help it develop the market at home alongside its continuing success in the export market.
Vineyards face high start-up costs, and in the case of sparkling winemakers up to a decade of careful work before they have a wine they can market. I was pleased that the vineyards of Sussex recently achieved protected designation of origin status and hope that their counterparts in Hampshire and other counties will be able to achieve a similar designation. I will do whatever I can to help them get that recognition of their excellence.
In view of the challenges that winemakers and merchants face, we must look again at the proposals on wine duty. I appreciate the desire to simplify what has become a complex regime that dates from a time when we neither consumed as wide a variety of wines nor had so many made in Britain. However, the current proposals would increase the price of around 70% of wines, which would affect many small and medium-sized enterprises in the wine trade. It would also create a regime of 27 different bands, as we have heard, and the burden that that would impose on independent wine importers and merchants is a mountain of red tape, which we are generally trying to reduce.
The Wine and Spirit Trade Association has put a range of proposals on wine and spirits to the Treasury, including bringing small producers of wine and spirits into the small producers scheme that is available to brewers and cider makers. I favour a solution with duty based on 12% as the midpoint of the 8.5% to 15% range, which would cover three quarters of all wine. Fortified wines have a midpoint of 18%, which would provide a logical basis for another band. That would also tie in with the global market, which regulates all wines between 8% and 15% as just one product.
Turning to brewers, I ask the Treasury to look again at the Make it 20 campaign, led by the Society of Independent Brewers. The introduction of the draught duty rate has been welcomed across the industry and by CAMRA. Supporting smaller brewers has been a long-term aim of the Government but, in order to get the best out of the draught duty rate, we need to reduce the container size to which it applies to 20 litres. The 20-litre and 30-litre containers are the mainstay of supply for small brewers and, with the limit at 40 litres, there is a good chance that many would miss out.
When we look at the health of the pub sector, consumers want to see smaller brewers represented. YouGov recently surveyed pub drinkers and found that more than three quarters of respondents cited that as an important factor.
I will turn to cider, mentioned by my hon. Friend John Penrose, which is the area of business that has benefited most from Government support in recent years. I urge the Government to act at that same level for our winemakers and brewers. Cider is a great British success story. Having talked to cider makers such as Meon Valley Cider, I look forward to them going from strength to strength.
Pubs faced a tough time during the pandemic. I argued strongly for restrictions on them to be lifted as quickly as possible and I wanted them to be able to continue off-sales while they were closed for on-sales. The sector initially recovered strongly during the pandemic, thanks to the Chancellor’s eat out to help out scheme. However, even with the good weather that we are having this summer, it is clear that pubs and restaurants are still operating below pre-pandemic levels—a figure of minus 20% is often mentioned—and that leaves a potential black hole in their margins, which are tight at the best of times, with some fairly rapacious major businesses in the supply chain. Macro brewers and pubcos have not been good friends to the pub trade, and that is why it is vital that we support our smaller producers. The Treasury has generally been constructive throughout the process, and I am confident that my colleagues will continue to ensure that we get the right policies in place to help our small brewers, cider makers and, in particular, vineyards.
It is a real pleasure to speak in the debate. I congratulate my right hon. Friend Alun Cairns on securing it at such a vital time for so much in the sector. It is a particular pleasure to speak as chair of the all-party parliamentary beer group, which is the largest APPG in Parliament.
A lot of public focus is given to the very real harm that can be caused by alcohol and overconsumption, but not enough attention is given to the real contributions that British beer and our community pubs make to almost every element of life. On balance, they genuinely are forces for good. They are a force for good economically, with beer and pubs nationally contributing about £23 billion to GDP and, as I am sure the new Chancellor will become very aware, about £13 billion to the Exchequer. They are present in every single one of our constituencies in every part of the country. We have about 1,800 brewers —possibly more—across the UK, including about 150 in the west midlands. My own constituency is home to at least five breweries.
They make huge contributions to our local economies. They are a force for good for employment, with beer and pubs employing around 900,000 people, with an almost identical gender balance. Around half the people employed across the sectors are aged under 25 and there is a fantastic variety of career progression across the industry. They are good for tourism. British pubs are named consistently as one of the top three things that visitors to the UK want to do here. They are good for exports. They are the third-highest food and drink export sector, worth about £550 million for the UK economy. Before the pandemic, the sector was growing more quickly than almost any other export sector. They are good for our society and culture. At a time when loneliness and isolation are often the biggest challenges facing some of the most vulnerable people in our communities, in many areas the community pub really is the last of the services in towns and villages.
I thank my hon. Friend for raising the long-term and managerial career opportunities in the sector, and for raising the charitable good will and fundraising that happens in many of our pubs. I recently went to a “Brave the Shave” in the Burrell Arms in Haywards Heath, which raised masses of money for Macmillan Cancer. That sort of thing goes on up and down the land, bringing people together and bringing good causes and good will together—as well as a good time.
My hon. Friend is absolutely right. PubAid estimates that pubs up and down the country contribute more than £100 million every year to charitable activities and community causes, and a further £40 million for grassroots sports in our constituencies, so they really are forces for good in our communities.
As my hon. Friends have said, our pubs, brewers and many other parts of the sector have long been over-taxed. UK pubs and brewers are taxed around 20 times more than US tech companies, as compared by their turnover. They are taxed around five times more than UK gambling. The UK has one of the highest levels of beer duty in Europe—behind, I think, only Finland and Ireland—which is 10 times that of Germany. Taken together, our pubs and brewers contributed over £10 billion in tax last year, even in reduced market conditions—£1 in every £3 spent in a UK pub goes straight to the Treasury. I am sure the Minister is very grateful for that, but I am also sure that Members recognise the disadvantage and burden that places on responsible places for people to drink responsibly and in moderation, compared with the opportunities that supermarkets in particular and other off-trade retailers have to sell their products far more cheaply, with far fewer employment costs and far fewer responsibilities to regulate who they are selling to.
Does the hon. Gentleman agree that it is an absolute travesty that about 10,000 pubs and restaurants could be lost if there are not more fundamental reforms to the tax system that affects UK hospitality? Many say that the pressures they face now are even worse than those they faced during the pandemic. Does he agree that we need to go much further than just having the alcohol duty reforms?
There has been a long-term trend away from drinking in pubs and on-trade, and towards supermarket sales making up a greater share of the market. Some of that will be due to natural changes in consumer preferences and people’s lifestyles, but we should not allow the tax system to aggravate such trends, which have real social and economic consequences. Where we can tweak the tax system to make sure that our pubs, brewers and other producers get a fairer deal and where we can reduce some of the disincentives to people consuming drinks in well-regulated public houses, we should do so.
I welcome the alcohol duty review, which is a massive step forward. The level of duty, which is much higher than in most comparable countries, is compounded not only by VAT, but by extremely high business rates. I hope that we can look at how our system of local business taxation can be further modified. The Treasury has clearly been piloting attempts to charge digital and online companies. That is an important starting point, but we need to make sure that our taxes on clicks are comparable with our taxes on bricks, to help sectors that have to operate in the real world. Nobody has yet established a viable virtual pub. A few people tried during the pandemic, but I do not think that any of those experiences quite worked out. It is noticeable that in April and May last year, most people were quick to get back to the real thing rather than using the online equivalent.
On the duty review, the proposed reforms are hugely welcome, particularly the banding that recognises the progression through alcohol strengths, so that higher-strength drinks have, if not quite exponentially more, progressively higher levels of duty compared with low-strength drinks. The changes to the low-alcohol band for beer for 2.8% to 3.4% will make a big difference to the availability of good-quality, lower-alcohol beer. Brewers find it relatively simple to change recipes to bring a 3.6% or 3.7% real ale down to 3.4%. It is much easier than getting a recipe down to under a 2.8% threshold without changing the character of such drinks, although I agree with my right hon. Friend the Member for Vale of Glamorgan that 3.5% would clearly be preferable, if we are looking at those details.
Similarly, the proposals for small brewers relief are hugely preferable both to the system that we have and to the Treasury’s initial proposals, which would have caused a lot of difficulties for relatively small breweries. I accept that the changes will take a while to get our heads around—that is probably putting it lightly—but the current system has a distorting effect, with sharp edges that act as a very strong disincentive for growth and that impose an unnatural plateau at about 5,000 hectolitres. That means that unless businesses are confident that they will grow significantly beyond 5,000 hectolitres, they have very little incentive to invest in the extra staff and the extra capital to do so. The system that has been proposed is far better. It is very noticeable that what for a long time was probably the most contentious issue in the beer sector has now brought people together: although there are some details that each person might like to change, the overwhelming majority in the sector now feel that they can live with it.
I suggest that the Treasury look at whether it might be possible to extend some form of small producers relief beyond beer and cider, to include small wine producers. That would have particular benefits for English wine producers, and of course for Welsh wine producers; I must say to the SNP Front Bencher, Richard Thomson, that I do not know the scale on which Scottish wine producers are operating at the moment, but I imagine that they mostly fall within the smaller category.
The differential draught beer duty rate that the then Chancellor, my right hon. Friend
The difference will depend on the scale of the differential. The 5p differential is a good start in establishing the principle, but getting a new system up and running is likely to mean that almost all of it will be retained by pubs and breweries. That will typically mean an additional investment of about £2,000 being available to pubs, but if we want our consumers and beer drinkers to benefit from the draught beer duty rate, the differential will need to be widened. Only once it gets to 10p or 15p will we start to see a real difference in what customers pay for a pint at the bar, which will also make a difference by encouraging people to drink on regulated premises instead of buying from the off-trade.
We would like to see the differential not only increased but introduced at the first available opportunity. I know that the Treasury was looking at introducing something in probably the spring of next year, but given the difficulties that we all know the hospitality sector has had over the past two years or so, if a suitable fiscal event or financial instrument could be found that would allow the measure to come into force before this year’s Christmas season, that would make a massive difference. It would help the pubs that Daisy Cooper referred to, which may be struggling, on the edge of going under or just about managing to stay afloat through the winter. Bringing the differential in early would make a big difference.
There has clearly been a very lively debate about container size; 20 litres is very obviously the correct answer. Having had discussions with the last Chancellor and the last Economic Secretary, my hon. Friend John Glen, I think they recognised that 20 litres was where we needed to end up. I very much hope that incoming Ministers will reach the same conclusion. I think that the last Chancellor broadly accepted the argument that 40 litres was probably not the right container size for the threshold: he was pictured with the Prime Minister holding 30-litre containers to launch the policy. The 20-litre level will make a big difference to the range and types of beer that can be made available, particularly for our smaller brewers. However, I also think we should look at the provisions on distribution mechanisms, and ensure that containers do not necessarily have to be connectable to either a gravity-pulled or an electrically pulled draught system. When it comes to the pins of the kind typically seen at beer festivals in all our constituencies, where there is just a tap in the side of a barrel, I think that applying the discount to a container of over 20 litres makes a good deal of sense. Brewers I have talked to estimate that less than 0.1% of their beer is sold through those taps. We are not risking a massive distortion in the market from people buying huge numbers of these containers for parties at lower rates of duty, and applying this to all containers of over 20 litres would constitute a minimal cost to the Treasury.
The system introduced a few years ago in Australia does have a requirement involving connectors, partly because the Australian market is very different and partly because there is a much lower threshold—from memory, I think it is as low as 8 litres—but I think that a provision for 20 litres would capture virtually all the beer that almost all the small brewers that we are trying to support supply through our pubs and our licensed premises, and that they would benefit. I therefore hope that the Treasury will settle on that, as the obvious figure, in its final decision.
Once again, I thank my right hon. Friend the Member for Vale of Glamorgan for securing the debate. I also thank the Treasury for all the discussions that we have had over the past couple of years, particularly since the publication of the duty review. We look forward to the speedy introduction of these measures so that our brewers, our publicans and UK hospitality as a whole can benefit, succeed and thrive.
Let me first say what a pleasure it is to speak in the debate, and congratulate Alun Cairns on securing it. Let me also declare my membership of the Scotch whisky all-party parliamentary group, and say how pleased I am to see that, after a day of turmoil, the Minister is still in her place. I am going to have to get to grips with two other Ministers whom I shadow, so it is nice to see some continuity in at least one area of my responsibilities on the APPG.
Alcohol duty has been ripe for review for a considerable time, on the grounds of complexity and economic impacts, but also on the grounds of the social and health impacts that it may have in influencing behaviour. I think—indeed, I know—that this could have been done at any time. Contrasting levels of duty are applied across the European Union, and the UK was towards the higher end of that, but many other countries had considerably lower rates, so it is certainly not a Brexit benefit that the UK Government are now able to turn their attention to this matter.
The former Chancellor clearly had an agenda to simplify the duty regime. It is perhaps understandable that the current Chancellor has not had a chance to share his thoughts with us. Of course, he may not even be Chancellor past the autumn; it will depend on how the cards fall. In any event, I think that this is the right moment for us to have this debate and reopen some of these issues.
Ideally, to my mind, what any Government ought to be looking for is a regime that supports domestic innovation—product innovation and technological innovation, of which there is a great deal in the alcohol-producing sector—along with investment and production, while also keeping the social and health impacts of alcohol consumption in mind. On that measure, in terms of the review of the parameters that have been set out so far, I have always taken a dim view of the apparent bias against stronger alcohols such as whisky, vodka and gin, and I will go on to explain why.
As I have said, I am a member of the all-party parliamentary group on Scotch whisky, and in my constituency in the north-east of Scotland there are three significant distilleries. The Glendronach distillery is near the village of Forgue, and the Ardmore distillery is near the railway at Kennethmont. The third is Glen Garioch and, unusually for a Scottish distillery, it sits not in the middle of an iconic natural landscape but slap bang in the middle of the town of Oldmeldrum. If you drive through Oldmeldrum, you drive through the different buildings of the distillery, depending on the route you take, and it really is quite remarkable. If you are in the north-east of Scotland, I would encourage you to visit it. Give me a shout and I’ll come along with you—it would be great to be able to show off such a distillery.
As well as producing excellent products, those distilleries are right at the heart of our visitor economy. Together with the rest of the whisky sector, they make an enormous contribution to Treasury revenues and to the UK balance of payments. It is not just the whisky that is important; many distillery sites in Scotland also produce the spirits needed to make vodka or gin. In Aberdeenshire there is a burgeoning sector of craft gin manufacturers and those who produce the botanicals to go along with that. There is real innovation there, and while I would not wish to overstate this, it seems iniquitous that we are taxing that domestic product at such a high rate and as a consequence perhaps influencing consumer behaviour to prefer other forms of drink that are not produced domestically.
Those levels of duty are disproportionate, and that is harmful on a number of levels. For one thing—I know from my discussions with the industry how significant this is—it becomes very hard when trying to strike trade deals, which the Government are obviously trying their best to do at the moment, to encourage other jurisdictions to bring down the sometimes punitive rates of duty that they apply to these products. There is also the inhibition that that, as well as some tariffs, puts on the bourbon sector. People might think that bourbon is a competitor product, but in many ways it is a complementary product due to the nature of the ownership of the distilling industry. Quite often the multinational companies trying to sell bourbon in these markets are also investing heavily in new production and new practices in the Scotch whisky industry, so it is all interlinked. The high level of taxation that we put on that product on the shelf is not very helpful.
Finally, let me say something about minimum unit pricing. This policy was introduced in Scotland, and I think it is fair to say that it was quite controversial at the time. It was attacked for a number of reasons, some good and some not so good. We have now experienced the policy in action for some time, and I can happily report that there have not been the predicted traffic jams at the border on the A1 at Berwick or on the M74 at Carlisle due to people doing booze runs. That did not happen. The most valid criticism of that policy approach was not so much about the increase in price as about the fact that the benefit of the increase did not go to the Government to invest in health measures but instead rested with the retailer. That was a fair criticism. I think it is fair to say that if any Scottish Government had had control over the range of duties applied to various drinks, they might have had a minimum price in mind, but they would have used duty as a mechanism rather than imposing that on the retailers.
I thank the hon. Member for that intervention. It has indeed been introduced in Wales, and the evidence is that it has been a very positive thing in both jurisdictions.
We also need to look at promotions. Minimum pricing and other associated policies ended the practice of supermarkets using cheap, below-cost-price alcohol as a loss leader to draw people through the doors. Today’s evaluation of minimum unit pricing in Scotland—I am sure there will be similar evaluations in Wales—shows that, in the 12 months following its introduction before the pandemic, there was a 2% reduction in off-trade alcohol sales and, more significantly, a 10% decline in alcohol-specific deaths in 2019. With more alcohol being drunk at home and with the changes in behaviour we saw throughout the pandemic, it is still reasonable to conclude that minimum unit pricing is contributing to a lower level of harm and adverse health, crime and social outcomes than might otherwise be the case.
All of this has been part of an initial suite of measures to try to change the relationship we sadly have with alcohol in Scotland. We can have an incredibly positive relationship with alcohol, but we cannot be blind to the impacts it can have. I am pleased that the Scottish Government are reviewing the effectiveness of the current system of alcohol brief interventions where people have exhibited problem behaviours, and are reviewing how the product is marketed and presented to consumers, as part of delivering those improved public health outcomes. I believe a review of where we are on duties is a ripe opportunity to do that, and I would be failing in my duty as an SNP spokesperson if I did not say that this would all be better if it were devolved.
On a point of order, Mr Deputy Speaker. I should have drawn the House’s attention to my entry in the Register of Members’ Financial Interests relating to the hospitality I have received from, appropriately, the hospitality sector. Can you advise on how I may put that on the record?
Thank you for giving me notice of your point of order. You have just done that, and I thank you for correcting the record at the earliest opportunity.
I congratulate Alun Cairns on securing this Backbench Business debate. He covered all the points very well.
Despite the strange situation in which we find ourselves, I welcome this opportunity to debate the principles behind the taxation of alcohol and the details of the Government’s alcohol duty review. I am glad the Government have managed to find a Minister to respond to this debate, and I welcome her to her place. We will see whether the review survives the change of Government.
Over recent months, I have engaged with representatives across the alcohol sector on these significant changes. The alcohol duty review represents the biggest change to alcohol duty in decades, so it is welcome that the House has had the opportunity to consider the changes in advance of legislation, for which I thank the right hon. Member for Vale of Glamorgan.
I also thank all the other hon. Members who have contributed. Many of them spoke on behalf of alcohol producers and retailers in their constituency. It is clear that our great many breweries, cider makers, distilleries, wine shops and other alcohol-related businesses play an important role in supporting local jobs and economies, and we all know the importance of pubs to our local communities. It is good that hon. Members have been able to champion these businesses today.
Before addressing the specific issues, I will set out the principles that Labour believes should guide the changes. We agree that the alcohol duty system should be simplified and should be more consistent. For this reason, we welcome the principles behind the alcohol duty review, but we believe careful consideration should be given to individual changes. We recognise that there is a balance to be struck between supporting businesses and consumers, protecting public health and maintaining an important source of revenue for the Exchequer. Importantly, the Treasury must make sure there are no unintended consequences as it seeks to make these changes—we have heard about some of those unintended consequences in this debate. We also believe that special attention should be given to ensuring that small domestic producers are able to compete with global players across the industry.
I will now turn to some of the specific proposals for each category of product. The Government are proposing significant changes to wine duty. Currently, wine is taxed by volume, rather than by strength, and the Treasury states that there are a number of anomalies and distortions in the current system. The alcohol duty review therefore proposes that all wine products will be taxed in reference to their ABV. It also proposes abolishing the different rates for still and sparkling wine, which will benefit English sparkling wine producers. Some hon. Members have raised some of the issues of complexity in relation to wine duty, and I have also heard these concerns directly from the industry. The Wine and Spirit Trade Association says that the proposed system will replace one band with 27 bands, resulting in a significant increase in red tape for businesses throughout the supply chain. That is likely to cause particular problems for small and medium-sized enterprises, including SME importers and retailers. I hope the Minister is aware of these concerns, and I am sure all hon. Members would be interested to hear from her about any changes the Treasury is considering to mitigate the impact on the wine industry. We believe that the Government should set out a comprehensive assessment of the impact that these proposals will have on the regulatory burden faced by businesses in the wine sector and the steps the Government intend to take to mitigate them.
The Government’s overall proposals for beer duty are relatively minor, as the current system is already based on the ABV of the product. The reduced rate for products below 2.8% is being widened and will now include products of up to 3.5%. I note this has been welcomed by the Campaign for Real Ale, which says that it will incentivise the production of lower-strength beers. However, the Society of Independent Brewers has raised concerns that this change may allow large brewers to undercut small brewers, so will the Minister look into this? The alcohol duty review also announced the Government’s intention to introduce a new draught duty discount of 5% for draught products sold in large containers. Labour welcomes that proposal as an important way to support pubs as they recover from several very difficult years during the pandemic. However, there are concerns that the proposal to set 40 litres as the minimum container size risks excluding small brewers and small community pubs, which often use 20-litre or 30-litre containers. We believe the Government should set out how many small brewers would benefit at different minimum sizes of containers. Will the Minister address that in her wind-up?
The alcohol duty review states that cider duty is not a well-structured tax, as high-strength ciders currently pay proportionately less duty than those at lower ABV. The review also directly links that to high rates of problem drinking associated with very strong white ciders. However, the review continues to treat cider favourably, with a rate less than half that of beer. We do recognise cider making’s importance to many rural communities, but is the Minister concerned that the proposed changes will not go far enough in tackling the problem drinking associated with very strong ciders? Will she set out what assessment the Treasury has made of the public health impact of different rates of duty on high-alcohol cider, given it makes up a disproportionate amount of alcohol-related harm?
Spirit distillers, particularly the Scotch whisky industry, make a very important contribution to the UK economy and are an important export for the UK. I urge the Government to work with this industry to ensure it remains competitive. The Government are not making significant changes to the structure of spirits duty, but we welcome their reducing the duty on spirits below 22% to encourage the development of lower-strength spirit-based drinks.
Finally, I wish to say a few words about the proposal for a new small producers relief. Labour introduced a small brewers relief in 2002 and is proud of the effect that it has in supporting small brewers and creating the vibrant UK beer scene that we know exists. We therefore support proposals to extend the scheme to other producers, but believe that the Treasury should work closely with representatives of small brewers and cider makers to ensure that it continues to work effectively, because, as Members will know, the devil is always in the detail.
I have also had concerns from the wine and spirits industry that the proposed small producers relief will not apply to products above 8.5% ABV. The Government need to explain why they are excluding small distillers and small English and Welsh wine makers from this relief and what assessment they have made of the merits of including them.
To end my remarks, I look forward to hearing from the Minister on all the important points that I have raised. These are major changes that will affect businesses and consumers, and they deserve careful consideration. We will be scrutinising the forthcoming legislation closely, and I look forward to debating the issues again in the future.
It is a pleasure to respond to this debate and I congratulate my right hon. Friend Alun Cairns on securing it. It has been good to hear from hon. Members across the House and from the chairs and members of very important all-party groups on this subject.
It is very clear that my right hon. Friend is an ardent advocate for producers and traders in his constituency. Indeed, Wales has an historic association with alcohol production going back 4,000 years and today produces many ciders, beers and wine. My hon. Friend Mrs Drummond also talked about the producers in her constituency.
As many Members have mentioned today, we are making changes to outdated, arbitrary and inconsistent alcohol tax laws. These reforms will make the system fairer, simpler and more aligned to public health goals than the system that we inherited from the EU. As Abena Oppong-Asare said, these are significant reforms that we are making.
Before addressing the excellent points that have been raised today, I want to remind Members of the major changes that we are making to improve the duty system. Reform of our alcohol tax laws is long overdue. These laws have barely changed since the 1990s. That is largely because incoherent and prohibitive EU rules have, in the past, hindered much-needed change. In the current system, a high-strength white cider will pay less duty per unit than a low-strength beer. Sparkling wine—a product of which the UK has world- leading examples—pays much more duty than still wine, even when it is substantially less strong. Fortified wines are made with the addition of spirits, and yet they pay less duty than a liqueur made with spirits, even if they are the same strength. We have inherited 15 rates from the EU across five different products, and with three different methods of taxation.
The current system is complex and archaic. The Institute of Economic Affairs said that it “defies common sense”. Producers, importers and exporters in this country have called it “distorted”,
“perversely incentivised to produce stronger drinks” and welcomed “the opportunity for reform”. We agree. Now that we have left the EU, we have an opportunity to create alcohol laws that are more rational and that support the many and varied producers and traders in this country that we have heard about today.
I wish to take this opportunity to remind everyone of the significant benefits that have been introduced with our reforms: a radically simplified system, slashing the number of bands from 15 to six and taxing all products in proportion to their alcohol content; taxing all products in the same rational way, a policy banned by EU law; and ending the premium rates on sparkling wine and equalising them with still wine, and substantially reducing duty on rosé. We have introduced new rates for low-strength drinks below 3.5%, encouraging innovation and reflecting consumer preferences for the low or no-alcohol market, and we are cutting duty on 3.4% beer by 25p a pint. We have modernised the taxation of cider, targeting unhealthy and problematic white ciders while cutting the duty for lower ABV craft and sparkling ciders. We have introduced small producers’ relief to support the many small, artisan alcohol producers who continue to create world-leading products in this country. Those are benefits that would not have been available to us before we left the EU.
There are many laws in the EU, as the hon. Lady will know, that have dictated our laws for many years. Those are the regulations and directives that we are changing, not only in this area, but in many others.
Coming back to the system we are producing, we ran a consultation from after the autumn Budget until January this year and Treasury officials have met many stakeholders from across industries and public health groups. The hon. Lady said that we need to consult more, but I can assure her that Treasury Ministers, largely the former Exchequer Secretary to the Treasury, my hon. Friend Helen Whately, who was responsible for this area, have met colleagues from across the parties. We have spoken to and visited businesses, from the smallest to the largest, welcomed representations from many of the most important trade bodies and sat down with the Australian high commissioner, all to ensure that at the Treasury we have heard all points of view on the reforms. I can assure the hon. Lady and others that we are listening.
I will come on to the points that hon. Members have made. We have heard from industries, businesses and colleagues about their concerns, and we will continue to listen to the feedback. The comments made in this debate will form part of that listening. We are actively thinking about how we can reduce burdens on businesses while still preserving the many benefits of the system, not least the clear and obvious public health benefits of taxing products by their alcohol strength.
Many hon. Members have talked about issues with keg size, including my right hon. Friend the Member for Vale of Glamorgan, my hon. Friends the Members for Meon Valley and for Dudley South (Mike Wood), and Daisy Cooper. I want to assure them that, while I cannot make any announcements today, we are listening to that point. My right hon. Friend the Member for Vale of Glamorgan, my hon. Friend the Member for Dudley South and others talked about how small producers’ relief is too complicated. I reassure them that we are determined to get rid of the cliff edge to support the growth of small brewers.
Other hon. Members talked about the duty charges on wine. I have spoken to the former Exchequer Secretary, who told me how she has been engaging with the sector on this very issue. The hon. Member for St Albans mentioned that she had visited the Wine Society and heard its views, and I know the Treasury is looking at ways to reduce the administrative burdens.
The hon. Lady also talked about fortified wines; she will know that we are reforming the duty on fortified wines to ensure that those products pay a consistent rate of duty per unit with still and sparkling wines and high-strength beers. We are increasing the duty on fortified wines to equal the duty on spirit-based liqueurs such as Baileys, because both drinks are made using spirits and we think it is right in those circumstances that they pay the same rates.
My hon. Friends the Members for Weston-super-Mare (John Penrose) and for Meon Valley talked about cider, as did others, and I hear what they are saying. They will know that ciders will benefit from new reduced rates for lower ABV ciders below 3.5% ABV, and as part of our new draught relief we will cut duty rates on draught fruit ciders by 20% to equalise them with beer, cutting 13p off a pint. Nobody has mentioned this today, but I would like to reiterate that we announced in the 2021 autumn Budget that we were freezing cider duty for the fourth consecutive year.
Richard Thomson talked about Scotch and other spirits. I remind him that at the Budget the Government froze spirits duty, saving 52p off a bottle of Scotch compared with what it would have been if duty had risen with inflation. Because of the decisions that we have made, spirits duty rates are at their lowest level since at least 1918. It is a really important industry for us and we have an exceptionally competitive environment for Scotch to succeed. Domestic whisky volumes have expanded year on year, including throughout the pandemic, to reach their highest levels since 2013, growing by 11% over the past two years.
I am looking at a graphic that shows that when duty on a shot of whisky in the UK was 46p, duty on the same measure of whisky in Spain would have been the equivalent of only 12p. I wonder what Brexit benefit it might be that has resulted in that differential staying there even with whisky duties being frozen.
The hon. Member will know that the benefit of Brexit is that we can now make these decisions ourselves, reflecting our own industries and what we want to do as a Government going forward.
We have heard many positive responses to the changes we have made, welcoming the substantial benefits that they will bring to businesses. Respondents to the consultation said that they
“wholeheartedly welcome the direction of the proposals.”
Many hon. Members have mentioned positive features of the proposals, which have been called a “genuinely significant achievement”. Crucially to a country that puts its people first, a public health group described the reforms as
“the largest and most positive shift from the perspective of public health in contemporary alcohol policy.”
I thank all colleagues who have contributed to this important and insightful debate. We will soon confirm details of the reforms and publish the draft legislation for consultation, alongside the Government’s response. We have before us a once-in-a-generation opportunity to reform and improve an outdated system, with new incentives for producers to diversify and innovate, while introducing a direct boost for pubs. The reforms are more rational, they are fair, and they are better aligned to public health goals and consumer preferences. They support the great British pub and small producers producing fantastic, world-leading products. Our reforms spell exciting times for alcohol businesses in this country and will protect our brilliant heritage in alcohol production and trade.
It has been a privilege to hold this debate and I am grateful to all Members who have contributed. I think it is obvious that right across the House there is strong support for the need for change and for the direction of travel that the Government have introduced, but also a recognition of the need for further change.
Daisy Cooper highlighted the challenges to fortified wines, among other things. My hon. Friend Mrs Drummond talked about a range of issues, including the importance of the wine sector, particularly to her constituency, and the need to consider, as a key issue, one broad range of 8.5% to 15% ABV. The Minister said that 15 rates across five products would come down to just six rates. That is a positive step, but it does not recognise the 27 measures per bottle that would need to be on wine alone, the different rates that would apply, and the difficulty of predicting them.
My hon. Friend Mike Wood, who is clearly a champion of the beer industry, drew attention to the importance of the sector, as well as welcome nature of the changes and some adjustments that are needed in order to secure them. Richard Thomson rightly highlighted the importance of duty on Scotch whisky and the impact that that has. He also, I would suggest, recognises the Brexit opportunity given to the Scotch whisky industry.
The fact that Abena Oppong-Asare highlighted some of the same issues as many Conservative Members draws attention to the consensus that exists across the House for change in this area. That needs to be along the lines that the Government are pursuing, but also in a way that really supports the industry, supports the Treasury in raising the revenue it needs, reduces red tape, and allows for innovation to take place. I am grateful to all hon. and right hon. Members for their contributions.
Question put and agreed to.
That this House
has considered Alcohol Duty and tax on alcohol.