Clause 3 - Rates of duty on wine and made-wine

Finance Bill – in a Public Bill Committee at 10:00 am on 15th May 2003.

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Question proposed, That the clause stand part of the Bill.

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

We now turn to the rate of excise duty to be charged on wine and still-made wine. Clause 3 proposes an increase in the rate in line with general inflation of 2.8 per cent. Wine accounted for around 27 per cent. of total alcohol duty receipts, including VAT, of some £7.3 billion in 2002–03. As with beer duty in clause 2, it is an inflation-only increase in duty and VAT and equivalent to around 4p on a bottle of standard table wine. As with clause 2, it is necessary to maintain an important source of revenue to fund essential public services and Government spending. I should remind the Committee again that this modest increase—it is a freeze in real terms—comes after a period of actual freezes in wine duty in three of the previous four Budgets. Since coming to office in 1997, the Government, unlike the previous Conservative Government, have made no real-terms increases in wine duty.

The UK wine market continues to flourish, and sales of UK duty-paid wine are still increasing. They have increased by 56 per cent. during the past 10 years and remain buoyant with an increase of 8 per cent. during the year to December 2002. The wine share of the UK alcoholic drinks market increased from 21 per cent. in 1993–94 to 29 per cent. in 2001–02. We can look to the wine sector to help to maintain revenue without damaging its prosperity.

The arguments about smuggling and cross-border shopping are essentially the same as those made by the hon. Member for Eddisbury at the end of his remarks on clause 2. As I have made clear, the Government are committed to preserving people's rights to shop freely in the single market, but we are also absolutely committed to clamping down on smuggling. I am sensitive to the concerns of wine importers and native wine producers, but the modest increase—as I said, it is a real-terms freeze in wine duty—recognises those concerns while maintaining an important source of revenue to the Exchequer to help it maintain its public spending commitments.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

In relation to clause 3 and the increase in the excise duty charges on still wine and still made-wine, much the same arguments apply as were made on the previous clause. Recognising the precious time of the Committee, I wish to pick up on only a few of the Economic Secretary's remarks on the previous clause that apply equally to this one, rather than going through the same arguments.

The Economic Secretary helpfully said that the Treasury is compiling studies and analysis and completing a model on elasticity. He noted that it would take account of factors such as industry, market and revenues. I hope that it will also consider consumption, given the effects on elasticity of smuggling and cross-border shopping. From an industrial point of view, there are the questions of capacity and growth of the market, and of the effect

on consumption overall, but for certain products important health issues cannot be overlooked. All those factors go hand in hand, and our objective as policy makers or scrutineers must be to do our best to represent all our constituents and their interests. We sometimes have to consider competing factors to ensure that the best possible framework for a proper balance can be struck through the laws and secondary legislation that we consider and pass or do not pass.

I am glad that the hon. Member for Yeovil supports the call for publication of the model—that is right. I noted the Economic Secretary's response that the intention is to publish it, and we look forward to that. He used the expression ''shortly''. We would like the same sort of guidance that we were able to obtain some time back on whether the Chancellor's pronouncements on his five economic tests for the euro would be in the first half of this Parliament. We are now almost at that point.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Order. No, I will not have that. Can we please attend to the matter before us relating to excise duty on wine?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

As I am sure you noticed, Sir Nicholas, my comments were by way of example and parallel. Therefore, as the parallel and precedent have been noted, I am sure that the Economic Secretary will want to define what he means by ''shortly''. I hope that it is no later than the summer recess.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

That was not the reassurance for which I was looking. Having put the question on the record, our expectation will be that the model will be published before the summer recess. Anything beyond that would stretch the meaning of the word shortly, however often it is repeated. On the basis of such assurances, we will not press the issue further.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

I hasten to say that I have not been put up to this, and I have not even consulted my colleagues on the Front Bench so they will be worried about what I am about to say. I want to make a plea from the heart, and on a serious point. Over a number of years, I have done my level best to produce English wine. It is not a declarable interest because no one in their right mind would ever buy it from me. No money is involved, but it has given me an insight into the English wine industry. Its small-scale production means that its overheads and its ability to compete in the marketplace are seriously undermined.

I appreciate the difficulty of discriminating between one sort of alcoholic grape juice and another; I am well aware of that. However, if the Government, or any other Government, were looking for a means of import substitution to help the balance of payments, any way that could be found to assist and encourage the production of English wine would make a great deal of difference.

Photo of Ian Lucas Ian Lucas Labour, Wrexham

Does the wine to which the hon. Gentleman refers include Welsh wine?

Photo of David Wilshire David Wilshire Conservative, Spelthorne

I am proud to be an Englishman. The Welsh can make their own case. I doubt that the Scots would want to—it is a bit too chilly up there. I am aware of Welsh wine. It is, of course, nothing like as

good as English wine, but I will make a plea for that as well, if it will help. The point is a serious one. Anything that any Government can do to encourage small-scale production, through any financial relief or benefit, would be valuable for eccentrics such as myself in England, and it would be quite useful in a very small way for the British economy.

Photo of Michael Jack Michael Jack Conservative, Fylde

The Minister might say a word or two about the current structure of the rates of duty per hectolitre, because I thought the tax was on alcohol. Why is it that the rate for wine or made-wine up to a strength of 15 per cent. is £158.69 but the addition of a dash of carbon dioxide, whether added naturally or by the process of fermentation, raises the duty rate to £220.54? It seems quite an expensive tax for a whiff of carbon dioxide, unless it is an anti-greenhouse gas measure, but I do not understand why there is such a large differential if we are taxing alcohol.

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

We have made rapid progress. I welcome the information that the hon. Member for Spelthorne is a small wine producer in his own right. We have considered the suggestion that has been put to us of some sort of reduced rates for small wineries, similar to the scheme that we introduced for small breweries nine months ago.

The European directive does not allow for us to set reduced rates for small wineries. In considering whether the UK should press for such an alteration in EU law, it is important to appreciate that despite the hon. Gentleman's best efforts, less than 1 per cent. of the wine consumed in the UK is produced in the UK. By comparison, 90 per cent. of the beer drunk in the UK is produced and manufactured here. Even were we able to amend EU law to consider such a measure, it would remain the case, under other European and world trade agreements, that we could not apply such a scheme to UK wine producers only. It is likely that much of the wine that might qualify under such a scheme would come from overseas. Our own small wineries would receive comparatively little benefit from such a move.

The right hon. Member for Fylde asked why there was an increase on still wine in line with inflation, but a freeze on sparkling wine.

Photo of Michael Jack Michael Jack Conservative, Fylde

The question was not about the differential rate of increase, but the different rates of duty. If we are taxing alcohol, what is the explanation for having such a big difference between still and sparkling wine, when carbon dioxide is the only difference?

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

For duty purposes, we treat sparkling wine such as champagne as more comparable to other alcoholic drinks than to still wine. There is, therefore, a different duty band, and the rates in the Bill to which the right hon. Gentleman points are different.

I believe that I have given all the reassurances that I can to the hon. Member for Eddisbury. He has raised again points that he has raised in previous debates. I have explained that ''shortly'' means shortly.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.