Clause 2 - Rate of duty on beer

Finance Bill – in a Public Bill Committee at 10:15 am on 6th May 2004.

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

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

We have had an excellent and surprisingly thorough debate on the issue of tobacco. We now turn to the question of beer. The comments that I shall make about beer are equally applicable to clause 3 on wine, and I do not intend to deter the Committee further. Deter? I mean ''detain''. It is obviously still early in the morning, and talking about beer at 10.15 am—or 10.16 am according to the House of Lords Annunciator—is questionable.

We note the rises that the Government propose in the clause; I have received no significant representations against those decisions. However, I have three brief questions. First, will the Minister confirm that following the freeze on beer duty in 2001–02, revenue received by the Government rose and the industry benefited from a rise in sales? Secondly, what estimates has the Treasury made of the total impact on Government revenue? As with cigarettes, there has been a change in consumer behaviour: there has been a switch from licensed trade sales to off-licences as the total tax burden has risen. The figure for the latter rose from roughly 23 per cent. of sales to 39 per cent. between 1993 and 2003—that is a big shift in the way that people buy beer. Given that off-licence VAT revenues are

approximately half those of pubs, what studies, if any, has the Minister commissioned on the total impact on revenues of a further rise in the duty charge? Finally, will he tell us how the approach fits into the Government's overall strategy on alcohol?

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

I hope that I can answer the hon. Gentleman's points during my brief remarks on the clause. Clause 2 increases the rate of excise duty charged on beer by 3.01 per cent. in line with general inflation. As the hon. Gentleman said, that has generally been accepted, and I, like him, have received no fierce representations against the rise. Excise duties on alcohol provide a crucial £7 billion a year for investment in public services and other Government spending. Beer accounts for more than 40 per cent. of alcohol duty receipts. The inflation-only increase, which together with VAT is equivalent to about a penny a pint, is necessary to maintain an important source of revenue. Since coming to office in 1997, the Government have made no real-terms increases in beer duty. This modest increase, which is a freeze in real terms, comes after freezes in beer duty in three of the previous five Budgets.

As with tobacco, it has been said that our levels of excise duty on alcohol are too high in comparison with those of continental European neighbours and that the inflation-only increases will somehow strengthen the motivation to buy beer and wine on the continent. Our commitment to the right of individual citizens to shop freely across borders in the EU for consumption for their own personal use is absolute. It is important not to view excise duty in isolation. A large proportion of cross-border shopping by the British is done in Belgium, the Netherlands and France, and it is true that those countries generally have lower rates of excise duty on alcohol. However, figures from the Organisation for Economic Co-operation and Development show that the UK is a relatively lightly taxed economy with one of the lowest total tax burdens in the EU, certainly far lower than the average.

The hon. Gentleman asked specifically about the level of revenue receipts following previous Budget decisions. If he cannot find the references in the Red Book—I cannot do so immediately—I will write to him with them. He points to a significant shift in the way in which people buy their beer, from on-trade to off-trade. I have discussed that with members of the all-party beer group in Parliament and the British Beer and Pub Association. It is a matter of concern to the pub and drinks industry and of interest to the Treasury. We are doing what we can to track and analyse the matter, and the industry has undertaken some useful analysis.

The matter does not lend itself easily to fiscal decisions that might follow because it is not easy to see how it might be possible to distinguish between on-trade and off-trade sales in determining fiscal policy. My conclusion is that there is a significant shift in consumption patterns which we need to understand, but we have limited scope in fiscal policy terms to influence that or to respond directly.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I understand that the Minister may not be able to pursue policy further, but I am not clear whether the Government have assessed the overall problem. Clearly, if one set of taxes is raised, there will be a knock-on effect on other taxes, and I assume—the Minister may contradict this—that the Government have looked at the total revenue. If a change made to one fiscal measure has a detrimental effect elsewhere, the Government could end up in deficit in tax terms. What studies have been commissioned?

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

As I said, we have discussed the matter with the industry in recent months and we have looked at the industry's analysis of shifting consumption patterns. I would not describe it as a problem, as the hon. Gentleman does, but it is clearly an emerging feature. We are studying, analysing and assessing it as it becomes clear.

I am aware that there is, in part, a shift that is contributing to the pressures on the beer and pub industry, which plays an important part in the economy, our heritage and, for those of us who like a pint or two, our leisure time. This is a modest, inflation-only increase, which recognises the industry's concerns but maintains an important stream of revenue that is necessary to maintain our commitment to improving public services. I hope that the Committee will support the measure.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.