(Except clauses 4, 7, 10, 19, 35 and 72) - Clause 15

Finance (No. 3) Bill – in a Public Bill Committee on 17th May 2011.

Alert me about debates like this

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

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 10:30 am, 17th May 2011

It is a pleasure to see you in the Chair this morning, Mr Hood.

Under clause 14, we had a lengthy debate on using taxation on alcohol to modify behaviour as well as to raise revenue, and on having a differential rate for low-strength beer. Clause 15 is about a new high-strength beer duty, and schedule 1 details that the duty for beers exceeding 7.5% of volume will be £4.64 on top of the general beer duty. It will be introduced on 1 October 2011 along with the lower-strength duty, and will amount to an additional 25p on a 500 ml can of beer at 9% ABV.

The clause confirms that Her Majesty’s Revenue and Customs will be responsible for the collection and management of the duty. I am interested to know how much additional administration will be required to monitor not just that but the differential rate on low-strength beer, and to what extent it could add to the workload of HMRC staff, especially when MPs are receiving reports of long backlogs at HMRC, and the Public and Commercial Services Union is raising serious concerns about the impact of 14,000 job losses there. Will additional resources be available, if necessary, to ensure that the appropriate duty is paid?

A reduced duty rate for low-strength beers has generally been welcomed by the industry, although there are doubts about its impact given the current market share of such beers, but the higher rate has, predictably, met with more opposition. As we discussed last week, there are doubts about whether such measures alone will achieve the Government’s stated objective of tackling problem drinking without penalising responsible drinkers who occasionally enjoy higher-strength beer. We have already covered many of the arguments on each side of the debate, but the OECD makes the important point that the rise in alcohol consumption in the UK has gone against the general downward trend internationally, despite often higher duty rates. Similarly, the evidence, which I referred to last Thursday, that problem drinkers tend more towards spirits, remains relevant, because it questions whether the duty will have the effect that the Government desire. The market share of high-strength beer is small: according to the British Beer and Pub  Association, high-strength beer sales account for less than 0.5% of total alcohol sales, and less than 1% of beer sales.

I would appreciate clarification from the Minister on the projected impact on sales of beer that is above 7.5% by volume. Do the Government intend to decrease the consumption of higher-strength beers by introducing the higher rate of duty, and if so, will the measure raise revenue well? How much revenue does the Minister expect to raise for the Treasury, and to what extent is the measure intended to balance the reduced rate for the lower-strength beers? On Thursday, the Minister talked about balancing off the increased revenue from the higher-strength rate against the reduced revenue from the lower-strength one. What calculations have been done? Will the result of the two measures be revenue neutral? Have the Government factored in that consumption might be reduced at the higher-strength level?

What representations has the Minister received from manufacturers of higher-strength beer about whether the new duty will have an impact on the market and, if so, about whether that is seen as good or bad? As was mentioned last week by people who are far more expert in this matter than I am, it is not simply that people want to drink higher-strength beers to get drunk quicker; the issue is about taste, in that real ale manufacturers are connoisseurs of such beers, and there are niche markets for such products. Does the Minister think it would be a shame or a good thing if such markets were affected negatively by the measure?

On changing attitudes and drinking behaviour, there are different categories of people who drink to excess and, generally speaking, spirits are the predominant drink of choice for 18 to 25-year-olds. High-strength beer accounts for only 0.4% of the alcohol market, and spirits represent more than 20%, almost a third of which is vodka. It is also worth remembering the conclusion of the Government’s alcohol review, which stated:

“The evidence about the effect of price on young drinkers was very mixed, with some groups suggesting that price would not be an effective deterrent to drinking for this group.”

That suggests that we should be very cautious in thinking that any of the alcohol duty measures in the Bill, and particularly clause 15, will significantly address the trends for binge drinking among young people.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

It is a pleasure to serve under your chairmanship, Mr Hood.

On the collaboration between the Treasury and the Department of Health about tackling the issue of youngsters and binge drinking, I am not convinced that the best way to do so is to have an additional duty on high-strength alcohols. From a health perspective, or the perspective of trying to stop youngsters drinking to excess, additional taxation on alcopops would be much more adventurous by the Treasury.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend is right in that several complex issues have to be addressed. The market in alcopops is not as significant now as it was about 10 years ago, when they were introduced. The evidence is that young people are turning more to straight spirits such as vodka, but they are still a significant factor. There has been a growth in such areas as the new cider drinks that are attractive to young people.

Homelessness groups have raised with me their concerns about the availability of cheap, high-strength alcohol, particularly super-strength lagers. A higher duty may well have a role in tackling that issue, but I am not convinced. I hope that the Minister will elaborate on whether an increased duty on some drinks will provide a solution. What impact does she imagine it will have on homeless people who have become addicted to super-strength lagers?

There is some doubt about the extent to which the duty increase will be passed on, particularly to off-trade sales as compared with on-trade sales. The Government’s efforts to address the problem of supermarkets and off-licences selling alcohol at what some people have described as “pocket-money prices”, by banning sales at prices below VAT and duty, have been met with a great deal of scepticism. Professor Ian Gilmore, speaking for the Alcohol Health Alliance UK, said that it

“will have no impact whatsoever on the vast majority of cheap drinks sold” and

“will have no effect at all on the health of this nation”.

Does the Minister think that increasing the duty on high-strength beers would make a ban on below-cost sales more effective in influencing not only purchasing choices, but health?

The duty will affect not only super-strength lagers, but premium high-strength beers that are already relatively expensive, but tend to be consumed responsibly, as I have said. The question, therefore, is whether the clause is the best way to tackle super-strength lagers being consumed to excess, without penalising the premium beer market. The executive chairman of Fuller’s Brewery has described it as

“a sledgehammer to crack a nut”,

and he has said that it will

“do a lot of damage to the specialist beer category”.

I would appreciate clarification from the Minister of the projected impact of the new duty on super-strength off-trade sales and premium or specialist beers. In the course of introducing the duty, has the Treasury attempted to look at the two separate markets—they are very much two separate markets—or have they been lumped together? Do the Government intend to work with specialist domestic brewers to monitor the impact of the change?

Some people have argued that there are damaging inconsistencies in the Government’s approach, because imported wines with an ABV of 13% will be liable to significantly less tax than UK-produced vintage ales of above 7.5%. Does the Minister agree that that represents an inconsistency, and do the Government believe that it will have a detrimental effect on the premium beer market?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I will respond to the hon. Lady’s points when I wrap up, but will she tell me whether her party believes that spirits, including vodka, and wine should be taxed more because it sees them as problem drinks? I am listening to her comments, but I wonder what she is proposing instead.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I do not think wine is particularly seen as a problem drink. The issue is more with high-strength lagers, and perhaps high-strength ciders and  spirits. Most people who consume wine do so fairly responsibly, although that is an issue for our health team, which is looking at it from the public health point of view. That is a difficulty, and the Treasury team should not come up with solutions without working closely with the health team. We are obviously looking at the matter in terms of the overall picture of whether alcohol duties are just revenue-raising measures, in which case they would take us down one path, or whether they can control behaviour. We are looking at all the issues in the round.

Photo of Paul Blomfield Paul Blomfield Labour, Sheffield Central

Is not the critical issue the fact that the Government seem not to have considered all aspects of the matter in the way described by my hon. Friend, but have concentrated on high-strength beers? They seem to have treated the issue randomly, whereas a wider range of issues is involved, particularly in relation to young people and their consumption of spirits. That seems to have been ignored.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

It is not very constructive in a debate such as this if every time someone raises a point and suggests that there is an issue to be looked at concerning higher taxes on one form of alcohol consumption rather than another, it is immediately interpreted as everyone calling for higher taxes on that. That is a knee-jerk reaction, and it is only right, as my hon. Friend the Member for Sheffield Central said, that we look at those issues in the round.

My concluding point was going to be that it seems slightly strange that beer is being looked at in the Budget with a differential duty on low-strength and high-strength beer. I would appreciate an explanation from the Minister of why the beer market is being looked at particularly. Is it because it has been identified as a particular problem area, or is it nothing to do with binge drinking and excess alcohol consumption?

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

Does my hon. Friend the shadow Minister agree that the meaning of “problem” in the context of the Bill needs further explanation? As we have discussed, some different drinking behaviours are not good for health reasons, but there are also problems with antisocial behaviour. The two are not necessarily the same, but the Bill does not clearly identify what “problem drinking” is or the problem that the Government are trying to target with this rise. Clarification might be useful.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank my hon. Friend for that intervention. The matter is obviously Treasury-led, and goes back to whether it is about revenue raising, and whether it will be revenue neutral when the lower rate on lower-strength beers is introduced and offset against the higher rate of duty on high-strength beers, or whether it is intended to have an impact on behaviour. I would be interested to know what other measures the Minister has considered, and what representations she has received about higher duties on other forms of alcohol, and why they were not included in the Budget. There may be a good reason for rejecting them. I have had meetings, as I am sure has she, with people from all the various  industry groups: cider makers, wine producers, the Scotch Whisky Association, spirits manufacturers and the British Beer and Pub Association. There are valid points to be made for keeping duty at a lower rate to support those industries, and particularly pubs in this country, as many are closing down or struggling to make a living. What is the background to the introduction of these measures and not others?

Photo of Ian Mearns Ian Mearns Labour, Gateshead 10:45 am, 17th May 2011

On the proposals, the British Beer and Pub Association was critical of the decision to introduce a higher rate on beer only. Alcohol Concern welcomed them, but thought they would have a small impact on alcohol-related health problems. I must admit that I am struggling to see where the thrust of the Government policy is. Can we tease that out from the Minister later?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is entirely right. On the one hand, the industry producing premium beers is concerned that the measures would have a negative impact on it. On the other hand, people concerned about binge drinking and the consumption of high-strength beers say that they will not have an impact on behaviour, so why is the high-strength beer market being singled out?

I have come to the end of my comments on clause 15 and schedule 1, but I would be keen to hear from the Minister exactly what the rationale is for introducing the measures.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

It is a pleasure, Mr Hood, to serve under your chairmanship for the first time on this Committee. Clause 15 and schedule 1 introduce a new duty on beers over 7.5% ABV in strength. I will answer some of the questions asked by the Committee. They are important.

Broadly, this Government’s approach has been to consider whether we can take a more targeted approach than in the past to tackling aspects of problem drinking. Committee members will be aware that during the last two years of the last Government, duties were raised across the board. That might have been the last Government’s approach to tackling drink: raising duties on everything by 26% in just over two years. On top of that rise in alcohol duty, introduced during the comparatively short period of just over two years, we are debating further duty rises planned by the last Government, including the escalator that they introduced to raise beer duty and duties across alcohol above inflation over the course of this Parliament.

With those figures as part of our public finances, it is extremely difficult for this Government to deviate from the proposals introduced by the last Government; nevertheless, we wanted to see whether we could take a more targeted approach to tackling problem drinking.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I will just make a bit more progress. As many Members have said, the impact on pubs in recent years has been substantial. We want to ensure that we strike a better balance by not penalising the overwhelming majority of drinkers, who are ultimately  responsible and drink without any problem in many of the pubs that we know and love, while—as part of a broader package of measures, and working with the Home Office and the Department of Health—seeing whether the Treasury, using fiscal instruments, can also support those measures.

As we heard during a previous sitting, the Department of Health is considering the responsibility agenda, a piece of work done with stakeholders from the industry and health groups, to see how we can encourage more responsible drinking. I know that hon. Members will be aware that the Home Office has also introduced measures to ban below-cost sales in the off-trade that will be driven by duty-plus-VAT. That is a direct link to our Treasury approach.

The Treasury wanted to see what we could do to play our part in tackling the broader agenda of problem drinking. Together with clause 14, which introduced a reduced rate of duty for lower-strength beers, this new duty will encourage producers to make, and individuals to consume, lower-strength beers. Ultimately, it will help to reduce the harms associated with alcohol consumption.

The impact on homelessness was raised. Speaking of the proposals, Jeremy Swain, the chief executive of the homelessness charity Thames Reach, said:

“This will lead to improvements in the health of some of the most disadvantaged and socially excluded in society, including the homeless.”

We have tried to strike a balance between making sure that the industry and the niche beers made by so many brewers, including small brewers, are left untouched, while setting the rate at a level that gives us a chance to target some of the super-strength lagers that people have talked about.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister just said that the premium beers—the high-strength beers—would be left untouched, but they will not be, given the introduction of the higher rate for the high-strength beers. There is a difference between the high-strength lagers and the premium beer market. I appreciate that it would be quite difficult to distinguish between them in terms of imposing different duties, but the Minister is wrong to say that the premium beer market is being left untouched, because it will obviously be affected by the higher rate.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

It will in fact be minimally affected. We were very clear in making sure that we set the rate at the right level; nevertheless, it must be at a level where the problem of super-strength lagers is tackled. We cannot have it all ways: we cannot say on the one hand that the Treasury should set a rate that does not touch much of the market and make much of a difference, but on the other hand that we should ensure that none of the niche beer market is tackled. We have made sure that we have struck a sensible balance.

Photo of Karen Bradley Karen Bradley Conservative, Staffordshire Moorlands

It is a pleasure to serve under your chairmanship, Mr Hood. On that point, can the Minister give some comfort to my constituent, Mr Geoff Turner, who runs the Den Engel Belgian beer bar in Leek? He has contacted me to say that higher-strength and premium beer is drunk very responsibly in his bar, and he would like reassurance that the Government are not attacking that market.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

We are not. The point is that the measure is designed to make sure that the overwhelming majority of people, who drink responsibly, do not face the enormous beer duty rises that they faced under the previous Government. The intervention from my hon. Friend points to the impact that tax clearly has on business, and we are introducing a whole range of things to support business across the board, including the corporation tax reductions we debated last week.

On getting the starting level for the high-strength duty right, I should point out that we looked at the issues in the round. Over last summer, we held an informal consultation and workshops that were attended by industry, health and homelessness groups. In fact, about 70 bodies made written submissions providing evidence to the Treasury.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

Can the Minister therefore confirm that the problem drinking that the measure is designed to deal with relates to homelessness? If that is the case, does she have plans to extend the thinking behind it to deal with other areas of problem drinking that we might identify, such as under-age drinking or heavy binge drinking of wine by middle-class people on a Saturday evening?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

We had this debate last week. There are different segments of problem drinkers. In having a thoughtful plan genuinely to tackle each segment, we will have a different weight of policy measures at the Home Office and the Treasury, or around health and possibly education, depending on which category of problem drinkers we are talking about. However, there is no doubt that the homelessness charities that were involved with this measure, such as Thames Reach, felt that it would help them to get some of the people they work with off the streets.

We would be wrong to say that the measure will tackle all problem drinking—I do not think any measure can. As members of the Committee have said, we will always have a package of measures that are thoughtful. We want to make sure that we reflect the views of the workshops that were held last summer. A common theme, especially among people who were concerned about health and homelessness, was the consumption of high-strength beers. Such beers, often as strong as 9% or 10% ABV, represent cheap sources of alcohol. They are often not consumed responsibly and contribute to long-term health problems. In fact, a single can contains 4.5 units, which is more than the chief medical officer’s recommended daily level of alcohol consumption.

I made a statement to the House on 30 November last year outlining the Government’s intention to address our justifiable concerns. From 1 October 2011, the new duty will be applied at a rate of 25% of standard beer duty, which will add 25p to the price of a can of 9% ABV super-strength lager. That is a 16% increase based upon current prices. Some members of the Committee implied that that is an attack, as it were, on beer. I do not think it is. It is a measured approached to tackling problem drinking. We have already taken action in relation to cider. The hon. Member for Bristol East talked about super-strength lagers and ciders, and she will be aware that we have already made changes to the definition of cider, so that cheap, strong ciders similarly pay more tax. This measure very much aligns with that.

Photo of Bridget Phillipson Bridget Phillipson Labour, Houghton and Sunderland South

I appreciate the difficult nature of taxation when it comes to alcohol and the effect on behaviour. The Minister commented earlier on roofless men who consume high-strength beers. Perhaps it is particularly men who fall into that category. Has any assessment been made of women’s drinking and whether it is different? When we talk about problem drinking in the case of women, for example, are we talking about wine? My previous professional experience inclines me to think that problems sometimes begin with wine, which can often be bought cheaply—two bottles for £5. The issue is not always apparent, but it can cause serious long-term health problems.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

This is a helpful discussion about the breadth of the challenge in tackling problem drinking in our country. The whole point of the Department of Health’s carrying out its responsibility to deal with the industry and health groups is to look at a broader sweep of policies and approaches that we could take with the industry to try to tackle such problems.

The changes will not unfairly impact on responsible drinkers. The vast majority of beers are between 3.5% and 5% ABV in strength. This duty will impact on less than 1% of the beer market—so that will reassure the shadow Minister, who talked about niche beers—and more than three quarters of the beers affected are the so-called super-strength lagers. We can see that such a measure will have a disproportionate impact on tackling problem drinking, because the change in taxation will make it less attractive for producers to make such strong products. Some may choose to reduce the strength of their products or even choose to withdraw from this part of the market.

Increases in prices will also make the products less affordable for consumers. Health and homelessness groups continually argue that affordability is one of the key drivers of demand for alcohol, particularly for those drinking at harmful levels.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

The high-strength beers that we are talking about, and the high-strength ciders that the Minister referred to earlier, are often consumed by chronic alcoholics. The cost may have some impact, but it might not be that considerable. Has any research been done by the Treasury on that? My fear is that an individual who cannot afford to drink those drinks anymore will not be deterred from drinking at all, but might want to drink something a tad more dangerous than high-strength beers and cider.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 11:00 am, 17th May 2011

Clearly, price does impact on demand. One of the important features of the workshop was to reach out beyond the Treasury to ask charities, such as Thames Reach, that are involved with such people what they think would make a difference. Thames Reach is telling us that it thinks the proposed approach will make a difference. Its chief executive has said:

“This will lead to improvements in the health of some of the most disadvantaged and socially excluded in society, including the homeless.”

We can debate the matter in this room, but it is important that we talk to charities, such as Thames Reach, which work with such people daily, to see what they think. We have responded to their views and the  views of the industry. We have also taken care to ensure that we set the new high-strength beer duty rate at a sensible level that strikes a balance between tackling problem drinking and leaving the overwhelming majority of beers and responsible drinkers unaffected.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

It is a pleasure to serve under your chairmanship, Mr Hood. I accept that the intention of the measure is to improve health and tackle health problems. Will any monitoring be done to determine whether that is indeed the effect? If so, when will we have feedback and the evaluation from it?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

That is a fair question to raise. I made the point in the previous sitting that, in introducing a low-strength and high-strength beer duty, we are doing something that many countries are thinking about doing but have not yet done. It will be interesting to see the evidence base that builds up. From speaking to producers, it seemed clear that they might respond to these duty rates, which was one of the reasons why there was no point introducing the measure instantly; instead, we could bring it in in October and give producers the chance to start reformulating. Some of the super-strength lagers may be reformulated at a lower strength to avoid the beer duty. That will be of some benefit to efforts to reduce problem drinking.

I have taken a number of interventions, so perhaps I can now finish my comments. Taken as a whole and alongside the previous clause on low-strength beer duty, the clause will introduce measures that drive real changes in behaviour and will reduce the amount of alcohol consumed by individuals who are already drinking well over recommended amounts—at a level of harmful drinking where any additional consumption increases health risk. The new tax will have a direct impact on reducing health harms.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister seems to be emphasising that the measure is about having an impact on behaviour rather than raising revenue for the Treasury. Will the measure be revenue-neutral in terms of the lower and higher rate offsetting each other, or is it also seen as a revenue-raising provision?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Clauses 14 and 15 broadly even out as revenue-neutral. That is one of the points I wanted to make as I wrapped up. The new duty will raise a small amount of tax revenue for the Treasury. That will be used and is being used to fund the reduced rate of duty for lower-strength beers.

In conclusion, the clause introduces a new additional tax on high-strength beers. It is targeted at super-strength lagers that are consumed in a dangerous fashion and will help to address the harms associated with problem drinking.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Schedule 1 ordered to stand part of the Bill.