Clause 187 - Repeal of drawback on British compounds and spirits of wine

Finance Bill – in a Public Bill Committee at 6:30 pm on 19 June 2012.

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

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I am sorry to trouble members of the Committee with this matter because I know that they are keen to prepare themselves for the debate on financial services market abuse later this evening. However,  this clause deals with a concerning change in the regulations, and I wish to bring people’s attention to the explanatory notes which state that

“it is doubtful whether section 22 is fully compliant with EU directive 2008/118, which concerns the general arrangements for excise duty.”

I am surprised that the hon. Member for Bassetlaw did not point that out.

I am concerned, first, that we are introducing a piece of legislation primarily because of the European Union, which is something of which we should always be suspicious, particularly in taxation, which is reserved to this country. Although this measure concerns tax not being paid or being rebated at a particular stage in the process, it is still fundamentally a taxation issue.

Secondly, the clause might discriminate against smaller businesses. If a producer of alcohol stores their alcohol on site, they do not have to pay duty until it moves from their premises. For a small operator who warehouses alcohol, should the repeal be implemented, duty will become payable at the point at which the alcohol is moved to the warehouse. That will have unfortunate cash-flow implications for small businesses at a time when they are particularly hard pressed. I am deeply concerned that we are slightly rushing through what appears to be a tidying-up exercise, by getting rid of a minor section of a 1979 Act, pretty much the last Act passed by the Callaghan Government before it collapsed. It is a minor section of an old Act that could have an effect on businesses in this country. When it is very difficult to get bank credit, as we discussed earlier, requiring the payment of duty before the goods are finally shipped on to the end retailer could be very damaging for businesses. I hope the Government will think again or explain why the clause does not have the effects that concern me.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I certainly shall endeavour to answer those points. I think I can offer my hon. Friend sufficient reassurance. Clause 187 makes changes to repeal section 22 of the Alcoholic Liquor Duties Act 1979, or ALDA—as has been made clear to the Committee, with thanks to the hon. Member for Easington—with effect from Royal Assent.

ALDA section 22 provides for the drawback—in other words, repayment—of excise duty on spirits manufactured by licensed rectifiers and compounders that are exported from a producer’s premises or placed in a warehouse for approved purposes. For example, that would be for use as stores onboard ship or for any permitted operation in a warehouse.

The section is being repealed because it is redundant. Rectifiers and compounders no longer regularly claim drawback. That is due to changes in business practices, including an increase in the use of duty suspended spirits, removing the need for duty repayment. I can reassure my hon. Friend that this measure will not pose problems to industry. HMRC consulted all licensed rectifiers and compounders, as well as the Gin and Vodka Association—we never knew it existed—and the Wine and Spirits Trade Association, on its proposals in October 2010, and no objections were raised. I hope that my mention of October 2010 reassures hon. Members that the measure is not being rushed through. Time has been given to its consideration.

Producers and exporters wishing to claim drawback on direct exports of rectified and compounded spirits may do so using the existing provisions of the Excise Goods Drawback Regulations 1995, which I will abbreviate to EGDR. It is the case, again to reassure my hon. Friend, that there is an alternative means by which the end, from the Minister’s point of view, can be achieved.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I accept that for export it is not a problem. It is merely a problem for people who warehouse off-site and move to a third-party warehouse, which will then impose an extra cash-flow cost.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I thank my hon. Friend. Let me make a little more progress and I suspect I will be able to deal with his concern. I will define and clarify for the Committee what is meant by rectifiers and compounders, and turn from there to those who might warehouse products.

HMRC conducted a review of the regime for rectifiers and compounders. A rectifier is someone who is licensed by HMRC to re-distil spirits, for example, in the manufacture of UK-produced neutral spirit. A compounder is someone who is licensed by HMRC to combine or mix plain spirits with any other substance, so as to alter distinctly the character or flavour of the original spirits, for example in the manufacture of UK-produced gin.

HMRC’s review established that ALDA section 22 was no longer being used by businesses, so was ripe for repeal. I regret I cannot say whether those businesses split their responses according to warehousing duties and activities, and other activities, but I would be happy to speak to my hon. Friend after the Committee has risen and provide a little more information, if I do not manage to answer his points.

Changes made by the clause will remove ALDA section 22 from the statute book. Rectifiers and compounders will be unaffected by the repeal, because they no longer use ALDA section 22. They have told us that, and we in HMRC feel that we can go ahead. They will not have to change their procedures as a result of the measure. The consultation I referred to was, I think, broad enough, although since it took place in October 2010, I was not the Minister involved. I am very happy to go back and see what I can find further to reassure my hon. Friend. Those who wish to claim drawback will be able to use the EGDR, as I set out. That follows the procedure set out in HMRC Notice 207 in relation to excise duty and drawback. That change has been accepted by industry and will have no effect, as I said, on the practices of rectifiers and compounders.

HMRC will, however, carry out a review of the associated secondary legislation, the Spirits Rectifying, Compounding and Drawback Regulations 1988—fascinating as I am sure they are—in the next 12 months. Those regulations set out specific requirements placed on rectifiers and compounders. The review will identify any changes necessary to the regulations, particularly as a result of the repeal of ALDA section 22.

In conclusion, if I have been able to reassure my hon. Friend sufficiently, this measure supports the Government’s objective of simplifying the tax system by removing  redundant legislation from the statute book. I am hopeful that the full consultation undertaken by HMRC means that this piece of legislation was no longer used by businesses. No objections were raised to its repeal.

Question put and agreed to.

Clause 187 accordingly ordered to stand part of the Bill.

Clause 188 ordered to stand part of the Bill.