Clause 186 - Rates of alcoholic liquor duties

Finance Bill – in a Public Bill Committee at 6:00 pm on 19th June 2012.

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Photo of Grahame Morris Grahame Morris Labour, Easington 6:00 pm, 19th June 2012

I beg to move amendment 191, in clause 186, page 107, line 9, at end insert—

‘(3A) The Chancellor of the Exchequer shall review the wider economic impact of the duty increases imposed by subsection 3 on the beer and pub industry, and consumers, and shall lay a report of his review in the House of Commons Library.’.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

With this it will be convenient to discuss clause stand part.

Photo of Grahame Morris Grahame Morris Labour, Easington

I am grateful to have the opportunity to raise a subject that is dear to my heart. The clause increases the rate of excise duty charged on spirits, beers, wines and other alcoholic beverages. I am sure that hon. Members from both sides of the Committee, and Officers and Clerks, will be enjoying some alcoholic beverages in an activity that has become popular, which is known as chillaxing—I think the Prime Minister is fond of that phrase. Perhaps they will be doing so while watching the Euro 2012 football and, I hope, celebrating success for England this evening.

I declare an interest not only as someone who obviously loves beer—hon. Members can tell that from my shape—but as vice-chair of the all-party save the pub group. I am also a member of the working men’s club and institute union, the CIU, and of various working men’s clubs, including the Murton Victoria club; Easington colliery working men’s club; Peterlee Labour club, hon. Members will not be surprised to hear; and Deneside working men’s club in Seaham. [Interruption.] Hon. Members opposite are probably members of very exclusive London clubs, but the clubs that I have listed are very inclusive establishments.

The amendment tabled by my hon. Friend the Member for Livingston requires a review of the impact of the proposed duty increases. The clause’s effect is to substitute new rates of excise duty in the Alcoholic Liquor Duties Act 1979, ALDA, which is not to be confused with  Aldi, the discount supermarket. I certainly do not want to get into a debate about minimum price on alcohol, which is a separate issue, but it is relevant to a couple of points that I shall make shortly.

The previous excise duty rate on spirits of £25.52 was replaced by the new rate of £26.81 from March of this year, and the previous beer duty rate increased from £18.57 to £19.51. For the Committee’s information, perhaps the Minister can equate those figures to a price increase per pint or bottle of alcoholic spirits. Unless hon. Members are like the Olympic flame and never go out, it cannot have escaped their notice that the pub industry has been one of the hardest hit sectors during this economic downturn. Across the country, pubs are closing their doors for the last time, which has a considerable social and economic impact on villages, towns and cities. It looks like it is becoming irreversible.

Since the beer duty escalator was introduced in 2008, a range of new and demanding costs have also been applied across the industry. I have received a briefing from the British Beer and Pub Association and I have had discussions with it through the all-party group. It has pointed out to me that inflation has risen, VAT has increased, brewing costs have risen and incomes have fallen right across the sector. There has also been the impact of the fuel duty increases, which have impacted on delivery costs.

As we all know from our constituencies, pubs are a vital part of our social life and are a social boon. No matter what sort of areas we represent—whether it is Labour, Tory or Lib Dem, north or south, countryside or urban, wealthy or poor—our public houses are the hubs of those communities. Just as important, pubs and brewing are vital to the UK economy. It is a little known fact that more than 1 million jobs depend on this sector. Again, according to the British Beer and Pub Association, beer duty has increased by 42% since 2008, while household incomes have fallen, making a pint in the pub increasingly unaffordable for many.

I know from my constituency of Easington that pubs are struggling in these tighter economic times. I understand that 16 pubs a month are closing across the north-east. Clubs are struggling, too. Many places have closed, never to reopen. That all contributes to the changing habits of people across Britain, with more alcohol being consumed in the home. Some may judge that to be a good thing. I make no moral judgment about it, but this is a fact: the change in excise duty is having an impact on the whole sector, on unemployment and on Treasury revenue. More alcohol is being consumed in the home, with cut-price loss-leaders filling the shelves of our supermarkets.

Can the Minister confirm that over the course of this Parliament the Government are planning to increase beer tax by a further 27%? Treasury forecasts show that there will be no additional revenue generated from those tax increases over the next two years. Government Members have referred to the Laffer curve of diminishing returns, and it certainly applies here. I understand that Professor Laffer is giving a lecture in the building this week.

The time is right for a pro-active strategy—not just to help those pubs that are struggling now but to boost growth in the pub and brewing industry. The previous Government went as far as appointing a Minister with  responsibility for pubs, my right hon. Friend the Member for Wentworth and Dearne (John Healey), and I hope that this Government will go even further.

There is a real potential to create vital jobs and build on a great UK manufacturing success story. Our British beer is famous around the world, and our pub culture is envied by many countries. There is also the multiplier effect. One job in brewing supports one job in agriculture, one job in retail, one job in the beer supply chain and 18 jobs in pubs and clubs. Freezing beer duty in the 2013 Budget would save more than 5,000 jobs, mainly in pubs and clubs, and 16,000 over the next three years. That surely supports the Government’s growth agenda. In the Finance Bill 2012, the Government have committed to continuing the beer duty escalator, resulting in a 5% rise in beer duty in 2012-13. The turnover of the beer and pub sector is £28 billion, and the sector makes a massive contribution to the Treasury already. Sales in pubs have fallen sharply, so why, just at a time when demand is being driven down and sales are falling, are the Government once again clobbering pubs and brewers with higher and higher taxes? Last year alone, it resulted in the loss of over 5,000 jobs and hundreds of pub closures.

I am also concerned about the wider economic and social impact of beer tax, which needs to be taken into account when policy is developed. The amendment is not revolutionary; it is a request for a review of the wider economic impact of the escalator on the beer and pub sector before any decision is made to continue the policy in the 2013 Budget.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I remind Committee members that there are no time limits on speeches in this Committee.

Photo of Graeme Morrice Graeme Morrice Labour, Livingston

I shall just read the Whip’s note.

It is a pleasure to follow my good friend and colleague, my hon. Friend the Member for Easington. I, too, like a wee bevvie, as we say in Scotland.

The amendment was tabled as a result of increasing public concern regarding the impact of alcohol duty on the price of beer and the pub industry. The British Beer and Pub Association has highlighted the fact that beer duty has increased by 42% since the beer duty escalator was introduced in 2008. It is worth noting that, when the escalator was introduced, it was against a backdrop of rising household incomes and lower inflation and VAT. Since 2008, household incomes have been falling while inflation and VAT have both risen, leading to an increase in brewing costs. As a consequence, the humble pint of beer—a staple pleasure for millions, including, I am sure, many Committee members—is fast becoming an expensive luxury. The BBPA states that UK consumers now pay 40% of EU beer tax, while consuming only 13% of the beer. That figure is astonishing.

On the industry side, brewers pay half their brewing turnover in tax, which is crippling one of Britain’s great manufacturing industries and putting thousands of jobs at risk. The BBPA has also said that, based on current Government plans, that will increase by 27% during this Parliament, despite Treasury forecasts showing that no additional revenue will be generated over the next couple of years.

Changed circumstances mean that the impact of the beer duty escalator on consumers and the industry has been far greater than originally anticipated and a careful re-examination of the policy is required. Local community pubs, and consumers who enjoy visiting them, are paying the price.

Research conducted by the Campaign for Real Ale shows that 84% of people believe that a pub is as essential to community life as a shop or post office. I have always held the view that well-managed pubs play an invaluable role in local communities, especially in rural areas, where they are often one of the only venues available for people to gather socially. They can provide a safe, sociable environment in which people can enjoy a drink responsibly and socialise with people of different ages and backgrounds.

CAMRA states that the UK already has the second highest duty on beer in the EU and suggests that that is causing untold damage to local pubs. In just six years, there has been a 30% collapse in the volume of beer sold in pubs, as more than 7,000 pubs have closed for ever. Most Committee members will be aware of community pubs that have gone to the wall, costing jobs and leading to the loss of an important hub for community activity and socialising. CAMRA fears that this worrying trend will continue, putting many more traditional beers and pubs under threat, and is calling for an end to the beer duty escalator and a long-term freeze on beer duty. Some 58,000 people have already signed an e-petition calling for the escalator to be scrapped in next year’s Budget, making it almost certain that it will reach 100,000 signatures in the near future and allow campaigners to seek a parliamentary debate.

Given the importance of the beer and pub sector to the economy, with a £28 billion turnover and around a million jobs supported, it is vital that the wider economic and social impact of the beer duty escalator is fully considered when decisions are reached. This amendment would help to inform the debate, by ensuring a full review of the wider economic impact.

Photo of Ian Mearns Ian Mearns Labour, Gateshead 6:15 pm, 19th June 2012

I am pleased to update my hon. Friend. I attended the Backbench Business Committee earlier this afternoon and the number of people who have now signed the petition comes to 57,893, so it is going up rapidly. We ignore the social service that often occurs within public houses in our constituencies at our peril. I know many public houses in my constituency and the wider Tyneside area that provide cheap food at lunchtimes, particularly for pensioners and those receiving benefits. They provide that social service, which we ignore. If we undermine the capacity of pubs to carry on doing this, we will all see a social cost.

Photo of Graeme Morrice Graeme Morrice Labour, Livingston

I am grateful to my hon. Friend the Member for Gateshead for bringing me up to speed on the current figures for the petition. I agree with his comments. He helps me make my argument. The amendment would help to inform the debate on the subject by ensuring a full review of the wider economic impact of the escalator on the beer and pub industry in advance of further decisions in the 2013 Budget. It is a considered response to a damaging and deteriorating situation, which is not only putting at risk jobs and  investment in the beer and pub sector, but also making one of life’s simple pleasures—a pint in a local pub—increasingly unaffordable for many hard-working people.

Photo of Robert Syms Robert Syms Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

I will make a brief contribution. The hon. Member for Livingston makes a good point. The brewing industry employs a lot of people and is very important. It has a lot of regional roots and we should be extremely careful how we treat it, because—going back to our dear old friends, imports—we know that people import a lot of beer which does not attract the same rate of duty. I will make one point to cheer up hon. Members opposite. When you have inflation at over 5% because of the VAT rise, petrol prices and everything else, anything on top of that will mean quite high price rises. That is why the news today that inflation measured by the consumer prices index and retail prices index has fallen will tend to mean that 2013, 2014 and 2015 are likely to be less painful, and therefore less painful for the brewing industry.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I thank my hon. Friends and the hon. Gentleman for making those contributions. Hon. Friends have set out a powerful case exploring both the issues around the taxation regime and the social value provided by pubs and clubs in many areas and the contribution that they play to keeping community cohesion. I also know from my constituency and other parts of rural Scotland how difficult it is for some of those pubs that have been there for many years to continue to make enough to keep them going. In many instances, they are looking to diversify and they are looking to Government and local authorities and others to assist in allowing them to do so.

I do not want to repeat all the points raised by my hon. Friends. I will confine my contribution to asking the Minister some questions. I will resist the temptation to pick up the point raised by my hon. Friend about UK consumers footing 40% of the EU beer tax bill, yet consuming only 13% of the beer. I am not sure how much beer is going to be consumed later this evening. Hopefully, some of that revenue will accrue to the Exchequer and make the Minister happy, even if the overall result of the match does not turn out as people wish. [Hon. Members: “Oh!”] I can see that I am not making friends on either side here, which is not unusual for a Kilmarnock football club supporter.

On a serious note—[Interruption.] I am afraid that I did not have the benefit of hearing that aside, but perhaps it is better that I did not. Will the Minister respond to questions that have been raised by the industry, particularly in relation to encouraging the responsible consumption of low-strength alcohol? Does she have plans to examine how the beer duty escalator influences that? Will she look to the future, using the opportunity proposed by the amendments, and ensure that the matter is revisited, perhaps in light of next year’s Budget, even if she has not been able to do so this time around?

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I want to strengthen the point that my hon. Friend makes, in terms of people turning to beverages that have a higher alcohol content, which as we know, has a severe, detrimental effect on people’s health. We are seeing an increasing number of young people with liver disease and other illnesses that are caused by high-level alcohol consumption. We would surely be better focusing any tax increases on drinks  with a higher volume of alcohol, rather than on those with a lower volume. It seems absolutely topsy-turvy to be putting a huge increase on beer, rather than on the drinks that cause the most harm in society, not only in terms of health but in terms of anti-social behaviour.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Mr Bone, I suspect that you do not want me to go off on too much of a tangent and discuss some of the wider issues. We could stray into very difficult territory, in terms of moving to minimum pricing, what form that would take, and how to deal with anti-social behaviour, which the hon. Lady mentioned. She has made a very important point, however. If we are to try and ensure that related health issues are dealt with, we must encourage responsible drinking. Any way in which that can be done—for example, by considering low-strength beers—would be helpful, as I am sure the Minister would agree.

My specific questions relate to the ongoing debate about duty marks on beer. As the Minister is well aware, there are different views and opinions on that issue. The Federation of Wholesale Distributors has made submissions in favour of duty marks. It believes that there would be a number of benefits, because the marks would be a simple and easily identifiable way for HMRC to identify whether the duty on beer has been correctly paid, and it would provide reassurance to businesses and customers that they were selling or buying legitimate products. The federation believes that it would be a cost-effective way of tackling alcohol fraud, with the process perhaps requiring less bureaucracy than product tracking.

On the other hand, the brewing industry—the beer industry in particular—is very concerned about the proposal, and it believes that the proposal has been lifted from measures that were made in relation to the tobacco strategy. The industry feels that counterfeiting and fraud is more prevalent there, and therefore, the proportionality of applying something like a duty mark or stamp would not be helpful, and would cause problems for the industry.

Will the Minister comment on those points, and provide some indication of how she intends to continue that debate with the industry, as well as stating when further measures on that matter will be introduced for us to consider?

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

Mr Bone, I regret that I did not say at the outset that it continues to be a pleasure to serve under your chairmanship, as we draw to the final period of today’s sitting. On one of your rulings earlier, I do not know whether you wanted to see the downfall of the Whip or the downing of a pint as you get us quicker to the end of today’s sitting and closer to the football.

My role today is to say what the clause does. It increases the duty rate charged on beer, cider, wine and spirits by 2% above inflation with effect from 26 March this year. Together with VAT, the pre-announced increases from the previous Government are equivalent to 3p on the price of a pint of beer; 2p on a litre of cider; 11p on a bottle of wine; and 41p on a bottle of spirits.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Opposition Members rightly pointed out that according to the Red Book, the measures have no net impact. Does the Minister agree that what she is proposing means that the industry declines by the percentages that she is reading out, because if it did not there would be a net impact of extra taxation?

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

Of course I do not agree with that suggestion. The measure was included in Budget 2012 for a number of extremely good reasons. We certainly do not want to see the death of the industry. I shall continue with my remarks and deal with that and other points that have been made.

I, too, am a big supporter of the local pub. I run “politics in the pub” surgeries in my constituency. [Interruption.] Indeed, I am told that the thing to do in such debates is to name your local paper. I must laud the Norwich Evening News for its “Love your Local” campaign, in which I have played an active part for the past few years and which I think is very effective in highlighting how good pubs can do good trade in a very good city.

I shall provide the Committee with some background to the clause, which implements the pre-announced, above-inflation increases that were first announced at Budget 2008 by the previous Government, and which were extended in the March 2010 Budget. The additional revenue from the increases was included in the public finance projections at that time. I might suggest to one of the “Morrises”, if I may call them that—

Photo of Grahame Morris Grahame Morris Labour, Easington

We are both called Grahame.

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

I will more politely answer the hon. Member for Easington, who is one of the two who has tabled amendments. He asked what the numbers add up to over five years. For one thing, he will be aware that the increases depend on the level of inflation. Secondly, he will of course wish to ask his own Front Bench team what they were doing in 2008 and 2010 to get those figures. As I said, the revenue from the increases was included in the public finance projections at that time, hence my suggestion about where he should direct that question.

Hon. Members will be aware that sticking with revenue plans as set out is vital for the economy. As the previous Government had already accounted for the revenue before it had been received, cancelling the increase would mean that we would have to raise other taxes to stay in the same position. I humbly suggest to the Committee that leaving a hole in the public finances would help nobody—not landlords, not pub drinkers nor anybody else in the UK economy—so we have decided to go no further than the policy we inherited from our predecessors and we have sought to safeguard revenue.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I want to apologise to the Minister and correct the record. I misread the Red Book. As she rightly points out, this policy is a policy of the previous Government. It is shown in the part on measures that were already in place when this Government came to power.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 6:30 pm, 19th June 2012

I thank my hon. Friend for that clarification. I will go a little further into the amendment tabled by the hon. Members for Livingston and for Easington. It is a genuine delight to see them acting in unison, as they have when the Committee has divided. The amendment proposes that the Chancellor review the wider economic impact of the duty increases on the beer and pub industry and consumers.

It is good to see Opposition Back Benchers following their Front Bench and, rather than necessarily proposing a change of substance, requesting a report. I recognise the important contribution that pubs make to local communities and the wider economy. In November 2010, we published an extensive review of alcohol taxation in which we spoke to the relevant industry groups. I was not the Minister at the time but my predecessor did that. The British Beer and Pub Association and the Campaign for Real Ale welcomed the review. We continue to keep all the taxes under review and regularly monitor the impact of alcohol duty rates on industry and consumers.

The hon. Member for Easington asked whether duty take would fall over the period in question. Forecasts show that implementing the preannounced increase will increase duty receipts. That is true for all alcohol types. At that point I would refer to the argument that I made at the outset. Nobody raises revenue for fun. The Government use revenue to fund vital public services, which is something that Members might consider when they hear that duty receipts are to rise.

Let me return to something else that CAMRA has brought to the fore. CAMRA figures show that the net rate of pub closures has slowed dramatically over the past two years, which is very positive. I have already said a little about what I try to do in my constituency to support pubs. I am sure that we all seek to support pubs in our areas, but let us discuss what the Government are already doing. We support pubs as places where people can drink sensibly in a responsible way and enjoy themselves and the company of others.

Photo of Grahame Morris Grahame Morris Labour, Easington

It is where you leave the kids.

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

I think I may need to get my hearing tested. I have the benefit of not having heard that remark.

We want to reverse the trend towards pre-loading, as it is called, on cheap alcohol at home. As hon. Members will be aware, the recent alcohol strategy highlighted plans for a minimum unit price. Without going into that in too great detail because it is not part of the clause, it is important to note that it will help to tackle the issue of excessive alcohol consumption and heavily discounted alcohol sold in supermarkets and off-licences. This measure will not only reduce alcohol consumption and curb pre-loading before a night out but should help to reduce the demand for cheap alcohol on the off-trade side, then help the on-trade by extension.

Let me also refer to what has been done to support low-strength British products, as beer is called. As hon. Members will know, beer is currently taxed in proportion to its strength, so lower-strength beers pay less tax. One of the decisions the Government made in October 2011 was to reduce taxation on beer by 50% for beers at or below 2.8% ABV. Indeed, CAMRA welcomed that measure and said that reduced tax on low-strength beers was good news for pub goers. I certainly agree with that.

We are consulting on legislative measures to tackle alcohol duty fraud. The hon. Member for Kilmarnock and Loudoun mentioned fiscal marks. I would be happy to have a longer conversation after the Committee has risen about that. Alcohol duty fraud results in tax losses of up to £1.2 billion a year and undermines the legitimate  industry, resulting in lost sales, jobs and growth prospects. Hon. Members have sought to raise the problem of illicit trade in the context of a number of different clauses, and HMRC will work on that issue in relation to alcohol as much as for any other product. I will happily return to the issue if hon. Members wish to discuss it at a later date.

Let me reiterate: the changes proposed by clause 186 add what I will say is “only” 3p to a pint of average strength beer. That includes VAT, and let me put on the record the fact that the total duty on a pint of beer is 47p. I think that hon. Members will agree that 3p is not an unreasonable amount, especially as alcohol consumption comes with its own costs—again, we return in part to discussions that we have already had about how the provisions in the Bill will impact on wider society in relation to health and perhaps crime.

Let me return to the issue of what is paid by the customer inside the pub, and whether or not that could be damaging to the economy. Alcohol duty is only one of a wide range of factors that determine the final price paid by the customer, and it is clear that many factors have influenced the trend of pub industry decline. Beer consumption itself has been in a period of decline; lifestyles are changing and individuals have increased choices not only between different types of drink but in their leisure activities and where they are conducted. Consumer tastes change, as do economic times, and the amendment looks narrowly at the impact of an increase in duty. The wider context should be considered. For example, pubs that serve food often do better than those that do not, but that is not linked to the level of duty. As I said about my own constituency, good pubs do good trade, and that is relevant to what is proposed by the amendment.

As I pointed out, we published a review of alcohol taxation a year and a half ago, and although I welcome the chance to discuss the issues raised in the amendments, I do not think that there is a case for asking the Government to produce a formal review on the subject. I therefore urge the hon. Member for Easington to withdraw the amendment. In conclusion, the clause implements pre-announced increases in alcohol duty made by the previous Government. It also plays an important role in reducing what I might describe as the last Government’s debt.

Photo of Grahame Morris Grahame Morris Labour, Easington

In view of the assurances that we have heard, and under the circumstances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 186 ordered to stand part of the Bill.