Clause 70 - Excise duties and other taxes

Finance Bill – in a Public Bill Committee at 9:15 am on 10 June 2014.

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

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

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

We come to part 2 of the Bill. Clause 70 is the first in a series of clauses dealing with excise duties and other taxes. It makes several changes to alcoholic liquor duties. It cuts the rate of duties on beer, freezes the rates of duty on spirits and most ciders, and removes the duty escalator for wines and high-strength sparkling ciders. The tax information impact note estimates that the changes will cost £290 million in 2014-15, rising to £325 million in 2018-19.

As hon. Members will no doubt be aware, rates of duty on alcoholic drinks have been the subject of vigorous campaigning by various industries and their representative organisations in recent months, largely as a result of the Government’s decision to cut beer duty—and it was only beer duty—in last year’s Budget. The British Beer and Pub Association called for another cut in beer duty further to support and protect jobs in the industry. The Wine and Spirit Trade Association, as part of its “Call time on duty” campaign, called on the Government to provide similar treatment for wine and spirits. While wine has not received duty cuts or freezes similar to those for beer and spirits, the association believes that its proposals would protect and even create thousands of jobs. Indeed, the Opposition have long called on the Government to conduct a proper and thorough review of alcohol duties, and their impact on respective industries, especially in light of the coalition’s 2011 decision to increase VAT, which added 6p to the price of a pint of beer alone.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

Given what the hon. Lady is saying, does she agree that the previous Labour Government’s decision to introduce a beer duty escalator was a mistake?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

We are discussing the amendments and clauses in front of us today. I am pointing out that the Opposition tabled amendments to address this point to various Finance Bills, especially last year’s, when we asked the Government to undertake a thorough review  of the impact of these duties on the variety of industries that rely on a fair duty system, especially the Scotch whisky industry, which has campaigned against the rise in duties. The Government’s failure to give fair treatment across the board has affected that industry’s sales and levels of employment. The Opposition have consistently called on the Government to conduct a thorough review into the impact of duty rates on business and consumers, and I have tabled a number of written parliamentary questions to try to get answers on these issues.

In light of the assurances given by the previous Economic Secretary to last year’s Bill Committee, it would be helpful if the Financial Secretary to the Treasury would outline the context to the Government’s decision to cut these duties in this year’s Bill. Will she outline the impact of the cut in beer duty last year on the beer and pub trade in the UK? How many jobs have been created as a result of that duty reduction?

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I should declare an interest, as I have been known to have the occasional pint of beer. However, that is a common interest among many members of the Committee, so it should not be too influential.

The way in which the 1p reduction in beer duty has been greeted by some people takes the change out of context. I have bought beer in a number of different places at different prices. For instance, in Gateshead, I can still purchase a pint for under £2, but last night I went to a hostelry near to my flat where it was £4.10, so the 1p reduction in duty was like a double-glazing salesman saying, “Buy 410 and get one free.”

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend makes a valuable point and I am pleased that he has declared his interest in this matter. He pre-empts another question that I have for the Minister: how many customers and taxpayers have seen a 1p reduction in the cost of their pint down at their local? That was promised as part of the price reduction, but the tax information and impact note expresses a degree of uncertainty, so more clarity would be useful.

I want to turn to the important issue of alcohol duty fraud and the illicit market. HMRC now produces annual estimates of the tax gaps across a range of taxes and excise duties. According to its latest estimates, which were published last September, the mid-point estimate for the alcohol tax gap in 2011-12—the latest year for which data are available—is just over £1 billion, including VAT losses. However, at the upper estimate, the gap for 2011-12 is just under £2 billion. The majority of the tax gap stems from illicit beer, which HMRC believes accounts for between £550 million and £750 million in lost Exchequer revenue. A 2012 report from the Public Accounts Committee seems to support that view. It also found that the main source of lost revenue stems from beer produced in and initially exported from the UK, but then illegally re-imported into the UK without the duty being paid. The report suggests that of the 450 million litres of beer exported to Europe each year, 180 million litres are then re-imported illegally.

The Government consulted on measures to tackle alcohol fraud on two separate occasions in 2012 and 2013. In 2012, the consultation examined options for strengthening existing legislation and enforcement measures  while proposing schemes to clamp down on fraud in wholesale and excises businesses. The proposals included fiscal marks on beer containers and supply-side legislation requiring track and trace systems. However, these measures were not taken forward by the Government, as was made clear in a written statement in July 2013 by the then Economic Secretary to the Treasury.

In a written statement, the Government committed to continue to explore track and trace technologies. Will the Financial Secretary confirm whether they have done that, and if we are any closer to seeing technologies implemented in the supply chains to protect those vital revenues? We are now almost two years on from the commitment made in the written statement, so presumably new technologies that could prove effective and that would be practical to implement are out there.

There was an assumption in the industry that beer fiscal stamps would place an undue burden on producers and importers, and would therefore not be permissible under EU law. The Financial Secretary recently told me in an answer to a written parliamentary question that the cost to apply stamps to cans and bottles at the time of manufacture could be a fraction of a penny per container, but could be much higher for imports. The Treasury estimates that beer fiscal stamps would involve a £6 million set-up cost and £31 million annual cost to the industry. It is worth noting that, according to the British Beer and Pub Association, 82% of beer sold in the UK is produced in the UK, meaning that a relatively small proportion of the beer sold in the UK would be subject to higher costs.

Others have cited the success of fiscal stamps on spirits, which were introduced by the previous Labour Government in 2006. Of course, that system is still in force today, and it appears to have had a positive impact on illicit sales. Although HMRC does not believe it is possible to assess the specific effect of duty stamps in this case, there was a significant fall in revenue loss over the same period. Given the far more significant beer duty tax gap, do not Ministers believe that similar measures might well be equally effective? It will be helpful if the Financial Secretary is able to confirm whether the estimate of annual costs to the industry of £31 million takes account of the disproportionate costs for imported beer producers, as opposed to domestic producers.

Last year, the Government consulted on further steps they and HMRC could take to tackle alcohol fraud, with three clear outcomes becoming apparent, which I am sure the Minister will mention. All three measures were announced in the autumn statement 2013 and reconfirmed in Budget 2014, with the Government estimating that the wholesaler registration scheme will cost about £235 million when it is implemented in 2016. I recognise that Ministers want to carry out rigorous pre-registration checks first, but with wholesalers clearly already struggling with competition from illicit traders, the registration scheme, regarded by the Government as critical to anti-fraud measures, is needed now, not in three years’ time. Given that the alcohol tax gap already stands at between £1 billion and £2 billion, by HMRC’s varying estimates, could the Minister explain why the Government’s flagship scheme to tackle alcohol fraud is not to be fully implemented until 2017?

The joint alcohol anti-fraud taskforce, which is made up of senior officials from HMRC, Border Force, the Home Office, Trading Standards and key industry stakeholders, held its inaugural meeting on 16 January this year. The Government said at the time:

“This will be followed in 2014 with the establishment of expert working groups to progress areas of concern.”

Will the Minister update the Committee on officials’ progress in setting up expert working groups and highlighting or progressing areas of concern? What areas have the Government identified to focus on? The taskforce’s stated aim is to prevent fraud and make it more difficult for fraudsters to operate through improved intelligence and information sharing. Is the Minister able to elaborate on the taskforce’s work to date, perhaps providing examples of where information sharing and intelligence gathering have taken place? That would be helpful to the Committee.

Photo of Richard Fuller Richard Fuller Conservative, Bedford 9:30, 10 June 2014

It is a pleasure to serve under your chairmanship, Mr Caton. If the Committee will indulge me for a few minutes, I wish to add a couple of words in support of beer and of Her Majesty’s Government.

I think it was my right hon. Friend’s predecessor as Financial Secretary, now the Secretary of State for Culture, Media and Sport, who made the first strike on behalf of beer drinkers and employees of the brewing industry last year. My right hon. Friend has continued that tradition in this year’s Budget, and I commend her for her stance on the principle of beer duty. Behind that is a more substantive issue, which is the principle of taxation escalators, much beloved by the Labour Government and undermined and abolished by the coalition Government. I wonder, in a free society, what is the merit of a Government deciding to increase tax automatically year after year on basic products—necessities for some people in their everyday life. We saw that in both fuel duty and beer duty. It seems to me an unsound principle of public finance to make projections on the assumption that Government can go on increasing taxation on ordinary people’s everyday expenditures in order to fulfil their ambitions. Judging by what we have heard from the Opposition in this debate and elsewhere, I fear that, unfortunately, that principle will be reintroduced should they ever get back into power.

Photo of Chris Williamson Chris Williamson Labour, Derby North

I am interested in the hon. Gentleman’s comments about increasing taxes on everyday expenditure for ordinary people. Does he therefore disagree with the Government’s decision to ratchet up VAT?

Photo of Richard Fuller Richard Fuller Conservative, Bedford

The hon. Gentleman makes a legitimate point, but he did not listen to what I said. What I said was that the principle of automatic annual increases in taxation—that a Government in a free society should be able to set a direction of taxation that says, “For us to meet our expenditure commitments in future years, we shall now say that every year the rate of taxation shall increase”—is of questionable intellectual merit. To reply to his question, if, when the Government had to restore our public finances from the disastrous deficit that the previous Government left, they had said that we would increase VAT—the tax that he chose to  highlight—year on year, his point would have been valid, but that is not what the Government decided to do.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

The hon. Gentleman is being typically robust. Would he like to get rid of the tobacco accelerator as well?

Photo of Richard Fuller Richard Fuller Conservative, Bedford

The hon. Gentleman makes a good point, which I am trying to explore. I would be interested to know whether we could have a debate on that matter, Mr Caton. If we cannot, because it is not in this Bill, perhaps we should do so elsewhere.

I ask the hon. Gentleman to focus on the principle, though. The previous Government got the country’s finances into a terrible state. Underpinning some of that were certain assumptions made—[Interruption.]. Labour Members shake their heads, but I think the British public know why they have gone through all the traumas of the past few years: it is because of the mismanagement of the economy in the period up until 2010. That is clearly understood across the country. The point I am trying to make, regardless of party, is that it is important that, when we set the public finances, we stick to sustainable principles, and I am not sure that to assume increases in the rate of taxation year on year is a sound principle of public finance.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Does the hon. Gentleman share my concern that a pint of beer would cost 8p more now if this Government had kept the escalator left behind by the previous Government? Those Members who deride the 1p cut in duty are forgetting what the effects of the escalator would have been.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

My hon. Friend’s comment stands on the record. I have made my point about the escalator.

The other aspect of this debate is jobs. I am proud to represent Bedford and proud that one of the largest local employers in my constituency is Charles Wells, which is the largest family-owned brewery in the country and is recognised by all political parties as a significant company. On the opening day of the 2010 election campaign, my right hon. Friend the Chancellor came to Charles Wells to look around. Then the Secretary of State for Business, Innovation and Skills came to Bedford—no doubt to do some polling research to see what the chances were for our Liberal Democrat mayor. Coming in third, as usual, the Leader of the Opposition visited recently to talk about apprenticeships. Jobs in my constituency are the other benefit of the measure the Government have proposed. The impact will be not just on everyday family budgets and beer drinkers, but on jobs in my constituency.

I commend my right hon. Friend the Financial Secretary and ask her whether she shares my belief in the principle of looking for savings wherever we can—in beer duty and other duties—and getting away from the principles left by the previous Government. Perhaps she could address that in her comments.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

It is a pleasure to serve under your chairmanship this morning, Mr Caton. The clause sets out the alcohol duty rates from 2014-15. It takes a penny off the tax on  a typical pint of beer, freezes the duty on ordinary cider and freezes the duty on spirits to help the Scottish whisky industry, and limits the increase on wine duty to inflation. As we have just heard—my hon. Friend the Member for Bedford made the case powerfully—with these changes we have stopped the previous Government’s alcohol duty escalator and are helping the pub industry, which plays an important part in British cultural life.

About 15 million people across the country visit the pub weekly, but the industry has faced difficulties. Pubs are important community assets that promote responsible drinking, but about 10,000 have closed in the past 10 years, so at Budget 2013 the Government took decisive action to help the pub industry. Given that nearly two thirds of the alcohol served in pubs is estimated to be beer, the Government took a penny off the tax on a typical pint of beer. The hon. Member for Newcastle upon Tyne North asked what that means in real terms. The British Beer and Pub Association has made clear how that decision has helped the pub industry during the past year: 89% of its members reduced or froze their prices, 76% increased investment and 51% employed more staff.

The clause reinforces the Government’s commitment to help the pub industry. It cuts general beer duty by 2% to reduce the tax on an average strength pint of beer by 1p. Before last year, beer duty had not been cut for 40 years. The Government cut it by a penny last year and by another penny this year. A typical pint of beer is now 8p cheaper—as we heard from my hon. Friend the Member for Redcar—than it would have been under the previous Government’s duty plans.

Photo of Chris Williamson Chris Williamson Labour, Derby North

Will the Minister concede that it is increasingly more difficult for those who drink—I should declare I have been teetotal since the age of 17—to afford a pint of beer, even with the minuscule reduction, because they are on average £1,600 a year worse off? Those are the figures and they prove themselves, I am afraid.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

Those are the figures from the Labour Whips Office. We have previously argued about this on the Floor of the House and probably in this Committee. The figure of £1,600 does not reflect the increase in the personal tax allowance or the changes to the benefits system. We have heard that in Gateshead, a pint of beer can cost less than £2, whereas in Westminster it could cost quite a lot more.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

It is possible but the point is, as my hon. Friend the Member for Bedford mentioned, the previous Government’s continued duty escalator would have continued ratcheting up the price of a pint of beer. Under this Government, the typical pint of beer is 8p cheaper than it would have been under the previous Government’s plans. Brigid Simmonds, the chief executive of the British Beer and Pub Association, has noted that,

“over 7,000 jobs over two years, mostly jobs of younger people in Britain’s pubs.” will be protected.

To ensure the tax on a typical low-strength beer is also cut by 1p a pint, low-strength beer duty is being reduced by 6%. The duty on high-strength beer has two parts: general beer duty and an additional duty. The additional duty on high-strength beer increases by 3.9%, so the clause partially offsets the reduction in general beer duty, reducing the overall duty on high-strength beer by 0.75% and the tax on a typical pint of high-strength beer by 1p. Those changes to beer duty help to achieve the Government’s aim to increase the incentives to produce and consume low-strength beer.

That will specifically help our traditional, drink-led pubs, but the Government are keen to provide support to pubs where the focus on beer is less strong, such as food-led pubs, which tend to sell more wine and spirits than others. The clause stops the previous Government’s duty escalator and limits the duty increase on most wine, made-wine and high-strength sparkling cider to RPI inflation. That keeps the duties on beer and wine broadly similar, as required by EU law. In keeping with EU legal requirements, the duty rate on wine of more than 22% alcohol by volume continues to be the same as on spirits. The clause also freezes the duty on most cider, so that a typical litre of cider is now 6p cheaper than under the previous Government’s duty plans. The west country, home to many of the country’s orchards, was hit hard by winter’s bad weather. This change will help the cider industry. The duty rate on high-strength sparkling cider continues to be the same as equivalent strength sparkling wine, complying with EU legal requirements.

The Scotch whisky industry is one of the great British success stories. Its exports were estimated to be worth more than £4.2 billion in 2012—nearly a quarter of UK food and drink exports. That is why it is important that the Government support this great industry where we can. Earlier this year, the Government introduced the Scotch whisky verification scheme, which will help to protect the integrity and high reputation of the Scotch whisky brand at home and abroad. The domestic market remains important, though, given that it is the third largest market for Scotch whisky. The freeze in spirits duty will cater further support to the Scotch whisky industry. It means that a 70 cl bottle of whisky is now 42p cheaper than it would have been under the previous Government’s duty plans. David Frost, chief executive of the Scotch Whisky Association toasted the Government’s decision, saying:

“This show of support for distillers from the Coalition Government will be warmly welcomed across the Scotch Whisky industry.”

The changes to alcohol duty rates outlined in the clause ensure that responsible drinkers do not continue to be penalised by the alcohol duty escalator inherited from the previous Administration. However, the Government recognise that not everyone is a responsible drinker and we have taken a targeted approach to tackle alcohol-related harms, as set out in the Government’s response to the alcohol strategy consultation in 2013, ranging from banning the sales of alcohol priced below duty plus VAT, to licensing changes to help to tackle irresponsible alcohol consumption.

I will turn, briefly, to the question from the hon. Member for Newcastle upon Tyne North about fraud and the actions of HMRC. The Government recognise the importance of tackling alcohol fraud and will increase HMRC’s ability to remove illicit alcohol from the market  by introducing a wholesaler regime, as she outlined, which is to take effect in 2016. The reason that it is taking between the announcements now and 2016 is that HMRC needs time to set up the scheme and firms need time to register with HMRC. Although from 2017 everyone will need to be registered, the scheme starts from 2016. A requirement for alcohol traders to take reasonable steps to ensure that their suppliers and customers are legitimate will take effect later this year.

The hon. Lady mentioned the joint alcohol anti-fraud taskforce, whose first meeting I attended. The taskforce aims to tackle alcohol fraud by bringing together law enforcers, trade bodies and key alcohol industry figures. She asked about information sharing, and the taskforce is looking at that. The industry and Government are working together to explore the options available. She understands that I cannot go into the details of how information and intelligence are to be shared—if I put that on the public record, there would not be much point in trying to catch those who are determined to commit fraud—but one of the taskforce working groups is looking at information sharing.

The hon. Lady asked about fiscal stamps. Responses to our consultation suggest that fiscal stamps could have a disproportionate cost for firms, so the Government are instead taking proportionate action through the wholesaler registration scheme, but we continue to keep the introduction of further measures such as fiscal stamps under review. I should point out that wholesalers are currently the only unlicensed part of the supply chain. She also asked about track and trace. That is under review, but the wholesaler registration scheme is where efforts lie at the moment.

My hon. Friend the Member for Bedford asked about future policy. Obviously I cannot commit on that, but we keep all taxes under review and this Government have shown clearly with this and other measures that, where we can help successful industries—our pubs are a vital part of our communities and I have mentioned the critical role of the Scotch whisky industry in exports and of the cider regime in particular parts of the country, especially the west country—we will always do what we can to help industries and to help businesses to flourish and to take on employees. That is the guiding light of our economic plan.

Photo of Ian Mearns Ian Mearns Labour, Gateshead 9:45, 10 June 2014

Does the Minister accept that the whisky or spirits duty for domestic markets still stands at about 79p in the pound? We have talked about taking away the escalator and freezing the duty, which has been welcomed by the industry, but at 79p in the pound it is still extremely high for the domestic market, compared with overseas comparators.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

I thank the hon. Gentleman for that question. Yes, he will not be surprised to hear that that point has been made to me, in debates in this place and when I have journeyed to Scotland. The point is that this year’s duty freeze sends a clear signal about our support for the industry. More can always be done on any change made by any Government in any Budget announcement, and there will always be people who ask for more, but we took a decision this year on what was manageable within the economic constraints left to us as we sort out the economic situation of this country.

The clause reaffirms the Government’s commitment to supporting community pubs, the thriving Scotch whisky industry and responsible drinkers. I urge the Committee to let the clause stand part of the Bill.

Question put and agreed to.

Clause 70 accordingly ordered to stand part of the Bill.