Post-duty point dilution of wine or made-wine

Finance Bill – in a Public Bill Committee at 10:00 am on 16th June 2020.

Alert me about debates like this

Photo of Stephen Flynn Stephen Flynn Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary) 10:00 am, 16th June 2020

I beg to move amendment 10, in clause 79, page 67, line 25, at end insert—

‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Government to review the impact of the proposed changes to alcohol liquor duties on public health.

It is a pleasure to serve under your chairmanship, Mr Rosindell. The amendment is quite simple and would require the Government to review the impact of alcohol duties on public health. It should come as no surprise, given that the SNP has long called for duty to reflect content, but we do not have the powers in Scotland to do that. Instead, we have to rely once again on the Westminster system in that regard. That is a real pity, because where we have powers in Scotland in relation to public health and alcohol, we have made great strides. For instance, we have seen the banning of irresponsible promotions and the lowering of the drink-drive limit. We ended multi-buy discounts, something that was certainly contentious at the time. As a young student, I was not overjoyed about the fact that I could not buy three crates of Tennent’s for £20. None the less, it was an important measure that no doubt changed the behaviour of many people, including myself at that time.

Of course, we have seen the overwhelming success of minimum unit pricing in Scotland. That was, again, an extremely contentious measure at the time, whereby we placed a 50p-per-unit charge on units of alcohol. The cumulative effect of all those measures has seen something that we all wanted to see in Scotland, where we have a difficult relationship with alcohol—one that was challenging to confirm but that we needed to confirm. We saw off-duty sales fall by 3.6% in the first year since minimum unit pricing was introduced. In England and Wales during the same period, off-duty sales increased by 3.2%. That is a very telling figure.

When I first came to Parliament, one of the very first debates that I took part in was in Westminster Hall. I cannot remember which hon. Member secured the debate, but it was about alcohol duty. I think the purpose of the debate was to galvanise hon. Members to stop the Government increasing alcohol duty and, hopefully, to reduce it. There was extreme passion in that Chamber and there were a lot of hon. Members present—more than are often seen debating any given matter in the main Chamber. There was a lot of passion about pints, but we cannot be passionate about pints without also having passion for public health and the consequences of the decisions being made. The stark reality is that the two are inextricably linked, and the UK Government need to be mindful of that fact. Supporting the amendment would be a good, positive first step on that journey to a more sensible approach that takes into account public health.

In that Westminster Hall debate, in which numerous Government Members spoke, not a single person mentioned public health, despite the consequences of alcohol in our communities. That is not good enough.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury) 10:15 am, 16th June 2020

Does my hon. Friend agree that the minimum unit pricing introduced in Scotland had the effect of removing from our shelves some of the most harmful drinks, including the high-strength industrial ciders that cause so much harm to so many people in our communities?

Photo of Stephen Flynn Stephen Flynn Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary)

Absolutely. My hon. Friend makes an excellent point. We did not have to walk far to find a shop in Scotland that sold ciders. White Lightning is incredibly strong. Often, individuals would buy it early in the morning, and by the afternoon the remnants were across our city. We were able to stop that, and that was important because it was having an impact on every single person who lived and worked there. This amendment gives the Government the opportunity to make sensible strides in recognition of the fact that public health and alcohol are inextricably linked.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury)

I shall begin by addressing the SNP’s amendment 10. It is important to look carefully at the relationship between alcohol taxation and public health. We have seen in other areas of taxation, notably the sugar tax, the huge impact that decisions taken by the Treasury can have on public health and public health outcomes. It is long past time for us to look seriously and sensibly at whether more can be done to reduce the impact of alcohol and alcoholism on people’s lives and communities.

Turning to clause 79, I have had the opportunity to do a much deeper dive into some of the issues, not least because of the determined efforts of my hon. Friend Mr Perkins. Anyone who has ever been lobbied by him will know that when it comes to standing up for his constituents and for businesses in his constituency, there is no more determined, stubborn and irrefutable representation than that which he provides. He has raised serious concerns about the impact of the clause on businesses in his constituency. I shall outline some of those concerns, in the hope that Ministers will consider their bearing on Government policy.

We understand perfectly what the Government are trying to achieve with clause 79. The clause amends the Alcoholic Liquor Duties Act 1979, to introduce sanctions for post duty point dilution of wine or made-wine, which, if carried out before the duty point, would have resulted in a higher amount of duty being payable. That change has, in effect, already come into force and we are legislating for it this morning. The change is perfectly understandable. It is designed to bring more revenue into the Treasury that would otherwise be, and is being, lost. I understand the Government’s position that post duty point dilution carries significant legal and revenue risk for the Exchequer.

The Wine and Spirit Trade Association is against the legislation, claiming it would put hundreds of jobs at risk and place more pressure on the industry. Recently, thanks to the initiative of my hon. Friend the Member for Chesterfield, I had the opportunity to speak to Global Brands, a business based in his constituency that makes VK and Hooch, among other products. We know that covid-19 is having a huge impact on the licensed trade industry and on alcohol sales in particular, affecting not only pubs but the producers of wines, spirits and other beverages. Global Brands is concerned that, because of the financial burden placed on its business by the clause, combined with the impact of covid-19, it expects to make 50% of its workforce redundant, putting 200 jobs at risk as a result of this change. If I can characterise our discussions in this way, it would be accurate to say that Global Brands accepts that this change is inevitable, and that the Treasury has a settled view on it, but it hopes that the Treasury might consider a 12-month delay in implementation—from April 2020 to April 2021—arguing that this would give it time to recover from the covid-19 shock, leaving it better able to absorb the change.

Global Brands makes other arguments that the Treasury may want to take into account. In particular, Global Brands sells what were commonly known as alcopops, a low alcohol by volume product—typically around 4% ABV. It is concerned that the impact of the change will be that, ironically, its low alcohol product would be taxed higher per unit of alcohol than much higher strength products, which flies in the face of the Government’s stated policy of discouraging high-strength alcohol and its impact on public health.

It is also worth highlighting that the Government have already announced their intention to conduct a wider review of alcohol taxation. I wonder whether it makes sense, from the point of view of business resilience and of giving companies such as Global Brands more time to cope with the covid-19 shock before absorbing this change, for the Treasury to consider this delay alongside the range of other issues that it will consider as part of its wider review of alcohol taxation. We might have been minded to table an amendment to probe the 12-month delay, but we were advised that such an amendment would not be in scope because the foundation resolution is clear about the date on which this change takes effect.

That is another reason why—I gently make this point again to Ministers—we feel strongly about the way in which the Treasury has restricted the scope of amendments and the debate by not introducing an amendment of the law resolution, as has been the case historically. As well as denying Opposition Members the opportunity to table broad, sweeping, political amendments to the Finance Bill, that also has practical implications. I impress on Ministers and the usual channels the need to reconsider that for future Finance Bills.

Finally, when my hon. Friend the Member for Chesterfield and I spoke to Global Brands just the other week, I was particularly impressed not just by the jobs and economic activity it provides in Chesterfield, but at the fact that its wider supply chain is virtually entirely British. Its ingredients, packaging and labelling are all derived from a British supply chain. I do wonder whether the Treasury has really thought through the timing of the change, the impact that it will have on businesses such as Global Brands, and where it might position such businesses in relation to their international competitors that are not providing jobs in this country and do not have a supply chain rooted here.

Given the unemployment statistics out today, we know that structural unemployment will become one of the biggest political issues and economic challenges in our country. Structural unemployment in Britain will become a feature of our life in a way that, frankly, it was not 10 years ago, in the wake of the financial crisis, and has not been for decades. The Government must do everything they can to protect jobs, which is why we have called today for them to come forward not just with fiscal measures in July, but a full-on, jobs-first Budget—because we are worried about the impact of covid-19 on unemployment.

The representations on clause 79 from Global Brands and from my hon. Friend the Member for Chesterfield remind us of the risk of the unintended consequences of Government policy. Given the impact on jobs and the supply chain and the fact that the Treasury is in any case preparing to undertake a review of alcohol taxation, I wonder whether the call for the Government to delay the measure by 12 months is not eminently reasonable—and whether they might come forward with their own change to the Bill on Report.

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

Clause 79 makes changes to alcohol duty legislation to introduce prohibitive sanctions for anyone who dilutes wine or made-wine once that product has passed a duty point. It will ensure fairness by providing equity of treatment across the drinks industry and will tackle future revenue risks for the Exchequer.

Post duty point dilution is a practice that enables wine and made-wine producers to reduce the excise duty that they pay by diluting the product after duty has been paid. Because the dilution increases the volume of wine and made-wine for sale, with no additional duty being paid, less duty is paid than would otherwise be due. UK legislation does not expressly prevent post duty point dilution for wine and made-wine, although it is prohibited for all other alcohol products. The practice gives certain wine or made-wine producers a tax advantage over those who produce other categories of alcohol, of which dilution is not permitted, and over others in their own sector who cannot make use of the practice.

Clause 79 will introduce new prohibitive sanctions for anyone who dilutes wine or made-wine once that product has passed a duty point on or after 1 April 2020. Introducing new sanctions to prevent the practice will maintain the principle that excise duty is calculated only on a finished product when it is released from production premises or on import. It will ensure fairness by providing equity of treatment across the drinks industry and will tackle future revenue risks for the Exchequer.

A review of the practice was launched at autumn Budget 2017, during which HMRC engaged extensively with industry and gathered a large amount of evidence to inform a decision. At Budget 2018, the Government announced the findings of the review and their intention to stop the practice being used for wine and made-wine, as is already the case for other types of alcohol. However, the Government also announced that that would not take effect until April 2020. That has given those businesses affected almost three years to prepare for the change, allowing them time to reformulate or diversify into the production of new lines.

Amendment 10 would require the Chancellor to review the public health effects of the post duty point dilution sanctions. When making changes to the alcohol duty system, the Government take into account a wide range of factors, including economic inequalities and health impacts. The new sanctions follow an extensive review by HMRC in 2017. Draft legislation was published in July 2019, alongside which a tax information and impact note was published on the gov.uk website, detailing the various factors that the Government have considered. The amendment is therefore unnecessary, as the Government have already published our assessment of the effect on public health. For the convenience of the Committee, I will reiterate that assessment. The Government expect that

“wine or made-wine may become slightly more expensive…there may be a positive health impact with less wine being consumed. However, this benefit may be offset if any increase in price leads to consumers switching to higher strength products.”

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

I am sure the Minister has seen the graph that sets pence per unit against alcohol by volume. To say that it looks as though it was drawn by a child with a crayon is being generous to children with crayons. Will she consider a wider review of the duty per unit of alcohol by product type, because at the moment it makes absolutely no sense?

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary 10:30 am, 16th June 2020

I thank the hon. Lady for her intervention. I am not quite sure which chart she is referring to, and I do not accept her comments. We must remember that the purpose of the clause is primarily to close a tax loophole.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury)

I understand what the Minister says about closing a loophole and about the time that businesses have been given to prepare for the change, but does she not think that the impact of covid-19 has a bearing here? Given the representations that are being made about the impact of the double whammy, would she at least go away and consider the merits of a 12-month delay, and write to me and my hon. Friend the Member for Chesterfield to set out her thinking once she has had a chance to do that?

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

I thank the hon. Gentleman for that question. That is something that I have considered. I have had representations from the hon. Member for Chesterfield, Global Brands and other Members of Parliament, and I will take into account the points made by the hon. Member for Ilford North made in his speech.

On job losses, the announcement was made with enough time for people to prepare. We may not have been aware of covid, but postponing implementation any further would mean that the companies that adapted to the announcement about prohibiting post duty point dilution would be disadvantaged compared with companies that have not prepared since the announcement. We do not believe that that is fair.

On the point about the low alcohol value and moving the measure to stronger products, that is something that we have factored in. We will have a wider alcohol duty review—the hon. Gentleman referenced that. The Treasury has considered all those things, and we still do not feel that they are appropriate.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury)

I am grateful to the Minister for being generous in giving way again. She will be pleased to hear that I will not labour the previous point.

As part of the Treasury’s review, will the Minister take into account the case for minimum unit pricing for alcohol? We have already heard the positive case from Scotland, and there is an active campaign for it. It would be useful for all of us involved in policy making if the Treasury review looked at the merits and the arguments against so that Parliament can make informed decisions.

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

The Government are monitoring the emerging evidence from the introduction of minimum unit pricing in Scotland and, recently, Wales, and we have addressed public health concerns in the duty system. For example, in February 2019, duty rates on white ciders were increased to tackle consumption. We must remember that the UK operates a single excise regime, so it is not possible to devolve duty rates. It is worth noting that many of the problems that have been raised are actually caused by EU rules, according to officials. I can write to the hon. Gentleman and other Members who want further clarification on that point.

Photo of Felicity Buchan Felicity Buchan Conservative, Kensington

Does my hon. Friend agree that, although this is a very interesting debate, we are here to talk about taxation, not public health policy on alcohol?

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary

I completely agree. I hope I have given enough answers to address the point raised by the amendment. We have already carried out an assessment on public health grounds, but this is tax legislation. I therefore ask that amendment 10 be withdrawn.

Clause 79 introduces a new sanction to prevent a practice that is currently available only in the wine and made-wine sectors and is used by only a small number of producers. Prevention of the practice by the use of prohibitive sanctions will address inequity of treatment across the alcohol industry and will create a level playing field so that alcohol products can compete more fairly in the marketplace. I therefore commend the clause to the Committee.

Question put, That the amendment be made.

Division number 4 Finance Bill — Post-duty point dilution of wine or made-wine

Aye: 7 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

The Committee divided: Ayes 7, Noes 10.

Question accordingly negatived.

Clause 79 ordered to stand part of the Bill.