Clause 61 - Mergers: general provisions

Finance (No. 2) Bill – in a Public Bill Committee at 3:30 pm on 16 May 2023.

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

Photo of Esther McVey Esther McVey Conservative, Tatton

With this it will be convenient to discuss clauses 62 to 71 stand part.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

Clauses 61 to 71 provide for transitional arrangements for small businesses that merge under the new small producer relief and provide definitions for terms used in the chapter.

The Government are committed to modernising and reforming alcohol duty. Part of the reform package is a new small producer relief for businesses that make alcoholic drinks of a strength less than 8.5% alcohol by volume. That will extend the benefit of progressive duty rates enjoyed by small brewers to the producers of other alcohol products. The provisions on mergers and acquisitions mean that small businesses that merge will not face a cliff-edge duty increase in the first year of the merger; instead, their duty rates will increase gradually over a three-year period. The clauses also include some general provisions around definitions for the purposes of the relief.

Clause 61 introduces the concept of a post-merger group, which is a company formed from the merging of two or more companies, and explains how each of the three years in the transitional period will be referred to. Clause 62 sets out the conditions which must be met for a newly merged business to qualify for the relief. Clause 63 explains what is meant by the “relevant production amount” during the transition period. Clause 64 explains what is meant by “post-merger amount”, which determines the level of relief available to newly merged businesses.

Clause 65 provides for termination of a transition period where the amount of alcohol produced by a post-merger group decreases. Clause 66 explains the treatment when another merger takes place during an ongoing transition period. Clause 67 explains the treatment of mergers involving more than two small producers at the same time. Clause 68 provides that that the transition period ends when businesses demerge. Clause 69 gives definitions of “production premises”, “production groups” and “connected premises” for the purposes of small producer relief. Clause 70 explains that the definition of “connected persons” for the purposes of the relief mirrors that in the Corporation Tax Act 2010. Clause 71 provides a table of expressions used throughout the small producer relief chapter.

Around 10,000 businesses in the UK produce alcohol, import alcohol or supply it wholesale. The clauses will help small businesses compete with larger businesses, such as multinationals, and support them as they grow. The entire alcohol reform package will cost £155 million in 2022-23 and £880 million across the scorecard period. These clauses and accompanying schedule form a key part of the Government’s ambitious alcohol duty reform and will support small alcohol producers to grow and thrive.

Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury)

The clauses under discussion in this group form part of chapter 3 on small producer relief, as the Minister mentioned. I thought it would be helpful to remind the Committee that Labour introduced the small brewers relief in 2002, and we are proud of the effect it has had in supporting small brewers, creating the vibrant UK beer scene, and supporting British business. We therefore support its extension to other producers.

In the context of small producer relief, clauses 61 to 68 specifically deal with the regulations and provisions for when mergers take place. Clause 61 sets out general provisions, determining that a merger of two small producers is to be called a post-merger production group, and is deemed to be in a transition phase for the three years following the merger. Clause 62 introduces modified conditions to determine whether the premises of two small producers that newly merge are small production premises for the purposes of small producer relief. A merged small producer will be eligible for small producer relief if the adjusted post-merger account does not exceed the small producer threshold of 4,500 hectolitres and if, for each set of premises in the group, fewer than half of the alcoholic products produced on those premises in the previous year were produced under licence.

Clause 63 sets out that, in calculating small producer relief for a post-merger group, the adjusted post-merger amount is used for the “relevant production amount” as set out in section 59. Subsection (3) sets out that the exclusion in clause 58(c) does not apply to the premises in a merger transition year. The Minister will not be surprised that I want to ask why that is the case. I cannot find anything about the purpose of the subsection in the explanatory notes, and it would be helpful to get the background as to why it exists.

Clause 64 provides a definition of the adjusted post-merger amount, which is used to determine eligibility and calculate the rate of small producer relief for companies transitioning post merger. Clause 65 sets out that a merger transition period will end early if the total amount of alcohol produced on all premises by a post-merger group in the preceding production year is less than the adjusted post-merger amount for the current year.

Clause 66 lays out provisions for subsequent mergers of alcohol producers. If a second merger takes place, the producer is no longer considered to be in its merger transition period for the first merger. The second merger could be considered a new merger transition period if the eligibility conditions are met. On the other hand, clause 67 lays out provisions for simultaneous mergers, setting out which producers will be considered the “larger producer” and the “smaller producer” for the purposes of determining the small producer relief. Clause 68 sets out what happens when a production group demerges and the regime to be applied for demerged businesses looking to receive small producer relief.

As we know, clauses 69 to 71 provide some guidance on the interpretation of chapter 3. Clause 69 lays out definitions of the terms producer, production premises, group premises and connected premises. Production premises are premises where alcoholic products are produced, including premises outside the UK. Group premises are all the premises on which the same person produces alcoholic products. A production group includes the group premises and all connected premises. A producer is a person who produces alcoholic products.

Clause 70 states that two people will be considered to be connected persons if they meet the test contained in section 1122 of the Corporation Tax Act 2010, although HMRC’s commissioners can overrule that if they think it necessary. Finally, clause 71 provides a table of expressions used in the small producer relief chapter. These clauses are all administrative in purpose, and we will not oppose them.

Photo of Gareth Davies Gareth Davies The Exchequer Secretary

I am very grateful to the hon. Lady for her comments. Let me start by acknowledging the success of small brewers relief. We have seen the number of breweries increase six times since its introduction, and I think we should applaud a good policy, wherever it originates. In fact, we are seeking to build on it by expanding its principles to the new small producer relief and extending it to all alcohol products under the parameters that she has outlined. There was a very specific point of clarification, which I am afraid I do not have to hand at the moment, but I am happy to set out in writing the detailed answers that she seeks.

Question put and agreed to.

Clause 61 accordingly ordered to stand part of the Bill.

Clauses 62 to 71 ordered to stand part of the Bill.