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Mrs. Helen Liddell (Monklands, East): I do not have the same constituency interest as the hon. Member for Moray (Mrs. Ewing) or my hon. Friend the Member for Dumbarton (Mr. McFall). However, like many Scots Members, I have whisky interests within my constituency. We are faced with an issue that spans the United Kingdom. The action of the Chancellor of the Exchequer in imposing increased duty on alcohol has an impact on major manufacturing industry. During the lifetime of the Government we have seen repeated attacks on manufacturing industry, and the Scotch whisky industry is a major part of the manufacturing sector. It is of great strategic importance to the United Kingdom because it draws heavily on indigenous suppliers. Its United Kingdom valued added is estimated to be about 70 per cent. It is sold in 190 overseas markets. It is very much a standard bearer for quality goods from the United Kingdom. It is appalling that United Kingdom tax treatment limits the ability of the industry to have the same impact in Britain as it has in other countries. It is ironic that in his first Budget statement the Chancellor of the Exchequer took measures to ensure that the price of a bottle of champagne was reduced by 27p. Even after his second go at presenting the Budget, a bottle of champagne will be 20p cheaper. It is appalling that we do not recognise the impact on our industries and manufacturing businesses of moves that were made by the Chancellor following the shambles of his initial Budget statement on 29 November.

There can be no case for increasing tax discrimination by fiscally hitting spirits in general more harshly than tobacco in the mini-Budget. The Chancellor excluded hand-rolling tobacco from the mini-Budget specifically because of the European dimension. Why could he not extend that commonsense attitude to the spirits industry? I have no hope that we shall hear any common sense from the Treasury Bench tonight. When the Government last increased duty on whisky--there was a 25p increase in the price of a bottle of whisky--the net impact was an £80 million decrease in the revenue available to the Exchequer following the slump in the industry as a result of that increased taxation. It is appalling to think that a critical and strategic industry should be treated in that way. Scotch whisky is one of the United Kingdom's top five export-earning industries and shares top billing with cars, aircraft, North sea oil and its derivatives, and high- tech products. As the hon. Member for Moray pointed out, in 1993 its export earnings topped £2 billion for the first time, and 40 per cent. of whisky sales are in the European Union. Our other spirits contributed another £175 million to the United Kingdom's export earnings.

My hon. Friend the Member for Dumbarton pointed out that, directly and indirectly, the whisky industry employs 70,000 people--four times more than the 15,000 who are directly employed. The industry generates more than £1

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billion of business with suppliers, yet the tax levied on Scotch whisky and other spirits is virtually twice the rate per unit of alcohol applied to wine and beer. I recognise the arguments that my hon. Friend the Member for Mansfield (Mr. Meale) employed on behalf of beer brewing, however, which is also important to the economy of many communities.

The two Budgets of 1993 set no increase in the excise duty on Scotch whisky, yet when the Chancellor was backed into a corner by his own lack of foresight and by the shambles that the Government created in his first Budget, the first people he chose to attack were workers in a valuable manufacturing industry who play a key part in our economy.

What are the growth prospects for the Scotch whisky industry? After a slump following the previous tax increase, great marketing efforts gave the industry an increased profile--especially in its bicentenary--in the United States, Japan and throughout the European Union. A British industry has the option to grow, but the Government are directly attacking that option. They are so short-sighted that they do not realise the opportunities for a crucial industry. Scotch whisky is price-sensitive. There is no doubt that the increase of 26p on a bottle of Scotch whisky will affect the fragile recovery in the industry. Many people in the whisky communities suffered directly as a consequence of the previous attacks on the industry. Jobs and distilleries were lost as a result. We are throwing away the heritage of large communities in Scotland and the associated industries involved in the distribution and marketing of Scotch whisky, throughout the United Kingdom.

We must narrow the tax discrimination against Scotch whisky throughout the Community. We were led to believe that the Chancellor would be vociferous in his support for the industry and for tax harmonisation. I have heard nothing from the Treasury Bench today to convince me that that promise will be kept. I am worried that there will be a negative impact on the United Kingdom economy and that the Government are being short-sighted.

I am not merely concerned about the impact on the Scotch whisky industry. Whisky blenders in my constituency also manufacture gin. The gin manufacturers association just celebrated its 50th anniversary and it, too, is worried about the impact of the increase in duty on such a crucial manufacturing industry.

Mr. Nigel Evans (Ribble Valley): I have spoken on this topic on several occasions and I thought it important not to let this opportunity pass without saying a few words.

Last year, I and several other members of the Standing Committee on the Deregulation and Contracting Bill--including my hon. Friend the Member for Surrey, East (Mr. Ainsworth), who cannot speak in today's debate--tried to save the great British pint of beer, including its head. Today we want to save the great British pub, which is vitally important, as we heard from the hon. Member for Mansfield (Mr. Neale).

How many pubs have closed partly as a result of the massive differentials in duty on British and French beer? It is estimated that a million pints a day are being brought into this country. Something has to be done to stem that massive tide, and the problem is growing.

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One can travel very cheaply across the channel to Calais because of the many special offers. The channel tunnel has opened since I last visited the town, so the problem will get worse. It is estimated that beer from Calais accounts for 15 per cent. of United Kingdom take-home sales. My hon. Friend the Member for Hastings and Rye (Mrs. Lait) mentioned the illegal trade, but much of it is legal. Many people want to travel to Calais and try different beers, and I do not condemn them for that.

Last year I went to Dover to see at first hand the problem faced by Customs and Excise officers due to the amount of beer being imported into this country illegally. On the morning of my visit, two transit vans were stopped. One was packed to the roof with beer that had been brought in with some sort of documentation to show that it was for a party to celebrate winning a contract, which was illegal as it was a business deal. Someone else had brought in a transit van full of alcohol supposedly for personal consumption, but the owner had a list of addresses in the United Kingdom where the alcohol was to be sold. I was very impressed with the work of Customs and Excise officers in Dover. I informed my hon. Friend the Member for Dover (Mr. Shaw) that I was visiting the port, as he also has done, because of the problem. The problem is indeed massive, and it can only get worse. I also visited Calais, with the hon. Member for Mansfield, as a member of the all-party beer group. We saw at first hand the problems that the British brewing industry is experiencing. It is not just a matter of people bringing in a few extra cans in their cars. We saw heavy goods vehicles loading pallets of beer at the cash and carry stores which entice such trade. Judging by the tarpaulins, the vehicles came from all parts of Britain. People think that illegal imports are a problem only in the south- east of England, but that is not so: beer is being transported throughout the United Kingdom and the massive tax differentials make this worth while.

The alcohol is being distributed in many ways. It is not merely a matter of Arthur Daley characters shoving one or two cases here and there. It has become a trade for many people and the alcohol is distributed through all kinds of outlets, including car boot sales, and so forth. Indeed, I have raised in an Adjournment debate the problem of car boot sales and the amount of beer coming into this country.

I am concerned because I have brewing interests in my constituency-- Thwaites, Whitbread and Samlesbury are on the edge of it and are all vital for job creation, as well as being particularly good beers-- and because brewing is important throughout the United Kingdom. All the breweries, both small and large play a vital part in the United Kingdom brewing industry and I do not want them to suffer any more damage.

The British pub has become a social centre--a place where the local villagers can gather and talk--and I do not want the great British pub to be damaged. Pubs are one of the first places that many tourists want to visit when they come here because they are famous throughout the world. Many, however, have closed. The hon. Member for Mansfield mentioned the figure of 2,000. One can only estimate how many jobs were involved. If the differential is allowed to continue and if the amount of beer that one is allowed to bring back into this country is not changed,

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that problem will only worsen. More pubs will close, more breweries will be damaged and more jobs will be lost.

During my visit to Calais, I noticed that Sainsbury's had opened its own off-licence in one of the hypermarkets to sell alcohol to British customers because it thought that it knew British customers best. That off-licence is part of a much larger hypermarket where the sale of British and continental beers is going on apace and where the marketing is directed towards the British consumer. The signs are not just in French but in English, the prices not just in francs but in pounds, and the signs show how much cheaper it is to buy beer there to bring back into this country.

One can only imagine how cost-effective it is for people, especially those living towards the south of England, to make regular trips across the channel. The number of people going over to France and buying large amounts of beer, which they would normally buy in British off-licences or in British pubs, was a considerable problem over the Christmas period.

With the hon. Member for Mansfield, I was part of a delegation to the Paymaster General about the problems. We thought that we had won the battle before the initial Budget statement. At least we had taken a step in the right direction. This new clause, however, is a step in the wrong direction. A penny extra tax is neither here nor there, of course: the problem is much bigger than that, and my right hon. and learned Friend the Chancellor has said that he is looking at the greater problem of the differential.

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As a matter of urgency, we should try to approximate tax on beer on the continent with that in the United Kingdom. In the mean time, since that may take a number of years and we cannot afford to wait that long for the problem to be rectified, will the Treasury team assure us that the number of Customs and Excise officers operating at ports of entry is built up to ensure that the chances of people being stopped when trying to bring back beer are greater and that the chances of prosecuting them are also greater? Can we ensure that the excise verification officers operating in the United Kingdom, who look around shops and car boot sales, also look at the amount of beer brought through customs and that more prosecutions are brought? If we stand back and do nothing, the problem will only worsen. We need to take action, and we need to take it now.

Mr. Malcolm Bruce: There are two basic arguments that the Government seemed to have ignored. The first is about smuggling, which the Chancellor of the Exchequer said in his Budget speech was a major reason for not widening the duty. A week later, he promptly widened the duty. The second is that brewing and especially distilling are major British industries in terms of employment and exports. The Government do not seem to have addressed the importance of those industries at all.

The hon. Member for Moray (Mrs. Ewing) made the point that the Chancellor of the Exchequer, up to the second Budget, had given a clear indication that he had understood the argument, taken it on board and was going to do something about it. That is why I maintain that he took the decision in the mini-Budget simply out of political pique. He had been beaten on the first vote, so he wanted to be vindictive on the second. There was no intellectual credibility to his decision.

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The most effective authority to put against the Chancellor's decision is the Chancellor himself. He can be quoted his own record of saying that widening the duty would not work and that it would damage the home industry, increase the problems of smuggling and probably damage Exchequer revenues. Yet the Government are going ahead with the decision to widen the duty.

Yet again, the Opposition parties together are trying to save the Government from themselves. Conservative Members have made speech after speech agreeing with the arguments put forward by Opposition Members but then saying that they intended to vote with the Government. We are told that that is because they hope and believe that the Government will address the problem, but in the meantime the problem will become worse.

The Government are in a ridiculous situation. It is indefensible and shows a total lack of understanding of the fact that our industries require a tax regime which gives them the confidence from which they can build up an export market. The hon. Member for Carshalton and Wallington (Mr. Forman) knows perfectly well that a strong home market is an essential precondition of a successful export market. It is not that firms cannot export when there is a declining home market, but that the home market provides the base and the profit to finance the export drive.

When I was newly elected to the House, because I was the hon. Member for Gordon and because I spoke about the spirits industry, I was described by one columnist as "the hon. Member for Gordon, the home of malt gin." I remind the Committee that the gin industry is a significant producer as well--we are not just pleading for the scotch whisky industry, but for the whole home-produced spirits industry. It is odd that the Government seem to have regarded the wine industry as deserving a fairer tax deal than the beer, whisky and gin industries, although this country produces relatively little wine. We make some wine, and some of it is quite good, but it is not a significant national industry. In contrast, we make an enormous amount of gin and whisky and we export it. We also make an enormous amount of beer. Yet the Government tax it more heavily than wine. If we were not in a single market scenario, I would suggest that the Government considered putting up the duty on wine and reducing the duty on spirits. There is a very good argument for that, not least because the alcohol content per unit in relation to the tax is such that whisky and gin are taxed at double the rate of wine, which is an unfair and distorted mix. Raising duty on wine and reducing duty on spirits would appeal to everyone because it would ensure that we protected our own industry and taxed imports. The trouble is that the single market does not make that a viable, long-term and sustainable proposition.

If the Government are serious about taking the argument of the major brewing and distilling industries on board, they should abandon the new clause and at least freeze the duties. If they are to try to restore the industry's confidence, which has been seriously damaged by the Budget, they should quickly tell the House, the country and the industry exactly how they intend to resolve the matter and narrow the differentials. In reality, that can be

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done only by recognising that duties in the United Kingdom will have to go down; no matter what agreement we may secure with our partners in the European Union about raising their duties to narrow the differential, there is no chance whatever of their coming anywhere near our rates.

The health factor was raised by one hon. Member, but there is not a fair comparison between alcohol and tobacco. All the evidence is clear that tobacco is fundamentally harmful to all users. It is a health hazard and a health risk. That is a justifiable reason for increasing the duties on tobacco, even though I acknowledge the smuggling problem. With alcohol, there is not such an absolute health factor to consider. The abuse of alcohol, not its existence, is a problem. It can be argued that alcohol used in moderation is positively good for us. Indeed, a slogan used to tell us that Guinness was good for us and many a doctor will tell patients that a nip of whisky before bed will enhance their sleep and prolong their life. Not enough people are taking that nip, and the Chancellor has made it that little bit more difficult and expensive.

For all those reasons, my colleagues and I will vote against new clause 2 and we look to the Government to indicate how and when they intend to do something not to make the problem worse, but to tackle it and narrow the differential.

Mr. Stern: I wish to make a few brief comments. First, I should emphasise my continuing interest in these debates over the years. I represent part of the city of Bristol, which contains the Courage brewery, a considerable number of substantial wine importers and a major centre for the manufacture of cider. As a result, it is rightly twinned with Bordeaux, which itself is not unknown for its wine. Before considering the broad argument which has been rehearsed by many hon. Members today, I want to follow up a point that was raised in last year's debate. When my hon. Friend the Paymaster General replies to the debate, I hope that he will be able to take this point on board. There has been much doom and gloom today about the low level of seizures of smuggled alcohol. However, the level of seizures is increasing substantially and is now a real deterrent in certain parts of the country.

Nothing has been said today about what should happen to the very valuable product being seized. It irks me, and I believe that it irks many people, that the beer, wine and spirits seized as a result of smuggling are simply poured into a hole in the ground. From the point of view of sheer waste, that is not acceptable. In Committee last year, I raised with my right hon. Friend the Chief Secretary, who replied to that debate, the question of whether the seized wines, spirits and beer could be re-exported so that they would not affect the home market. In reply, the Chief Secretary said that the Government were considering vinegarising or denaturing the seized alcohol and recycling the glass and metal involved. Although there is provision in later clauses for a new tax regime for denatured and vinegarised alcohol, there is no provision for taking the matter forward. Our job of selling the public the idea of a continuing tough regime on imports will be much more difficult if the Government are engaged in a vast waste of the products that they are seizing.

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I want now to consider the more general argument. Although the Opposition may be heartened by some of my remarks, I must begin by totally dismissing the comments from official and unofficial Opposition spokesmen today. As the hon. Member for Barnsley, Central (Mr. Illsley) made clear in last year's debate, their only solution to the problem is to throw substantial sums of money at it. They cannot think of anything else to do about it. I totally reject the absence of policy from the Opposition: simply saying, "We must do something about this", is not a solution.

The Government have a policy which they had to breach in part this year because of the irresponsible vote by the Opposition on VAT on domestic fuel. I am not entirely happy with the Government's position. It is all very well to say, as my hon. and learned Friend the Member for Burton (Sir I. Lawrence) said, that the long-term solution is harmonisation of duties, but if we consider the level of harmonisation required and the time scale involved, one is clearly looking at 50 years of cloud cuckoo land.

We must understand that we are asking our European allies and partners to disadvantage their own home producers in favour of our producers and to decrease their market share in favour of ours. It is increasingly unlikely that we shall make any substantial progress on harmonisation. It just will not happen. If that is the Government's only alternative policy for a long- term solution to the problem of the skewing of the single market against our producers because of the existing pattern of duty, I must tell my hon. Friend the Paymaster General that that is not good enough, so please go away and think again. Simply to rely on our European allies to disadvantage themselves for our benefit is unlikely to prove to be a successful policy in the long term.

We need to think again about the problem. Clearly the Chancellor cannot forgo the kind of revenue that we are talking about this year, or in the long term, by a consistent and steady reduction down to something approximating European levels of excise duty. But if substantial duty reduction is not available to us, what is?

Mr. Thomas Graham (Renfrew, West and Inverclyde): I remember the Chancellor of the Exchequer standing at the Dispatch Box not that long ago lambasting Scottish Members who had voted against the imposition of VAT on fuel. He said that we were to blame for the increase in duty on whisky. That was lamentable. It was not a wee grouse; it was a big grouse, and that big grouse could cost thousands of jobs in the whisky industry.

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The Chancellor was being punitive. He did not realise what damage he was going to inflict on the whole of Britain. He had not considered the earnings that the whisky industry generates and the more than £1 billion that is involved in supplying the industry to ensure that it survives.

I have already said that 15,000 people are employed directly in the industry and that nearly 70,000 folk are employed indirectly. As a former engineer, I recall working in the industry. I did not produce whisky, but I did produce engineering machinery for the industry. Thousands of folk produce machinery for the whisky industry.

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Some of those engineering companies are involved in other aspects of manufacturing, for which they require the support of the whisky industry. For example, the chemical industry benefits from engineering companies involved in the whisky industry. Some pipe- fitting companies in the whisky industry supply other industries in Britain. If the whisky industry is affected, those companies will be punished.

The brewing industry is very much like the whisky industry; it relies on the same engineering skills and development. I am not separating my support between the beer industry or the whisky industry, which are an important part of life in Great Britain and which play an important role in attracting much-needed revenue to this country.

I recognise the terrible problem caused by the illegal importation of drink from the continent. As a Scotsman, I do not benefit too much from that. We are told that there are supposed to be convoys of vans travelling to Glasgow. I am a car boot lover; I like to go to car boot sales. The hon. Member for Ribble Valley (Mr. Evans) said that people can buy whisky and spirits at car boot sales. I have never seen them for sale at car boot sales. However, I must confess that I have seen cigarettes and cigars for sale.

The Chancellor has not thought this out, but that is typical of the Government. They have thought nothing out in relation to taxation. If they had, we would not be in the trouble that we are in now. The 17.5 per cent. VAT charge on domestic fuel was incredible. I am glad to say that the combined power of the House destroyed that rise, but we have now been hit by this tax increase.

Hundreds of people in my constituency work directly in the whisky industry. They work in the Chivas Regal factory and in the Johnny Walker bottling plant, which is in the constituency of my hon. Friend the Member for Paisley, North (Mrs. Adams). They rely on the industry to provide them with their daily bread and to ensure that at the end of the week they get their wages and, at the end of the month, they get their salaries. It is very important to have dignity and to be paid.

The Government will deny those people through their punitive tax system and possibly their anti-Scottish feeling. They will impose an additional 20 per cent. duty on whisky, yet they have reduced duty on champagne. Hon. Members should think about that; it is absolutely mind-boggling. I have mentioned before that the Chancellor supports champagne Charlie. He is making it easier for folk who are stinking rich to buy their champagne cheaper. Ordinary men and women who love a wee tipple, a pint of beer or a wee hauf of whisky must pay through the nose because the Chancellor could not run a bus to Saltcoats, which is not very far from where I live.

I hope that this is the Chancellor's last Budget. I hope that it is a case of that famous saying of Bell's, `afore ye go. I am happy for the Chancellor to have his last whisky `afore ye go. I hope that he pours a further wee double and drinks to a new whisky, SS Politician. We all know how that went--down the hole--but it created great work for Scottish folk.

The Government have an opportunity to save the scotch whisky industry and the brewing industry from further redundancies by turning from the disastrous route of

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increasing duty on our daily tipple. They should look for more sensible ways to raise taxation without creating further redundancies and unemployment in our country.

Mr. Nigel Forman (Carshalton and Wallington): I enjoy a wee dram as much as I enjoyed the speech of the hon. Member for Renfrew, West and Inverclyde (Mr. Graham), and I pay tribute to the robust way in which he represents his constituents' interests.

There has been a bit of Scottish and, indeed, English hyperbole, and I should like to pour a little cold water on some arguments--I shall be a bit of a spoil-sport, in fact.

When members of the Treasury and Civil Service Select Committee recently considered differential duties, we were not completely convinced by the arguments that were put to us by licensed retailers of alcohol or by publicans. We listened carefully to what they said, but we concluded that the arguments were somewhat overstated. Opposition Members in particular have stressed what they allege to be the damaging and, indeed, almost terminal effects of a fairly small duty increase in the Budget, but, bearing in mind changes in the drinks industry and in many other manufacturing industries, one is bound to conclude that in recent times new, changing technology and improved productivity have been at least as important, and probably much more so, than any marginal changes in duty. Hon. Members have made great play of the problems facing many pubs. I know from experience that pubs in London and in the south-east have had a hard time, but the reasons for that go far wider than the subject of this rather narrow debate. Changing social habits, the growth of off-licences, the tendency of supermarkets to sell large quantities of alcohol to people to drink at home with friends and the drink-driving laws have had a major influence on pubs, not to speak of the temptation of some large breweries to kit out their pubs in a standard manner that makes them look more like building societies than pubs and has detracted from the character and individuality of many traditional British pubs.

There are other factors, such as the longer-run arguments about alcohol consumption and points that I have tried to raise with the hon. Member for Bristol, South (Ms Primarolo). There is no doubt from the figures that the average industrial worker now has to work significantly fewer hours to be able to afford a bottle of scotch or a pint of beer than 20, 30 or 40 years ago. The real price of alcohol has fallen, with some adverse consequences for medical and health problems, which is the point that I raised with the hon. Lady. It is rather surprising that the hon. Member for Bristol, South has made such a swift, easy transition from her shadow health duties to the shadow Treasury portfolio. She has clearly forgotten many of her party's arguments about the desirable health effects of discouraging excessive alcohol consumption by raising the real price of alcohol.

Ms Primarolo: That is exactly the point. Large amounts of alcohol are being smuggled into the country. The Treasury statistics on how much is coming in illegally and how much duty is lost are disputed. If alcohol is

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coming in unregulated, children and young people have greater access to it. Therefore, health problems are increased, not decreased.

Mr. Forman: The hon. Lady has a small point. According to the best estimates of Customs and Excise, the amount of alcohol that is imported illegally is not significant--less than a fifth--compared with the total volume of alcohol consumed.

Mr. Malcolm Bruce: I understand the hon. Gentleman's point, but, leaving aside the smuggling issue, does he accept that the price of drinks over the bar is a relevant calculation because in every other European country drink is cheaper than it is at home, which encourages more British holidaymakers to go abroad rather than to stay at home and discourages others from coming here? That fact should be taken into account.

Mr. Forman: That might be a factor for keen drinkers, particularly those who enjoy continental wine, for example, but I doubt whether it is a determining factor when most families decide whether to go abroad or to stay at home, or perhaps not to go on holiday at all. Opposition Members have been remarkably coy in stating where the revenue would come from if their amendment was successful. There is no doubt that my right hon. and learned Friend the Chancellor needed to find the extra revenue in fairly short order. I have heard no suggestion of how Opposition Members would make up the shortfall. Would they simply allow it to be added to the public sector borrowing requirement, with all the unforeseen consequences that that could have for interest rates?

Sir Ivan Lawrence: The hon. Member for Renfrew, West and Inverclyde (Mr. Graham) suggested that perhaps the evil was that the Government have not taxed champagne enough. Perhaps Opposition Members propose to tax champagne socialists more.

Mr. Forman: That might be so. Perhaps certain future gatherings in Brussels will prove less attractive if that policy is followed. I wish to end my speech on a fairly serious and contained point, on which I would appreciate a comment by my hon. Friend the Minister. Has he heard from the Opposition how they would make up the revenue shortfall?

Mr. George Stevenson (Stoke-on-Trent, South): I am a sponsored member of the Transport and General Workers Union, and I represent many people employed in the brewing industry. As a result of the proposed tax, many of them are likely to lose their jobs in the near future.

Just before 29 November, I met representatives of the Midlands Brewery Society in my constituency. They were at pains to say once more to me, as they had said to many other hon. Members, that, if there was no movement in the duty on beer, they would face a serious and disastrous situation. I asked them to clarify what they would experience if there was an increase. They said that, after detailed consideration--they did not pluck the figure out of the air--10,000 jobs in the industry would be lost, either directly or indirectly. I have heard no Conservative Member challenge that figure.

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Every speech that I have heard this evening has suggested that the duty will cost jobs in the whisky and beer industries and elsewhere. It is a tax on jobs. The Government continually tell my hon. Friends that the Opposition's taxation policies will cost jobs, so it is ironic that tonight the same Government-- with the support of their Back Benchers-- will vote for a tax that will certainly cost jobs. I was fascinated and intrigued by Conservative Members who suggested that they were seriously concerned about the tax. The hon. and learned Member for Burton (Sir I. Lawrence) and the hon. Member for Hastings and Rye (Mrs. Lait) made that suggestion, but then scurried into their bolthole and camouflaged their concerns by blaming the Labour party for the tax. We are proud that we were able to play a significant role in thwarting the imposition of 17.5 per cent. VAT on fuel, which the country supported. Conservative Members who say that it is the Labour party's fault that taxation has been put up to levels that we have never experienced in modern peacetime, when it is a result of the incompetence of the Chancellor and of the Government, are pushing credibility to the extreme.

I asked my constituents what they thought about the Chancellor of the Exchequer not putting any duty on beer in his original Budget statement. They did not believe it-- they were incredulous about it. They did not believe that the Government meant anything that they said about taxation. They thought, too, that the Government were trying to discourage them from drinking beer and to encourage them to drink champagne. The Government failed on the latter aim, and within nine days they had failed my constituents on the former one. Hon. Members have stated that the Government should urgently seek dialogue with other European Union member states to try to equalise the taxation regime so that we can make progress on what is undoubtedly a serious problem-- the massive difference between tax regimes. The problem has been described by many hon. Members on both sides, and I have no wish to repeat their comments.

The Government cannot be serious about any such moves. In a previous life, I was a Member of the European Parliament and I clearly remember the Commission making proposals to harmonise excise duties on alcohol and tobacco. I remember that the first Government to reject any such moves was the British Government. I do not think that the assurances that the Government have apparently given can be serious.

Let us speculate on the negotiating position of the Government if they told other member states that they wanted to debate harmonising excise duties on alcohol and tobacco. They would be asked why they wanted to do so, and they would reply, "We have just increased ours and we expect you to do the same." I must challenge that negotiating position, as it is absolutely incredible.

I can well imagine the Prime Minister or the Chancellor saying from the Dispatch Box that such moves were to be made. The independent Tory party-- those hon. Members who described themselves at the weekend as the real Tory party-- would not stand for that. Given the Government's current policy on the European Union, there is no possibility that any move will be made on the crucial issue of harmonising taxation, even if it were the right thing to do.

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Given that scenario and the concerns expressed by hon. Members about the Government's panic measure, two things should be done. The first is that the House should vote against new clause 2; the second is that the Government should urgently propose measures that would enhance Customs' ability to stop the illegal trade. Instead, they are making cuts in Customs and Excise. If we can do those two things, the House will be able to face the arguments that are being put outside with some credibility.

The Paymaster General: The Opposition have announced their opposition to the measures before the House. At other times, the Labour party certainly has supported higher taxes on alcohol and tobacco on health grounds. That is an interesting reversal of a long-standing policy. [Interruption.] I am responding to a point made by the hon. Member for Bristol, South (Ms Primarolo), who quoted with approval the example of Denmark. The Danish Government cut alcohol duty in response to large-scale cross-border shopping across its land border with Germany. They made a cut of 48 per cent. in beer and wine duty, yet consumption rose only slightly. The Danish Government then had to find compensatory tax increases elsewhere. If the hon. Lady is suggesting that we emulate Denmark, she must propose alternative sources of revenue.

That brings me to the point of costs. We would forgo £155 million if we were to accept what has been urged on us by the Labour party, which would create a large hole in Government revenue. If the Labour party wants to pose as a party of financial responsibility, it must tell us what new taxes it would replace the duty with, or what public expenditure cuts it would make.

The hon. Member for Gordon (Mr. Bruce) is quoted in today's newspapers rightly castigating and criticising the Labour party for constantly making expenditure promises without saying how they would be paid for. Yet the hon. Gentleman and his party support a reduction in revenue of £155 million a year-- a spectacular example of the pot calling the kettle black.

Another point made by the Labour party, and echoed partly by some of my hon. Friends, concerned the efforts made by Customs and Excise to counter the smuggling of alcohol products. The hon. Member for Bristol, South got into a muddle about the Inland Revenue and Customs and Excise staff who are supposed to be deployed in anti-smuggling efforts. She said that there were to be cuts in staff. I can confirm that the number of excise verification officers deployed in anti-smuggling duties will not be cut.

Mr. David Shaw (Dover): Will my hon. Friend confirm that the Government intend to maintain the levels of prosecutions and of Customs officers at Dover port who check on smuggling? Will he further confirm that the Government will do everything possible to fight smugglers and to stop smuggling?

Mr. Heathcoat-Amory: I can confirm that, and inform my hon. Friend-- if he does not know already--that an extra 12 excise verification officers have been deployed to Dover in response to concerns expressed by industry and representations made by my hon. Friend.

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My hon. Friend the Member for Bristol, North- West (Mr. Stern) asked what is to happen to the increasing quantity of seized goods. We are considering a policy of sale without undermining the legitimate trade that we are seeking to protect.

The general point that I should like to make to my hon. Friend and in particular to my hon. and learned Friend the Member for Burton (Sir I. Lawrence) and my hon. Friend for Hastings and Rye (Mrs. Lait), both of whom have persistently raised it with me, is that we are concerned to protect the legitimate trade and will pursue harmonisation through the European Union, although we would not want to lose our essential fiscal sovereignty over our excise duties. We have ensured that the biennial review, the first report of which was due by the end of last year but which was delayed, includes, at our insistence, a clause that requires the council to

"take into account the proper functioning of the internal market and competition between the various categories of alcoholic drinks."

Sir Ivan Lawrence : Will my hon. Friend give way?

Mr. Heathcoat-Amory: Will my hon. and learned Friend forgive me if I do not do so? I know that the House wishes to come to a resolution, but I want to respond to a point made by the hon. Member for Moray (Mrs. Ewing).

I assure the hon. Lady that we have the interest of the spirits industries firmly in mind. That is why we froze excise duty on spirits in the past three Budgets and, if we had had our way, we would have done so in this Budget too. But because of the House's decision to reject the 17.5 per cent. VAT rate on fuel, we needed to look elsewhere to restore revenue. The Government do not have the luxury of seeing revenues reduced without the obligation to replace them, but I remind her and the House that the duty on spirits will have reduced in real terms by more than 16 per cent. since 1985, even with the increase proposed in the new clauses.

The Chairman of Ways and Means (Mr. Michael Morris): For clarification, I should say to the Committee that I shall put a minimum of five Questions: first, That the new clause be read a Second time; secondly, the amendment; thirdly, That the new clause be added to the Bill; fourthly, That new clause 2 stand part of the Bill; and, fifthly, the amendments.

Question put , That the clause be read a Second time:--

The Committee divided: Ayes 290, Noes 251.

Division No. 44] [8.11 pm


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Ainsworth, Peter (East Surrey)

Aitken, Rt Hon Jonathan

Alexander, Richard

Alison, Rt Hon Michael (Selby)

Allason, Rupert (Torbay)

Amess, David

Ancram, Michael

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Sir Thomas (Hazel Grv)

Ashby, David

Aspinwall, Jack

Atkins, Robert

Baker, Nicholas (North Dorset)

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