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Mr. Stephen O'Brien (Eddisbury): A representative of a small brewer, Weetwood Ales, attended the first surgery

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that I held after winning the Eddisbury by-election to say that he hoped that we would all sign early-day motion 125 on progressive beer duty because the brewery, as a rural employer, was suffering from being penalised.

Mr. Baldry: I am not surprised that beer duty was one of the first issues to be raised with my hon. Friend after he became a Member of Parliament. The early-day motion attracted considerable support from all parties. I shall comment further on that.

Excessive beer duty causes chronic problems for rural pubs and leads to closures. One and a half million pints of beer that are consumed every day in Britain are bought in France and drunk at home. Many rural communities have no pub. According to the Rural Development Commission, 40 per cent. of communities with a population of 1,000 are publess and 40 per cent. have only one pub. Do the Government want to stand by while more of the heart is taken out of our rural communities?

The problem is not confined to the country pub. The family brewing industry, which offers good jobs and provides excellent training, has suffered a series of closures in the past two years. Only 65 breweries remain in Britain--10 fewer than last year. Two brewers, Gibbs Mew and Eldridge Pope, were forced to close last year. More recently, Morrells, one of the country's longest standing family brewers, which is based in Oxford, announced its intention to sell. In the past six months, Maclays and Mitchells have withdrawn from brewing. Clearly, such haemorrhaging, if it is allowed to continue, will threaten the future of the small and medium-sized brewery, such as the 150-year-old Hook Norton brewery in my constituency. Most family breweries are located in rural areas. Again, Government inaction hits the countryside hard. The bootleggers will continue to suck the rural economy dry.

The family brewer and the public house are more closely tied as the family brewer constitutes the largest group of tied tenancies in this country. Partnerships are often forged over many years of working with a local brewer and providing a real service to local communities. Last year, nearly 700 of those pubs closed. The Government should help them as they are often the last bastion of village community life when the school and the shop have closed. Pubs provide good job opportunities that may not otherwise be available in small towns and villages, and harming them will harm job opportunities. That would lead to a loss of revenue that would be laid at the Government's door. It is preferable for jobs to remain in this country, so why do the Government not support the approach that we suggest?

As a short-term compromise, the Society of Independent Brewers and the Campaign for Real Ale have argued for a progressive beer duty, which would mean that small brewers--those who produce less than 30,000 hectolitres a year--would pay only half the excise duty. My hon. Friend the Member for Eddisbury (Mr. O'Brien) alluded to the recent early-day motion which supported that proposal and attracted 155 signatures from all parts of the House. The Society of Independent Brewers rightly argues that that positive measure would revitalise the United Kingdom brewing industry and, as small breweries tend to be located in rural areas, it would provide a tremendous boost to those communities. Therefore, a progressive beer duty would substantially support the family brewing industry and the rural economy.

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The only long-term solution is a significant reduction in the rate of beer tax, not half-measure compromises. The Government must reduce beer duty in line with that in France to undermine cross-border bootlegging and shopping, and simultaneously stimulate economic activity in brewing and the country pub, and ultimately increase the revenue to the Treasury. That is the only realistic way in which to preserve this important rural industry and reinvigorate the rural economy, which the Government are neglecting. I very much hope that the Government will take heed and seek to ensure that family brewers in this country can continue brewing well into the next century and beyond.

9.30 pm

The Financial Secretary to the Treasury (Mr. Stephen Timms): I congratulate the hon. Member for Banbury (Mr. Baldry) on securing this debate. I listened with great interest to his speech and his remarks about the Hook Norton brewery in his constituency. I join him in wishing that brewery another 150 years of successful trading. I hope that, after hearing my contribution, he will feel that there are grounds for optimism and for believing that that organisation and others will continue to flourish in years ahead. The Government certainly value the important contribution that independent family breweries make to the beer industry and the economy as a whole. They bring diversity to the market and, as the hon. Gentleman said, provide employment opportunities for their local community.

I remind the hon. Gentleman about the important role of alcohol duties in general, and beer duty in particular, in financing public services. In the past financial year, we collected £5.967 billion from alcohol duties in general, and beer accounted for £2.7 billion of that. I do not agree with the hon. Gentleman that high taxation is putting small breweries and pubs out of business. There are many reasons for the failure of commercial enterprises, and it is much too simplistic to blame duty rates for breweries and pubs closing. From time to time, village shops close. The hon. Gentleman needs to look elsewhere for the explanation for the closures.

In the light of what the hon. Gentleman said, I believe that he may be surprised to learn that alcoholic beverages are now taxed less heavily than they were at the introduction of the single market. Since January 1994--when, if I remember rightly, the hon. Gentleman was a member of the Government--excise duty on beer has fallen in real terms by more than 6 per cent. He made several comments about Conservatives' beliefs on this issue, but they did not appear to hold those beliefs when they were in government.

In addition, the proportion of duty to the cost of a pint has fallen. In 1982, tax represented 38 per cent. of the retail price; today, tax makes up less than 30 per cent. of the price. Despite lower taxation on beer in real terms, the retail price of beer, particularly in the on-trade, continues to rise faster than the average rate of increase in prices in general. The retail price of on-trade beer has risen above the rate of inflation throughout the 1990s.

When the Chancellor increased duty by 1p a pint in his 1997 Budget, price increases by a number of brewers put up bar prices by 8p a pint. Within two weeks of the Chancellor announcing his freeze on beer duty in the

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previous Budget, one large brewery announced a price increase of up to 6p a pint, and that action was followed by three of its major competitors. Taking January 1987 as 100, the retail price index for all items for August 1999 was 165.5, but the price of beer on the same index was 205.8.

There may be many good commercial reasons for that; nevertheless it is inaccurate to attribute high prices of beer in pubs solely to duty rates. I remind the hon. Gentleman also that the Chancellor's decision to freeze beer duty in the previous Budget represented a cut in duty in real terms. Of course, some in the beer industry argued that the Chancellor should have gone further. The Opposition suggested a 74 per cent. cut in beer duty during the passage of the previous Finance Bill. That proposal would have cost the Exchequer about £3.3 billion in total, including the consequent effect on the rate of duty on wine because, of course, the rates of duty on beer and wine are linked. The cut would have been equivalent to an income tax rise of almost 2p in the pound or a 1 per cent. rise in VAT. The Conservative party did not suggest how that money should be recouped.

The hon. Gentleman made the point that the industry argues for a progressive movement towards approximation with duty levels elsewhere in the European Union--in France, for example. However, reducing alcohol duty rates to French levels would cost more than £5 billion in lost duty and VAT--about 3p on the basic rate of income tax or two percentage points on VAT. Changes on such a scale are simply not realistic, which is no doubt why the previous Government did not move in that direction either.

The hon. Gentleman rightly drew the House's attention to the effects of smuggling, which is undoubtedly a significant problem. He used the problem to support the arguments for drastic cuts in duty. That must be put into perspective. Revenue lost through legal and illegal consumption of imported alcohol amounts to about 2 per cent. of total revenue from alcoholic drinks.

We take criminal activity extremely seriously. Smuggling and fraud deprives the Exchequer of much-needed revenue and threatens law-abiding businesses that want to make an honest living, but we cannot afford to let it undermine our policies and revenue objectives. That is why we initiated the alcohol and tobacco fraud review, which, in consultation with the industry, recommended a comprehensive set of measures to tackle fraud and smuggling. The hon. Gentleman referred to some of the outcome of that review.

As a result, a vigorous programme of counter-measures is being implemented, we have deployed an additional 145 staff--most of them in the front line--and new regulations aimed specifically at tackling commercial fraud are being put in place. We are urging the courts to use all sanctions available against regular offenders who, for example, now face losing their vehicles permanently if they persist in smuggling. Where retailers who are members of the licensed trade are convicted of smuggling offences, Customs and Excise can and does seek revocation of liquor licences.

Customs has recently joined forces with Camelot to fight alcohol and tobacco fraud. As a result, national lottery retailers who are convicted of selling or

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distributing smuggled alcohol and tobacco could lose their lottery terminals. With annual commission of around £7,500, selling national lottery tickets is often an important part of a retailer's business. That is, therefore, another powerful measure. By working together with other agencies in that way, we are taking steps to crack down on law-breaking, and so help to protect innocent businesses that are not involved in selling smuggled products.

Tougher policies and better targeting are biting, and, as a result, Customs is reporting increasing levels of success against smugglers. In the financial year 1998-99, the tax value of detections by Excise verification officers and anti-smuggling staff rose to £140 million from £76 million over the previous year. In the same period, Customs investigators prevented revenue evasion totalling almost £1 billion--£986 million.

Cutting UK duty rates is not the answer; it is unlikely to stop smuggling and fraud. It is true that price differentials across national borders play a part in the incentive to smuggle, but duty is not the only factor in establishing price.

Some argue that duty rates and consequent competition from imported beer, whether smuggled or purchased legitimately by travellers--the hon. Gentleman referred to this--are directly to blame for pubs and breweries closing. l am aware that some local pubs have closed, but a range of factors are at play--not least brewers' commercial decisions, which are driven by their aim to maximise profits and minimise costs, as one would expect, and which reflect similar decisions taken in other business sectors.

Shepherd Neame, for example, stated in one of its annual reports that part of its future strategy is to

Interestingly, Shepherd Neame has opened its own pub in the Pas de Calais, where it charges more for its Spitfire beer than it does in its Kent pubs, despite the very much lower duty in France. I applaud the company for its entrepreneurial skills, and I hope that thousands in the Pas de Calais will switch to Spitfire beer as a result, but that places a question mark against claims that duty is to blame for increasing the price of beer in the United Kingdom.

Long-term changes are occurring in consumer tastes--especially, in the UK, an increasing preference for wine. Beer's share of the alcoholic drink market fell from 65 per cent. in 1977 to 54 per cent. in 1998, and in the same period, the share accounted for by wine increased from 10 to 20 per cent. An article in the 1 November edition of The Licensee and Morning Advertiser, of which I am sure that the hon. Gentleman is a keen reader, suggests that a likely reason for the shrinking beer market is the breadth of competition that traditional brewers now face from premium packaged spirits, such as Bacardi Breezers, and the growing availability of reasonably priced quality wine. Many underlying trends are contributing to the visible changes.

The proportion of drinkers who drink beer is falling. Interestingly, the share of the alcoholic market in France accounted for by wine is falling. Change is taking place throughout Europe, and we should not be too surprised about what is happening in the UK.

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Social changes are affecting people's drinking habits. Increasingly, drink-drive laws are persuading people to drink at home. In absolute terms, the amount of beer consumed in the on-trade has decreased by about11 per cent. since 1989. In the same period, off-trade sales have increased in volume by more than 50 per cent. The closure of some local pubs, obviously affected by those changes, also reflects a wider general social trend.

As the hon. Gentleman said, some breweries--such as Scottish Courage's Bristol brewery and Whitbread's Cheltenham and Castle Eden breweries--have closed, but that seems to be generally a result of the rationalisation that the sector is undergoing to reduce overcapacity in the industry. Other breweries have been subject to takeover; the hon. Gentleman mentioned the acquisition of Marston's brewery by Wolverhampton and Dudley's. Such takeovers appear to result from the desire to achieve efficiency gains and market position.

Nevertheless, in the past 12 months, strong results and increased profits have been reported by many brewers of all sizes, including independent family brewers. Perhaps the hon. Gentleman will allow me to quote CAMRA's news release of 21 June. It said:

I am not sure what is meant by "official sales figures" in that context--

    "which indicate a decline, real ale remains central to the success of many family and regional brewers."

Examples follow.

    "Young's of London--profits up . . . 31 per cent.

    Fuller's of London--. . . up 21 per cent.

    Belhavens of East Lothian--. . . up 15 per cent.

    Gale's of Hampshire--. . . up 13 per cent.

    Timothy Taylor of Keighley--output up, spending £150,000 on new brewing equipment

    Arkells of Swindon--profits up and pub estate growing

    Saint Austell of Cornwall--investing £1 million in its brewery

    Shepherd Neame--investing £1.5 million in its brewery".

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    In the past year, the share of the beer market accounted for by the 55 regional brewers has increased from 6 to7 per cent.

The number of microbreweries is pretty healthy. During the 20 years since 1980, the number of microbreweries has increased from 191 to 340. We closely monitor the performance of the industry at all levels, and all these factors are taken into account by the Chancellor in his Budget decisions. The trade can, as always, make its views known to the Chancellor before the next Budget.

I ask the hon. Gentleman to treat with caution the figures that he quoted with regard to the effects of a 20 per cent. cut in beer tax. He was referring, I think, to research commissioned by the trade and carried out three years ago. That is simply wrong. It would be wonderful to think that cutting taxes could have that effect, but the reality is rather different.

I shall quote a much more recent study on alcohol taxes, tax revenues and the single European market, which was published just last month by the Institute for Fiscal Studies. I commend to the hon. Gentleman the view of the IFS. It states:

The trade has moved away from the 1996 study, recognising that it is not a dependable indicator of what would happen if there were a tax reduction.

The previous Government, of which the hon. Gentleman was a member, did not go down that road. The hon. Member for Eddisbury (Mr. O'Brien), who intervened in the speech of the hon. Member for Banbury, is innocent of that charge, but the hon. Member for Banbury is not.

I hope that I have succeeded in explaining to the hon. Gentleman and the House the basis of the Government's approach to these matters. Of course, when the time comes, the Chancellor will take a decision about the rate of beer duty in the Budget.

Question put and agreed to.

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