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Mr. Ruffley: The hon. Gentleman is developing a powerful argument. Is he aware that his arguments on the bogusness of hypothecation are strongly supported by the Institute for Fiscal Studies, a body that the Labour party, and, indeed, the Liberal Democrats, are so keen to pray in aid in these matters?
Mr. Ross: I have read different comments by that body, but the hon. Gentleman is correct to say that it recognises the smoke and mirrors in the whole hypothecation argument.
Having said that about the Chancellor, I have to say that his figures are being contested. I understand--at least, my researchers tell me--that in the November 1999 pre-Budget report, he announced the hypothecation of tobacco receipts. He said that the yield of a 5 per cent. real increase would be £300 million. Just before the March Budget, the Minister for Public Health talked of £250 million. In his Budget, the Chancellor spoke of £300 million, and on 5 April the Prime Minister told the House that the figure was £400 million--a figure confirmed by the Chancellor the following day.
In the light of the reliability of the statements by the people running the Government's finances, we need to view those figures with a certain caution. Few taxes are as counterproductive as those on alcohol, tobacco and road fuel. The policy that was embarked on a good many years ago has been shown to have run its course. It is time to think a new way forward.
I am sorry that the right hon. Member for Bromley and Chislehurst (Mr. Forth) has left the Chamber--[Hon. Members: "He is still here."] Oh, yes, so he is. He was attacked for what he said about the different levels of taxation across borders, but I wonder, as I am sure he does, whether open borders and different levels of taxation can really co-exist.
Mr. Ruffley: In supporting amendment No. 1, I want to advance an argument from an important part of the British economy, the brewing industry--in particular, a distinguished company in my constituency, Greene King. I want to explore an argument that it has advanced. In its view and that of the analysts who advised it, their suggestions would reduce the pernicious effects of alcohol smuggling.
The margins on smuggled beer are such that smuggling could rapidly become much less profitable were there to be a cut in beer duty. Greene King argues that a cut of about 2p per pint would be enough, at the margin, to ensure that fewer smugglers would be prepared to run the risk of smuggling beer from France to this country and, in particular, to East Anglia. It suggests an initial cut of 2p to reduce the profit element from bootlegging. That is a modest enough proposal, bearing in mind the fact that, as has been observed in the debate, the excise duty on a pint of beer in France is equivalent to about 5p, whereas in the United Kingdom it is about 33p.
The tax regime for beer has not leapt into life since 1 May 1997. I am not inviting the Committee to believe that all the problems that beer producers are experiencing are due to policies set in the past three years or so. However, I am inviting it to recognise the clear fact that beer sales have declined over the past decade, which has led to closures of breweries and public houses. The figures do not make happy reading. Sixteen of the largest 85 breweries have either closed, or their closure has been announced, since May 1997. The Countryside Agency has recently warned of its concern on behalf of rural areas that, every week, six village pubs close.
I need no convincing of the genuine fear that publicans and licensed victuallers in my constituency of Bury St. Edmunds have about their future if the tax regime is not amended by a modest 2p cut in duty. I have visited country pubs in my part of Suffolk and the message is loud and clear: the Government should listen and entertain the possibility of duty cuts.
I do not wish to get into an arcane but doubtless interesting debate with the hon. Member for Kingston and Surbiton (Mr. Davey). I do not wish to logic chop about what Crawford, Smith and Tanner did or did not say in volume 20, issue No. 3, 1999, of "Fiscal Studies" about own-price elasticities or cross-price elasticities, save to say that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) threw some serious spanners in the works of the hon. Gentleman's argument by observing that, in different countries, the assumptions on elasticities can be subjective.
It ill-behoves any hon. Member to base an indirect tax policy on one or two academic studies that do not prove to be conclusive. Intuition and basic economics suggest that there can be cuts in beer duty without necessarily seeing a decline in revenue.
Mr. Ruffley: I did not want to go down this avenue, but the hon. Gentleman tempts me.
Mr. Davey: If the hon. Gentleman does not want to have the debate on price elasticities, how else does he want to decide the issue about whether the taxes should go up or down? Has he invented some new science?
Mr. Ruffley: Because of time, I do not wish to go into detail. I do not accept the hon. Gentleman's argument that if Crawford, Smith and Tanner say that the policy will lead to a decline in revenue, it must be so. It is one academic study, doubtless backed by some Treasury economist. For the hon. Gentleman to say that for all time and in all cases one academic study proves the case is not realistic politics. He is not living in the real world. I would like an argument, but I say merely that I do not accept that we can base a whole tax system on one or two academic studies.
The scale of the problem needs to be debated. The figures that the brewers and licensed retailers have produced on the volume of bootlegging into this country makes fairly depressing reading. For my region of East Anglia, I have figures on the destinations of white vans carrying beer. The estimate for the total number of vans travelling into London in 1999 was 12,690. Of the top 20 destinations, in my region the estimate for Chelmsford is 4,790 and for Peterborough it is 1,870. Those statistics are very real for publicans and licensed victuallers in my constituency. They think that the stuff is flooding into the centres of Chelmsford and Peterborough and percolating into market towns and surrounding areas in Bury St. Edmunds.
The evidence--[Interruption.] If the hon. Member for Kingston and Surbiton wants to witter away from a sedentary position, he is welcome to do so, but does he want to intervene?
Mr. Ruffley: The impact on the rural economy is such that Greene King must have a point. With beer duty set at the level that it is, it is a regressive tax hitting hardest those who can least afford to pay it. It impacts on the livelihood and viability of pubs, particularly those in villages. The rural economy, at the margin, is affected by that process.
7 pmAs we have heard from the hon. Member for East Londonderry (Mr. Ross), the high beer tax increases introduced by the Chancellor since the Government took office are having a corrosive effect on the United Kingdom's law and order regime, and in influencing whether individuals obey the law or succumb to the temptations that have been created to break the law. The Government said that they would be tough on crime and tough on the causes of crime, so the effect of their tax increases should give them some pause for thought. They say that they are tough on inflation, but every 1p increase in beer duty increases the retail prices index by 0.15 per cent.
The Government are also happy to pray in aid the virtues--there are virtues--of the single-market regime, but their policy and practice on beer duty is deeply antipathetic to the European single market. The Committee will need no reminding of the Council of Ministers decision in 1992 that future beer duty changes should be directed towards achieving the common market rate of about 8p on an average pint of beer.
Most European countries have made considerable progress towards achieving the common market duty rate. Since 1992, France and other low duty countries have doubled or trebled their duty rates. Conversely, Sweden, Denmark and Norway have made considerable reductions to achieve the target rate. Only one country--the United Kingdom--has moved significantly away from the target rate. Nevertheless, the Government claim to be at the heart of Europe.
Although I do not agree with very much of what comes out of Brussels, I think that the United Kingdom Government should be taken at their word. If they are serious about the European single market and trying to make it work, they should listen to the voices of brewing and to people at Greene King. Ministers should intelligently examine the possibility of making modest cuts in beer duty--to save jobs in rural areas, to save our pubs and to maintain a vibrant village pub life in the United Kingdom.
Mr. John Swinney (North Tayside): The hon. Member for Kingston and Surbiton (Mr. Davey) wondered what might be Conservative Members' central proposition in this debate. I believe, after much careful listening, that their basic argument is that a lower differential in tobacco and alcohol prices between the United Kingdom and our European partners would reduce smuggling. Although that point is clear, I think that it significantly over-simplifies the argument. Even if the point could be proven--today, the Committee has heard enough conflicting evidence on the point to debate it endlessly--it does not provide a full explanation.
The decisions that a society makes on alcohol duty, tobacco duty, vehicle excise duty and road fuel duty--which the hon. Member for East Londonderry (Mr. Ross) dealt with in his speech--are based on a variety of perspectives and objectives. Revenue raising could be one of the Government's objectives in setting duty levels. Alternatively, duty levels could be set to try to generate a particular outcome.
The present and previous Governments have increased road fuel duty well in excess of inflation in an attempt to reduce vehicle use. However, as any hon. Member
representing a rural constituency could tell any Government, increasing that duty to achieve that objective is an utter waste of time, because our constituents in rural constituencies have no alternative to using their cars. Increasing that duty to achieve that objective has therefore been particularly useless.Tobacco or alcohol duty may be increased to achieve other objectives, such as to improve public health, essentially by saying to people, "Smoking and drinking may not be terribly good for you, and you should think twice before spending your money on them."
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