Finance Bill

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Mr. John Burnett (Torridge and West Devon): I welcome to you to the Chair, Dr. Clark. I was fortunate enough to serve under your chairmanship last year, when I made the occasional guest appearance in the Committee considering the Finance Act 2000. I appeared to discuss tonnage tax, capital gains tax and one or two other points, but I served at the same time on the Committee considering the Limited Liability Partnerships Act 2000. It is difficult to judge exactly which Bill was the more riveting. I should declare an interest: I was a lawyer practising in taxation. I no longer practice, though I may, of course, practice again in the near future; we do not know.

The clause threatens 20 jobs in my constituency and other jobs elsewhere. I believe that it will yield about £150,000 in duty, although I look forward to hearing the Financial Secretary's estimate of the yield. The clause could not have come at a worse time for my constituency, which, the Committee will know, has been disastrously impacted by foot and mouth. Indeed, we have had about 120 confirmed cases; but that is just the tip of the iceberg; we have had hundreds and hundreds of contiguous culls. Farming has been almost wiped out in my constituency and the effect on tourism—allied trades and tourist attractions—is catastrophic. To have the clause on top of that is asking too much.

Dilution post-duty is not a process used by the two large cider-making companies—Bulmers and Matthew Clark, who control about 90 per cent. of the cider market. It is used by smaller cider makers who cannot afford a bond of £250,000. The Treasury has described the process as tax avoidance. It involves taking duty-paid cider and diluting it slightly, by no more than about 6 per cent. The total duty paid is on the diluted amount, so obviously there is a small duty saving. That is an anomaly, but a perfectly legitimate one that has been used continuously since cider duty was introduced in 1976. So I am speaking for small cider producers—quality producers who make their cider from genuine apple juice and not from imported apple concentrate. I believe that the anomaly— I acknowledge that it is an anomaly—should be phased out slowly, not suddenly. It helps the small cider producer who cannot afford the cost of a bond. Secondly, the small cider producers pay duty on ullage and spillages, which they would not do if they bottled with the benefit of a bond or had the benefit of a bonded warehouse. Thirdly, the small cider makers pay their duty up front. Larger manufacturers who have the benefit of a bond do not have to do so.

I hope that the Financial Secretary will think again about the clause, and that he will give at least 12 months notice before implementation. I remind the Financial Secretary that there are existing contracts, with existing prices. Companies must have time to allow existing contracts to determine by a fluctuation of time. This has been a legal activity until now and there should be reasonable and commercial notice of change, so as not to prejudice small companies. It is suggested that big business has sought to impose its views on Government. Those views, if enacted suddenly and without notice, would prejudice and damage many small producers up and down the country.

Mr. Jack: I support the hon. Gentleman's remarks, and am concerned about signs of dissent from other Committee members.

Mr. Burnett: I detect support from the Committee.

Mr. Jack: I am grateful to be put right, because I have received a letter from Devon Contract Packing Ltd of North Tawton, Devon.

Mr. Burnett: North Tawton is in my constituency.

Mr. Jack: Indeed it is. What struck me was that if a company has a bond, it cannot operate the dilution post duty process. It is an either/or situation. Given that it has been legal for 25 years, there is no justification for the Government's move in paragraph (2) of the Customs and Excise press release issued on Budget day. What particularly caught my eye was the definitive statement that

``this has the full support of the National Association of Cider Makers'',

as if they are the ones who are justifying work in this area. Mr. McIlwraith—the chairman of Devon Contract Packing Ltd—says, however, in his letter:

``The largest Cider producers in the UK have sponsored this proposed change in the law for their own commercial benefit. The change was not put forward, as has been suggested by the National Association of Cider Makers but by the two largest manufacturers, privately, after an NACM meeting.''

I ask for the Financial Secretary's observations on that point. It would be a sad day if the proposal had resulted from big cider makers ganging up on small, less vociferous opponents. What the cider makers are doing is supposed to be a tax-avoidance measure, but the press release states:

``The Government also announced that it would be tackling a tax avoidance practice.''

That practice has been going on for 25 years, so it happened under the previous Labour administration. They did not think it was a bad deal, and nor did we in our 18 years. There is no indication of the level of abuse. The cider makers themselves calculate that £150,000 of duty is at stake. However, there is no justification whatsoever in terms of the Government's position—

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

The following Members attended the Committee:
Clark, Dr. Michael (Chairman)
Allen, Mr.
Bailey, Mr.
Banks, Mr.
Barnes, Mr.
Bennett, Mr.
Burnett, Mr.
Clappison, Mr.
Davey, Mr.
Dobbin, Mr.
Donohoe, Mr.
Flight, Mr.
Hendrick, Mr.
Jack, Mr.
Johnson, Miss Melanie
Kilfoyle, Mr.
Letwin, Mr.
Luff, Mr.
Michael, Mr.
Ottaway, Mr.
Roy, Mr.
St. Aubyn, Mr.
Smith, Mr. Andrew
Taylor, Mr. David
Taylor, Mr. Matthew
Timms, Mr.

 

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Prepared 26 April 2001