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Scotch Whisky Industry

1 pm

Angus Robertson (Moray): I am pleased to have the opportunity to initiate a debate on the Scotch whisky industry, which is responsible for much of the country's exports. It is a significant employer and provides hundreds of millions, if not billions, of pounds of taxation revenue to the London Treasury.

I should begin with a declaration of interest, which is not confined to a personal, though moderate, recreational tasting interest. My first job was at the Scotch Whisky Heritage Centre on Edinburgh's Royal Mile. That has been superseded by my responsibilities in representing Moray, the constituency that contains more than 50 per cent. of Scotland's malt whisky distilleries. I am also vice-chairman of the all-party group on Scotch whisky, and I pay tribute to Margaret Ewing, my predecessor in that post and in the House. She was a doughty fighter on whisky issues in the House and continues to be so in the Scottish Parliament.

Maintaining a close interest in all Moray's whisky producers is not always easy, especially at election time, when it is necessary to tour the region's fine distilleries. Of course, it would be rude not to sample the product—in moderation, I hasten to add. Discipline is called for, given the number of distilleries. One can at least rely on the knowledge of numerous genuine experts in Moray, such as Peter Brown of Craigallaichie hotel, whose encyclopaedic knowledge covers all 436 single malts, a large selection of blends and the vatted malts at the Keeper of the Quaich bar.

The whisky industry in Moray is vital, owing to the considerable direct and indirect employment that it provides in the constituency, from the stillmen, the coopers, peat cutters, farmers, hauliers, tour guides, managers and office staff. Moray is home to world-renowned bottlers, retail outlets and experts, such as Gordon & McPhail, the whisky shop in Duffton, and Malcolm Greenwood, the celebrated writer. For those who would like to know more, I recommend the new Scotch whisky course offered by Moray college.

One cannot accurately measure the importance of the whisky industry to local business and tourism, as it is immense. Yesterday, the highly successful Spirit of Speyside whisky festival ended. At the beginning of the festival, on Friday, I was delighted to be able to join hundreds of locals and tourists at the Coothie Doo Two ceilidh in Craigallaichie. That was a fantastic event, featuring a fly-over by Flight Lieutenants Colin McGregor and Andi McColl of the Tornado GR4 display team based at RAF Lossiemouth, in their aptly named fast jet Spirit of Speyside. It was a great example of the local partnership between the whisky industry and charitable and community causes. In this case, moneys were raised for the Children's Hospice Association of Scotland, Rachel house. I am sure that hon. Members will wish the appeal all the best.

The whisky industry is significant throughout Scotland. It is the second largest export industry in Scotland and the fifth largest in the United Kingdom. The industry directly employs more than 11,000 in Scotland and a further 30,000 are employed in related sectors. It is among the United Kingdom's top five export earners, generating more than £2 billion from

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sales a year, in 200 markets. The industry uses about 25 per cent. of Scotland's barley crop, and 70 per cent. of all Scottish grain is used in grain distilleries. It supports one in every 54 Scottish jobs, accounting for 5 per cent. of all manufacturing jobs, and spends £1 billion a year buying goods and services from local suppliers.

In 1999, the Fraser of Allander Institute produced a report for Allied Domecq. It identified that the Scotch whisky industry was twice as important as computer-related manufacturing, a third bigger than the oil and gas industries, 12 per cent. greater than banking, insurance and finance, 30 per cent. greater than mechanical engineering, and a third larger than the chemical industry. All those statistics underline the key importance of the Scotch whisky industry, and stress the need for the Government to provide the optimal conditions for it to flourish.

Over the years, commentators have established that the taxation regime at home and abroad is one of the most significant factors that determines whether whisky sells as much as possible. In recent decades, Scotch whisky has made great strides in markets such as Spain, Italy, the United States and the far east. Those areas generally have more benign tax regimes than the United Kingdom. Sadly, some of the worst taxation excesses are to be found in the UK, the state that benefits from massive revenues from the industry.

Currently, 66 per cent. of the price of a bottle of whisky is tax. Since 1973, the price of a bottle of whisky, including the excise duty, has been subject to value added tax, which is levied on the duty-paid price. That means that the price of a bottle of Scotch whisky is increased by and subject to a tax on a tax. On 10 occasions in 18 years of government, the Conservatives took the opportunity to raise the burden on the whisky industry. Perhaps that sad record is why no Conservative Member of Parliament is present today. The discrimination under the Conservatives has continued under the Labour Government, and duty on whisky is currently one and a half times higher than that on other competing beverages.

Although there has been some recent narrowing of tax discrimination against spirits, the discrimination remains and was continued in this year's Budget by a Chancellor who, of course, represents a Scottish constituency. Like the Scotch Whisky Association, the Scottish National party has been in favour of a 4 per cent. cut in whisky duty. Experts believe that such a measure would be revenue neutral, creating a higher demand for whisky and thereby maintaining duty and taxation income for the Treasury.

Most distilleries are based in rural areas such as Moray, and the distillery is often the lifeblood of the community. A duty cut for Scotch would have helped to end the competitive disadvantage that discriminates against Scotland's farmers and rural communities. Perhaps the Minister, in his summing up, will outline how long we must wait for an equalisation of duty under the Government's current policy.

I hope that the Minister will take the opportunity to clarify the recent and welcome U-turn by the Treasury, in which it dumped its controversial proposal to bring in strip stamps. The Government have consulted on introducing the costly anti-fraud strips on the top of bottles, despite evidence from other countries that they

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do not work. Luckily, a vigorous campaign by the Scotch Whisky Association, the Scottish National party and others made the Government see sense. However, Ministers still have to answer why they thought about introducing the daft scheme in the first place.

David Hamilton (Midlothian): I thank the hon. Gentleman for raising the issue. Like him, I enjoy a tipple or two now and again, and frequent the usual areas. Unfortunately, there are no distilleries in Midlothian, although East Lothian has the only lowland distillery.

Does the hon. Gentleman not give credit where credit is due? The Government are listening. They listened to Back-Bench Members who approached them, and to the whisky organisations, about the strip duty. It was a bad idea, but the Government had to consider it. He should give them credit for having withdrawn it.

Angus Robertson : Midlothian has the largest plant that produces labels for the Scotch whisky industry, so the hon. Gentleman has a direct and pressing interest in it.

I am grateful to the hon. Gentleman for mentioning other parties' opposition to strip stamps. Early-day motion 842 was tabled by my hon. Friend the Member for Perth (Annabelle Ewing), and we were grateful to receive the support of English Labour and Liberal Democrat MPs. However, I note with interest that not one Scottish Labour or Scottish Liberal Democrat MP chose to oppose strip stamps publicly. I am therefore grateful that the hon. Gentleman has, perhaps belatedly, joined the opposition to what I described as a daft idea. I welcome that greatly, and would be grateful for his support on similar campaigns while they are ongoing rather than over.

Why did the Government think about introducing strip stamps? That measure would have cost the Scotch whisky industry £250 million extra. The Government had no idea how much revenue strip stamps would raise, but application machines would have cost producers millions of pounds, forcing smaller businesses under.

In a recent debate on the subject in the Scottish Parliament, justifiable concerns about tax fraud were raised. Despite efforts by Labour Members of the Scottish Parliament such as Brian Fitzpatrick to support the case for tax stamps, more thoughtful contributions were made on the problem of inward diversion, which is tax fraud connected with whisky coming from the European Union to the United Kingdom. Of course, the primary difficulty is that excise duty in the UK is much higher than in other EU states. That creates an automatic incentive to fraudsters who want to avoid paying the higher rates of excise duty in the UK. Government efforts to deal with fraudsters should start with that point, rather than measures that penalise the whisky industry.

The key matter of minimum duty rates applied by the European Union also affects the Scotch whisky industry. The EU Commission has said that spirits, including whisky, are disadvantaged and that there is distortion in the market. With a new draft proposal by the Commission on the table, I would be grateful if the Minister clarified what efforts the UK Government are making to secure the best deal for the whisky industry and everyone who works for it, directly and indirectly.

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It would be useful to find out what consultations have been held with the Scottish Executive, whose Ministers miss 90 per cent. of meetings of the Council of Ministers. That is a great example of the case for direct Scottish representation in Europe. Today's edition of The Herald suggests that the Scottish Executive and Scottish Parliament do not receive all relevant EU documentation from UK Departments, including the Department for Environment, Food and Rural Affairs.

Before today's debate, I took time to speak to many local people in Moray involved directly in the whisky industry. I tried to find out what problems they face, in the hope that the Government would listen to those concerns and do something about them. Next to the matters of taxation that I have outlined—that is the overwhelming issue for them—red tape concerned them most. Despite the excellent safety and environmental record of the industry, regulations and compliance issues with regard to the control of major accident hazards have mushroomed. Those include the climate change levy, the waste water directive, the fresh water fisheries directive and the possible consequences of the Roques report. What assurances can the Government give that they will stop forcing the industry to prove negatives, that public agencies will act as facilitators rather than barriers to success, and that red tape will be reduced?

The Scotch whisky industry is vital to the Scottish economy and the UK Treasury. The taxation imposed on whisky by successive UK Governments has disadvantaged Scotch in the home market, where whisky is taxed at higher levels than wine or beer. That discrimination has allowed other countries to seek to justify their own discriminatory tax regimes by reference to those implemented in the UK by a Labour Government and previously by a Conservative Government.

The Government will be aware of a joint document published by the Scottish Executive and the Scotch Whisky Association, aptly if optimistically entitled "A Toast to the Future: working together for Scotch whisky". The Scottish Executive support the industry's case for a review of the UK tax regime, with the aim of achieving a fair outcome for the Scotch whisky industry. Will the Minister indicate whether the Government will accede to that moderate demand, or do they oppose the Labour-Liberal Scottish Executive?

I welcome the Government's U-turn on a tax stamp system, which would have constituted a barrier to trade and been inefficient and ineffective. Finally, it is high time for all powers relating to the regulation and taxation of the whisky industry to be transferred to the Scottish Parliament. That should not be left to the whim of successive Westminster Governments, who do little to help it.

1.15 pm

The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Mr. Elliot Morley) : I congratulate the hon. Member for Moray (Angus Robertson) on securing this debate and on making a strong case for an important industry. It is important for employment in many areas—not only rural areas but urban areas. As my hon. Friend the Member for Midlothian (David Hamilton) pointed out, the Scotch whisky industry is important to his constituency and the surrounding area.

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The whisky industry, however, is also much involved with the tourist industry. I speak as someone who has enjoyed the whisky trail, visiting the distilleries in Speyside—a good time was had by all—and I understand the popularity of whisky tasting. The hon. Member for Moray may like to know that, when the United Kingdom had the presidency of the European Union and the president of the Agriculture Council was my right hon. Friend the Member for Copeland (Dr. Cunningham), one of the most popular informal meetings was the whisky tasting event. Indeed, Franz Fischler was intrigued by it, and it was difficult to get him out of the room at the end. The event was a huge success for Britain and for the Scottish whisky industry.

I was intrigued to learn that the hon. Gentleman once worked at the Scotch Whisky Heritage Centre. I should have thought that the attraction of being a Member of Parliament for the SNP did not compare to working in the whisky heritage centre; the hon. Gentleman seems to have given up a very good job. I echo his comments on the Tornado GR4 display team. It is good to see such community involvement. I congratulate all those concerned in that fund-raising exercise and wish them every success.

I turn to the details raised by the hon. Gentleman. We concede the whisky industry's importance to the UK. We also recognise its tremendous success in promoting exports. He was right to state that Scotch whisky is the UK's fifth largest export earning industry. Fourteen per cent. of exports go to the United States of America, and 40 per cent. go to the EU. Indeed, wherever one travels, Scotch whisky is effectively promoted. The brand image and the industry's promotion campaigns are a lesson to other industries on how to succeed in export markets.

The hon. Gentleman raised the issue of tax parity and the duty on whisky. We know that it is of considerable interest to the sector. There has been a lot of dialogue between the industry and the Government. I emphasise that, since the Scotch Whisky Association wrote its report on duty, my right hon. Friend the Chancellor of the Exchequer has frozen the spirits duty rate for a fifth successive year. That will doubtless feature in the association's report for 2002. It demonstrates that the Government are prepared to listen to a good case and to respond. That five-year freeze is significant.

The hon. Gentleman will not be surprised to hear me say that future taxation and parity are matters for the Chancellor, not the Department for Environment, Food and Rural Affairs. Decisions on spirits duty and other taxes are made Budget by Budget, and account is taken of a wide range of factors, including the views and the state of the industry concerned. I am sure that the Scotch Whisky Association is well capable of making its case. Indeed, it has done so, and I am sure that it will be pleased with the results.

On EU minimum duty rates, the UK has consistently argued that member states should be allowed to maintain fiscal sovereignty, but that it should be underpinned by a regime of sensible and realistic minimum rates. The Government hope that the European Commission will carry out a meaningful review of EU minimum rates, and we look forward to receiving its long-overdue proposals.

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The Scotch whisky industry's strength lies in its export markets, so it is not surprising that much of its long-term success will depend on fair access to world markets. The Government recognise the importance of access in Europe and further afield, and we seek to assist the industry wherever possible. That was highlighted in the Scotch Whisky Association's 2001 annual report, which said:

We recognise how important that is to the industry. We have worked hard on its behalf to persuade the Indian Government to remove trade barriers that are causing concern, and Ministers have repeatedly pressed the industry's case with their Indian counterparts. On 28 February, the Indian Government's Finance Minister announced budget proposals to reduce the relevant import duty in line with India's World Trade Organisation schedule. That is a positive step, which we welcome.

The hon. Gentleman mentioned tax stamps. Anti-fraud strips were certainly worth considering, and I was a bit surprised that he dismissed them. I understand, as the Treasury did, that they would have had significant financial consequences for the industry, but it is unreasonable to dismiss them as daft. The Treasury was examining how to prevent fraud that costs the country about £450 million, which is a significant amount. It is not, therefore, unreasonable that the Treasury should consider a range of anti-fraud measures. It consulted on the options and listened to the industry's case, which many of my hon. Friends, including my hon. Friend the Member for Midlothian, supported. The Treasury accepted that the industry's case was reasonable, and did not go ahead with its proposal. That demonstrates that the Government respond positively to a fair and good case.

Angus Robertson : Why have not the Government pursued an active policy of reducing duty on Scotch whisky? Such a policy would remove the incentive to use fraudulent measures, because the cost of whisky here would be equalised with that in EU countries, where fraud is a particular problem. Will he also say whether the Government are happy to accede to the Scottish Executive's proposal for a review of taxation on Scotch whisky?

Mr. Morley : On the latter point, I assure the hon. Gentleman that the Government regularly discuss such issues with the Scottish Executive, to whom we listen carefully.

I understand the hon. Gentleman's point about equalising duty as part of an anti-fraud measure. The problem, of course, is that equalising duty in European markets is no guarantee that people will stop illegally avoiding duty if they think that profits can be made by doing so. Although I understand the case for equalisation, that is a matter for the Treasury. The hon. Gentleman would be making a mistake if he thought that equalisation would prevent fraud. There is no indication that it would, although I accept that that is not his argument.

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We are ensuring that Customs works with the industry on a joint strategy to identify and track illicit consignments of spirits, radically increasing the exchange of information and making fraud easier to detect through the development of product testing kits, enhanced barcode data and a range of other measures. We recognise that there are several ways to tackle fraud, and I am gratified that we have received so much co-operation from the industry.

We have also made additional funding available to Customs this year to allow it to up the volume of intelligence-based checks on inward freight consignments of duty-suspended spirits, which includes making full use of the national network of X-ray scanners; to increase disruption of the criminal gangs engaged in spirits fraud; and to strengthen control on UK excise warehouses.

We take the issue of fraud very seriously. We are looking at several ways of tackling fraud; barcoding the bottles was just one. However, we accept that the disadvantages to the industry would have outweighed the benefits. We are committed to supporting the industry in the drive for export markets. I can update the hon. Gentleman. As recently as last week, we intervened in a case in the European Court of Justice brought by the Commission against Greece, because preferential duty rates for ouzo were acting against the interests of competing products such as Scotch. I know that our intervention in that case was warmly welcomed by the Scotch Whisky Association. We are committed to the long-term sustainability of the Scottish whisky industry, and we are working to foster conditions abroad that will achieve that.

On the hon. Gentleman's final point about the cost to the industry of red tape, the problem is not confined to the Scotch whisky industry. The matter is raised with the

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Government by all industries, which are, reasonably, concerned about the additional cost burdens inherent in a range of policies—some are national, such as the climate change levy; others result from European Union directives, such as environmental pollution controls; and others relate to health and safety measures designed to protect those who work in the industries.

We recognise those costs to the industries, but whatever measure we implement, we always carry out a financial impact assessment to give us some idea of its implications for the industry concerned. We seek to minimise costs and streamline the burdens placed on industries. I am sure that the hon. Gentleman will agree that environmental controls, pollution controls and health and safety are important issues, which we should not ignore.

We are trying to strike a balance between the necessary protections, controls and regulations, with which all industries must comply—in the case of EU directives, to ensure that, within the European single market, no industry has to bear an unfair burden—and the costs and bureaucracy that fall on the sector. We regularly review those issues, which are also considered by taskforce groups, and we talk to people in the various sectors of the industry about how to reduce the burdens. Indeed, where there is a case for self-regulation, we will consider that, too.

In conclusion, the Scotch whisky industry is a great success story for our country. It is important for us economically, and in terms of our export markets. We have done a lot for the industry and we are working closely with it. We have listened carefully to the representations that we have received. I believe that the industry has a great future. We will recognise its needs and support it.

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