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Mr. Edward Davey: I am grateful to the hon. Gentleman for giving way, especially after reading out that press release. Did it go on to say what it thought about the Conservatives' record in failing over 18 years to introduce a reduced rate?
Mr. Chope: No, it did not. I understand that my right hon. and noble Friend Lord Cope went to Europe and signed a document on this in 1993 or 1994. Unfortunately, he was not in a position to bring a measure before the House. However, it ill behoves the Government to suggest that they have been quick to remedy the situation.
Mr. Robert Key (Salisbury): Five years.
Mr. Chope: It has taken them five years, as my hon. Friend the Member for Salisbury (Mr. Key) says. What did they do when they first got into office? They added 2p duty to a pint of beer—a further anti-competitive measure introduced by this Government. Now, late in the day, after five years in office, they propose this measure. Although we welcome it, let us not delude ourselves into thinking
that the Government were quick off the mark as soon as they got elected in 1997. I am sure that, had we been returned to office in 1997, we would have introduced such a measure much sooner.4.15 pm
One of the key elements of the proposal is a cliff edge that will adversely affect breweries as soon as production exceeds the 30,000 hectolitre point. A brewery that crosses that threshold will immediately forfeit £120,000 in duty relief. I have been advised that to compensate for that, a brewery would have to double its production to about 60,000 hectolitres before it became worthwhile to stay in business at that level of production, instead of reverting to a production level of less than 30,000 hectolitres. That is why the measure is so damaging to breweries in the production range of 30,000 to 60,000 hectolitres. It will act as a perverse incentive on those breweries to reduce their production, which is quite the reverse of what the Chancellor seemed to intend. Moreover, it will provide no incentive whatever for breweries that are below the 30,000 hectolitre limit to push up their production and expand to beyond that level.
Mr. Key: My hon. Friend hits the nail on the head. What were once microbreweries have grown, and the cliff-edge approach is wholly wrong. I thank him, on behalf of the management, work force and customers of the Hopback brewery in my constituency, for tabling the amendment. The Ringwood brewery is pretty good, but of course Hopback is much better, and is acknowledged to be so all over the country.
The amendment is wholly sensible, and I hope that the Minister will listen to our argument. The tapered approach is much more likely to achieve what the Chancellor wants—a level playing field for smaller brewers.
Mr. Chope: I am grateful to my hon. Friend and pay tribute to the work that he has done with the Hopback brewery in promoting the amendment and in trying to get the Government to listen. That brewery is expanding, and wants to do so in order to become significant in the marketplace.
Total production by breweries that produce less than 200,000 hectolitres a year is only about 5 per cent. of overall total beer production. Only the six very large breweries, which are largely international, and six or seven other large breweries, which are quoted on the stock exchange, have production levels of substantially above 200,000 hectolitres a year. If the Government are really interested in helping small breweries, they should extend the definition of a small brewery to cover all those with production levels below 200,000 hectolitres. European legislation refers to that 200,000 limit. As we have by far the highest beer duty of any country in Europe, why are the Government so churlish about introducing the European maximum level for allowing such concessions to be made? That would not involve much cost to the Exchequer.
I hope that the Government will accept this common-sense amendment, which would allow the Bill to work to the advantage of small and growing breweries and redound to the benefit of those breweries and their loyal customers.
This is not a matter only of breweries in general or of beer in general; it is very significant for those of us who enjoy real ale, because about half of the total production of real, or cask, ale comes from small independent brewers. They are the ones who have introduced choice; they are maintaining a key element of our British way of life. Some of their beer may be served warm and some of it may be served at cricket grounds where our former Prime Minister can sip it as he watches the game.
The amendments, if accepted, will ensure that there is more growth in cask ale production than heretofore. They will be good for British brewing. I commend them to the Committee.
Mr. Edward Davey: My right hon. and hon. Friends and I support the amendments proposed by the Conservative Opposition. If it is right to support small and microbreweries, the Government must get the legislation right. They must get their analysis right, which is why, in our previous debate, I called for their analysis to be published. At least we would then have information that would help us to debate the issue.
If the Financial Secretary to the Treasury writes to me with acceptable evidence, there will be no problems with the schedule on Report. However, like the hon. Member for Christchurch (Mr. Chope), we have some concerns about what the Government are doing. The 30,000 hectolitre limit seems wrong. Not only does it run counter to the European directive that allows an upper limit of 200,000 hectolitres—it is surprising that the Government have not given the industry the support that it is allowed under that legislation—but it is a bizarre use of taxpayers' money. In the first year, the 30,000 hectolitre limit will cost the taxpayer £10 million, and in subsequent years, £15 million.
Evidence from the brewing industry shows that raising the limit from 30,000 to 200,000 hectolitres would cost only a further £3.2 million. If the Government challenge that figure, perhaps Ministers will give us further information on those costs. There are only 27 breweries in that sector of the market, while 350 breweries would fall below the 30,000 hectolitre limit. The tax advantage would apply only to a small number of breweries, so the extra cost would be relatively small. There cannot, therefore, be a cost argument against increasing the limit as the cost is marginal.
The brewing industry is concerned about the measure's impact on competition. The hon. Member for Christchurch touched on that, but did not go into detail. I do not pretend to be an expert on the brewing industry, but it seems to be divided into three groups: at one end, there are microbreweries—small local breweries and pubs that brew their own tipple; at the other end are the huge brewing companies that have developed during the past decade or so; and in the middle, there are medium-sized independents. Some of them have a brewing capacity of more than the 200,000 hectolitre limit, so they would not benefit from the amendments. However, at least such breweries would accept the restrictions imposed by the EU legislation.
The 27 breweries to which I referred include Brakspear, St. Austell brewery, in the constituency of my hon. Friend the Member for Truro and St. Austell (Matthew Taylor), Harveys brewery, in the constituency of my hon. Friend the Member for Lewes (Norman Baker) and Hook
Norton brewery. Those breweries would benefit if the Government extended the limit. In order to ensure that an important segment of the brewing industry is not disadvantaged and that we do not create distortion in the market, the Government would be well advised to accept the amendments.On a political point, I would counsel the Government not to be too concerned by the contents of the press release that the hon. Member for Christchurch read out. Although the amendments were tabled by Conservative Front-Bench Members, I believe that they enjoy the support of hon. Members in all parts of the House; I hope that Labour Back Benchers will take part in the debate. If the Financial Secretary realises that, he will not be frightened out of accepting the amendments simply because they were tabled by Conservative Front-Bench Members.
Mr. Kelvin Hopkins (Luton, North): I am not familiar with the economics of running breweries, although I have toured two in my time, but it seems possible that economies of scale are much more critical for very small breweries than they are for the breweries that the hon. Gentleman is speaking about, and that the Government's proposals are aimed at helping very small breweries to survive and proliferate—we hope, to make beer even more varied than it is now.
Mr. Davey: The hon. Gentleman makes a fair argument, but if he talks to those particular brewers he will find that they still have problems competing with the larger breweries, who have huge economies of scale and huge selling power, and can therefore operate at an extreme competitive advantage. Thus many of the breweries that we are arguing for tonight would benefit. Moreover, many of them, because they are traditional brewers, occupy very traditional premises, which are in themselves almost part of the cultural heritage. If they are to reap some of the modern benefits of economies of scale that the hon. Gentleman referred to, many of them would have to move premises, leave their traditional roots and, possibly, their local setting, which often gives its name to their brew. If the hon. Gentleman were to talk to brewers in that category, he would be reassured.
Finally, I want to raise a point of principle. Obviously, any limit creates distortions against growth, because some brewers will naturally come up against that limit as they expand. However, we have a cross-Europe limit, imposed by the European Union, of 200,000 hectolitres, so it is odd that the Government have chosen a lower one.
Mr. James Staughton from St. Austell Brewery Company Ltd. explained to me that his brewery was currently looking to expand. Its total production is just under 30,000 hectolitres, so it would benefit, but if it expands as it intends to, its production would go over the limit. The company is in the very difficult position of having to decide whether to halt its planned expansion in order to get the benefit of the reduced duty rate, or go ahead with the expansion and lose that new advantage. Thus the limit has already affected a commercial decision by that brewer.
I am sure that many other brewers, either currently or in the future, will have to make that difficult decision. It is bad when the Government produce a tax relief that affects
ordinary commercial decisions. There would be a logic to a 200,000 hectolitre limit, because that would fit EU legislation; there is no logic to the 30,000 hectolitre limit.
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