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Duty on beverages made with spirits to be at spirits rates

Mr. Christopher Chope (Christchurch): I beg to move amendment No. 1, in page 2, leave out lines 20 to 25.

This is a debate about flavoured alcoholic beverages, otherwise known as FABs, but it might better take its title from another late-night beverage, Horlicks, because the Government have made a total horlicks of this provision in the Budget.

Clause 3 introduces a tax increase of 64 per cent.—the highest percentage increase—which is about a 12p duty increase on a standard bottle of one of these beverages. The Government justified that extraordinarily high increase in the explanatory notes on clause 3, which states that between 1999 and 2001

"the standard pub retail price"—

of spirit-based coolers—

"rose by around 60 pence per bottle, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink in both the on and off-trades."

Based on that information, the Government said:

"it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks."

In Committee, I and other members of the Committee challenged the accuracy of the facts used by the Government to justify this massive increase in duty, which, incidentally, was introduced without any consultation with the industry. The problems that have followed would not have occurred if there had been proper consultation. I accept that the Government did not deliberately get the figures in a mess, but they were negligent because, had they had proper discussions, there would not have been this misunderstanding.

Mr. Tom Harris (Glasgow, Cathcart): The hon. Gentleman is right to criticise the Government for lack of consultation, provided that he is attacking the 1996 Budget statement, which also introduced a major increase in tax on those drinks without any prior consultation. I do not recall the hon. Gentleman complaining about that.

Mr. Chope: Sadly, I was not in the House in 1996. If I had been, I am sure that I would have been alert to

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that matter. As the Committee heard, when I represented Southampton, Itchen—I did so until 1992—one of the largest manufacturing plants producing the beverages was situated there. It has also emerged, however, that the current incumbent, the Minister for Policing, Crime Reduction and Community Safety, last year opened a new production facility in the area and praised the company and work force in respect of the extra jobs that would be created by the investment, but did not say anything at that time about the fact that the Government had it in mind to change the duty regime and threaten that investment.

On 18 June, the Economic Secretary finally admitted that the Government were wrong and that the Opposition were right about whether there had been an increase of 60p or 20p in the retail price of coolers between 1999 and 2001. He said that in 1999–2001, the retail price of coolers went up not by 60p, but by an amount

"closer to the 20p figure suggested by the industry."

I understand that the exact figure is 20.7p—20p is almost spot on—rather than 60p. That represents a compound interest increase of about 6 per cent. over three years. To put it in context, that is slightly less than the average increase in council tax over the same period.

Rob Marris: I wonder whether this could be a question of mixing apples and oranges. The explanatory notes refer to the standard pub retail prices, but is the hon. Gentleman referring to the retail price in, say, a shop, or to a pub retail price? As we all know, pub retail prices can be more expensive and can increase at a greater rate.

Mr. Chope: I am referring, as the Economic Secretary was, to the retail prices cited in the explanatory notes. The Economic Secretary has admitted—as a member of the Committee, the hon. Gentleman will have received a copy of the letter that he sent to me—that the note in question was incorrect in its reference to an increase of 60p, and that the figure is closer to the 20p suggested by the industry.

After being forced to admit that there was such a gross error in the calculations, any decent Government would have apologised to the industry, consumers and Parliament. They would have withdrawn the proposal and deferred a decision on any tax increase while reassessing the impact of the evidence. However, I am sorry to say that that is not what the Government did; indeed, that is not the way in which they operate. The Economic Secretary had the gall to say in his letter to me:

"I want to assure you that—while regrettable—this error does not affect our rationale for this change or its estimated impact."

What a contrast with what the Chief Secretary, formerly the Financial Secretary, told us in Committee on 14 May:

"One of the key issues for consideration was whether the coolers market could support the removal of the concession. Our evidence showed that it could. There is nothing improper about considering whether a market can bear the burden of taxation. Between 1999 and 2001, the consumption of coolers more than doubled, and during that period, the average pub price of a bottle of coolers rose by 60p per bottle. Some hon. Members with peerages suggested that the increase was closer to 20p, but I have to tell them that the figure of 60p comes directly from an analysis of market research data by the Office for National Statistics. Customs has discussed that figure with the industry and I am confident that agreement will be reached to clear up confusion on the part of Opposition Members."—[Official Report, Standing Committee F, 14 May 2002; c. 47.]

The right hon. Gentleman referred to the increase in price as a key issue for consideration, but when the figure was proved incorrect, what did the new Minister say? He did

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not say that he was sorry and that he would go back to the drawing board. Instead, he is still blustering away, arguing that nothing has changed and that the previous arguments still apply.

2.15 pm

Mr. Edward Davey rose—

Rob Marris rose—

Mr. Chope: I give way to the hon. Member for Kingston and Surbiton (Mr. Davey).

Mr. Davey: I want to back up the strength of the hon. Gentleman's argument by saying that, when the Committee questioned the Minister closely on the underlying rationale behind this change in the tax regime, he relied heavily on this piece of evidence. We were surprised, because there had been a change in the underlying rationale of the taxation of alcohol in other areas. The hon. Member for Christchurch (Mr. Chope) is right, and the fact that the Government have been found out suggests that this has nothing to do with rational taxation, and more to do with a raid on people's purses.

Mr. Chope: The hon. Gentleman is absolutely right. It is apparent that the Government are motivated by prejudice rather than reason. That is their driving force, and, as so often happens, that prejudice is tinged with a certain amount of arrogance—the inevitable ingredient of this Government.

Rob Marris: The hon. Gentleman quoted the Minister referring in Committee—I recall being there—to one of the factors. The other factor referred to in the explanatory notes is the chief medical officer's report of 2001, so the hon. Gentleman's suggestion that there was only one reason for the Government adopting this approach does not sit well with what we were told in Committee, or what is said in the explanatory notes about the health aspect of the issue.

Mr. Chope: I have not said that that was the only justification; there were two justifications. But, in Committee—the hon. Gentleman was there; he will remember this—the Minister had to back-pedal pretty rapidly on the assertion that there was some reason for raising the tax on this particular kind of drink, when it became apparent that certain lagers and ciders with a much higher alcohol content were less highly taxed. The Minister moved back from the position of saying that the provision could be justified as a way of addressing binge drinking. Indeed, the Government's argument in Committee was that the consequence of this steep increase in tax would not involve any reduction in the consumption of coolers.

Mr. Davey: The hon. Gentleman is exactly right. The health argument put forward by the Government was put in total disarray by the fact that they had been arguing for a reduction in tax on cider. According to the chief medical officer—and evidence, no doubt, from all our

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constituencies—cider is a drink most associated with teenagers and with binge drinking. So the Government's coherence on this issue is, frankly, non-existent.

Mr. Chope: I am grateful to the hon. Gentleman for reinforcing that point. Much as the hon. Member for Wolverhampton, South-West (Rob Marris) may try to argue the Government's case, I am afraid that the Government abandoned that particular ground in Committee, relying heavily on the 60p increase over the three-year period. Now, when that has been found to be totally wrong, they have resorted to bluster and other arguments.

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