APPENDIX 28
Memorandum submitted by The Gin and Vodka
Association of Great Britain (DIS 7)
UPDATED EVIDENCE
You will recall that when you wrote to me on
18 July, you gave me the opportunity to offer any updating of
evidence that we had previously submitted. Whilst I realise that
it may be too late for your Committee to consider this, I am taking
the liberty of forwarding you updated aspects that we have recently
submitted to HM Treasury and HM Customs & Excise.
Size of the Market. The total drinks market
is now worth £27 billion, of which spirits account for £5.2
billion. Gin and vodka together are now the largest sector by
volume in the UK (or Scottish) retail market for spirits. Our
members generated retail sales worth £1,590 million in the
last year.
Unfair Competition. The present standstill in
Excise duty has been a welcome step in the reduction of the tax
discrimination against spirits. However, we are asking for this
trend to be continued because:
— Tax on spirits. This is still 1.5
times that on wine, and 1.75 that on beer.
— Differential with the Continent.
UK excise on spirits is 225 per cent higher than in France and
195 per cent higher than Belgium.
— Tax per bottle. Our sector is particularly
exposed to tax because the tax per bottle is now 74 per cent for
gin; 77 per cent for vodka and 87 per cent for Cheapest on Display.
— Alcohol Volume not proportionate
to Tax. Spirits account for only 20 per cent of all alcohol drunk
in the UK but pay a disproportionate 28 per cent of the revenue.
Economic Outlook: costs up at home and uncertainty
abroad. The Chancellor remarked in his 1999 Budget speech that
it is important to hold to our course of stability in the UK when
there is a background of uncertainties in the world. This rings
truer today than ever. The attached submission makes it clear
how much we need the Chancellor's support today. Two aspects are
of particular concern:
— Competitiveness: Price Pressures
and Increased Costs. Our sector has done much to help itself.
But we are seeking the Chancellor's assistance to meet the cumulative
burden of tax, the Climate Change levy, regulation, competitive
pressures, extra costs and tight margins. This is impacting on
our industry, notably on our smaller companies.
— Contracts going abroad. One result
is that Scottish based companies have opened up production overseas
and Supermarkets are increasingly sourcing from continental producers.
In consequence, our industry's requirement for Scottish raw materials
may reduce and rural economies and employment may be hit.
Smuggling. HM C&E also recently estimated
the revenue evaded due to smuggled spirits to be £15 million
in 2000 and that lost to be a further £15 million. These
initial figures suggest a small but welcome reduction. The estimates
do not, however, include freight smuggling of alcohol, which our
members believe to be especially significant for spirits. Our
smaller companies are concerned that they may have to bear the
costs created by new control charges—particularly when a
principal cause is the high rate of excise in the first place.
Fraud: Proposal for Fiscal Marks. The Association
welcomed the publication of Mr John Roque's report commissioned
by Treasury Ministers on the Collection of Excise Duties in HM
C&E. The Report is particularly important as it provides the
best estimate of the scale of fraud and smuggling as a whole in
the UK market for the first time in open publication and illustrates
the size of the problem in the spirits sector. The industry fully
supports HM C&E's intention to reduce fraud and there is much
in the recommendations arising from the Roques Report. We look
forward to engaging with officials in the consultation process.
However, we are making strong representation against introduction
of any fiscal mark on spirits bottles. These will add cost; put
the Duty Deferment agreements at risk with Supermarkets; and have
short-lived effectiveness.
Cross Border Shopping. The media has given this
much attention recently. The most recent Customs estimates indicate
that the revenue lost due to cross-border shopping in spirits
increased in 1999 from £50 million to £90 million. Our
most up-to-date surveys show a concerning growth trend in cross
border shopping of spirits—a trend of more worrying proportions
than that shown by HM C&E.
The Root Cause: Tax Differential with our neighbours.
If UK excise were to be reduced so that the large differential
with France and Belgium were reduced or eliminated, smugglers
and fraudsters would lose their prime objective. We understand
that over 40 per cent of spirits in Sweden are illegal, mostly
brought in from Germany. And some 30 per cent of vodka in Denmark
is from outside their country. The Administrations in both are
reportedly now looking at Excise reductions to reduce differentials
with Germany.
The GVA's Submission. A key to our Submission
is the Government Economic Service's econometric analysis. This
shows that our industry is walking a tightrope between the two
options that lie in the Government's hands. Reduced taxation helps
us by creating volume growth—some 1.5 per cent per year
since duty has been at a standstill. Sales increases add to duty
revenue. The alternative is increased taxation which contributes
to decline—our sales in UK would have reduced by 1.5 per
year if duty had been increased in line with inflation since 1997.
This is the backbone to our request for a reduction in excise.
This will give our industry the stability that we need at this
time of uncertainty. It will further cut the tax discrimination
against spirits; narrow the differential with France, and reduce
the incentive for fraud and smuggling.
Please do not hesitate to contact me if you
require further such evidence.
Edwin Atkinson
Director General
The Gin and Vodka Association of Great Britain
October 2001
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