FIRST SPECIAL REPORT
The Scottish Affairs Committee has agreed
to the following Special Report:
RESPONSE BY THE GOVERNMENT AND THE SCOTTISH
EXECUTIVE TO THE FIRST REPORT FROM THE SCOTTISH AFFAIRS COMMITTEE,
SESSION 2001-02, ON THE DRINKS INDUSTRY
IN SCOTLAND (HC 324)
On 28 November 2001 the Scottish Affairs Committee
published its First Report[1]
of Session 2001-02 on The Drinks Industry in Scotland.
We have now received a memorandum from both the Government and
the Scottish Executive which contain a response to the Report.
The memoranda are published without comment as appendices to this
Report.
APPENDIX 1
Letter to the Chairman of the Committee
from the
Secretary of State for Scotland
I am grateful to the Committee members under your
Chairmanship for their work on assessing the Drinks Industry in
Scotland and in providing recommendations for action based on
evidence gathered. The attached annex provides a response to those
recommendations affecting matters reserved to the UK Government.
In providing the response my Department has agreed
a split of lead responsibility with the Scottish Executive. I
understand that the Executive's response has already been provided.
For ease of reference that attached annex provides a restatement
of the relevant recommendations followed by the Government's considered
response.
I am copying this letter to Paul Boateng, Baroness
Symons, Lord Whitty and Lewis Macdonald.
7 March 2002
Memorandum submitted by the Scotland Office
GOVERNMENT RESPONSE TO SCOTTISH AFFAIRS COMMITTEE
INQUIRY: DRINKS INDUSTRY IN SCOTLAND
Recommendation
(c) We recommend that the Government should
give full consideration to the public interest, including the
prospect for employment and regional economic development, during
the consideration of proposed mergers. Explicit reference to the
weight given to such issues should be made when outcomes are announced.
The Government notes the recommendation of the Committee
set out in paragraph 155(c) of the Report. In the case of the
Interbrew / Bass Brewers merger, the case was repatriated to the
UK by the European Commission under Article 9(8) of the ECMR:
the Article states that where a case has been referred to the
competent authorities of a member state with a view to the application
of that state's national competition laws, the member state may
take only the measures strictly necessary to safeguard or restore
effective competition in the market concerned.
For the future, the Government has announced its
intention, as part of the Enterprise Bill, to replace the current
"public interest" test for assessing mergers with a
more focused test based on whether a merger will result in a substantial
lessening of competition in UK markets. The Government's legislative
plans will put competition on a clearer footing at the centre
of the merger regime. The focus on competition reflects the Government's
view that competitive markets are the best means to ensure an
efficient and productive economy, in line with international best
practice.
(g) We would caution against any improper,
pragmatic or idiosyncratic discrimination between markets in the
various parts of the UK.
The Government concurs with the Committee's recommendation
in paragraph 155(g) of the Report. In assessing the competition
effects arising from a merger situation both the Office of Fair
Trading and the Competition Commission give consideration in each
case to the geographic scope of the relevant market or markets.
This is based on the economic principles set out in the Office
of Fair Trading's published guidance, which are rigorously applied
together with the best available information regarding the merger
and the markets concerned to identify the boundaries for a particular
market. While the Director General of Fair Trading did not reach
a view on the geographic market he noted the potential for increased
crossborder competition that the Carling Brewers remedy
might provide.
(h) We recommend that the Treasury should
continue on a longterm basis, its policy of freezing the
tax on spirits until it is comparable with that levied on alcohol
consumed in other forms. This would end discrimination against
one of Scotland's major indigenous industries, and one of the
UK's leading exports.
The Government is very aware of the enormous contribution
that the spirits industry in Scotland makes to our local and national
economies, particularly through its significance as a major export
earner and employer. The importance and particular circumstances
of the industry have contributed to the Government's decisions
to freeze the duty rate of spirits over four successive Budgets.
The Chancellor will continue to make decisions about
duty rates on a BudgetbyBudget basis, taking into
account all relevant factors. This approach permits individual
responses to changing circumstances in different sectors of the
alcoholic drinks industry.
(i) We believe that the UK Government should
continue to argue in favour of the reform of the existing EU minimum
rates system, which, it acknowledges, discriminates against spirits.
The system, unsatisfactory from the start, is now well past its
sell by date. There is no more basis for the discrimination against
spirits at the EU level than in UK taxation. We believe that similar
criteria should apply.
The Government agrees that the current EC system
of minimum excise rates for alcohol needs reform and has pressed
the European Commission on a number of occasions to complete its
longoverdue review of this area.
(j) We think it reasonable that the Government
should be expected to undertake a comprehensive study on the revenue
implications of the wide margin between excise duties in the UK
and those apparent in most other EU countries operating in a Single
Market.
The revenue implications of a wide range of factors,
including the impact of duty differentials with other Member States,
are already fully considered on an ongoing basis, and as part
of the Budget process.
(k) We believe that spirits producers should
be allowed the defence of due diligence when consignments (and
therefore revenue) are lost, if incontrovertible proof of the
exporter concerned acting responsibly, appropriately and in good
faith can be demonstrated; and that appropriate steps should be
taken to see that this happens.
Securing duty on dutysuspended movements that
have been diverted is an important element of the EUwide
arrangements. And it is—as Mr John Roques emphasised in
his recent report on the collection of excise duties—important
that those dealing in dutysuspended goods are brought to
account if they fail to make adequate arrangements to ensure goods
are received at their intended destination.
The primary duty liability on diverted goods rests
with the person who provided the financial guarantee for the movement.
Spirits producers can limit their liability to duty on diverted
loads by asking the despatching warehousekeeper or transporter
of the goods to provide the guarantee if they consider that they
cannot ensure that the goods will reach their destination. And
the duty on stolen loads would in any case be recouped if the
load were insured.
As a consequence the Government does not consider
it appropriate to seek changes to the relevant EC Directive to
allow a defence of due diligence for lost or diverted loads.
(l) We recommend that the Government commits
itself to close monitoring of conditions and to ensuring that
Inward Processing Relief levels are set appropriately.
The Government obtained commitments from the Commission
to keep export markets in sectors affected by targeted savings
under close review and to keep the "facilitated" IPR
system under review.
The Government intends to hold the Commission to
these commitments. Trade associations representing affected sectors
have been asked to bring any clear evidence that the measures
are disturbing the market to the attention of DEFRA officials.
With such evidence they can press the case of the sector concerned.
Similarly they can press for improvement to IPR arrangements if
they are found to be unsatisfactory in practice.
(m) We fully support the Government's efforts
to overcome the trade barriers facing spirits producers in some
foreign markets.
The Government welcomes the Committee's full support
of the Government's efforts to overcome barriers facing UK spirits
producers in foreign markets.
(p) We recommend that the Government recognises
that there is a direct association between the various stages
of whisky production, and, when operation of the Climate Change
Levy scheme is reviewed, acts to ensure that the rebate scheme
treats all spirits production equally and thereby corrects the
inherent anomaly.
The current definition of the sectors eligible for
rebates is based on the Integrated Pollution Prevention and Control
(IPPC) Regulations. Using IPPC as the framework for determining
eligibility for rebates meets the four tests which were set when
the levy was first proposed—it has a clear rationale, provides
legal certainty, is administratively simple, and is consistent
with EU state aid rules.
The threeyear gap between distillation and
actual bottling of whisky breaks the direct association needed
to allow bottling to benefit from eligibility within the IPPC
Regulations.
The Government remains willing to receive and consider
alternative proposals provided they can be shown to meet the four
tests.
(q) We believe the insensitive application
of the Climate Change Levy rebate scheme, for which only food
and drink producers using animal, vegetable or dairy ingredients
in the manufacturing process are eligible, has the effect of needlessly
discriminating against bottled mineral water producers. Given
Scotland's position as the UK's major producer, it works to the
detriment of Scottish companies. We recommend that the Government
attends to this discrepancy when the CCL scheme is reviewed.
For the reasons explained under recommendation (p),
eligible sectors are based on IPPC regulations.
The Government remains willing to receive and consider
alternative proposals for determining eligibility for rebates,
provided they can be shown to meet the four tests. The Government
would also encourage sectors that are not eligible for the 'rebate
scheme' to consider joining the UK voluntary emissions trading
scheme, for which the Government has made available an incentive
of £30 million per annum after tax.
APPENDIX 2
Letter to the Chairman of the Committee
from the Deputy Minister for
Enterprise, Transport and Lifelong Learning,
Scottish Executive
Thank you for the copy of the Scottish Affairs Committee's
First Report into the Drinks Industry in Scotland which was sent
to Wendy Alexander's office. Both Wendy and I welcome the report
and the extensive work undertaken by the Committee.
I have the primary interest for the Executive in
the alcoholic drinks industry in Scotland and I am therefore responding
to some of the points in the report, which for the most part,
are devolved to the Scottish Executive. Other aspects are either
reserved to the UK Government or fall to the operators within
the drinks industry itself to consider. The Executive recognises
the aspirations that the Committee has for improvements in performance
within various parts of the industry and shares the Committee's
wish that as many good quality jobs be provided by the industry
in Scotland. We also recognise that the importance of certain
operators in the global market place will lead them to recruit
and locate staff where they can best serve the competitiveness
of their Scottish based operations.
Our response to those issues which we view as largely
devolved is enclosed. The Scotland Office will be forwarding a
separate reply in response to those issues that are reserved to
the UK Government. For your ease of reference, the response includes
the Committee's conclusions and recommendations with the Executive's
response shown directly below.
I am copying this letter to Helen Liddell.
January 2002
Memorandum submitted by the Scottish Executive
SCOTTISH EXECUTIVE RESPONSE TO SOME OF THE CONCLUSIONS
AND RECOMMENDATIONS OF THE SCOTTISH AFFAIRS COMMITTEE'S REPORT
INTO THE DRINKS INDUSTRY IN SCOTLAND
SCOTTISH AFFAIRS COMMITTEE:
(a) Competitive pressure has led to a growing
concentration of production facilities in a few large plants,
with detrimental effects on employment in peripheral areas. There
has been a substantial fall in the number of distilleries in production
in recent years. Figures show that the number of malt distilleries
in production fell from 114 in 1980 to 85 in 1999, a reduction
of 25.4 per cent. We are concerned about the extent to which the
peripheral areas are likely to suffer as the industry continues
to cut costs.
SCOTTISH EXECUTIVE:
In common with all industry, Scotch Whisky
producers have been required to become as efficient and competitive
as possible. This has led to a decline in the numbers employed
over the years. However, the Executive recognises that the industry
continues to support quality jobs, often in the absence of alternative
employment opportunities in rural and economically deprived areas
of Scotland.
SCOTTISH AFFAIRS COMMITTEE:
(e) The approach adopted by Diageo following
closure of its Strathleven plant in Dumbarton may have lessons
for other communities that have been affected by closure.
SCOTTISH EXECUTIVE:
Diageo took a lead role in working in partnership
with the local public sector agencies to assist those affected
by the closure of its plant at Dumbarton. The Executive wholeheartedly
supports such partnership working. Indeed such partnership working
is key to the implementation of the PACE (Partnership Action for
Continuing Employment) initiative that the Executive introduced
in March 2000 that puts in place a national framework for dealing
with companies in difficulty at all stages, including redundancy.
SCOTTISH AFFAIRS COMMITTEE:
(o) We would ask the Scottish Executive to consider
transposing into law the full terms of Directive 96/70/EC, which
is concerned with the exploitation and marketing of mineral waters,
including harmonising the definition of the term "spring
water".
SCOTTISH EXECUTIVE:
Council Directive 96/70/EC has been implemented
in the UK. The Directive allows Member States to continue to maintain
national provisions on the treatment of spring water until such
a time, as Community provisions have been determined. In the continued
absence of these Community rules, the provisions in "The
Drinking Water in Containers Regulations 1994" have been
maintained. Once the Community rules have been laid down, the
Executive will transpose them into Scottish Law.
SCOTTISH AFFAIRS COMMITTEE:
(r) We believe that the Water Framework Directive
contains some useful elements, particularly when viewed in a European,
if not a worldwide environmental context. SEPA must continue to
monitor the state of river levels and flows in the light of the
significance of the water extraction industry in Scotland.
(s) We would support the Scottish Executive,
following its consultation process, in the introduction of a scheme
for the registration of water usage. We firmly believe that the
resultant increase in information would enhance its ability to
protect the Scottish environment against potential future damage
arising from climate change.
SCOTTISH EXECUTIVE:
We welcome the Committee's support for the
introduction of a register of water abstractors. The Executive
is fully aware that a proper picture of water use is required
to inform policy that enables us to be in a better position to
tackle future pressures on our water environment, such as from
climate change.
We have pledged to introduce a system proportionate
to the degree of environmental risk. Our aim is to achieve the
best possible balance between the protection of the water environment
and the interests of those who depend upon it for their prosperity
and quality of life. We will ensure SEPA's current monitoring
activities are expanded in order to meet the requirements of the
Directive.
SCOTTISH AFFAIRS COMMITTEE:
(t) We find it curious that Scottish Enterprise
Network's policy framework does not attempt to make greater use
of whisky, both to promote the sale of other high quality Scottish
food and drink products in international markets, and as a means
of increasing tourism to Scotland.
(u) We urge SEN to consider how it might take
greater advantage of the unique position of whisky to increase
international sales of other quality Scottish goods, and to increase
tourism to Scotland.
SCOTTISH EXECUTIVE:
Whilst there is always room for improvement,
Scottish Enterprise and Scottish Development International have
indeed used the strong overseas image of the whisky industry to
both further promote the whisky industry itself and to promote
the wider food and drinks industry. This is best evidenced through
the work of Scotland the Brand in the USA, and through the use
of the Scottish Pavilion at key International Food and Drink Exhibitions,
where both whisky and other food and drink companies exhibit under
the strong umbrella presence of the Pavilion.
These organisations recognise however that
they could better leverage the image and more crucially the international
marketing and logistics/distribution expertise of the whisky industry
and to that end, they will be initiating conversations with the
whisky industry through the Scotch Whisky Association. SE and
SDI have always worked with the smaller independent whisky companies
to develop both their capabilities and to enter or better exploit
overseas markets—recent examples from this year would include
the highly successful work carried out with El Corte Ingles, the
premier Spanish retailer, on food drink and particularly whisky,
and our significant national presence at Vinexpo, the premier
European drinks exhibition.
The marketing of Scotland as a tourism destination
is the responsibility of VisitScotland. It would be for VisitScotland
to consider with the whisky industry how best to capitalise on
whisky in the promotion of Scotland for tourists. SE believe there
is potential in whisky to enhance further the visitor experience
in Scotland to the mutual benefit of the whisky and tourism industries.
Discussions are underway with representatives of the whisky industry
in Scotland and VisitScotland about a new whisky/tourism initiative.
This would cover both tourism marketing and product development
aspects.
SCOTTISH AFFAIRS COMMITTEE:
(v) With alcohol consumption patterns changing
and growing, particularly amongst the young, we believe that more
funding should be made available from both the industry and Government
to enable increased availability of measures aimed at preventing
and curing misuse.
(w) Some of the problems we have identified relate
to devolved matters and fall within the responsibility of the
Scottish Executive. But we would urge the Scottish Executive fully
to recognise the current trends in alcohol misuse and to take
appropriate action.
SCOTTISH EXECUTIVE:
The Executive is committed to tackling alcohol
misuse in Scotland and has just published a Plan for Action on
alcohol problems, which set out the range of local and national
action proposals. The Plan is broadly based with the emphasis
on partnership working between key interests including the licensed
trade and the drinks industry. It embraces prevention and education,
effective and targeted treatment and support services and measures
to protect families and communities from antisocial behaviour
and the criminal consequences of alcohol problems.
We have repeatedly said that the Executive
alone does not hold all the answers to tackling alcohol problems
and the Plan sets out action for a range of organisations and
individuals. It also acknowledges the social responsibility efforts
of the industry, including initiatives by The Portman Group and
others.
SCOTTISH AFFAIRS COMMITTEE:
(x) We recommend that a fuller indication of
the composition of soft drinks should be made available to consumers.
Parents and consumers should know on an easy to understand basis,
such as the number of spoonfuls per container, the exact sugar
content of soft drinks. This information should be placed on the
container. Consideration should also be given to a specific dental
health warning. In addition, we support the EU proposals that
labels for soft drinks should say so specifically when caffeine
has been used.
SCOTTISH EXECUTIVE:
We welcome the Committee's comments on provision
of fuller composition labelling on soft drinks. In taking forward
its 'Food Labelling Action Plan' the Food Standards Agency is
committed to ensuring consumers are given clear, easily understood
labelling to enable them to make informed choices when buying
foods and drinks. Part of the Action Plan involves looking into
the promotion of foods to children. The Agency is currently working
closely with consumer, enforcement authority and industry interests
to develop a strategy to improve parents' awareness and understanding
of healthy eating advice and the way in which certain foods can
contribute to health problems.
1 First Report from the Scottish Affairs Committee,
Session 2001-02, The Drinks Industry in Scotland, HC 324. Back
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