Mr. Flight: Does my hon. Friend agree that that is analogous to the 10 per cent. additional oil tax after a pilot scheme had encouraged smaller companies in particular to commit to developing new fields in the North sea? That tax was similarly sprung on them without consultation.
The Chairman: Order. We are beginning to stray a little wide of amendments Nos. 1 and 2. I have always taken the view that it is possible to have a clause stand part debate at either the start or the end of a clause, but not both. We appear to be heading down the former road.
Mr. Chope: I thank you for your tolerance, Mr. Gale.
Specifically, the amendments would put the Government back in the position in which they should originally have been. If they intend to change the taxation regime for a particular product line, they should consult the industry and have proper information available on which to base their decisions. Amendment No. 1 states:
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If the industry had had a chance to make representations before the Budget, they would have included those to which I have referred from Bacardi-Martini on the proposal's impact on its investment and the damage that it would do to its confidence in the Government.
A firm called Halewood has recently spent £2.5 million on two new bottling plants; not all of that was its own money. It received Government grant—regional selective assistance—from the Department of Trade and Industry because it is in an area of high unemployment in Liverpool. It received Government subsidies to invest in plants to bottle the very coolers to which the Government now seem to be cold. GBL International is likely to postpone the purchase of an additional bottling line at the Mansfield brewery. It currently employs 80 people and was planning to expand up to 200. The Bacardi-Martini group has around 65 per cent. of its business in those products, which are very successful.
The result of the announcement being made without consultation is that the industry is in a state of flux. Amendment No. 2 would prevent the clause from coming into effect for the time being and until there has been some consultation.
I shall give an example to explain the state of flux. Each recipe for flavoured alcoholic beverages must be approved by Customs and Excise before it can be put into production. Following the Budget, producers asked what recipes can be authorised, but as of 13 May Customs and Excise has been unable to give clear guidelines and agreement on new recipe formulations. That shows that the impact of the measure has not been thought through by Customs and Excise. Recipe experts, monitors and approvers are sitting on their hands not knowing what they can or cannot do. Meanwhile, the industry is waiting for a lead. Had there been proper prior consultation, the industry would not be in that state of flux.
Equally important, production will be severely affected, which will have an impact on jobs, consumers and exports. The Government's justification for the measure is that the price of coolers in the retail trade and pubs has increased by 60p during the past two years and that that shows that there is sufficient price flexibility to absorb a significant increase—more than 60 per cent.—in the rate of duty. I have been told that it is impossible for the industry to find out from Customs and the Government where they obtained the information that coolers have increased in price by 60p in the past two years. I was told that the price had risen by around 20p rather than 60p, and I hope that the Financial Secretary can explain the basis of that assertion, which the
Column Number: 33Government are using to justify the introduction of the measure.
I should also be grateful if the Minister would explain why the Government think it reasonable to single out those products instead of others. We had part of that debate under clause 2 when we discussed cider. Last Friday, I carried out something of a survey in the Christchurch Conservative club.
David Wright (Telford): A representative sample.
Mr. Chope: It was a very representative sample. It so happens that the favourite tipple of none other than the Secretary of the Christchurch Conservative club, who is certainly no teenager, is WKD, a vodka-based iron brew with a proof level of 5.5 per cent. In the Christchurch Conservative club, it is available at £1.65 a bottle. As a result of the Chancellor's measures, it is inevitable that that price will increase by about 20p.
It seems, however, that the Government have information suggesting that in some other parts of the retail trade, the cost of a WKD, a Bacardi Breezer, a Reef or an Archers Aqua might be more of the order of £2.50. We know that in clubs—perhaps less Conservative than the one that I referred to—drinks tend to be served at prices that are nice round figures, so that the people serving do not have too much trouble with the change. They are normally priced at £2, £2.50, £3 and so on. The consequence of the change in duty that the Government propose is that, in an average club, the price of one of those flavoured alcoholic beverages will increase from about £2.50 to £2.70. It might even be rounded up to £3. The drinks will be unable to compete on a level playing field with others that are priced at £2.50 but have an equal or higher alcoholic content. How can that be fair? Surely it is thoroughly unreasonable.
Mr. Luke: Obviously, the hon. Gentleman is talking very competently about prices, but does he not realise that many cooler drinks are sold through the vehicle of happy hours? I do not know what happens at his Conservative club; I know that his is not a happy party. The cost of the coolers drunk by many people, including students, is reduced considerably. The increase in tax will have very little effect on the uptake, given that most such drinks are retailed to a younger market, through such conventions, on student nights out on a Friday and Saturday.
Mr. Chope: The hon. Gentleman, who represents a university town, will know all about that market. I can certainly tell him that in Christchurch Conservative club, every hour is a happy hour. [Laughter.] The hon. Gentleman asserts that the measure will make no difference to take-up. How can he be so sure? The amendment seeks to make the information available so that a rational person such as the hon. Gentleman is in a position to say whether there will be any difference to the take-up.
Mr. Luke: Having previously been involved in academic life and invited by many students to their evenings out, let me point out that these are fashion drinks. Obviously, they are not bridled by advertising, as is the case with smoking, and the market for them is limitless. They are a fashion statement rather than a drink. That is where the crux of the argument lies.
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Mr. Chope: I am not quite sure where that takes us. The hon. Gentleman says that the drinks are fashionable, and I accept that many members of the Conservative club in Christchurch are fashionable. The Government are justifying a sharp increase in duty on the basis—among others—that the chief medical officer has expressed concern about the association of coolers with binge drinking among young people. There seems to be no evidence of that whatever. As I said in the previous debate, the person in charge of the Portman Group, a highly respected body, has said that the popular drinks among young people—particularly under-age drinkers—are the traditional beers, ciders and lagers and not the flavoured drinks that we are debating.
We do not have the information, and I shall allow other people to participate in this important debate. One of the biggest concerns is that the Red Book says that there will be a yield of £170 million this year as a result of the change in duty. Even that figure does not seem to be substantiated by any discussion between the industry and Customs and Excise. I should be interested to hear from the Minister how he justifies that figure, because it implies that Customs and Excise thinks that the present market in such products is much larger than it is, and that it expects the market to expand even more than the most optimistic producers think that it will.
In conclusion, I ask the Government to think again about the increase. It might have seemed an easy, last-minute initiative for the Chancellor, who suddenly found that he needed to raise even more money and wanted to do it in a way that would not be seen to impact too heavily on people. He was able to announce £10 million for beer drinkers at the time of the World cup, but at the same time he announced an increase of anything between 20p and 50p on the price of a flavoured alcoholic beverage for someone who wishes to use such a beverage to toast the England team. How can that be justified? The amendments give the Financial Secretary the opportunity to explain and justify the Chancellor's action. He has a tough task on his hands, but we look forward to hearing what he has to say.
Kevin Brennan: Before discussing the amendments, I should declare an interest. I am a member of the Canton Labour club in my constituency of Cardiff, West, where one can buy those drinks at a much lower price than in the Christchurch Conservative club. At the Canton Labour club, there would not be the sort of scam that the hon. Gentleman described as occurring at the Christchurch Conservative club, where if there were an increase in tax of 20p, the price of the drink in question would increase by 50p. It would not sell Archers Aqua, named after the former chairman of the Conservative party. He describes the sort of scam one might expect in the sale of a drink called Archers Aqua sold in the Christchurch Conservative club.
I want to speak against the amendments because the current treatment of such drinks represents a tax anomaly. One reason for the huge expansion in the market is that the discriminatory, favourable tax treatment of those drinks has allowed manufactures to increase prices significantly and still enjoy a massive
Column Number: 35growth in demand. Demand for the drinks has doubled over the past few years at a time when manufactures have been able to raise prices. Even if the hon. Gentleman did not accept the Treasury's figure of 60 per cent., which he mentioned earlier, the manufacturers are quoting a figure of 20 per cent. during the past few years, which is a figure well ahead of inflation, suggesting that the products are under-taxed.
I read carefully the representations that hon. Members have received from the industry, particularly the one from Bacardi-Martini Ltd., from which the hon. Gentleman quoted. After reading the letter, I sent it to a few of my constituents who teach economics in secondary schools as a useful tool for illustrating taxation and other economic fallacies. The letter states:
Anyone who knows anything about the matter knows that that is absolute nonsense. Earlier, the right hon. Member for Fylde mentioned that a reduction in an excise duty—a change in the opposite direction—would not necessarily be wholly passed on to the consumer. An increase will not be wholly passed on, either. For that to happen, there would have to be complete inelasticity of demand and, as we know, that is not the case with such products. Some of the cost may be passed on, but it is not true that all of it will be passed on.
There is clear evidence that change in demand for the products is a movement not along the demand curve but of the demand curve. It has shifted to the right during the past few years because of changes in taste and fashion, and because of heavy advertising. As my hon. Friend the Member for Dundee, East said, the products are fashionable. There has been a huge expansion of demand for them, as a result not of reductions in price but of changes in fashion and drinking, particularly among young people. For the Opposition to say that such drinks are principally enjoyed by the rather elderly members of the Christchurch Conservative party—I apologise to them if they are not elderly, but I know that the average age of Conservative party members is much higher than that of the other parties represented in the House—and not by young people is absolute nonsense. The products are aimed at young people. Beers and ciders with a high alcohol content are not used in binge drinking because one would not last very long if they tried to binge drink with them. It would not be much of a binge.
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