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Mr. George Osborne: This is an important debate. Is it not worth noting for the record that only two Labour Scottish MPs are in the Chamber at the moment?
Mr. Duncan: My hon. Friend is known to be a bit more pointed than I tend to be, coming from a very quietly spoken corner of Scotland, where we tend to be a bit more reserved and backward in coming forward, but I note that there are few Members of Parliament from Scotland on the Labour Benches. I am slightly surprised that the chairman of the all-party group has not managed to be with us tonight: I am sure that he is attending to urgent constituency business.
What other European country would tax its own indigenous industry more severely and aggressively than it does its competitors' products? There is an important issue here, and the new clause goes some way towards dealing with it. There is a gain in taxation to the Treasury if taxation imbalances are addressed. Studies have shown that there is price sensitivity in the market for domestic spirits and that increasing tax again and again on the industry has done nothing to increase the net revenue to the Chancellor in total.
The increasing and dramatic expansion in bootlegging and the white van trade does not only affect south-east England; corner shops in Galloway or Brechin in north-east Scotland and in all rural communities, are affected. Their sales have dramatically declined because of the expansion in bootlegging and in illegitimate trade. That is to say nothing of the more tricky issue of diversionary fraud, which affects the industry significantly although it may be invisible to ordinary people in Scotland.
Redressing the tax imbalance would cost the Treasury nothing. I accept that more needs to be done to demonstrate that factually, and to test price sensitivity and elasticity of demand not just in the whisky market but, in cross-referential terms, in the wine and beer markets, but preliminary evidence suggests that the Treasury could implement a degree of reversal without causing itself much of a revenue problem.
All too often, the nationalists launch a grandstanding programme on issues such as this. We saw that yesterday when they attempted to hijack the bingo taxation issue. I understand that they have already been in touch with most bingo halls in Scotland, which suggests that theirs is the only party that acts on behalf of those who play bingo. It is not, however, the only party to stand up for the distillers: we in the Conservative party are stout defenders of the whisky industry, as we have been in the past. As I said in an intervention, the new clause would do no more than return us to the position brought about by the last
Conservative Budget, which recognised the price elasticity I have mentioned and reduced the tax burden on spirits. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who was Chancellor at the time, realised that reducing the tax need not mean a reduction in Treasury revenue.As a member of the all-party Scotch whisky group, I support its cross-party objectives. I do not think that the hon. Member for Moray did much to strengthen his case by saying that the Liberal Democrats supported the new clause, but I accept that all parties are involved here, and I shall certainly implore Conservative Front Benchers to give it proper consideration.
I should like the new clause to mark the beginning of a genuine investigation of how an historic imbalance in the taxing of spirits can be redressed with no impact on Treasury revenues, to the benefit of an industry in Scotland that urgently needs assistance and from which our nation can derive great economic gain in the future.
Mr. Alan Reid (Argyll and Bute): It is an important principle that taxation should be fair, and it can be easily demonstrated that the taxation of alcohol is not fair. The tax per unit of alcohol imposed on whisky is about 1.5 times that imposed on wine, and 1.7 times that imposed on beer. I shall support new clause 1 because I believe it is a step in the right direction, although I do not think it goes far enough. I know that the hon. Member for Moray (Mr. Robertson) agrees. It is important that we have a new clause before us that can be supported by members of all parties.
The all-party group lobbied Treasury Ministers for a 4 per cent. cut. The new clause proposes a 3 per cent. cut, but I presume that all members of the group will support it.
Sir Robert Smith (West Aberdeenshire and Kincardine): The new clause would also redress to some extent the damage done to the industry by the effects of corporation tax, which was raised on Second Reading by my hon. Friend the Member for Yeovil (Mr. Laws) and which I understand the Minister is considering.
6.30 pm
Mr. Reid: My hon. Friend makes a very important point. The changes in corporation tax that the Government introduced last year are utterly ridiculous so far as the whisky industry is concerned. Whisky takes many years to mature, but the new corporation tax regime punishes the industry for that factor, which is an essential part of it. If accepted, the new clause would certainly help to mitigate some of the losses that the industry is incurring through that change in corporation tax.
If whisky were taxed at the same rate as wine for each unit of alcohol, the rate would be about £13 per litre of alcohol instead of £19.56. The Government have introduced a freeze in recent years, but it will take many years before the rate of taxation on wine and whisky is the same. We cannot wait that long, so it is essential that we make a start today by supporting new clause 1.
The Chancellor should not worry about any loss of revenue if the new clause is accepted. Studies produced for the Government Economic Service and the European Commission indicate that the sale of spirits is
very sensitive to changes in price—far more than is the sale of wine. So reducing the tax on spirits and increasing that on wine to a comparable level would actually bring in more money for the Treasury.Scotch whisky is the world's leading spirit drink. It can be produced only in Scotland, but it also relies heavily on products produced throughout the United Kingdom. It therefore seems bizarre that a product that is so important to the UK economy be taxed far more heavily than wines, most of which are imported. I doubt whether any other country in the world would be so daft—talk about shooting yourself in the foot! The high rate of tax not only damages sales in our own country; it also encourages other countries to impose punitive rates of duty. India, for example, has a tariff of more than 400 per cent. on Scotch whisky. Yet when British trade negotiators protest about this harsh treatment, such countries have a simple riposte: "But your own country also discriminates against whisky!"
I need not remind the Committee of the importance of Scotch whisky to our economy. The industry employs more than 10,000 people directly, and supports a further 50,000 jobs through its spending on inputs. And it boosts our balance of trade by more than £2 billion a year. The industry is also a major employer in areas where other jobs are very hard to find: in urban areas with high levels of deprivation, and, of course, in remote rural areas with fragile economies and little alternative employment. For example, on the islands of Islay and Jura, where the finest single malts are produced, there is very little alternative employment. As a result of the Government's punitive actions, their product brings in large sums for the Treasury, only a fraction of which is returned to the islands to be spent on public services. An industry such as the Scotch whisky industry should be encouraged, not penalised; surely it has the right to be taxed at the same rate as its rivals.
New clause 1 is a step in the right direction and I hope that all members of the Committee will support it.
Mr. Stephen O'Brien: New clause 1, which was introduced by the hon. Member for Moray (Angus Robertson), would reduce the rate of duty on spirits, and would thereby affect, of course, the domestic Scotch whisky industry. I ought really to declare an interest at this point, in that I do enjoy partaking from time to time. I shall not pass comment on which is my favourite brand, except to say that it is both famous and of the bird variety.
The new clause would reduce the rate from the current level of £19.56 per litre of alcohol to £18.99, and, as was rightly pointed out by my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Duncan), the latter rate was held in 1996, in the last Budget introduced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke).
Mr. Alex Salmond (Banff and Buchan): Some of us have reasonably long memories. We remember the right hon. and learned Member for Rushcliffe (Mr. Clarke), the last Conservative Chancellor, being overturned on VAT on fuel in this Chamber. He recouped the revenue
the very next day, announcing a punitive rise in tax on whisky. May I have an assurance that that was a mistake on the part of the Conservatives?
Mr. O'Brien: The hon. Gentleman and his party are introducing a new clause. If they want to persuade hon. Members throughout the House, they might find it more constructive to introduce their arguments in a more consensual and less nitpicking manner. The Conservative credentials on Scotch whisky are there for all to see. [Interruption.] At least my right hon. and learned Friend the Member for Rushcliffe had the decency to have some whisky next to him when he presented his Budgets. The current Chancellor, despite representing a Scottish constituency, never has whisky anywhere near him. That is one great difference on Budget day.
We need to examine the rate at which my right hon. and learned Friend the Member for Rushcliffe had reduced whisky duty when he presented his last Budget. My right hon. and learned Friend told me earlier today that he had hoped to attend the debate, but he is otherwise detained on other parliamentary business. He may be able to join us later; let us wait and see.
It is interesting to note that, since we started debating the new clause, we have had only one Scottish Labour Member in the Chamber—the Secretary of State for Scotland—
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