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The Parliamentary Under-Secretary of State for Scotland (Mrs. Anne McGuire): Wrong one!
Mr. O'Brien: I am sorry. We have the Under-Secretary of State for Scotland, the hon. Member for Stirling (Mrs. McGuire) in her place. [Interruption.] Noises from behind me suggest that the Secretary of State is feeling bored with her present job. She may be trying so hard to sell the euro that she has forgotten to help the Scotch whisky industry to sell its product.
Mr. Peter Duncan: I would like to reassure my hon. Friend on one point. The Scotland Office alcohol bill last year represented a substantial increase on the previous year, so the Secretary of State's commitment to Scotch whisky cannot be in doubt, bored though she may be.
Mr. O'Brien: I hope that when my hon. Friend received his parliamentary answer, the disaggregation of the different alcohols consumed in the massive increase showed that whisky was the main spirit consumed, thus making an important contribution to the local economy.
The one Scottish Labour Member who was present earlier appears to have disappeared already. Perhaps he is hanging his head in shame for not being able to persuade his party to think constructively along the lines of the new clause. It proposes a reduction of approximately 3 per cent. The Scotch Whisky Association advocated a more substantial reduction, so it is important to reflect on the most appropriate level that is potentially sustainable. We have to assess the background reasons and ensure that the level can be justified.
As my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Duncan) pointed out, the Scotch whisky industry employs more than 50,000 people in Scotland—one in 54 jobs—and the UK spirits industry as a whole employs 65,000. Whisky, the major domestic drinks industry in Scotland, is taxed more heavily than other alcoholic drinks, particularly beer and non-fortified wine—more than 150 per cent. more heavily per unit of pure alcohol.
Another good background argument is that the Government increased the duty in their first Budget in 1997 to the same level imposed by my right hon. and learned Friend the Member for Rushcliffe, but have frozen the duty since. It was interesting to hear the Chancellor claim in his Budget speech this year that he had a wonderful track record—I use the words advisedly—over the past five years, in which he had frozen the duty. He managed to overlook the fact that, six years ago, he had increased it sharply. It is for people outside this place to judge whether the level of spin in his Budget speech resonated in any way with the words of the former Secretary of State for International Development, the right hon. Member for Birmingham, Ladywood (Clare Short). The imbalance in the duty levels—highlighted in other contributions as well as my own—has effectively been frozen. It would be a shame if any party sought to claim to be more of a friend of Scotch than any other. The Scottish National party likes to think that it is the only friend of Scotch, although the record shows that not to be true. Scotch has many friends, including those of us in the official Opposition. Given what we have just heard from the hon. Member for Argyll and Bute (Mr. Reid), the Liberal Democrats are also claiming to be friends of Scotch. However, are the Government Scotch's friend? Are they looking at the genuine issues involved in the serious costs implications, the competitive position and the imbalances that have been created?
An important point in this context has been made about corporation tax, which adds about £25 million to the costs of the Scottish whisky industry. Again, that flies in the face of the rhetoric of a Government who like to claim that they bring only good news for everyone. The reality in the real universe—if not in the parallel universe that the Government seem to inhabit—is what people have to deal with. The Government merely like to spin about such matters.
It is important to find a position that is fair for Scotch whisky, and for spirits in general but, given the proportions involved, it is Scotch whisky that is uppermost in our minds. We welcome any party that supports returning to levels of tax that existed before the current Chancellor came to office. The new clause moved by the Scottish National party proposes just that.
The Minister will no doubt want to tease out of us our view of the revenue implications of the new clause. That is a difficult judgment. The Treasury claims that it has the only model that works, but that model's performance in relation to other matters—such as forecasts—has not been especially reliable. One problem in connection with Committee discussion of the Finance Bill is that it is very difficult to get the Government to acknowledge that data that are difficult to square with they want to achieve ought to be published—not least because the data have been paid for by the taxpayer.
According to our best estimate, a reduction in duty is likely to be revenue neutral, as it will be compensated for by higher UK sales. Even Government economists believe that a duty cut could boost revenues. However, that is anecdotal, in the absence of the demonstrable evidence that we believe that the Treasury has but chooses not to publish.
The Government's economic service data—the best data that I have been able to find on this matter—suggest that the excise cut proposed in the new clause would be neutral. That is based on the argument that the cut would reduce smuggling. I do not want to go over the arguments that we usefully explored yesterday in connection with tobacco smuggling. However, it is clear, although they will not say so, that even the Government think that the proposal is likely to be neutral. If it were adopted, the new clause would support corner shops throughout the UK, and especially in Scotland. It would also offer a way of reducing the problems of what is known as diversion fraud.
The Conservative party is Her Majesty's official Opposition. We believe that there is a genuine prospect of being able to govern again, and that, in government, we will be able to deliver. It is therefore appropriate for us to support the new clause.
We support the duty reduction in principle and consider that an important point has been made. However, the Government must also commit to making an updated, open assessment of the impact of duty levels on sales of spirits. Only then would we be able to support further duty reductions—a trend that I suspect may tempt other parties. It is important to get a genuine impact assessment as to where elasticity operates in terms of price and volume, and in relation to cross-border sales and smuggling sales and non-sales.
The new clause is a matter of fairness; it is common sense and is wholly in line with what the Conservatives were able to achieve when we were in government. We believe it to be right. We believe it to be tax neutral and are glad to support it on behalf of the Scotch whisky industry of Scotland and all those who wish to enjoy the benefit of a reduction.
6.45 pm
John Healey: I welcome both the chance to debate the new clause and the fact that the hon. Member for Moray (Angus Robertson) has tabled it. I also welcome the strong turnout of officers of the all-party Scotch whisky group.
The new clause would reduce the rate of excise duty charged on spirits by 2.9 per cent. and, as the hon. Gentleman said, restore the rate to its 1997 level. In essence, the hon. Gentleman argued that, without the new clause, the Finance Bill would not go far enough to support the UK spirits industry. Both he and the hon. Member for Argyll and Bute (Mr. Reid) made the case for what is known as unitary taxation, whereby all alcoholic drinks are taxed equally, according to the percentage of alcohol that they contain.
As my right hon. Friend the Chancellor announced in his Budget statement, we have this year frozen excise duty on spirits for the sixth successive Budget. I shall explain in a little more detail exactly what that means, as it seems that some people take the duty freezes for granted and are clamouring for more.
This is the longest period of duty freezes on spirits since the 1950s. Without those freezes, the total tax on a standard bottle of spirits would have been about 92p higher, if duty had increased in line with inflation. The freezes represent a real-terms cut of 12 per cent. The duty on spirits is almost 40 per cent. lower in real terms than it was 10 years ago. It is 57 per cent. lower in real terms than 30 years ago. In recent history, this and previous Governments have constantly reduced the incidence of excise duty on spirits.
Mr. Peter Duncan: I accept the Economic Secretary's point about the freezes for the past five years, but does he agree that we should be freezing the iniquity so that Scotch whisky is not at a disadvantage compared to beers and wines from outwith our country?
John Healey: I shall deal with the accusations of discrimination and iniquity later.
Alcohol in spirits is more heavily taxed than alcohol in beer, still wine and cider. Spirits duty is 60 per cent. greater than beer duty, but there has been a gradual move towards reducing that differential and, since 1997, the Government have played a part in that. As I said, there is a 60 per cent. difference in the duty for beer and spirits but in 1997, it was 76 per cent.
Our approaches to decisions on alcohol duty are made Budget by Budget, and they take into account a wide range of relevant factors, including relevant duty levels in different drinks sectors. They also have regard to the particular circumstances at the time; for example, the state of the industry or the level of demand for particular drinks.
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