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Angus Robertson: It was unconvincing.

Mr. Bacon: Curiously enough, that is the same word as I have written down—the chairman was less than
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fully convincing. The Government have accepted in their regulatory impact assessment that upfront costs to the industry will be £25 million. On top of that, there are annual costs of £60 million—or £54 million, if one believes the Government's figures. On any count, however, there are significant ongoing costs. The value of the stamp is about £5.48 a bottle, so it should be treated not as a piece of paper but as currency. The Government's proposals have security implications, and there are concomitant security costs.

The Government have made much of the fact that the duty will be frozen for the remainder of this Parliament, but that has no impact on the set-up costs of £25 million that the industry has to find. The proposal raises a number of questions. In his opening remarks, the Chief Secretary referred to the arrangements for deferring duty, which have serious implications for companies' cash flow. It would be helpful if he could tell us when we will have more information, because the Government's proposals for deferring duty are vague, to say the least. The Government have also said that they will "look at" proposals for paying for printing, distribution and security costs, but they have not given a firm commitment, so more detail would be welcome.

Angus Robertson: The hon. Gentleman has clearly read a lot of background documentation as well as the regulatory impact assessment. Has he been able to identify in that documentation an assessment by the Treasury or Customs and Excise of the projected levels of fraud on strip stamps, a practice that is unfortunately common in the few countries that still use them on spirits?

Mr. Bacon: The hon. Gentleman makes a good point. Funnily enough, I have not done so, but he anticipates the point that I am about to make. Many countries do not have strip stamps because they are worried about fraud, as I shall explain in a minute. First, however, I have a couple of questions for the Government. They have said that there will be a capital fund of £3 million for small distilleries. It would be helpful to have confirmation that that is the right figure and, if it is not, to know how much will be available. What are the thresholds, and what constitutes a small distillery? The fundamental question, to return to the point made by the hon. Member for Moray, is whether this is going to work. There is no point in doing anything if the proposal will not work, will be open to fraud and, indeed, act as an incentive to commit fraud. The Government must consider the international context, because experience suggests that high-quality forgeries quickly become commonplace. With duty at £5.48 a bottle there is a strong incentive to commit forgery.

The Government should consider the fact that Ukraine reformulated its tax stamps on 1 January 2004 in an effort to defeat fraud on the existing stamps. Within three weeks, the Ukrainian police reported seizures of 60,000 bottles of illicit spirits, each marked with forgeries of the newly introduced state-of-the-art
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holograms. In Hungary, it is believed that 15 to 20 per cent. of the market is illicit. Several countries have either abolished the tax stamps regime—

Angus Robertson: Such as the United States.

Mr. Bacon: Indeed; and Ecuador and Greece. Others such as Belgium, Norway and Germany, have pulled back from introducing them.

There is evidence from central and eastern Europe that genuine tax stamps can be used to disguise breaks in the seals after refilling, and that unscrupulous traders use stamps to add authenticity to counterfeit products and thereby steal sales from legitimate producers. The obvious beneficiaries of the Government's proposal will be overseas fraudsters and counterfeiters. Tax stamps will form a barrier to trade and will damage the ability of the whisky industry to compete globally. The market will be fragmented and producers will have to maintain UK-specific stocks, which will reduce the efficiency of the production line and increase costs, all for the sake of a measure that most expert observers believe is not likely to work in practice.

I turn to my one slightly broader point—the context for the debate about tax and spending. Most people have no idea how much money the Government waste—how much of the tax that they take from us as citizens and businesses goes to waste. In a recent study the National Audit Office suggested that just a 1 per cent. improvement in the way in which the Government spend the money available over the next three years would result in £14.5 billion of extra spending for frontline services.

I notice the hon. Member for Dagenham (Jon Cruddas) smiling at that. He is thinking of a very good article that he read in The Daily Telegraph a few months ago—at least, I thought it was rather good, but I suppose I can be forgiven for that because I wrote it—and he thinks that I am about to quote from it, as he did in a debate not long ago. He is absolutely right. Unless they bother to examine the issue closely, no one really understands just how much money the Government waste.

We know about the central Government administration costs going up from £14.8 billion to just under £21 billion—at least, we thought it was just under £21 billion, until we picked up the Financial Times this morning and found out that the figure has exceeded even the Government's estimates by £1 billion. They expected it to go up by about £5 billion or £6 billion, but it has gone up by £1 billion more than the Government expected it to go up at this point. A year ago the bill was planned to be £20.2 billion, and it is now £21.3 billion.

That is just the icing on the cake. The marzipan and the fruit, which mostly do not get noticed, are things like the fact that the Department for Work and Pensions has had its accounts qualified every year since 1988, and loses between £3 billion and £7 billion a year in fraud, depending on which Government figure one believes. In the 1998 White Paper on safeguarding social security, the Government said the figure was up to £7 billion. They now think it is only about £3 billion. They are the same Government who, five years ago and two years
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before that, were asked whether housing benefit fraud was going up or down and could not say. Still now, if one asks the Department for Work and Pensions whether housing benefit fraud is going up or down, the Department cannot say. It only knows that it loses a huge amount of money from it.

There are 40 Apache helicopters worth £1.2 billion sitting in warehouses in Wiltshire. It is costing £6 million to store them because the Ministry of Defence forgot to train the pilots in time. When I wrote the article, Customs and Excise—the responsibility of the Economic Secretary—was losing between £7 billion and £10 billion a year through VAT fraud. The figure is now £12 billion, and as the Economic Secretary knows, it loses a whole lot more through excise fraud. He will say that that is why the Government are introducing the strip stamps, but if those will not work—the international evidence suggests that they will not work—they should find a better way of achieving their aim.

Each year we spend £240 million a year training teachers, yet £100 million of that goes on teachers who never set foot in a classroom once they have qualified and are never employed by a local education authority or a school. People know to some extent about the computer messes that occur in Government, but they might not be aware of the scale of the spending that goes on and the scale of the waste. The Government Communications Headquarters moved its computer from the old building to the new building. GCHQ thought it would cost £40 million to move the computer, so it told the GCHQ board that it would cost £20 million. It ended up costing £400 million.

The Emslie report inside the health service said that the Government lose between 16 and 20 per cent. of their budget in the health service each year through waste, fraud, inefficiency and mismanagement. That is the context in which we must discuss the Government's claims that the Conservative party could not find savings. The assistant Chief Whip, my hon. Friend the Member for Mid-Worcestershire (Mr. Luff), suggests that I have spoken for long enough—he is probably right—although we can continue the debate until any hour. Labour Members claim that we cannot find the resources to improve public services, but huge waste is occurring, and it is about time that a Conservative Government put that right.

7.10 pm

Mr. Alan Reid (Argyll and Bute) (LD): Like the hon. Member for South Norfolk (Mr. Bacon), I am against the introduction of tax stamps on bottles of spirits. I note that the proposal is contained in clause 4, which the Labour Government should definitely abolish.

My constituency relies on the whisky industry to provide jobs, many of which are in remote, rural communities where alternative employment would be impossible to find—many of those jobs are on the islands of Islay and Jura. I did not recognise the rosy economic picture painted by the hon. Member for Western Isles (Mr. MacDonald), and if people lost their jobs in the distilleries, there are not large numbers of job vacancies for them to walk into. In my constituency, single distilleries are located in Oban, Campbeltown and Tobermory, a further eight are situated on Islay, and
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there is one on Jura. The distillery on Jura is the main employer on the island, so any proposal that damages the whisky industry would devastate that economy.

It is patently obvious that the tax stamp proposals will damage the competitiveness of the Scotch whisky industry, although it is important to remember that it will not be the only industry involved, because the gin and vodka industries will also be affected.

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