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Mr. Tom Clarke (Coatbridge and Chryston) (Lab): I know that the hon. Gentleman will accept that there is no monopoly of concern for the whisky industry on either side of the House. In that spirit, may I put to him what appears to be the unanimous view of the all-party Select Committee? It said:
"The industry has been aware of the growing concern of HM Customs and Excise for some time, and it would have been helpful if the industry had responded quicker . . . Evidence from the Scotch Whisky Association did, we believe, illustrate a certain lack of urgency on the industry's part".
Does he think that any Government of whom he could be a member could accept that situation and do absolutely nothing?
Mr. Prisk: I think the right hon. Gentleman realises that, as I said earlier, we accept there is a problem and recognise that action must be taken. However, if that action is to work and to be sustainable, it has to be carried out in partnership. The action that the Government propose is not a partnership. Indeed, that is a reason why we firmly believe that they should think again and that it is wrong to impose the plans outlined in clause 4. A partnership, and not a diktat, should be sought. If the provision is to work—Conservative Members want to ensure that we tackle the missing trade of fraud—it must be carried out in partnership. That is where the Government are making a mistake.
Mr. Peter Duncan: Does my hon. Friend accept that the partnership that is necessary must be between Government and all elements in the whisky industry, from distillery to retail? The proposal will impose a burden that will fall almost exclusively on the smallest distilleries, and disproportionately so in constituencies all over Scotland. However, the problem lies further downstream, and that is the further inequity of the situation.
Mr. Prisk: As usual, my hon. Friend makes an excellent point, and I hope that the Economic Secretary will respond to it specifically. As I have said, we are keen to make sure that the end result is as improved as it can be. That is certainly our purpose today.
The proposal is not only based on uncertain evidence, but has been proven to be a rather crude and ineffective measure that could damage the industry and could yet fail to cut fraud. In April 2002, the Chancellor himself dismissed tax stamps as a viable option. In a Budget press release, he said:
"The Government also decided against the introduction of tax stamps on bottles of spirits, which would have significantly increased industry costs, and instead announced plans to work with the industry to tackle the problems of fraud."
If stamps were wrong then, why are they right now?
There are a number of other practical problems here. We know, for example, that tax stamps can be easily forged and the debate has already highlighted this
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problem. With UK duty at £5.48 a bottle, the incentive for forgery is strong. Indeed, as several Members have pointed out, forged stamps could add authenticity to illegal products while confusing the customer.
The industry has highlighted other practical problems, and I am grateful to the Gin and Vodka Association and the Scotch Whisky Association for keeping me up to date. They point out that
"the nature, design, shape and size of stamp remain to be confirmed".
This raises important issues for individual members of the industry. They also point out that
"no decisions have yet been made on the range of products that will be covered, where this will be decided on the basis of alcoholic strength or type of product."
A whole range of other issues to do with duty deferment, assistance with security costs and the costs of audit and administration has yet to be determined.
Mr. Key: As my hon. Friend knows, the headquarters of the Gin and Vodka Association is in Salisbury in my constituency. I would be the last person to wish to vote against any measure that would prevent fraud. However, there is one element that we have not heard much about in the debate—the ultimate consumer of the product. Does he agree that it seems inevitable that if the measure goes through as planned, the consumer of cheaper brands, which are often loss leaders or special sales, will lose out? Those products will become uneconomic.
Mr. Prisk: Indeed. My hon. Friend makes an excellent point. We have not yet considered how this will impact on the consumer. It is right that we concern ourselves with the industry, especially the small firms, but the consumer will be hit as well. I thought I saw the Economic Secretary agreeing with my hon. Friend.
There are a number of issues concerning costs and practicalities. The Scotch Whisky Association estimates that the initial cost will be about £23 million and the increased annual overheads about £54 million, and I gather that the Minister has accepted those figures. I accept that the Government have made offers of help, but they remain incomplete and inadequate. Alcohols Ltd., which is based in Bishops Stortford in my constituency, uses a family firm to bottle its gin. I suspect that this is not dissimilar to the example given by the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) a moment ago. The bottling firm will have to spend £160,000 on new strip stamp machines, but may get only about £17,000 out of the Government scheme; clearly that is wholly inadequate.
Mr. Bill Oddy, the managing director of another small firm, The Drinks Company, said:
"Our costs will rocket and the Chancellor's offer of £3m to aid small firms, with capital investment, is totally out of proportion to the impact strip stamps will have in our sector. It potentially creates barriers to entry, restricts competition, pushes up prices and reduces ranges."
He goes on to make an important economic point that is worth bearing in mind:
"The irony is that"
"favours the large, established multinationals, whose high profile consumer brands are most easily traded in the black economy."
There is an acute problem for small firms.
The Minister referred to the fact that some countries have accepted, and many have rejected, this scheme. I gather that Ecuador, Greece and the USA have abolished tax stamps; Belgium, Germany and Norway have now backed away from their implementation; and Poland, where, it is believed, 80 per cent. of the Scotch whisky sold is contraband, has tax stamps.
We have heard from the Government that action must be taken; indeed, we agree. That is why over the last year we have talked to the industry and welcomed its ideas. Since the Chancellor's request for ideas, the spirits and whisky industry has come up with 17 anti-fraud packages—I heard no reference to that in the Minister's speech. The industry's approach is based on something that the Government usually applaud, a risk-based strategy. Focusing on higher risk movements would give us a better chance of securing lost revenue, without unfairly burdening legitimate traders. Sadly, the Government's response to those ideas has been deeply negative.
It is unclear what analysis the Government have made of other countries' schemes. The United States, for example, has a three-tier system of distribution, which links the producer, the wholesaler and the retailer. Yet when one looks through the Government's regulatory impact assessment, the only reference to that system by Customs is solely concerned with how it could use it to implement the strip stamp scheme. Is it the Economic Secretary's opinion that the system would not work on its own? If so, how come it works in the United States?
We come now to the numbers. The most peculiar aspect of this affair is the comparison of tax yields and costs, and what the Government plan and the industry proposes. In the Economic Secretary's briefing to Members he states that Customs' own estimate is that the industry's measure would deliver approximately £70 million per annum in previously lost tax revenue. That compares with the £160 million best estimate for the strip stamp scheme. However, the hon. Gentleman alluded to the fact that that scheme involves a number of other costs to the Treasury, including a £3 million capital fund, between £5 million and £10 million in printing and distribution costs and, as he just told us, £110 million in lost tax revenue over the next three years as a result of freezing spirits duty. What then, when all the aspects of the two schemes are considered, is the net financial difference between them? Based on those figures, either the Government are seriously underplaying the cost of the tax fraud that they expect to recoup or someone at the Treasury has got their figures wrong.
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