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Angus Robertson: The hon. Gentleman raises an important point. Has he seen the correspondence from Gavin Watson, who is one of Scotland's leading printers of secure stamps and the like? He wrote to the SWA and, I believe, to the Treasury, and said:

"It is known that there at least 25 Holographic Machinery Manufacturers in China alone, who currently have no reservations in supplying the Equipment to anyone worldwide who wishes to buy, and without the need to display evidence of being a Licensed Security or Brand Protection Supplier."

Does that concern him as much as it concerns me?

Mr. Duncan: Absolutely, because it undermines fundamentally the Government's case. The pursuance of counterfeit tax stamps will simply replace the diversion fraud that we are seeing. Counterfeiting tax stamps will be easier and arguably lower risk than many of the frauds that we are seeing now.

I also referred to counterfeit product, which is my other concern. Scotch whisky is a delicate product, for which branding is important. It depends on quality and brand. There is a significant risk that tax stamps will be used to give credibility to below-standard, counterfeit product in a way that the Government have failed to appreciate to date.

No one, on either side of the House, is in doubt that fraud exists in the spirit sector, and that needs to be addressed, but when the Government decide that gap analysis is too unreliable a methodology to assess fraud in wine and beer markets, it strikes me that to use that same analysis to quantify fraud in the spirits market, and on that basis to inflict a significantly expensive and burdensome procedure on vulnerable distilleries and business in Scotland, is more than should be tolerated by the House.

The reality is that the Government are playing fast and loose with a vital industry in Scotland. Scotland expects better from this Government. U-turns are no longer taboo under this Government, and it is not too late simply to say that more can be done to find an alternative. The Scottish Affairs Committee concluded:

"we are convinced neither that strip stamps would be the best way to tackle such fraud, nor that the Government has exhausted all possible alternatives."

That sums it up for me. That is exactly why I shall vote against clause 4, as this is a burden too far for the Scotch whisky industry.

Mr. Lyons: A number of colleagues have referred to the fact that the Scottish Affairs Committee took
 
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considerable time to examine the question of strip stamps. Properly, a number of people have quoted the Committee's conclusion in its report. I want to put it on record that we fully support the Government's and the industry's attempt to tackle spirit fraud. All of us are united in that objective. No one in the House wants to avoid that issue, although there may be differences on how to tackle it.

I, for one, was not against strip stamps at the outset of the investigation. I was quite prepared to listen to the evidence. On hearing the evidence, however, I for one do not think that it is the best way forward. There are other ways of doing it, and I would be more interested in the industry and the Treasury sitting down and agreeing on full traceability from A to Z, which could conclude the matter.

When considering a proposal from the Treasury or any other organisation, we need to ask whether it is viable, and more importantly, whether it is secure. I do not think that strip stamps across the top of the bottle will be a secure system, and I would reject it on those grounds alone. It will be a fragile way of trying to deter fraud throughout the UK and abroad. A number of Members have mentioned the cost of a stamp—£5.48—which indicates the attraction of fraud and counterfeiting. According to the industry, the strip stamp will cost 1p or 2p to produce, but the £5.48 cost makes forgery attractive in the first place.

Earlier in the debate, a number of Members referred to the fact that other countries had already experienced strip stamps, and I will repeat some points and perhaps add some new material. In Ukraine, in January 2004, within three weeks of their introduction, more than 60,000 bottles were found with a forged hologram strip stamp, which were seized in that country. In Hungary, 15 to 20 per cent. of the market remains illicit. In Bulgaria, 60 per cent. of the spirits trade pays no excise duty. There are major problems in some of those countries.

As was mentioned, some countries have already abolished tax stamps, such as Ecuador, Greece and the USA. Some countries have thought about it and pulled back, such as Belgium, Germany and Norway. A number of people have referred to the fact that if we have strip stamps, the spirit in the bottle might as well be replaced with some poor-quality spirit, as the strip stamp may deliver international acceptance. That is a real danger.

3 pm

Mr. Weir: Research shows that a large proportion of the Scotch whisky sold in Poland, which uses strip stamps, is counterfeit.

Mr. Lyons: I think that the same will apply in many other countries in future. The whole industry could be undermined if a poor-quality spirit became linked to the name of Scotch whisky, or anything else for that matter.

China was mentioned earlier in connection with counterfeiting. I raised it when the Treasury gave evidence to the Select Committee. A letter from Drew Samuel, managing director of Gavin Watson, one of the leading makers of security products, warns that the
 
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whisky industry faces financial disaster because of crime gangs' access to sophisticated technology. Mr. Samuel says that in China alone 25 manufacturers are supplying sophisticated hologram-making machines on a "no questions asked" basis, and are prepared to use them in that country or sell them abroad for purposes of tax fraud. There is clearly a market out there: people are prepared to do this.

Mr. Samuel says:

"The skill of the counterfeiters has been grossly underestimated. Apart from the ease of apparently authentic numbering, holograms have been globally downgraded as a protection."

More and more people are going to find it easier to counterfeit whatever strip stamp we design. Mr. Samuel adds:

"There appears to be . . . a 'headlong rush' towards a so-called 'solution', which in its projected format could only create more problems than those it would solve."

That was, I think, the conclusion of the Committee, whose Chairman has already mentioned the issue.

The Treasury should take account of evidence from other international quarters. It is not just the Scotch Whisky Association that is saying that. We met trade unionists in distilleries all over the place who confirmed their opposition to strip stamps, and the Scottish Parliament decided that they were not the best answer. As I have said before, any decision that could unite the Scottish Parliament must have something going for it. A reasonable case has been made by the Committee and by Members, and I urge the Treasury to act on it, even at this late stage. The industry has made it clear that it wants to be receptive to any further approach, and I think that we should use this opportunity to come up with an alternative to strip stamps.

I am not a betting person—they sit elsewhere in the House—but I would give short odds on someone trying to counterfeit a strip stamp very soon if it goes over the top of the bottle. That will happen as sure as night follows day unless the industry and the Treasury reach an agreement that would prevent all the pain.

Angus Robertson: Like many other Members who are present, I am an active member of the all-party Scotch whisky industry group. I declare a further interest, in that more than 50 per cent. of Scotland's malt whisky distilleries are based in my constituency.

Despite my implacable opposition to the introduction of strip stamps, I want to begin with a word of genuine commendation for the Minister. He has been extraordinarily generous in debates, and also with his time: he has met me, and other members of the all-party group, to try to persuade us of the Government's case—although he does not seem to have persuaded anyone. Let me add that I agreed with most of what was said by both the hon. Member for Paisley, North (Mrs. Adams), who chairs the Select Committee, and the hon. Member for Strathkelvin and Bearsden (Mr. Lyons).

Last week we learned that the previous year's Scotch whisky export figures had been excellent. According to the SWA, the export value of Scotch in 2003 was £2.37 billion, the second highest amount ever. The export value of malts bottled in Scotland has exceeded £300 million for the first time. Blends bottled in Scotland are up by 3.5 per cent. The industry feels buoyant in the belief that there are great opportunities for new markets
 
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offering exciting prospects abroad. The United Kingdom figures, however, show a decline, just when the Government are planning to introduce strip stamps—a move which, according to Members in all parts of the House, will make the industry less competitive at a time when it is having to fight for its market share in the UK.

According to the SWA figures, Scotch sales were down in volume in the UK during 2003 by 113 million bottles. The tremendous export figures are a triumph for the industry and for workers all over Scotland—not just in rural communities like Moray, where much of the whisky is distilled, but throughout central Scotland, where much of it is bottled and many of the labels are printed. Many of the tourist attractions are there as well—for instance, the Scotch Whisky Heritage Centre on the Royal Mile. This is a truly national industry which employs people throughout the country, and all who work in it should be tremendously proud of the success that they managed to produce in last year's export markets. I am sure all Members hope that the sales will go from strength to strength in the coming years.

We should, however, also take account of the depressed domestic market figures, which should serve as a salutary warning to the Government and to all of us who must decide whether strip stamps will help or harm the industry. Will they make the industry more or less competitive? Will they damage jobs? We have an opportunity to make that decision today, and I hope that we shall do so in a decisive manner.

A number of Members have referred to the regulatory impact assessment produced by Her Majesty's Customs and Excise. It is a very important document, which outlines the Government's case and weighs no action to oppose strip stamps against alternatives suggested by the industry. What worries me is the paragraph just after the short one on counterfeiting that consists of only three sentences. It concerns the revenue benefits to the Government of the introduction of strip stamps. It states with certainty that

"The introduction of tax stamps will have a revenue impact of £160 million in the first year of implementation."

That is a significant and very exact figure. I do not know how it is possible to come up with it when it is not possible to quantify the level of strip stamp fraud.

As sure as night follows day, if the value to criminals moves from what is in the bottle to what is on it, counterfeiting will take place as it has in other countries. We would all condemn that, just as we condemn the diversion that currently takes place. Given the resources available to the Treasury and to Customs and Excise—which, interestingly, lists at the back of the annexe to its report an impressive range of countries that have been consulted, from Albania to Vietnam—was it not possible for those who drew up the report to ask how serious the problem was? If they did not do so, why was that? If they had, surely there would be projections from all those countries.

Many Members have seen figures from countries that have introduced strip stamps. Tens of thousands of bottles for sale in Poland bear legal strip stamps, but contain counterfeit alcohol. Alternatively, the spirit is genuine but the strip stamps have been fraudulently copied. We know of examples of the percentage of the
 
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market that is accounted for by fraudulent activities where there are strip stamps. I am certain that someone in the Treasury would want to know what the figures are. After all, the Treasury and all of us, I hope, are looking at taxpayers' interests. How is it possible for the Government to give an exact figure about how much benefit there is to be to the Treasury when they cannot give us the slightest indication of how much of the market will be impacted by fraudulent strip stamp production and use?

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