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Sir Robert Smith: I echo the remarks of the hon. Member for South Norfolk (Mr. Bacon) on the importance of recognising that, if the Government came to understand the concerns expressed in the debate, saw that the proposal in clause 4 will not be effective, and decided to take another road, we would constructively welcome that. The purpose of the debate is, after all, to engage with the Government, challenge their proposals and persuade them to come up with better alternatives. There would be no loss of face if the Government decided, at this 11th hour, to make that decision.

In a press release on Monday, the Scotch Whisky Association said:

That is the advice on the way to go. Of course, we are here to make our own judgment on the issues before us, and the concerns expressed by the Scotch Whisky Association help to inform our decision. We do not have to take its advice, but it should be considered carefully. On the merits of the case made by the Government, the arguments put so far and the issues raised by Members in all parts of the House, it would be sensible for clause 4 not to go forward.

Despite the title of the report from the Scottish Affairs Committee, it is important to recognise that the proposal is for a spirit tax stamp, not a whisky tax stamp. It applies to all spirits throughout the country, not just in Scotland. It is a UK matter. I remember that on Second Reading my hon. Friend the Member for Somerton and Frome (Mr. Heath) was worried that cider brandy from his constituency would be affected. The hon. Member for Vauxhall (Kate Hoey) highlighted the fact that it would apply to gin, too. Although gin is a London product, much of it comes from Scotland. Spirits bottling is a major industry in Scotland. As whisky must come from Scotland, other spirits have migrated there because of the economies of scale and the production processes.

As a member of the Scottish Affairs Committee in the previous Parliament, I welcome the fact that the Committee has carried on our inquiry into the drinks industry in Scotland. We recognised how important the industry was to Scotland. I welcome the work of the Committee under the chairmanship of the hon. Member for Paisley, North (Mrs. Adams) in producing such a useful document, bringing together the evidence to inform our decision. It would be a recognition of the power of the Committee system in the House if we acknowledged that, on the basis of that extra information, it would be appropriate for clause 4 not to go forward, without the Government losing face.
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The Economic Secretary opened the debate with wide-ranging remarks on clause 4, but as several hon. Members pointed out, he did not address the balance of the Treasury's analysis of the reliability of the strip stamp proposal, set against other proposals. The Treasury seems much more able to see the flaws in other proposals than the flaws that must exist in its own proposal. It would make a more convincing case if the Treasury had offered an assessment of the flaws, how those were taken into account, and the net benefit of its proposal. Instead, it seems to be saying, "We'll find out what the flaws are once we've introduced it and tested the ability of the criminal fraternity to work round it." It is more important for legislation to second-guess the criminal fraternity and avoid creating another trap that will only make more legislation necessary in future.

The Economic Secretary dismissed my remark about tachographs. My point was that the key part of the diversion fraud was the lorry not going to the proper destination. The proposals from the Scotch Whisky Association highlighted in proposals 5 and 6 in the Scottish Affairs Committee report focus on the key way of tackling the problem, if the Treasury were truly minded to do so. An audit trail showing the point at which diversion occurs would be the most effective way of preventing it. If the stamps were forged, diversion would still occur—the forged stamps would be put on at the diversion warehouse and the criminals would be back in business.

What I find most disappointing, notwithstanding the extra burdens being imposed on industry, is the potential failure to achieve a solution to a problem identified by the Government and recognised across the House. A voice that seems to be absent from the debate yet again is that of the Department of Trade and Industry. The chamber of commerce recently expressed concern about the Government's failure to deal with the extra burdens of red tape introduced by successive regulations under the present Government. The DTI was somewhat dismissive of those concerns. The DTI was able to convince the Norwegians not to introduce a tax stamp, but does not seem to have succeeded in convincing the Treasury not to do so in this country. That once again calls into question the role of the DTI in making sure the voice of business is heard.

The proposal will affect business at all levels. When we focus on small business, there is a danger that we will not recognise that any extra burden on big business is an economic burden on the economy that should be avoided if at all possible.

During the previous Scottish Affairs Committee inquiry on the drinks industry, we visited bottling plants. When one sees the processes involved in handling the bottles, one recognises that sticking in an extra piece of machinery or function creates a burden that will always be there, and which will slow down the plant and add to costs.

My hon. Friend the Member for Yeovil (Mr. Laws) made the important point that, if the Government forgo a rise in duty, it does not automatically mean that the money goes back into the industry to cover costs. Price competition means that the duty cut will also go to the consumer. That might increase sales, which would increase turnover and help with profits, but there is no straight correlation between duty forgone and the cost of introducing the stamp.
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As many hon. Members have said, small businesses face particular challenges. Smaller bottling plants involve a major capital investment. I hope that the Economic Secretary will outline exactly what the Government mean when they talk about helping small businesses and what level of business they are referring to. My hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) spoke about his wife's microbusiness in his constituency. I wanted to address a problem that a small business has raised with me. Let us consider a business in which two bottling production runs occur every year—one every six months—and the product is stored in cases and sold by mail order as and when orders come in. The orders might come from the United Kingdom or from somewhere else; perhaps that would be Scandinavia in the case of the business in question. Somebody who is running a small business that has just been started up and has been going for only a few years will not have made a full assessment of the market.

Under the current system, the spirit will sit in the case waiting to go to market. If it goes to the UK market, the duty will be paid in this country. If it goes abroad, the duty will be paid in the other country. Under the Government's proposals, the stamps can be put on—the duty will be paid up front, even if there is some deferment; in this case, the deferral could last some time—but if the cases go to Sweden, the business must reopen them, rip off the stamps and somehow get a refund for those damaged stamps. Conversely, if there are no stamps on the bottles, the business will have to open the cases and put stamps on the bottles that are going for UK consumption. If such a business were larger, we could argue that it should have a feel for the market, take a few risks and have some cases without stamps and others with them. The whole point of trying to reduce the burden on businesses, however, is to allow them to flourish as effectively as possible in their market. With an unnecessary burden of having to try to assess which cases need stamps and which do not, the growth of the business in question will be undermined.

In the light of all the contributions that have been made, I urge the Government to recognise at this late stage that they have not made the case for the clause. They have certainly focused the mind of the industry on concrete alternatives; perhaps they made clear just how concerned they were about the problem. There may have been a breakdown in dialogue with the industry, but that dialogue is clearly under way again, and the industry is constructively engaged. The Government have certainly brought the issue back on to the agenda. They should not proceed with the clause, and they should re-engage with the industry on all the constructive alternatives, deal with the heart of the problem of diversion fraud, recognise hon. Members' concerns and not impose this extra burden on a very important part of the Scottish economy and the UK drinks industry.

John Healey: We have had a very full and thorough debate. A number of points have been made, and a number of them have been made several times.

I welcome the affirmation of the hon. Member for Hertford and Stortford (Mr. Prisk) of his party's determination to tackle fraud. I hope that we will see a similar determination in later deliberations on the Bill,
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when we discuss other types of fraud and tax avoidance. He shares my view that we need to work closely with the industry. We have done just that, and we will do so in future. He described such work as partnership. That partnership is already under way, and it involves not only the spirits producers; the joint alcohol and tobacco consultation group, which I mentioned earlier, includes not only producers, but retailers, hauliers, warehouse keepers, ferry operators and airline companies.

We are ready to work with those who want to work with us to obtain the maximum impact from the system of duty stamps, the minimum impact on legitimate firms, and the best measures to help to deal with the costs for the industry. I give way to the hon. Member for Hertford and Stortford, but if members of the Committee will forgive me, I shall then make progress and respond to the points raised in this thorough debate, rather than encouraging further contributions.

4.15 pm

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