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Duty stamps for spirits etc

Mr. Laws: I beg to move amendment No. 35, in page 3, line 11, leave out clause 4.

Mr. Deputy Speaker (Sir Michael Lord): With this it will be convenient to discuss the following amendments: No. 41, in page 265, line 2, leave out schedule 1.

Government amendments Nos. 50 to 70.       

Mr. Laws: The previous time we debated this issue in detail was on 27 April on the Floor of the House. The debate lasted some four hours, which was more than
 
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50 per cent. of the deliberations. I hope that the debate today will be somewhat shorter, although, with the number of hon. Members from Scottish constituencies here, that is not guaranteed.

It was appropriate that we had a detailed debate about the issue, because it has caused much concern in the spirits industry in the United Kingdom, across all parties. I do not intend to go over all the ground that we covered on 27 April because that has already been written into the record, but it is worth reminding the House of the conclusion of the all-party Select Committee on Scottish Affairs, which reported prior to the debate in April. It concluded:

"Until definitive figures are available"

on the extent of fraud in the spirits industry,

"no estimate, whether from Customs or from the industry, can be accepted as accurate. For any Government to introduce important measures which could have major implications for industry and employment, based on what could be inaccurate figures, might be considered precipitate to the point of being reckless."

Since that debate, there have been two developments that are relevant to our discussions. The first is that the Lords Select Committee on Economic Affairs has had an opportunity to debate the issue in detail and to take evidence from the industry and others about the potential implications of the measures that the Government intend to take. Secondly, amendments have been tabled by the Government. Perhaps you, Mr. Deputy Speaker, will allow me to turn to the Government amendments first because, to the extent that they address this particular issue and concern, they will limit the rest of the debate, particularly the debate about the different estimates of the extent of the fraud in the sector and the cost that will fall on the spirits industry and particularly smaller producers as a consequence of the measures that the Government envisage.

We have already had some feedback from one of the major industries that will be affected by the measure and by the amendments that the Government have tabled in the past few days. In an e-mail on 5 July to my hon. Friend the Member for Argyll and Bute (Mr. Reid), who has been particularly active in lobbying on the issue alongside many other Scottish MPs from all political parties, the Scotch Whisky Association set out its view about the Government amendments. It says that in the first instance, contrary to some weekend newspaper reports, largely in the Scottish media, the amendments do not mean that the Chancellor is abandoning strip stamps either in principle or in terms of the conclusion that the Government have so far reached. It goes on to say that the amendments are positive in that they allow the industry and the Government to continue discussions about whether an alternative route to a piece of paper over the top of the bottle can be found and that this "might"—it underlines "might"—in the type B variant include a tax stamp appearing within the back label of a bottle, for example, or even under the type A proposal, the ability to attach a self-adhesive label somewhere on the bottle. The SWA goes on to say that such a solution would incur expenditure on the redesign of labels, but that that would be minor compared with companies having to buy strip stamp application
 
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machines, which was the Government's previous proposal. The SWA's assessment is that the amendments offer an important opportunity for ongoing discussions to take place against legislation that gives the chance of flexibility in design of the final tax stamp scheme. However, it points out that it has received no concrete assurance that the original preference will not in fact be the one that we end up with. It says that we need to satisfy Customs and Excise over the security aspects of the alternative and ensure that there is sufficiently broad support across the industry.

6.30 pm

However, this is certainly a step in the right direction, and I welcome the fact that the Economic Secretary and his colleagues have had detailed discussions with the industry on reducing compliance costs, and on the principle of the scheme. My colleagues and I certainly will not oppose the Government amendments tabled today. If they are accepted, the compliance burden on the industry will potentially be significantly less than it would otherwise be.

That said, we have tabled a couple of amendments that would delete clause 4 and the associated schedule. We continue to table such amendments, and currently intend to vote on them, because we are still unconvinced that the Government have proven the case for introducing proposals of any kind.

Alongside the Government's proposals, which are a small step in the right direction, there has been another major development since we debated this issue in April: the assessment by the Lords Select Committee on Economic Affairs of various key aspects of the Finance Bill. It is a cross-party Committee, and in reporting on this matter it has come up with some clear—and very critical—conclusions. One of my colleagues on that Committee told me the other day that he considered this the most deficient aspect of the Finance Bill, and that the Committee was perhaps more concerned about the estimate of fraud than about any of the other salient elements of the Bill that they looked at in detail.

Mr. John Lyons (Strathkelvin and Bearsden) (Lab): The hon. Gentleman should consider the fact that the argument has moved on somewhat, as his earlier comments about the SWA e-mail underlined. The Scottish Affairs Committee, among others, was deeply concerned that because the stamp is designed to go over the top of the bottle, the costs for distilleries such as Bushmills would be rather high. So we were happy that the SWA endorsed a flexible approach, and that the Government were able to discuss with it an alternative to placing the stamp over the top of the bottle.

Mr. Laws: I am grateful to the hon. Gentleman for that intervention, which highlights where the debate is now. It is clear that the measures proposed in the Government amendments are a clear step forward. They have the potential to reduce the compliance burden associated with the measures that the Government are seeking to implement, but they still leave the SWA, the spirits industry and ourselves with an underlying worry about whether the Government have justified introducing this additional burden at all.
 
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I remind the hon. Member for Strathkelvin and Bearsden (Mr. Lyons) of the Scottish Affairs Committee's conclusion, and underline the quotation that I referred to earlier:

"Until the definitive figures are available, no estimate, whether from Customs or from industry, can be accepted."

The hon. Gentleman will recollect that the Committee continued:

"Introducing changes of any kind would be considered precipitate to the point of being reckless, without actually understanding the extent of the fraud and getting some greater agreement over the figures."

The Lords Select Committee on Economic Affairs discussed the fact that Customs and Excise and the industry have given various estimates of the extent of fraud, and it discussed the National Audit Office assessment of those estimates. It refers to the fact that the potential variation in the estimate of fraud is between £10 million at the bottom end and £1,060 million at the top end, a huge amount. I do not know whether the hon. Gentleman has had a chance to see the report from the House of Lords Economic Affairs Committee, but it would be useful for him to do so.

Malcolm Bruce (Gordon) (LD): Does my hon. Friend agree that we have to put this into context? I have 12 distilleries in my constituency, and the spirits industry makes a huge contribution to the economy and is our major export. Yet the Government seem to be obsessed with a fraud they cannot prove and a mechanism that would affect the industry's competitiveness. We are the leading marketeer of branded spirits in the world. Is it really necessary for the Government to impose this kind of extra cost on the industry unless they can justify it in terms of fraud? The figures quoted by my hon. Friend show that the parameters are ridiculous.

Mr. Laws: My hon. Friend is right. Although the Scotch Whisky Association and the spirits industry may prefer the Government amendments to the original proposals, that does not mean that they support even the amended proposals on the basis of the available evidence. The House of Lords Economic Affairs Committee concluded:

"While we accept that estimates of the scale of fraud are always uncertain, we are concerned by the extent of the differences in the estimates between those of the industry and those of the Government. Clearly the question whether the compliance costs of duty stamps represent a reasonable burden depends in part on the extent of the fraud. In this context we are particularly disturbed at the size of the statistical range in the Government's own figures, and have some sympathy for the view urged on us by the industry that uncertainty over the measure of the fraud means that a necessary pre-condition for the introduction of so burdensome a measure has not been met."

The Committee added that there was an urgent need for additional work to establish whether the cost estimates of the Exchequer were reliable, adding that it would be dangerous to introduce the additional potential costs without a clear understanding of the extent of fraud and, therefore, the extent of the benefit.

The House of Lords Economic Affairs Committee raised a number of important points that we discussed on 27 April; important issues but, compared with the overall issue of the amount of fraud, second-order
 
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issues. One is the question of the counterfeiting of tax stamps, about which representatives from Customs and Excise gave evidence to the House of Lords Committee. After considerable debate and consideration, the Committee concluded:

"We note the confident note struck by HMCE in respect of the risks of counterfeiting and that this reflected the reassuring tone of the Economic Secretary's response to the Scottish Affairs Committee, who, however, felt such a response to be verging on the complacent. Counterfeiting of stamps could in the event add to the overall burden of costs of the measure, and in this instance too, it is difficult to evaluate against the background of uncertainty over the measure of spirits diversion fraud."

In other words, the House of Lords Committee was not persuaded by the case that the Government were making on counterfeiting.

There are other points on which we would like clarification from the Economic Secretary. In particular, we need an update on the discussions taking place with the industry and the extent of progress in agreeing steps to reduce the compliance burden. The Economic Secretary said that he hoped that smaller producers—who might be particularly hard hit by the measure—would introduce some targeted measures to reduce the costs.

There has been some discussion about the cost of the stamps being borne entirely by the Government rather than falling upon the industry. I understand that there is scope within the Bill for debate about whether that will happen. I hope that the Economic Secretary will make it clear today that all of the cost of the stamps will be borne by the Government.

I hope that I have not been too ungenerous to the Economic Secretary, who has made some progress since we debated the issue about a month ago. He is bringing forward measures that address some of the concerns of the industry and therefore we will not oppose the amendments that he has tabled today. However, the big issue that remains, as identified by the House of Lords Economic Affairs Committee and in the Scottish Affairs Committee report, is what is a reasonable estimate of fraud in this sector. Is there not a real risk of introducing measures, in either their amended or original form, which will impose costs on the industry that are much more significant than the benefits that we could potentially secure?

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