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John Healey: I rise to explain the Government amendments in the group, but I welcome their approval by the hon. Member for Yeovil (Mr. Laws) and I hope to give him the progress report that he seeks. He said that he did not want to go over the ground covered by the Committee of the whole House on 27 April, but his amendments are drafted in such a way that other hon. Members may want to take advantage of them and go over those arguments, even though the debate was in a sense settled a couple of months ago.

I hope that hon. Members will recall that, as the hon. Gentleman said, that debate lasted for nearly four hours. It was a debate in which 22 Members took part, with me playing my part by taking 49 minutes for my opening speech. Much to the displeasure of my colleagues in the Whips Office, I took 23 interventions, and a further 20 minutes responding to the points raised in the debate.
 
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Mr. Alex Salmond (Banff and Buchan) (SNP): In remembering that debate, as I do, does the Economic Secretary recall how many of the 22 speeches made from both sides of the House were enthusiastically in favour of the Government's proposals?

John Healey: Even my own speech was not enthusiastically in favour of the Government's proposals. I made it very clear that it was a step that we did not wish to take, but that, having exhausted more than two years of work with the industry, we had come to the conclusion that there was simply no other way of trying to tackle the levels of fraud in the spirits sector. After the Committee of the whole House, the industry accepted that tax stamps were part of the Bill. It said afterwards that it would work with the Government to introduce the duty stamps—and it has. The Scotch Whisky Association said that the important thing was that the industry should be involved in detailed discussions with Customs and Excise and the Treasury to ensure that a workable regime was introduced. As my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Lyons) has just said, the argument has moved on.

In case hon. Members are not aware of it, let me explain that, soon after the Committee of the whole House debate a couple of months ago, the trade formally proposed to Customs the solution of back labels. The case was prepared well and some of the security features that we were keen to see incorporated in any tax stamp were examined. The Government amendments before us this evening are the result of the detailed and constructive work that has taken place during 16 separate meetings between the Government and the industry since the Committee of the whole House.

During that debate on clause 4 and schedule 1, I emphasised the commitment made in the Budget that, while we would press ahead with the duty stamps regime, we would aim to ensure that the duty stamps were implemented in such a way that additional costs and complexity to the industry were minimised. I also welcomed in that debate the report of the Scottish Affairs Committee, chaired by my hon. Friend the Member for Paisley, North (Mrs. Adams), and I committed the Government to give due consideration to the Scottish Affairs Committee's advice that

"it would be far less disruptive to the industry for a tax stamp to be incorporated into the front or the back label of a bottle."

Malcolm Bruce: The Economic Secretary is explaining the justification for the Government amendments, but does he not acknowledge that the industry is trying to secure the least bad solution? The industry would prefer not to have any sort of requirement that would add costs, so the Economic Secretary is being rather disingenuous in suggesting that this is the industry's preferred solution. It is the least bad one, given that the Government want to press ahead.

John Healey: The hon. Gentleman needs to be a little patient. The industry has not let the Government forget that it would rather not have tax stamps. I make no bones about that but, since this matter was last discussed in the Committee of the whole House, the argument has changed. The industry has fulfilled its undertaking to work with us, and we have done much
 
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detailed and constructive work on the logistics of implementing the tax stamps regime. The introduction of the scheme is still 20 months away, and I look forward to the continuation of the consultation and the detailed discussion that we have had so far.

Mrs. Irene Adams (Paisley, North) (Lab): The industry was well aware of the problems with whisky fraud. In two years, it took no steps to produce suggestions about how to tackle that fraud.

6.45 pm

John Healey: My hon. Friend is right. She is Chair of the Scottish Affairs Committee, which pointed out the industry's lack of action in its report. The media did not give that element of the report much attention, but it was a central part of the Committee's analysis. It remains an important consideration.

In the earlier debate, I warned that the back label approach might not deliver the degree of simplicity that we hoped for without compromising the regime's effectiveness in tackling fraud, or suffering some of the other flaws of conventional strip stamps. Over the past three months, however, representatives of Customs and the industry have met regularly to look at the details of implementing a duty stamp regime.

As happened before the Budget, we have conducted consultations through the joint alcohol and tobacco consultative group. That industry forum is made up of representatives from producers, importers, retailers, travel retailers and warehouse keepers. Customs officials have worked with the JATCG's spirits group, and with two specially constituted specialist sub-groups looking at the detailed technical design of the tax stamp system, and at payments and compliance costs issues.

Work has also continued, again in discussion with the industry through the JATCG, on the package of regulatory measures announced in last year's pre-Budget report. The measures complement the duty stamp system in clamping down on the opportunities for spirits fraud, and in helping to prevent the possible displacement of the fraud, from the spirits sector to other parts of the drinks industry.

I pay tribute to the industry's approach to the work. It has never let us forget that it does not like tax stamps, but it has continued to emphasise its support for clamping down on fraud. Also, it has carried out its undertaking to work with us constructively to find a workable and effective duty stamps regime.

The progress that has been made over the past three months means that I have been able to table these Government amendments, which will do two things. First, they will build into the legislation the flexibility that will allow us to adopt a system for incorporating duty stamps into the labels on the back of bottles of spirits, if that can be made to work. Secondly, and consequently, they will provide flexibility to enable arrangements for payment of duty stamps to reflect that decision on the duty stamps.

I make it clear to the hon. Member for Yeovil that    that does not affect the Government's commitment to bear the costs of printing and distributing tax stamps. If we decide to take the back label route, I do not think that the Government can be expected to pay for more than the duty stamp element
 
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of the back labels, as those labels serve much broader purposes for the industry, including product branding. However, I emphasise that the Government have not yet made a firm decision to go ahead with the back label system. Indeed, we are not yet in a position to make such a decision. There would be obvious concerns about the integrity and security of a duty stamps regime that permitted the full range of printers who currently supply labels to the UK spirits industry—and to those producers who supply to the UK market—to have access to the facilities that produced the tax stamps. However, it is at present uncertain whether any restrictions on the supply of labels would be compatible with EU law or World Trade Organisation rules. That is the issue that we need to examine further.

Mr. Salmond: Given the unwillingness of the industry to accept strip stamps, given the uncertainty about the estimates that attempt to quantify the fraud, and given the new uncertainty that the Economic Secretary has spoken of—whether the proposal can be mitigated by the back label scheme—does he agree that we should not legislate on the issue? Everything he says suggests that the matter should still be at the discussion and formulation stage, not being considered during the Report stage of the Finance Bill.

John Healey: It is just three months since the Budget confirmation that we wanted to press ahead with tax stamps and 20 months until their implementation, and now is the time that we must put the legislative framework in place. That framework needs to allow sufficient flexibility for us to make decisions that we are not yet in a position to make.

I do not believe that the SWA would press us for early decisions on the matter. If it had done so before, the early decision would have been to proceed with strip stamps, not back label stamps. We should consider the legislation now and build in the flexibility that we may need in the future.

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