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John Robertson (Glasgow, Anniesland) (Lab): I congratulate my hon. Friend on what he has said, but will he assure me and the whisky industry that his proposals are not just words to appease politicians and companies to stave off the fateful day, but a proper attempt to try to save the industry money and solve the problem of fraud? We want to see deeds, not words.
John Healey: I do not believe that my hon. Friend could have picked up any doubt on the part of the industry about the seriousness with which Customs staff, Treasury officials and I have entered into detailed discussions on several occasions since the Budget and the debate in Committee on the Floor of the House. Together with the trade, we have been able to establish the potential benefits of a back label system.
Mr. Laws:
I appreciate that the Economic Secretary does not believe that the proposals are yet ready to be approved, but can he tell us how long it will be before he decides whether the amendments that he has tabled
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today can be implemented or that he will need to revert to the original proposals? How many months will it be before we know?
John Healey: We are not in a position at this stage to make a decision. I hope that within two to three months we will be able to reach a firmer decision.
Mr. Prisk: The amendments mention label type A and label type B as the two options available. Are those options mutually exclusive or would they run side by side?
John Healey: We have not made those decisions yet. The purpose of the amendments is to give us the flexibility to make those decisions in due course, when we are in a position to do so.
My hon. Friends have been supportive of our efforts to find a workable solution for the introduction of the tax stamp regime and I am sure that they would be interested to hear about the conclusions that we have been able to reach about the potential benefits of back labels. I know that Labour Members who have played a big part in discussion of the issue on the Scottish Affairs Committee will certainly want to hear those conclusions.
Let me make three things clear. First, we have been able to establish that, as the vast majority of spirits products already carry back labels, both the initial and the ongoing compliance costs of the option would be significantly less for the industry than strip stamps. In particular, the requirement for new machinery for the industry to apply stamps would be substantially reduced.
Secondly, as duty stamps would in the vast majority of cases be incorporated in labels that already bore the product's brand name, a back label system could help to reduce the incentive for the counterfeiting and theft of duty stamps. Obviously, a potential fraudster would need to match a stolen or counterfeited stamp to something that could pass for the matching product. Thirdly, Customs is satisfied that a back label stamp could incorporate the full range of security and anti-counterfeiting measures that are vital for the prevention of stamp duty fraud.
Mr. Michael Weir (Angus) (SNP): The Minister has rather skimmed over the discussions held with the industry about other aspects of fraud in the supply chain. When the Scottish Affairs Committee looked at that matter, it found that a key element was that fraud did not arise at the distillery but further down in the supply chain. Whether the Minister opts for a back label or an over-bottle strip stamp, he needs to explain how either would necessarily deal with that problem. Can he be more specific about that?
John Healey:
To give the hon. Gentleman credit, he attended most of the debate on 27 April when we covered that issued comprehensively. As I have already made clear, alongside our detailed discussions with the industry about the potential for the use of back labels instead of strip stamps, we have been discussing compliance costs and how to reduce them, and looking into other regulations and measures that will help to deal with the sort of problems that he is concerned about.
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Our amendments are intended to create scope for the design of the stamp to be determined once we have made the fullest possible assessment of the relative merits of a strip stamp and a back label scheme and, most important, when we have clarified the legal position. I commend the amendments to the House.
Mr. Prisk: The United Kingdom whisky and spirits industry is important for exports and for jobs. Scotch whisky exports alone are worth more than £2 billion a year, and many jobs in the industry are located in communities where there are few other employment opportunities.
Throughout the passage of the Bill, the Government have told us that they want to impose tax stamps on spirits because they believe it is the only way to prevent fraud in the UK spirits market. The Opposition do not doubt that there is fraud. What is at question, however, is the scale of the fraud and whether strip stamps will deal with it without unduly harming the industry.
That is why, throughout the Bill's proceedings, we have urged the Government not to press ahead with the scheme. It is an impractical policy, based on questionable statistics, and it has been rejected by many of our competitors, which is why we support the amendment moved by the hon. Member for Yeovil (Mr. Laws).
The Government's briefing to Members of 18 March shows that, depending on the assumptions made, the fraud the scheme seeks to curtail could be as little as £10 million or as much as £1,080 million. In short, no one really knows the scale of the problem.
We fully accept that there is a problem and that action is required. However, the very uncertainty about the nature of the problem means that it is even more important that the Government work closely with the industry. To that end, I note the 21 amendments that the Government have tabled. I also thank the Economic Secretary for his letter to my right hon. Friend the shadow Chancellor of 2 July, which indicates acceptance of many of the points that we raised in earlier exchanges, both on Second Reading and in Committee.
The decision to respond positively to the suggestion that a duty stamp might be incorporated in existing product labels is to be welcomed. It could remove the danger, which we described, of small businesses having to buy expensive equipment simply to comply with Government regulations.
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I have discussed the decision with the Scotch Whisky Association, which, among others, speaks positively about it—although, frankly, like us, the association would prefer the whole scheme to be replaced with something more practical. However, the Government are not committed to such an amendment. For the benefit of hon. Members, I shall quote the Economic Secretary's letter to the shadow Chancellor, in which he states:
"You should note that this does not mean that the Government will implement the industry proposal for a label mark. There are still a number of concerns over the label mark proposals, to which we need to give further detailed consideration with the industry and with Government lawyers."
He then sets out some of those practical problems, including the danger that such a scheme could be open to scrutiny, as it might create barriers to trade. Indeed, that is a significant problem. I hope that he will give those matters due care, and his record suggests that he will. The industry has made it clear to me and many other hon. Members right from the beginning that, if handled badly, the scheme could make UK production in the whisky market less competitive. Of course, it has also stressed that there are important legal hurdles in a single market.
When the Chancellor announced the scheme, he expressed a wish to hear alternatives. Despite what has been said earlier, the spirits industry has, in fact, suggested 17 alternative anti-fraud packages since then. In particular, the industry has based its approach on what, to be fair, in most other cases, the Government usually applaud—a risk-based strategy. By focusing on the higher risk movements, there would be a better chance of securing lost revenue, without unfairly burdening legitimate traders.
I hope that in his reply the Minister will be able to set out what progress is being made. He has mentioned some of it, but I hope that he can elaborate further. In addition, of course, as we learned during the earlier consideration of the Bill, the Minister has already made a series of valuable concessions. The combined cost of the capital fund, the printing support and a two-year tax freeze is approximately £123 million. Given that the Government expect to claw back only about £160 million in lost revenue, the net gain seems remarkably small. Will the Minister say whether those figures have changed?
The scheme remains, in our view, unduly onerous and based on uncertain evidence. We would rather that the Government listened to the industry before taking any further step. Despite the concessions that the Minister has made, to which he has referred, it remains our view that, on this scheme, in principle and in practice, it is time for the Government to think again.
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