Supplementary memorandum submitted by
The Scotch Whisky Association
1. The Sub-Committee asked for a note of
our concerns about the printing arrangements for duty stamps incorporated
in rear labels. We also include supplementary comments on two
other topics raised in oral evidence sessions.
Printing arrangements for back label stamps
2. We welcome the Government's adoption
of the industry's "back label" proposal and its announcement
that, subject to further work, it is also minded to allow further
flexibility on stamp format in the form of conventional "strip"
stamps—over the cap—or self-adhesive duty stamps—on
the glass.
3. Practical, logistical and cost considerations
are of vital importance given an estimated total potential demand
for c.0.8m duty stamps per day (rising significantly higher at
times of peak seasonal demand), across nearly 3,000 different
spirits brands/bottle sizes—a trade which is far more complex
than, say, the UK tobacco market. Controlling supply of stamps
through one or two security printers would potentially create
a logistical bottle-neck with serious competition issues at stake
when choices on prioritisation of orders were involved.
4. This calls for flexibility in the choice
of printer while maintaining the stamp security required by Customs
& Excise (C&E). We recommend practicable solutions in
which the whole back label, including the stamp, can be produced
by the brand owner's contracted printer, using the typical range
of label papers and processes; and which keep both the printer's
and brand owner's compliance costs, and logistical impacts, to
a minimum. At the same time, the incorporated stamps need to contain
robust security features. The solutions also have to be available
to overseas printers on an equitable basis compared with UK printers,
but without any corresponding loss of security or C&E control.
5. As the Economic Secretary reported to
the Sub-committee on 2 February 2005, we—jointly with the
printing industry—are currently discussing these questions
closely and constructively with C&E officials. We have recommended
some innovative options and security technologies to meet the
high standards which C&E are demanding. These options, which
we understand are now being considered, would largely allow producers
to continue to use their current label printers.
Duty stamps as an international trade barrier
6. It was suggested to the Economic Secretary
that duty stamps could be contrary to the Single Market. This
is a crucial point deserving continued emphasis. Our consistent
view is that all tax stamp regimes are by their nature a barrier
to intra-EU and international free trade.[77]
They require, for each market, separate specifications and bottling
runs, and separate warehouse and distribution handling; they effectively
fragment the EU Single Market and other international trading
areas, as goods earmarked for one market cannot be sold in another
without "re-working". The point above about overseas
printers further illustrates this: although we welcome efforts
to make the scheme as streamlined and fair as possible, there
will now be a new technical barrier to foreign spirits producers,
and their printers, before importing to the UK.
7. The Scotch Whisky industry has campaigned
for many years against overseas tax stamp regimes, and the barriers
to market access they cause. This has often been with valued support
from HM Government and British Embassies overseas. Our exports
to 200 markets are worth more than £2 billion per year to
the UK balance of trade.
8. The introduction of UK tax stamps will
be an unhelpful precedent to UK efforts to oppose similar barriers
in other countries. (Shortly after problematic changes to Portugal's
strip stamps system were announced, for example, the British Embassy
in Lisbon indicated it would now be unable to support the industry
position.) We remain concerned that little assessment has been
made, or account taken, of the potential consequences for EU Single
Market and international trade. There are already reports that
some European countries are contemplating tax stamps with a new
interest following the UK announcements. We fear that, compared
with the UK, other countries introducing stamps may be less pragmatic,
and less scrupulous about fairness between domestic and imported
spirits—causing real difficulties for the international
Scotch Whisky trade.
Levels of seizures and detections of duty-evaded
spirits
9. The Sub-committee asked the Economic
Secretary about evidence of UK-produced spirits implicated in
recent cases of diversion. Mr Gerrard of C&E quoted two seizures
(believed to date from 2004) of 12,500 litres of UK-made vodka
and 15,000 litres of Scotch Whisky, each approximately a single
lorry-load, or c.£100,000 of excise duty.
10. Despite improved detection levels and
techniques, we understand that recent seizures (generally examples
of inward fraud) are few in number, well down on the already declining
levels published with the Pre-Budget Report.[78]
We are aware of just two major seizures, since April 2003, involving
Scotch Whisky produced by our members, one being the incident
quoted by Mr Gerrard, the other of a similar size—in all,
just three lorry-loads or so in 21 months, equivalent to a duty
loss of less than £250,000.
11. The Economic Secretary also referred
to recent detection of a major inward fraud involving 84 consignments
of non-UK product. The Sub-committee might wish to ask C&E
for a breakdown of all seizure and detection figures for (a) inward
fraud and (b) outward fraud since April 2003, to put in context
the examples quoted in evidence.
12. It remains difficult to square the seizure
and detection figures with an alleged revenue loss of £250
million per year. This is one of the market reality checks which
help clarify the uncertainty created by survey-based estimates
of total spirits consumption. The various checks are:
— Low levels of market disruption,
greatly reduced compared with the 1990s
— Strongly increased excise receipts,
up by £600 million since 1998
— Other official data and evidence
on consumption at odds with C&E estimate
— Greatly reduced levels of seizures
and detections, and of enquiries to producers from outfield enforcement
officers
— Data on where consumers buy spirits—a
£250 million excise loss would mean half of all spirits in
independent retail outlets and corner shops were fraudulent.
13. We await the findings of the Office
of National Statistics study to reconcile the use of different
surveys to estimate spirits consumption.
14. The Association is ready to provide
any further information or assistance which might be required.
February 2005
77 SWA written evidence, November 2004, para. 26. Back
78
2000-1-3m litres; 2001-2-2.1m litres; 2002-3-0.9m litres (equal
to c.£7 million in excise duty). Back
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