Clause
5
Rates
of duty on alcoholic
liquor
Question
proposed, That the clause stand part of the
Bill.
The
Financial Secretary to the Treasury (John Healey):
May I
welcome you, Mr. Gale, to the Chair, or more strictly
welcome you back as the Chair of the Finance Bill after an absence of
some four years? I look forward, as my colleagues do, to serving under
your chairmanship during our proceedings.
Clause 5 increases the rates of
excise duty charged on beer, wine, made-wine and cider in line with
inflation. Excise duties on alcohol provide an
important£8 billion annually to invest in essential
public services. This inflation-only increase in duty, which, together
with VAT, is equivalent to around 1p on a pint of beer and on a litre
of cider, 5p on a bottle of wine and sparkling cider, and 7p on a
bottle of sparkling wine, is necessary to maintain this important
source of revenue to the public purse.
Adam
Afriyie:
Will the hon. Gentleman make it clear whether
this measure is an economic measure, to raise taxation on alcohol, or a
social measure, to try to limit the harm that these products might
cause?
John
Healey:
It is a revenue measure, and one that is entirely
consistent with the convention and the usual approach to excise duties,
which is that, generally, this Government and previous Governments
would, at first blush, look to increase duties in line with inflation,
at least to maintain their real value.
This is a modest
increase—a freeze in real terms—which comes after actual
freezes in beer and still-wine duty in three of the previous 10
Budgets. In addition, cider duty was frozen in the previous four
Budgets and sparkling wine duty was frozen in each of the previous six
Budgets.
There have
been concerns about alcohol-related harm, its social impact and the
quite serious problems that it causes in some areas; that may have been
what the hon. Member for Windsor was driving at, and I look forward to
hearing any contribution that he would like to make to the discussion.
As a result of those concerns, and as a proposed response to those
problems, there have been calls for significant increases
in duty. However, the view that the Government take—it is the
view that we have consistently taken in the Treasury—is that
that sort of social harm and social concern is best tackled by social
legislation and by working with the trade in self-regulation, rather
than by taxation, which, in this circumstance, is an instrument that is
not best suited to deal with the social problems that we are
discussing. In fact, it wouldbe likely to penalise the vast
majority of responsible drinkers rather than affecting the minority who
cause us concern.
Julia
Goldsworthy:
Will the Financial Secretary concede that
there might be one exception—super-strength lagers? People with
significant addiction problems buy such lagers because they are the
strongest and cheapest drink, so the price contributes to their
decision. Generally, they are drunk by people with problems. Does he
not think that changing the price might go a significant way towards
tackling that specific
problem?
John
Healey:
Not entirely, because the generalcase for
using taxation as a means of regulating consumption has not been made.
It is not best suited to this area of policy. In addition, concerns
have been expressed by some in the alcohol industry who argue that
higher energy and raw materials prices, and their impact on consumer
demand, have created a difficult trading environment for them over the
past year. We recognise that the industry makes an important social and
economic contribution to the life of this country. I would argue that
the modest inflation-only increase in the duty on beer, wine and cider
recognises those concerns, while providing the important stream of
revenue that is necessary to maintain our commitment to public
services.
Mr.
Paul Goodman (Wycombe) (Con): May I make it clear at the
start of my contribution that I have not changed gender today? I was
about to add that I am not aware of having done so at any other time,
but members of the Committee, being as sharp as ever, beat me to it. I
have not crossed the Floor to join the Labour party today, or at any
other time. Nor have I improved my looks and intelligence by a factor
of at least 100. That was all by way of saying that I amnot
the hon. Member for Bishop Auckland (Helen Goodman), in case any member
of the Committee is in any doubt. She would doubtless have made a
significant contribution to the Bill had she been a member of the
Committee, because she makes very good contributions to
debates.
I do not
think that I have served under you before, Mr. Gale. In
welcoming you to the Chair, may I say that I am sure that if you are
ever told that you have joined the Labour party, changed your gender or
improved your intelligence—not that I am willing to admit that
that is possible—you will bear all those complimentary remarks
with the fortitude that I associate with you?
Having welcomed you in that
way, Mr. Gale, I turn naturally to the clause and to alcohol
duty. As I do so, I think of last year’s debate, at which you
were notable to be present, although other members of the
Committee will remember it—the hon. Member for
Wolverhampton, South-West certainly will. Last year’s decisions
were spread across two main clauses, one about beer and a separate one
about wine. This year, the two of them are packed into one clause. I do
not want to start the more serious element of my remarks on a pedantic
note, but I am curious to know why they have been rolled together. Is
there a significant reason for that? Although I suspect that there is
not, perhaps the Financial Secretary will wish to clear that up later.
[Interruption.]
I hear a remark from a
sedentary position about the length of the tax code. I do not think
that I should like to comment on that. I would, however, like to
comment on the issues that face Ministers in deciding the balance of
duties. They have to take into account a number of considerations. The
duties have to be high enough to raise the revenue necessary to fund
public services and all the causes that Ministers traditionally commend
to us, but low enough to ensure—as with tobacco, about which we
heard so much last year and I am sure we will hear more as the
Committee goes on—that the law of unintended consequences does
not apply. In other words, they must ensure that smuggling is not
encouraged and revenue subsequently threatened. They also have to take
into account the needs of domestic producers and have to be as fair as
possible across the different drinks. It can also be argued—a
case made by my hon. Friend the Member for Windsor—that duties
on alcohol should play a part in improving public
health.
6.45
pm
The Financial
Secretary said that such mattershad been treated in the same
way by the previous Conservative Government as by the present
Government and that taxation may not be best suited to bringing about
the health results to which my hon. Friend referred, and that the case
had not been made. It would be fair for him to be a little puzzled by
that in principle because, after all, taxation is used in several other
circumstances to encourage or discourage behaviour. Perhaps he may wish
to contribute to the debate later on that point when we shall listen
carefully to what he has to
say.
I am not saying
that the objectives are easy to reconcile. Having made it clear that we
are not inclined to oppose the increases on the basis of what we know,
I wish to ask the Financial Secretary specific questions about beer and
some general questions about the Government’s strategy as a
whole. Casting my mind back to last year’s debate, I recall that
he referred to concerns in the wine trade, which was arguing at the
time that demand for wine was beginning to weaken. He referred
specifically to that
point.
Noting that
duty on beer had fallen by 6 per cent. in real terms since 1997, the
hon. Member for South-East Cornwall said that there
was
“clear evidence that
alcohol, particularly beer, plays a large part in some of the
antisocial behaviour, not least binge drinking, that we experience from
time to time.”
I raised
that issue not to disagree with or criticise what the hon. Gentleman
said, but to give the Committee the flavour of last year’s
debate. Although that debate was brief, it is fair to say that it was
rather more sympathetic to the cause of wine than to the
causeof beer.
The context this year is a bit
different. The smoking ban in pubs and clubs is due to come into effect
in July. The British Beer and Pub Association argues that the ban will
have a disproportionate effect on beer sales and, in particular, on
smaller, more traditional and out-of-town and city centre pubs for
which beer represents a larger percentage of sales. Members of the
Committee will have received representations from the association and
their local brewers in the same
vein.
The argument put
forward by the association is worth considering in some detail. Beer is
mainly a home-grown product; 90 per cent. of the beer drunk in the
United Kingdom is made in the UK. The brewing and pub industry
contributes more than £28 billion to the UK economy—some
2 per cent. of GDP—and exports more than 1.5 million pints of
beer a day to more than 120 countries, generating
nearly £300 million in export revenues. It employs roughly
20,000 people directly and creates more than 600,000 jobs
indistribution, pubs and bars; 45,000 landlords run their own
businesses and brewers buy more than 40 per cent. of the malting barley
crop, thus helping to sustain the rural economy and rural
communities.
None the
less, the case that the industry has made this year—rather more
vociferously and with more force than it made last year when the clause
on beer went through pretty quickly—is that beer is under some
pressure from rising energy costs that drive up the direct costs of
beer production and distribution, and from changing consumer
preferences, including some for products that are mainly imported. The
example of wine is almost too obvious to state, but I shall do so none
the less. The industry is also under pressure from changing patterns of
consumption, such as the trend towards drinking cut-price beer that is
available from supermarkets at home. Since 1997, beer consumption is
down by 11 per cent. and continues to fall; 35 British breweries have
closed in recent years with the loss of about 5,000 jobs. The
association says that the total profits of Britain’s four
biggest brewers fell by 50 per cent. last year, which is a considerable
fall.
The question
therefore is whether, as the association claims, the industry will soon
be hit by a double whammy of the effects of those pressures plus the
effects of the smoking ban. In Ireland, sales fell by7 per
cent. in the aftermath of the ban, and I should be interested to know
whether the Financial Secretary has a more up-to-date figure. Does he
know whether the Treasury has made any calculations as to the combined
effect on beer sales of the forthcoming ban together with the rise
prescribed by the clause? Has it made specific studies of the
experience in Ireland or elsewhere, and what is the combined effect on
pub closures of the ban and the rise set forth in the
clause—particularly in relation to the smaller, out-of-town or
out-of-centre, traditional pubs to which I referred earlier?
Furthermore, what assessment has the Treasury made of the effect on
pubs of the availability of cut-price beer from
supermarkets?
The
association has got into the business of trying to calculate what
happens to revenue, and claims that further tax rises will raise little
extra money but willhit the industry hard. It says
specifically that price elasticity of demand, a key measure of how
price affects sales, is minus 1.5 per cent., and that that is three
times higher than the Treasury estimates. In
summary, it says that duty rises produce falling consumption and less
revenue. It cites an alleged so-called “black hole” of
£70 million to £100 million in Treasury finances. The
Financial Secretary furrows his brow, but the figure is on the
association’s website and I should be grateful if he would clear
the matter up in due
course. When the
Financial Secretary spoke last year about the long-running freeze on
spirits, he
said:
“The
reason for the decision on beer duty compared with that on
spirits”—
in other
words, the
freeze—
“is that
spirits are significantly more heavily taxed than beer and we have in
place a long-term policy of a fairer balance of taxation across all
alcohol products.”——[Official Report,
Standing Committee A,
9 May 2006; c.
56.]
The reference to
a fairer balance of taxation over a period of time suggests
equivalence: taxing drinks solely on alcohol content. That would imply
a continuing increase in duty on spirits, and an increase in wine
duties. New world wines are stronger than old world wines, because the
alcohol content is higher,so arguably a revision of wine
duties would be necessitated. Is that what the Financial Secretary
meant by a fairer balance? If so, has the Treasury calculated the
effects of such a rebalancing on public
health?
To return to
this year’s changes, duties on sparkling wine were, as the
Financial Secretary said, raised by3.4 per cent., having been
frozen since 2000-01. Duties on cider and perry have been raised by 3.4
per cent, having been cut by 2 per cent. in 2003. Those are quite
significant changes. After what was effectively quite a long period
without any change in duties on sparkling wine, there has been an
increase and, after a cut in the duty on cider and perry in 2003, there
has now beenan increase on them too. That seems to be quite a
considerable change of
approach.
The
Financial Secretary said last year
that
“sparkling wine is
the most heavily taxed of all alcoholic drinks. That is part of the
reason why the decision that we took in previous years to freeze the
duty on sparkling wine was taken again this
year.”
One is inclined to
ask: what has changed in the year since those comments? He went on to
say, in a moment of levity that he might—who
knows?—regret:
“There
may be some champagne drinkers among the officials who support me on
the Bill because I have a note that says the freeze on the duty on
sparkling wine will affect not only the traditional champagne products
to which the hon.
Lady”—
the hon.
Member for Falmouth and
Camborne—
“referred,
but the excellent sparkling wines from
Britain.”——[Official Report,
Standing
Committee A
, 9 May 2006; c. 56.]
He went on to list two.
I do not know whether his team
of officials has changed—they look much the same to me—or
whether they have simply given up champagne as a result of the current
atmosphere in the Treasury. However, I would be grateful for the
Financial Secretary’s comments on what changed his
officials’ drinking behaviour in a
year.
Finally, on
smuggling, the Government published their UK alcohol strategy on
spirits in 2005. It aimed to reduce the illicit spirits market to 3 per
cent. by this financial year compared with a range of 0.8 per cent. in
2004-05 and 9 per cent. in 2001-02. HMRC figures duly showed the
illicit spirits share smoothly declining in each year since 2001-02 and
the estimated tax loss falling from £1.1 billion to £300
million. There has been a steady decrease, but the figures are not
easyto reconcile with the fall in the amount of spirits
seized. We learned from a parliamentary answer that the amount fell
from 2.1 million litres in 2000-01 to 0.24 million litres in 2004-05.
For wine, the amount fell from 0.61 million litres in 2000-01 to 0.29
million litres in 2004-05. Again, I would be grateful for the Financial
Secretary’s
comments.
Rob
Marris:
I have some brief remarks. I commend the hon.
Member for Wycombe on his thoughtful comments. I was not contacted by
the brewers, although one of the country’s largest brewers is
headquartered in my constituency. It used to be called Banks’s,
then Wolverhampton and Dudley Brewery and is now Marston’s. It
is known to many hon. Members, and is led by its excellent chief
executive, Ralph Findlay. It has been very successful and its profits
have gone up markedly in recent years. However, I note from the
explanatory notes that the duty on beer, wine and cider has been raised
this year in line with inflation, but the duty on spirits is frozen
and, in fact, is 27 per cent. lower than it would have been if it had
been increased in line with inflation since 1997. The corresponding
fall for beer is 3 per cent. in real terms; for cider it is 19 per
cent.; for still wine it is 3 per cent.; and for sparkling wine it is
16 per cent. Can I tempt the Financial Secretary to say a little more
about the fair balance, as he did last year?
I am faced with having a major
brewer in my constituency who brews excellent beer, as many hon.
Members know, yet the rate in the past 10 years has risen relatively a
lot more compared with the rate for
spirits.
Debate
adjourned.—[
Kevin
Brennan
]
Adjourned
accordingly at two minutes to Seven o’clock till Thursday 10 May
at Nine
o’clock.
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