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Similarly, we welcome the Government’s new commitment to regulatory budgets, something that I called for at our party conference last October. If properly implemented and operated, they will be a significant step forward, but I fear that business is not holding its breath. It is the Government’s fourth major initiative on regulation since 1997. Just two years ago, we were promised a year of delivery, but instead of cuts to the regulatory burden, all that was delivered to us was £16 billion-worth of additional regulations. Those
measures aside, the White Paper is terribly thin on substance and bears all the hallmarks of a Government who have run out of not just ideas, but wriggle-room. There is a plethora of small policies and initiatives, including some very minor changes to the financing regime for SMEs, but they are certainly not the key to “unlocking the UK’s talent”, as advertised on the document’s front cover.
The most depressing part of the White Paper is a classic eye-catching initiative—a high media campaign—entitled “spark an idea”, with a corresponding £12 million capital fund for female entrepreneurs. The Secretary of State mentioned that in his comments. Of course we welcome the focus on women in business, because one of the Government’s biggest failures has been the failure to encourage women to establish businesses, resulting in the UK having one of the lowest rates of female entrepreneurship in the world. However, we are not convinced that the £12 million will create the growth that the Government want. Also, as the fund is being distributed through Business Link, we will need convincing that the money will find its way to women, rather than just be lost in administration.
The problem for the Government is that 10 years after they promised to be the party of business, we are seeing clear evidence of enterprise being held back by the actions of Government. Our competitiveness rating has dropped seven places in the international league table since 1997. We are falling behind other European countries in investment and research. While other countries have been developing a competitive business tax code, the UK has the unique distinction of creating a tax code that is longer than India’s. The Chancellor has compounded that by adding a further 107 new technical tax changes in the Budget alone, which brings a certain Kafkaesque logic to the Government’s pledge to simplify the system.
Another part of the problem is that the Department that is supposed to represent the long-term interests of business has not shown, in a decade of Labour rule, any long-term thinking that we find comprehensible.
Mr. Richard Benyon (Newbury) (Con): Does my hon. Friend agree that the Secretary of State has another problem to deal with—the bizarre decision by the Prime Minister last July to close the Defence Export Services Organisation, a body that was responsible for assisting British business to create £5 billion of inward investment every year? That decision has caused great dismay across a key sector of many of our constituencies. Does my hon. Friend agree that we must change that decision when we get into power?
Alan Duncan: My hon. Friend makes a serious point. The attempt to sanitise the process has probably gone a long way to undermining it seriously. There was a fudge between the Ministry of Defence and DBERR, as it is so ridiculously called. I call upon the Secretary of State, if not on this occasion, at least later to defend that fudge, because many of the phones have gone dead in our attempts to sell important equipment abroad.
The Department over which the right hon. Gentleman presides has had 38 Ministers since 1997. It has even had seven Secretaries of State. The Minister with responsibility for small firms has changed, on average, once every 18 months. The churn at the top is
creating a churn elsewhere, so while the number of small and medium-sized enterprises in the UK has increased, the start-up rate has fallen.
Mr. Jeremy Browne (Taunton) (LD): “You churn if you want to”.
Alan Duncan: Indeed. That is exactly what is happening.
While the number of female-run businesses has increased, the latest small business survey found that those businesses are replacing, not adding to, the existing stock of male-run businesses. The Government do not seem to understand that one cannot create enterprise through the distribution of little pots of money. Fundamentally, it is a cultural phenomenon, and the Government do not appear to understand that culture.
The Government have mishandled the overall economic picture, they have mishandled the business sector and they have squandered a decade of growth. Their legacy is a big bill for all of us to pay, and the Budget is a sad reflection on the plight that they have put us in. It is the Prime Minister’s legacy and he will not be thanked for it.
4.38 pm
Mr. John Grogan (Selby) (Lab): I first heard news of last week’s Budget when I was in outer Mongolia, where I had been dispatched with the Foreign Office, well out of harm’s way, along with my noble Friend Lord Malloch-Brown. Given that I am chairman of the all-party beer group, perhaps it was the best place for me, in view of the 4p rise in beer duty. In my brief remarks, I shall reflect on alcohol policy and the alcohol industry—an important industry in our country—the energy sector, the gambling industry, and non-domiciles.
There was a significant change in the policy on alcohol duty last week. All alcohol duty—on wine, spirits, beer or cider—was increased by a similar percentage. A promise was made that in forthcoming years there would be increases of inflation plus 2 per cent. on all alcohol. It is worth exploring the reasons for that. Up to now, the Treasury has said that alcohol duty is a revenue raiser, rather than an aspect of health policy. Indeed, last week my right hon. Friend the Chancellor referred to increased alcohol duty giving additional support for families and lifting more children out of poverty. He also mentioned in his remarks, which were backed up by the Treasury press release, that as incomes have risen, alcohol has become increasingly affordable. He spoke about ensuring that alcohol duties keep up with rising incomes. For the first time, there was a hint that alcohol duties were being raised for health as well as revenue reasons. I would be interested in any clarification from Ministers on that point.
I want to explore whether the measures will be an effective way of raising revenue and promoting health. What are the implications for the pub industry, in particular? It employs 500,000 people and generates more than £20 billion—it is as big as the airline, retail clothing or media sectors. How much revenue are the increases likely to raise? The Treasury forecast in the
Red Book suggests that £8.6 billion will be raised in the forthcoming year, up from £8 billion this year—a significant rise, particularly from wine duties, which will apparently raise more than £400 million extra. At the moment, our beer duty is the highest among those of comparable European Union countries, at nearly 40p a pint.
In the past few years, beer duty has gone up a lot more than other alcohol duties: by 26.7 per cent. since 1997, compared with a 3 per cent. rise for spirits, an 11 per cent. rise for cider and a 16 per cent. rise for wine. However, as beer duty has increased, the tax take has not increased to any extent at all. In 2004, £3.1 billion was raised through beer duty; that has now decreased to £3.05 billion for the current financial year. The actual amounts raised through beer duty undershot Treasury estimates by £130 million last year and £160 million the year before.
As beer duty has risen—considerably—since 1997, the gap between the price of beer in a pub and its price in supermarkets has widened. A pint of Carling in a managed pub cost £1.65 on average 10 years ago, but it is now £2.32. The average price of a pint of premium lager in a multiple grocer was £1.14 10 years ago but is now down to £1.05. There has been a shift.
Tony Baldry: Is not the hon. Gentleman’s point that the increase in beer duty will not have much of an impact on off-sales, but will have an impact on village pubs? All the village post offices in constituencies such as mine have been closed by this Government. What next? It will be pubs. It is disingenuous to suggest that any increases in beer duty will have an impact on binge drinking; they are just another way of collecting more revenue, which will also hit a valuable service—the village pub.
Mr. Grogan: The hon. Gentleman is ahead of me. Unless other measures are taken, the rises will reinforce the trend of the past 10 years of more off-sales and fewer on-sales. Ten years ago, the on-trade accounted for nearly 80 per cent. of beer sales; that has gone down considerably to just over 60 per cent. The measures will reinforce the trend from drinking in community pubs and towards more sales in supermarkets.
I shall come to the impact on health, but I shall first address the impact on tax, as the hon. Gentleman mentioned that. It is important to remember that pubs and the beer industry pay not only excise duty, but VAT and employment taxes. In fact, Ernst and Young suggested that the entire pub and beer industry contributed a total of £9 billion to Government revenue. The more that is drunk in pubs, as opposed to at home, the greater the Government revenue. The Government receive £1.14 in taxes from a pint of beer in a pub, compared with 55p for every pint drunk in the off-trade. In themselves, the measures will, as the hon. Gentleman points out, damage drinking in community pubs and favour supermarkets.
Tesco said something interesting a few weeks ago. For the first time, it admitted that it sells alcohol below cost. It hinted that that was a problem socially and suggested to the Government that it would be prepared no longer to sell it below cost if the Government
changed the law to deal with the competition requirements that might be infringed if the supermarket moved alone. My fear is that, unless the Government move quickly to deal with supermarket prices, the impact of the excise duty changes will be, as the hon. Member for Banbury suggested, that the supermarkets continue to loss-lead, treat alcohol like baked beans and not raise prices in line with excise duty.
Indeed, I have a letter from a major retailer and wholesaler to a brewer. It states:
“As you know the aggressive market that we’re all trading in continues”.
It suggests that the brewer does not raise the price of beer following excise duty and that:
“Given the discount pricing strategies adopted in the past few years by the multiple grocers we are not confident that the budget will result in material increases in retail prices.”
The Government’s review of the impact of alcohol pricing on health is due in a couple of months. The Government must act urgently and take Tesco at its word. I referred to Sir Terence Leahy before Christmas as the godfather of British binge drinking, and there is no greater joy in heaven than when a sinner repenteth. However, as St. Augustine said, “Lord, make me virtuous but not yet.” That is Tesco’s position and the Government need to encourage it to take the further step. I believe that that will require a change in the law.
The all-party parliamentary beer group is now considering reference pricing— minimum pricing for alcohol—which is prevalent in Canada. In Canadian supermarkets, the minimum reference price of a bottle of beer is around 50p. We will hold a seminar, to which we hope to invite the supermarkets, the Treasury and the health lobby to ascertain whether we can reach a consensus. Without that, the increase in excise duty over the next few years will accelerate closures of village pubs—we have reached more than 20 a week on some counts. The community pub will also decline, and that is where drinking is supervised and managed, and where people generally drink socially. Such decline could have bad implications for one of the industries that make one proud to be British. I therefore hope that the Government will act on supermarket pricing and stand up to the supermarkets, given that they are going down a specific road on alcohol duty.
Mr. Prisk: The hon. Gentleman mentions small pubs, and he is right, but is he aware of the impact of the measures that he mentioned on small breweries? I am thinking of McMullen in Hertford and Sharp’s, an excellent brewery in north Cornwall. Both told me that their costs have risen by 60 per cent., and now the Government are slapping on an additional charge. Has his group considered the impact on such excellent small breweries?
Mr. Grogan: We have indeed. To be fair to the Chancellor, and especially the previous Chancellor, the relief to small breweries on excise duty has led to an expansion in micro breweries in recent times. However, the brewers who are just above the level of micro brewers, some of whom have closed in recent years, will be especially badly affected by the increase in duty, as the hon. Gentleman says.
Three measures in the Budget affected fuel poverty: the winter fuel allowance, the action on pre-payment meters and the proposed increase in social tariffs paid by the energy companies from the current figure of £50 million to £150 million. The Government will enter into negotiations about that increase.
Let me press Ministers about the voluntary versus statutory debate. On pre-payment meters, the Chancellor referred to the possibility of legislation if the Government did not get what they wanted from the energy companies. However, possible legislation on social tariffs was not mentioned. I am not sure about the reason for that inconsistency, especially now, when some of the major energy companies are calling for statutory social tariffs. They say that it would be much easier if there were a level playing field. Let me cite two brief examples. After the Budget, EDF Energy stated:
“Our own proposal—which we have supported for some time—is for mandatory social tariffs in the form of a discount or relief against published tariffs.
This would ensure a level playing field for suppliers and sufficient funding since it would require statutory mechanisms by which money was redirected for this purpose.
It should also be possible—in a statutory framework—to solve the issue of identifying objectively the customers who should benefit.”
Npower wrote to the regulator, Ofgem, just before Christmas, saying:
“At present, government is encouraging the delivery of a social action solution within a voluntary framework. It is doubtful whether this is the most efficient approach and it is also seemingly inconsistent with a market framework. We believe that the interest of the fuel poor is best served by a mandatory social tariff”.
I ask Ministers to be open in their discussions with the energy companies to the possibility of a mandatory social tariff, in the interests not only of the fuel poor, but of a competitive energy market, so that all the energy companies know exactly where they stand and what they have to fulfil. If they want to go beyond that for competitive advantage, it is surely up to them to do so.
There was no reference in the Budget to energy prices as such. I was pleased that, following the Chancellor’s discussions with Alistair Buchanan, the chief executive of Ofgem, there will be an inquiry into energy prices. The hon. Member for Rutland and Melton (Alan Duncan) mentioned the impact of the Budget on manufacturing industry, and energy prices are a major issue that the sector faces.
When he met the Chancellor, Alistair Buchanan said that there was no need for such an inquiry and that the market was operating efficiently. He changed his mind within three or four weeks, but I fear that his inquiry will be a little like the Princess Di inquiry with Mohamed al-Fayed as the judge rather than a witness. It would be better if Ofgem gave evidence to the Competition Commission in a full-scale inquiry into energy views, so that its views could be put against those of Energywatch, the consumer champion, which will sadly be abolished in a few months, and so that there could be a proper test. Unless there is a proper test, many small businesses and energy consumers will not have confidence in the Ofgem inquiry.
That brings me to a broader point, which concerns the relationship between the Government and business, which those on the Opposition Front Bench mentioned.
I am proud that I was a small business man before I entered the House. It gave me an appreciation of cash flow, and what it means to employ people and so on. We have done a good job over two decades of getting rid of the idea that Labour is anti-business. We are a party that supports entrepreneurs, but we have also lost the progressive critique of business oligopoly and big businesses acting against the interests of small businesses.
There is a much greater willingness on the left of the American political debate, as well as among Republicans, to criticise markets in which there is self-interest and no competitive framework, rather than having markets working in the public interest. It is at least arguable that our energy sector is dominated by a number of very large companies that not only produce but retail electricity and gas. It is not clear to me that those companies are operating in the competitive interests of small businesses and consumers. It would be much better to give the issue to the Competition Commission.
The Secretary of State mentioned regulation. One of the Competition Commission’s critiques of Government policy is that the Government do not refer nearly enough sectors to the commission for investigation. It is in the self-interest of regulators not to make such references, because they risk being criticised or admitting that they do not have enough powers to regulate different sectors of the economy. It will be interesting to see what Ofgem comes up with, but I hope that the Government will not rule out making a full-scale reference to the Competition Commission before next winter, when who knows what will happen to energy prices.
Finally, I congratulate the Chancellor and the Government on sticking to their guns with respect to imposing modest charges on non-domiciles. Again, it is a question of being bold and arguing the language of fairness. It is fair and right that some of the richest people in our society who enjoy many of the fruits of our society should make a contribution. Incidentally, I am disappointed that our candidate for Mayor of London, Ken Livingstone, whom I very much support, does not strongly back the proposal. Indeed, he has criticised it.
The Wall Street Journal was more correct when it said in a headline at the weekend, “New U.K. tax rules don’t vex ‘non-doms’”. The paper gave a number of quotations from various prominent business people. One of them, a CEO of a hedge fund in “London’s plush Mayfair district”, said that he was still being inundated with foreign citizens who want to come and work in the City of London. The paper also cites several prep schools that are doing very well as a result of the presence of the sons and daughters of such foreigners. I believe that the so-called harm to the City of London that this measure would bring has been massively exaggerated.
I congratulate the Chancellor on the measures to ensure that non-domiciles make a fair contribution to our society, and I hope that he will look at other tax measures similar to those suggested in the TUC’s report on tax avoidance and tax evasion measures. We need to ensure that we can live in a fair society in which everyone, rich and poor, makes a contribution to the public services that the Government have improved over recent years.
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