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Session 2008 - 09
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Public Bill Committee Debates

Alcoholic Liquor Duties (Surcharges) and Tobacco Products Duty Order 2008

The Committee consisted of the following Members:

Chairman: Sir Nicholas Winterton
Atkins, Charlotte (Staffordshire, Moorlands) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Carmichael, Mr. Alistair (Orkney and Shetland) (LD)
Challen, Colin (Morley and Rothwell) (Lab)
Chaytor, Mr. David (Bury, North) (Lab)
Clarke, Mr. Tom (Coatbridge, Chryston and Bellshill) (Lab)
Coffey, Ann (Stockport) (Lab)
Crabb, Mr. Stephen (Preseli Pembrokeshire) (Con)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Greening, Justine (Putney) (Con)
Greenway, Mr. John (Ryedale) (Con)
Holloway, Mr. Adam (Gravesham) (Con)
Owen, Albert (Ynys Môn) (Lab)
Robertson, Angus (Moray) (SNP)
Stewart, Ian (Eccles) (Lab)
Glenn McKee, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Tuesday 13 January 2009

[Sir Nicholas Winterton in the Chair]

Alcoholic Liquor Duties (Surcharges) and Tobacco Products Duty Order 2008

The Chairman: I think that I still can, on 13 January, wish all members of the Committee a very happy new year. I hope that the year will be rather better than many people are predicting. I say that for the benefit not only of those in Committee, but in the country at large. It is very much a matter of d(c)j vu, Minister, and I call you to move the first motion.
4.30 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,
That the Committee has considered the Alcoholic Liquor Duties (Surcharges) and Tobacco Products Duty Order 2008 (S.I. 2008, No. 3026).
The Chairman: With this it will be convenient to consider the Alcoholic Liquor (Surcharge on Spirits Duty) Order 2008.
Angela Eagle: It is a great pleasure to be a member of a Committee under your chairmanship for the second time today, Sir Nicholas. This afternoon, we shall consider the changes in alcohol and tobacco duty that resulted from announcements made in the pre-Budget report. Alongside the reduction in the rate of VAT announced in the report, the Government decided to change the rates of excise duties on alcohol and tobacco to leave the overall level of taxation on those products broadly unchanged.
The statutory instruments give effect to those excise duty changes. On tobacco, that has meant increasing the rate of the ad valorem duty on cigarettes from 22 to 24 per cent. Cigarettes make up the overwhelming majority of the tobacco market, and changing the ad valorem rate of duty allowed the impact of the VAT reduction to be closely offset for cigarettes in all price segments. Specific rates of duty on other tobacco products were increased by 4 per cent.
As I said, our policy intention in the pre-Budget report was to keep overall levels of taxation on alcohol broadly unchanged. The picture on alcohol is more complex than it is on tobacco. VAT is charged on price. Duty is calculated on volumes and strength of alcohol and, to keep overall levels of taxation broadly unchanged, we chose to increase duty on spirits by 4 per cent. and duty on all other alcohol products by 8 per cent. It is important to consider that change alongside the fiscal stimulus package of temporarily reducing the standard rate of VAT and bringing forward public capital spending. Like all other sectors, we hope that the alcohol industry will benefit from the positive effect of fiscal stimulus on the economy.
Colin Challen (Morley and Rothwell) (Lab): What consultation was undertaken with the licensed trade? Thanks to VAT cuts, it seems that a fiscal stimulus was given to many sectors. Given the experience of my constituency, which is suffering from a dearth of public houses, surely those licensed premises should have been consulted about whether they should benefit from a fiscal stimulus, too.
Angela Eagle: I assure hon. Members that I regularly meet a range of stakeholders, including those in the brewing industry and the pub industry, tenants and a range of others who are affected by tax increases. I must also say that we cannot—and do not—consult on rates of excise in advance of arrangements being made. We call often on the day of the pre-Budget report or the Budget to inform such people and we have ongoing dialogue and meetings, but we do not consult specifically on excise duty rates as that is a matter for the Budget. There are ongoing discussions and contacts. I and many Committee members are well aware of the circumstances in which those people find themselves. It would be wrong to give my hon. Friend the impression that I consult directly on what the levels of excise duty should be, but we always listen to the observations and experience of stakeholders in the industry and their representatives.
Mr. Alistair Carmichael (Orkney and Shetland) (LD): The Minister earlier reminded Members that the reduction in value added tax is a temporary one, until 1 January 2010. She also made the point, which the Government have made before, that this package—the orders—is a countermeasure to the reduction in the cost of alcohol. Should we assume, therefore, that the increases in the duty on alcohol, in particular, will be reduced when VAT is increased again?
Angela Eagle: If it had been the Government’s intention to decide that for the pre-Budget report, that intention would have been announced. It has not been announced, therefore such decisions will be taken closer to the date. The hon. Gentleman cannot assume that when VAT rates go up in 12 months’ time, excise duty rates will come down. If he looked at the small print of the pre-Budget report, he would see that, certainly in respect to alcohol and tobacco, the intention—at the moment—is that the excise duties will remain where they are, contributing to the fiscal consolidation, which we all know has to happen once we have got through our current difficult economic times.
The statutory instruments give effect to the desired duty changes and derive their force from the so-called economic regulator powers. The changes are to section 2(7) of the Excise Duties (Surcharges or Rebates) Act 1979, for alcohol, and to section 6(3) of the Tobacco Products Duty Act 1979, for tobacco. The resulting new rates of excise duty on alcohol and tobacco will cease to be in force after one year, unless confirmed through another order or in the Finance Bill of the Budget later this year. The Committee will, therefore, have more time to debate the issues when we consider those.
Mr. Adam Holloway (Gravesham) (Con): Has the Minister looked at the impact that the orders might have on the pub trade?
The Chairman: Maria Eagle—I mean Angela Eagle.
Angela Eagle: First day back, and that predictable error has occurred again. Fortunately, it has been occurring for nearly 48 years now and I am rather used to it, so I do not take offence.
The hon. Member for Gravesham asked about the effect of excise duty increases. In coming to decisions, we always bear in mind what is going on in the specific industries, trades and sectors affected. Excise duties are only one part of a complex picture. Clearly, there is a tough situation in the retail trade at the moment, and that applies equally to brewing and to the pub trade. The reasons cannot, by any means, be attributed solely to excise duty levels. We always consider the likely effect of our decisions on the trades on which we levy excise duty or other taxes.
Albert Owen (Ynys Môn) (Lab): Further to the point just made about the effect on the pub trade, is the Minister aware that, when beer duty goes up, it is disproportionate on pubs selling draught beer? Is the Treasury working with other Departments and pub associations to ensure that there is a more proportionate increase—a level playing field? Large companies that sell in supermarkets, for example, are able to absorb such costs in a way that public houses are not.
Angela Eagle: Yes, I am aware of the differences between the on trade and the off trade and of how those have developed over the last few years. Equally, we cannot apply different rates of VAT or duty to the same product in different contexts. Many of the pricing issues result from structures and agreements that have been made. For example, supermarkets discount more heavily than the on trade can, which leads to discrepancies. Such matters of competition and behaviour cannot be resolved by the use of tax or excise duty. We are aware of these issues and sensitive to them. We try to factor them into our analysis of the effects of potential duty increases or VAT changes. However, it is not always easy to see tax changes as the answer. Perhaps restructuring or other methods will provide the answer. We are aware of these issues and of the structures.
Mr. Stephen Crabb (Preseli Pembrokeshire) (Con): A few minutes ago, the Minister described the environment facing pub traders as tough. That is a massive understatement. Many pubs face a crippling cost burden, particularly in rural areas such as the one that I represent. Does she accept that a direct consequence of these changes will be to accelerate the rate of pub closures? The rate is currently five a day. Does she accept that the changes will increase the proportion of alcohol sold through large supermarkets, as suggested by the hon. Member for Ynys Môn?
Angela Eagle: No, I do not accept that. The statutory instruments will create a situation in which prices go down in all categories, except for the 1p increase in the price of wine. According to the weighted average—an analysis of the on pint and off pint of beer—prices are expected to go down by 1p. The prices of cider and perry are expected to go down by 3p a litre, wine to go up by 1p and spirits to go down by 12p. We expect a reduction in prices.
I readily admit that there are many pressures on all forms of this trade. However, those pressures will not be exacerbated by the decisions we are debating. Yes, the economic climate is tough. We hope that the fiscal stimulus will be of assistance, but I do not deny that trading conditions are tough. There are tough issues on the strategic approach and structure. We know what is happening with some pub and brewing companies. However, the statutory instruments should lead to a fall in prices. There is only a minor increase for wine and there are minor falls for the rest so the measures we are discussing should have a neutral effect.
Colin Challen: Will my hon. Friend clarify her earlier answer on whether the excise increase will be rescinded in 12 months? That would mean a real increase in the price of alcohol, particularly in pubs and clubs, which I am concerned about. If only for my benefit, will she avoid using the Treasury jargon of weighted averages and tell me what the price of a pint of beer will be in my local pub in six months compared with today as a result of this Committee’s decision?
Angela Eagle: It is not for me to decide what the price of beer in my hon. Friend’s local pub is now or what it will be in six months. As we have seen, there is no direct relationship between levels of excise duty and prices in shops. My hon. Friend the Member for Ynys Môn mentioned the discounting that happens in supermarkets. Therefore it is possible to have an increase in excise duties and a decrease in price in particular contexts. It is impossible for me, sat in the Treasury, to predict with any degree of certainty what will happen in my hon. Friend’s local. It is up to the brewers, the owners and those running the pub to make commercial decisions about price.
The Government’s current position is that these excise duty increases will remain once VAT goes back up. It is predictable, although not necessary, that when the duty increases are made there will be an increase in the price of alcohol in my hon. Friend’s local in 12 months’ time, but, again, there are commercial aspects to that matter over which I have no control.
Justine Greening (Putney) (Con): Does the Minister accept the basic economics of business: when a cost base is raised, businesses are faced with two choices? They can either have lower profits, which means that they have less money to invest in their businesses, or they can pass on the cost to consumers, which means higher prices. Many people who read what the Minister has just said will be staggered that she should argue that raising tax can lead to reduced prices. That does not seem to be a relationship that can ever hold.
Angela Eagle: The average effect, net, of what we are discussing today, taken with the VAT cut, is to keep the tax burden on alcohol and tobacco, although we are not talking in great detail about tobacco at the moment, the same. What the hon. Lady has not pointed out is that, at the same time as these excise duties increase, there is a VAT decrease.
I have just told my hon. Friend the Member for Morley and Rothwell that, in a year’s time, when we come to the fiscal consolidation and VAT goes back up, the Government intend to keep current excise duty levels where they are. It would be reasonable to say that there might be price increases in 12 months’ time as a result of excise duty changes, but it is quite wrong to say that there is an increase in the burden of taxation at the moment. The point of these changes is to have a neutral effect and, as far as possible, to compensate for the decrease in VAT by increases in excise duties.
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