Mr.
Carmichael: In looking at the future development of this,
the Minister will be aware that the Chancellor has already committed
the Government to 2 per cent. increases over the rate of inflation in
the Budget for next year and possibly even the year after. Will this
increase now be considered when the duty rate is being set in the next
Budget? That is to say, will we be able to offset some of the pain now
or will we just get even more come the Budget in
March?
Angela
Eagle: It is not for me to announce, or to go any further
than what we have already announced in public, what the Chancellor will
be minded to do in the Budget in two or three months’ time. All
I can say is that the Government have made their current intentions
clear: all taxes of all kinds will be kept under review. Our current
position is as stated in the pre-Budget report, but I will not start
writing my right hon. Friend’s next Budget, three months in
advance. The
resulting rates of excise duty on alcohol and tobacco will cease to be
enforced after one year unless confirmed through an another order.
Before I took interventions, I was pointing out that we will have a
chance to debate these issues again either through another order, as
this will run out, or in the context of the Finance Bill after the next
Budget. Hon. Members will have plenty of time to look at the effect of
these changes and consider them for forward and future policy.
Confirming these statutory instruments today will ensure that the
overall level of taxation on alcohol and tobacco remains broadly
unchanged following the reduction in VAT. I commend them to the
Committee. 4.50
pm
Justine
Greening: I take this opportunity to wish everybody on the
Committee a very happy new year. However, it will not be a happy new
year for many of those working in the drinks and pub industry. Given
that we are taking two separate orders together, I propose to talk
about both of the alcohol duty aspects and finish off by moving on to
the tobacco duty aspect, which we have not talked about in any depth
today.
Today’s
order on alcohol and tobacco came into effect on 1 December 2008. It
was part of the Government’s stimulus package. As the Minister
mentioned, the reduction in VAT by 2.5 per cent. will be offset by
increases in duty on alcohol, tobacco and petrol, with the idea that
prices on these items will remain
unchanged.
In an earlier
debate today, the Minister seemed to be saying that that was not the
case with fuel duty and that its increase was independent of that
reduction. I shall remind her of the whole package by repeating what
the Chancellor said when he announced the duty rises in the pre-Budget
report: “The
reduction in VAT lowers the amount of tax paid on tobacco, alcohol and
petrol...I will offset the VAT reduction by increasing those
duties to an amount that will keep the overall cost to consumers the
same this year.—[Official Report, 24 November 2008; Vol.
483, c. 496.]
All those duty rises are
directly linked to the VAT reduction, as I think the Minister has
acknowledged. The Chancellor has said that they are necessary to stop
the VAT cut making fuel, alcohol and cigarettes cheaper. I hope that
the Minister will clarify whether she agrees with the
Chancellor’s statement that the duty rises are all directly
related to the VAT
reduction. I
shall examine the Minister’s claim that the price impact will be
neutral later, along with the effects that the duty rise will have on
the public and businesses, but I want to point out the obvious flaw
with the Government’s fiscal stimulus, of which this is a
consequential part. The stimulus will cost the nation more than
£12 billion, but, critically, the reduction in VAT is temporary,
whereas these duty increases are permanent. Therefore, even if we
believe the Government’s claim that this package was price
neutral to the industry in the short term, these orders mean that, just
within a year, we will see real tax increases for an industry which is
struggling to cope and a public with less money than they have perhaps
had in recent years.
Irrespective
of the Government’s disastrous VAT stimulus, there are a number
of concerns that I want to raise with the Minister regarding these
orders, which have serious implications for many people and businesses
throughout the country. We need to consider the impact of these duty
increases on the drinks industry and especially on pubs and those who
rely on pubs for employment. The way in which these across-the-board
rises hit responsible drinkers but fail specifically to target binge
drinking should also be pointed out.
I
want to question the Minister on the validity of the
Government’s claim that this package is price neutral in respect
of wine and beer. I question the appalling handling of this duty
increase on the spirits industry. We discussed many of these issues
during the debates on last year’s Finance Bill. The Treasury
does not seem to have listened to the concerns of the industry and the
suggestions that were raised then and that have become ever more
pressing since. I question whether this is the right time to increase
the duty on alcohol again—this is the second rise in duty this
financial year. Last year’s Budget saw a 6 per cent. increase in
duty, while the pre-Budget report brought forward a further 8 per cent.
on alcohol, apart from spirits. These increases will hit the drinks
industry, which is struggling to cope.
Angela
Eagle: Is it Opposition policy to rescind these increases
in
duty?
Justine
Greening: The Minister seems to assume that an election
will be called soon and that we will win; I am grateful to her for
saying that. In terms of our policy, we have little idea now what state
the public finances will be in by the time this Government hand over to
a future Conservative Government.
The
Chairman: Order. I do not wish to debate the next general
election in this Statutory Instrument Committee. We are debating the
statutory instrument, and not what the Opposition party may or may not
do for the next election.
Justine
Greening: That is right, Sir Nicholas. It is particularly
rich of the Minister to talk about our plans when the Chancellor has
said that he may change the
figures that he released only in November, which have our economy
bouncing back in July next year, in spite of no independent forecaster
predicting the same. It is not the Conservative party that has no ideas
about how to run this economy and about tax policy—it is this
current Government, as we see here. Although
Ministers—
The
Chairman: Order. I have ruled that we should not be
debating the policies of any major party at the next general election.
Let us consider the narrowly drawn order that we are
debating.
Justine
Greening: Let us do that, Sir Nicholas. People facing the
loss of their jobs would have been staggered to see the Minister and
her colleagues laughing at my comments, because the price that they
will pay for this Government’s incompetence will be a personal
one, which they will have to live with for some years.
Even
before the economic downturn, pubs were experiencing difficulties. Now
they find themselves in a dire situation with five pubs going out of
business every day and a further 1,300 nationwide under threat of
closure. The Minister talked about it being tough out there for pubs.
In fact, for far too many it is not just tough but terminal. Pubs are a
unique British institution of which we should be proud. They are part
of our culture. In many cases, they form the heart of local
communities, which have already faced the loss of other key
institutions such as post offices. Many people also rely on pubs and
the alcohol industry for employment, and those jobs are under threat.
The industry, including off-trade pubs, hotels, restaurants and related
trades, provides employment for 1.6 million
people. Oxford
Economics forecasts that recent alcohol duty increases will cost 59,000
jobs in the beer supply chain, most of them in pubs and clubs, and that
there will be lost sales of 16 million barrels of beer over the next
five years. Those figures come from the British Beer and Pub
Association, and I do not think that they are a laughing matter. The
alcohol industry faced a 6 per cent. increase at last year’s
Budget, and now it faces a further 8 per cent. rise. The Government
give us rhetoric about helping businesses through the recession, but
pubs feel that they are being targeted at a time when they are
struggling to cope.
Many of us
find it unbelievable that no impact assessment was done before this
duty rise was introduced. For the explanatory memorandum to say
that
“an Impact
Assessment has not been prepared for this instrument as it has no
impact on business, charities or voluntary bodies”
seems beyond belief to
many people
affected. The
next point is the Government’s position that the duty increase
will be cancelled out by the VAT reduction and that prices will
therefore remain unchanged. The Chancellor claimed when he introduced
his VAT stimulus that the duties were being raised to negate the
reduction in VAT. Unfortunately, many voices in the drinks industry
claim that in reality this blunt measure is far from cost-neutral for
consumers and that the price of a number of products will increase as a
result. I
will come on to the absolute shambles of the planned increase on
spirits, but I will give the Minister some examples of the impact of
VAT and duty changes on beer and wine products. I hope that she will
explain what analysis the Treasury has done of the analyses that I will
present, which the industry says are correct.
Regarding
wine, analysis by the Wine and Spirit Trade Association shows that the
trade-off between VAT and duty is only price neutral for bottles of
wine priced £6.07 and over. The Chancellor may choose to stock
his wine cellar with such bottles, but 92 per cent. of wine sales in
the off trade involve bottles that cost less than £6. That means
that four out of five shoppers will pay more for their wine as a result
of the package. Does the Minister accept that? If not, what analysis
has she done to produce a different
outcome? Regarding
beer, the British Beer and Pub Association has calculated that after
the VAT cut the duty increases will still mean an increase in beer
prices. Its analysis shows a 2.7p per litre increase in the price of
4.2 per cent. and 5 per cent. volume beer. In the light of those
figures, many trade associations are equally sceptical about the
Treasury’s claims. Many in the industry believe that it is
unprecedented for the Government to reverse a tax change for spirits
within 48 hours of announcing it. Those in the alcohol industry who are
not part of the spirits industry are losing confidence—I think
everyone is—in the Government’s ability to get tax right
first time, and those in the industry, including those employed by it,
ultimately pay the price. I hope that the Minister will address those
issues, as all the statistics suggest that the measure is not price
neutral. Turning
briefly to the spirits duty changes, the circumstances in which the
need for this order came about do not fill anyone with confidence in
the Treasury’s due care and attention in setting duty rates.
Simply put, the order seeks to amend the one that we have just
discussed, because that one is wrong. On Monday 24 November,
the Government announced their plan to increase duty on alcohol by 8
per cent., but within a week they were forced into an embarrassing
climbdown on the rate of duty on spirits, cutting it back to 4 per
cent. Why? Because the drinks industry, particularly the Scotch Whisky
Association, was up in arms about how the so-called, price-neutral
package would add to prices. Its figures show that the planned 8 per
cent. increase would have added 47p to a £20 bottle of whisky.
In that case, the Treasury acted quickly, doing a volte-face and
reducing the rise in duty to 4 per cent., which was welcomed by the
industry. But what about the increases in the prices of wine and beer,
which I have raised already with the Minister in this
Committee? Many
people in the industry question why the Treasury is prepared to correct
an apparent mistake for spirits but not for other forms of alcohol.
Perhaps the Minister will confirm what the absolute mess with the
alcohol duty on spirits was about. Was it a stealth tax rise? Perhaps
it was a typo, a bit like the one that the Government apparently claim
was part of the explanatory memorandum on VAT, which showed VAT going
up to 18 per cent. once the current reductions have finished. Or
perhaps it was just a good old-fashioned Treasury cock-up. Perhaps the
Minister will be good enough to clarify what happened. Whatever the
reason, it is a real error in performance to have to reverse a policy
announcement two days later. Such a mistake would be laughable, if it
were not so serious because of the confusion that it has created. The
industry was already under pressure because of the economic downturn,
and it already faced having to implement the VAT stimulus change, which
cost £300 million across the whole of British business, across
its systems.
It was
confronted not only with that, but with having to put through similar
duty changes at the same time. The spirits industry had to handle the
reversal of that policy within what was almost a matter of hours. It is
impossible for businesses to react professionally and effectively to
Government policy when policy changes almost every other day. The
uncertainty that that provides is crippling, because there are the
questions whether and when such issues will arise again.
That level of
uncertainty in the industry is unacceptable. It wreaks havoc with
pricing, contracts and overhead costs, not to mention the
administrative costs of getting such measures implemented with such
little notice. This measure was introduced in a matter of days after
the pre-Budget report, and it would be good if the Minister would at
least acknowledge the huge logistical and financial nightmare that has
been placed on the drinks industry, which is managing itself through
the downturn. Many people are astounded at the Government’s
approach to the spirits duty. It affects an extremely important
industry, particularly in parts of the country such as
Scotland. I
am conscious of the time I have taken up, so I will finish my comments
by referring briefly to tobacco. Tobacco makes up part of this order,
although it is not remotely related to alcohol duty per se, and it is
questionable why we are taking the two orders together. Of course, our
concern about tobacco duty regards health and the fact that smoking is
ultimately responsible for 87,000 deaths a year in England alone. As
part of the overall strategy on smoking, we believe that it is
important to maintain the duty level on tobacco, and the VAT reduction
on its own would have reduced the tax on tobacco. We understand and
recognise the need for a corresponding increase in the rate of tobacco
duty in order to maintain the current level of cigarette
pricing. I
have one question about the revenue maximisation point of tobacco duty.
During our discussion of the Finance Bill 2008, the Minister said of
tobacco tax
that “duty
rates are close to revenue maximisation, which is why there has been no
greater increase than revalorisation in the Budget. That means that any
large real increase in the duty rate would increase smuggling and
probably increase the availability of cheap tobacco, which would
obviously be a perverse result.”——[Official
Report, Finance Public Bill Committee, 15 May 2008; c.
221.] Will she
confirm whether that is still the Treasury’s position? How does
she reconcile that statement with the temporary reduction in VAT that
has been matched by a permanent increase in duty? How do the Government
propose to handle that once the temporary reduction in VAT runs
out?
My concern is
that unless the matter is handled carefully with respect to tax revenue
maximisation, we will see increased duty rates, which could lead to
increased smuggling. If people smoke counterfeit cigarettes, those
cigarettes are not only bad for their health, because they are
cigarettes, but actually worse than people realise, as they are made of
non-quality product. That is our concern about that aspect of the
order.
I have raised
a number of points, and it is only fair to give the Government, and
other members of the Committee, time to have their say on these
important issues, so I conclude my
comments.
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