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Bob Spink: Does the right hon. Gentleman think that one problem with the Liberal amendment is that it would prevent any decrease in, or indeed the removal of, the escalator over the next three years?
Mr. Redwood: I think that latecomers should refrain from making comments that have already been made by hon. Members who have decided to take this rather more seriously. As you rightly reminded us, Sir Michael, it is an extremely serious issue for a very large number of businesses and constituents throughout the country. We have all been impressed by the energy of those who are desperately trying to save their industry and their local pubs. They have been to see us here in the Palace of Westminster, they have been to see Ministers, they have sent a great number of e-mails and personal correspondence, and they have often been to Members’ constituency advice surgeries. It well behoves anybody in the House not to try to turn this into some kind of knockabout but to see that it involves big issues about jobs, prices, communities and ways of life that matter a great deal to our constituents.
As we have heard—I do not wish to bore the House by repeating it—a point can be reached where an increase in taxation can suddenly tip over into doing far more serious damage. My worry is that we are reaching that point against the background of recession. It may well be that in more normal years there was agreement across the House that there needed to be a certain level of duty, or even an increase in duty, for health or revenue-raising reasons. However, against the background of great pressure on the economy, a squeeze on many people’s incomes, a squeeze on company cash flow, and businesses experiencing difficulty in raising from the banks working capital or money for their wider purposes, the Government should pause to reflect on whether this is the appropriate moment to introduce such a tax increase and whether they have done a proper study of what impact it may have on jobs and individual businesses. We have already heard examples of small brewers who could be knocked sideways if demand fell too sharply, and we all know of pubs at risk in our own constituencies and in the wider country.
I am also concerned about the impact on prices. It is dangerous to be as cavalier as the Government appear to be about the inflation risk. One of the attractions of the Liberal Democrat amendment is that it is trying to create a pause in the rate of increase of this particular set of prices in our economy. I find it extremely worrying that at a time when output is falling precipitately, and when redundancies and unemployment are soaring, as we are tragically seeing again today, with about a quarter of a million extra unemployed so far this year—an alarming development—we still have price inflation, on the Government’s preferred measure, of about 3 per cent. Although there is clearly a lot of deflation in the system, there is still quite a lot of inflation as well, part of which is on imports. That is certainly true in the drinks industry, because wines and so forth are imported from much stronger currency areas and the devaluation, along with the increased duty, is increasing price tensions.
However, the price tension is not due to that alone; it is also due to the impact of Government action. The Government have to be very careful about the impact on price inflation of duty hikes and other tax rises, at a time when incomes are not going up at all in many
cases, and when some people’s incomes are falling because bonus payments have been removed, or because people are doing only three or four days’ work a week, or missing one week in four or whatever.
11 pm
Kelvin Hopkins: Does the right hon. Gentleman not accept that the depreciation of the pound or the appreciation of the euro, however one likes to look at it, is actually of benefit to the economy? We are starting to see a turnaround in our chronic balance of trade deficit, and demand is being directed towards domestic producers of other things. That is helping employment and the economy. Is the depreciation of the pound not a very good thing indeed?
Mr. Redwood: We must be careful not to make this a wider economic debate, and we have dealt with that matter in such debates. I have always said that devaluation should help domestic manufacture relative to overseas manufacture and should start to make some correction to the balance of payments. However, what we are concerned about this evening is the sectoral impact of a particular tax increase on the jobs and prosperity generated by the alcohol and entertainment industry. I am adding that point that inflation is also harmful, and there is a double whammy of inflation in the alcohol sector. That is coming partly through the sterling effect, to the extent that drinks are imported, but more importantly there is a direct inflationary impact from the measure that we are discussing this evening. We are also discussing the attempt to prevent future increases, at least for a period pending further review, as suggested in the amendment.
Mr. Newmark: The hon. Member for Luton, North (Kelvin Hopkins) made an important point about the currency shift when we have a declining currency. The Prime Minister made an interesting observation in 1992 when he was shadow Chancellor, saying:
“A weak currency arises from a weak economy which in turn is the result of a weak Government”.
The hon. Gentleman says that a declining currency is good, but the Prime Minister also made an interesting observation about a weak currency.
Mr. Redwood: That is quite right, although it takes us into a wider, general economic matter that is not strictly the point at issue in the amendment. The issue that we must consider is the adverse impact of duty escalators on both jobs and prices. The two are related, of course. This is a time when people may be losing a week or two of work a month because a factory is partially closed. They may have lost overtime or one or two days’ work a week, or they may even be off work for three or six months because of the temporary closure of big factories, for example in parts of the motor industry. This extra price increase on something that they like to do for relaxation is not good news, and the Government might be underestimating the impact it could have on hard-pressed budgets.
If alcohol costs too much, fewer people will go to the pub. If fewer people go to the pub, it is more likely that the pub will close. The Government will then be fuelling a vicious cycle of driving more people out of work and causing a further reduction in effective demand, which I am sure they do not intend to do. They tell us that they
will do whatever it takes to turn this recession around, but this is another case of their taking actions that cannot be helpful, and that in parts of the entertainment and alcohol industry will be extremely damaging. It is wrong for us to ignore or underestimate the power and passion of the lobbying that we have seen in recent weeks.
Rob Marris: I share some of the right hon. Gentleman’s concerns, especially about the price of beer. Marston’s, the third biggest pub chain, has its headquarters in my constituency. However, will he also take into account the fact that a major input cost, particularly for breweries, is energy, and their energy prices have decreased considerably compared with 12 months ago?
Mr. Redwood: Some breweries may experience some benefit on energy, but there may not be benefits on other input prices. For example, I doubt whether their water bills have decreased. Perhaps the news is therefore not as good as the hon. Gentleman thinks, but anything that offers some relief is clearly welcome.
“No further amendment may be made to”
the relevant section of the legislation to which it applies
“within three years of the commencement, unless”
a further condition is fulfilled. My hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) teased out the important point that the amendment unfortunately does not appear to apply to all the types of alcohol we would like it to cover. That may be a slip in the drafting, but it puts hon. Members in a slightly difficult position because we would like to support the whole alcohol industry, not only the spirits sector. I would like the amendment to cover beer, cider and domestically produced wine—that would mean covering all wine—as well as spirits.
Under the amendment, the condition that must be fulfilled before a further increase is allowed is
“that the Chancellor of the Exchequer shall have compiled and laid before the House of Commons a report containing an assessment of the impact of the increases in alcohol liquor duty on... the competitiveness of licensed premises, and... the level of employment in alcohol-related industry, and the House of Commons”
would have a chance to consider and vote on the report.
One colleague asked a perfectly good question about the cost of the report. It is right to show concern about runaway public spending, even when it comes down to such relatively small details. However, given the wide range of civil servants, and the substantial recruitment of civil servants that the Government have undertaken in recent years, I hope that existing teams could absorb the task. I am sure that the industry would make any evidence and information available to those compiling the report. I therefore hope that that worry will be allayed if the Government promise to act in a value-for-money spirit and ascertain whether the report could be covered in the normal course of their operations.
Mr. Bone: Assuming that there is a new Conservative Government in the next year and that they want to cut duty immediately so that the people of the United Kingdom can celebrate with gusto, we could not do that if we accepted the provision.
Mr. Redwood: My hon. Friend is right to say that we could not do it under the provision that we are considering, but if we are in the fortunate position of having a majority, we could use it to change the law in any way we liked. I am sure that a Government who got better value for money generally and could set lower tax rates would be welcome to the House. That would do more to speed us out of recession than some of the measures that we have considered in other debates.
Mr. Robert Goodwill (Scarborough and Whitby) (Con): Notwithstanding the point that the hon. Member for Wolverhampton, South-West (Rob Marris) made about energy prices, which have an impact on beer prices, is my right hon. Friend aware that the price of malting barley has been rising in the past three weeks? It is now 25 per cent. higher than it was in the futures market in October, so that will wipe out any advantage from energy prices.
Mr. Redwood: I am grateful to my hon. Friend for his expertise in that agricultural sector. I knew that agriculture prices were generally soaring again—because, I suspect, of quantitative easing in Britain and America, which fuels speculative, early moves into commodities, as one might expect from such inflationary actions. My hon. Friend is right to say that it will more than wipe out the possible benefits from energy prices. I was cautious about the extent of those benefits, because they depend on individual brewers’ contractual positions—several have long-term contracts, which mean that they do not get the automatic pain or pleasure when market prices move.
As I was saying, the cost of the report is a reasonable cost and one that can be contained by a sensible Government. It would be a good idea to conduct a wider study and get some information about what the impact might be on jobs and prices. Indeed, that would be necessary in order to make an assessment of the impact on employment.
When I tried to tease out the view of the mover of the amendment, the hon. Member for Taunton (Mr. Browne), on the balance of forces that are causing so many pub closures, he said he felt that at the moment price increases could be an important factor. I certainly agree with him that social change is also an important factor. There are people who like to drink drinks other than beer who perhaps associate beer rather more with the pub. There are also people who want to drink their drinks at home or in some other social setting, rather than in the local pub. There are all sorts of social changes under way, which has meant a trend against the pub. However, the hon. Gentleman is right—and many hon. Members agree with him—to say that at this juncture prices could be particularly damaging and that, for a pub or a small brewer, they could be the straw that breaks the camel’s back. We know that the rate of pub closures is unacceptably high.
The requirement laid out in amendment 10 is that the report should look into
“the competitiveness of licenses premises,”
although that should perhaps be “licensed premises”. I take that to mean that the report would have to consider carefully the relationship between pricing and demand and the impact of the duty on that pricing. If the Government’s idea is a permanent escalator, we will need to think through the compound arithmetic and see
what impact it might have. The Government also need to do those calculations to see what impact the change could have on the level of duty collected, because there will come a point at which it is self-defeating.
The amendment also invites the Government to comment on the kernel of the argument being put forward this evening, which is the level of employment in the alcohol-related industry. The industry has different components: it has the producers of alcoholic products and all the people involved in marketing, sales and distribution, but it also has those involved in hospitality and leisure who use alcoholic products as part of a wider offering to the public. That is the feature that has led so many hon. Members to be so passionate about the defence of their local pub trade and their local pubs, as important establishments in suburbs, communities and villages.
When she responds to this debate, I hope that the Exchequer Secretary will understand that the House is responding not just to the amendment before us, but to what lies behind it, which is a very big lobby indeed. That lobby is warning the Government that the industry is particularly exposed and that the Government’s revenue-raising actions are increasing the agony that businesses are experiencing generally from the impact of the wonky monetary policy, the credit crunch, and the over-extension and then the sharp withdrawal of credit, all of which have characterised the unfortunate performance of the economy in the past three years.
I hope that the Minister will remember to explain to the House a little more how her clause 11 operates, because that will stand part of the Bill if the amendment is not passed. I hope that she agrees that the increases in the Bill are very large for an economy that, we are told, should be operating at zero inflation. There are also some big steps up in the duty on wine, which do not make a lot of sense to quite a lot of people trying to wrestle with what the Government are seeking to do.
11.15 pm
Stewart Hosie: Amendment 12, which stands in my name, is about alcohol duty generally, not the whisky industry in particular, although that is an important sector and I may make a number of references to it.
Let me start with the comments of the Scotch Whisky Association about last year’s Bill. It said that the 2008 Budget had been greeted with
“extreme dismay...following the Chancellor’s decision to raise the duty on Scotch Whisky by a punitive nine per cent.
Distillers said that the Chancellor had effectively abandoned government moves towards a fairer alcohol tax policy, worsening the duty discrimination against Scotch Whisky.”
Those sentiments are broadly shared again this year. The association has described the proposed rise, following last year’s cumulative 13.5 per cent. hike—the largest rise since the 1970s—as
“a blow to the industry that comes at the worst possible time”.
This year’s rise has been described by the SWA as a real-terms 5 per cent. rise, and the association suggests that the Treasury is actually likely to see
“lower receipts as the duty rise aggravates already tough market conditions in the UK, the industry’s third largest market”.
“The duty rise sets an unwelcome precedent for other governments around the world who are also seeking to raise revenues.”
That matter has been alluded to before.
In general terms, the industry considers this year’s rises bad news. They are particularly bad news for an industry that employs 10,000 people directly and 40,000 directly and indirectly in Scotland, and a total of 65,000 directly and indirectly in the UK. It is not only the whisky industry that will be affected but the drinks sector generally, which has already asked the Government to abandon the 2 per cent. above inflation tax escalator on alcohol.
That request has been based in part on the work done by Oxford Economics, which has looked at the effect of last year’s 17 per cent. average leap in excise duty and at the implications of the four-year tax escalator. Its five-year study estimates that there will be about 75,000 job losses in the drinks industry. In the teeth of a recession, having a policy that is likely to lead to job losses is foolish. The study predicts that alcohol sales will drop by over 11 per cent. and that tax revenue from alcohol will be £1.6 billion lower than the Treasury originally estimated.
For all those reasons, we need to find a better, fairer, evidence-based way of taxing alcohol. We simply cannot go on with the unfairness in the system that results in a half-pint of beer costing 23.06p in duty and a 125 ml glass 26.75p, while a 35 ml glass of whisky costs 31.7p in duty, especially when all those measures contain precisely the same amount of alcohol. That clearly demonstrates the unfairness in the way in which duty is levied on different forms of alcoholic drinks.
I have not called for the duty rises to be cancelled, although that would be very welcome. However, my amendment 12 calls for the evidence that would allow evidence-based policy making and for the Treasury to tell us by the time of this year’s pre-Budget report how much duty is raised from each of the different kinds of alcoholic drink. The amendment also calls for the publication of an assessment of
“the level of alcohol liquor duty required to be levied on each type of drink on an equitable basis based on the alcohol content to generate the same revenue yield.”
We need that information in order properly to determine, on the basis of real evidence, how to tax alcohol fairly, across the board, and how to protect the vitally important Scotch whisky industry. Other hon. Members will have their own industries, such as cider houses and breweries. We also need the evidence to ensure that, whatever we do, there are no unintended consequences. I am conscious of the pressures on the brewing industry and the pub trade, but also conscious of the unfairness when it comes to the duty levied on whisky.
For all those reasons—and ignoring the arguments that the Minister made last year about how difficult this might be and how Europe would not let us do it—I think that it is reasonable to ask for an assessment of the duty taken on the different kinds of drinks, and of the level of duty that would be necessary to create equitable taxation in future. With that, I will sit down. I have heard a number of very long speeches today that went all round the houses and missed the point. I hope, Sir Michael, that people will be grateful for a short, concise speech.
The Chairman of Ways and Means (Sir Alan Haselhurst): Order. I am sure that Sir Michael would have been delighted, but he is not in the Chair at the moment.
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