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11.45 pm
Mr. Hands: My hon. Friend makes a powerful point. I would be delighted to accept an invitation to go to Braintree. I feel from looking at the statistics that I mentioned earlier that it is likely that the picture that he paints is being repeated all over the country.
According to the industry, publicans spend an average of eight hours a week dealing with paperwork. One in five blamed it for their becoming uncompetitive—it represents 51 per cent. of turnover. Employment costs have increased by almost 59 per cent. over the past decade and ALMR is calling for the 0.5 per cent. rise in national insurance contributions next year to be scrapped—
The Chairman: Order. I must remind the hon. Gentleman of the terms of the amendment. It excludes that particular point. It is about the impact of the increases in alcohol liquor duty, rather than the other matters that he is now describing.
Mr. Hands: Thank you, Sir Alan, for that guidance.
Mr. Ellwood: On a point of order, Sir Alan. In the previous clause that we debated, it was considered that clause stand part would be discussed as well as the detail of the amendments. Will you advise us on whether the same rule applies to this clause?
The Chairman: The ruling that I have made is in connection with the terms of the amendment that we are discussing, which is about the impact of the increases in alcohol liquor duty on various matters. Those are the terms of the amendment and those are the guidelines that we must follow for debate on this amendment. If other matters arise later on, I can deal with them then. As far as this amendment is concerned, I hope that the hon. Member for Hammersmith and Fulham (Mr. Hands) will observe what I am saying.
Mr. Hands: I shall certainly try my best, Sir Alan— [ Interruption. ] I shall do more than my best.
Mr. Redwood:
Although I can understand my hon. Friend’s reluctance to vote for the amendment, because it will not address the issues that we want to address—the
beer problem and the pub problem—will he issue a strong warning to the Government, as many of us would like him to do, that their policies are doing untold damage to the pub and licensed trades and that they really ought to think again?
Mr. Hands: We are; that is what my speech is all about—the fragile state of the industry and the damage that is being wrought on it by the Government.
Mr. Hayes: You have guided us to the exact issue of the amendment, Sir Alan, and it makes specific reference to the relationship between duty and competitiveness and the survival of the industry, as my hon. Friend has made clear. If we are not going to vote for the amendment—I will be guided by my Front Benchers, of course—should not the Government at least conduct some sort of thorough research such as that which my hon. Friend is articulating and that which is argued for in the amendment?
Mr. Hands: My hon. Friend is absolutely right. More research needs to be done and the Government should be aware of all these issues and their impact on the industry.
Mr. Bone: I gather that my hon. Friend is referring to subsection (6B) of the amendment, which concerns the competitiveness of the industry. I have obviously not decided how I will vote on the amendment, but is not the crux of his argument that we do not need this report about the competitiveness of the industry because we already know the situation?
Mr. Hands: Yes. I think that we are aware of most of the problems facing the industry. I would not be opposed to a further study but we need action now rather than awaiting such a study.
The drinks trade and pub businesses are vital employers. According to the Oxford Economics study, some 31,000 people are employed in the UK in drinks manufacture. I shall try to relate this point to duty. Just over half are employed in producing beer, some 35 per cent. in producing spirits, 6 per cent. in producing cider and wine and the 6 per cent. remainder in producing other drinks. Much of that employment is in rural communities, where other jobs on offer are limited. It helps to sustain them, as my hon. Friend the Member for Braintree (Mr. Newmark) and others have noted. People involved in beer production in England and Wales are 50 per cent. more likely to live in a rural community than the national average for those in employment overall.
The breweries are doing no better. I am in constant correspondence about duty levels with Fuller, Smith and Turner, which is located just outside my constituency and makes the excellent London Pride beer. I mentioned that I was in Wiltshire with some colleagues a few weeks ago, and we went to the Wadworth brewery in Devizes to see at first hand how one of Britain’s medium-sized firms was faring under the big increases in duty. It is surviving, partly thanks to the quality of products such as 6X and some of the lighter brews.
Mr. Ellwood:
My hon. Friend is making a powerful argument about the level of duty. The duty hits the breweries. They were told that it would be only temporary
and that it would act as an offset to the VAT cut—which was also supposed to be temporary. However, the Government have not said that because VAT is about to head back up, alcohol duty will head down again.
Mr. Hands: My hon. Friend makes a powerful point, which highlights how much duty has risen in the past 14 months and the appalling effect that that is having on our breweries and pubs across the country.
Since 1997, under Labour, the following big breweries have closed down part of their operations in certain towns—Brakspear, Ruddles, Morrells, Whitbread and Young’s. Other names have disappeared entirely from the scene.
How will the industry survive the recession? I do not have statistics for previous recessions, but I recall reading or hearing that the pub trade suffered a great deal but was still more recession-proof than some sectors. That might well no longer be the case: an interesting survey by YouGov showed the entertainment that households expected to cut down on as the recession bit into their budgets. The least affected things were TV subscriptions, gym memberships and the hiring of DVDs, but two of the three biggest losers were going to pubs and eating out.
The Oxford Economics study published in December 2008 examined the direct impact of the Budget and pre-Budget report measures on the pub sector in 2008-09. It also estimated the measures’ impact over the next five years, with the escalator in place. The study said that the cumulative loss thanks to the duty escalator in sales and economic activity would amount to 16.7 million barrels of beer, or 4.8 billion pints. It also said that more than 59,000 jobs would be lost in the beer supply chain, and that overall tax revenue, including duty, VAT and employment taxes, would fall by some £79 million.
Beer is part of Britain, and it is most popular among lower and middle income groups. Interestingly, people with manual or routine jobs drink less overall, but they drink 50 per cent. more beer than the managerial classes, and the figure is even higher for cider. The impact of the big duty rises has been felt in urban constituencies, but not as much as in the rural or suburban communities where pubs are more integral. That struck me most clearly a fortnight ago in the village of All Cannings outside Devizes. The King’s Arms is the village’s main amenity and it is in good health, but many other pubs are not. We need to be aware of that.
John Howell: My hon. Friend mentioned the Brakspear brewery, but he may not be aware that the company has decided to freeze prices to keep tenants in business through the year—something that not many companies can do. The pub in the village of Sydenham in my constituency was going to close, but three public spirited inhabitants of the village have used their own money to buy it. Does he agree that pubs like that are the ones most at risk, because they are very vulnerable to any changes that come along?
Mr. Hands:
I thank my hon. Friend for that intervention, and I add my congratulations to his constituents in Sydenham on being so public spirited and on realising the important role that village pubs can play in our
society. I also commend some of the breweries for keeping a close eye on their pubs and making sure that livelihoods are protected.
Mr. Hayes: Like my hon. Friend, I make a strong case for rural public houses—indeed, just a week ago, I was in “The Bell Inn” in Weston Hills in my constituency attending a “save our pubs” campaign meeting, which illustrated to me the communal effect of pubs. Have the Government conducted a study—there are certainly no background notes—of the wider effect of the trade and its impact on employment and social value in our rural areas? If not, why not?
The Chairman: Order. I hope that the hon. Member for Hammersmith and Fulham (Mr. Hands) will content himself with the satisfaction of knowing his hon. Friend’s experience of visiting the pub. The debate on this amendment is not the appropriate place to have a wider debate on the licensed trade, yet that seems to be what we are moving towards. I think that we should move back from it.
Mr. Hands: I thank you for that guidance, Sir Alan.
It is worth remembering that the VAT cut—the Government’s much vaunted scheme to inject a bit of life into the economy—which was linked to the big rises in duty in the pre-Budget report, provided almost no benefit to pubs and breweries, because the VAT cut was netted against all the duty increases. It also caused big problems elsewhere, costing businesses a huge amount when making the necessary changes to prices. Industry sources estimate that the changes in autumn—both the VAT cut and the duty changes in the PBR—cost every pub or bar an average of £570, which does not take into account any management or staff time involved. The industry believes that the cost will be the same, or similar, when VAT goes back up again, but this time, it appears that it will not be offset by a reduction in beer, wine and spirits duties.
The wine trade has also been suffering, with sales falling for the first time in many decades. There was a very small fall during the last recession, but the figures are nothing like the present ones. Although it is not alone, it is Britain’s beer and pub sector that is under pressure, and many outlets will not survive the downturn.
Mr. Goodwill: My hon. Friend describes the impact of the duty changes on pubs, but does he agree that they will also have a big impact on the traditional working men’s clubs in Yorkshire and the north of England? If the Government are not prepared to fight for the rights of those who use those clubs, the Conservative party certainly will.
Mr. Hands: I certainly agree with my hon. Friend, but I fear that if I comment on that, I shall stray away from the purpose of the amendment. Alcohol duties are only one part of the picture, but they are an important part.
On the Government’s approach and specific points arising from the Budget and the duty changes, so poorly thought through has been the Government’s response to the industry’s difficulties that, for the first time, the five UK alcoholic drinks trade associations made a joint submission on this year’s Budget on duty levels. Their letter talked about
“spiralling redundancies and short-time working across the alcohol sector and the unprecedented number of pub closures.”
Their letter combined two main requests: first, to freeze alcohol duties and, secondly, to withdraw the proposal for the alcohol duty escalator.
I would like the Exchequer Secretary, when she responds, to reflect on whether alcohol duties are close to reaching, or even outstripping, the revenue maximisation point. Given the decline in alcohol consumption in this country since 2004, there is some evidence, albeit perhaps not conclusive, that that point has been reached. The hon. Lady may well say that she is not in a position to give answers to theoretical questions, but I remind her that in the debate on last year’s Finance Bill she stated a quite definitive view that tobacco duties had reached the tax maximisation point, saying:
“duty rates are close to revenue maximisation, which is why there has been no greater increase than revalorisation in the Budget.” ——[ Official Report, Finance Public Bill Committee, 15 May 2008; c. 221.]
Will she tonight offer a view on whether alcohol duties have reached that point?
I am told that the Treasury model appears to show that the tax maximisation point has been reached or is close to being reached, but I am also informed that many in the industry, at least, doubt the robustness of the Treasury modelling.
As their joint submission showed, producers have felt for some time that the Government are refusing to listen to their concerns and failing to recognise the issues they face. That was most apparent in the pre-Budget report. Now, of course, Ministers claim that the increases in duty were offset by the cut in VAT. I will examine that claim in a moment, although hon. Members who remember the backtracking on whisky will already be sceptical.
12 midnight
The Government’s claim overlooks a key distinction: producers pay duty, whereas the retailers pay VAT. I have met wine producers and importers who, safe—or so they thought—in the knowledge that the Government had introduced a duty escalator to enable long-term decision making, had entered into contracts to supply wine to supermarkets and others at a set price. Producers’ and importers’ margins are so tight that every bottle they produced after the PBR was produced at a loss until the contracts expired months later, as they had not factored in the additional rise in duty in the PBR. As they were the ones who paid duty, they suffered. Meanwhile, they watched the retailers whom they were supplying charge less VAT, but not always a lower price.
The Minister will understand that the claim that the duty increase for producers was offset is held in utter contempt in the industry. We have seen time and again that the Government’s failure to consult, and their rush to implement duty changes, produced problems they did not foresee. To promise the industry a three-year horizon of stability, and then provide less than a week’s notice of a major change only six months later, perhaps marks a new low in the Government’s miserable record.
The VAT cut offset was hardly that, anyway. The PBR suggested that the changes would leave the total VAT and duty on products “broadly unchanged”. I suppose that that depends on how broadly one defines the word “broadly”, but the whisky increases proved too broad for even Labour’s tradition of semantic hair-splitting to spin away. The proposed rise of 8 per cent. in duty on spirits in the PBR had to be cut to 4 per cent. when the Government were forced to admit that they
had got their sums wrong. The Scotch Whisky Association, in particular, showed that the rise would have added 47p to a £20 bottle of whisky. The muddle on wine duties that occurred at the same time was never resolved. The increase in duty was supposed to offset the decline in VAT. For wine, that was true only of bottles priced at £6.07 or more, and 92 per cent. of bottles sold in the retail trade are priced at less than £6. That meant that under the PBR four out of five shoppers ended up paying more for their wine as a result of the duty changes and VAT changes combined. The position was not at all neutral for wine buyers.
The Government claimed that when they introduced the alcohol duty escalator, it would bring certainty about future duty rises. After the PBR blunder, this year’s Budget has actually added to that uncertainty. Traditionally, the indexation element of any duty rise was linked to the retail prices index that prevailed in the September before the Budget. This year’s increase applies the RPI forecast for the September following the Budget. Clearly, that dampens the rise in duty in this instance, but it would be helpful to know whether the Government see that as a permanent change in their methodology; if it is not, the promised certainty on those duties has been eroded yet further.
The uncertainty reached in the industry in the past year beggars belief; there have been hefty duty increases in two Budgets and in the intervening PBR, as well as the introduction of an escalator and a change in the RPI date used for its calculation. That totally throws out the whole certainty argument, which was introduced a year ago along with the escalator. The uncertainty wreaks havoc with pricing, contracts and overhead costs, not to mention the administrative costs of implementing the price changes such as those due on new year’s eve. If duty is not put back down when VAT returns to 17.5 per cent., the industry will take another hit. If the escalator is 2 per cent. per annum, why is the industry in practice facing a total rise of 4.5 per cent. in this financial year? That is a critical question that Ministers must answer tonight. At the moment, Labour’s escalator appears to contain no certainty whatsoever.
We need to look at what the purpose of alcohol tax is in the first place. After the pre-Budget report, the Exchequer Secretary said in a debate in Committee in January, when these duties were last raised, that taxation was a very blunt instrument with which to deal with a minority of drinkers and that in her view tax did not have a major role to play. She meant to attack Conservative policy, but we believe that the blanket duty increases have far less impact on health than targeted measures directed at problem drinks and problem drinkers. Her comments on duty were also rather at odds with those of her colleagues in the Department of Health. The Minister of State, Department of Health, the right hon. Member for Bristol, South (Dawn Primarolo) told the public health conference held by the British Medical Association last year that
“our estimates suggest that higher taxes, if they do feed through to price, will mainly affect the 7 per cent. of the population who drink one third of all alcohol consumed in Great Britain. In England alone, the total number of lives saved up to end of March 2013 will be 3,250 by the Department’s own calculations.”
My hon. Friend the Member for Henley (John Howell) wanted to know whether there were any Government studies. There was a recent study—the community pub
inquiry, by the all-party parliamentary beer group—and the Government’s response to it was quite fascinating:
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