§ (1) Any intoxicating liquor which, if of lower strength, would be cider within the meaning of the Excise Acts (which includes perry) shall, if of twenty-seven degrees of proof or greater strength, be deemed for the purposes of those Acts to be sweets and not cider, unless it has undergone no other process than a single process of fermentation, was made from apple or pear juice which at the beginning of that process was in its natural state, and contains no ethyl alcohol derived from other materials.
§ (2) This section shall have effect as from the first day of September, nineteen hundred and sixty-one.
§ (3) The application of this section to Northern Ireland shall not be restricted by the provisions of subsection (5) of section thirty-three of this Act.
§ Brought up, and read the First time.
§ Mr. Bryant Godman Irvine (Rye)
I beg to move, That the Clause be read a Second time.
1426 At a few minutes before four o'clock in the morning it is a great comfort to me to know that the Economic Secretary has paid such attention to the problems which we are asking the Committee to consider today.
We are asking the Economic Secretary to have another look at Section 2 of the Finance Act, 1956. I would remind him of two passages in the statements made about that Section when the Budget proposals were presented to the Committee on 17th April of that year. My right hon. Friend the Prime Minister, who was then Chancellor of the Exchequer, said that the purpose of the new proposal was…to protect the Revenue and to remove an unfair competitive advantage.He described the various products which would be covered by the then proposed Clause and said that cider and perry would be excluded from duty…provided that it is established that they have been made wholly by simple fermentation of natural apple or pear juice. This distinguishes those traditional beverages from more sophisticated products made—I am told—from a wide variety of fruit and vegetables."—[OFFICIAL REPORT, 17th April, 1956; Vol. 551, c. 885.]The present Minister of Housing and Local Government, then Financial Secretary to the Treasury, on 19th April of that year brought into the Chamber a sample product and said he wondered whether the Chairman of the Committee had often indulged in that product. He went on to say:I brought it…to convince the Committee that there are these articles which at present have an uncovenanted advantage…the revenue would suffer if we were to take no action to make sure that they are treated for duty purposes on the same basis as other British wines."—[OFFICIAL REPORT, 19th April, 1956; Vol. 551, c. 1186.]I should like, first, to draw the attention of the Chancellor to the fact that the sample brought into the Chamber on that occasion was of a product which has never been touched by the Section and according to my researches there was no prospect of its being covered because at that time it was not of a strength of 15 degrees of proof spirit or above. Whoever was advising the Chancellor at that time was not advising him correctly.
Then the Financial Secretary referred to "other British wines". British wines 1427 are made from materials imported into this country and the only thing British about them is the labour put into them here. In my constituency, on the other hand, there is a company which is producing a beverage entirely from British apples. The effect of this Section on my constituents has been that whereas in 1956, 2,700 tons of apples were used, in 1957 only 620 tons were used and by 1958 no apples were used. It may be that even 2,700 tons of apples are not regarded as a very important part of the total production of the country. But I assure my hon. Friend that 2,700 tons of apples being sold in a particular area of south-east England are regarded by the local growers as of considerable importance.
This company is exporting products made entirely from British apples to Canada, Ceylon, Rhodesia, Kenya and elsewhere. But nevertheless the Chancellor in 1956 decided that he must only encouraged British wines which are produced from imported materials. As a result, my constituents' company now finds itself in a very difficult financial position and brought practically to a stage where it will have to close down.
My first point therefore is that the Section was directed at the wrong target and the article which was brought into the Chamber was never touched by the Section but hit this company, which was not in the Chancellor's mind at that time. My second point is that it was estimated at that time that a total of £400,000 would be produced in duty. We have asked on several occasions questions designed to persuade the Chancellor to tell us how much he was receiving as a result of that new Section. We have received no satisfaction from the Answers which have been given.
It may be no surprise to hon. Members to learn that we knew the Answer before we asked the Questions—and that is probably the best reason for asking a Parliamentary Question. We asked the Questions to see whether the Chancellor would be frank enough with us to admit that the estimates on which the £400,000 was based were grossly inaccurate. The figures are well enough known today for the Chancellor to be able to admit that that is the case.
There are only two companies which are paying the duty. The larger of them 1428 is in my constituency. If the Chancellor does not know the figures, my hon. Friend the Member for Ashford (Mr. Deedes) and I will give him a fairly accurate indication that he is receiving very little as a result of the duty.
The then Chancellor said what he wanted to do was to protect the Revenue. He was hitting my small company which had, over six years, built up its position from nothing to making a profit of £116,000. In the year following the 1956 Budget, that was reduced to £3,690, and it staggered along at that level until making a small loss this year. If the Chancellor is interested in protecting the Revenue, I should have thought that it would have been desirable to encourage a company which was gradually expanding and had reached the stage where it was making a profit of £116,000 in one year rather than cut off that source of revenue and see the company making a small loss.
The Financial Secretary made the point that he wanted to see that an unfair competitive advantage was removed. I have looked at the latest balance sheet available to me for a company which produces British wine which is closely associated with the product of which a sample was brought into this Chamber. From 1952 to 1958 the company paid a dividend of 10 per cent. and in 1959 it paid 12½ per cent. and put away £90,000 for reinvestment. Yet the Chancellor has decided that he must see that an unfair competitive advantage against that company is removed.
If all these facts are examined, it will be found that the Government have been wrong from the beginning. They were wrong in their target, the estimate that they were given was wrong, and the result has not been the one which was surely in the mind of the Chancellor of the time, because it has been a disastrous blow to the small company in my constituency and to another small firm in the constituency of my hon. Friend the Member for Ashford.
For those reasons, I hope that it will be possible for the matter to be looked at again so that these companies will be given the opportunity of making a contribution to British production.
§ Mr. W. F. Deedes (Ashford)
This is a chilly subject to take just before dawn. I want to stress only one point in the case advanced by my hon. Friend the Member for Rye (Mr. Godman Irvine). I would emphasise to the Committee not the size of the injustice which we are trying to remedy, but the minuteness of it. There is no very large vested interest mixed up in this As my hon. Friend said, there are two companies—three at the outside—which were, in our belief, caught by accident by the proposal put forward by the Chancellor five or six years ago.
Attempts have been made to show that the effect of this has been very adverse on British apples and the British fruit crop. My view is that these attempts are misconceived. The strength of our case is that a small handful of men have been most adversely hit to the point of bringing their businesses almost to ruin and that that was not the intention of the Chancellor in 1956 or the intention of Parliament in accepting what the Chancellor then proposed.
It is quite true that it did seem then, and may well seem to the Chancellor now, that there was some danger in the rapid growth of production of special types of cider and perry against comparable dutiable British wines. It was to remove that unfair competition that the Chancellor acted. He acted against alcoholic drink of 15 degree proof and above.
Excluded from this was cider and perry of any strength made wholly by simple fermentation of the natural apple or pear juice. The object was to catch fortified cider. The consequences have been quite different to what the Chancellor then conceived. The duty has not fallen on the fluids he had in mind, which has been selling in enormous quantities at a figure just below the figure then announced. We make no complaint about that, it is perfectly fair.
The Chancellor is likely to say that this justifies precisely what they are doing, that those who make fluid at a strength below 15 degrees have nothing to fear and those who go above it must pay the full duty. The consequence of this is to strike a handful of men whose 1430 businesses have literally been brought to the brink of ruin.
The case here is that this is a very blunt instrument to achieve an entirely different purpose and has resulted in a manifest injustice. It is not what Parliament thought it would do and it has produced one of those manifest injustices to which, in the past, this Committee has never turned a blind eye. If the Treasury persist in this it must do so deliberately, knowing it is causing a crippling injustice to a tiny majority. That, to my way of thinking, has an element of scandal about it which brings some of us into this. We shall be persistent in trying to achieve this amendment of the law.
§ Sir Harry Legge-Bourke (Isle of Ely)
As both my hon. Friend the Member for Rye (Mr. Godman Irvine) and my hon. Friend the Member for Ashford (Mr. Deedes) have constituency interests in the companies concerned, perhaps it might be fitting for an hon. Member who has no constituency interest to say a word.
The House of Commons is never better than when trying to rectify an injustice which, through its own action, has accidentally come about. What the hon. Member for Ashford said is really the point at issue. I am quite certain that had the Committee been fully acquainted with what the consequences would be in 1956 we should never have passed Section 2 of the 1956 Act, certainly not without considerable amendment.
Obviously, it was designed to catch a company which escaped and caught two companies it was never intended to hurt. It is hitting them very seriously. It is in near danger of putting one of them in a position where the head of it, who has served this country well in the Commonwealth in the past, will be put out of business altogether.
I cannot believe that this is what the House of Commons wanted. A grave personal injustice is being done. It was a miscalculation, obviously done in the best of faith. Although I know that there are suspicions in places that it was not done in the best of faith, I believe that it was. My right hon. Friend the Minister of Housing and Local Government, who was Financial 1431 Secretary to the Treasury at the time, said, in 1956:We are knocking nothing on the head…if they are good drinks…they should be able to compete with those liquors of similar alcoholic strength and bear the equivalent taxation."—[OFFICIAL REPORT, 5th June, 1956; Vol. 553, c. 986.]There again, there was a misconception. It is important to remember that it is misleading to argue that the duty on high-grade cider or wine is bringing them into line with goods made from the imported product, because imported concentrates come into the country with sugar content, or, possibly, with sugar added, whereas the home producers, such as these companies, have to pay additional tax in the form of a surcharge on sugar.
Although the intention was to bring these products into line with British wines, we are penalising them more than British wines. There is a considerable double injustice here, and I hope that something can be done to put it right.
§ Mr. Barber
The effect of this new Clause would be to exempt from duty all strengthened cider and perry below 27 degrees of proof. So far as I know, there are no ciders and perry which exceed that limit. All three of my hon. Friends have referred to the purpose of the 1956 legislation. It is right that they should have done so, because one cannot really weigh up the merits of this case fairly without considering the reasons which prompted my right hon. Friend the Prime Minister, when he was Chancellor of the Exchequer, to make the change then.
I say frankly that before the Budget of 1956 the National Association of British Wine Producers approached my right hon. Friend the Prime Minister, then Chancellor, and pointed out that British wines were having to meet increasing competition from certain kinds of cider and perry. First, these were ciders and perries the strength of which was well above the normal for such products. Secondly, they were ciders and perries the strength of which was obtained by special processes of manufacture. Thirdly, the strength was comparable with British wines, and, in some cases a little higher, I believe. In general, however, the strength was about the same.
1432 It was universally accepted that this higher alcoholic content was generally obtained by the addition and fermentation of sugar in quantities calculated not only to sweeten the product, but also to obtain a considerable increase in alcoholic content to a level much above the normal for cider. It is fair to say that it was considered at that time necessary to take action not only on grounds of equity, but also to protect the Exchequer against the loss of British wine duty.
This minimum strength was fixed in the Act of 1956. I admit at the outset that, of course, the amount of duty which is collected by the Customs and Excise under this Section of the Act is very small. Indeed, the British wine duty, of which this forms part, is collected as a whole, and it is not the practice to disclose the amounts collected from individual sources. If I were in a position to disclose the amount collected under this Section, it would give a fairly clear indication of the amount of business and profits of the two companies mainly concerned.
But, with one exception, the effect of the 1956 legislation was that the largest producers of strengthened ciders and perries decided to reduce the strength of their products to less than 15 degrees of proof and, consequently, to remove them from the scope of the duty. This was not only something which they could legitimately do; it was something quite consistent with the purpose of the duty, because at the reduced strength these products were weaker than wines and no longer serious competitors with it.
In the exceptional case of the one producer who continued to market this dutiable product, my information is that he has increased the alcohol strength of the cider, which is now stronger than some table wines. This firm and one other, which I know my hon. Friends have in mind, are now producing strengthened cider and are, naturally and reasonably, doing their best, in their advertisements, to make these appear quite clearly as competitive with British wines. I will not trouble the Committee by quoting the things they say.
In fairness to my hon. Friend the Member for Rye (Mr. Godman Irvine) and my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke), who have 1433 already approached me privately about this matter, I ought to say something about the effect of this on the farming community. A few months ago I discussed this matter with representatives of the National Farmers' Union. It was then said that the duty reacted to the disadvantage of farmers, particularly in Kent, where the cider is made from cull apples, and to produce a palatable beverage a considerable amount of sugar has to be added to the apple juice.
I made very careful inquiries about this at the time, and I can assure the Committee that all my information leads me to believe that the strengthened product is far removed from the ordinary cider made with cider apples, perhaps sweetened with sugar. The extra strength derived from fermentation is one of the major attractions when the cider is sold. Secondly—and I say this only after considering the matter with great care—on the information I have obtained there seems to be no valid reason why those farmers who are using cull apples—in the main, Kentish farmers—should not use slightly less sugar, so that their product does not exceed 15 degrees of proof. In fact, I am informed that this is what some producers have done. Even then the cider is considerably stronger than much of the commercial cider on the market.
But the main question posed by my hon. Friends is: has there been any change since 1956? The object of the 1956 legislation was, first, to remove what was considered to be an unfair fiscal advantage and, secondly, to protect the Revenue. I can only say that these considerations are still applicable today. It is said that the 1956 legislation has failed because some producers have reduced the strength of their products and so do not have to pay the duty. This argument entirely misconceives the purpose of the change. It was intended not to raise revenue, but to protect the Revenue, and to remove an unfair fiscal discrimination.
§ Sir H. Legge-Bourke
Does not my hon. Friend agree that since the 1956 legislation there has been a reduction in the duty on foreign imported wines? If there is such a need to protect the British wine industry why was that action taken?
§ 4.15 a.m.
§ Mr. Barber
The position of imported wines does not arise in this connection, because all that was done in 1956 was to bring the strength of cider into line with British wines. Consequently, I should have thought that my hon. Friend would agree that as a result of there being competition between strengthened cider and British wines they ought to pay the same duty, or that strengthened cider, in addition to British wines, should pay no duty at all as here provided, or a lower rate of duty. I should have thought that the natural comparison one could make for strengthened cider is that with British wines.
As a result of personal approaches which have been made to me over the year by individual hon. Members, I am pleased that, even at this late hour, this new Clause has been selected, because I believe that there has recently been considerable misundertaking about the purpose of the change made in 1956 and the way in which it is working out. I have discussed it on several occasions with my hon. Friends. The position is that artificially strengthened cider does compete with British wines. There can be no doubt about that; it is implicit in the advertisements which are put out by these two firms. It is fair on grounds of fiscal equity that they should be treated alike.
The facts which caused my right hon. Friend the Prime Minister to make the change in 1956 apply today, I think, with no less force than they did at that time. These facts have not been generally appreciated and I am grateful that the matter has been raised. I hope that, with that explanation, which, I think, shows that the present position is equitable and reasonable, my hon. Friends will not feel it necessary to press the new Clause.
§ Sir P. Agnew
That seems a very unsatisfactory reply from the Treasury. We have been told nothing about these British wines. It is probably supposed and believed that British wines are vastly inferior to drink to those wines which, quite rightly, on importing, have had the duty reduced since 1956. Why is it that the British wines require this special protection? There is, of course, only one reason. It is because they are not nearly so good or palatable as good healthy 1435 cider made from home-grown apples, which is an industry that we ought to encourage.
The Minister refuses to give way after he has heard the tale which my hon. Friend the Member for Rye (Mr. Godman Irvine) has told—with accuracy and truth because I have heard it myself—that the company which is producing this cider will have to go out of business in my hon. Friend's constituency and another constituency. Before we leave this matter we ought to have an undertaking that, on Report, the Chancellor will look into this matter again and see whether something can be done before this industry is doomed by an obsolete and out-of-date Treasury law. It was very worthy at the time and I appreciate that it was the Prime Minister who brought it in.
§ Mr. Barber
As my hon. Friend knows, this provision has no relevance whatever to the great bulk of cider and perry which is produced, but is concerned only with artificially strengthened cider. My hon. Friend asked why British wines—I make no comment on their palatability, if that is the word—should have this special protection. The answer is simple. If two products were competing, as they were in 1956, it was thought right that the same duty should apply to both. If the circumstances were such in 1956 as to justify the Clause which was then introduced, as I think they were, in view of what has happened since I can see no reason why there should be a change.
Of course, this is the sort of matter my right hon. and learned Friend considers from year to year. At the moment, I can see no reason why there should be any change from the provision introduced in 1956. It is not a question of the amount of revenue involved. I think that it is understood and admitted by all that if this Section of the 1956 Act were now to be repealed one consequence would certainly be that firms which at present produce cider below the 15 per 1436 cent. limit would, quite naturally, to make a better saleable product, go above the 15 per cent. and then become competitive with British wines. Consequently, I cannot hold out any hope about this. I should be less than frank if I said anything to the contrary. The conditions which prompted the introduction of this proposed Clause in 1956 still apply today.
§ Question put and negatived.
§ Mr. Selwyn Lloyd
I beg to move,That the Chairman do report Progress and ask leave to sit again.While not pretending that I am satisfied with the progress which has been made—I intended to deal with one other new Clause—there has been co-operation except for one short period in the earlier hours of this morning. Both sides have co-operated to make progress with the Bill. I suggest that we adjourn until the next sitting day, and then begin with the new Clause which refers to light oils. I hope that we shall try to be fairly expeditious with the remaining Clauses of the Bill.
Mr. H. Wilson
I think that the Chancellor is quite right. We have made more progress than seemed likely two or three hours ago, when I last raised this question, and we have discussed the Clauses with care. If we had gone on to the light oil Clause, which I was prepared to have done, we might have been a little light tomorrow. If we start on that Clause tomorrow, on which a good deal needs to be said, we hope, nevertheless, that it will not take too long, because there are other important Clauses, particularly the non-ferrous metal mines Clause. Then there is one concerned with the wife of the incapacitated husband, and another one. I think that that is a reasonable half day's work, and that the Chancellor is right to stop work at this point.
§ Question put and agreed to.
§ Committee report Progress; to sit again this day.