HC Deb 01 June 1967 vol 747 cc371-98
Mr. Gordon Campbell (Moray and Nairn)

I beg to move Amendment No. 5, in page 47, line 12, to leave out '16 1 3' and to insert'14 12 0'.

The effect of the Amendment would be to reduce the proposed duty on British spirits per proof gallon to a figure corresponding to that which obtained before 20th July, when the 10 per cent. regulator was imposed. I am especially concerned with a spirit known as "Scotch whisky", a wholesome beverage, all of which originates in Scotland. It is also a commodity factor in this country's exports, particularly to the dollar area.

Translating the proposed rate of duty to the bottle, it is 37s. 6d. as opposed to 34s. 1d. before 20th July, and as it would be again if the Amendment were accepted.

The Bill was designed to consolidate the extra charge brought in last July into the Statute. My hon. Friends and I oppose this for two main reasons. The first is that recent increases in tax on Scotch whisky are producing very little extra revenue. The second is that, by imposing these heavy duties at home, we set an unfortunate example to other countries, which then raise their taxes also on Scotch whisky and make exporting more difficult.

Mr. Sheldon

Will the hon. Gentleman explain why Governments abroad increase their duties on whisky as a result of action taken in this country?

Mr. Campbell

I shall come to that point—I was intending to take the first reason first—but, in a sentence, I can reply to the hon. Gentleman in this way. After the increase in the Budget in April, 1965, 20 other countries, in the following weeks and months, increased their duties, and the relationship between these events was such that it was clear that they had their eye on what the Chancellor of the Exchequer had done in Britain.

Our first reason is based on the revenue which the Chancellor has been receiving. I say at once that the Amendment would help him to raise more revenue. In the financial year following the raising of the duty in the Budget of 1965, there was a fall in home sales of nearly 1 million proof gallons. That is measured by the home clearances from bond, the appropriate way to measure home sales.

This was the first time for many years that there had been a reduction in volume at all, but the reduction was 900,000 gallons, from about 9½ million proof gallons in the previous year to about 8½ million. The amount of extra revenue which the Government received was derisory, and it could be argued that it was hardly worth putting up the tax, having regard to the consequent reduction in home sales and the very limited amount of extra revenue received.

In trying to explain this fall in revenue during the financial year, the Government kept saying that it was because of Budget forestalling, that before April, 1965, the whisky trade had been making extra moves of whisky from bond because it thought that the duty would be increased. But the same thing applied a year later also. Taking a period of 12 months, one covers two periods of Budget forestalling when comparing two years. Therefore, that argument falls. Perhaps the trade thought that in one Budget there would be more of an increase than in the other, but nowadays, when there is Budget forestalling, everyone guesses what the Government will do and, with a Labour Government, the assumption is always that taxes will go up.

Mr. Macdonald

Reverting to the point which the hon. Gentleman made earlier, about other countries putting up the duty, is it his case that there should be a reduction of duty here in the hope that other countries will reduce theirs?

9.0 p.m.

Mr. Campbell

I shall deal with that point later, leaving it until I reach my second argument.

I now turn to the more recent event of the imposition of the regulator last July. The Chancellor replied to Questions of mine on this point as recently as 4th May. I inquired what had been the reduction in volume of home sales of Scotch whisky since the regulator was used, that is, from August to February, the latest month for which figures were available, compared with the equivalent period of the previous year. The Chancellor's answer, less than a month ago, was that there had been a reduction of 8 per cent. in the number of gallons, and that only £1 million extra in revenue had resulted.

In this case the Chancellor cannot sustain the argument that there was Budget forestalling, because he and the Government were saying only a short time before the 20th July measures that there was nothing wrong with our economy and everything was all right. The crisis blew up very quickly; to suggest that the whisky trade could have foreseen those measures in the weeks before would be to ascribe to it powers of second sight. It would have needed a phenomenal prescience to predict the sudden measures by the Government last July, if it is suggested that Budget forestalling for the emergency Budget last July could account for so much of that reduction.

Mr. Maxwell-Hyslop

Has my hon. Friend observed the terrible things that happen when people are reduced to drinking water?

Mr. Campbell

As I was speaking I noticed out of a corner of my eye that there had been an accident with some water on the Table. I was glad to note that it was water and not a more valuable spirit which had been spilled in that way. Whether the Financial Secretary has the same sort of views in his attitude to the Amendment we shall learn later.

It has been demonstrated during the past two years, as I have shown, that when the duty is raised at its present level it reduces home sales. In the other direction, if the Government reduced the duty now the sales would be increased to a much greater extent. In the general euphoria which would thus be created it would undoubtedly lead to extra revenue for the Exchequer. I therefore hope that the hon. and learned Gentleman will recognise that the Amendment is a revenue-raiser and is not intended to cause the Government to find more money.

I cannot believe that the Government put whisky into the category of cigarettes, where there are medical considerations, and where it could be that the Government are trying to discourage consumption. I hope that the Financial Secretary will make it clear that there is no question of the Government's making a deliberate attempt to restrain the home consumption of Scotch whisky. If he does that, as I assume he will, his object in putting up the duty can only be to increase revenue, and, as I have shown, the amount of increase after last July and the previous increase of duty has been derisory.

I now come to my second argument and the questions that have been asked about it. That is, the effect abroad of increasing the duty at home. Every time Britain has increased the duty, some other countries have followed suit. I do not suggest that in their legislation or in other ways they have directly tied themselves to what has happened in the United Kingdom, but it is clear to those who have been observing that the fact that Britain has increased taxation on her own product has had an important effect on Finance Ministers in the countries concerned. Because Scotch whisky is a remarkable dollar-earner, the Chancellor is taking very serious risks if he appears to penalise the industry in this country.

The hon. Member for Chislehurst (Mr. Macdonald) asked about the effect on other countries of a positive reduction. The Amendment would not so much make a reduction as keep the duty where it was last July, preventing the increase proposed by the consolidation.

If the Chancellor were to make this reduction, I would hope that other countries would do likewise, but we have not had recent examples by which to test this. I would encourage the right hon. Gentleman to find out by putting it to the test. But that does not alter the argument that, when Finance Ministers abroad see us increasing the duty here, they use this as an easy excuse to increase it in their own countries.

There is no conflict here between the home market and these important export markets as regards supplies and, as a result of my inquiries, I am glad to be able to inform the Committee that there are plenty of supplies of whisky maturing in Scotland to provide the reserves for large expansion in the home market and abroad. I ask the Chancellor—indeed, I challenge him—to be bold and accept the Amendment. If he did, he would gain, in my view, welcome additional revenue that might well surprise him.

Mr. Bruce-Gardyne

I am delighted to support my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell). He is one of the most persistent campaigners against the penal increases in taxation which the Government have imposed upon the whisky industry and I hope that on this occasion, the Financial Secretary will show himself more amenable to an Amendment which should command the sympathy, if not the support, of all hon. Members, as it is a matter which concerns many of us very closely—one could almost say, intimately.

My hon. Friend has admirably exposed the effect that the surcharge imposed last year has had on withdrawals from bond since August—the 6 per cent. drop in the period August to March as compared with the previous year—and has dealt effectively with the hon. and learned Gentleman's argument that there had to be a forestalling of the emergency in July by the wielding of an axe which the Government had protested all along that they had no intention of using.

There is reason to think that the drop in home sales has been somewhat masked and that the real effect of the surcharge may have been greater than the figures suggest because of the big spread of cut-price sales since last August. One would normally have expected to see this leading to a substantial increase in withdrawals from bond. In other words, the 6 per cent. drop probably under-estimates the real effect of the 10 per cent. surcharge.

Moreover, we see already the very serious effects of these constant increases in the burden of taxation on the whisky industry in Scotland. In the last two months, we have had the reports that the Distillers Company has decided not to go ahead with plans to build expansions to distilleries in Kincardineshire and Ross-shire. All the information suggests that this may be the beginning of an alarming trend.

Thus, by accepting the Amendment, the Government would not only be giving themselves an opportunity to increase revenue from whisky through higher sales but doing something to reverse the dam- age they are doing to the whisky industry and the economy of Scotland. These are substantial arguments in favour of the Amendment. I draw the Committee's attention to a book published today, "The Whiskies of Scotland" by Professor R. J. S. McDowall, of London University. In the course of this book, he reminds us of a minute by Sir Winston Churchill to the Minister of Food in 1945 when he said: On no account reduce the amount of barley for whisky. It takes years to mature and is an invaluable export and dollar earner. Having regard to our difficulties about export, it would be improvident not to reserve this characteristic element of British ascendency. Those are sentiments which we would all support and I hope the Financial Secretary will say that he is prepared to support them.

It would be wrong to suggest that the effect of the surcharge so far has been drastically to reduce the prospect of investment in the whisky industry in Scotland. My attention was drawn to an item which appeared in The Times Business News of 18th May about a series of television interviews—which I did not see—with the merchant bankers. The item appeared under the headline: £500,000 for The Speaker I hope that I am not trespassing on dangerous ground here. I am merely quoting from The Times Business News and if there is any breach of privilege, it is The Times Business News which must bear responsibility. It goes on to say: Those who saw Leslie Kaufman, chairman of the wine and spirit merchants Block Grey and Block, discussing a loan over lunch at Hambros, in the A.T.V. programme on merchant bankers, will no doubt be relieved to learn that he got his money—£500,000. It will be used to build a new whisky distillery with a capacity of 750,000 gallons of malt for blending with his firm's product, The Speaker. Great secrecy surrounds the exact location of the site, which has been selected, along with the vital burn. Block Grey and Block already own a distillery, the MacDuff. in Banff, providing 500,000 gallons of malt a year for the blending of The Speaker. Although the whisky is not tremendously well known in this country, a recent pilot campaign in California has revealed that it goes down well in America, and it is largely for this market that the new distillery will be producing. This is an example, and we are very glad to see it, of a capital project going ahead essentially for the export market. This is very much what we should have in mind when considering the burden of taxation on the industry, and about that I agree very much with my hon. Friend the Member for Moray and Nairn.

It is worth noting that since the 10 per cent. surcharge there have been demands for a countervailing duty in the United States on imports of Scotch whisky, and I suggest there is a clear connection between the two. Equally, in 1965 the Budget increase led to an increase almost immediately afterwards of £1 l1s. per gallon in the Australian duty, and this resulted in a drop of one-third in exports of whisky to Australia last year. These are some of the repercussions of the way in which the Government constantly raise the burden of Excise Duty on whisky.

There is another aspect which I find totally incongruous. Whisky is charged at a rate of 3s. 2½d. per degree of alcoholic strength. By contrast, imported sherry is charged at a rate of 1s. l¾d. per degree of alcoholic strength. If we have any doubt about the effect of this remarkable bias against the home product, we should look at the figures for imports of wine, brandy and rum over the year ending April, 1967.

9.15 p.m.

Wine was down by about 3 per cent. in volume, but that meant up in price and in the cost of imports. Brandy was down by 1½ per cent. in volume, and again substantially up in terms of the cost of imports. For rum there was a 70 per cent. increase in volume between May, 1966, and April, 1967, compared with May, 1965, and April, 1966.

This is over a period when home sales of whisky were down by 6 per cent. It is hard to conceive of any clearer indication of the way in which the burden of taxation on home-produced Scotch whisky is now diverting people to the purchase of imported wines and spirits. For a Government who are still labouring with an extremely awkward balance of payments problem could there be any greater irresponsibility? On all these grounds I find it hard to believe that we will not have a forthcoming answer from the Financial Secretary. If he accepts this Amendment he will get a substantial increase in revenue. He will help an export industry vital to Scotland and at the same time give enormous satisfaction to the vast majority of hon. Members of this Com- mittee, and our electors in the country at large.

Mr. Hector Monro (Dumfries)

I should like to support very warmly the Amendment moved by my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) and supported by my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). They have put the facts quite explicitly and even to Members opposite it must be obvious that this is an extremely good case. I am speaking with no constituency problem—unfortunately there is no distillery in my constituency. I am taking a dispassionate view, looking at it from the point of view of the Scots first and Britain secondly. Obviously the country is losing not only in exports but also in revenue.

My hon. Friend the Member for Moray and Nairn has given us the figures. Following the years of steady rise and expansion we are very concerned to stop the likely fall in exports. This is partially due to the price in the European market. It is a very valid point that, when the price goes up in Britain, it is only logical for the European countries to say "Well, if they are prepared to have an expensive drink in Britain, we will have an expensive drink in France, Germany, Scandinavia and so on." It is very true that taxation abroad has followed increases in taxation here.

Mr. Burden

There is also the point that by increasing the price of whisky in those countries, they are endeavouring to cut consumption down and to improve their balance of trade position by forcing people to buy wine and brandy.

Mr. Monro

This is very true, and we are doing exactly the reverse by encouraging sales of wine at the expense of whisky No doubt with the appalling turnover of whisky the Chancellor will be losing the profits of the whisky companies. My hon. Friends have touched on the concern in the Highlands about the expansion in the building of distilleries. There is no doubt that there is a slowing down at a time when we are desperately in need of expansion in that part of the world, where there is very little alternative employment and where the service industries are being seriously hampered by the Selective Employment Tax. Not only in the Highlands is this so, but even in the Southwest, in Girvan and Wigtownshire, there are distilleries, and they need employment just as do those further north.

There is no doubt that this trend of falling consumption has been accelerated by the rising taxation over the past year. The sum of 36s. a bottle taxation has put a very severe handicap on consumption, and the dangers are very obvious. There is no doubt, as my hon. Friends have pointed out, that the unfair burden of duty as between imported wines at 114s. 9d. per gallon at 35 degrees and 321s. per gallon for proof whisky is extremely unfavourable to one of our most important home industries, and, indeed, for exports.

Why do the Government give this favourable treatment to wine at the expense of our industry in Scotland? The increase in duty last July seems to have failed in its intention of increasing revenue, which is what all logical people can only assume is the reason for increases in taxation. It is essential for the Government to accept the Amendment and reduce the burden of taxation on the whisky industry and give it encouragement to expand and to export.

Mr. George Younger (Ayr)

I should begin my brief remarks by declaring a personal interest, because, although some people might think otherwise, I have an interest in whisky matters and it is, therefore, right I should state this before I start.

In reinforcing some of the remarks which have been made by my hon. Friends, I would like to address myself to the effects of this tax on what, I think we would all agree, is one of our most important export industries. The whisky industry accounts for about one-quarter of Scotland's exports. That is an important proportion of the exports of the United Kingdom as a whole.

In considering the remarks which have been made in this debate, which has been held in one form or another many times in the past few years, I ask the Financial Secretary to grasp the essential fact that tonight we are discussing this matter against the background of a completely new situation. Over a period of many years, the duty on whisky has been increased on a considerable number of occasions. Much as most of us may have regretted that continual increase, one factor which has always remained constant throughout that time is that the increase has nevertheless failed to prevent sales of whisky in this country from continuing to rise. All through the years, the arguments which have been presented by those who know this important industry have been made that much weaker because, despite the increases in duty, the sales of whisky have still continued to rise.

The important thing tonight is that we are discussing this matter not merely against a failure of sales to rise since the last increase in duty, but against the background of a fall in sales which it would be fair to describe as drastic. A product which has been accustomed to increase its sales by a considerable percentage every year and which has benefited greatly, as the consumer also has done, from the economies which this has made possible, suddenly finds that it is crippled by a drastic reduction in sales due to the fact that, at long last, what so many of us have always feared has happened and the last increase of duty to the present staggering figure has resulted in the consumer giving up the struggle and deciding that it is altogether too difficult to go on paying such a terrific rate of duty on this drink.

I hope that the Treasury Ministers will take this matter seriously. If they do, they will, no doubt, be reinforced by the fact that they have for once not enjoyed a substantial increase in revenue following the last increase in duty. Although I do not, perhaps, put that argument as high as the Treasury representatives may do, it might bear more strongly upon them than the argument which I am making. It is important that we should realise that we are debating this subject against a new background.

Another matter which has not been covered fully in my hon. Friends' remarks and with which I agree entirely is that it is not sometimes realised by those not involved in it that the whisky industry requires a very long-term investment programme. It is well known that whisky has to be matured for at least three years before it can be blended and marketed and that the more important malt whiskies are matured for a good deal longer. As a result, the scale of capital investment is quite tremendous in terms of building, insurance and the cost of the product sitting for a number of years unable to be sold but having to be looked after under careful and expensive conditions.

In those circumstances, it is particularly worrying for an industry which has to look ahead three, four, five, six or more years suddenly to be faced with a drop in home sales last year of 6 per cent. because, as one of my hon. Friends said, probably this masks a real drop in sales of considerably more.

The drop in sales and the latest increase in duty has not only resulted in a reduced consumption but is likely considerably to embarrass the industry in its future plans for expansion and development. It means, also, that the ability of one of our main exporting industries to sell abroad is likely to be threatened.

I have always felt that the Treasury and successive Governments generally do not give enough weight to the fact, about which there is no doubt, in the minds of those who export whisky, that there is a definite relationship between increases in duty at home and increases imposed by foreign countries. Countries abroad which import whisky look to the home market as an example in many ways. It is a known theory in the industry that it is difficult to sell a product abroad successfully in the long term unless it is known to be successful at home. There is a link between home and export sales and, having been involved in this industry in a small way, I have no doubt that, when duty goes up at home, although other countries do not increase their duties by the same amount, within a few months one can detect a trend in other countries to raise their duties.

I hope that the Financial Secretary will take note of these. points and bear with us in stressing that, although we have debated this matter many times in past years, we are debating it today against a new background. It is time for some new thinking from the Treasury, and I hope that the Government will accept the Amendment.

Mr. MacDermot

It is an unhappy task for a Celt to have to advise the Committee to reject an Amendment which seeks to reduce the duty on whisky. Although I am not a Scottish Celt, I suppose that I have an interest as an Irish Celt. I must explain to the Committee the rele- vance of that, because it would not be possible to accept the Amendment as it stands alone. To do so would involve a breach both of the E.F.T.A. Agreement and of the Anglo-Irish Free Trade Agreement unless the Customs duties on spirits imported from E.F.T.A. countries and from Eire were reduced at the same time and to the same level.

But even if we were to do that it would not be the end of the story, because that would introduce a reverse preference of £1 9s. 3d. per proof gallon against other Commonwealth producers, for example, Jamaican rum and Canadian whisky. The introduction of a large reverse preference of that kind would give rise to serious objections, so the fact is that, as has been found in the past, there is no practical alternative to moving the various Customs and Excise rates in parallel together. This was done when the regulator was imposed, and it is embodied in the consolidation in the Schedule which we are discussing, and which the Amendment seeks to alter.

9.30 p.m.

Representations were made before the Budget both by the Scotch Whisky Association, which suggested the removal of the surcharge, and by the Wine and Spirit Association, which asked for reductions of duty on wines and spirits and stressed, in particular, the claims for spirits. Both Associations drew attention to the reduction in consumption which has taken place, and which has been referred to, I think by nearly every hon. Member who has spoken to the Amendment.

The hon. Member for Moray and Nairn (Mr. G. Campbell) challenged the contention which has been made by Government spokesmen that the figures of the clearances since the introduction of the surcharge somewhat overstate the actual fall in consumption which has taken place since the introduction of the regulator. The hon. Gentleman thought that our argument about forestalling was false, but I assure him that there is clear evidence that there was heavy forestalling by withdrawals in June before the introduction of the regulator, and these contentions have, I think, been borne out by the figures which are becoming available of the actual fall in consumption. Whereas the level of clearances showed a reduction of 8 per cent., it seems that the figure for the fall in consumption is about 5 per cent.

Mr. G. Campbell

Is the hon. and learned Gentleman seriously suggesting that in June the whisky trade was foreseeing an emergency Budget in July, about which, at that time, the Chancellor appeared to have no inkling?

Mr. MacDermot

There is clear evidence—and others anticipated that measures would be required—that the June clearances were abnormally high.

The hon. Gentleman asked me to confirm that there was no intention on the part of the Government to reduce the consumption of whisky. That is not our intention. The intention of the measures, of which this forms part, was to restrain demand, and that is an operation which is bound to affect consumption, and to affect it particularly in matters such as this.

The hon. Gentleman went on to argue from the effect of these increases in consumption that to accept this reduction in the duty would produce an increase in revenue. This is a contention which we cannot accept. The estimate which we have is exactly to the contrary. The estimated revenue in 1967–68, at post-Budget rates, from spirits is £275 million. We estimate that the loss of revenue which would result from a reduction of the kind proposed in the Amendment, with the consequential reductions in Customs duty which I have explained would have to come with it, would be about £12 million in a full year.

Indeed, if it were practicable to confine the reduction to Excise spirits and spirits imported from E.F.T.A. and the Irish Republic, the cost would be about £9 million to £10 million, depending on the extent to which the consumption was switched to British, E.F.T.A. or Irish spirits at the expense of the more heavily dutied brandy, rum, and so on, from other countries.

Mr. Bruce-Gardyne

Are the estimates that the Financial Secretary is giving us based on the assumption that home consumption of whisky would not be affected by a change in the level of duty? If so, how can he produce such an argument when he has admitted that even home sales, since the incidence of the surcharge, are down by 5 per cent.?

Mr. MacDermot

Unlike the estimates given by hon. Members to the Committee to-day, the estimates that I am giving take into account the great experience which Customs and Excise have in judging the effect of revenue changes upon the pattern of consumption.

Sir Douglas Glover (Ormskirk)

Will the hon. Member tell the Committee when Customs and Excise ever had any experience of a reduction in the tax on spirits?

Mr. MacDermot

I should need notice of that question in relation to whisky.

Some hon. Members argued that the increases in duty on spirits made by other countries were in some way a retaliation for the increases in duty which took place in this country. One hon. Member used the phrase "a countervailing duty". With respect, there is no evidence for that. Other countries may have experienced the fact that has been experienced by Chancellors in this country, that whisky is an article that can bear a high rate of duty and sustain a high level of consumption. Other countries may be guided by considerations similar to those which guide Governments here. There is no evidence that it is in any way a retaliatory measure. If any view of that kind were taken we should know about it and receive representations from other countries. Nothing of the kind occurs.

One hon. Member raised the question of the Selective Employment Tax in relation to this matter. I thought that that was an odd argument, because the production of whisky is a manufacturing activity which attracts the premium. This industry benefits rather than suffers from the introduction of that Tax.

The main argument has been put forward on the basis of the pattern of consumption as it is affected by the duty. We shall certainly watch this. I undertake that that will be done before my right hon. Friend frames his next Budget. But for this year the item forms part of the total decision for the consolidation of the regulator increases. The total amount involved is about £150 million. We see no reason to make an exception here, or to take the view that a sufficient case has been made out for an exception to be made in respect of the whisky industry. As the cost of making such an exception would be about £12 million, together with the other consequential reductions which would be necessary, it is not something that I can advise the Committee to adopt.

Mr. Bruce-Gardyne

Can the Minister deal with the important question of the enormous disparity between the duty on home-produced whisky and the duty on imported spirits, and the changing trend in spirits and wines?

Mr. MacDermot

That question is not involved in the regulator increases. The point that the hon. Member is raising goes to the pattern of the duty in relation to different kinds of wines and spirits. In that respect nothing is altered by the increase in the regulator.

Mr. Higgins

I think that, just now, when the water was spilled on the Table, a voice with a Scottish accent behind me said, "Water, water, everywhere, and not a drop to drink."

I do not wish to curtail the debate, but want to support the Amendment and add to the comprehensive case put forward by my hon. Friends, which was a clear example of our complaints earlier that the regulator is being used by the Government to introduce a general increase in taxation. It is significant that we are debating this increase after it has been imposed for a number of months. The point made by my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) about the balance of payments is important, and should not be overlooked, but the Financial Secretary failed to cover it.

We should not assume that all increases under the regulator which are made and then consolidated justify a claim later that one cannot discriminate between increases in duty on different items. If the proposals had been made as individual increases, we should have considered them on their merits. It is right that my hon. Friends should put forward this Amendment so that this case can be made.

The Financial Secretary's answer was not satisfactory, as my hon. Friend the Member for Ormskirk (Sir D. Glover) clearly brought out. Our experience of reductions in taxation on spirits is extre- mely limited. We need to probe—if not now, in the future—the exact extent to which the Government feel that a change in taxation is likely to effect the sales of whisky and the Chancellor's consequent revenue—

Mr. Russell Johnston (Inverness)

The hon. Gentleman may be interested to know that the last time that the duty on spirits was reduced was in 1895.

Mr. Higgins

I am grateful for that intervention, which shows the extent to which we receive topical, modern information from the Government. We have not had a satisfactory answer from the Financial Secretary—

Sir D. Glover

Will my hon. Friend remember that that reduction took place under a Tory Government?

Mr. Higgins

Indeed it did.

One point which is worrying us is the way in which any increase in competition which leads to a reduction in the price of a product tends to be offset by an increase in taxation imposed by the Government. The effect of the ending of resale price maintenance has been to reduce the cost of whisky on retail and increase sales, but this favourable effect, which might have given increased encouragement to the Scottish whisky industry to expand has been largely offset.

Then we come to the important question of regional development. A total of 95 per cent. of those employed in this industry, both in distilling and packaging, are in Scotland, and whisky accounts for one-quarter of all Scotland's exports. This surely makes it a very important factor in the consideration of the kind of regional policy which the Government say they wish to advocate.

It is not good enough to say, on the one hand, that perhaps we could have a regional employment premium—this, clearly, will not get industry from elsewhere to move to Scotland in the whisky trade—and, on the other, that there must be a serious effect on the Scottish industry by the imposition and perpetuation of this kind of tax.

The Government appear to be following an inconsistent policy towards Scotland, a policy which my hon. Friends are absolutely right to oppose. For that reason I trust—naturally, after this matter has been further discussed because I have no doubt that other hon. Members will wish carefully to consider the issue—that my hon. Friends will press this matter to a Division unless we are given a more satisfactory answer by the Government.

9.45 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

My hon. Friends will join with my hon. Friend the Member for Worthing (Mr. Higgins) in regretting the reply of the Financial Secretary. I go further and say that it was not only a disappointing reply but an alarming one, for the hon. and learned Gentleman sheltered behind such feeble defences. He said that it would be unthinkable for the Government to remove this surcharge because of the effect it would have on our imports of drink from E.F.T.A. and Commonwealth countries. This is a sudden recognition of a delicacy of feeling which did not exist in the Government's heart some months ago. I recall how the Government threw aside our E.F.T.A. rules soon after they took office in 1964. Wht effect does the hon. and learned Gentleman think that our application to join the Common Market may have on imports of spirits and drink from Commonwealth countries? The hon. and learned Gentleman was not advancing a reasonable argument, particularly at this time.

The Financial Secretary also adduced other astonishing arguments. He said that the whisky trade had, in some clairvoyant way, anticipated the Prime Minister's statement of 20th July of last year. That is one of the most remarkable tributes I have ever heard paid to the Scotch whisky industry. I recall how we were told day after day, before 20th July, that there was no need for the Government to take emergency measures. The Chancellor of the Exchequer said that there was no need for them; but the Scotch whisky industry, in its wisdom, knew that such measures were coming. The Prime Minister openly—and, I understand, in other ways, too—let it be known a few days before his statement in July of last year that there would be no emergency measures because there was need for them. Now the Financial Secretary tells us that the Scotch whisky industry knew all about these measures a month or more before they were taken.

When the Prime Minister appeared in the House some days before the statement of 20th July was made he confessed, in effect, that he was so surprised at the need for such measures to be taken that he could not tell the House just then what they would be—and then he went to Moscow. For the Financial Secretary now to suggest that the Scotch whisky trade shaped its commercial judgment and forestalled the measures of 20th July because it knew in advance about the temporary surcharge is to make a completely bogus argument.

Mr. Bruce-Gardyne

Would not my hon. Friend agree that the only conclusion to be drawn, if one accepts the Financial Secretary's argument, is that the Scotch whisky trade knew that there would be an emergency Budget on 20th July simply because, under a Labour Government, we need an emergency Budget every 20th July?

Mr. MacArthur

My hon. Friend advances a good argument. The Financial Secretary has been assuring us that the surcharge was well known to the Scotch whisky trade—an argument which, to put it mildly, makes nonsense.

I emphasise that we are in a new situation. The Financial Secretary knows that year after year the Scotch Whisky Association and hon. Members on both sides state, at the time of the Budget and in discussing the Finance Bill, that the duty on whisky must come down. This is a natural and perfectly proper exercise Over the years it has become something of an annual ritual, but I hope that the hon. and learned Gentleman recognises that in the last year or two the ritual has become something more serious in nature.

The whole nature of the market has changed, and the Minister himself recognised this. Although he quibbled with some of my hon. Friends about the figures they quoted, he said that domestic sales had fallen. The reason is that consumption is falling, and it is falling because the duty has gone up yet again—it has gone up several times during the lifetime of this Government—yet the increase in the yield has been derisory.

I ask the Minister to pay more attention than he has done so far to what my hon. Friends have said about the way in which foreign countries follow our pattern. I have spoken to a number of people abroad, in the whisky trade and outside it, and I am satisfied that foreign Governments watch the trend here. Whisky is one of our great national drinks, and if the British Government find that the revenue is increased by increasing the duty more and more foreign Governments feel that they can follow our lead and increase the duty domestically.

The hon. and learned Gentleman may dismiss this agument, but I ask him to ponder it carefully. Whisky is not the only drink available to the foreign drinker. Fashions change. An area which today is a whisky drinking area because whisky has become fashionable may not be a whisky drinking area tomorrow, under the pressure of competition, under the pressure of changing tastes, and under the pressure, above all, of changing fashion.

Fashion changes very often because of pressure of price, and if the price of whisky goes much higher we will find it very much harder to convert drinkers from their native whisky, or vodka or whatever the fashionable drink may be, to the Scotch whisky which we sell to them, and which we must continue to sell to them in ever-increasing quantities if we are to retain the enormous contribution that this great trade makes to our balance of payments.

I ask the Financial Secretary to reflect on this further point. If, in the national interest, he is, as I hope, to give some consideration to the position of the consumer abroad—who is not compelled to buy our whisky, who is influenced by fashion and changing tastes and, above all, by the price of the product he is asked to buy—will he give some thought also to the consumer at home, who has been mentioned very little in this debate?

There is in Scotland widespread resentment, and this resentment has continued for years under successive Governments, at the way in which the Scottish people feel their national drink is flogged by Governments year by year. This has now reached an intolerable situation. The Scots, who produce this great drink, are largely unable to afford it any more. This is quite wrong. They see it as unjust, and as yet another insult to Scotland. It may or may not be—

Mr. Dempsey

The hon. Gentleman knows that a very great event occurred in Scotland last Thursday night. It was celebrated in Scotland, in England and Wales, in Northern Ireland and in the Republic of Ireland, in America, Canada, Malta, Cyprus—even in Portugal. Can he give some figures or facts of how much Scottish whisky was consumed on that occasion?

Mr. MacArthur

I suspect that more and more beer was drunk, because beer is not subject to the same swingeing and increasing rate of duty. I know that the hon. Member for Coatbridge and Airdrie (Mr. Dempsey) leads a very sober life, but if he were to look at some of the public houses in his constituency, and some of the hotels in the country districts, he would find, as I have, that more and more Scottish people are not any longer able to afford what they quite rightly regard as their national drink. That is because the rate of duty has been increased so steeply. I therefore ask the Financial Secretary to give some thought to the consumer at home, and particularly to the consumer in the country which produces this great drink.

One important point made by my hon. Friend the Member for Dumfries (Mr. Monro) was completely misunderstood. He reminded the Financial Secretary that several hon. Members had referred to the way in which these increases in duty have affected the expansion programmes of the Scotch whisky trade. My hon. Friends have reminded the Committee that several important ventures are not going ahead because of the increase in duty and the effect which this has already had on domestic consumption. This is yet another problem which the people of the Highland have to face on top of the other problems they face as a result of Selective Employment Tax. Of course the distilling trade gets the premium. I wish that many more industries would get the premium. But there is very little manufacturing industry in the Highlands and the people there will suffer if the Scotch whisky trade declines.

I ask the Financial Secretary to reflect on the fact that the position has changed because consumption is falling. Will he also consider the indisputable evidence that foreign countries follow our lead? Will he remember in that connection that fashions and tastes change, and that an important part is played in this by the price of the product. If by the duty he forces up the price he is damaging the prospects for a great currency earning product.

Sir D. Glover

Tonight, the Financial Secretary made the weakest reply we have heard in a debate on a Finance Bill for a long time. He has apparently accepted advice from the Customs and Excise and from an officer who, if he were only 23 at the time when the duty was last reduced, must be at least 95 today. I am glad to know that the Government are accepting the advice of a nonegenarian, but it is ridiculous to say that a reduction on the duty in spirits would not affect consumption.

Mr. MacDermot

I never said that. I said the contrary, that we recognise that it affects consumption and we take that into account in the estimates put before the Committee.

Sir D. Glover

I listened with the greatest attention to what the hon. and learned Gentleman said. He said that if we altered the duty we would lose £12 million.

Mr. MacDermot

That is not true.

Sir D. Glover

We shall all read HANSARD and perhaps we shall have another debate on this matter later. Whom God wishes to destroy, he first makes mad. We know that we have a mad Government, but they do not need to be quite so mad. We have done with retail price maintenance. The one great imaginative reduction in price in all the shops in the price of whisky made the public realise that this policy was biting, and then the Government immediately increased the duty so that it cost the public as much as before the abolition of retail price maintenance. What encouragement have other firms and other lines to reduce prices when they can expect the Government to increase the tax? This cannot be a sensible way of running our affairs.

The most important point I have not heard made is on the question of international sales. I suppose that Members of Parliament go abroad probably as much as any other section of the population. We go to Mauritius, or to Turkey, or to some other country. What we do first when we get there is to try the local drink. [Laughter.] I am being serious. This is the general thing. Tourists visit a country and say, "What is the local beverage?", and they try it. If they like it, that country then gets an export market here.

10.0 p.m.

The sales of French, Italian and Spanish wines have increased enormously during the last 15 years because of the number of British tourists who have gone to those countries, tried their wines, liked them, and on their return to this country bought them here. Five to 6 million people each year visit this country as tourists. On reaching here, they find that what they had always thought was one of our national drinks is so expensive that not only can they not afford to buy it themselves, but none of the English friends they make can afford to buy it for them. Many of them, when they return to their own countries, instead of having gained a liking for Scotch whisky, have never tried it and never experimented. That makes it far more difficult for our salesmen in those countries to increase the sales of Scotch whisky overseas.

I ask the Financial Secretary to think about the question of duty. There is now a reduction in consumption. I do not believe that the whole of this reduction is accounted for by decreased consumption on the part of nationals. I believe that many tourists who come here now decide, on entering a bar, that whisky is far beyond their reach and they are not even trying it. This means that we lose a potential export market in the countries these tourists come from.

If the Government keep the duty at its present level, with home consumption beginning to drop, not only will fewer people here drink whisky, which will mean that home turnover will decrease, but many of our nationals who go abroad will not drink whisky. If they do not drink whisky when they go abroad, the demand for it will be reduced in the countries they visit and whisky will be relegated to the backs of bars and hotel shelves. As a result, turnover amongst the nationals in those countries will decrease. Our best export—Scotch whisky—then faces a declining market overseas. Of all the things that we export, the one that shows the greatest profit is Scotch whisky. It is an almost entirely home-made product. There is no import to counterbalance its export potential. It is an easily exported item. It does not weigh a great deal. It is easily handled. It brings us an enormous amount of foreign currency, compared with the activity which is involved in its production.

As my hon. Friend the Member for Perth and East Perthshire (Mr. MacArthur made clear, the Government are making it far more difficult in the long run for us to go on exporting Scotch whisky, because the price in foreign countries is very much governed by the price which obtains here. If the price in this country rises, I notice that the price rises overseas as well, because they alter the duty. If the Government carry on with this policy, the sales will begin to drop and it will become less fashionable to drink Scotch whisky, because the price will be too high.

I have seen this happen in foreign places. People then begin to talk about something else—perhaps vodka. They begin to talk about something else because that then becomes fashionable. Once it gets a grip upon the public, people will be surprised how quickly a big market such as we have will almost disappear. It will disappear far more quickly than the Financial Secretary thinks. because once its price rises beyond that which the vast majority of people can afford to pay, and once they suddenly take a dislike to the price and are no longer willing to pay it, the sales will immediately decrease, and not by 5 per cent. They could begin to drop very rapidly, and, if they once begin to drop in this country, they will begin to drop in all the countries to which we export whisky, not only because English tourists will not be drinking it but because it will have lost that fashionable cachet which, let us face it, is one of the biggest reasons why Scotch whisky is sold all over the world.

I urge the Government again to accept the Amendment.

Mr. Michael Clark Hutchison (Edinburgh, South)

The hon. and learned Gentleman said that the agreements with the Irish and E.F.T.A. precluded this re- duction in duty. I suggest to him that he gives due notice and asks for an alteration in the agreements.

Second, will he explain why this Socialist Government, by their vicious tax on whisky, should put it out of the reach of the ordinary working man in the United Kingdom?

Earl of Dalkeith (Edinburgh, North)

I am extremely disappointed that the Financial Secretary's Celtic spirit has become so diluted by his over-long association with his own Front Bench that he is forced to give such thoroughly unsatisfactory excuses for rejecting this Amendment.

If the Government are genuine in their desire to help regional development in places such as Scotland, this Amendment gives them a heaven-sent opportunity to do just that. If they wish to prove themselves, this is the moment when they could do so.

My hon. Friend the Member for Ormskirk (Sir D. Glover) made a most important point about tourists coming to this country and finding the price of whisky as it is now. It occurs to me that, when one goes to Italy, one can apply for special cut-rate petrol coupons. Even if the hon. and learned Gentleman will not accept the Amendment in its entirety, would he, perhaps, consider issuing tourists with coupons for cut-rate whisky—and, if I may extend the suggestion a little, perhaps he would have such coupons made available to the local inhabitants as well? If anybody looks as though he really needs a stiff whisky at the moment, it is the hon. and learned Gentleman himself.

Mr. G. Campbell

I had hoped that the Amendment would receive sympathetic consideration by the Government, and I have been shocked by the Financial Secretary's feebly reply. The most important point which my hon. Friends and I have made is that last year, for the first time for many years, there was a fall in home consumption of Scotch whisky, a fall recorded last year after the period of 12 months following the 1965 Budget increase. The Government must recognise that this is a new and serious situation for the industry.

The hon. and learned Gentleman rejected the Amendment largely on technical grounds, one being that the increase in duty is inextricably linked with the increase in other Excise duties and the regulator. When the regulator was brought in the home sales of Scotch whisky were expanding. It was a different situation. It is the new situation which requires the Government to look at the matter in a different light.

The hon. and learned Gentleman also mentioned the E.F.T.A. and Irish agreements. The time has come for the Government to look at them and make arrangements to enable the Scotch whisky position to be considered separately, so that decisions can be taken in the light

of the merits of its own case. I hope that the Government will immediately set in train arrangements for doing that.

This is a matter of great concern for Scotland. The product is of high quality coming from Scotland only, and it provides valuable employment in parts of Scotland where manufacturing industry cannot easily settle. I therefore hope that in view of the importance of the matter my right hon. and hon. Friends will join in dividing the Committee upon the Amendment.

Question put, That "16 1 3" stand part of the Schedule:—

The Committee divided: Ayes 186, Noes 117.

Division No. 340.] AYES [10.12 p.m.
Altdritt, Walter Fitch, Alan (Wigan) Mackenzie, Gregor (Rutherglen)
Anderson, Donald Fitt, Gerard (Belfast, W.) Mackie, John
Archer, Peter Fletcher, Ted (Darlington) Mackintosh, John P.
Armstrong, Ernest Foot, Michael (Ebbw Vale) MacMillan, Malcolm (Western Isles)
Atkinson, Norman (Tottenham) Forrester, John McMillan, Tom (Glasgow, C.)
Barnett, Joel Fowler, Gerry McNamara, J. Kevin
Beaney, Alan Fraser, Rt. Hn. Tom (Hamilton) MacPherson, Malcolm
Bence, Cyril Freeson, Reginald Mahon, Peter (Preston, S.)
Bidwell, Sydney Galpern, Sir Myer Mahon, Simon (Bootle)
Bishop, E. S. Garrett, W. E. Marquand, David
Blackburn, F. Ginsburg, David Mikardo, Ian
Booth, Albert Gourlay, Harry Millan, Bruce
Boston, Terence Gray, Dr. Hugh (Yarmouth) Miller, Dr. M. S.
Boyden, James Greenwood, Rt. Hn. Anthony Mitchell, R. C. (S'th'pton, Test)
Bradley, Tom Gregory, Arnold Morgan, Elystan (Cardiganshire)
Bray, Dr. Jeremy Grey, Charles (Durham) Morris, Alfred (Wythenshawe)
Broughton, Dr. A. D. D. Griffiths, David (Rother Valley) Morris, Charles R. (Openshaw)
Brown, Rt. Hn. George (Belper) Griffiths, Rt. Hn. James (Lianelly) Morris, John (Aberavon)
Brown, Hugh D. (G'gow, Provan) Hamilton, James (Bothwell) Moyle, Roland
Brown, R. W. (Shoreditch & F'bury) Hannan, William Murray, Albert
Buchan, Norman Haseldine, Norman Norwood, Christopher
Buchanan, Richard (G'gow, Sp'burn) Henig, Stanley Oakes, Gordon
Callaghan, Rt. Hn. James Herbison, Rt. Hn. Margaret Ogden, Eric
Cant, R. B. Hilton, W. S. O'Malley, Brian
Coleman, Donald Houghton, Rt. Hn. Douglas Oram, Albert E.
Concannon, J. D. Howarth, Harry (Wellingborough) Orme, Stanley
Conlan, Bernard Howarth, Robert (Bolton, E.) Oswald, Thomas
Corbet, Mrs. Freda Hoy, James Owen, Dr. David (Plymouth, S'tn)
Craddock, George (Bradford, S.) Huckfield, L. Page, Derek (King's Lynn)
Crawshaw, Richard Hughes, Roy (Newport) Palmer, Arthur
Crosland, Rt. Hn. Anthony Hunter, Adam Pannell, Rt. Hn. Charles
Crossman, Rt. Hn. Richard Hynd, John Park, Trevor
Cullen, Mrs. Alice Jackson, Colin (B'h'se & Spenb'gh) Parkyn, Brian (Bedford)
Dalyell, Tam Jackson, Peter M. (High Peak) Pearson, Arthur (Pontypridd)
Davidson, Arthur (Accrington) Janner, Sir Barnett Pentland, Norman
Davies, Dr. Ernest (Stretford) Jeger,Mrs.Lena(H'b'n&St.P'cras,S.) Prentice, Rt. Hn. R. E.
Davies, G. Elfed (Rhondda, E.) Johnson, Carol (Lewisham, S.) Price, Thomas (Westhoughton)
Davies, Ednyfed Hudson (Conway) Jones, T. Alec (Rhondda, West) Price, William (Rugby)
Davies, Harold (Leek) Judd, Frank Probert, Arthur
de Freitas, Rt. Hn. Sir Geoffrey Kerr, Mrs. Anne (R'ter & Chatham) Pursey, Cmdr. Harry
Dell, Edmund Lawson, George Reynolds, G. W.
Dempsey, James Leadbitter, Ted Roberts, Albert (Normanton)
Diamond, Rt. Hn. John Ledger, Ron Roberts, Gwilym (Bedfordshire, S.)
Dickens, James Lee, Rt. Hn. Frederick (Newton) Robinson, W. O. J. (Walth'stow, E.)
Doig, Peter Lee, John (Reading) Roebuck, Roy
Donnelly, Desmond Lestor, Miss Joan Rogers, George (Kensington, N.)
Dunnett, Jack Lever, Harold (Cheetham) Ross, Rt. Hn. William
Dunwoody, Mrs. Gwyneth (Exeter) Lewis, Ron (Carlisle) Rowlands, E. (Cardiff, N.)
Dunwoody, Dr. John (F'th & C'b'e) Loughlin, Charles Shaw, Arnold (Ilford, S.)
Eadie, Alex Luard, Evan Sheldon, Robert
Edwards, William (Merioneth) Lyons, Edward (Bradford, E.) Short, Mrs. Renée(W'hampton,N.E.)
Ennals, David McBride, Neil Silkin, Rt. Hn. John (Deptford)
Ensor, David MacColl, James Silverman, Julius (Aston)
Evans, Albert (Islington, S.W.) MacDermot, Niall Slater, Joseph
Evans, Ioan L. (Birm'h'm, Yardley) Macdonald, A. H. Snow, Julian
Finch, Harold McGuire, Michael Steele, Thomas (Dunbartonshire, W.)
Stewart, Rt. Hn. Michael Wellbeloved, James Wilson, William (Coventry, S.)
Taverne, Dick Wells, William (Walsall, N.) Winnick, David
Tinn, James Whitlock, William Yates, Victor
Urwin, T. W. Williams, Alan (Swansea, W.)
Wainwright, Edwin (Dearne Valley) Williams, Alan Lee (Hornchurch)

TELLERS FOR THE AYES:
Walker, Harold (Doncaster) Williams, Clifford (Abertillery) Mr. Walter Harrison and
Wallace, George Williams, Mrs. Shirley (Hitchin) Mr. Harper.
Watkins, David (Consett)
NOES
Alison, Michael (Barkston Ash) Goodhew, Victor Nabarro, Sir Gerald
Awdry, Daniel Grant, Anthony Noble, Rt. Hn. Michael
Bell, Ronald Grieve, Percy Onslow, Cranley
Bennett, Sir Frederic (Torquay) Griffiths, Eldon (Bury St. Edmunds) Orr-Ewing, Sir Ian
Berry, Hn. Anthony Gurden, Harold Page, Graham (Crosby)
Bessell, Peter Hall-Davis, A. G. F. Peel, John
Biffen, John Hawkins, Paul Percival, Ian
Birch, Rt. Hn. Nigel Heald, Rt. Hn. Sir Lionel Peyton, John
Black, Sir Cyril Heseltine, Michael Powell, Rt. Hn. J. Enoch
Blaker, Peter Higgins, Terence L. Pym, Francis
Body, Richard Hiley, Joseph Ramsden, Rt. Hn. James
Bossom, Sir Clive Hill, J. E. B. Renton, Rt. Hn. Sir David
Boyd-Carpenter, Rt. Hn. John Hogg, Rt. Hn. Quintin Ridsdale, Julian
Braine, Barnard Holland, Philip Rossi, Hugh (Hornsey)
Brinton, Sir Tatton Hornby, Richard Royle, Anthony
Bromley-Davenport.Lt.-Col.SirWalter Howell, David (Guildford) Scott, Nicholas
Brown, Sir Edward (Bath) Hunt, John Sharples, Richard
Brown, Bob (N'c'tle-upon-Tyne,W.) Hutchison, Michael Clark Shaw, Michael (Sc'b'gh & Whitby)
Bruce-Gardyne, J. Jenkin, Patrick (Woodford) Sinclair, Sir George
Campbell, Gordon Johnston, Russell (Inverness) Smith, John
Carlisle, Mark Jopling, Michael Stainton, Keith
Chichester-Clark, R. Kaberry, Sir Donald Steel, David (Roxburgh)
Clegg, Walter Kershaw, Anthony Stodart, Anthony
Costain, A. P. Kirk, Peter Stoddart-Scott, Col. Sir M. (Ripon)
Crosthwaite-Eyre, Sir Oliver Langford-Holt, Sir John Taylor, EdwardM.(G'gow,Cathcart)
Cunningham, Sir Knox Lewis, Kenneth (Rutland) Taylor, Frank (Moss Side)
Dalkeith, Earl of Lloyd, Ian (P'tsm'th, Langstone) Thatcher, Mrs. Margaret
Dean, Paul (Somerset, N.) Lubbock, Eric Tilney, John
Dodds-Parker, Douglas MacArthur, Ian Wainwright, Richard (Colne Valley)
Drayson, G. B. Mackenzie, Alasdair(Ross&Crom'ty) Ward, Dame Irene
Eden, Sir John Macleod, Rt. Hn. Iain Whitelaw, Rt. Hn. William
Elliott,R.W.(N'c'tle-upon-Tyne,N.) Marten, Neil Wills, Sir Gerald (Bridgwater)
Emery, Peter Maxwell-Hyslop, R. J. Wilson, Geoffrey (Truro)
Errington, Sir Eric Maydon, Lt.-Cmdr. S. L. C. Wood, Rt. Hn. Richard
Eyre, Reginald Mills, Stratton (Belfast, N.) Worsley, Marcus
Fletcher-Cooke, Charles Miscampbell, Norman Wylie, N. R.
Fortescue, Tim Mitchell, David (Basingstoke) Younger, Hn. George
Gilmour, Ian (Norfolk, C.) More, Jasper
Gilmour, Sir John (Fife, E.) Morrison, Charles (Devizes) TELLERS FOR THE NOES:
Glover, Sir Douglas Murton, Oscar Mr. Monro and Mr. Weatherill.
Goodhart, Philip
Schedule agreed to.
Schedule 2 agreed to.