HC Deb 16 July 1975 vol 895 cc1649-62
Mr. Hamish Watt (Banff)

I beg to move Amendment No. 109 in, page 1 leave out lines 16 to 20.

Mr. Speaker

With this we may consider Amendment No. 114, in Clause 9, page 8, line 7 leave out '£22.0900' and insert '£17.0100'.

Mr. Watt

In calling for the removal of these four lines from the Bill we ask the Chancellor to take heed of the consequences of any attempt to raise the excise duty on whisky at this time.

The Treasury must get out of its head the idea that the Scotch whisky industry is a vast milch cow that can be called on to produce more and more revenue every time the Treasury cares to call on it. Indeed, to milk the industry too often can be counter-productive, and we believe that this is the present position. To ask the industry to pay an extra £5 per proof gallon is asking too much.

It is all very well to say, as no doubt the Minister will, that so far no harm has come to the whisky industry. I acknowledge that that is so. However, there comes a time when the danger bells must be rung, and I want to ring them tonight.

The whisky industry is capital intensive. Vast sums of money are required not only for financing distilleries and for the productive capacity to make the whisky itself, but, unlike virtually any other industry, the whisky industry requires vast sums of money to finance its stocks while they are maturing. Stocks of whisky mature for five to 12 years and a lot of money is required to finance those stocks. With the present high interest rates, the cost of servicing this money is now reaching astronomical proportions and many whisky firms are financially embarrassed. They are heavily dependent on a continuing flow of cash coming in from their current whisky sales. Anything that would in any way interrupt the present healthy sales pattern must be treated with suspicion.

We fear that the proposed increase of £5 per proof gallon might be just suffi- cient to upset the fine balance between healthy sales and sluggish offtake. It is a well known fact that any increase in duty imposed by the United Kingdom Government is swiftly copied by other Governments. There is a ripple effect with the ripples getting bigger and becoming waves and this may mean that other Governments will increase their duty by even greater amounts than the United Kingdom Government.

No industry has such a fine export record as the Scotch whisky industry, which exports about £300 million worth of its products. There must be very few industries which have such a low import content in their exports. Therefore, the country benefits from the whisky industry.

10.15 p.m.

Why, at a time when the economy of the whole world is so dicey, should anyone want to upset this fine balance and put at risk as profitable a venture as the Scotch whisky industry? I must press for an answer. Why are we seeking to upset this fine balance? Has the Chancellor faced the high risk element of the measurse that he proposes?

The whisky industry already labours under an unfair burden. I refer not only to the present rate of duty, but to the way in which that duty is collected. The duty imposed on whisky must be paid before it leaves the bond. It may be many weeks before that whisky filters through the trade to its ultimate sales outlet and is bought by a customer. The whisky companies, unlike beer companies, have to pay duty which is not readily recoverable for some time and their funds are unnecessarily tied up. I suggest that only a 60-day derogation of the collection of duty would bring the whisky industry into line with the beer industry and its competitors in the wine and cognac industries.

Earlier, I said that some of the distilleries were desperately short of ready money. That is having an adverse effect on job prospects in my constituency and elsewhere in Scotland. However, as Banffshire has fully one-third of the entire malt distilling capacity of Scotland, I am vitally concerned. In an area such as mine there are no other job prospects. Many people depend on distilleries in the area for their jobs. I know of two projects, due for expansion, which have been abandoned because of tax difficulties. Others have been postponed. For how long, I do not know. At the moment job potential is being lost. Whereas previously overtime was the rule in most distilleries, they are now on flat or short time. Further, many distilleries are having a long close season this summer. Whereas previously they shut down for the shortest possible time, they are now having a long close season sometimes stretching over four, five or six weeks, during which time they are not producing whisky.

The whisky that is being made this year will not be drunk until 1984. Much of it requires that length of time to mature. It is highly unlikely that the present Big Brother will be continuing in office for that length of time. But I want to emphasise that wrong measures taken now can have an adverse effect all that time away. Why do something today which will jeopardise the industry all those years hence? Unlike other industries, production which is lost today cannot be made up next year or the year after. If it is lost now, it is lost for ever. In most other industries—cars washing machines, television sets and other products on which the Chancellor gets his hands—lost sales now can be made up in years to come. That is not so in the whisky industry.

For these reasons, and several more on which I have no time to touch, I move the deletion of these four lines from Clause 1.

Mr. Monro

The hon. Member for Banff (Mr. Watt) moved his amendment in a moderate way and clearly brought out the concern not only of himself, but of all Scottish Members on future employment in Scotland if the Government continue to tax whisky at the level that is proposed. The Minister in his reply should make his case for the action he has taken. Is he able to assess the future so correctly that the point made by the hon. Member for Banff can be negatived? The hon. Member rightly said that this is a long-term production process, and that action taken by the Government today may have very detrimental effects not only next year but over the next 10 years.

Will the Government be able to tell the House tonight that the steps they have taken will not have the effect that many of us fear and that, despite taxation, consumption will continue to increase as it has in the past, particularly in the export field? It is for the Government to prove their case and to show that they have not gone many steps too far on this occasion.

Mr. Iain MacCormick (Argyll)

Will not the hon. Member agree that there are cases in Argyll already where distilleries have been forced to stop production, and others to cut back, with a serious effect not only on the people employed there, but also on farmers who rely on the draft for feeding their cattle?

Mr. Monro

I have not first-hand information from Argyll, but I am sure that what the hon. Member said is correct. It is not only that the farmers in Argyll are interested in draff. There is also the malting quality barley grown in the Lowlands and elsewhere. The people involved in this may feel the pinch if there is a cut-back in whisky production

The hon. Member for Banff was right to emphasise, as was his hon. Friend the Member for Argyll (Mr. MacCormick) the impact on employment. I speak with no constituency interest at all but purely from the point of view of employment in Scotland in the short and long term. Obviously, if consumption falls, inevitably it will cause unemployment in the industry, and this must be of concern to the Government when unemployment is as high as it is in Scotland at present.

We know that it is over 100,000, and we have been waiting now for many months for the Secretary of State to resign and implement his promise, but he does not do so. While the numbers we are talking about in relation to the distilling industry may be comparatively small, they are particularly important in the areas where whisky distilling is carried on—in the Highlands, in certain parts of West Scotland, and in Galloway, where there is one distillery.

The Government must accept that this is so, just as they will be forced to accept it tomorrow in relation to the imposition of VAT on boats, aircraft, and so on. The Government are causing unemployment directly by their action. We in Scotland are concerned about this in a whole host of industries that will be affected by the Budget.

It is no use the occupants of the Treasury Bench saying that they have to increase taxation to provide more income for the objectives to which they have given higher priority. This whole issue is one of priorities. Hon. Members can indicate a thousand and one spheres of Government expenditure in which cuts could take place, which would remove the necessity for the high taxation on the things we are talking about in this amendment, and those we shall be talking about when we discuss Schedule 7 tomorrow. We do not want the argument flung back at us that our aim is simply to reduce the amount of taxation. We feel that this could be compensated for by savings in Government expenditure elsewhere. That is why we feel strongly that the Government have to prove their case for the attitude which they adopt to the whisky industry in Scotland, which is so important to our country.

Mrs. Margaret Bain (Dunbartonshire, East)

I wish to support my hon. Friend the Member for Banff (Mr. Watt) and to register my own protest at the very highhanded and inconsiderate way in which the Government are treating the Scotch whisky industry.

The industry is important not only to the Scottish economy—we have recognised that for a long time. At this stage, when the Government pretend to be so concerned about the economic position of the United Kingdom, they should be looking at the rôle which the Scotch whisky industry plays in the British economy. As a major export industry, it brings in a substantial amount to the Exchequer every year, yet the actions of this Government are virtually denying the continuation of this situation.

As the hon. Member for Dumfries (Mr. Monro) said, at a time when in Scotland the unemployment level is running above the 100,000 mark—a level which my party finds totally unacceptable—we ought to be looking at the future of the Scotch whisky industry, bearing in mind that it is not just in the distillation of whisky that we have employment but in the ancillary industries attached to it. I have to declare a local interest in that many of my constituents are employed in bottling plants, bonded warehouses and distribution services for the Scotch whisky industry.

This Government claim to be interested in what the trade unions say. Perhaps they should look at the suggestion by the General and Municipal Workers' Union which said that far more bottling plants should be built in Scotland so that we could avoid the export of whisky in bulk to the United States of America where it is bottled and, of course, diluted with American water which is not of the same value as the peat water from Scotland which gives Scotch whisky its distinctive flavour.

This Government also recommended that Britain should stay in the Common Market. Despite the promises to the Scotch whisky industry about the value of EEC membership, we find discriminatory taxes being applied by countries such as Italy, which has in operation a very discriminatory VAT rate against Scotch whisky. That is losing us sales which we had previously. We find that extremely distressing. Having spoken to several producers in the Scotch whisky industry, I know that it is causing them concern because Scotch whisky is being priced out of the Italian market.

At the very least, I ask the Government to look again at the point at which duty has to be paid. Our contention is that it should be payable much nearer the time of sale rather than months in advance. The Government's policy results in millions of pounds of capital being tied up on a non-productive basis and, as my hon. Friend the Member for Banff said, a number of projects are being held up because that capital is not readily available for future investment. I know of one case where a bottling plant proposed for West Central Scotland has been deferred for further consideration basically because the money is not available.

I speak as the Member for a constituency where unemployment is causing great concern. I am concerned about the amount of duty being exacted by this Government on Scotch whisky. For the benefit of English Members who may not realise how important this duty is, let me point out to them that, if English beer paid the same rate of duty as Scotch whisky, a pint of beer would cost 80p. I sometimes wonder whether the Government are not deliberately exercising a policy designed very much to the disbenefit of the people of Scotland.

10.30 p.m.

Sir John Gilmour (Fife, East)

I am at present serving on the Standing Committee which is considering the Scottish Development Agency Bill, as a result of which the Government seek to spend between £200 million and £300 million over the next few years trying to get better industrial output in Scotland. In view of that, it seems to me essential that Treasury Ministers' Scottish Office Ministers, and Department of Trade Ministers should get together to ensure that the Government's taxation policies do not do a great disservice to an existing, very profitable industry which is spread throughout the length and breadth of Scotland. There happens to be in my constituency a new bottling store, and the Under-Secretary lives very close to it. Rumour has it that he has a pipeline under the road into his house. I only wish that I lived down hill from it, as he does, because then I might be able to get in on the same racket.

This manufacturing industry, which extends throughout Scotland, is absolutely essential to us. It is an industry which uses indigenous Scottish raw material and does not import very much, although I admit that some distilleries import rather more from overseas than some of us would like. However, basically it is an industry that uses Scottish raw material. It produces something that is known throughout the world for its export capabilities and which is irreplaceable elsewhere, although I know that many people try to imitate it. In Australia I was once shown a bottle of whisky which said "As distilled by His Majesty King George in the cellars of Buckingham Palace". This is what other people seek to do, but those who live in Scotland know that whisky is unique to Scotland and cannot be copied.

We have to produce a quality product which must be matured in casks for 7, 8, 10 or 12 years, particularly if it is going to the United States of America. The taxation policy of the Treasury should take into account the fact that the raw material purchased and the labour costs that go into producing this whisky involve the industry in a difficult cash flow problem. Therefore, the taxation policy should take into account the difficulties of long-term manufacture and the time that the whisky has to spend in bond before it can be exported.

We know that in difficult times the Government have to raise money by taxation on the home trade. Surely they could take some measures that would be of real benefit to the export trade of this country? It is up to them, with the knowledge that they have of how the industry is financed and how it works, to suggest ways in which help can be given to the industry. If the Government increase prices in the home market, the industry must not be penalised because that would make it impossible for it to produce the whisky to be sold in 7, 8, 10, 12 or 15 years' time.

There is an onus on the Treasury to co-operate with the industry and to take actions that will help to foster and expand the industry. It is useless to pass another Bill to enable £200 million or £300 million to be spent on setting up other industry when something practical can be done to foster and expand a practical, flourishing industry that we already have.

Mr. Esmond Bulmer (Kidderminster)

I start by declaring an interest in the whisky industry. I should like to ask the Government whether they have taken into account in these increases three important factors. The drink industry is used to being an unpaid tax gatherer and, to an extent, it accepts that. However, like any other company, we have to plan for employment.

The first consideration I ask the Government to demonstrate that they have taken into account is the effect on employment. The Government have introduced measures which demand extra disclosure by companies in order that the Government can better plan their manpower strategies. It would be helpful if the Government, in turn, were to reciprocate and give an indication that if products were taxed on a continuing basis and if increments were based upon that taxation, they would fall within certain parameters.

If the Government arbitrarily increase the tax on any product, the employment in that company or industry can be dramatically prejudiced. I hope that the Government will demonstrate that they have taken into account the employment situation, especially in the rural areas.

Whisky is particularly important, as a number of hon. Members have already said, to the rural areas of Scotland. It is very obvious to those of us who live in rural areas that the countryside has borne disproportionately the effect of inflation, whether it be through rate increases, fuel cost increases or the cost of living generally. Therefore, for the agricultural and the rural community it is important to maintain employment during this very difficult period.

To what extent do the Treasury reflect on the effect of these arbitrary increases on the pattern of competition within industry? Large companies with great export markets can obviously ride these increases. Small companies trying to build up a business in a rural area or in the home market find it much more difficult.

I hope that the Government will indicate in this debate that they have some higher responsibility which they have sought to discharge.

Mr. Gordon Wilson (Dundee, East)

This is a very important amendment. Earlier speakers have fully recognised that. If whisky exports are taken at the £300 million figure which has been mentioned, we should compare that with the figure for the export of cars—about £730 million a year. This shows that we are dealing with a very important industry in terms of both jobs and export potential. If the House gave as much attention to the whisky industry as it has given—although rightly—to the car industry, we should have been discussing whisky much more frequently in the past. However, because it is one of the consumer industries, it has not received the same degree of attention.

In imposing extra taxes of a steep nature, one has to be very careful that they do not have an adverse effect on industry. I should not have to point out to the Treasury Bench the importance of maintaining exports, not merely now but five to 12 years hence. It is very important to the Government's exporting strategy that they should not take steps which affect internal demand and which, therefore, will have an effect on exports. As my hon. Friend the Member for Banff (Mr. Watt) pointed out, most of the ingredients in whisky come from domestic suppliers, farmers and other sources—although a considerable amount of barley is imported from the Continent.

There are four different areas of employment which are or could be affected by the Government's increase in duty. This is an integrated industry. It is very strongly rooted and based in Scotland. Although much of it is capital-intensive, which obviously in the actual production of the whisky leads to comparatively few jobs, the industry has a tremendous spread. Most Scottish constituencies have some connection with the whisky industry. In my constituency blending is carried out. That gives to men and women jobs which are very valuable at present.

Perhaps I may analyse the types of jobs which may be at stake. First there are the jobs in the rural areas, in the farming industry which produces some of the raw materials. Again in the rural areas distilling processes are carried out. In many of these areas—Argyll, Banffshire and elsewhere—there is a shortage of alternative industry. This could even affect some of the grain distilleries situated in areas such as Dunbartonshire, perhaps, which are also short of employment prospects at present. In the rural areas the immediate effect of a slow-down in production could lead to short-time working and laying off.

But that is not the end of the story, because there is the transportation from there on, from the distilleries to the bonded warehouses, where the maturing process is carried out. That leads to additional revenue to local authorities by way of rating increases. Then there are the jobs of the transportation workers and of those caring for and maintaining the whisky while in bond. There are even some jobs which come to the Treasury—the excise men.

The next stage is that of bottling, which is quite labour-intensive. Obviously there are many jobs at stake there. It is the sort of thing which should encourage rather than discourage, as these taxation measures may well do.

Even after bottling—or, if that stage is avoided and the whisky is taken by bulk —we come back into the transport sector. The whisky is taken to the docks, providing jobs for those who work there and for the mercantile marine, transporting the whisky to all the places in the world that take it.

Therefore, the industry is much more important than people give credit for. I ask the Government to think again about what they are doing. It is not just a Scottish question. The industry is part of the Government's exporting strategy. They are to spend tremendous sums to put British Leyland on its feet again. Here they might be taking money from an industry and putting it into difficulties when it is healthy, when they should be trying to encourage its exporting prospects.

There is historical evidence to show that when duties are pushed up at home there are further increases elsewhere, as other Governments take advantage of the increases to push up the cost of spirits. Some of them have home competitors to whisky, and would be delighted to have any pretext for increasing the duty and putting difficulties in the way of the Scotch whisky trade.

Even if the Government feel that they cannot at this stage relax the rate of duty on whisky, they could take steps by an amendment to allow the differential of 60 days on which whisky is charged with duty before it leaves the bond. The whisky companies are placed in the difficuly that, having paid the duty, they have to go through the time-consuming process of releasing the whisky for distribution for wholesale elsewhere.

If the Government are sincerely concerned about the industry, and rashly determined to maintain the increase in duty, they could give that little consolation to the industry. They could acknowledge that the whisky industry is important, and that there may be difficulties because of the intention to increase the duty. They could therefore give the 60-day differential mentioned by my hon. Friend the Member for Banff (Mr. Watt), which would help the industry very much. If the Government took that step they would go some way towards rectifying some of the damage they may well have caused by the decision in the Budget.

The Minister of State, Treasury (Mr. Denzil Davies)

I assure hon. Members that the Government are fully apprised of the importance of the Scotch whisky industry to our export trade. The £300 million of which we have heard is of considerable importance. No Treasury Minister who from time to time wakes up in a cold sweat in the middle of the night worrying about the balance of payments will do anything that will jeopardise the balance of payments and the export potential of the Scotch whisky industry. That is one of the major safeguards that the industry has. Its contribution to exports is so considerable that we are, of course, concerned, and we would not introduce measures that would damage it.

But I do not believe that the increase in duty will have the effects that hon. Members seem to fear. I entirely accept that in the very short term an increase in indirect taxes may have a marginal effect on employment. It would be ridiculous for me to say otherwise, but the effect, especially on the whisky industry, will be very short term indeed, partly because of its export potential. I take the point that export markets are intertwined with the home market, but I do not believe that any effects of the increase will be other than short term.

The Government believe that they have the figures right. We do not think that there will be a damaging effect on the whisky industry.

10.45 p.m.

Mr. MacCormick

Is the Government's only reason for taking this action to increase revenue from the tax on whisky? Do they not also take into account other considerations?

Mr. Davies

I will come to that point in a moment. I know the industry is very concerned about the possibility of deferment of duty. The problem here is not one of taxation, but of the credit mechanism in the industry. It takes some time for producers to get paid for their product and they have to pay duty much sooner than that. If we granted the deferment for which the industry is asking, it would mean a drop in revenue of £100 million a year. This would not be a loss because the money would come in during the following year, but we have been talking tonight about the public sector borrowing requirement and the Government would have to borrow an extra £100 million if it granted the deferment. With the pressure on Government borrowing, we could not relax the position to that extent.

Mrs. Bain

Does the Minister mean that the Government always take the short-term view of any economic measures and do not look to the future as do we in the Scottish National Party? We do not accept the need for cut backs in public expenditure because the Scottish economy is poised for expansion and the Government's measures are cutting back that expansion.

Mr. Davies

We do take a long-term view, which is why we have taken measures to benefit Scotland's industry and economy.

If the duty were indexed in line with the cost of living increases since 1970, it would have to be increased by 120p instead of 64p. The cost of living has gone up much faster than the duty on whisky. We are not putting on a full cost-of-living increase.

We are concerned with priorities, and hon. Members should know that accepting the amendment would cost the Treasury £45 million. Despite the importance of the whisky industry and its contribution to exports, there are other projects and worthy causes on which we could spend £45 million. We do not have this money at the moment anyway because of the need to restrain public expenditure and the public sector borrowing requirement.

Hon. Members have mentioned the £250 million or £300 million which is to be devoted to the Scottish Development Agency. Are they saying that the Government should forgo the £45 million and make cut backs elsewhere? Are we to cut back on agricultural subsidies or on money for investment in industry? This is the choice we have to make. We have to get our priorities right.

Mr. MacCormack

On the island of Islay, in my constituency, there are eight distilleries that contribute probably £6 million or £12 million in duties alone to the national Exchequer. Government policies will deprive them of half their transport communication with the mainland. What the Minister is saying to the people of Islay must be regarded as absolute balderdash.

Mr. Davies

Scotland, like Wales and parts of the North of England, has deep-seated industrial problems. It needs investment and modernisation in manufacturing industry. If we are to forgo this £45 million it will have to be raised from elsewhere, because the Government are putting money into Scottish industry. In this respect we are getting our priorities right. We are taxing the consumption of less essential goods and we are using that money, in part, to do the things we were elected to do, which is to improve investment and the state of manufacturing industry. Without that Scotland will never prosper. However important the Scotch whisky industry may be, Scotland will not prosper merely from selling whisky to America or anywhere else.

I do not believe that the increase will affect the industry. It is for those who support the amendment to say where that £45 million will come from, if not from the source we have chosen. They have so far failed to do so.

Mr. Watt

It is disappointing that the the Minister should have his priorities so wrong that he is prepared to risk exports of £300 million and more for the sake of getting £45 million. So long as this industry is viable, the £300 million could next year become £345 million and the Government would get their extra money. But that depends on the industry being healthy and viable, and that is in everyone's interests.

The Minister is risking jobs throughout Scotland. The people of Scotland are reaching the stage where they know that their industries will never get justice in this place, and the sooner we get our economy away from here the better.

However, we made our point in the last debate by dividing the House. For that reason, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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