CIDER INDUSTRY (HEREFORDSHIRE) (Hansard, 14 November 1977)

§ Mr. Colin Shepherd (Hereford)
I consider myself fortunate to have secured the Adjournment debate this evening, and I am grateful to the Minister for coming to the House at this late hour to reply to it.
I am raising the subject of employment in the cider-making industry in Herefordshire since, knowing the Government's 251 concern over employment matters and the attempts by the Minister's Department to create and maintain employment, it is somewhat tragic to find that the actions of another Government Department are undermining such success as he might be achieving. I am referring to the effects on employment created by the imposition of the tax on cider which came into effect in September 1976, just over 12 months ago. This tax has been of particular significance to people in Herefordshire, for two reasons, the first being that Herefordshire has both the largest and some of the smallest producers of cider in the country, holding between them 62 per cent. of the market at this time. The largest of these producers is H. P. Bulmer Limited, the second largest employer in the country with slightly in excess of 2,000 permanent employees. The smaller companies are those such as Symonds and Company and Weston Cider which employ from 12 to 60 people full-time directly in the cider-making process.
In addition to those permanent employees, we have the agricultural work force involved in cider fruit growing and production and the casual labour force involved in picking and other seasonal activities. Altogether, the cider industry in Herefordshire is a very substantial creator of employment.
The second reason, which is a significant one, is that the Herefordshire cider industry is totally independent of the breweries. In other parts of the country the brewery industry has achieved significant control over the cider industry, to the extent that Showerings is now a wholly-owned subsidiary of Allied Breweries and the Taunton Cider Company has major shareholdings by about four different breweries. Those two companies between them account for about 46 per cent. of the market.
The influence of the breweries on the cider production of these companies is such as to make somewhat suspect their comments on the effects of the tax, and I suggest that they are sometimes more interested in the brewery side of their business than the cider side.
The Herefordshire cider makers must compete against beer for their business, whereas the breweries which own cider- 252 makers are not so concerned about whether their income comes from beer or cider, provided just that it comes in. Indeed, I understand that it was because of the marketing success of the Hereford shire cider-makers in competing against beer that the breweries took their investment in the cider industry in the first place.
The industry in Herefordshire, therefore, has obvious and different constraints from that in other parts of the country, and the value of the cider tax must therefore be seen by its effects on the Herefordshire industry rather than on the country as a whole.
In his statement announced at the annual general meeting of H. P. Bulmer on 8th September, the chairman said in no uncertain terms that the industry was clobbered by the imposition in September 1976 of a swingeing excise duty which necessitated an increase in price to the wholesale of 28 per cent. within a space of four months. He went on to say: In the year which ended in April 1976, sales volume increased by 18½ per cent. in the first half which included a good summer, but by even more—27½ per cent.—during the second winter half. Last year which ended April 1977, the first half growth with an exceptional summer was, by coincidence, also 27½ per cent., but in the second winter half, which you will remember had shown an even greater growth a year before, there was no growth at all; indeed there was a drop of 2 per cent. The reason for this total reversal of fortune can therefore be fairly and squarely placed on the 28 per cent. price increase arising from the new duty. It has been easy for the Treasury to maintain that it is the poor summer this year, and not its tax, which has accounted for this reversal. However, I am certain, and those in the cider industry know full well, that this is not the case and that it is the price increase which is doing the damage. Indeed, the chairman of one of the smaller producers who was able to sell only half of his cider production last year is convinced that cider is being priced out of the market.
The effect on employment in Herefordshire has already been quite severe in the context of our normal stability of employment Bulmer's has been obliged to stand off 160 newly recruited employees, and it is fortunate to have the flexibility to do this. However, 160 employees redundant from one employer is by no 253 means the total picture. One small producer with 12 permanently employed people is highly dubious whether he will be able to stay in the business of cider production. I understand that other small firms have expressed similar sentiments. These firms do not have the flexibility to absorb the sort of knock they have taken. If they stop producing, we shall be talking of a further 50 jobs permanently lost, together with the additional casual opportunities.
Also, not apparent from the statement by the chairman of Bulmer's is the full impact of the reduction in planned output on the employment picture, because, as there has had to be a decrease in the sales budget over and above that necessary to correct for the distorting effect of the exceptional summer of 1976, additional recruiting will not take place. Because of the diversity of the nature of employment involved, some being temporary, some semi-permanent and some permanent, it is easier to express this in terms of man-shifts. Bulmer's, this one company, has had to cut back so much that 15,035 man-shifts will be lost in the year 1977–78, meaning a total of about a further 140 jobs which have not come into being as a result of the tax imposition.
In addition, the uncertainty created in the industry by the effect of the tax has created a serious lack of confidence for the future. This in turn has had an effect upon the investment plans of the industry in Herefordshire. Indeed, some £900,000 capital investment has not been fully utilised due to the falling-off in sales in 1976–77. One new bottling line installed at a cost of more than £100,000 on the basis of growth potential for 1977–78, an investment decision taken before the Chancellor's imposition of the tax in 1976, is now shut down and lying idle instead of employing 50 people. Deferred investment which would have been made in this financial year amounts to about £1.7 million-worth of plant, vehicles and buildings, about 90 per cent. of which would have been manufactured in the United Kingdom. Based on typical engineering manufacturing output, this means that approximately another 150 jobs have been lost in other parts of the country as a result of this deferred investment.
254 One specific item in addition is the non-purchase of stainless steel kegs and ancillary equipment to the value of £820,000 a year, an order which those engaged in keg manufacture and in the steel industry, especially the specialist steel industry involved, will be disappointed not to receive. Capital investment planned for 1978–79 and 1979–80 will be deferred indefinitely. For this one company this involves about £3 million-worth of plant, most of which would have been manufactured in the United Kingdom. The further implications of this capital deferment are grim for the employment picture as productivity could fall, leading to increasing unit costs, in turn leading to further increases in price, further decreasing sales and hence, a further decrease in job opportunities for Herefordshire.
The damage done to employment in the industry by the imposition of this cider duty is therefore palpable: 160 jobs lost and 140 jobs not created in Herefordshire, coupled to which we must add the equivalent of at least 150 jobs in the manufacturing industry outside Herefordshire, with a distinct possibility of further unemployment if the small companies in the industry find that it becomes impossible to operate.
I understand from those involved in the manufacture of cider in Herefordshire that prior to the imposition of this tax there was no discussion or consultation with the industry by the Treasury. There was no prior knowledge of the possibility of the tax. I know that the Minister will be concerned about the effect upon unemployment. Was his Department consulted by the Treasury before the imposition of the tax? If so, what was the nature of those consultations and what representations did his Department make?
The level of the tax is 24.2p per gallon. That comprises the initial 22p per gallon imposed in September 1976 together with an additional 10 per cent. subsequently imposed by regulator. Since the original imposition was a Budget matter, I can only assume that the prevent level was selected arbitrarily by the Treasury. I can find no trace or evidence of any discussion having taken place in advance.
The industry is not adverse to paying some tax. I understand that 11p per gallon would have been acceptable and that the consequences would have been 255 absorbed without detriment to employment.
The Minister will recollect the vicious effect that the 25 per cent. level of VAT had on the boat-building industry, for instance. Will he make the strongest representations to the Treasury on behalf of the cider-making industry, especially in Herefordshire, to reduce the tax and thereby ameliorate the adverse effect on employment that is being experienced in Herefordshire?
The revenue which has been paid so far by H. P. Bulmer & Co. is nearly £7 million. Herefordshire has lost 300 job opportunities. The Government's job creation programme is expensive, but it appears to the people of Herefordshire that their industry is being taxed and that redundancies are being made to pay for the creation of jobs elsewhere.
I extend an invitation to the Minister to come to Herefordshire and see for himself. I ask him to see the effect of the tax upon unemployment and to discuss these matters with representatives of both the large and small branches of the industry.

§ The Under-Secretary of State for Employment (Mr. John Golding)
congratulate the hon. Member for Hereford (Mr. Shepherd) on having the good fortune to secure this Adjournment debate. The issues are of great importance to Herefordshire, which is one of our most beautiful counties. We are always ready to listen to its point of view. I should be delighted to visit Herefordshire to discuss the problems that face its cider industry.
This is not an easy situation. On the basis of my figures, there was no drop in the sales of cider and perry over the country as a whole in the first quarter following the imposition of the tax.
For obvious reasons, it is not normal practice for the Treasury to consult widely on tax measures that are introduced in a Budget. I understand that the likely effect of the duty on employment in the cider-making industry was considered by the Treasury before the April 1976 Budget. It was accepted that the duty might have some effect in tempering the spectacular growth in sales which the industry had previously enjoyed. However, 256 it was not expected to lead to any significant reduction in employment in the industry. Sales increased slightly in the fourth quarter of 1976 compared with the same period in the previous year, and they increased by nearly 5 per cent. in the first quarter of 1977.
We are here to talk not about volume of output but about employment. The two are not necessarily the same. Between 1974 and 1975, for example, there was a massive increase in sales in volume but a great fall in employment, from 1,612 to 1,402, in Herefordshire's wine and cider industry, which is predominantly cider. Perhaps it is significant for the fall in employment this year that in 1974, a peak year for employment, the apple crop was good while in 1975 the crop was poor.
There has been an increase in unemployment. In February, the worst month for which figures are available, there were 75 unemployed who had previously worked in the industry compared with 51 the previous year. In August, which is normally a good month for the industry, there were 56 people unemployed. We have to add to these a number of casual workers. We have no firm figures for the latest months, but all the indications are that the level of employment in the cider industry in Herefordshire began to fall in August, as it appears to have done in the soft drinks industry.
Some people argue, with the hon. Member, that the reason for this was the tax imposed over a year ago on cider. This does not explain the drop in demand for "pop", on which the only tax is VAT at the standard rate, or the drop in beer consumption. The Brewers Society has, according to the Morning Advertiser, blamed the fall in the production of beer over the past year on the poor summer, coupled with cut-backs in spending by consumers. The Brewers Society said: The weather this summer and autumn has been no match for the two previous years. The down-turn is a direct result of the lack of sunshine, although a growing factor is the economic recession which is beginning to be felt in pubs. Whatever the reason, we have to be concerned about the loss of jobs. I was concerned to read, in a statement by the chairman of Bulmer's—a man held in high regard in the industry—that the firm has had to stand off 160 newly-recruited employees. The hon. Member referred to this. Although I understand 257 that the industry relies on seasonal workers for certain parts of its work, and this naturally entails fluctuations in employment during the year, I hope that this move does not result in any permanent decline in employment in the industry. I certainly hope that that is not so in Herefordshire.
I was also concerned to hear of the deferment of investment. The Government have been prepared to pay the temporary employment subsidy in the cider sector, and 69 jobs have been saved. From the point of view of workers who have regular jobs in the industry, the Employment Protection Act has been of great help, as has the Government's continued support for the Redundancy Payments Act. For those working in the orchards, the Rent (Agriculture) Act 1976 fulfilled our manifesto pledge to abolish the tied cottage.
I take this opportunity to say how disappointed I am that the cider industry as a whole has done little for our unemployed young people, of whom there were 307 in Herefordshire in October. Only two applications have been made for the youth employment subsidy from major cider firms, and only one place has been provided under the work experience scheme. The industry could do much more for our young people in Herefordshire, relying not wholly on its own money but using Government money. The work experience scheme is an excellent scheme by which employers can mount, on their own premises, schemes designed to give young people under 19 a realistic introduction to work in an industry. The young people involved receive an £18 weekly allowance from the Manpower Services Commission. The cost to an employer of helping a youngster under this scheme is negligible. We hope that the cider manufacturers will give some unemployed youngsters a chance under the work experience scheme.
But what we want most of all are regular jobs for all our people, and especially the young. With increased prosperity they will come to the cider industry. The industry is already doing very well in building up exports. When we grow in prosperity—and perhaps the sun shines and the apples flourish—then will employment grow in the cider industry.
I have been reading the report of Bulmer's and was delighted to read the chairman's 258 statement—despite his strictures—that the company could cope despite difficulties. I am sure that the firm can, and I look forward, with it, to greater security of employment in the cider industry in Hereford. I have been encouraged in this by reading the statements in the Off-Licnce News of last Thursday. It says that Coates Gaymers is predicting a happy Christmas for sales of its cider brands—and is spending upwards of £100,000 on its heaviestever programme of pre-Yuletide promotions"—

§ Mr. Shepherd
Will the Minister say whether it was made clear in the article whether Coates Gaymers was selling at sub-economic prices? That is one of the problems that are of concern to the cider industry in Herefordshire.

§ Mr. Golding
That is a question that we will leave for answer when we visit Herefordshire. I am not in a position to say whether Coates Gaymers will be making a profit on its cider. I should assume so.
The firm says that The decision to spend the money was taken after the company took a critical look at the state of the total cider market recently. It says that, although the total cider market is likely to have contracted by about 7 per cent. during the financial year, this should not be seen as a downward trend in the market in real terms. One must recall that during our previous financial year, the cider market, assisted by a long hot summer, grew by a massive 24 per cent. The industry's net gain, and that of the trade, over the past two years has therefore been a 15 per cent. growth rate or some 6 million gallons of cider by volume. Although there is evidence to suggest that the increase in Duty to 24.2p per gallon prior to Christmas 1976 played a significant rôle in market contraction, prospects for the cider industry remain very good. Even without the bonus of a good summer, Coates Gaymers estimates that the market will increase by 3 per cent. during the next 12 months and we plan to achieve a growth rate at least in line with this total market forecast. It is with this objective in mind that the company is implementing its heaviestever programme of pre-Christmas promotions. I am sure that the optimism of the West Country should be shared by Herefordshire, although I shall certainly consider the point that the hon. Gentleman has made that perhaps in some way the 259 breweries are propping up the West Country cider firms to make inroads into market for other products.
We believe that in Herefordshire the management and the workers are first class and that they will surely, given their past record of productivity and sales promotion, overcome the difficulties that they 260 now face. The Government are ever ready to listen to the problems that face management and worker throughout the United Kingdom and are always prepared to receive representations from the hon. Gentleman on behalf of his constituents.