HC Deb 30 January 1978 vol 943 cc175-205

10.15 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

I beg to move, That this House takes note of Commission Documents Nos. COM (72) 225, R/2113/73 and R/1966/77 on Excise Duty Harmonisation. These harmonisation proposals were first set out in the Commission's proposals to the Council in 1972 in the form of draft directives. There were several draft directives on that occasion, one of which was a framework directive from the Commission which had the intention of limiting excise duties to only a few of the numerous categories that were in operation at that time. The purpose of that directive was to limit the use of excise duties to hydrocarbon oils, tobacco and alcoholic drinks generally. At the same time, there were other directives for the harmonisation of the structure of the alcohol duties, beer and wine duties and alcoholic drinks duties generally. All these directives dealt with the structure and methods of administering the particular excise duty taxes.

The harmonisation of tobacco taxation was a separate matter. There was a directive agreed towards the second stage of the harmonisation and the debate that we had on these matters concluded that part of the harmonisation of tobacco duties.

We are now considering the other excise duties. Following the first proposals from the Commission, there was little further progress and harmonisation was left in abeyance for some time. Attention has now returned to excise duties and the Commission suggests that a fresh start should be made on some limited problems on alcohol and beer duties.

I should mention that excise duty harmonisation in general is a quite separate matter from the Commission's recent proposals for a common organisation of the market for alcohol. Hon. Members will recall the problems concerning the Scotch whisky industry, but that is separate from the problems that we are discussing. That problem concerns pricing and marketing and not the raising of revenue, which is the subject of the present proposals. These proposals concern the structure of the excise duties and there is no proposal for the harmonisation of rates of duty. That is obviously a long way off. We are talking about the structure itself and how it should be determined. Of course there has been and will be continual discussion and consultation in order to get the views of the trade and the current and long-term views of the industries—beer, wine, spirits and so on.

At this stage I think that it is suitable and appropriate to discuss the problems for the United Kingdom in proceeding along this path. The original draft framework directive, which was intended to limit the excise duties to a specific range of products, has now been satisfied. The purpose of the directive was to say that excise duty should not cover the wide variety of articles now subject to excise duties. For example, in some of the countries there are excise duties on tea. In other countries there are excise duties on coffee. In Germany and Italy they have excise duties on playing cards. We ourselves have our excise duties on matches and mechanical lighters.

It is clear that in the proposed form that was originally intended it was suggested that alcoholic drinks in general should be suitable for excise duties and that if it was wished to increase the duties on tobacco, hydrocarbon oils and other items, in some way, a suitable tax would be the value added tax. But action here is not being contemplated for the time being.

As I mentioned earlier, we are concerned with a structure and with getting it right for any subsequent move towards further harmonisation, which is a long way off. As for the structural changes, it seems likely that our trade interests will, on balance, see advantages here for this country.

The problem about all these matters is that when any Minister stands at the Dispatch Box he has two audiences to consider. If he says to the House of Commons that we are likely to do very well out of these harmonisation proposals, we can satisfy the House of Commons readily, but we weaken our negotiating position when I or some of my colleagues may be going to Brussels. On the other hand, if I were to say that we shall do badly out of it, the House of Commons would naturally be outraged, but that is quite a useful negotiating stance to take. So we have this kind of problem which always makes it more difficult.

Mr. Ian Mikardo (Bethnal Green and Bow)

Tell the truth.

Mr. Sheldon

My hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) has changed once or twice. I know that he is a very shrewd negotiator at all times. I do not think that he always takes the advice that he is now proferring to me. This is a particular problem. I will try to explain it and put the position as I see it.

The Scotch whisky industry is anxious to end discrimination. Harmonisation is a method of removing very many of its most important grievances. It sees considerable advantages in moving towards harmonisation. Bearing in mind the very large amount of Scotch whisky exports in this enormous industry—£500 million worth—it is of some advantage to us. As regards the brewing industry, the Brewers Society considers that the proposed system has a number of technical advantages and does not oppose its introduction.

I ought to make an important point about the proposed duty exemption on heavy fuel oil. It is a point that I shall weigh very carefully in any discussion and negotiation. I refer to the proposed exemption for heavy fuel oil when it is used as a source of energy by industry or when it is used in the generation of electricity. If the proposals were to be implemented the revenue loss would be about £150 million and, incidentally, it would reduce energy costs and conflict with what I think is the overriding need to conserve energy now.

There are a number of problems concerning the made wine industry. Under the directive most United Kingdom produced made wine is treated as a product chargeable at the full rate of duty. Because of this there will be special consideration given for this part of the trade.

In turning to table wines, I deal with the most difficult aspect of the whole of the harmonisation proposals. There are two major producing countries who have no duty on table wine. Italy has no excise duty on wine, and in Germany there is only an excise duty on sparkling wine. For those countries, bearing in mind their consumption, harmonisation produces particularly difficult problems. Therefore, it was proposed that these matters be left aside for the time being.

However, I have made representations on this matter, and in a telegram received today I learn that the Danish presidency is proposing the timetable for the discussions as follows: on beer, 13th and 14th February; on spirits, 2nd and 3rd March; and on wine, 16th and 17th March. I mention this to show that the advantages we see for us and the problems that some of the other Community countries see for themselves will be discussed at about the same time and not at a different period when some countries might have certain advantages at one stage of the discussions and others might have advantages at other stages.

Given the important issues that are before us, it is right that I should have the views of the House of Commons on the proposals as they have been so far presented. The Government are now entering discussions with our Community partners. I look forward to hearing the coments of the House and I shall be taking them into account in working out our strategy for the Brussels negotiations.

10.26 p.m.

Mr. Peter Rees (Dover and Deal)

Although the House will no doubt be gratified to know that the Financial Secretary is anxious to canvass its views, it should be said that even by the extraordinarily dilatory standards of this Government in European matters this has been a long-drawn-out affair. The right hon. Gentleman might have found it more useful had he chosen to embark upon this debate a long time ago. He has been candid and reminded the House that the original proposals emanated in 1972. I appreciate that he was not responsible for these matters at that time. I believe that the first date for implementation was 1st January 1974.

A considerable body of evidence was given to the Select Committee on European Secondary Legislation in January 1975, including evidence from the Paymaster-General. In two successive reports the Select Committee has suggested that the House of Commons should devote itself to these matters. I suppose that the reason for the Minister's reluctance to come here is based on his candid admission that he has to face in two directions. May I suggest that he has to face in three directions—he has to face the Opposition, his hon. Friends below the Gangway and the other negotiators on the Continent.

Well, I suppose that we are all Europeans now—

Mr. J. Enoch Powell (Down, South)

So are the Russians.

Mr. Rees

I know that the right hon. Member for Down, South (Mr. Powell) probably sees the broad sweep of history in the same light as the late General de Gaulle, that is, a Europe stretching from the Pyrenees to the Urals, but at the moment perhaps we should contract our gaze a little to the European Community. At any rate, shall I say that we are all Communautaire now since the Division last Thursday? Of course, hon. Members below the Gangway will find a certain sympathy and support from some of their right hon. Friends who either abstained or went into the Lobby with them on Thursday night.

I do not want to open these old wounds, but we on this side of the House are conscious that we are debating this measure, uncontroversial though it may seem, against a background of a certain history which may not be entirely relished on the Government side of the House. We are bound to consider these proposals to see whether they are merely matters of technical detail, or whether implicit in them are high questions of constitutional and fiscal principle.

Mr. Dennis Skinner (Bolsover)

They may not be the right papers.

Mr. Rees

The hon. Member does well to remind us because I seem to remember on an earlier occasion—

Mr. Skinner

It has happened before.

Mr. Rees

The hon. Member will no doubt make representations to his right hon. Friends who have control over these matters. I agree that on several occasions we have found ourselves disabled from mounting an effective debate because we did not know, and the Financial Secretary was unable to tell us, whether the right papers had been laid in the Library for us to consider. If the hon. Gentleman feels that we are not suitably equipped on this occasion, no doubt he will seek to catch your eye, Mr. Deputy Speaker, and put his right hon. Friend right on this matter.

Mr. Skinner

I will do it now. In view of what happened last week when we debated the matter for about an hour—until about midnight, I believe—and then found that we had the wrong documents—that has happened on several occasions since we entered the Common Market—may we have a cast iron guarantee from you, Mr. Deputy Speaker, that we have got the right documents tonight?

Mr. Deputy Speaker (Mr. Oscar Murton)

I assure the hon. Gentleman that, to the best of my knowledge—and I think that my knowledge is correct—the debate is perfectly in order.

Mr. Skinner

That is a change.

Mr. Rees

I am sure that we shall proceed reassured by what you have told us, Mr. Deputy Speaker. On that basis, the Financial Secretary will no doubt be encouraged by the support that you have given him, and we must take it that all the relevant documents are before us. Whether we would be any wiser if there were more documents before us I doubt, as there is a complete morass to be threaded through.

I am bound to say that the Financial Secretary, with all deference to the courteous way in which he deployed his argument, has not perhaps covered the matters that need further investigation tonight.

First, we need to be reassured whether we are debating questions merely of technical detail or of high constitutional and fiscal principle. The right hon. Gentleman has endeavoured to reassure us that all the major industries in this country will he more or less advantaged by the proposals. I am not entirely reassured, and I suspect that there are one or two points of detail that he will need to take up in reply.

Since in these debates we are apt to leap from the particular to the general and from the general back to the particular, I should be grateful if the right hon. Gentleman would reassure the House on the precise areas covered by these proposals.

The Financial Secretary told us that we have disposed of manufactured tobacco Indeed, I remember a debate of sparkling clarity, if inconsiderable length, on the wrappings of tobacco. I think that it was a proposal for a Statutory Instrument that we debated upstairs The right hon. Gentleman had to reassure us as to what exactly was meant by the covering which constituted a cigar as opposed to an ordinary cigarette. Are we to take it that these matters have now been harmonised and that we need no longer concern ourselves with that question? Is the tobacco industry completely reassured about the harmonisation of this structure of excise duties in this area?

The right hon. Gentleman told us that these proposals covered alcohol and beer and, I believe, mineral oils. But what about wine? Is wine to be covered by these proposals?

I understand that, though the right hon. Gentleman has not touched on the matter, mixed beverages are no longer a matter of concern in this debate. Why not? What is covered by "mixed beverages" in this context?

I am sure that the House and the country will be reassured to know that there is now no proposal emanating from the Community to impose excise duties on tea, coffee and playing cards. Does that mean that they are to be exempt for all time, or is this a purely temporary respite?

There is one particular question on which the Financial Secretary has not touched at all. I understand that an excise committee is to be set up, ostensibly to consider technical matters. The House is well aware that taxation is pre-eminently an area where detail is all-important, even crucial. Questions such as whether malt whisky should be classed as eau de vie may at first sight seem to be matters of detail, but they may he crucial to distillers and to consumers.

Are these all the matters that will be left to the tender scrutiny of the excise committee? If so, who will represent this country on the committee? Who will be answerable for its conclusions in the House? Who will draw its terms of reference, and who will decide whether a point has to be regarded as technical or one of principle?

It emerged from the evidence given to the Select Committee that the excise committee may be concerned with checking procedures. Since the Finance Act 1976, of unhappy memory, many hon. Members on both sides of the House are a little wary of investigatory powers. Will the Minister give us an assurance that there will be no extension of these powers directly or indirectly through the excise committee in respect of excise duties?

There is another point of principle on which the Minister has not completely reassured me. How will the health tax that his right hon. Friend proposes for tobacco square with this process of harmonisation? Could there be an extension of a health tax to beer or spirits? Has that matter been canvassed in Brussels? If so, with what result?

The right hon. Gentleman has said only a little about industries that are likely to be affected. He has endeavoured to reassure us that on this side of the Channel they will all be advantaged by the proposals that the excise committee will consider. However, will there be discrimination as between beer, wine and spirits.

It is probably fair to say that as a nation we are still largely—if after the debates on the Scotland Bill we can still regard ourselves as one nation—beer and spirit drinkers. If Greece and Spain were to join the Community, there might be a preponderance of wine drinkers within it. Will that affect our pattern of national consumption?

The right hon. Gentleman has said that at present there are certain measures that are discriminatory against whisky. I am bound to observe that the hon. Members who represent the Scottish National Party and who affect to represent the Scotch whisky industry, as they affect to represent Shetland oil, are singularly absent from the debate. However, that is a matter of choice for them. It may be that they have read the writing on the wall. As I have said, their absence is a matter of choice for them, and I pass on to consider matters of more substance.

As I understand it, there is at present discrimination against whisky on the continent of Europe. There is a surtaxe de compensation imposed by France to preserve the position of Pernod. I do not know whether there are hon. Members who prefer Pernod to whisky, but if there are I leave it to them to debate the respective merits of the two drinks. Our concern is that there should be no discrimination of that sort. In Italy I understand that there are compensatory taxes to preserve the position of Italian brandy. What is the future for Italian brandy and Pernod in this country if this measure of harmonisation goes through?

Mrs. Gwyneth Dunwoody (Crewe)

Very, very small.

Mr. Rees

If the hon. Lady catches your eye, Mr. Deputy Speaker, she can inform the House of her personal tastes in the context of these esoteric matters.

I understand that there are seven actions for infractions of Article 95 in respect of whisky. Are those actions likely to be dropped while we consider these measures of harmonisation? I hope not. I want to see the position of whisky put on the same level as that of all other spirits on the continent of Europe.

It may be embarrassing to recall, but I understand that there is a case against the United Kingdom concerning light white wine. The Financial Secretary was singularly coy on the issue. I hope that the right hon. Gentleman will tell us exactly the position that his Government take.

As a curiosity, I understand that the excise duties proposed on whisky are likely to be higher if whisky is mixed with water than if it is mixed with wine. I do not know whether there is any hon. Gentleman or hon. Lady on the Labour Benches who wants to mix his or her whisky with wine, but this demonstrates the pitfalls we must seek to avoid in this delicate field.

I gather that the whisky industry is most exercised about its right to send out free samples. Is the Financial Secretary battling sufficiently vigorously to preserve this right for the distillers of Scotland, and it may be even of Ulster? This obviously is a matter of great moment to the industry and so far we have had no assurance from the Financial Secretary.

Perhaps I might be forgiven at this point of the night for waxing mauldin' over beer. I wish to ask the right hon. Gentleman some technical questions. Are we to move to an end product tax? Will the tax be on unfermented wort? Will there be continuous or discontinuous bands of duty, and what effect will this have on the strength and quality of United Kingdom beer?

On the subject of mineral oils, what consultation have the Government had with the various oil companies? Are the measures for harmonisation of the duties on mineral oils another aspect of the Community's energy policy, or can we regard this as a purely fiscal matter?

It would be too dramatic for me to suggest tonight that we are waging a battle to preserve whisky against Pernod in the British pub, or beer against light white wine. But the Minister has left many questions unanswered.

If I have taken up the time of the House unduly, I hope that the House will forgive me and will realise that there are important budgetary and constitutional considerations and other important matters affecting not only industry but the pattern of consumption in this country. Therefore, I hope that before this debate concludes we shall hear a great deal more from the Financial Secretary on these recondite matters than we have had so far.

10.43 p.m.

Mr. Douglas Jay (Battersea, North)

The hon. and learned Member for Dover and Deal (Mr. Rees) asked a number of questions which suggested that he was no clearer about what my right hon. Friend the Financial Secretary is intending to do than are a number of other hon. Members in the House this evening. My right hon. Friend seemed to make a soothing rather than an illuminating speech, implying that whatever he did in Brussels, we could be sure that all would be well and no great harm would come to us. However, he did not tell us what he intended to do.

On matters of taxation we should be extremely sceptical and vigilant about all incursions of the EEC into British policy. Whatever else is indicated here, it certainly concerns taxation. I wish to ask my right hon. Friend a few guestions. I am sorry to add to the catalogue, but these matters require an answer.

My right hon. Friend said that in this context we were not concerned in any way with rates of taxation, and that none of the negotiations he intends to carry out will have any effect on rates of taxation. May we have an assurance that before we conclude this debate he will not commit himself in these discussions to any change in the rates of these excise duties as opposed to the structure?

Secondly, the Financial Secretary said that what was to be discussed was the structure of these duties. Could he explain a little more clearly what he means by the structure of the duties? Does the mixing of wine and whisky come under the heading of the structure of the duty. What is meant by this structure in respect of beer duty? Some hon. Members may understand this all clearly, but it would help the rest of us if the situation were clarified.

Thirdly, I think that the House as a whole is uncertain about what it is the Financial Secretary may agree to as a result of these discussions. May we have an assurance that when specific proposals have been provisionally agreed my right hon. Friend will come to the House and set out, in language that is usually contained in Budget resolutions in a Finance Bill, what it is he proposes in the name of this country? If my right hon. Friend can assure us that when he has finished his negotiations we shall be told what has been settled before it is put into force, that will be a great help.

Finally, what is the purpose of the whole of this exercise anyway? My right hon. Friend said at the beginning that certain ingenious suggestions made earlier had been, I think he said, "set aside by the authorities in Brussels". Is there any reason why we should not set aside all the suggestions in these papers before us tonight?

10.45 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I find myself in the unusual position of agreeing with every word that the Financial Secretary said. I find this to be a wholly admirable exercise to harmonise these structures of excise duty, and I hope that it will be implemented when the due time comes.

I start with one rather small matter, and that is that I imagine that the structural harmonisation of rates of duty on spirits will lead to the abolition of proof as a measure. I sincerely hope that it will, because proof is about the most stupid of all the measures ever included in the imperial system or, for that matter, in any system at all.

Proof is that concentration of alcohol in water which will light if set fire to with a match at room temperature. If we are to assess the alcoholic strength of sipirits by working out what proportion of that it is, it is no wonder that nobody has any idea of the strength of any spirit that is put before him.

I am delighted to see in the draft directive that we are to move to a system based on measurement of alcoholic content. It says that the excise duty shall be fixed per hecto litre of pure alcohol at a temperature of 15 degrees centigrade. That seems to be a major improvement. I know that people grieve the passing of the imperial system of measures. We hear a lot about the pint, the mile, the foot and the yard, but surely we should rejoice at the passing of the proof measure.

I steered through the House on rather a similar occasion the abolition of the minim, the scruple and the drachma, which were also part of the imperial system. The right hon. Member for Battersea, North (Mr. Jay) and the right hon. Member for Down, South (Mr. Powell) did not appear to object to the fact that an Englishman's traditions were being trampled upon by this derogation of the measures with which he was so familiar. I hope that neither of them will raise tonight the importance of maintaining proof. Indeed, I think that it would be a major improvement if we could do away with it altogether, and that, I think, the directive seeks to do.

My second point relates to my personal experiences as a traveller, particularly by air. I am fed up with walking along long corridors while carrying plastic bags containing 3 litres of spirits and 2 litres of wine, or whatever I am allowed to take.

Mr. Neil Marten (Banbury)

It is 3 litres of wine and 1½ litres of spirits.

Mr. Ridley

I accept my hon. Friend's correction. He has been to Brussels more often than I have.

Mr. Marten

I am going there next week.

Mr. Ridley

If we could do away with this it would be a great help to travellers, and it would improve air safety if the aeroplanes were not carrying more spirits than passengers, which it seems to me they usually are. We could put emergency rations on aeroplanes so that if they crashed on top of the Alps or the Peruvial mountains passengers would not have to eat one another, which they did on one occasion, because the aeroplane carried no food but plenty of duty-free whisky

Mr. Ronald Atkins (Preston, North)

Is the hon. Gentleman including the spirit in the passengers or merely that on the aircraft?

Mr. Ridley

I am saying that if passengers want a drink there should be some drink available for them. An enormous amount of whisky is carried, either in the possession of passengers or for sale to them, in every aeroplane. This is absurd. At least within Common Market countries we should be able to make it not worth people's while to carry bottles of liquor. I have always thought that as a start we could say that passengers could buy their duty-free drink at the airport of landing rather than the airport of takeoff. If we cannot do that, at least we can cut out the differences between European countries.

Mr. Powell

How would the attraction of duty-free purchases be removed by the harmonisation of duties? It is not the disharmony of the duties but the objection to duty itself which causes this indulgence.

Mr. Marten

No.

Mr. Ridley

This brings me to the point I want to make. Although we cannot do this in relation to countries outside the European Community, within the European Community we could have a harmonised structure of duties and harmonised rates of duties so that there was no advantage and no free allowance as between one European country and another. It would be very much easier if a Customs and Excise official were handing out three pound notes to everyone landing at each airport.

10.57 p.m.

Mr. Powell

Even if the duties were the same at both termini, it would still leave the attraction of duty-free liquor undiminished.

Mr. Ridley

No, because I am saying that there should be no duty-free liquor between the countries of the Common Market. As I read the draft directive, that indeed would be the case if it came into force, because the rates of duty would be the same in every country. [Hon. Members: "No.] Perhaps I am wrong. I stand to be corrected. If I am wrong, I think that the situation should be as I say that it should be. Will the Financial Secretary have the directive amended so that it brings about what I say should obtain?

Mr Mikardo

Does not the hon. Gentleman realise that if we did what he suggests and obtained duty-free liquor it would be very much more difficult to recruit Members for the European Assembly?

Mr. Ridley

I think that the hon. Gentleman, as a good Socialist, will admit that the proposed allowance for Members of the European Assembly exceeds by a considerable amount the likely benefit to be derived from duty-free liquor on each trip, even after allowing for the effects of united Kingdom taxation, if such there will be.

Next, I note that the duty on sparkling wine is to be the same as that on still wine. This, again, I welcome. I have never understood how other countries could have a tax on carbon dioxide, which is what the difference really is between a still wine and a sparkling wine. I know that sparkling wine is a particular bogy of hon. Members opposite. They think that it smacks of privilege, of extravagance, and so on. I believe that we must override the prejudices of the Labour Party and adopt the system that wines of all sorts should be taxed at the same rate. Again, I agree with the directive on this point.

I turn, finally, from the pleasant topic of alcohol to the less pleasant topic of fuel oil. It seems wrong that fuel oil should be taxed at all. It is a myth in the minds of the Government that energy policy consists of taxing certain energy at a higher rate than might otherwise be the case. I have always thought it wrong that their policy for energy should consist of soaking the motorist for his petrol, as though in some way this would affect the amount which he consumed. We know that petrol is very price-inelastic, and he motors whether they put up the tax or not.

I do not think it right to discriminate against fuel oil in this way when we do not discriminate against coal, against gas or against other fuels. Now that we have found so much oil, and the Government are so proud of it, it seems wrong to continue to place a tax on fuel oil when we do not put a similar tax on coal, and, indeed, we pay subsidies on coal.

I, therefore, look forward to implementation of the directive, but I wish to talk for a moment about the harmonisation of rates, because it is of small value to harmonise the structure if we are not to harmonise the rates. Harmonisation of rates would mean that there was a much easier flow of goods between the countries of the Common Market, and it would be one of the small advantages which, I believe, to be inherent in membership of the Common Market.

I have always been a supporter of membership because I considered that there would be far bigger things than the matter before us now which would be of great benefit to us. This is just a small matter, but let it be noted that in the directive there are some benefits not only of the kind of which we can say that we shall get more out than we put in. I do not look at everything on that basis. I know that my hon. Friend the Member for Banbury (Mr. Marten) does—

Mr. Martin

No.

Mr. Ridley

I can tell his attitude from the way my hon. Friend is shaking his head. But I do not agree with him. I regard this as a sort of clearing up of a rather messy and troubled area of taxation which will lead to greater equality for both producers and consumers and to an easier flow of trade in that most important of products, alcoholic beverages.

10.51 p.m.

Mrs. Gwyneth Dunwoody (Crewe)

I shall not detain the House for long, but I was rather concerned when my right hon. Friend the Financial Secretary said that this should be taken as just a structural matter, almost in a vacuum. It is my experience of any legislation that when someone says "You can accept this because it is a quite harmless measure and it will not be used to do what you most fear", inevitably, within a short time, we are told that we agreed to the original measure, so why should we disagree to something else later?

I was worried when my right hon. Friend said that this was not directly connected with any common organisation of the market in alcohol and the harmonisation of rates. I spend a good deal of time listening to people who tell us that if Britain would lower her rates of duty or tax on alcohol, whether direct or indirect, that would greatly facilitate the solution of the problems of the southern wine producers.

I do not regard structural measures as capable of being separated from the subject matter. One of the hazards which we face tonight is that this directive will inevitably lead on, as the harmonisation directive on tobacco did, to measures which are not examined in depth in the House before they are accepted and which inevitably produce considerable problems.

I hope that when my right hon. Friend speaks again, if he has leave to do so, he will tell us, first, that there is no real need for a change in our existing structure, which is perfectly adequate for its function, and second, that should any changes come about they will not lead to central direction of taxation policy so that the House of Commons will no longer be able to bring about changes which we regard as desirable. There are social implications in all taxation, and such matters must not be decided elsewhere than in a democratically elected House of Commons.

11.0 p.m.

Mr. Roger Sims (Chislehurst)

Like the hon. Lady the Member for Crewe (Mrs. Dunwoody), I noted with interest the comments of the Financial Secretary implying that no immediate harmonisation of the rates of duty is likely to materialise. I hope that he will be more specific about it.

I was also rather surprised that the right hon. Gentleman implied that this had nothing to do with the recent brouhaha about the price of whisky exported to the Continent. I suggest that the two matters are closely related. Having said that, I am not trying to take over the task of the Scottish nationalist Bench. Nor do I have an illicit whisky still in the London suburbs.

Mrs. Dunwoody

Shame.

Mr. Sims

I am not going to own up to it, anyway. My interest in this topic is that, for many years I have been involved in a company responsible for marketing whisky in various countries abroad.

We are discussing a natural corollary to the problem that has arisen regarding a differential price structure in this country and for the export of whisky. At the moment, whisky is very unfairly placed in export markets, particularly on the Continent. My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) referred to some of the discrepancies.

For example, in France the excise duty on Scotch is nearly double that on rum, and whereas the advertising of Scotch is prohibited, the advertising of rum is permitted. So Scotch is clearly discriminated against. In Italy, the stamp duty on Scotch is six times higher than on Italian brandy and 17 times higher than on grappa. There are laws in Belgium preventing the sale of spirits in public bars, and in Denmark the tax on Scotch is almost double that on aquavit.

Almost all the talk of the last few weeks has suggested that Scotch should be so priced that there is fair competition in the market. While these rates of duty apply, they will do anything but ensure that. It was put neatly by The Times shortly before Christmas, when it commented that on the Continent, everywhere except Denmark, the discrimination results in whisky still being cheaper in most shops than in Britain. The distortion in trade resulting is of a vastly greater order than what would result from arrangements limiting exports of the major British manufacturers of spirits to the Continental countries. So these two matters are allied. If we could have some great harmonisation of rates of duty throughout the EEC, whisky would at any rate have a far better crack of the whip.

The other aspect on which I hope the right hon. Gentleman will be more forthcoming is the relationship between duties on spirits and duties on wine. Until his comments, we were given to understand that wine was not to be involved at this stage. He spoke of possible discussions, and no more. It seems logical that, if there is to be some sort of harmonisation of the structure at this stage, it should be on all forms of alcohol, preferably on some sort of basis that the tax on alhoholic beverages should be on alcohol content rather than on the type of beverage.

Currently, the tax on spirits is far higher than on any other form of beverage. The tax on spirits in the United Kingdom is over one and a half times as much as on imported wine and twice as much as the duty on sherry, and on spirits one pays two and a half times as much as on the equivalent alcohol content of beer. There is, therefore, a strong case for greater harmonisation activity. Whatever happens with regard to structure, this directive will be a step to a more realistic and logical harmonisation of duties on all forms of alcoholic beverage throughout the Community.

11.5 p.m.

Mr. Frank Hooley (Sheffield, Heeley)

I suspect that these proposals go rather further than the neurotic obsession of the Common Market with harmonisation, which excited the scorn and contempt of Professor Dahrendorf some time ago.

I should have thought that the essence of an excise is that it is a domestic form of taxation, as opposed to a tariff which clearly has international applications. We accept as a Common Market theory that a common external tariff is an essential part of the system, but an excise is a different matter. It is a domestic tax and one which should remain firmly under the control of the House, for a great many very powerful reasons.

My hon. Friend the Member for Crewe (Mrs. Dunwoody) spoke of the change in the structure as opposed to the rates of the tax. I echo the point put by my right hon. Friend the Member for Battersea, North (Mr. Jay). I hope the Minister will be kind enough to say a bit more about what he means by structure, because, candidly, I do not understand at this moment what are the implications of it. I do not believe that we can divorce the structure of a tax, of whatever sort it is, from the rate. Incidentally, in the course of his speech he said that changes in the structure of duty on heavy duty oil would have implications for the revenue. Therefore in that case there clearly must be some impact on the rate, because we cannot affect the revenue seriously unless we change the rate as well as the so-called structure of the duty.

There is another matter which we have to consider here. It is obvious that, for example, the wine industries of France and Italy play a very important part, quite reasonably, in the economies of those countries. The Governments of those countries, quite reasonably, in establishing any structure of excise on wine, must pay attention to the place of the wine industries in the Italian and the French economies and, indeed, in the whole rural structure of France and Italy.

That does not apply in this country at all. There is virtually no wine-growing industry in Britain. Certainly it has no economic importance of the consequence that that industry has in Italy and France. It would be quite unreasonable for the German, French and Italian people to accept a form or structure of excise on wine which we might regard as appropriate in this country but which would be wholly inappropriate to the wine industries of their countries. Per contra, the importance of whisky to the Scottish economy means that we might want to take a rather different attitude towards excise on spirits from that which the French, the Italians or the Germans might want to take.

Some mention has been made of excise on tea and coffee. I hope that this is not seriously in contemplation in this debate. This is one of the hazards of the harmonisation obsession. We start off with something which the Front Bench always say is quite innocent. They tell us that it does not matter and will not affect anyone very much, and that we can do it quite happily. Then, lo and behold, within a month, six months or twelve months, we find that it has progressed and that it is not at all innocent and is causing damage or difficulties to our own country.

Alcohol is another aspect which has already been touched on briefly. Everyone will accept that the consumption of alcohol in this country, as well as elsewhere, raises formidable social problems. These are becoming more and more recognised and more and more difficult to cope with. They were the subject of an excellent report by a Select Committee of which I was a member at the time. They have also been the subject of a recent Government White Paper on preventive medicine.

It is abundantly clear that the House must retain control over rates of excise on alcohol and also, I suspect, on structure—whatever structure means—if we are to have some sensible social policy in the future on the social problem of the consumption of alcohol, where it should be consumed, the amounts, and so on. We cannot divorce the question of price from the rate of consumption, and also the important revenue consequences of raising or lowering price.

I therefore approach these proposals with considerable scepticism. I do not regard them as a light matter at all. They impinge on the tax raising powers of this House and, incidentally, on the possible balance between indirect and direct taxation which my right hon. Friend the Chancellor might wish to consider on some future date.

We do not want a position in which a Labour Chancellor of the Exchequer comes to the Dispatch Box and says: "I would like to alter the balance of income tax as against indirect taxation but, unfortunately, the structure of the tax on alcohol and tobacco, and heaven know's what else, has been determined in Brussels. Therefore, I have no freedom of movement on this particular matter".

I am sure that the Minister will say we are wandering into areas that were never intended by the directives. But I suspect that sooner or later we shall find ourselves tangled in these problems.

Mr. Nigel Spearing (Newham, South)

Is it not possible that that situation could arise even before that stage? If the wine lakes continue to grow and the consumption is held back by relatively high excise duties, will there not inevitably be some pressure from our partners in the EEC who wish to help with this problem, just as they are putting a co-responsibility levy on our farmers with regard to milk to help overcome the surplus which our farmers did not create?

Mr. Hooley

I am sure that my hon. Friend is right. That was one of the points I had in mind when I talked about the social impact of what are called "structural changes" in these excise duties.

Mr. Marten

I merely wanted to point out that what the hon. Gentleman said about a future Labour Chancellor being constricted could also apply to a future Tory Chancellor. My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) may well be in that team. If he wants freedom of action, I believe that he should vote against this motion tonight just to protect his own position.

Mr. Hooley

The hon. Gentleman will forgive me if I do not express any concern about a Conservative Chancellor, but he has made a fair point.

I am quite sure that if we go forward with the harmonisation of these excise duties it is absolutely certain that in one, two or three years we shall be involved in the same ludicrous nonsense over green excise duties as we now face with green currencies, including green pounds.

I seriously suggest that the Minister should say to his colleagues in the council of Ministers and in the Commission "Drop this nonsense before we get into even greated idiocy than the CAP".

11. 12 p.m

Mr. Graham Page (Crosby)

Like the hon. Member for Sheffield, Heeley (Mr. Hooley) I cannot see how one divorces structure from rates. Indeed, that is confirmed in one of the documents before us—the rather fat document produced in 1972—which has not wholly been overtaken, I understand.

The proposal on page 13 starts off by saying: It is evident from the above that the harmonization of excise duties is essential if one is to achieve free movement of goods between Member States, and this without any distortion of competition … I go along with that. It is what one expects from the European Community and I have no objection to the free movement of goods. I am not quite sure what is meant by without any distortion of competition". The document then goes on: it is also evident that the implementation of this harmonization means that one must stipulate the excise duties which must be levied in all the Member States on a harmonized basis, both with regard to structure and rates. Again, I am not sure whether I go along with that. It is rather what some of us expected from the Common Market. What I am eager to know are the boundaries of the debate on which we are embarking at present. I am perhaps a little fussy and pernickety about this. But I like to debate a specific subject and not be told afterwards that I have given certain consents and approvals to something that I was not debating at the time.

That is one point. I want to come to an entirely different subject, if indeed it is a different subject. That is the phrase which the Minister used about "methods of administration".

The administration of excise in this country is performed by the Commissioners of Customs and Excise. It is they who have to come to decisions, executive and quasi-judicial. There are authorisations, licences, rights of entry, and so on, all connected with the implementation of excise. Is this excise committee to take over the job of our Commissioners? Does that come under methods of administration"? Is the excise committee advisory only, or is it executive? Will it exercise the quasi-judicial decisions which we have come to trust from the Commissioners in administering this kind of tax?

It should be made clear whether our Ministers, in negotiating and talking about these directives or regulations, will commit us to some new administration of excise as well as eventually, it seems, to new rates. These will affect the individual in this country perhaps far more than the change of rates. That is a matter for the Government to decide. When the individual is managed, as he is in this way in dealing with excise by the Commissioners, he has a certain trust in them. But if there is to be a change, let us tell the public frankly who is to decide these matters in future.

11.16 p.m.

Mrs. Audrey Wise (Coventry, South-West)

My hon. Friend the Member for Crewe (Mrs. Dunwoody) was right to say that we cannot discuss these matters in a vacuum, and this one has not arisen in a vacuum. We are told clearly in one of the documents that the various excise proposals stem from the Council resolution of 22nd March 1971 for the gradual achievement of economic and monetary union.

That is all very well if one is seeking economic and monetary union, but this is for from a matter which can be regarded as a vacuum. It is very important and I suggest that it cannot be adequately dealt with in this kind of debate.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) gave the game away a little. He has informed us previously that he does not mind being ruled from Brussels. He prefers it to Her Majesty's present Government. So it is not surprising to hear his candid remarks about the need to harmonise rates. But we are not dependent on the indiscretion of the hon. Member for Cirencester and Tewkesbury in this regard. The document to which I have just referred also says: However, as these initial proposals related only to the structures of the excises, the liberty of Member States to fix the levels of excise rates was unaffected. That is nice to know. For the moment, we still have liberty to determine our own excise rates. However, the use of the word "initial" makes it clear that this proposal is embarking on a particular road.

My hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) has explained how this may affect the balance between direct and indirect taxation. But the matter is even more far reaching. Any harmonisation of rates would affect the balance within indirect taxation itself and, as my right hon. Friend the Financial Secretary must know, the effect of the forms of indirect taxation which we choose is quite different from those in the rest of the EEC with its heavier reliance on VAT.

The possible effect of an interference in our freedom to fix rates can be seen. Let us suppose that we were harmonising downwards and that our rates were being harmonised with those of the other EEC countries. In a study made by the CBI in 1972, it was shown that the reduction in our revenue would be no less than £1,272.8 million at 1972 prices. Where would we recoup this loss of revenue? Would we see this as part of the harmonisation of VAT—of all indirect taxation?

We are told that the objective is the rationalisation of indirect taxation. But who decides what is rational? I think it is infinitely more rational to impose indirect taxation on goods such as alcohol and tobacco than to extend VAT to food and medicines. How do I know that my view will match the view of the EEC, which so far has chosen to levy VAT on food and medicines and to levy much lower rates on tobacco and alcohol? If we were rationalising by adjusting our VAT to recoup this kind of revenue we would need to increase our rates by nine or 10 points.

The prospect before us is really quite appalling. We are opening a door to something that would gravely distort our social policies as well as our ability to control taxation. I am more concerned about distorting our social policies than about any so-called distortion of competition. The latter is a matter that I can regard with equanimity.

Even leaving aside the question of rates and sticking to the question of structures, we are told in the 1972 document, which has not been fully superseded, that It should be noted, however, that the fact that only five excise duties are to be maintained and harmonised at the present time should not constitute any obstacle to the later establishment, at Community level, of other excise duties, should these be felt necessary. We may find that we have passed over to the Community the right to bring in new excise duties. I am favourably disposed to many of the present excise duties, but I may not be favourably disposed towards any new ones introduced at Community level.

Whether one looks at the levels or at the rates, all one can say to the Financial Secretary is that all this must be resisted.

11.23 p.m.

Mr. Ron Thomas (Bristol, North-West)

The Financial Secretary seemingly did not realise just how many of us on the Government side of the House are completely opposed to the harmonisation of taxation of any kind within the EEC. Knowing how we feel on this principle—and I say this in a kindly way—he tried to get us to look at individual pieces of the structure that may apply.

The hon. and learned Member for Dover and Deal (Mr. Rees) began by asking whether any high principles of fiscal policy were involved here. Any move towards harmonisation involves high principles of fiscal policy. He then went on to talk about wine, beer and different items.

I want to stick to the main principle. The right hon. Member for Crosby (Mr. Page) and my hon. Friend the Member for Coventry, South-West (Mrs. Wise) talked about the 1972 document. There is also a 1973 document, which puts even more clearly what the 1972 document suggests. The 1973 document reads: taxes on consumer goods, and therefore excise duties, be harmonized between the member countries in such a way that conditions of competition are not distorted". The whole philosophy there is that this House would lose control over expenditure taxation of all kinds. The document goes on to emphasise, perhaps even more than the 1972 document, that: Liberalization of taxes within the Community is only possible if taxes on imports and remission of taxes on exports and frontier controls are abolished". But the sting is in the tail. It concludes that such action would require the prior harmonization of excise duty rates which would in turn require the prior harmonization of the structures of such taxes. That means that before we can harmonise rates we must harmonise the structures. It makes clear that if we harmonise structures, that is the final step to the harmonisation of rates. Otherwise, I can see no purpose in it.

When the Financial Secretary talked about fuel he spoke of revenue implications and fuel policy implications arising out of harmonisation. We may become self-sufficient in oil, but our control could be taken away from us to a considerable extent if fuel policy implications are part of this harmonisation of structures.

The Financial Secretary's own document says that the harmonisation proposals raise questions of policy in regard to the administration of previous exemptions and reliefs in the interests of harmonisation.

Unless we get answers to some of the questions that we have raised, the only thing we can do is to make clear again that it is the policy of our party and the majority of Labour Members in the Chamber—if not of the Parliamentary Labour Party—not to give up our control over taxation to the EEC.

Mr. Spearing

Is that not also the policy of the Government? Did not the Prime Minister write a famous letter saving that he believed in the defence of the powers of Governments and Parlia- ments to determine their own national economic policies?

Mr. Thomas

I want to believe that it is the Government's policy.

Mr. Mikardo

Let us see the proof of the pudding.

Mr. Thomas

When we get such documents referring to the harmonisation of structures as a prelude to the harmonisation of rates, we must realise that we could, by default, lose control of important areas of taxation and that could have implications for economic, industrial and social policies that are of major importance to a party such as ours.

The Financial Secretary talked about being a negotiator. On taxation, the only body with which he should negotiate is this House—no other body.

11.30 p.m.

Mr. Robert Sheldon

A great deal of the comment on this matter, particularly from the Government side of the House, has come from those who were worried that we might be losing control over taxation. I respect the fears expressed in these matters, but I assure my hon. Friends that those fears far from represent the Government's intention or belief. We are going nowhere near that stage in these discussions. Certainly I do not accept that as being any part of the negotiations that are to take place. That would pitch the talks at a much higher level than anything we have conceivably thought about. That is no part of our present proposals.

We are here discussing arriving at a form of structure within which we can not only fix our own rates but even alter parts of the structure. Let me give an example. We dealt with this matter when we discussed tobacco tax harmonisation. In those debates we were talking about a second stage, not the first stage we are discussing here, of harmonisation. That harmonisation was not of rates but of structure, and within that structure there were opportunities to vary the incidence of the tax, not just the rates.

At that stage matters were raised concerning how much of the tax should be a specific duty on the end product, the cigarette itself. The arrangements that we came to allow us, as they do all Community countries, to charge as a specific duty element of that tax an element within the range of 5 per cent. and 55 per cent. In addition, we can charge whatever total rate we like. We have therefore a twofold flexibility. I mention that to show how far we are from fixing rates and how far we are from [...] control over taxation, as feared by some of my hon. Friends.

Mr. Jay

My right hon. Friend said that as a result of the previous negotiations we were allowed to do certain things. The implication is that we are no longer allowed to do things that we otherwise would be able to do.

Mr. Sheldon

We would not be allowed to increase the specific duties more than 55 per cent., but no one has ever shown any desire to go beyond that figure. We were trading away something that no one ever conceived as being desirable.

I understand those who say that within the whole range of possibilities open to us we will not have the freedom to do as we wish. Those who argue in that way can find no virtue in any of the various kinds of harmonisation that come before the House. But we have to consider what we can gain. For the industries that I mentioned, in view of the exports they have to consider, there are the advantages that I set out in my opening remarks.

Mr. Spearing

My right hon. Friend mentioned the unlikely necessity of going beyond 55 per cent. If a limit is set in principle, would it not be possible for that limit to be reduced in the future, perhaps to 25 per cent. or even 10 per cent.?

Mr. Sheldon

Of course that is possible, but whoever presented that proposal to the House would have to explain his reasons for settling on a limit below which the industry would wish to go, below which employment opportunities would tend to diminish—

Mr. Douglas Hoyle (Nelson and Colne)

My right hon. Friend fails to realise that the principle has been given away, and it is for that that we are fighting.

Mr. Sheldon

I realise that some of my hon. Frends oppose the principle of harmonisation in whatever form it may be, but that is a separate matter from the reasons that I have adduced why these harmonisation proposals do not have the disadvantages that some of my hon. Friends claim.

I have been asked by my hon. Friend the Member for Sheffield, Healey (Mr. Hooley) and by the hon. and learned Member for Dover and Deal (Mr. Rees) and other to give details about the proposed structure of alcohol taxation. The present structure consists of a number of elements. The spirits duty is based on a proof gallon, which is to change to a system based on the percentage of alcohol contained in spirits, using, incidentally, the system we have devised. Therefore, some advantage to us will result in that respect. The Community has decided on 20 degrees Centrigrade as the temperature at which the alcohol content is to be assessed. Spirits taxation is to be based on their alcoholic content. Nobody can disagree with that.

On table wines, at present two rates of duty are applicable—one for wines up to 10 per cent. and one for wines up to 15 per cent. There are three rates of duty for fortified wines—15 per cent. to 18 per cent., 18 per cent. to 22 per cent., and anything more than 22 per cent. There are also the beer duties.

My hon. Friend the Member for Crewe (Mrs. Dunwoody) pointed out some of the problems that she envisaged if we were to make these changes. The changes are to be in spirits, on the basis of the alcohol content; naturally fermented drink, such as beer and wine, is to be taxed at a different unspecified rate—it is up to us to choose as we like—and there is to be exemption for such commodities as toiletries and for industrial and medicinal purposes.

There are pluses as well as minuses in the changes. I have not heard anybody say anything about these, but there are pluses, and the big plus is for the Scotch whisky industry. The infraction proceedings for the industry are continuing, but anybody who knows anything about these matters realises that the process is very slow and the Community, with whose view I have much sympathy, sees this as being perhaps the quickest and final way of resolving the problem to its advantage and to our advantage nationally.

Mr. Mikardo

We could have resolved it without these proposals.

Mr. Sheldon

We have been trying to resolve the problem for years, with only limited success. The representatives of the Scotch whisky industry—this has emerged from discussions that I have had with them—see this as an opportunity to deal with the situation.

The hon. and learned Member for Dover and Deal asked about the excise committee. I dealt with the framework directive and said that it was no longer to be put forward; in fact, it was being set aside. The excise committee was an essential part of the framework directive, and its purpose was to be advisory to the Council of Ministers. But it is not to exist now, because the framework directive is to be put aside. Under this directive it was thought that we could remove some of commodities, such as tea and coffee, as well as our own matches and mechnical lighters, from the list of excise duties and have excise duties on a more limited range of goods. However, this part of the operation of harmonisation is not to continue.

Mr. Marten

The Minister used the phrase "set aside". The usual terminology is "withdraw". Do the two phrases mean the same thing?

Mr. Sheldon

The words are a translation. I am simply repeating them. "Set aside for the time being" are the words—[HON. MEMBERS: "For the time being?"] No one can give a commitment for all time. I certainly would not wish to do that.

What does a framework directive mean? It means that certain items should be chargeable under VAT and others under excise duty. Can any hon. Member give one good reason today why mechanical cigarette lighters and matches should be subject to excise duty rather than VAT? It we were to change the excise duty on mechanical lighters and matches and to call for value added tax instead, I doubt whether many constituents would be all that upset.

Mr. Mikardo

We can do that ourselves.

Mr. Sheldon

Of course we can. If everything that we do is a minus, what my hon. Friend said has some validity. If we can trade away that which is not important for something that we may think may be of value, there is something to be said for coming to an arrangement whereby we can obtain something of value and possibly forgo something that is not of value. That was the position as I saw it.

My hon. Friend the Member for Heeley referred to the social problems of alcohol and its consumption. I agree with him about that. Our duties on all forms of alcoholic drinks have not been based purely on their alcohol content. The duty on spirits has always been greater than the duties on beer and wine based on their alcohol content. For the good reason that spirits are more likely to lead to drunkenness, the tax on spirits, which is partly social in character, is higher than the duties on beer and wine.

Let us consider how the situation has changed over the years. Real duties on spirits have been coming down. Since 1968–69, when spirits were being taxed at their highest level, there has been a decline in spirits duty. The basis is not purely alcohol content. That is why it is right to have a separate category for spirits and another for more naturally fermented drinks, such as beer, wine, cider, and so on. These proposals retain that distinction, which is essential in view of the social problems involved.

Reference was made to infraction proceedings. The Commission has been in correspondence with those countries which are in breach of the commitment concerning whisky and the preferential rates of duty on those commodities which are said to compete with whisky. The discussions are continuing. I am trying to hurry them along, but these matters, by their very nature, are slow and not easy to speed up.

The hon. and learned Member for Dover and Deal asked about the investigation powers and whether there were to be any increases in them. There will be no increase in investigation powers. There are no proposals for any increase in investigation powers as a result of or apart from these proposals.

The oil industry, oil and taxation of oil are purely fiscal matters and have nothing to do with the problems of energy. When I mentioned the way in which oil was to be partly exempted, I said that it was to be so treated as a source of energy, as a source of electricity. However, we must remember that these are only propsals. There is to be discussion and debate, negotiations and further consultations have yet to take place. In this debate we are concerned with the initial reactions and views, that will have to be taken into account when we proceed further. We are only at the first stage.

There is a great deal for which to play. If we are successful in obtaining the sort of adjustments that I wish to see, we can gain real advantages for our industries and those who work in them.

Question accordingly agreed to.

Resolved, That this House takes note of Commission Documents Nos. COM (72) 225, R/2113/73, and R/1966/77 on Excise Duty Harmonisation.