HC Deb 11 July 1984 vol 63 cc1203-7

`Any power to make regulations in respect of value-added tax under the Value Added Tax Act 1983 shall not, after the passing of this Act, be construed as enabling regulations to be made which would cancel the system whereby spirits, beer, wine, made-wine and cider may be removed from warehouses without payment of tax by a registered taxable person in the course of a business carried on by him and, accordingly, regulation 34 of the Value Added Tax (General) Regulations 1980 (which provides for that system) shall be incorporated in this section.'.—[Mr. Bowen Wells.]

Brought up, and read the First time.

Mr. Bowen Wells (Hertford and Stortford)

I beg to move, That the clause be read a Second time.

I shall be as brief as I can in order not to detain the House. The purpose of the new clause is to exempt wine, spirits, beer, made-wine and cider from any attempt by the Government, as proposed in the Budget, to abolish the postponed accounting system. The immediate question that one must ask is: why should the industry be given special treatment? Before I make the case, I must declare a special interest as I am employed as parliamentary consultant to International Distillers and Vintners.

The reason why this should be treated as a special case is that the system of postponed accounting enabled both imported and domestically produced wine, spirits, made-wine or cider to be treated in exactly the same way for VAT purposes. That meant that there was an 11-week period after importation or after the wine had been taken out of bond in the domestic warehouse before VAT was paid. Under the new proposed regulations, four weeks only will be allowed for that payment. It will put up the working capital in the industry by about £40 million, and, on a per annum basis, will cost the industry between £3.6 million and £4 million. I believe that that is an unintended impost on the industry as a result of the abolition of postponed accounting. The Chancellor, in his explanation in the Budget, said that he was withdrawing postponed accounting on imports because he was not prepared to put British industry at a competitive disadvantage in the home market any longer." —[Official Report, 13 March 1984; Vol. 56, c. 300.] By putting additional imposts on the industry, my right hon. Friend is very much putting domestically produced whisky and spirits of all kinds, such as gin and vodka, and wine produced in this country at a serious disadvantage to competitors in the European Economic Community. I do not believe that he intended to do that.

The industry as a whole has suffered imposts throughout the Budget, particularly in stock relief, where there is a uniquely high ratio of stock to sales because of the necessity to mature spirits. The abolition of stock relief will hit the industry very hard. It is estimated that that will cost the industry another £40 million per annum. The duty on spirits has been increased roughly in line with inflation. The industry has also suffered a loss through the reduction of tolerances in the calculation of duties. That will cost an additional £7 million. Therefore, the Chancellor has hit the industry extremely hard in the Budget—I believe quite unintentionally. The purpose of the new clause is to exempt it from the result of abolishing the postponed accounting system.

I know that my right hon. and hon. Friends on the Front Bench will be loth to make any exemption because on one exemption will follow others. That is their fear. However, there are other ways in which they could restore the competitive position of the industry. One is by extending the deferred duty arrangements to which they agreed 18 months ago. They agreed on a period of four weeks at that time. They could extend that period and thus return some of the unintended benefit that they would get from abolishing postponed accounting. I beg the Government seriously to consider exempting the industry from abolition of postponed accounting so that it may retain its competitive position vis-a-vis spirits and wines produced on the continent.

Mr. John Townend (Bridlington)

First, I declare an interest in that I have been 25 years in the wine and spirit industry.

Since my right hon. Friend the Chancellor announced in the Budget the bringing forward of VAT payments on imports, it has been very difficult for the industry to ascertain exactly what is intended. It accepted that the period of credit would be reduced, but it was shocked to discover that this would apply not just to imports but to home-produced spirits. The second shock was that in respect of VAT, for which the credit period would be reduced to four weeks, the Customs and Excise now wants financial guarantees. This is the first time that any VAT registered trader has been asked to provide such guarantees. It will be expensive for the industry, because the guarantees will have to be provided by insurance companies and banks which will charge a good deal for them. Even more serious, however, if a bank provides a VAT guarantee of, say £50,000, the overdraft facilities available to the trader will be reduced by double that amount, which will impose a great financial burden especially on small businesses.

Therefore, I support the new clause. I ask the Government to reconsider the proposals, which are not due to be implemented until October. Earlier today my hon. Friend the Financial Secretary said that it was the Government's policy to remove inconsistencies, but there is a clear inconsistency here. Wholesalers taking goods out of bond are to be asked for a VAT guarantee, but retailers selling them are not asked for a guarantee. Is this the thin end of the wedge? Will next year's Budget require financial guarantees from all VAT registered traders? I ask my hon. Friend the Minister to consider this very carefully.

Mr. Michael Hirst (Strathkelvin and Bearsden)

I welcome the opportunity to support the new clause. I have no interest to declare other than that, as a Scottish Member, whisky is important to my kinsfolk and also to me as an occasional tippler.

The House would not do justice to the whisky industry if it overlooked its importance as an employer, exporter and generator of about £840 million per annum in excise duty and VAT for my right hon. Friend the Chancellor's coffers. The industry's difficulties are well known. Many distilleries are operating at very low capacities or have been mothballed because of the problems that have arisen in recent times.

The industry has suffered in three specific ways. One of the tolerances to which my hon. Friend the Member for Hertford and Stortford (Mr. Wells) referred has caused considerable difficulties for operating profit levels in the whisky industry, and the Budget has brought two further difficulties. One is the withdrawal of stock relief, on which I made a short contribution in Committee on clause 47 stand part. At that time my hon. Friend the Financial Secretary expressed sympathy for the problem but said that he was unwilling to make a specific exemption. I remind the House again that no other industry has a stock to sales ratio of nine to one and stands to be so hard hit by the withdrawal of stock relief, due to the long production cycle of maturing whisky stocks. The industry has also been badly hit by the withdrawal of the postponed accounting system.

3.45 am

I recognise that all importers will be hit by the withdrawal of PAS, and that it is one of the fundamental planks of the Budget strategy. My hon. Friends and I realise that my hon . Friend the Minister of State will say that he is reluctant to favour the whisky industry or the wine and spirit industry as opposed to other importers. I appreciate that he would find it difficult to accede to the request that is central to the new clause. Nevertheless, I hope that he will bear in mind that, because of what has happened in the past few months, the Scotch whisky industry in particular has suffered from a number of problems which have affected its profitability and with it both investment in maturing whisky stocks and the capital investment that the industry needs if it is to stay competitive.

I do not believe that the Government intended to cause some of the difficulties that have arisen, and I hope that my hon. Friend will be able to show that the Government are concerned about the future of the industry. If the new clause is unwelcome to him, I hope that it may be possible for the Government to take up the suggestion made by my hon. Friend the Member for Hertford and Stortford about duty deferment. This industry has been peculiarly hard hit. I hope that my hon. Friend can find some way of relieving the burdens upon it.

Mr. Bell

It is interesting to hear how many special interests are declared on new clause 18, and how many apologies are made on the Chancellor's behalf, attempting to give the impression that when he introduced the provision in question he did not know what he was doing and that no one foresaw that the Revenue would receive an extra £3 million or £4 million as a result. That would make the Chancellor smile, if he were here.

We remember very clearly the waving of Order Papers at the end of the Chancellor's Budget statement. I am sure that those hon. Gentlemen who have spoken in favour of the new clause waved their Order Papers with enthusiasm at that time. Those of my hon. Friends who spoke in the debate following the Budget statement and pointed out that the euphoria would be short-lived have seen their prophecy fulfilled even before the Report stage is completed. Interest rates are rising by 2 per cent., and on Friday the building societies are to raise their mortgage rates.

The entire thrust of the Budget was such that we cannot see any argument for making .exceptions on the lines now being suggested. The heart of the Budget strategy was to take £1.4 billion out of the system by way of VAT payments at the level of the ports so that the Chancellor could abolish the national insurance surcharge and so merit more flag-waving and the waving of more Order Papers in the House. Many will wonder why those who were so pleased about that provision—a one-off measure which yielded £1.4 billion for the Treasury—should now be pleading for some reduction in the £3 million or £4 million haul that is now being proposed. We feel that there is a clear strategy in the Budget—a strategy of which the Chancellor was proud. He talked of tax reform and of a Budget that would halt or contain inflation. That promise has been torn to shreds in two months. We cannot but believe that that provision in the Budget was carefully thought out to give money to the Treasury. The Treasury will have to raise money where it can, how it can and as best it can. This is an example of how it will do that. We feel no sympathy for Conservative Members who applauded the Chancellor and supported his measures, who waved their Order Papers, and have come here tonight to ask for special treatment.

Mr. Hayhoe

In short, succinct and clear speeches, my hon. Friends have moved and supported new clause 18. In the light of what they said, I do not think that they will be surprised to learn that I am advised to resist this proposal. It would retain VAT postponed accounting for spirits, beer, wine, made wine and cider after postponed accounting for imports is withdrawn on 1 Octber. They made it clear that they were indulging in special pleading for an industry which they think deserves special treatment.

The costs involved are not the £3 million or £4 million that the hon. Member for Middlesbrough (Mr. Bell) referred to—the cost of new clause 18 in this financial year would be about £50 million. I am sure that my hon. Friends will understand that such a sum cannot be lightly forgone within the overall context of the Budget. If the withdrawal of postponed accounting produces well over £1 billion this financial year, it must be recognised that it is not a painless operation for those who are at the contributing end.

Mr. John Townend (Bridlington)

Does my hon. Friend agree that during the Budget my right hon. Friend the Chancellor made it clear that he was speaking about imports? We are now told that home-produced spirits are involved. What would be the cost to the Exchequer if only home-produced spirits were exempt?

Mr. Hayhoe

About £30 million would be attributable to imports and £20 million would be attributable to home-produced goods. My hon. Friend, who is an expert in these matters, will understand that when the postponed accounting system operated, there was equality of treatment in regard to VAT between home and imported wines and spirits. The objective of the Bill is to retain that equality. I am sure that people in the trade who have an interest in imports would be deeply worried by any suggestion that there should be an advantageous regime available just for the home-produced goods in this area alone, where there has been equality in the past. It would therefore be wrong to make a special case in favour of the alcoholic drinks industry in connection with this VAT measure. If special treatment were accorded to this industry, there would instantly be a queue of others seeking special treatment.

I recognise what has been said about the importance of the industry, especially the scotch whisky industry, which makes a significant contribution to our exports. I am always willing to, and I know that my right hon. Friend the Chancellor always does, examine all aspects of the industry when forming Budget proposals. Stock relief has been mentioned, but as it is the subject of amendment No. 113, which we shall consider later, I shall reserve my remarks on it until then. In the light of what I have said, I hope that my hon. Friend will not press the new clause.

Mr. Bowen Wells

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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