§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wood.]
§ 10.2 pm
§ Mr. Nigel Evans (Ribble Valley)I am grateful for the opportunity to mention an issue that is of great interest to many people involved in the drinks business throughout the country. It is the single market and the effect that it is having on our domestic drinks business, whether that be brewing, on-sales or off-sales. The industry employs about 1 million people, and even in the north-west it employs up to 150,000 people. I am an executive member of the all-party beer group and I take my duties extremely seriously.
There are three breweries in and around my constituency. The first is a small brewery in Moorhouses, Burnley. It employs 11 people on the brewing side and 30 people in its six pubs. It also supplies 150 other pubs in the area, employing about 750 people. Thwaites is a larger brewery, but still in family hands, based in Blackburn. It was established in 1807. It employs 332 people on the brewing side and provides employment for 2,000 other people in its public houses. Finally, there is Whitbreads in Samlesbury, which employs more than 500 people on the brewing side and a considerable number of other people in pubs and clubs that sell its beer. It was established in 1742. I have been to all three breweries and I am proud of their contribution to the local economy.
In addition to the breweries, some of the finest public houses in the country are in my constituency. The British pub is an institution that is not properly replicated anywhere in the world, but it is the envy of the world. Seventy per cent. of visitors to Britain prefer British pubs to their bars at home. The one aspect in which we could learn something from the continentals is our licensing hours, and I hope that we can tackle those at a future date.
Although we have some of the best pubs in the world, and certainly some of the best beers in the world, that is now seriously under threat.
I applaud the single market. It is a trading bloc without frontiers of 350 million people. We have 12 countries in the European Community. Soon the number will expand to 16, which means 16 different taxes and 16 different Governments—long may that remain the case.
We have a policy in this country of switching taxation away from direct to indirect taxes and I applaud that policy. That has led to the top rate of direct tax being reduced from 83 per cent. to 40 per cent. and the bottom rate of tax being reduced from 33 per cent. to 20 per cent. at its lowest rate and 25 per cent. otherwise. We also have the lowest rate of corporation tax in the European Community. Where we are almost top of the European Community league table is in the taxation that is imposed on alcohol, and I shall refer specifically to beer this evening.
Beer drinkers in this country account for 21 per cent. of the European Community's total beer consumption, but we pay 55 per cent. of the total Community beer duty, whereas our German neighbours account for 40 per cent. of total beer consumption in the Community but pay only 14 per cent. of the duty yield. The excise duty on a typical pint of British beer is 24.5p and the VAT is 20p, whereas in France drinkers pay, on average, less than 5p in excise duty per pint. That means that beer sellers in France start off with an advantage of 25p a pint over their British 422 counterparts when other factors are taken into account. Nor should we forget that French beer is stronger than British beer. The last thing we should be doing is encouraging people to drink more beer with a higher alcoholic content.
As we celebrate the coming down of the international barriers to trade, the chances are that we shall be toasting the frontierless trade with a glass of beer that originated abroad. Last year 330 million such pints of beer were drunk in this country. That is almost as much as is brewed in Norway.
I do not blame people for getting into their cars and vans and making the trek across the channel. It is a bit of fun, and, with the difference in the rates of tax on beer, there is a great incentive to do so. Nor is the ferry industry slow to encourage as many people as possible to use its services. Special offers appear in some national newspapers. The average customer will see a very quick return on his fare outlay.
The single market means that one can now bring back as much as one likes as long as it is for personal consumption. I fear for the health of the nation and I marvel at the physical capacity of some of my fellow countrymen to put away so much liquid. It cannot be doing them any good. I refer to those people who come back with their cars heavily laden with beer and tell Customs officials that it is all for their own consumption. What are the officials supposed to do with such evidence?
The trade is getting so big that British-owned store chains such as Sainsbury and Tesco are opening up across the channel, and others will soon follow. I am sure that Mr. Sainsbury will be relieved to learn that in my retail store in Swansea I do not intend to follow suit.
There are worrying signs on the horizon. I shall mention just one or two of them. On the question of smuggling, I refer the House to early-day motion 165, which has been signed by 125 hon. Members. Organised crime and the Arthur Daleys of this world have a nice little earner in the sale of massive quantities of their contraband. So prolific is the practice that it has reached the heights of Reg Holdsworth's minimarket in "Coronation Street".
The Minister will be alarmed, as I was, to learn that Britain's favourite landlady, Bet Lynch of the Rover's Return, could see her livelihood hit thanks to her boy friend's frequent illegal imports of cheap lager, which he brings back in his empty lorry on the return leg of his visits abroad. He sells the lager to Reg, who then sells it to his customers. Reg is a decent sort of bloke and probably thinks that he is not doing any wrong. Bet Lynch would probably think otherwise, as would Newton and Ridley, the brewery landlords of the Rover's Return.
However, I fear that in this practice Reg is not alone. A local brewery told me that the landlords of three of its pubs have been approached by people offering to sell them vanloads of imported beer. Someone even offered to supply the brewery's managing director with beer in this way.
I know that Customs and Excise has a dedicated task force visiting stores, pubs and car boot sales. Its members use the intelligence that they have built up from various sources, but it is not enough. Nor are there enough of these people. There must be more stops and searches. If they are successful in finding illegal supplies, these must be confiscated and prosecutions must take place. Perhaps my right hon. Friend the Minister will be able to tell the House how many prosecutions there have been to date and how many goods have been confiscated.
423 Potentially more worrying than smuggling is a practice called distance selling and buying. The practice may start and it has not been tested in the courts. It would involve someone using a middle man or agent to place an order and to receive imports of beer from France into the United Kingdom without accompanying the goods. If we think that smuggling has proved to be damaging to the trade as it stands, distance selling will lead to the decimation of the brewing industry.
When the single market was first introduced, swift action was taken by the Danish Government because they could see that there would be a problem. As a result, beer duty decreased by 47 per cent. That approach has worked. The Danes were fearful of the cross-border trading that would take place.
The specific problem to which I am drawing attention has been recognised by my right hon. and learned Friend the Chancellor of the Exchequer and he mentioned it in his November Budget. Only 40 per cent. of travellers take the opportunity to buy beer on their trips abroad, so there is scope for an even greater increase in the practice. That will be especially so when the channel tunnel comes into full operation and doubles the capacity for cross-channel travel from 28 million to 56 million passengers a year.
We are exporting our taxes and our jobs. The problem will be eradicated only by decreasing the differential between taxation systems. I would not dream of telling the French what to do with their domestic taxes, and I would be especially offended if the French told me what we should be doing with our taxes. We must recognise, however, that a problem exists and that there is a stark difference between our taxes on beer and their taxes.
I cheered with everybody else when Her Majesty the Queen travelled through the channel tunnel for the first time. I look forward to travelling through the tunnel myself. A new market will be created and many more people will be able to make the journey. As Her Majesty looks forward to the marriage of her youngest son to Sophie Rhys-Jones, I trust that she will not be toasting their future happiness with a glass of smuggled champagne, but all too many will.
The need is pressing for the Government to introduce tighter controls and tougher penalties on smugglers who abuse the single market. It is time to look again at the present tax regime in the United Kingdom, which is preventing the drinks industry from taking full advantage of the potential benefits. Having reassessed the tax regime, we would be able to preserve the drinks industry, which has grown up over centuries. It has contributed to our benefit and now is the time for us to support it.
§ Mr. Graham Riddick (Colne Valley)First, I congratulate my hon. Friend the Member for Ribble Valley (Mr. Evans) on his luck in securing the Adjournment debate this evening. I thank him for allowing me to take a minute or so of the debate.
Secondly, I declare my interest. I am the parliamentary adviser to the Brewers and Licensed Retailers Association. In that role I meet many brewers, and I know that they are extremely concerned about the situation that my hon. Friend has outlined. It is not only the brewers in the south-east of England who are concerned about the effect 424 of the importation of beer. The concern is shared by brewers throughout the country. We are finding imported beer on which no duty has been paid in Yorkshire and the north-east of England generally. It is a serious problem.
It is not only the brewers who are worried. CAMRA —the Campaign for Real Ale—which is certainly not in bed with the brewers, shares their concern. I shall quote what it states in a brief that it sent to hon. Members in July 1993. The brief reads:
The massive differential between Britain and the Continent will lead in the long term to a smaller UK brewing industry, pub closures and revenue loss as beer is increasingly brewed and bought abroad.I do not believe that CAMRA is being alarmist when it says that. There is a serious risk of the brewing industry being harmed as a result of the situation as outlined by my hon. Friend. He was quite right to talk of the threat to jobs. The problem, of course, is that UK beer duty is more than six times that in France. The result is that the UK tax regime perpetuates unfair competition in the European single market.The solution should be that the Government follow a strategy of progressive reduction in UK beer duty to bring about fair competition. I am grateful to my right hon. and learned Friend the Chancellor for freezing beer duty as he did in the Budget. I do not believe that he did it simply because he is fond of the odd pint, but because he recognised the difficulties facing the brewing industry. The Danes, as my hon. Friend pointed out, had a similar problem, which they faced by reducing beer duty and it solved the problem. There may be other solutions, and if my right hon. Friend the Paymaster General has something else in mind, perhaps he can spell it out tonight. However, it seems that doing nothing is not an option.
§ The Paymaster General (Sir John Cope)I am glad of the opportunity provided by my hon. Friend the Member for Ribble Valley (Mr. Evans) to give the House an update on how we see the position of cross-border shopping and the smuggling of alcohol. I want to talk briefly on three aspects: first, the scale and the effects of it all; secondly, the possibility, which my hon. Friend mentioned, of distance selling and unaccompanied goods; thirdly, the progress of customs in dealing with smuggling.
There have been a series of attempts to estimate the scale of cross-border shopping and the smuggling of excisable goods since the single market opened in the past year. Clearly, cross-border shopping is inherently easier to estimate, because people will tell us what they are doing, whereas smugglers, of course, conceal it when they can. Obviously, cross-border shopping for personal consumption is a legal activity; indeed, it is one of the benefits to consumers of the coming of the single market. Smuggling goods for resale is illegal, however, as is selling alcohol or tobacco here, which has evaded United Kingdom duty.
Often the estimates of the scale of such practices are expressed by me and by others in terms of duty lost. That is a convenient way in which to measure the volume of alcohol involved, but nobody supposes that the duty lost is the only fiscal effect of these phenomena. Clearly, there will be directly measurable effects on value added tax and indirect effects on corporation tax and income tax, although those are more difficult to estimate.
We consider all the available evidence for cross-border shopping and smuggling. Surveys have been done by the 425 brewers—understandably campaigning against such behaviour—and also by Customs and Excise. They have come to different results, partly because they have been expressing slightly different things. There was a certain amount of cross-border shopping and smuggling before the single market opened; our primary interest is in the increase of those activities since.
Surveys are not the only way in which to try to establish the facts. One of the things that I look at carefully every month is the returns of duty received. In 1993, after a year of the single market, our receipts from duty were up in every category. Duty receipts from spirits produced in 1993 rose from £1,698 million to £1,739 million. The volume of production was up by about 1.9 per cent. Receipts from beer produced rose from £2,394 million to £2,407 million. There was a volume fall of about 3 per cent., continuing the trend of recent years.
Wine receipts rose strongly from £974 million to £1,078 million—a volume increase of about 5.5 per cent. and the first year, incidentally, of more than £1 million of wine duty receipts. The pattern, so far as we can see, is repeating itself this year. The latest figures show that alcohol duties in the first four months of this year rose by 4 per cent. compared with the first four months of 1993, despite pre-Budget forestalling in that year.
When looking at the figures, one must assess how the duty receipts might have moved if the single market had not opened. I do not suggest that the market would have been static. Clearly the economic recovery would be reflected, and is no doubt reflected to some extent, in the figures. There has obviously been an increase in cross-border shopping and smuggling and we are losing some revenue. However, it is clear that there is no acute haemorrhaging of revenue threatening the basic yields of duty.
That is relevant to the decisions that the Chancellor of the Exchequer and the House had to consider in the Budget and in the Finance Bill in recent months, and which we shall have to consider again in the Budget in November. I repeat a point that I made clearly earlier: the extent of cross-border shopping and smuggling is a factor that we have to take into account in arriving at the Budget judgments to recommend to the House. As my hon. Friend the Member for Ribble Valley (Mr. Evans) said, we did that last year and we shall have to do it in every future Budget.
There is a beguiling argument which I only wish were true, but which does not stand up to examination. That is the idea that lower duty rates on alcoholic drinks would lead to higher duty and tax yields and would thus compensate for the loss of revenue. That depends on the level of cross-border shopping and smuggling that one believes is taking place now. It also depends on the additional sales to be expected as a result of cuts in duty being passed on in cheaper prices.
Even if we take the largest estimates that anyone has advanced for the present scale of cross-border activity, and generous assumptions about extra sales, the inescapable fact is that large cuts in duty—sufficient to make a material difference to cross-border prices—would cost a great deal more revenue than would be recovered from increased or repatriated sales. Nothing that I say today should be taken as a hint about future Budgets, but we cannot expect to recover the yield by increased or repatriated sales. For the sake of illustration, if we were to cut the alcohol duty rates 426 in half, there would still be an incentive to cross-border shopping. It would no doubt be reduced, but it would certainly not be eliminated.
The cost in duty and VAT from halving our alcohol rates would be about £2.3 billion in a full year—five times the highest estimate by the brewers of the present duty and VAT losses. A big cut in duty, if passed on to consumers, would clearly increase sales, but not by nearly enough to recover the duty lost. Looking at the duty alone, to recover a cut of half the duty would involve doubling the total sales of alcohol in this country. The secondary effects on income and corporation tax would not bridge more than a very small fraction of that gap.
The Chancellor and the House must decide what other taxes to raise if it is desired to finance a major cut in alcohol duty rates. We must also reflect on the other consequences of a big cut in alcohol prices if one assumes that that would lead to a substantial increase in consumption. I accept entirely that there is a major dilemma. The single market will not go away and consumers are entitled to benefit from it. We, the British Parliament, however, are also entitled to decide British taxes. I do not believe that our constituents would thank us for cutting alcohol duty and raising VAT or income tax to pay for it.
The cross-border effects are one of the factors that the Chancellor, in every future Budget, will need to consider when framing the Budget judgments. That has been the case in respect of the Budgets in which I have been involved and it was so before that. It may perhaps be an increasingly influential factor, but the arithmetic is inescapable and necessarily difficult for us all.
My hon. Friend the Member for Ribble Valley referred to his concern—it is one that I share—about distance sales. Apparently, a Commission official suggested not long ago that distance sales of excise products would attract duty at the rate applicable in the country of the seller, not the country of the purchaser. In other words, if a purchaser in the United Kingdom buys alcohol from a seller in France through an agent or over the telephone, French duty would be payable and not British duty.
I am reliably informed that that is legally wrong. Goods must be accompanied across the border by the purchaser and be for his or her personal use if the duty in the country of origin only is to be payable. It was not the intention of the European Community agreement to permit such a loophole and it is not the obvious meaning of the relevant text. The European Commissioner responsible, Mrs. Scrivener, confirmed this opinion immediately after the story first appeared.
I assure my hon. Friend that we take very seriously the suggestion that the agreement might be distorted in that way. If any lawyers try to say that, regardless of the intention of the agreement, the words can be interpreted in that way, we shall resist it strongly in the courts. If necessary, we shall seek a modification of the agreement so as to make the intention clear. We have the support of other member states in this view because they know what was agreed, and in any case they do not want their various revenues from excise goods affected by such actions either.
I do not doubt that I have the support of everyone in the trade, as well as that of my hon. Friend and the House, in that matter. I also have no doubt that we have the same support in tackling smuggling. Whatever the exact extent may be, the smuggling of excise goods for resale is illegal, and selling excise goods here which have evaded UK duty 427 is also illegal. Such acts are punishable by fines, confiscation of the goods concerned and any vehicle involved, and by imprisonment in serious cases.
Customs and Excise has the Government's full backing in bringing smugglers to justice. So far, the new breed of excise verification officers that we have created have detected 1,600 cases of smuggling alcoholic drinks and tobacco, involving more than £2.3 million in duty. In most cases—particularly first offences—Customs has dealt with the offenders by seizing the goods. In 247 cases, it has also seized the vehicles. I need not tell you, Mr. Deputy Speaker, that that is a powerful deterrent in itself, but it also has the added bonus of not tying up the precious time of the courts.
Prosecutions have taken place in the more serious cases and, so far, 85 individuals have been prosecuted. The penalties imposed by the courts have included imprisonment, a number of suspended sentences, community service orders and the like, but mainly fines. There are more cases before the courts and the wheels of justice are grinding towards them. It may be a while before the full fruits of the Customs and Excise effort are fully visible.
I assure my hon. Friend that our actions against smugglers are increasing. Since 1 April—the beginning of the financial year—101 detections have been made in the Dover area alone. These have been made mainly in the port. About 10 per cent. of these cases involved people from the north west. A high proportion of them involved the use of vans, but one must not assume, as some do, that all vans automatically carry illegal alcohol. There is a lot of regular traffic in newspapers and magazines and so on using the same kind of vans, which is perfectly legal.
Those caught smuggling face fines often of thousands of pounds. So far, the biggest fine imposed was £8,000 and the longest sentence of 15 months was given at the Maidstone crown court recently. However, that case involved cigarettes.
The Customs effort is not confined to the ports. It is a crime to deal in goods which have evaded payment of UK duty, and a lot of effort is devoted to catching criminals in that area. Any licensee who buys or sells alcohol without paying United Kingdom duty risks his licence and his job or tenancy, so the legitimate trade is rightly very wary of becoming involved with that illegal activity. They and 428 others are keen in many cases to help Customs with intelligence. We have recently set up a hotline—0800 901901—and I am glad to say that a considerable number of calls came in during the first few days of its operation with valuable intelligence, every bit of which is being followed up.
The excise verification officers have the specialist task and are dedicated to it, but in a way every Customs officer is involved. For example, VAT officers have been trained to look out for indications of sales of illicit alcohol and tobacco, and they visit a large number of traders. All customs and excise intelligence is co-ordinated because information which at first seems to be about one criminal activity may actually be about another.
§ Mr. RiddickMy hon. Friend the Member for Ribble Valley (Mr. Evans) and I welcome my right hon. Friend's robust approach on distance selling and also on smuggling, although I do not altogether welcome what he has said on the possible reduction in beer duty. Is he looking at other approaches to tackling the growing problem of the importation of beer into this country?
§ Sir John CopeI am prepared to look at every approach, but the primary approach must be to catch the smugglers. The excise verification officers are the front line, but everyone is involved. I assure the House and my hon. Friend that the Customs and Excise is working hard on this and has my full backing. It has been doing that work for literally hundreds of years, but it obviously has new relevance and has been given a new impetus at present.
My hon. Friends will not expect me to anticipate the decisions of the Chancellor about future Budgets and future rates of beer taxation, and I certainly have no intention of doing so. It is the lot of excise Ministers to be attacked by brewers, of course, and I know enough about their campaign from my hon. Friends and also from newspapers. It may be popular for the latter to campaign for a cut in the beer duty, but I do not think that it would be similarly popular to campaign for a rise in income tax or in VAT to finance it. Even when we can afford to reduce the duty, the Chancellor of the day will need to balance the priorities. In those circumstances, it seems important—
§ The motion having been made after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at twenty-eight minutes to Eleven o'clock.