Beer (Illegal Imports) (Hansard, 15 December 1997)

§ Mr. Bob Blizzard (Waveney)
The week before Christmas seems a timely occasion to debate beer, with so many people now joining in the festive spirit. Few households in the country will not have already bought in some beer or be intending to do so. Clubs and pubs will expect good custom and office parties are already in full swing. However, this is also a time to give careful consideration to what is happening to the British beer industry, and I mean all parts of the industry, including those who brew beer, distribute it and sell it in pubs, clubs and shops.
Beer is a part of the British way of life. The variety of beers that is brewed in different parts of our country is part of our culture and heritage. We are famous all over the world for the variety of tastes and types of beer and our local pubs. That variety also ensures that we do not become a boring monoculture. The beer industry is to us what the wine industry is to France.
However, how much of the beer drunk this Christmas will be smuggled beer, illegally imported and sold— bootleg beer? Some 5 per cent. of the total UK beer market is now French beer—that is 1.5 million pints a day. France is now the fifth largest brewer in our country and has more sales than any one UK regional brewery. That costs the taxpayer hundreds of thousands of pounds a year in lost duty alone.
In 1996, nearly 100,000 bootleggers' vans made the channel crossing and the bootleggers reach all parts of the country. It is not only Carlsberg that reaches the parts that other beers cannot reach. Imports were up 18 per cent. last year and if that continues, they will represent 10 per cent. of the beer market by 2001. Not all of that beer is illegally imported, because it is not illegal to bring back some cases of beer in the boot for personal consumption. Such examples are not the subject of my debate tonight. I am worried about bootleg beer—beer that is smuggled in and sold on for profit.
It is illegal to import vast quantities and sell it, but that is happening on a large scale in white vans, estate cars and on the backs of heavy goods vehicles. In many workplaces around the country, people can place their orders and their requests are delivered the next week. In some parts of the country, milkmen are said to deliver to the doorstep. What that amounts to is a significant and growing black economy. History shows that we should all be worried about a black economy, because it is a dangerous game in more ways than one.
I shall look first at the impact on the British beer industry, which is an important national industry. Some 910,000 jobs are supported by the brewing industry, and pubs and clubs alone. If we add the jobs in other retail outlets, we can see the size of the industry. It is being hurt. Some 80 per cent. of imported beer represents beer that would have been bought in the UK, brewed, sold and distributed by British people. One white van load contains some 1,500 pints, which is more than the weekly beer sale of a small pub.
Bootlegging is a double unfairness to the industry. Not only do the bootleggers pay no excise duty, but they pay none of the other taxes—income tax, rates, national 107 insurance, corporation tax—that legitimate brewers and retailers pay. No wonder they are incensed. Unfair competition is too weak a phrase. The black economy gnaws away at the honest living of more than 1 million people. Brewers, publicans and shopkeepers in my constituency of Waveney rightly complain about such activities. In Kent, a third of all beer consumed is foreign beer.
However, that is not the only consequence of a black economy. A black economy attracts and breeds crime. Smuggling is itself a crime, but the problem does not stop there. Organised crime gets involved. The money to be made from smuggling has become a magnet for criminals all over the country. The police have made a direct link between duty dodging and a rise in organised crime, especially in Kent. Violent crime is also increasing and people have been injured in shoot-outs in Dover, in violence reminiscent of warfare between rival drug gangs. Some 70 per cent. of bootleggers intercepted by customs have a criminal record. Bootleggers operate completely outside the law, so it is not surprising that alcohol is sold indiscriminately to the under-aged. The black economy gnaws away at a decent society.
There is also a huge impact on Government tax revenue. Her Majesty's Customs and Excise says that £165 million in revenue was evaded this year by smuggling, with a further £50 million lost from legitimate cross-border shopping. To this should be added the loss of other taxes from lost business and closed pubs. The black economy also gnaws away at the public purse.
Three weeks ago, I was one of a group of Members of Parliament who went on a fact-finding visit to Calais—I can see one or two of the other hon. Members from that group in the Chamber tonight. There are now 41 outlets in Calais aimed at cross-channel trade, all paying taxes to the French exchequer rather than to ours. It was apparent even in the British-named supermarkets in Calais that there would have to be some pretty big private parties for some of the amounts being bought by individuals to qualify for personal consumption. However, those outlets did at least maintain normal respectable standards for retail outlets, which is more than can be said for some of the other establishments we visited later in the day.
At the next venue, we saw lorry drivers pushing six-foot-high trolley loads of beer out to their trucks, and coming back for more. There were lots of furtive looks in this car park. Again, however, that was a reasonable retail warehouse. As the day progressed, we descended like Dante though the standards of respectability.
The worst places were those frequented by the infamous white bootlegger vans. At one, called Eastenders, they did not even bother putting the prices in French francs—just straight pounds. It seems that economic and monetary union has come early to that trade. Here we saw forklift trucks lifting pallets straight into the back of vans with no furtive looks—it was that open. The last place we visited had no prices at all and was really very shady. It seemed to deal only in pounds.
Only one thing was even more dubious that day—the allegation, which I have heard since in my constituency, that some bootlegged beer is being brewed in this country,
108 "sold" to France and "sold" back at French prices to this country without the beer ever leaving this country. If that is going on, that really is a black economy.
Why is all this happening? The root cause is simple— beer duty here is nearly seven times higher than in France. However, this was not a significant problem until the introduction of the single market in 1993. Before then, there were tight limits on the amount of beer which could be brought in by individuals, and it was fairly well policed by customs.
One might have thought that the Government of the day would have foreseen what would inevitably happen following the introduction of the single market. Instead, the previous Government made two huge blunders. They accepted an indicative limit of 110 litres of beer per person as the legal limit which an individual could bring into the country per trip for personal consumption. One hundred and ten litres is the average amount a person drinks per year. The Government could have applied for a derogation to reduce that limit, but they did not. Right from the start, that made it more difficult for customs officers to deal with bootleggers.
More amazingly, we were told on the trip that the number of customs officers dealing with excise work was reduced from about 300 to just 12. I know that the previous Government were keen on charters, but that was a bootlegger's charter. On our return journey, we received a presentation from Customs and Excise and we learnt about the valuable work it does. We learnt that the new Government have increased numbers to 130 at present, and we heard how the Government are working with other agencies to mount an assault on smuggling. We heard also that detections have increased and that the Government are tackling van hire companies.
We heard also about the scale of the problem and how difficult it is for customs to stop, search and ultimately prosecute bootleggers. At peak times, some 500 vans a day are on the Dover-Calais run. It is common for 200 vans to make the journey in one night. I believe that the commendable effort of Customs and Excise is only scratching at the surface of the problem. There will continue to be bootleggers and a black economy as long as the incentive remains in the form of the huge differential in beer duty rates between Britain and the other European countries, and especially France, backed up by the 110-litre indicative limit.
Britain alone in the European Union has a problem on this scale. France and others seem unlikely to raise their excise duty on beer by any great amount, and it is not easy for our Government to lower beer duty, because the revenue implications have to be considered, but the terms of reference of the review announced and set up by the new Government to examine alcohol and tobacco fraud and smuggling included tax rates.
The brewing industry has presented a paper to the Treasury, drawn up by Oxford Economic Forecasting, which argues that the effect of a 20 per cent. reduction in duty would be to increase revenue to the Exchequer within three years, without an overall increase in beer consumption. It would also increase employment, it is argued, by 24,000. That argument uses the Treasury's own economic model. Although that model was found wanting in relation to Reaganomic and Thatcherite income tax reductions, it is held by the brewers to be good for taxes such as excise duty.
109 I believe that the Treasury should examine that model as part of the review. The argument deserves attention and response, although I would not advocate duty reduction on tobacco, on the simple ground that tobacco kills. The question of the indicative limit should also be addressed.
Bootleg beer and its black economy present us with a major problem that customs alone cannot solve. As I said, British beer is part of our culture and heritage. The very future of the community pub, our British local, is at stake, as is the rich variety of distinctive beers. The French would not tolerate such a threat to their wine industry. They would take action, and so, I believe should we. We must defend British beer.

§ The Financial Secretary to the Treasury (Dawn Primarolo)
I have noted the comments made by my hon. Friend the Member for Waveney (Mr. Blizzard), but I do not intend to comment on all the points he raised because, as he will know, Shepherd Neame, a leading brewer, has instigated a judicial review, which is to be heard tomorrow, in which it contends that the inflation-only increase in excise duty on beer, which constitutes between ½p and 1p per pint, imposed by my right hon. Friend the Chancellor in the Budget, is contrary to Community law.
The Government are resisting the judicial review. It would be wrong for me to comment in detail on the issues that will be debated before the High Court tomorrow. I know that my hon. Friend will understand that clearly. I emphasise the fact that the Government take excise smuggling and fraud extremely seriously.
Customs and Excise has faced new challenges since the loss of routine checking of incoming transport and passengers from the European Union at ports and airports as a result of the introduction of the single market on 1 January 1993.
Customs has responded in several ways. Specially trained officers will challenge individuals or vehicles thought to be engaged in smuggling and will follow up intelligence leads about smuggling. The intelligence comes from a number of sources: the police; trading standards officers; overseas fiscal officers; members of the public and the trade. An excise alliance has been formed with the trade with the aim of combating smuggling and fraud.
Detection of smuggled excise goods by customs staff amounted to about £14.8 million in revenue for the financial year 1995–96, and £29.4 million in 1996–97. Offenders who are caught face financial penalties, court fines, prison sentences up to seven years, seizures of goods and confiscation of the proceeds of their crimes. Licensees caught dealing in illicit excise goods risk losing their licences.
Customs has recently announced new measures to crack down on irresponsible companies that persistently lease vehicles to known smugglers. That new move should prove a powerful incentive to rental companies to ensure that their vehicles are not regularly used by smugglers and it has the support of the major trade associations.
On the first occasion smuggled excise goods are found in a hire vehicle, the rental company will receive a written warning. If the same person is caught smuggling using a vehicle from the same company, the company will be charged £250 or 5 per cent. of the duty evaded and, 110 on any subsequent occasion, the lower of either the revenue value of the smuggled goods or the trading value of the vehicle, up to a maximum of £10,000.
Excise verification officers combat the evasion of duty on smuggled revenue goods. Their work involves detecting and investigating those found to be involved in dealing with illegally imported alcohol and tobacco. They are supported in their work by specialist investigators, intelligence staff and VAT and Customs and Excise staff.
Customs is deploying additional officers to front-line work in areas of concern. About 330 officers are deployed in combating smuggling from the European Union. The number of officers engaged in that task has increased significantly in recent years. In 1993, it was only 200. An additional 70 staff have been deployed in the past 12 months.
As is well known, my right hon. Friend the Chancellor of the Exchequer has announced a review of alcohol and tobacco fraud involving a working party with the key associations to look into the effects of commercial fraud that my hon. Friend mentioned—smuggling and cross-border shopping. The review does not include duty rates as those are a matter for the Chancellor. I have set the review team a challenging deadline of 31 December 1997 to prepare a report for me.
The amount of revenue evaded in duty and VAT as a result of smuggling beer and cider, while highly deplorable, remains relatively small. In 1996, it is estimated to have been £140 million, compared with total United Kingdom duty and VAT receipts of £5,220 million for the same products—less than 3 per cent. However, we should remember that everyone can play a part in combating those illegal activities—even my hon. Friend, as he witnesses them in Calais.

§ Mr. David Prior (North Norfolk)
Does the hon. Lady agree with the hon. Member for Waveney (Mr. Blizzard) that the community pub and regional brewers such as Adnams, which is based in the Waveney constituency at Southwold, both form a vital part of the community?

§ Dawn Primarolo
Yes. I listened carefully to my hon. Friend the Member for Waveney and I know that many people share his views.
Customs greatly values the information that it receives from the trade and members of the public. It has set up confidential telephone lines to which the public and the trade can report their suspicions. I can give the telephone number, if my hon. Friend still feels he has something to report. It is 0800 901 901. All information is gratefully received.
My hon. Friend referred to the Treasury model, but there is nothing in that model to suggest that any increase in output that might follow a cut in beer duty would be permanent. A similar, short-term result to the Treasury model could be expected from any other indirect tax cut of an equivalent scale, whether it be applied to VAT or to tobacco, betting or other alcohol duty.
The Government take the issue extremely seriously. That is why my right hon. Friend the Chancellor set up the review and why it will be reporting to me early in the new year.