§ 5.16 p.m.
§ Lord RAGLAN rose to move, That this House takes note of the Report of the European Communities Committee on Excise Duties on Alcohol (COM(72)225) (Fiftieth Report of last session (HL 263)). The noble Lord said: My Lords, I have to say straight away that the scene has changed since this report went to the printers because the Commission have changed their tack. They wanted to get agreement among the Member States that Excise duties should be applied to only five products. They were mineral oils, manufactured tobacco, alcohol, beer and wine and they proposed what they called a "framework directive" which embraced a draft directive for harmonising the duty on each of those five products, plus the draft decision of the Committee which was set up to regulate the level of these duties. However, they found it much harder to get agreement than they had anticipated and they have now decided to tackle the products one at a time with nevertheless the same ultimate objective, namely a harmonised Excise taxation throughout the Common Market. They say that this harmonisation is long overdue, that all the different rates of duty distort competition, often severely, and that they hinder the free circulation of goods.
§ Just before I came into the Chamber this afternoon I was handed some comments on the Commission's proposals from the Scotch Whisky Association. I am sorry to say that I have not had time to imbibe all that they say in their memorandum although it appears to be full of information. But I see that in their conclusions they leave one in no doubt at all that they, at any rate, strongly support the Commission. They say that Scotch whisky faces widespread discrimination within the Community. They also support the Commission's proposals for credit in the payment of duty, which are better terms than they receive in the United Kingdom. But they are also strongly opposed to the Commission's present approach of endeavouring to obtain harmonisation of duties on spirits and fortified wines but leaving aside for the moment beer and wine, for they say that this will tend to enshrine the present inequitable pattern of taxation.1906
§ I think it will become a little clearer from what I am going to say later on why the Commission face a very difficult task, whichever approach they take, and they may indeed have to wait for monetary union before they can make any great progress at all. What they are trying to do is, first of all, to get agreement on the structures; that is, on the type of drink and the percentage of alcohol in it to which duty would apply, so that in time that will allow harmonisation of rates of duty. Your Committee decided that, although the Commission had changed their approach, they had not changed their goal, their policy, and that the subject was of sufficient interest and importance to be brought to your Lordships' attention in debate. It is all so intricate that when I came to ponder what I was going to say this afternoon to your Lordships I thought I might be in danger of making a speech that would never end.
§ Normally a subject like this would have come to the Sub-Committee on finance, but it happened that at the time this draft Directive came out the Agriculture and Consumer Affairs Committee, of which I was then chairman, had just reported on the Commission's proposal for a regime for industrial alcohol; this contained ingenious, but we thought unacceptable, ideas for helping to dispose of some of the wine surplus. It was hoped to be able to assist this by imposing what amounted to a tax on spirits. Just at that moment my noble friend Lord Brown said, "Do you realise that if the Common Market new Excise structures are agreed to, and the rates of duty are set by the Commission and not by our Chancellor of the Exchequer, the wine growers will try to get this Committee to favour wine at the expense of spirits?". It is indeed this fear which your Committee voice in their report. No doubt my noble friend Lord Brown will dilate upon that subject in a moment.
§ However, your Committee entirely exonerated the Commission from the charge that they embarked upon the harmonisation of Excise structures with any other objective in mind than to abolish fiscal frontiers. This purity of intention is demonstrated by the fact that, when the European Parliament—in a Motion which may strike a chord of sympathy among some of your Lordships—agreed 1907 that the best way to harmonise Excise duties on wines was to abolish them, the Commission decided to leave wine and mixed beverages alone for the moment, about which they had much disagreement, and to concentrate on the fortified wines where there is, they think, a good chance of getting agreement. Their proposed structure differs from the United Kingdom practice, in that, whereas we charge duty on fortified wines at a flat rate in two arbitrary bands, the Commission prefer treating a fortified wine as if it were a spirit and applying duty to it according to its exact alcohol content. This course seems commendable, if only because it is simple and easily understood. The United Kingdom structure just grew up and though it may be none the worse for having done that, I do not think it is well understood by the general public; the Commission's proposal seemed to us to be better.
§ If we abandoned our homegrown structure, we would be at the same time, abandoning the proof gallon as a measure of alcoholic strength, for which I, for one, would give much thanks, as I find it most confusing. We would be adopting what is known as the Gay Lussac scale, which sounds a bit romantic perhaps; it simply gives the percentage of alcohol by volume measured at a certain temperature; it is as simple as that. It is straightforward and we should know exactly what we are buying.
§ I should like to digress for one moment to take this opportunity of urging upon the Government that they should insist that all wine sold has its alcohol content displayed on the bottle, as is done in France. The old argument that people do not buy wine for its alcohol content may hold good for those who can afford the more expensive wines of certified origin, but it does not apply to the "plonk" trade. Certain good firms—including one in which a noble friend of mine who usually sits not far from here has an interest—are giving a lead in this matter. They are not ashamed of showing the strength of their wines, and if they can do it everybody can. If everybody were to do it, it would give the public confidence and protection from being sold watered-down rubbish.
§ Having digressed for a moment from the report, I turn to the Commission's 1908 proposals on beer. There are similar to the structure obtaining at the present time in Germany, where they drink more beer per head than we do, and are, I am told, just as discriminating. It has always seemed to me that this system of dutying in four discontinuous bands of strength of the final product is very much better than ours, once again for the reason that the consumer knows much more exactly what he is paying for and what he is getting. There are a lot of technical differences and difficulties to be worked on before agreement is reached throughout the EEC, and that will take a long time; but it seems to me an objective eminently worth pursuing. I hope our brewers will not allow our present tradition to deter them from co-operating.
§ Turning back to wine, which the Committee made the main subject of its report, I think for several reasons that here also it will be a very long time before agreement is reached on a common Excise structure and duty. For one thing, rates of Excise duty on wine and rates of VAT vary enormously throughout the Common Market. In this country over 50p of duty is charged on a bottle of wine, plus 8 per cent. VAT, and that amounts in total to about the same as is charged in Denmark. I guess that the United Kingdom Government and the Danish Government would be extremely reluctant to see any rates of duty lowered on alcoholic beverages. It is a lot of money that they get from alcohol.
§ To throw some light on this, I should like to ask my noble and learned friend Lord McCluskey whether he can tell me what percentage of gross tax revenue the duty and VAT on drink represents. The French charge hardly any duty on wine at all but they do charge a 17.6 per cent. VAT rate. Incidentally, Italy charges no tax at all, and Germany levies duty only on sparkling wines, and applies an 11 per cent. rate of VAT on wines as a whole. So one sees that there is this wide variation.
§ There will be enormous opposition among these countries to changing their excise duties, not only because it would go against their traditions but because the vineyards are large employers of labour and there are big financial interests in them. Any increases in rates in these countries will be seen by them as discrimination against wine producers, in 1909 exactly the same fashion as our spirits manufacturers saw the proposed EEC tax on spirits, which was suggested as a way of helping to reduce the wine surplus, as being discrimination against them.
§ If the Commission is right, and I believe that to be so, and it is necessary for the operation of a common market to harmonise Excise duties, there is a lot of hard talking to come. I think that the Commission's task will be made much easier if measures are, first of all, taken to reduce the wine surplus to a manageable size. Incidentally, I hope that we shall always manage to maintain a surplus of wine: a shortage would be horrifying. However, only if the surplus is reduced will the Commission be able to avoid the charge that it might manipulate, or might be open to pressure to manipulate, the rates of duty to ease the problem of the wine surpluses.
§ We tried to make the report informative without being prolix and I hope that readers of it have found that to be so. There are some gaps which, in retrospect, I should like to have filled, but as in the course of time we shall be returning to the subject we shall have the opportunity, I am sure, to revise it and fill it out a little more. Indeed, perhaps during the course of this debate some of your Lordships might indicate in what way that should be done. My Lords, I beg to move.
§ Moved, That this House takes note of the Report of the European Communities Committee on Excise Duties on Alcohol (COM(72)225) (Fiftieth Report of last session (HL 263)).—(Lord Raglan.)
§ 5.32 p.m.
§ Lord BROWN
My Lords, I rise in place of the noble Earl, Lord Gowrie, who is unable to speak this evening. I understand that the noble Lord, Lord O'Hagan, will be following me. I hope that if his point of view differs from mine he will be generous to me if I raise one or two questions as he proceeds, but I do not know what his attitude will be.
I speak on these five Directives on the assumption that they will be followed—I do not know when—by other Directives. These Directives merely mean that the Government would have to change duties 1910 on wine, beer or spirits—according to the category in which they fall—by the same amount at any given moment. That merely means that one cannot dice about as between whisky and gin or as between one wine and another. However, there would seem little point to these Directives unless they are followed by other Directives, which are envisaged by the Commission, leaving the actual fixing of the rates of Excise duties on these categories to a committee based on a weighted majority. That seems to open up a very grave danger to this country. Therefore, I am here to try to persuade the Government to put up very stiff opposition to the passing of these Directives.
I have two main objections and I shall deal with the lesser one first, although it in itself is extremely serious; namely, that spirits like whisky and gin will have Excise duty levied on their alcohol content. As regards wines, the Excise duty will be based per gallon, or per continental measure, in three bands. In the case of fortified wines, where the percentage of alcohol is above 22 per cent., they will be taxed per gallon as though they are wines with up to 22 per cent. of alcohol, which almost inevitably means that the alcohol content up to that level will be Excise dutied at a much lower level than the alcohol in spirits. Moreover, alcohol content above 22 per cent. will be dutied at a rate between 20 and 50 per cent. of the rate which would be levied on all the alcohol in whisky, et cetera. I do not know whether noble Lords have followed that but I have given them the data. It means that a drink like port or vermouth will be able to enter this country in competition with spirits, having paid a very much lower Excise duty if the second group of Directives come into force. As a result, I think that we shall find that those who wish to make merry on drinking wine or spirits will be able to do so very, very much more cheaply on fortified wines than on drinks indigenous to this country like gin and whisky. An entrepreneur's paradise is opening up. We shall see all sorts of special drinks, based on wine, but heavily fortified, coming to this country and underselling the traditional drinks which we produce here. That is an extremely serious measure of discrimination. That is my first argument.
1911 However, these Directives are much more serious than that. We are all aware that there is a wine lake in Europe. In the course of the next five, six, seven or eight years that lake will be much enlarged if Greece, Portugal and Spain join the Common Market, as I have no doubt they will. Therefore, it seems to me that the efforts to encourage the consumption of wine will be serious and continue for as long as the Common Market exists.
Within these Directives and those which I think will almost certainly follow, lies the ability of the Committee (to which I have referred) by weighted majority—which means that non-wine producing countries will always be outvoted—to keep the Excise duty on wines very low indeed in order to encourage consumption and the potentiality of keeping the Excise duty on spirits such as brandy, gin and whisky very high. Regardless of whether that happens, it is a very grave potentiality. I do not think that this House or the Government should willingly enter a situation with conditions under which alcoholic drinks produced in this country can be put in a gravely prejudiced position for the future. It may not happen, but I suspect that it will happen. I suggest that we should be quite wrong to pass Directives which let that happen in a situation where we would later be able to do nothing at all about it.
I am reminded of the deliberations by the EEC just prior to our joining the Common Market. They hastily rushed through certain provisions about fishing. Although protests were made at the time, we entered the Common Market without having these matters completely clear. Now, and despite the efforts of Mr. Silkin, I think that we are in the dirt. We did not take account of the potentialities. This is a not dissimilar case. I note that the Scottish whisky producers have said that they approve of these draft Directives. I understand why—at present the French Government are discriminating against whisky in favour of brandy. It seems to me that this degree of discrimination is, in any case, probably illegal but certainly outside the spirit of the Common Market and could be dealt with in other ways. However, even if this is the only way in which to deal with it, a consistency of duty in France for whisky and brandy is a very short-term and not a 1912 useful gain to put against the grave dangers of beginning the process of passing European legislation which will put us in a situation where the result will be ever-increasing imports of wine into this country and decreasing exports of whisky and gin from this country into Member States in Europe. It is a terrifying thought to me that, without thinking about it, we should put ourselves in that position. It seems to me that the Scotch Whisky Association is being extremely shortsighted in suggesting that these Directives should be hastened on their way.
There is only one proper basis for harmonising Excise duties on alcoholic drinks, and that is to base all Excise duties on the alcoholic content of those drinks—in bands, if you like. That is the only fair way. Any other way opens up the potentiality of the gravest sort of discrimination. By levying Excise duty on all alcoholic drinks—wine, beer and spirits—on the basis of their alcoholic content we would create a situation where we should be unable—as we are at the moment—to reduce the consumption of whisky by keeping the excise duty very high and at a lower level on wine. We should still be able to create that situation in the future by levying taxes of other kinds—perhaps VAT—on alcoholic drinks at different levels at the retail stage or in public houses. There is nothing to prevent us from doing that. However, it would be at our discretion here and not at the discretion of the Commission. That is the great difference between the two situations.
I am aware that at present the Excise duty on spirits is, per alcohol content, at a much higher level than on wine. We may want to keep it that way. We can do so even if these Directives are not passed. It would be on the basis of levying Excise duty on all alcoholic drinks on the basis of alcoholic content. That seems to me to be the only fair basis on which the Commission should proceed.
§ 5.43 p.m.
§ Lord O'HAGAN
My Lords, while the noble Lord, Lord Brown, was making his interesting and complicated speech, which I followed as closely as I could, I was not wholly sure whether the kernel of his objection to the Committee to which 1913 he referred was that it was a management committee of the sort normally found in the Community. Am I right in thinking that the noble Lord was objecting to this Committee because it was similar to committees which manage other agricultural products in the Community?
§ Lord BROWN
My Lords, the noble Lord knows much more about these committees than I. My sole objection was that if this set and the next set of Directives go through, the decisions on Excise duty will be made by a body based on weighted majority, which would mean that we do not have the right to veto its decisions.
§ Lord O'HAGAN
My Lords, if that is so, I believe that the nature of this Committee is very similar to that of a management committee normally found in the Community's system of coping with agricultural products. I believe that the noble Lord, Lord Brown, has raised a most interesting point about the powers of such committees. I hope that this is something to which we can return; perhaps we could have a debate on it as the main subject of one of our EEC discussions because the role of these committees is most important.
I hope that the whole House will be grateful to the noble Lord, Lord Raglan. As a former member of the Sub-Committee of the EEC Scrutiny Committee of your Lordships' House I am particularly grateful to him. I am particularly honest in my thanks for the clarity of his report, which has enabled me to study it and comprehend at least a part of this highly technical problem at some short notice. I think that your Lordships owe a great deal to this Committee. This particular report is an example of what the Committee does at its best. Community proposals coming from the Commission are technical, complicated, and sometimes almost labyrinthine. The reports from the Scrutiny Committee light us through the Community's darkness.
I am sorry that we do not have more contributors to today's debate. I hope that it is not out of consideration to the teetotal vote that the Liberals have abstained from appointing a spokesman, because I believe that this particular set, series or group of Directives, whether they 1914 have changed or not, as described to us by the noble Lord, Lord Raglan, are a good example of the increasing subtlety with which the EEC attempts to deal with highly technical problems that have a great deal of political content.
I am sure that the Sub-Committee is quite right when it paid tribute to the fair-mindedness of the Commission in attempting its draft on this most intractable problem. The Commission is learning. It is learning to be more responsive and this series of problems concerning the harmonisation of internal taxation for alcoholic liquors is something about which every citizen in the Community has a view and upon which every political Party must take a stance.
Therefore, whether or not there are major flaws and objections to the actual proposals contained in the Commission's document, I hope that your Lordships will share with me a feeling that the way in which the Commission is approaching this problem is an improvement on some of its more remote and didactic efforts which we have debated in the past.
As someone who has taken an interest in the progress of the Community, I hope noble Lords will agree with me that a proposal from Brussels which increases the likelihood of a more liberal and general supply of good alcoholic liquor at a reasonable price is something which we should be grateful to the Community for suggesting. Indeed, it is the sort of Common Market in which I think many people would not find too much to object to. Looking at this proposal from a purely national and British point of view, it is extremely likely that what has been suggested by the Commission would be of considerable advantage to the British spirit trade, particularly the whisky producers, because we in this country now command 60 per cent. of the production of such liquors.
The noble Lord, Lord Brown, had a series of highly technical objections to the proposed system of taxation, although he did not object to the goal towards which these Directives are aimed. It may be that his objections to the system are valid. Nevertheless, a new way of achieving the same objectives may be brought into being and I hope that the noble and learned Lord, Lord McCluskey, will be able to comment on the fears 1915 expressed by the noble Lord, Lord Brown, which appeared to differ somewhat from the fears of those involved in the industry themselves.
Another advantage which those engaged in these activities in this country would derive would be the proposed credit period for payment of Excise tax because there is no such credit under current British legislation. This is not a problem which can be solved quickly. The noble Lord, Lord Raglan, told us that even since the publication of this report the Commission have had further thoughts because there had been setbacks in the tackling of these Directives. But this is a subject to which the Community is bound to return, if only because of the increasing growth in the wine lake in other Member States of the Community. That wine lake is not just an issue which involves a surplus of alcoholic drink—which sounds something of which it should be hard for us to disapprove—it is, of course, a most intractable and complex social problem for all those who are engaged in the growing of the grapes for the wine who, in many cases, have little alternative employment available to them in the areas in which they live.
This is not a problem that will go away. It is something which the Community will have to tackle even if it is not in the form as laid down in these Directives. I hope that the noble and learned Lord, Lord McCluskey, can give us an up-to-date briefing on the exact stage which discussion in the Council of Ministers, or in the working groups in that Council, has reached. What is the current state of play? How near are we to seeing any one, or part of any one, of these Directives being implemented and put into practice?
The noble Lord, Lord Brown, raised one other issue that I thought was of great importance; that was the question of the enlargement of the Community by the membership of Spain, Portugal and Greece. I hope that the difficulties that may come when those countries, all of them or some of them, become full—and I mean full—members of the Community will not act as a deterrent to the solution of the internal harmonisation problems that are now being discussed on the basis of these Directives. Even if those countries do join they may have a prolonged 1916 transitional period, or something equivalent to it, and if we are to wait until all those countries have joined and are all full members of the Community before we attempt to do something about the internal taxation of alcohol within the Community, then we may be waiting for a long time indeed.
§ Lord BROWN
My Lords, I was not in any way suggesting that it should be dependent. There is a wine lake already of growing proportions—I think the noble Lord will agree.
§ Lord O'HAGAN
My Lords, I was not disputing with the noble Lord, I was not criticising what he said. I am coming very near to the end of my remarks. Apart from giving us the current state of play on these Directives, could the noble and learned Lord, Lord McCluskey, give us some inkling of the difference between the annual income that the Government derive from tax on wine and the annual income they derive from tax on beer? The difference between the two is probably fairly large, because although the taxation that we levy in this country on wine is in fact the highest in the Community per gallon, very little wine is consumed in this country as compared with the amount of beer consumed. I raise this point because I want to ask the noble and learned Lord whether what I am now going to suggest is wholly beyond the bounds of possibility. I do not want him to say, Yes, I just want him not to say, No.
This Government have suffered a great deal in the EEC because of their refusal to bargain in a gentle and reasonable manner. Therefore, we have had the JET project endlessly and needlessly delayed from coming to this country. Would it not be possible for the Government to consider a concession to other Member States on the lowering of taxation on wine as something which would help deal with the wine lake, be fairly popular in many quarters in this country, and show the sort of constructive give-and-take relationship which is needed in the Community? That is not a formal suggestion I am putting forward. What I merely want to get on the record is that we have a great deal to gain from the sort of proposals suggested in this report, 1917 and I hope that the Government will not be too inflexible about our present system of taxation when it comes to be negotiated.
As I think the noble Lord, Lord Raglan, suggested, we shall need to return to this topic as events take us on, and as proposals about the harmonisation of internal taxation of the Community on alcoholic drinks change and develop. I hope that we can return in perhaps a year's time or so to look at this subject, and I hope that if I speak on that occasion I shall have more notice than I have had today.
§ 5.57 p.m.
§ The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)
My Lords, I rise from a growing paper mountain to meet the points that have been raised in this debate. First may I say what a pleasure it gives me to acknowledge the presence on the Opposition Front Bench of the noble Lord, Lord O'Hagan, and wish him a long—and very long—time in that position. It comes as no surprise to me to find him displaying an instant expertise in this matter, because the last time we crossed swords in this Chamber he was more "bitter" than "mild" on that occasion. Indeed we had a "spirited" debate, and the subject was the taxation of cider. With his knowledge of these matters and the EEC it comes as no surprise to me that he should instantly display a competence which leaves me gasping.
I think that perhaps my noble friend Lord Raglan should have declared an interest, as indeed I now do, as a home brewer in these matters. But as he did not, perhaps I need not go any further into the matter. One point has just been made by the noble Lord, Lord O'Hagan, and that was a mildly critical point about the Government's attitude in EEC matters. I think that must not go wholly uncorrected. As I understand it and as I think many people in this country understand it, the Government's approach in EEC matters is that we must fight as hard for legitimate British interests as other Member States fight for the interests of their countries. If that is sometimes represented by a hostile Press as being all bitter and twisted, then that is the fault of the Press rather than of the Minister who has been mentioned.
1918 I might mention one small detail. We are sometimes criticised in a different context—indeed there is a debate in another place at the present time—for delaying in the matter of direct elections. In a very related field here, the value-added tax sixth Directive, and the obligation of Community countries to introduce a harmonised system by 1st January 1978, we alone of the Community countries are able to do that. Therefore, we are not always at the back; we are sometimes in the front. It cannot be wrong to press ahead with pursuing our legitimate interests at the stage when these matters are being discussed.
To turn to the subject matter of this debate, the documents which are referred to in the Committee's report are the documents which represent the original proposals of the EEC Commission submitted to the Council in 1972. At that time, of course, there was six Member States, and their attitudes and interests in relation to the whole subject of this debate were perhaps slightly narrower than, and certainly different from, the attitudes and interests of the whole Community as now enlarged. Undoubtedly, the proposals which were then put forward contained a number of points which were of great concern to, and not wholly acceptable by, this country.
We were able to accept, and do accept, in principle, the harmonisation of the structure of Excise duties and the methods of control administration; but, as to the details, of course we had to look at them very critically indeed—and that is precisely what the Select Committee did. But, as your Lordships will see from its date, it was printed on the 26th July—that is to say, the 50th Report—and the very next day the Commission submitted a communication to the Council which led to a quite radical change, and that was the change referred to by my noble friend Lord Raglan.
Perhaps, invited as I was by the noble Lord, Lord O'Hagan, I might spend one minute trying to bring the matter up to date for those who are not familiar with what happened. At the end of July 1977 the Commission sent a communication to the Council. The purpose of that communication was to give a fresh impetus to the Council's examination of the earlier proposals, which had rather dragged since 1972. In essence, the Commission, while 1919 confirming their earlier stance on matters of principle, rejigged the proposal and altered their priorities. What they in effect did was to say, "Certain problems are not going to be solved swiftly; therefore, let us select those which can be dealt with more swiftly". They urged work to be resumed on the draft Directives and, in particular, the draft Directive, first of all, for harmonising excise duties on alcohol; secondly, the draft Directive for harmonising the structure of excise duties in relation to beer; and, thirdly, the similar Directive in relation to mineral oils—the beer and alcohol to be taken together, followed by the third one on mineral oils. That would then postpone the question of the Directive on wine and the other questions which are discussed in the Select Committee's report.
Something was said, too, about the forthcoming enlargement, or likely enlargement, of the Community. We would hope that it would be possible to solve some of these problems before they become even more complicated by the further enlargement of the Community. Your Lordships will see that what we really have, therefore, is a change in the whole package since July 1977. I would not say that matters have gone back to square one, but it is certainly true that there is a lot of talking yet to be done, as my noble friend Lord Raglan said, and there is still a lot of room for manoeuvre. The views expressed in this House and, indeed, in the Select Committee's report will be most valuable when the United Kingdom delegation has to discuss the details of these proposals at working group level in Brussels. Indeed, that is where the matter now rests, and the next stage is to resume working group discussion in Brussels.
There is a point which has been made which I should like to deal with at this stage because it arises out of that and a point made by my noble friend Lord Brown about unanimity and majorities. In the original documents, which have now been shelved as a result of the new initiative, it was proposed that there should be set up a committee operating by a qualified majority—and that, I think, is what my noble friend had in mind when he talked about the qualified-majority. First of all, that proposal has been shelved; and, secondly, in any 1920 event it is a proposal for a committee to deal with technical matters only, and, in relation to rates of duty and taxation, unanimity is still required and the proposal in the Directive was not any different from that. So I think my noble friend's fears on that account are, as one sees the present documents and the present proposals, not well founded.
In considering the discussions which have to take place in Brussels, of course, the views of the trades concerned will also be sought, and I think they might well, on balance, see some advantage in making progress in relation to alcohol and beer. I can bring your Lordships further up to date in regard to the attitude of the Scotch Whisky Association because they were good enough to send me today a copy of their representations before the Committee up-dated to take account of developments in and since July 1977. They made, and continue to make, strong representations against breaking up the package, and that is a representation by them which we shall certainly take into account when we go into our discussions. The United Kingdom Government are not committed to the new approach which the Commission proposed to the Council—the approach which is contained in the document R1966/77.
I would say only this in relation to what the Scotch Whisky Association submit to us, that we think—and I think they recognise this themselves—there still will be some advantage in proceeding with the Directive on alcohol, because if their prime competition comes from other spirits, like brandy, if one proceeds with the proposals contained in the draft Directive then there will be an equalisation of competition between whisky, on the one hand, and brandy on the other, throughout the Community, and that can only be a benefit. Secondly, the same Directive contains the proposal—it is now in Article 21—that there should be a deferment of the date when duty has to be paid. It is a deferment which works out at about two months. At the moment, as your Lordships know, when whisky comes out of bond duty falls to be paid at once. Under this proposal, the duty would be postponed for approximately two months.
§ Lord BROWN
My Lords, would my noble friend permit me to ask him a 1921 question? Is it not possible to cause the French Government to treat whisky and brandy, so far as Excise duty is concerned, in the same way under other rules of the Common Market, rather than resort to these Directives as a means of correcting that situation?
§ Lord McCLUSKEY
My Lords, I think my noble friend raises an important point. Under Article 95 of the Treaty there are provisions which might well be invoked, and the method of invoking them would be for one body, one person or one interest to take infraction proceedings against the French. But, of course, not everyone in the Community is entirely guiltless; everyone lives in a glasshouse, to some extent. There are two possible approaches. One is that everyone starts infraction proceedings against everyone else, and the whole thing becomes bogged down, to the delight of lawyers in Luxembourg; the other alternative is to proceed by agreement to draft Directives and try to solve the problem in that way. As at present disposed, the Government would like to proceed by way of Directive rather than a lot of bitter litigation.
May I turn briefly to the matter of the beer Directive? We have a system at the moment whereby the excise duty is calculated in relation to the worts; that is to say, before fermentation. Other countries, in particular Germany, have a different system whereby the duty is exigible at the time you have an end product, a beer. The proposal in the draft Directive on beer is to shift to the German system. That system is one which United Kingdom brewers are tentatively inclined to regard favourably. There is no fiscal reason why we should not move to it, although it involves some complicated calculations in order to ensure that there is no substantial loss of or increase in revenue. It was suggested in a recent report of the NEDO Sector Working Party on brewing that we could move to such a system, but these are matters which have to be discussed further with the trade interests involved before an acceptable arrangement can be concluded.
I was asked particular matters, and I think I should try to reply to them. First, my noble friend Lord Raglan asked me specifically the question as to 1922 what percentage of the total taxation is represented by the duty and, I think, the value added tax on wine and spirits. It is in fact 3.9 per cent, of the total taxation revenue.
My noble friend Lord Brown spoke of the competition between whisky, on the one hand, and certain wines on the other, I do not know that the Scotch Whisky Association has made much of that particular competition. I think, as I said a moment ago, that the principal competition is between one spirit, whisky, and another spirit like brandy rather than between whisky, on the one hand, and certain wines on the other. But we shall certainly take account of what the noble Lord said when we discuss these matters further with the Scotch Whisky Association.
I think that, in general, the Government approach is that, in view of the change in stance by the Commission, we need to go back to our trade associations and our various interests and re-discuss these matters with them; and we need to try to keep the initiative going at Brussels as soon as may be in order to achieve some advance in bringing these matters to a conclusion. We would also, in principle, endorse what the Commission has said: that one must keep in mind, at least for the medium term, the introduction of the framework directive and the other directives which are the subject of this report. However, I think that tonight I can go no further than to say what I have said.
I can certainly assure the House that the Government and those advising them will be grateful for the points that have been raised and will take them into account. There is one matter that I omitted to reply to. I have now been supplied with the information. It is this. The United Kingdom revenue from tax on spirits that I was asked about is said to be £790 million; from beer, to be £785 million; from wine, to be £234 million and from British wine to be £35 million. British wine is the old name for what is now known as "made wine"— which I spell for your Lordships: m-a-d-e. Made wine is wine produced from an imported must which is then fermented and which may have alcohol added. Unless there is any other point which your Lordships may feel that I have not answered, I do not think I can assist the House further.
§ 6.2 p.m.
§ Lord RAGLAN
My Lords, I should like to give my congratulations to the noble Lord, Lord O'Hagan. I know very well that he was given only a few minutes' warning to step into this breach. I handed him some papers, but the noble Lord had read the report already and that gave him an advantage, one might say, over somebody who had not read it. I thank him for his remarks about my Committee and I should like to take this opportunity of thanking him for the contribution he made to the committees before he moved on. I congratulate him again on the tour de force which he managed to pull off this afternoon at such short notice.
My noble and learned friend Lord McCluskey is right. I am a home brewer and so I know more about wine than people who are not. I am at the moment in pursuit of a very good recipe for barley wine of which I was given a bottle the other day and which caused my wife to retire to bed rather earlier than she otherwise might have done. My noble and learned friend Lord McCluskey said that the Government are not committed to this idea of splitting up the package and are not taking a stance on it at the moment. Might I suggest that it does not matter very much whether the package is split so long as one only tries to reach agreement on structure and is avoiding the question of rates of duty for the time being. It might be easier for the Commission to take these matters one at a time so that they can concentrate on them, rather than to bring them to the Council, the European Parliament and to Member States in one big dollop.
I omitted to question my noble friend about the revenue raised from beer. I have done some quick arithmetic and I think that the total revenue raised from Excise duty on wines, spirits and beer is about 7 per cent. There is 3.9 per cent. from spirits and wines and a huge quantity from beer. We are dealing with a sensitive area so far as the Chancellor of the Exchequer is concerned; that was the only point that I wanted to make.
My noble friend Lord Brown wanted the Government to put up a stiff opposition to these series of Directives. He alleged that the Excise duty could be weighted heavily against spirits. Indeed, 1924 we said that in our report. It may be helpful to your Lordships if I say that on page XIII of our report we give the present rates of duty on alcohol obtaining in this country. This shows that the tax per gallon of pure alcohol in respect of spirits is £47 and that on fortified wine (at 22 per cent.) is £20; so that the tax on the alcohol contained in fortified wine is at present less than half that of the tax levied on the alcohol in spirits. That is perhaps the reason why wine mixtures are becoming so popular. If you mix wine with any kind of spirits and import it, there is less duty to be paid than if it were spirits—and you get more "kick". The Government may have to act in that respect. But I think that from what my noble and learned friend Lord McCluskey said about the way in which we hope to reach agreement over the method by which the duties will eventually be levied by the Commission, we shall be able to manage these in such a way that no one beverage will be discriminated against in favour of another.
§ On Question, Motion agreed to.