§ 7.8 p.m.
§ Lord O'HAGAN rose to ask Her Majesty's Government whether they will now increase the figure for the annual production of farmhouse cider below which cider makers are exempt from taxation. The noble Lord said: My Lords, after food and water we come to cider, which is both, and above and beyond, either. I should perhaps explain to the House why I am troubling your Lordships with this matter, and I wish that I could issue a glass to all who have stayed to hear me, particularly my noble friend Lord Ferrers, who is kindly going to add a word, I believe.373
§ In last year's spring Budget the Chancellor put a tax on cider for the first time, and in so doing he filled in a gap in the spectrum of tax on alcoholic drinks. It is not a general debate on whether cider itself should be taxed that I am trying to initiate tonight. I am not asking the noble and learned Lord who is to speak for the Government to repeal the tax on cider, popular though that would be up and down the country, particularly in the West Country. I am asking the Government to look at the effect of their tax on farmhouse cider makers, who represent a very small but, I think, important category of people who make cider.
§ My Lords, last year the Government introduced this tax, and at first the duty was 22p a gallon. It was then increased to a figure of 24p a gallon. The tax was introduced in September last year, and its effect was immediately felt in the West Country. On the 14th March I put down a Question for Written Answer in your Lordships' House about the results of the imposition of this tax, and when I had the reply—which showed that the Government were at least prepared to consider representations about this subject—I received a great deal of attention in the Press in the area where I live, which is the West Country. I also received many letters from farmhouse cider makers, and I have visited several of them in the places where they make cider. It may be that the Government up here in London, as it might look to those of us who live in the Western part of the country, have not yet heard of the amount of resentment that the imposition of this tax has caused, but the National Farmers' Union has, and I have a letter from Sir Henry Plumb supporting my case, which I shall quote later in the debate.
My Lords, what is the effect of this tax? What does it mean to the farmhouse producer? Perhaps I can give your Lordships an idea very quickly by quoting an account from one particular farmhouse cider maker—and I should make it quite plain that I have no commercial or financial interest either in this farmhouse cider making undertaking or in any other. My Lords, this individual who got in touch with me says this:
Cider has been made on this farm since 1926. We currently produce 6,000 gallons per year, which we sell direct to local people who call at the farm. Until September 1976 our little
business was a simple one. The cider was made and blended during spare moments from farm work. There was a minimum of paper work. Since September 1976 the situation has changed dramatically; for example, the task of blending. This is a weekly job involving the transfer of small quantities of cider from one barrel to another to achieve a consistent product. It used to take about two hours. Now each movement of cider must be recorded and entered in the entry book "—
that is the Government tax form—
adding at least half an hour on to the job. The forms are complex and, being designed for much larger concerns, hardly relate to what I am doing.
Then there is the problem of disposing of bad cider, a not infrequent necessity previously involving nothing more than pouring it down the drain. Now the Excise officer must be invited to attend. An appointment must be made so that he may observe the exact quantity of cider that is being emptied away. The old methods of production can no longer continue. No one other than myself can even attempt the paper work. Those who used to lend a hand with blending, emptying out barrels, etc., can no longer do so. The shared pleasure in making cider for the locality is a thing of the past.
Financially, the effect of the duty has been disastrous. Before September 1976 our selling price was 75p a gallon. The current duty is 25p, more or less—33 per cent. of our previous selling price. Such a hefty price rise has made it impossible for us to pass on more than a fraction of our own increased costs; e.g., the price of apples and the agricultural wage. Sales have already dropped by 30 per cent. since the imposition of the duty. We cannot afford to lose any more.
The future looks bleak unless the threshold is raised and unless the form-filling is simplified. The old purchase tax system was easily managed. Raising the threshold to 5,000 gallons would enable us, along with a depressingly small number of other producers, to carry on the old craft of farmhouse cider making. We would happily drop our current production to 5,000 gallons if it meant that we could continue to provide a good cheap drink. Farmhouse cider is more than a brand name; it describes a local drink, made from local fruit, whose production forms a small but integral part of the work and life of the farm.
§ My Lords, that particular gentleman put in a clear and coherent form the feelings of many farmhouse cider makers throughout the West Country and in other places, and it is that plea that I am presenting to your Lordships tonight in the hope that the Government, who I do not think have yet fully realised the consequences of what they have done, will now take the opportunity to reverse the disastrous trend that they have set in motion. It may be that farmhouse cider making was already something which was dying, but what the Government are doing is tolling the death knell of this traditional farmhouse industry.375
§ My Lords, I wish to start with the burden of form-filling, and I should like to thank the Government for what they have said to me already. I have an Answer here, given on the 19th May, in which the Government have agreed to simplify the forms for cider makers who make less than 20,000 gallons of cider in a year. I should like to thank the Government for that concession and ask them when these forms will be available, and whether a copy could be sent to cider makers well before they actually have to be filled in so that they can get used to them. Perhaps the noble and learned Lord who is to answer can give us some information about this change in Government policy, because it was announced on the 19th May.
§ The burden of form-filling may be relieved, and it is the burden of form-filling which has caused much of the hardship to the farmhouse cider makers. But what worries me as a Parliamentarian is the enormous extent of the bureaucracy that is required for what I take to be a trifling and, indeed, insignificant amount of revenue produced for the Government. I know that the Government need every penny that they can get in order to spend it for purposes of which we sometimes approve and sometimes disapprove, but, nevertheless, the country needs the Government to have revenue to run things for us. Nevertheless, I should like to know from the noble and learned Lord whether he agrees with me that farmhouse cider makers do not yield the Government much money.
§ I have another Written Answer here, again dated 19th May, in which the Government told me that there were only two registered cider makers—and they are both in the West Country—producing under 5,000 gallons. It may be that that is wrong; it may be that since the 19th May the figures have changed; but that is what I was told on the 19th May by the noble Baroness, Lady Birk. My Lords, at the current level of taxation, which is 24.2p a gallon, I calculate that the gross annual return to the Government from these two producers who are producing up to 5,000 gallons, based on the Government's own figures, is a figure of £1,573; that is, 0.01 per cent. of the total income from the cider tax, the total cider tax now producing an income which is calculated by the Government to be about 376 £11 million. To take the figures, also supplied to me by the Government on the same day, of the number of cider makers who are producing up to a figure of 15,000 gallons—and, again, most of those are in the West Country—if the tax was removed from them then over a full year that would represent a loss to the Government of 0.17 per cent. of the total income that they receive from the tax.
§ My Lords, as Sir Henry Plumb made so clear to me in a letter that he wrote on behalf of the NFU, the truth about cider production is this. The bigger producers produce between 98 and 99 per cent. of the total home production of cider, and it is the larger firms, the national firms and the smaller local firms, which produce the revenue for the Government and which, quite rightly, the Government charge to add to the general income that they need.
§ The case I want to put to your Lordships is that the cost of collection of this trifling and insignificant sum of money—and my calculations are based on the Government's own figures—is wholly uncompensated for by what is collected. The Customs officials make weekly visits to the farmhouse; these elaborate forms must be printed; the Customs and Excise officials must write letters, they must telephone, they must employ secretaries. In my part of the world they must travel long distances in cars. Some must spend whole afternoons sitting in farmyards counting the number of customers. Are such labours really justified by the insignificant amount of revenue the Government receive? If what I was asking for was brought into effect the Government would still retain 99.98 per cent. of their income from cider tax. That figure is based on the Government's two figures: the gross amount of revenue at £11 million and the number of cider makers registered. If that limit were extended to 15,000 gallons—and I believe that we should give consideration to extending it—the Government would still retain 99.74 per cent. of the total income they now receive.
§ I want to ask the noble and learned Lord, Lord McCluskey, this question: Do the Government seriously and honestly consider that the amount of revenue they receive from these small producers is worth the time, trouble and 377 effort that officials must put in in order to collect it? Is it really justifiable in these days of difficult economic conditions that hard-pressed Customs and Excise officials should spend their time chasing round the backyards of farmhouses when they should be investigating much more serious matters which could yield a much larger income to the Government?
§ I do not want to criticise these Customs and Excise officials, either those who prepare the tax or those who have to collect it. They are only doing the job that the Government have made them do. I do not believe in attacking those who cannot answer back. My criticism is of the Government for their lack of concern about what happens to the farmers and the smaller producers in the cider industry. Unless the Government do not care what happens to part of the traditional way of life in many of the smaller rural communities they will lift this limit now. The tyranny of the form filling has already caused people to stop; the threat of the form filling has made some people discontinue; the knowledge that these forms will have to be filled in has made others give up who were thinking of carrying on.
§ If the Government care about what is part of a traditional farming enterprise—you feed the crushed apple to the beef cattle; you can do the harvesting first, for the cider making comes afterwards—and if the Government are concerned about the effect of their tax on the small farmhouse cider makers, they will lift the limit now. They will not, by so doing, bring about a decrease in the amount of revenue that they obtain; because I believe that some of these smaller producers might be willing to expand and to pay the tax if they knew that there was a certain amount that they could carry on producing that would be exempt and would give them a secure income. I think it is a possibility that the Government could in the end produce more income for themselves.
§ My Lords, I should like to thank the House for listening to me. I hope that the Government are prepared to listen and that they will give some due thought to the facts that they have heard from me, both tonight and at other times. Even if the noble and learned Lord is unable to say that this limit will be raised now, I hope that he will at least accept that what the 378 Government have done so far is to drive the final nail in the coffin of the small producer. Unless the Government are prepared to lift the limit, they will carry the responsibility of putting an end to something that has been part of the traditional way of life in this country, and particularly in the West Country, for many hundreds of years.
§ In that serious vein I put this Unstarred Question tonight—not because it is a major matter for the long-term economic future of the country, but because it is something that is deeply felt in the part of the country from which I come. It is also that I believe the Government do not know about the effects on the ground of what they have been doing. When they have the facts brought home to them, the Government will see, in all fairness and generosity to those who want to carry on this traditional activity as part of their farm routine, that the time has come to lift this sentence of death from the farmhouse cider making industry.
§ 7.26 p.m.
My Lords, I, too, hope that the noble and learned Lord will listen—and will have listened, which is far more important—because I do not think many noble Lords have an intricate knowledge of cider making or of the industry other than, possibly, the consumption of the product. Still fewer have knowledge of the process of farmhouse cider making. My noble friend Lord O'Hagan comes from that part of the world where they do this cider making and where, as he has cogently explained, it is part of the tradition and way of life that operates there. He has used this evening the vehicle of the Unstarred Question for precisely the purpose for which it should be used; to highlight a specific part of our national life which can be affected which affects possibly only a very few people but when it affects them, it affects them heavily.
I do not think that anyone who heard my noble friend this evening could have thought that he had not put forward a very plausible case, at least, for consideration. Everyone knows that the majority of cider is made by the big companies and, as my noble friend has said, that is not the onus of his complaint. Everyone knows that the Govern- 379 ment have a perfect right to impose a levy or Excise duty on cider as they have on whisky or beer and other things. That is not a cause of complaint and is nothing with which my noble friend quarrels.
I think I am right in saying that the only point to which he draws our attention is the method by which the imposition of this tax is affecting people individually and is affecting a part of an industry which is wholly home-based and one which is not, by any stretch of the imagination, subject to the normal methods of taxation that any other industry would be.
The problems with which these people are beset in carrying out the Government's wishes are extreme. They have been given vast quantities of paperwork and they are expected to fill up huge forms. I have some of the forms here. Perhaps I could quote from one of them:
Column 1:You enter the date. This column must be completed whenever an entry is made in any section of Part 1.Column 2:Each fermentation must be a consecutive number. This column must be completed whenever entries are made in Columns 3, 5, 6 or 9.Column 3:Notice to ferment. Notice must be given at least 12 hours before commencing to ferment. The column may be completed at the same time as column 1. Enter the date and the time.Column 4:Enter the number of other identifying marks of the vessel in which the fermentation will take place.Column 6:Enter the date and the time.This is with regard to drawing off.
So we go on through columns 7, 8, 9, 10 and 11. That is only Part 1. There is then Parts 2, 3 and 4. All this is inflicted on a section of the rural community who have not the facilities, aptitude or resources to carry out this kind of work. Each barrel has to be numbered and, as may noble friend pointed out, if you transfer cider from one barrel to another you have to ring up the officials in order that they may come out and look at the barrel. If a barrel bursts, they 380 have to be telephoned again and they come out to confirm that—and presumably to see whether the farmer has sucked up the contents!
It is an excessive state of affairs. My noble friend's suggestion is this: instead of leaving the figure at 1,500 gallons by which one is exempt, why not raise it to 5,000 gallons? That would make life a great deal easier for a great many people. The noble and learned Lord, Lord McCluskey, will be well briefed, and I should like to ask him some questions. Am I right in thinking that the total Excise revenue from cider making is £10 million? What will be the loss of revenue if the limit goes from 1,500 gallons—which it is at the moment—to 5,000 gallons?
What will be the savings enjoyed by the Inland Revenue by not having to collect this tax? The noble and learned Lord, Lord McCluskey, is a very conscientious person and I have no doubt he will be able to give the correct answer. My guess is that the total savings would outweigh that which is collected in tax. What puzzles me is the point to which my noble friend referred, and this is contained in a Written Answer to a Question he put on 19th May. In answer to the Question: "How many cider makers producing under … 5,000 gallons a year, have registered?" the noble Baroness, Lady Birk, said: "1 in Somerset and 1 in Dorset".
I find that a staggering figure. Apparently there are only two people who have been subjected to this vast quantity of paper. If that is so, I suggest that it is an absurdity. It is very likely that there are many more people who have not registered for some reason or another. I do not know whose responsibility it is to register. If there are a lot of people who have not registered, clearly the system is not working correctly.
My quiet calculation is that if both these two farmers each produce the maximum of 5,000 gallons—between them producing 10,000 gallons—and if the excise duty is 24.2p, the maximum that can be claimed is £2,420. I know that that does not agree with my noble friend's figure; but it seems to me that this is the maximum which the Inland Revenue could claim from this tax.
The object of my noble friend's Unstarred Question is not to encourage some fearful and secret industry like gin distilling 381 or anything like that; it is not to benefit a specialised section of the population in a fiscal way which is unfair to others. It is not to denude the Government of revenue. All he wants to do is to make life simpler and more pleasant, both for those involved and for the Inland Revenue, to dispense with the absurdity of paperwork—and work which must be as frustrating to the Inland Revenue as it is to the farmers concerned—and all that to produce a net saving to the Government by not having to employ the people to undertake this particular task.
I am sure that the noble and learned Lord, Lord McCluskey, will take this point to heart. If he sees fit to accede to my noble friend's request, he can he assured that it will be a wonderful burden lifted off the backs of those farmers who carry out this traditional form of cider making, and it will be in a wonderful spirit of Jubilee Year. I hope that the noble and learned Lord will accede to this request because I can assure him that there is nothing sinister in it.
§ 7.36 p.m.
§ The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)
My Lords, I hope that the noble Lord will forgive a mere Scot for rising to answer this Question. As a Scot, I have to express preference for a beverage other than cider or perry. But both as a Member of this noble House and as a Member of the Government Front Bench, I hope that I can properly approach the matter in the words of our daily prayer: "laying aside all private affections".
Were it not for the fact that I am more fully informed, I should be persuaded by what noble Lords have already said. Let me put the House more fully in the picture about the circumstances attending this particular duty. When the cider duty was introduced in the Budget in April 1976, the Chancellor said that he proposed to exempt small farmer producers from the new duty. Noble Lords will know that most traditional cider in the West Country is made by farmers, some of whom are relatively large producers. It was not the Government's intention that they should be exempt just because they were farmers; they had to he small producers. Neither the noble Lord, Lord O'Hagan, nor the noble 382 Earl, Lord Ferrers, seeks to challenge this.
The only point arising therefore at this stage is: How big is small? After consultations between Customs and Excise officials on the one hand, and representatives of the National Farmers' Union and various associations which represented commercial cider makers on the other, it was decided that a cider maker would be exempt from the requirements of this duty if his annual production did not exceed 1,500 gallons. That is the figure which is in the regulations. This figure was seen, and, I would submit, accepted, by all as a reasonable compromise between those who wanted a higher exemption figure—and they included the National Farmers' Union—and those who wanted there to be no exemption at all.
The reasonableness of that figure is best illustrated by the fact that none of the bodies consulted has since made any representations whatsoever suggesting that the limit should be increased. The only representations which have been made are those by the noble Lord, Lord O'Hagan. None of the bodies has made any representation to the Government at all since the discussions which preceded the introduction of that particular limit. This is not altogether surprising because there are 67 cider makers which are exempt compared with only 48 who have to pay duty. An increase in the exemption limit from 1,500 to the figure suggested, of 5,000 gallons, would exempt only a further eight cider makers.
Your Lordships are entitled to an explanation of that figure because the Question for Written Answer which was put down by the noble Lord, Lord O'Hagan, asked how many cider makers producing under 5,000 gallons a year had registered in each county. The position is that the numbers were given for those producing under 5,000 gallons, but no fewer than six claimed that they produced exactly 5,000 gallons. So if the exemption limit were raised to 5,000 gallons, the number affected would be not two but eight.
My Lords, that is a peculiarly precise figure. Is the noble and learned Lord quite certain that the 383 number of six he has quoted refers to those who produce 5,000 or who produce more than 5,000?
§ Lord McCLUSKEY
My Lords, I am satisfied with what I have said. The position is, of course, that at this stage anyway, the small cider producers, and indeed the other cider producers, are making returns showing what their production is. As your Lordships will understand, one cannot be precise and therefore these are to some extent estimates; and it so happens that although two gave figures between 1,500 and 5,000 gallons, six estimated their production at 5,000 gallons. So the figure is precise but the estimate is simply what it claims to be—an estimate.
My Lords, I am sorry to interrupt again, but may I ask whether, if in fact they did produce 5,001 gallons, the original figure of two would be correct?
§ Lord O'HAGAN
My Lords, I am trying to restrain myself and not to keep bobbing up, but is the noble and learned Lord really saying that the imposition of this tax has had no deterrent effect? Is he really saying that people were not frightened off from continuing to produce cider at all by the imposition of the tax? Is he really saying that the level of tax at the moment is not deterring others who might start, or wish to go on, from doing what they wish to do? It seems to me he is rather taking a "snapshot" of the present situation and not looking back, (a) to the effects that the imposition of the tax at this level has already had, and, (b) to the deterrent effect that it might have in the future.
§ Lord McCLUSKEY
My Lords, the Government have no knowledge of anyone who has been deterred from continuing to produce farmhouse cider by the fixing of the limit where it has been fixed. They have no knowledge of anyone who has been deterred from entering this field because of the limit, and none of the bodies has suggested that there is any such person. The noble Lord waves his arms in what obviously must be dissent, but I can only say that these bodies have been consulted. They include the National 384 Farmers' Union and cider makers associations of different kinds, including one particular body representing the small producers; and we have no knowledge of anyone who has thrown his hands up in the manner demonstrated by the noble Lord and departed from producing cider because of the limit—
§ Lord O'HAGAN
My Lords, I hope the noble and learned Lord is not accusing me of not telling the truth. If he wants to come down to the West Country and meet some of these people he, or the Government, is welcome to do so at any time and I will put him up for the night. Just because the Government have not found out, it does not alter the facts of the case. My Lords, I will now sit down and keep sitting down; but I promise the noble and learned Lord that the Government have not taken the trouble to find out the facts, and it is no use justifying their ignorance.
§ Lord McCLUSKEY
My Lords, I hope that if the noble Lord has knowledge, which the Government do not have, of small producers who have retired from production because of the imposition of the limit of 1,500 gallons and, in particular, if he has knowledge of such producers who would resume production if the figure were fixed at 5,000, I hope that he will write to me. I will certainly bring that knowledge, which is novel, to the attention of Her Majesty's Customs and Excise.
There is another factor that has not been mentioned, which r think I must mention. The Government must weigh the interests of the small farmers, for whom cider making at this sort of level of production is perhaps a somewhat peripheral activity, against those of other small traditional cider producers, who are not farmers at all but for whom cider making may be their main means of livelihood. We are not at this point so concerned with the effect on the revenue of raising the exemption limit: indeed, raising it to 5,000 gallons would, we estimate, cost no more than about £10,000 in a full year in terms of lost revenue. I hope the noble Earl can see how that figure comes in relation to the eight people who would be exempt rather than the two, as appears from a first reading of the Written Answer to the Question that was asked. We are more concerned with the effect of an increase in 385 the exemption limit on the cider makers whose production is a little above the exemption limit, whatever its level. That effect would be felt by all small producers who are above the limit, whether or not they were farmers.
As I have said, an increase in the limit would benefit only eight producers. They would become exempt, but it could seriously affect the trade of a larger number who would be faced with competition from cider makers who produced only slightly smaller quantities but who could sell, because there was no tax, at a price of up to 24p per gallon less. Such competition might ultimately have the opposite effect from that sought by the noble Lord, who, I think I understand correctly, has the wholly laudable aim of preserving the tradition of West Country cider making.
In this context, let me say that I have already repeated that none of the bodies or associations who represented these people has made any representation suggesting an increase in the limit. I should also add that, apart from the representations made by the noble Lord himself, only one representation has been received. It was made through a Member of the other place and was a complaint by a particular producer who was not entitled to exemption that he was facing unfair competition from a number of exempt producers in his locality who were able to sell at a lower price because they did not have to meet the tax. He was suggesting that exempt producers should be required to pay a fixed annual fee, so that he did not have to face unfair competition. Therefore, there are two sides to this question.
We are indebted, I must say, to the noble Lord, Lord O'Hagan, for raising a point which is very near to his heart, about the bureaucracy and the form filling. He has done a service, not least to the Customs and Excise, by doing that and what he has said has been taken to heart. Let me try to explain the present position in this way. The Customs and Excise, following these representations, and the meeting that they had with the noble Lord, are making a number of changes to reduce the burden of control on registered cider makers whose annual production of cider does not exceed 20,000 gallons; so we are able to take in a fair band of the small producers. The entry book, about which the noble Earl, 386 Lord Ferrers, was so scathing, will in future be simplified if the type or scale of the small producer's business makes it possible to omit certain forms. I think that in particular he mentioned four forms; and either pages 3 and 4 or forms 3 and 4 will not be required to be filled in in the case of the small producers taking in cider from others or passing it on to others.
At the same time, some of the requirements for the detailed completion of other forms in the entry book are being relaxed. In particular, Customs will only be requiring daily totals of farm gate cider sales. I should explain that the simplified entry book is already in use—that is, in the last few weeks—and the simplified form in respect of sales is now being printed. It will, of course, be brought into use fairly soon. So I am happy to say that some progress has been made here, and I am also happy to acknowledge our debt to the noble Lord, Lord O'Hagan, in this respect.
In relation to particular points that were made, recording by small producers of blending and passing from one barrel to another is no longer required, I am happy to say. Of course, attendance by an official to witness the destruction of spoiled cider is not invariable, but control of destruction is necessary, otherwise there could be spurious claims to refunds. It is not true to say that a weekly visit is paid. Small producers are to be visited only occasionally. I am sure your Lordships will accept that there must be some check, but it will certainly not be a weekly check.
The noble Earl, Lord Ferrers, asked me specifically about the loss of revenue. I have tried to say that that loss is £10,000. The savings that would result would be very small and rather difficult to calculate. One would not expect to lose members of the Customs and Excise simply because one did not have to call upon the eight producers, or the two, or whatever may be the number, who became exempt by the raising of the limit.
The Government will certainly take into account what has been said, but I suggest that it is something of an exaggeration to speak of a sentence of death being imposed upon traditional small producers of cider. I suggest that that is really rather extreme. But having regard to the consideration of fairness to other small producers, and the 387 interests of all West Country cider makers, in the absence of any evidence so far that anyone is likely to give up production because of the present level of exemption, and observing that the duty is still less than one year old, the Government are not yet persuaded that the exemption limit should be raised.
My Lords, before the noble and learned Lord sits down, may I ask him to clarify this point: Is it really a fact that there are only two people in the whole country who produce less than 5,000 gallons, or is it that only two are registered? I find it extremely hard to believe that farmhouse cider is made by only two people.
§ Lord McCLUSKEY
My Lords, I think that I gave certain figures. There are 67 producers who are exempt, so that they are 67 who are producing less than a 12-months' total of 1,500 gallons. If you then go to the point between 1,500 and 4,999, you get another two. If you then go to 5,000 you get six, and if you go a little higher you attract more. So that the number below 5,000 is about 69. Perhaps that number makes more sense to the noble Earl.