Plenary, 05 Feb 2004

Meeting date: Thursday, February 5, 2004

Official Report 753KB pdf

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Scotch Whisky (Tax Stamps)

The final item of business today is a members' business debate on motion S2M-833, in the name of Brian Monteith, on tax stamps on Scotch whisky products. The debate will be concluded without any question being put.

Motion debated,

That the Parliament notes with concern that Her Majesty's Government is once again considering the introduction of tax stamps on spirits, but not on wine or beer; recognises that any such tax stamp would impact particularly on the Scotch whisky industry; believes that the case for a tax stamp system is not proven and that it would be an ineffective means of combating fraud and illicit trade while imposing substantial costs and practical problems on the industry, particularly in relation to labelling and storage; notes the Scottish Executive's Scotch whisky framework which supports a fair taxation regime for Scotch whisky, and therefore believes that the Executive should make representations to Her Majesty's Government against the introduction of tax stamps or any similar burdens on the Scotch whisky industry.

I thank the Parliamentary Bureau for picking my motion for debate this evening and members from many parties who have registered their support for it.

I rise to speak to my motion not in a partisan and party-political manner, as I regularly do—[Interruption.] Shucks. Today, I want to nudge the Executive gently in a spirit—if members excuse the pun; there will no doubt be many during the debate—of cross-party concern about a policy that is being given serious consideration by the chancellor.

I will leave issues relating to practicality and the costs to our distilleries to other members. There are many aspects to the debate and I am sure that there will be time for those issues to be picked up. I would prefer to use my time to discuss the case that the chancellor is considering and, in particular, the rationale for it.

I remind members that although my motion indicates that whisky is the main concern, we are not talking only about whisky. Some 75 per cent of United Kingdom white spirits, including many of the most famous brands such as Gordon's gin, which is distilled and bottled in Leven in Fife, are bottled in Scotland.

It should also be remembered that the chancellor considered introducing strip stamps before, but apparently changed his mind because he did not think that the level of fraud merited such action. I understand that he believed that such a response would be disproportionate. The proposal is now being reconsidered because the chancellor believes that the problems of excise evasion, smuggling and fraud are considerably worse.

Using figures prepared by HM Customs and Excise for the Treasury, the chancellor is on record as saying that one in every six bottles of spirits is illicit. I urge the Executive to challenge the figures the chancellor has been given—rather than the chancellor—because they are inaccurate, entirely misleading and a significant overestimate.

If we accept the Customs and Excise figure—that 16 per cent of the spirits that are consumed are fraudulent or smuggled—we have to eliminate the supermarkets from the equation, because no one for a moment suggests that they sell illicit spirits. We would then have to consider the reputable high street chains such as Oddbins, Victoria Wine and Threshers. No evidence has been presented that that type of off-licence sells untaxed spirits. That leaves the corner shops and individual off-licences, but they account for such a small percentage of spirit sales in the United Kingdom that 110 per cent of their sales would have to be illegal to account for the 16 per cent.

If it were correct that 16 per cent of spirits consumed in the UK are illicit, every bottle of Scotch, gin and vodka sold in corner shops in members' constituencies would have to be smuggled That is patently not what is happening. It is therefore worth examining the Customs and Excise figure more closely. To account for 16 per cent, £1.6 million-worth of spirits—about 12 container loads, or 200,000 bottles—would have to be lost somewhere in the market every day. I submit to the minister and the Scottish Government that that just does not make sense.

Of course, it might be argued that consumption has increased so much that there is room for more smuggled spirits to come in. The Customs and Excise figure requires an increase of some 37 per cent in spirits consumption since 1992-93. The industry is clearly unaware of any such growth from its commercial data or evidence from orders, so if the minister can do one thing it should be to obtain the Customs and Excise figures, conduct his own review of them and communicate his views to the chancellor.

The final issue that I want to take up is that of international experience of tax stamps, or strip stamps as they are called. It is worth looking at what has happened in a number of countries, so we can learn what might happen in the UK if we introduce them. Norway considered using strip stamps but decided against doing so after representations by our very own Department of Trade and Industry, which wrote to the Norwegian Government saying that strip stamps would be ineffective. Clearly the DTI had the interests of British distilleries at heart and knows something that Customs and Excise does not.

Many countries that have had strip stamps, such as the USA and Greece, have chosen to abandon them on the ground that they were ineffective. Other countries use them, but show poor results from their use. Hungary has tax stamps, but illicit goods account for some 15 to 20 per cent of the market. Around 80 per cent of the Scotch whisky sold in Poland is understood to be contraband, despite the use of strip stamps. In Bulgaria, where strip stamps are used, the local industry estimates that 60 per cent of the market pays no tax. My particular favourite, though, is the example of the Ukraine.

I see members nodding because they have heard this little anecdote previously or have read the information in the briefing paper on the matter from the Scotch Whisky Association. Strip stamps were introduced in the Ukraine. Within three or four weeks, a considerable quantity of bottles of illicit spirits was found that had forgeries of the newly introduced state-of-the-art hologram seals. It is clear that strip stamps are not a buffer against smuggling or the illicit trade in spirits. In fact, they attract counterfeiters.

The best way to combat smuggling or fraud—nobody here is advocating those activities as a good thing—is to reduce the excise on spirits. I urge the Scottish Government to communicate that to the chancellor. If the whisky strategy means anything, it surely must mean that ministers will speak up for Scottish interests. If the chancellor were to cut the duty, as has been done in Denmark, smuggling would be marginalised and revenues would go up. If the chancellor were to take such a decision, I for one would raise a glass to him.

I start by congratulating Brian Monteith on lodging the motion for this debate. I noticed that he introduced his motion as a bon viveur, and I am quite sure that he has sampled many of the whiskies that come from my constituency. There is a feeling of déjà vu about this debate, because it was only 18 months ago that we defeated such a proposal and it had to be withdrawn. It is a stealth tax, which I believe is being quietly and surreptitiously introduced by the Chancellor of the Exchequer.

I went through the "Pre-Budget Report: What the Pre-Budget Report means for Scotland". There is not one mention in it of strip stamps and the implications of such a system for the Scotch whisky industry. As we know, the whisky industry is one of the most significant industries in terms of direct and indirect employment and in terms of the revenue it brings us. I do not know whether the Prime Minister and the Chancellor of the Exchequer have made some deal about the succession, but I would like to say that the deal that is being proposed for strip stamps will be emphatically rejected—unanimously, I hope—by this Parliament and by the whisky industry as a whole.

We are proud to have 50 per cent of Scotland's malt whisky distilleries in the Moray area. The distillery workers take a pride in their work and in all the aspects of the industry, including bringing in tourists and promoting Scotland abroad. I have spoken to Speyside Distillers, as has my colleague Angus Robertson MP, who is a member of the all-party Scotch whisky parliamentary group in the House of Commons. We asked what strip stamps would mean to distillers in Speyside, and they said that it would be a labour and logistical nightmare. They went on to ask:

"Why is any of this necessary when bottles are clearly differentiated with a lot number?"

For the benefit of people who do not know what a lot number is, I should explain that it clearly identifies the brand, the bottling line, the distillery and the cask. Indeed, it is possible to follow an audit trail to all parts of the Scotch whisky industry; people can trace to within one second when those numbers were put on the bottles. The proposal for strip stamps is seen in the industry as a piece of absolute bureaucracy, and I reiterate that it is a stealth tax.

I have many small distilleries in my constituency, as do some other members. Small distillers are the people who sell in the UK market and they will be most adversely affected. I ask the minister to tell us what assessment has been made of the likely impact on companies that are predominantly home-based.

I will not reiterate all the countries that Brian Monteith mentioned where strip stamps have been proven to be a failure. However, in 1985, when the United States removed strip stamps, the US Department of the Treasury said:

"The stamps have only negligible value in evidencing compliance with the law and payment of excise taxes".

Now, UK ministers are saying exactly the opposite. Spain and Greece have already said that it is the wrong way to combat fraud and the Norwegian example has already been cited. We all want to deal with fraud, but strip stamps are not the way to do it. Quite honestly, it seems from reading all the various statistics that Customs and Excise itself is not sure of the true extent of fraud, and the statistics are being disputed.

The minister must speak directly not only with the Scotch Whisky Association but with Customs and Excise, the producers and all the people who work in the industry. They must have a direct input. He must ensure that this Parliament makes it clear to the chancellor that we will not see that wonderful industry of ours diminished by a piece of bureaucracy. If ministers are talking about tax, the best thing they can do is, as Brian Monteith said, to reduce the duty now and make our industry more competitive.

The threatened imposition of tax stamps is the result of Gordon Brown's estimate that, because duty is not being paid on one in six bottles of whisky, the cost to the taxpayer is £600 million per annum. Where has the estimate of evasion come from and how accurate is it?

On 20 January, Alan Reid, the Liberal Democrat MP for Argyll and Bute, had a Westminster Hall debate on the plans. He said:

"If the Government's estimate is correct, 200,000 bottles … disappear every day."

I thought I heard Brian Monteith say "200 bottles" but I think 200,000 is the correct figure.

It is.

Alan Reid also spoke about the figures for the scale of fraud in the UK. He said that

"The Scotch whisky industry believes that that is a serious overestimate"

and that the whisky industry belives that the "trend is downwards" rather than up. He went on to say:

"Nobody in the trade experiences the market disruption that would result from fraud on anywhere near that scale. Where is the Government's evidence?"—[Official Report, House of Commons, Westminster Hall, 20 January 2004; c 407WH.]

George Lyon pursued the matter through a parliamentary question. He asked the Scottish Executive

"how many prosecutions there have been for evasion of duty on Scotch whisky in each of the last five years."

Cathy Jamieson replied:

"Information at the level of detail requested is not held centrally. Any such cases will be included within the statistics for prosecutions of revenue and excise offences".—[Official Report, Written Answers, 13 January 2004; S2W-5093]

The minister gave the latest available data for the past five years: 27 cases in 1997; 38 cases in 1998; 3 cases in 2000; and 2 cases in 2001. It would seem that the size of the problem has not been very thoroughly established.

Even if the estimate is accurate, is the remedy sensible and proportionate? Will it work? We have already heard that the United States of America and Greece have abolished similar systems. Poland has persisted with its system, but there is no evidence that it is having any impact. Will the proposal do such damage to the industry that it outweighs the benefit to the Treasury? Will we kill the goose that lays the golden eggs?

In the interests of cross-party consensus on the matter, I will quote Angus Robertson.

"Any initial outlay for companies to buy the necessary application machinery will run into millions of pounds. The stamps would also have to be paid for up front, presenting a security and cash flow nightmare for all concerned. The cost to the industry could drive some small producers out of business."

John Thurso raised the point that the Treasury had already been warned about the substantial costs that would be involved in implementing the scheme. He pointed out that the industry and the chancellor were in discussion about how they might combat fraud and implement sensible measures when, suddenly, the tax-strip system that had previously been argued against and dismissed on rational grounds was suddenly put back on the table, apparently coming out of nowhere.

We have to ask whether the tax-strip system is the right answer. Is it sensible? Is it proportionate? Will it work? Is there a better answer? I concur with Brian Monteith: we should be looking at investing more in Customs and Excise. That would crack down on fraud and evasion not only in the Scotch whisky industry but across the board. It would benefit other industries that are hit by illegal imports and all sorts of other things.

I advise members that it will not be possible to extend the debate this evening. In the hope that I can get in all members, I ask members to restrict their speeches to three minutes. I apologise to any member who has to be left out.

Brian Monteith described well the flawed rationale for the introduction of strip stamps. However, Campbell Evans of the Scotch Whisky Association recently proposed other measures that the Government should seriously consider. In particular, he raised the issue of suspect bonded warehouses where untaxed spirits are stored. Under existing rules, even people who have criminal convictions can obtain licences to run bonded warehouses. Surely the conditions that attach to licences that are needed to run a public house should apply to licences that are required to run a bonded warehouse. HM Customs and Excise's response to that sensible suggestion was dismissive. All that it said was that registrations and approvals of bonded warehouses were assessed regularly. I query whether that was an adequate response. Smuggling, however widespread, can be tackled by a better supervisory regime.

If the scheme goes ahead—and the worrying signs are that Gordon Brown seems intent on it—the real victims will be small distilleries. I had a chance contact with Springbank Distillers in George Lyon's constituency, which has opened a second distillery. It sends some of its whisky to the home market and some abroad, but only the whisky for the home market will have to have strip stamps. At present, the distillery can make easy arrangements from month to month and vary quantities of export stock and stock for the UK market, whereas in future it will have to determine at the bottling stage how many bottles will have strip stamps and how many will not. That will make the management of the business extremely difficult for no good reason.

The cost of strip stamps is also a worry, as is the time of payment. For quality whiskies in which the amount of alcohol differs, there may have to be different levels of duty. Frankly, the scheme is absurd. It is the sort of proposal that one would associate with primitive socialist economies; one does not expect to find it espoused by a chancellor who has what seems to me a somewhat unmerited reputation for prudence. This is an issue on which the Scottish Parliament is entitled to, and must receive, a clear lead from the minister, who must say that the scheme is not acceptable and that he will stand up for Scotland.

As we are following Burns season, perhaps it is appropriate to recall a verse from Robert Burns's address to Scotch parliamentarians on that ill-advised occasion when it was first decided that there should be tax on whisky. His advice was:

"In gath'rin votes ye were na slack,
Now stand as tightly by your tack:
Ne'er claw your lug, an' fidge your back,
An' hum an' haw,
But raise your arm, an' tell your crack
Before them a'."

I hope that the minister will follow Burns's advice.

Like other members, I recognise the importance of the Scotch whisky industry, not just to Scotland but to the UK as a whole. It is one of the largest, if not the largest, export industries in Scotland, employing about 11,000 people, with a further 30,000 in related sectors. According to a 1999 Fraser of Allander Institute report, it is twice as important as computer-related manufacturing, a third bigger than oil and gas and 12 per cent bigger than banking and finance.

We understand the industry's economic significance. I will illustrate that by being parochial. Allied Distillers is one of the largest employers in Dumbarton. It provides economic opportunities for local people in an area that faces significant unemployment. It has a work force of almost 800 people. Sales are growing, new brands are being acquired to join household names such as Teacher's, Ballantine's and Laphroaig, and export markets are increasing, with new high-value markets opening up in countries such as Korea.

I want that to continue, so I, too, register my concern at the proposal to introduce strip stamps. When we last debated the matter in Parliament, I was as clear then as I am now that, although I whole-heartedly support moves to tackle duty fraud, I do not believe that strip stamps are the answer. Many people will legitimately raise the issue of cost, but I will not rehearse those arguments. For me, the more serious and fundamental concern, irrespective of cost, is that strip stamps just do not work. Brian Monteith has already outlined the international experience. The USA, Ecuador and Greece abolished tax-stamp systems. Belgium, Germany and Norway pulled back from introducing them on the ground that they are not effective. Forgeries appear quickly, even when the tax stamps are state-of-the-art hologram seals.

All of us—including HM Treasury, HM Customs and Excise and the Scotch Whisky Association—agree that we need to tackle duty fraud. We can debate how much duty fraud costs the taxpayer. Is it in the region of £600 million, as suggested by the Government, or is it a quarter of that figure, as suggested by the industry? Nonetheless, any fraud or loss of revenue to the Government means fewer services, so it needs to be tackled.

The whisky industry has helpfully indicated its willingness to work in partnership with the Government. I welcome that, but I also recognise that over the past few years it has done exactly that with HM Customs and Excise. We need to consider where the solutions lie. I do not have much time left to talk about those solutions, but I am sure that other members will talk about them. With my colleague John McFall MP, who is a long-time supporter of the industry and chair of the all-party Scotch whisky group at Westminster, I will meet representatives of Allied Distillers tomorrow to explore further suggestions.

I do not think that the Chancellor of the Exchequer wants to introduce strip stamps, for two reasons. First, in five successive budgets there has been no increase in the duty on spirits.

There really is not time for this.

Secondly, in an interview that the chancellor gave to BBC Radio Scotland in December 2003, he said:

"I don't want to have to introduce stamping if I can avoid it, but if we have to do so, we will do it, so we can eliminate fraud that is unfair to other tax payers and unfair to people who have to pay the duty. If we can find a better solution that eliminates much of this fraud, then will we take it."

Let us ensure that the solution is found, because strip stamping does not work.

I am conscious of the fact that only one Labour member is taking part in the debate and so I have been bearing in mind the party balance. However, that was an unfortunate example of running over time.

I am delighted to take part in this debate. I congratulate my colleague Brian Monteith on securing it and on his motion, which is remarkably similar to a motion that I lodged a few weeks ago. I am grateful to all the members who signed that motion, too. I, of course, defer to my colleague in this debate on his motion.

I was a little confused by Jackie Baillie's assertion that Gordon Brown does not want to introduce strip stamps. If he does not want to do it, it is perfectly clear what he can do—he can withdraw the proposal. I am not convinced that he is being dragged reluctantly towards imposing tax stamps, especially given that this is not the first time the suggestion has been mooted—it is the second time at least. If he does not want to introduce the stamps, no one is forcing his arm.

One of the most pleasurable aspects of this job is the opportunity to visit distilleries. I have visited quite a number in my region and have, on occasion, sampled the wares. In highland Perthshire we have Edradour, Blair Athol and Aberfeldy distilleries, all of which have expanded in recent years and provide year-round and seasonal jobs. They have also developed visitor attractions to meet the demand for high-quality visitor centres and to act as showcases for our national drink. Another good example of that is the Famous Grouse experience near Crieff, which has been developed as an award-winning major visitor attraction and is gaining an international reputation and attracting a great number of visitors each year. Both the distillery and the visitor centre there are major contributors to the economy of the Crieff area.

We have heard from other members about the contribution that whisky makes to the Scottish economy as a whole. The Parliament must do all that it can to support this vital industry, so that areas that often have few other sources of income as stable and secure as that from whisky continue to benefit from the jobs and tourist pounds that come into the area.

I agree with everything that has been said about the introduction of strip stamps, which will undoubtedly put additional costs on the Scotch whisky industry. Those costs will have to be passed on somewhere and I have real concerns that they will lead to job losses and prevent companies from continuing with the level of investment in distilleries that they have made in recent years.

All distillers have made the case that they are fully committed to fighting fraud and working with the Government to defeat fraudsters. They have also indicated that they do not believe that strip stamps are the way of achieving that. Everyone to whom I have spoken in the industry believes that the proposal is based on unreliable statistics. The incidence of spirits fraud is less prevalent than has been claimed and seems to be falling. The ineffective and inefficient measure of strip stamping should be opposed by members of all parties that care about the long-term future of the Scotch whisky industry, so that the jobs of all those involved in the industry directly and indirectly in areas such as highland Perthshire are protected.

I enter into the spirit of consensus that has underpinned the debate and congratulate Brian Monteith on introducing the subject for debate, because it is important to the economy of Scotland and to some of the small island communities that I represent in Argyll and Bute, which is where my concern lies.

To give members an idea of how important the industry is to the islands in my constituency, I point to the example of Islay, whose eight distilleries keep the economy there afloat. Bruichladdich has just reopened after many years of lying derelict. It is an old, traditional distillery; the distillers have not opened a modern unit but have gone back to distilling whisky as it used to be done before the introduction of modern machinery. People can go there to take courses on how to distil whisky. It is a very successful operation. The distillery has a webcam so that people anywhere in the world can examine what happens there; indeed, the Central Intelligence Agency was looking closely into it, as members may recall. The distillery has certainly gained fame abroad, and the secret services are obviously on the ball.

On Jura, the whisky industry is a major employer and the distillery on Mull plays a major role in local employment and the prosperity of that island. Margaret Ewing made a very important point: it is the smaller distilleries—the ones that rely very much on the home market—that would be hit disproportionately by the introduction of tax stamps. The companies with big exposure on the home market would bear the full brunt of the costs of the stamps.

I will not go into the many important technical points that have been made. Needless to say, I am not challenging the policy of the Treasury and HM Customs and Excise of seeking to eliminate revenue fraud. That is not my angle and I think that all parliamentarians want to eliminate such fraud. However, we have to question the scale of the problem. There seems to be a huge gap between the industry's perception of the problem and the figures of the Treasury and HM Customs and Excise. I believe that the case can be made that the problem is not substantial. That is what the industry would say. The chancellor is using a sledgehammer to crack a nut, but we have to work with the industry to solve the problem.

Along with Brian Monteith, at the first opportunity I will be drinking a toast to the prospect of any reduction in whisky duty.

I congratulate Brian Monteith on securing the debate and giving me the opportunity to voice my opposition to the introduction of tax strip stamps on spirits. My opposition is fourfold. First, like other members, I do not accept that the problem exists to the extent that has been stated. Secondly, I do not believe that the introduction of the stamps will work. Thirdly, I believe that it will be counterproductive. Fourthly, I think that it will pose a specific danger to the Scotch whisky industry and jobs here in Scotland.

It appears that this attempt to reduce fraud is extremely flawed. Evidence aplenty suggests that the proposal will not achieve its objective. Other countries have abolished similar regimes; some have considered introducing such a regime but then drawn back from implementation. Counterfeiting capability is now such that fake strips could add legitimacy to contraband spirits. Fake strips could be used to mask the fact that bottles have been refilled with counterfeit whisky, gin, rum, vodka and so on.

The proposal will have practical effects that will undermine the viability and profitability of this key industry of ours. Those effects could result in increased prices and lower investment as volumes and cash reserves diminish. There will be compliance costs that will include the costs of changes to equipment and of additions to bottling plant. There will be cash-flow implications in funding the duty and there will be resultant financing costs. There will be increased administration costs and insurance costs. Additional security will be required.

All those factors will, to a greater or lesser extent, hit distillers, bottlers, warehouse operators, importers, wholesalers and high street retailers—in other words, the entire industry in Scotland and the rest of the United Kingdom.

The most important reason for opposing the proposal is that the rejection of overtures to consider alternative ways of stamping out fraud could have a disastrous impact on Scotland and its whisky industry. That is especially true because of recent evidence that legislation can have unforeseen consequences. That phenomenon is even more marked now; Westminster legislation is increasingly likely to produce such unforeseen consequences. In the scenario that I envisage of unforeseen consequences, there would be intolerable financial pressures beyond the ability of smaller companies to bear and the disappearance of smaller brands as a result. The industry would be endangered because it would bottle less for the home market and sell more of its whisky in bulk for export and bottling outwith Scotland. Those effects could combine to create a shrinking rather than a growing market for Scotch and could reduce investment at home.

The net effect would be many fewer jobs in Scotland than would otherwise be the case. Ironically, that would mean a reduced revenue stream for any chancellor because of reductions in existing levels of sales and from underperformance against the massive potential sales that whisky could achieve.

I rise to speak as no expert on whisky—or uisge-beatha, as it is known in the Gaelic. I am afraid that, although it is undesirable, fraud in this respect has always existed. I remember that, some years ago, one of my constituents asked the local fencers to put a new fence round his croft—I am sure that Maureen Macmillan knows this story. He said to the fencers, "Put it through those whins there," and then went down into the town to get his messages. However, they could not be bothered to clear the whins, so they put a match to them. Seconds later, there was an enormous explosion of blue flames and his entire 10 years' investment had gone in a flash. Perhaps we should leave that story at that.

In talking about Allied Distillers in Dumbarton, Jackie Baillie quite correctly concentrated on the aspects of the tax that affect big industry. I want to highlight the impact on small distilleries, which George Lyon touched on when he mentioned Islay. Although I could go through all the distilleries in my constituency, I want to mention two in particular: Old Pulteney in Wick and Balblair in Edderton, which is near my home town of Tain. Some years ago, those two little distilleries were facing closure. That was not good news and there was considerable concern over the jobs involved. However, a newly started company bought the distilleries and it has been putting a lot of effort into getting the whiskies well known in the market. I do not need to spell this out to the chamber, but it is precisely such small distilleries in areas where there is not much employment that could be hit by this particular form of taxation. John Farquhar Munro, who is an expert on drams and such things, told me that there is a £5.48 duty on each bottle and wondered why the cost of the tax stamp could not be found out of that money.

I will close my remarks, because I know that we are short of time. However, I will say that, having discussed the matter with the minister in the past, I know that, as an expert on whisky himself, he understands the nature of the problem. I have no doubt that the necessary representations will be made to the Treasury and whoever else is involved and I am sure that sense will prevail. We should remember the wee distilleries in Scotland's remote areas, because they make some of the finest whisky—not that I know about whisky myself.

Does the member admit that the best whisky came from the Ferintosh distillery on the Black Isle? It was the best because it did not have to pay duty; Forbes of Culloden got an exemption from excise as a result of his support for the Government during the Jacobite rising. Unfortunately, it had to be closed down, because it was putting all the other distilleries out of business.

Ach, yes, but as my father used to feed his cows on the draff from Glenmorangie, I have to stay loyal to the distillery I was brought up next door to.

Alex Neil, follow that.

I look forward to having a members' business debate on the future of the cheese industry at an early opportunity.

I have a constituency interest in this matter: the Johnnie Walker plant is in Kilmarnock, which is part of the Central Scotland region. The chancellor's measure will have an adverse effect not only on distilleries but on the whole industry, including its bottling and distribution elements. I totally agree with Brian Monteith and others that the chancellor is not attacking the basic problem, which is that whisky is overtaxed. For example, the tax on home-grown, home-made and home-distilled whisky is about 50 per cent higher than the tax on French, Italian or any other imported wine. It is incredible that we discriminate against our own industry which, as Jackie Baillie said, employs about 11,000 people directly and 30,000 indirectly in Scotland.

I have no doubt that a substantial reduction in excise duty would generate additional revenue that would more than make up for any loss of revenue through alleged smuggling or excise fraud. Not only would it generate more revenue and sales in the UK, it would improve the case that we have been making for China, India and other countries to reduce the excise duty that they charge on Scottish whisky, which causes us major problems with our export market.

As Jim Mather said, the knock-on effects of the measure will be substantial. It will have an impact on both the set-up costs of the industry and its running and maintenance costs. Increased costs mean that it is much more difficult to generate sales because as prices go up, the industry becomes less competitive and that, in turn, affects jobs and investment. Whatever our perspective, whether we are concerned about the promotion of whisky at home, the safeguarding of revenue, or the promotion of jobs, investment and exports, the measure is ill judged and ill considered. A clear message should go out from all parties in the chamber to ask the chancellor to change his mind and scrap this stupid idea.

I am grateful to Brian Monteith for providing another opportunity for me to reaffirm our recognition of the importance of the Scotch whisky industry, and indeed of the whole spirits sector, to the Scottish economy. It is nearly two years since the issue of tax stamps on spirits was debated in the Scottish Parliament. I replied to that debate too, which I hope is clear evidence of my commitment to this high-quality Scottish product. At that time, I made it clear that we are committed to working with the Scotch whisky industry to support its efforts to develop new markets and to sustain, as it does, jobs, revenues and businesses in many parts of Scotland. That remains our approach and, as I said in a different debate this morning, we on the Labour benches believe in picking winners and in backing Scottish firms and sectors that are already competing effectively in world markets. Whisky is clearly such a sector.

At the debate nearly two years ago, I listened carefully to what members had to say before I expressed the Executive's view on the issue to the UK Government. Members understand that fiscal matters of this kind are entirely reserved, so tax stamps have been debated at Westminster, but the good health of the whisky industry is a key part of Scotland's overall economic vitality. That is why I will again reflect this evening's contributions in our continuing dialogue with our UK colleagues.

The previous debate on the issue followed the consultation on tax stamps in 2001. It is, of course, essential to understand the context; duty evasion on spirits costs all of us, as UK taxpayers, many millions of pounds per year. In his budget in 2002, Gordon Brown concluded that the introduction of tax stamps would impact on the productivity of the industry and that if the compliance costs were passed on in full, they could have a significant impact on retail prices. Then, as now, that is not an absolute; the issue is about balancing the compliance costs of tax stamps with the revenues to be gained from a reduction in fraud. The decision that was taken gave the industry the opportunity to develop alternative ways to reduce fraud.

Brian Monteith and others asked how and where fraud on the scale that has been reported could be taking place. I suspect that the answer is that it takes place not in Scotland's distilleries or high street supermarkets but, as Brian Monteith's tale of Ukrainian vodka suggests, in transit from one point to another, on the supply route from the producer to the consumer. Fraud takes place not just in Scotland and the UK but in imports and exports; Mr Monteith's speech made it clear that the problem is widespread in Europe. There is no dispute about the fact that fraud exists or that it costs many millions of pounds, but there is disagreement about how much fraud takes place.

If fraud takes place in transit, it is possible that it is conducted with bottles that are legitimately stamped but which are then sold illicitly? Will the minister consider that fact?

Yes. Points have been well made about the risk of fraud even with a duty-stamp system. That has been made clear in discussions between the industry and the Government. Unfortunately, since 2002, the industry and the Government have not agreed on an effective alternative. UK ministers believe that the fraud problem is worsening. They are—rightly—determined to take tough action to tackle duty evasion and, as members have said, they may introduce tax stamps this year to come into force in two years' time.

That is clearly of great concern to Scottish whisky, gin and vodka producers. I have discussed such concerns recently with Gavin Hewitt of the Scotch Whisky Association. He confirmed that the industry does not accept Treasury estimates of the scale of fraud and that it believed that, as Jamie Stone said, tax stamps would have a disproportionate impact on smaller distillers, smaller brands and smaller bottling runs. He also confirmed that the association is concerned about the up-front and continuing costs of compliance, which it did not believe were proportionate.

In the light of those concerns, I have also discussed the position with the Economic Secretary to the Treasury, John Healey MP. I understand that he has encouraged the National Audit Office to examine the disputed fraud figures. Sir John Bourn, the Comptroller and Auditor-General, has expressed his willingness to do that. I know that the industry will welcome that.

John Healey recognises the position of smaller distilleries—that is significant. He remains more than willing to consider further development of proposals from the industry to tackle fraud. If the Treasury concludes that no effective alternative to tax stamps exists, he has pledged to work with the industry on means to mitigate costs, including possible further freezes on spirits duty and measures to prevent counterfeiting of stamps, to which Brian Monteith referred. That is all encouraging.

I am pleased to report that Mr Healey will visit Scotland later this month at the invitation of the Westminster all-party Scotch whisky group's chairman, John McFall MP, to see for himself how any new scheme that is centred on the point of production would work.

The minister referred to the Economic Secretary to the Treasury. In a debate at Westminster on 20 January this year, Mr Healey said:

"against the background of a worsening problem, success in tackling fraud in other excise regimes and the apparent lack of alternatives, the implementation of a tax stamp system on spirit bottles is a necessary and proportionate step."—[Official Report, House of Commons, 20 January 2004; Vol 416, c 428WH.]

I trust that our minister disagrees with that.

Mr Healey's visit to Scotland to see a large distillery and a small distillery and to meet industry representatives will give him the opportunity to see for himself how such measures may work in practice. Members may recall that his predecessor, Paul Boateng, did the same thing two years ago, as ministers reached a view on the efficacy of tax stamps. I am sure that John Healey will enjoy his visit and I have no doubt that some of the industry's practical concerns will be brought very firmly to his attention again. I know that the industry associations will continue to work flat out to come up with an effective alternative that will satisfy the need to tackle fraud.

The motion refers to the Scotch whisky framework document "A Toast to the Future: working together for Scotch whisky". Like the best whiskies, "A Toast to the Future" does not have a limited shelf life. It is a live working document under which the Scottish Executive will continue to work with the industry on mutual concerns. We will ensure that Treasury colleagues are fully aware of the views of the Scottish ministers and the Scottish Parliament on the need to explore all options to minimise extra burdens on the whisky industry while supporting the Treasury's proper efforts to end evasion of spirits duty. That fraud is an affront to us all.

Meeting closed at 17:59.