Scotch Whisky Industry (Tax Regime)
The next item of business is a debate on motion S2M-1116, in the name of Murdo Fraser, on the effect of strip stamps on the whisky industry, and two amendments to the motion. I invite members who wish to speak in the debate to press their request-to-speak buttons.
The Scotch whisky industry, one of the vital contributors to the strength of the Scottish economy, today faces one of its most serious threats in years in the form of the introduction of tax strip stamps, as proposed by Chancellor Gordon Brown in his budget on 17 March. It is essential that the Scottish Parliament sends a clear message to the chancellor today that we view the introduction of tax stamps as unacceptable and that we press the chancellor to overturn his decision, or at least to introduce appropriate mitigating measures to minimise the impact on that vital industry.
I had the pleasure of spending this morning in the company of the Edrington Group Ltd, which makes the Famous Grouse brand, at the Scotch Whisky Heritage Centre, just up the road beside the castle. The centre is an excellent facility. I know what members are thinking, but I assure them that I resisted the temptation to overindulge in the product on offer. I did not wish to come to the chamber and do an impersonation of the late Alan Clark, or perhaps of more recent political leaders. However, I hope to make up for that omission later this evening.
The Famous Grouse is one of many internationally recognised whisky brands. The Scotch whisky industry accounts for some 40,000 jobs in Scotland and it is worth some £2 billion annually in overseas trade. It contributes around £1.6 billion in tax revenue to the Exchequer. The industry is a major revenue earner for the United Kingdom Government and a major component of the Scottish economy.
We have had two debates in the chamber on strip stamps. The first of those debates, which was on a motion in the name of my colleague Annabel Goldie, was held just over two years ago on 7 March 2002. At that time, the arguments against strip stamps were well set out, and members from all parties expressed their concern about the impact that the proposal would have. A more recent members' business debate, in the name of my colleague Brian Monteith, was held on 5 February. Again, the arguments against strip stamps were well rehearsed.
Accordingly, I do not intend to spend much time this afternoon setting out the arguments against strip stamps. I am sure that other members will deal with those arguments in their speeches. We all know that the argument for strip stamps is based on unreliable fraud estimates from the Treasury, that they will place a heavy burden on legitimate traders and that there are serious doubts about their effectiveness.
I hope that the argument that strip stamps will damage the Scotch whisky industry will not be challenged from any part of the chamber this afternoon. Even the First Minister said at First Minister's questions on 18 March that the Scottish Executive was disappointed with the announcement. However, what concerns me more is what action the Executive will take to protect the vital Scotch whisky industry.
What has the Executive done to speak up for Scotch whisky? When strip stamps were proposed, did the First Minister travel to London to meet the chancellor and impress on him the need to withdraw this damaging proposal? No, he did not. Did he perhaps send the Deputy First Minister and Minister for Enterprise and Lifelong Learning to meet the chancellor and make representations? No, he did not. Did he perhaps ask the Deputy Minister for Enterprise and Lifelong Learning, Mr Macdonald, to speak to the chancellor? No, he did not. Instead, the totality of the First Minister's action in defence of this vital Scottish industry was to have Mr Macdonald write a letter to the Economic Secretary to the Treasury. I have no wish to denigrate Mr Macdonald's contribution; however, given that a vital industry was at stake, the Scottish Executive should surely have worked a little bit harder.
Does the member accept that our contacts with the United Kingdom Government on this matter have not been confined to the occasional piece of correspondence and that, in fact, I have also had conversations with the relevant Treasury minister on a number of occasions, even over the past few weeks?
I am grateful for that clarification and, as I said, I have no wish to denigrate the minister's involvement in the matter. However, given the industry's importance to Scotland, I am sure that he will acknowledge that the First Minister or the Deputy First Minister should have been involved.
The Executive now has the opportunity to make up for its past failings. As a result, I am delighted to see the wording of the Executive's amendment, which is very close to the text of our motion. Indeed, because I am so pleased that the Executive has come over to our position and will unite with us in the whisky industry's defence, I can say that we have no problems with accepting its amendment.
However, we will not accept the Scottish National Party's amendment. Instead of concentrating on the important matter of the threat to our whisky industry, the SNP would rather indulge in political posturing in favour of independence. That is not in the interests of the whisky industry, and I urge the SNP to withdraw its amendment to ensure that the Parliament speaks with one voice on the issue and sends a clear, unambiguous message to Gordon Brown.
I think that political posturing will prove to be somewhat better than what the Conservatives did during their 18 years in office, which was to raise the duty on whisky on 10 of the 12 occasions that they addressed the issue.
Mr Mather will know that, in 1996, the Conservative Government froze the duty on spirits, which was the first time that any UK Government had done so. We need no lessons from the SNP about our commitment to the whisky industry. That said, its members are to be congratulated; I see that they managed to spell the word "whisky" correctly in their amendment.
If, after the Executive has made the representations that we have called for, it is clear that the chancellor's mind is absolutely made up and he is unwilling to reverse his decision, the UK Government must put in place a properly funded and comprehensive package of measures that will minimise any damage to the industry. The industry has already made a number of proposals in that regard. For example, the Government has said that it will consider duty deferment arrangements to prevent increased cash flow costs. Details of those arrangements remain uncertain, but we need a properly worked-out plan. The Government has also said that it will examine the likely security costs, but again no details about that have been provided.
In relation to necessary capital investment, a £3 million assistance fund has been proposed, which will be specifically targeted at small firms. However, that is a drop in the ocean when compared with the industry's costs, which are calculated at £23 million in capital costs in the first year alone and an estimated additional £60 million to £70 million a year in running costs for each year thereafter. It has been suggested that European Union state aid rules will apply, which will limit the total amount payable to £3 million. Given the scale of likely costs to the industry, that is quite unacceptable. If the Government is prohibited from paying any additional sums, it must reverse the tax stamp decision or it will do irreparable damage to our vital industry.
As the Scotch whisky industry is vital to Scotland, we cannot afford to have it threatened in this manner. Today, the Scottish Conservatives have once again taken the lead on this issue and I am pleased that the Executive is falling into line behind us. I trust that, today, the Parliament will speak with one voice in support of Scotch whisky and send the Treasury a clear message that it is time to think again about the damaging imposition of tax stamps.
I have the pleasure to move,
That the Parliament welcomes the Scottish Executive's commitment to the Scotch Whisky industry as set out in A Toast to the Future – working together for Scotch whisky, particularly the Executive's commitment to a fair tax regime for the industry; notes with disappointment the announcement by Her Majesty's Government in the 2004 Budget of the introduction of tax stamps on whisky and other spirits; recognises that the compliance costs associated with the measure will introduce a heavy burden on the Scotch whisky industry, thereby adversely affecting both it and the wider Scottish economy; believes that the £3 million compensation package announced by HM Treasury is wholly inadequate, given the estimated cost to the industry of some £60 to £70 million per annum, and accordingly calls on Her Majesty's Government to reverse the decision to impose tax stamps and, failing this, to ensure that a properly-funded and comprehensive package of measures is put in place to minimise the damage caused to the industry.
This debate should start from our shared recognition of the importance of Scotch whisky, and indeed of the whole spirits industry, to the Scottish economy. As Murdo Fraser said, we have debated the subject twice in the Scottish Parliament. Both times, we made clear the commitment of ministers to work with the industry to support its efforts to grow new markets and to sustain jobs, revenues and business in many parts of Scotland.
The debate should also start from the position that the revenues that are raised from the industry are important to us all. Whatever the Government's policy priorities are, they cannot be delivered without the revenue being raised to pay for them. In both of the previous debates on the issue, there was wide consensus about the need to tackle fraud in duty on spirits. That need is explicit in the Executive amendment today, because to fail to acknowledge the reasons for the Treasury's decision is simply not a credible position for any of us to take. I am glad that Murdo Fraser accepts our amendment and recognises that our balanced approach is the appropriate way forward. Like him, I hope that the amended motion will attract the support of all parties.
Since the issue was first raised, I have ensured that Treasury ministers are in no doubt about the views that are held here and about the predicted impact on the producers of spirits. Of course, the matter is entirely reserved and it is for UK ministers to make the decisions, but they are fully aware of the views of Scottish ministers and the debates on the issue in the Scottish Parliament. From the chancellor's comments in the budget two years ago, we know that he was reluctant to adopt tax stamps in view of the recognised compliance costs.
The Scotch Whisky Association and the Gin and Vodka Association have put considerable energy into discussions with the UK Government about various courses of action that they see as likely to be effective in tackling fraud, and some of those measures can be put in place quickly. As Jack McConnell said at the time—his words were mentioned a moment ago—it is therefore disappointing that the chancellor announced in this year's budget that the Treasury has failed to agree with the industry a suitable alternative to tax stamps and that he therefore intends to introduce tax stamps in two years' time.
The industry and the UK Government recognise the importance of each other's concerns and they have tried to close the distance between them.
Has the minister examined the voting record of the Labour members of Parliament at Westminster who spoke against the concept but voted for it when it came to the crunch?
I share Murdo Fraser's disappointment in the way in which the SNP has chosen to approach this debate. That intervention reinforces my concern that the SNP has not taken the opportunity to support the views that have been expressed around the chamber in the past. Instead, it seeks to make party political points.
The thorny issue of the level of fraud, which lies behind this debate, has been examined by the National Audit Office with the support of both the Treasury and the industry. The NAO takes the view that there is much to be said for the approaches that have been taken by both sides. There is, therefore, every reason for the industry to maintain close engagement with the Treasury and with HM Customs and Excise on the question. There is also a high level of agreement on compliance costs—again, that is thanks to work that has been done by both the UK Government and the industry. That level of agreement provides a sensible baseline for discussions about what might be done to reduce compliance costs if tax stamps go ahead.
Our view is that the door is not closed on the issue. The chancellor has announced his decision, but a lot of work around implementation remains to be done. It is important to understand that if tax stamps are to be introduced, they will not be fully introduced until 2006, when the necessary secondary legislation has been put in place. I can report that Treasury ministers intend to consult fully with the industry in advance of publication on both the enabling legislation that they intend to bring forward this year and the statutory instruments that will follow. In the meantime, a number of the measures that are proposed by the industry as effective alternatives to tax stamps will begin to take effect, and I have no doubt that the UK authorities will monitor carefully the effectiveness of those measures in combating fraud.
For our part, Scottish ministers will continue to work closely with both the industry and the UK Government to try to arrive at a satisfactory outcome. In our view, the best outcome would achieve the desired aim of effectively tackling tax fraud without the need for tax stamps. If that does not prove to be possible, it will be vital to seek agreement between the industry and the UK Government on a comprehensive package of mitigating measures and a method of implementation that will cause the minimum of additional costs to the industry. We in the Scottish Executive are ready to help to facilitate those discussions and take them forward.
I move amendment S2M-1116.2, to leave out from ", thereby adversely" to end and insert:
"; and therefore calls on HM Treasury to engage in further discussion with the industry on the impact of these measures with a view to reaching a satisfactory outcome which deals with tax fraud and would lead to the decision being reversed, failing which to ensure that a comprehensive package of compensation measures is put in place to minimise the impact on the industry."
I welcome the debate and I will echo many of the points that have been made so far.
I have worked in the whisky industry and I know only too well the direct and extensive economic benefits that flow from distilling, warehousing, blending, bottling and marketing whisky. I also know that the industry has a wider impact, as an ambassador that broadcasts Scotland's name, Scottish values and Scottish value for money across the globe.
I welcome most of the supportive words in defence of the tangible and intangible benefits that that crucial industry produces for Scotland. However, much of that defence simply highlights the current powerlessness of this Parliament and the poor and inconsistent Tory and Labour records in protecting and bolstering the whisky industry. Jack McConnell was disappointed by the chancellor's decision and, no doubt, he was subsequently disappointed by the votes of many Scottish Labour MPs. I am pleased to see that that disappointment is reflected in the Executive amendment.
I am sure that many Scottish Tories were disappointed with their various chancellors between 1979 and 1997, during which period duty on whisky was increased 10 times. It is no wonder, therefore, that a majority of members of the Scottish Parliament want the Parliament to have more power. They are supported by a consistent majority of voters and now by a Liberal Democrat conference majority. Such powers would enable us to grow our industrial successes, rather than see them used as expendable golden geese. Although that financial independence approach looks increasingly compelling to more and more people and is a model that every economy takes for granted, in Scotland we face a situation in which our chancellor has decided—basing his decision on information that is, at best, of dubious accuracy and which is challenged by the spirits industry, by overseas experience and by the National Audit Office—to adopt a strip stamp strategy that has frequently failed elsewhere.
In the United States of America, strip stamps have been abandoned. Peter Cressy, the president of the Distilled Spirits Council of the United States, has said that strip stamps would impose significant additional costs on the industry and would be ineffective against fraud because they can "easily be forged".
The member made a comment about tax rises in the past. Does he recognise that pressures were applied to Government by the health service, in particular in relation to taxes on whisky? Does he compare that pressure with the pressures from the smoking and anti-smoking lobbies, in the context of which his policy is to stand firm against the tobacco industry?
I will stick with my speech and with the fact that we will opt for an even-handed approach that does not distort and diminish the whisky industry's competitive position.
It seems even more ironic to members of the Scottish National Party that although the chancellor is adopting a failed strategy, he constantly condemns us for having the temerity to advocate financial independence and other measures that succeed outrageously elsewhere. He unleashes a new measure that is, at best, flawed, to meet a need that has not been verified and he expects the industry to fund a high proportion of its tax collection costs. Without a tax deferment scheme and capital support, the measure will undermine the industry's financial strength and divert resources that would otherwise be spent on further investment, on acquisitions, on research and on brand development. Even if some of those costs are underwritten, there is likely to be a huge adverse impact from the additional production complexity that will ensue, in particular from the requirement to co-ordinate stamps of different value to cover whisky of different strengths in bottles of different sizes. We can already see that that will have a devastating effect on productivity, with an estimated production loss of between 8 and 10 per cent—in a country that desperately needs to increase, rather than damage, its productivity.
In addition to extra set-up time and reduced productivity, the measure will lead to complexity as a result of the need for special UK warehousing space. The security issue will lead to a cascade of costs; there will be a need for extra personnel, alterations to premises and insurance. However, the costs will not stop there; there will also be the administrative costs of managing the process and the paperwork and of coping with the storage and distribution of stamps. I talked to one company that estimated that the potential costs of the measure would be more than £500,000 per annum.
Members should contrast that scenario with one in which a Scottish whisky industry trades from an independent Scottish stage, with a Government that is focused on maximising the direct and indirect benefits that the industry can accrue for our country and that is determined to maximise the return from the brand called Scotland.
I move amendment S2M-1116.1, to leave out from "welcomes" to end and insert:
"agrees with the Scotch Whisky Association that the Chancellor of the Exchequer's decision in the 2004 UK Budget to impose tax stamps on whisky and other spirits will damage the industry's competitiveness at home and abroad but do little to tackle spirits fraud; deplores the damage that successive Westminster governments have done to this vital Scottish industry, and therefore agrees that, to reverse the tax stamp decision and ensure that the competitive position of Scotch whisky is not further eroded, the Scottish Parliament should be responsible for the setting of all national taxation within Scotland."
The Scotch whisky industry supports 41,000 jobs in Scotland. In my constituency, the industry is vital to the prosperity of the islands of Islay and Jura, where it is the largest employer. Whisky production in distilleries on those islands underpins the local economy. The industry is also very important in Campbeltown, Oban and Mull. Whisky plays a huge role in the prosperity of my constituency.
Others have already touched on the key points of the debate. The first and the main point has to be this—the Treasury claims that 200,000 bottles a day are sold illegally, losing the Treasury some £600 million a year; but the industry estimates spirits fraud at between £100 million and £150 million, and says that the problem is falling rather than rising; while the National Audit Office says that the figure could be as low as £300 million or could go up to £1 billion. The NAO calls into question the models that are being used to calculate the size of the problem. When I asked Cathy Jamieson, the Minister for Justice, how many prosecutions had occurred in Scotland for whisky fraud, the answer was only a handful a year. There is, therefore, an argument about the size of the problem.
In order to judge clearly whether tax stamps are the appropriate way of tackling the problem, further work must be done to get to the bottom of the scale of the problem. If that is not done, the United Kingdom Government will stand accused of using a sledgehammer to crack a nut.
A second point—on which Jim Mather touched—relates to the efficacy of tax stamps. America and Greece have abolished their tax stamp schemes, saying that they did not work. Indeed, the US Treasury has said that stamps have only a negligible value in evidencing compliance with the law and the payment of excise taxes. Even in Poland, which has persisted with tax stamps, there has been no noticeable reduction in the black market for spirits. The conclusion from the evidence must be that a question mark remains over whether tax stamps will achieve a worthwhile reduction in fraud. It is on the two points that I have raised that we must prosecute the argument with the UK Government.
I am extremely pleased that the Executive is equally concerned about the impact that tax stamps could have on one of our biggest export earners. The Executive is taking an extremely robust position, as outlined in the amendment that was moved by the minister. The minister is right to demand that the Treasury engage in further discussions with the industry on the right way of tackling this very serious issue. The industry has suggested alternatives and the Executive is right to insist that the Treasury reconsider and engage with the industry with a view to reversing its decision. The issue is important for the whisky industry, but it is also important for Scotland and the Scottish economy.
I welcome Murdo Fraser's announcement that he is willing to accept the Executive's amendment. I think that Jim Mather should think long and hard before pressing his amendment. He could withdraw it, so that we could have an all-party view on this important issue. That might carry some serious weight down the road. I hope that Jim Mather will consider withdrawing his amendment and will support the Executive's amendment to the motion, as the Conservatives have said they will do.
The Executive is right to take a robust position in defence of the Scotch whisky industry. The Treasury's proposals are, I believe, unjustified; judging by the evidence from other countries, they will also be ineffectual. The Treasury appears to be taking a sledgehammer to crack a nut. I therefore have no hesitation in pledging the Liberal Democrats' support for the position that has been taken by ministers in defending the interests of the Scotch whisky industry.
We have already heard about the importance of the Scotch whisky industry to the Scottish economy. George Lyon referred to the 41,000 jobs that the industry provides and we should remember that it is worth £2 billion a year and affects not only the Scottish economy but the UK economy.
It is to be regretted that the issue of strip stamps has been raised again, because it appeared to have been killed off some two years ago. The chancellor had instigated a consultation and the Scotch whisky industry responded by outlining the serious effects that the introduction of strip stamps would have. The industry highlighted the capital costs of installing the stamp application machinery and the annual running costs; the extra security costs in handling the stamps; the requirement to purchase the stamps up front, which can be considerable, especially for the smaller operators in the industry; the reduction in efficiency of bottling lines; and the evidence from other countries, which, as has been mentioned, shows that stamps are at best limited in their effectiveness in reducing fraud. Therefore, it came as no surprise when the chancellor announced in the 2002 budget that the idea had been rejected because of
"the severe impact on productivity and compliance costs".
It seemed that the message from the industry had been received and understood but, in the pre-budget report at the end of last year, the chancellor exhumed the proposal and invited the industry to demonstrate better means of tackling fraud. In response, the industry produced a package of measures that would generate more of a revenue gain for the Treasury than would strip stamps. It is worth bearing it in mind that HM Customs and Excise has suggested that strip stamps would reduce fraud by no more than 25 per cent. That is not to say that any reduction is not welcome, but the industry claims that its proposals would produce up to double that saving. Nevertheless, it appears that those proposals have been cast aside. The industry's measures would also produce revenue gains earlier than the Treasury's proposals would—in 2005 rather than in 2006—and would have more enduring effectiveness, given the limited effectiveness of strip stamps in other countries.
The industry submitted detailed proposals to the Treasury. I will not go into them now, but they ranged from suggestions for the targeting of high-risk owners, sales and movements and the placing of HM Customs and Excise assurance officers in the highest-risk warehouses to ideas for a revised system of guarantees and a strengthened HM Customs and Excise licensing system. All those measures placed considerable weight on the industry playing its part in tackling fraud, but to no avail.
The chancellor's announcement two weeks ago was even more surprising, because it came just a week after the publication of a National Audit Office report that highlighted the unreliability of HM Customs and Excise's figures on fraud. I think that George Lyon mentioned a figure of 200,000 bottles a week. The industry says that that figure just does not stand up to scrutiny. It is important that the industry's views on the matter are given considerable weight.
Two weeks ago, the First Minister announced to the Parliament his disappointment at the decision and, as members will know, the Scotch whisky industry added the word "bitterly" in its reaction. That demonstrates the damage that the industry fears it could suffer if strip stamps are introduced. Jobs could be at risk, as could the market share of whisky, which is already under considerable threat from other spirits, as well as from wines and beers.
Two weeks ago, the chancellor announced in the budget a freeze on the duty paid on whisky. That is welcome. I hope that he will now acknowledge the opposition to the introduction of strip stamps from within the industry—including management and trade unions—and, as we are hearing today, from across the political parties. I hope that he will use the time that is available to him to open up discussions with a view to finding an alternative way forward that both protects the competitiveness of the industry and deals with the urgent issue of fraud. I suggest that strip stamps are not the best way of doing that.
I congratulate Mike Watson on that speech, which was an excellent contribution to the debate. It is just a shame that his Westminster colleague Tom Harris did not feel the same way—he voted in favour of tax stamps. That is part of the problem.
Whisky is not just a rural or a Highlands issue. The industry is one of Scotland's biggest; as members have said, it contributes more than £2 billion to the United Kingdom Treasury. It is not just Speyside or islands such as Islay and Jura, which George Lyon mentioned, that will be affected by the new tax on the whisky industry; areas such as Dumbarton, Dalmuir, Renfrewshire and Lanarkshire will be hit, too. In Scotland's central belt, in areas such as Glasgow, Lanarkshire and Dunbartonshire, men and women work in the offices, the bottling plants and the bonded warehouses that are sustained by the whisky industry.
The introduction of tax stamps—a measure that has already proved to be completely ineffective in tackling fraud—will cost the industry tens of millions of pounds every year. I know that Labour members will not like it when I ask what the brave band of Labour MPs in London has been doing to defend one of Scotland's most vital industries. We have had some nice words—Labour MPs have told us how awful the proposal is—and there has been some hand wringing, but apart from that the MPs have done nothing. That might not be quite right; it would have been better if they had done nothing. Instead of doing nothing, they have ensured that tax stamps will be imposed on the industry. In the House of Commons, they did not vote against tax stamps or abstain; they voted in favour of them. Labour MPs such as Brian Donohoe and John McFall, secretary and chairman, respectively, of the all-party Scotch whisky industry group, say one thing in their constituencies and then do the opposite when they are down in London.
Does the member accept that John McFall has worked particularly hard on the issue? Does he further accept that it was John McFall who got the Economic Secretary to the Treasury up to Dumbarton to have a discussion with Allied Distillers and the Scotch Whisky Association on the very points that MSPs from all parties have consistently made?
I commend John McFall for doing anything to help the whisky industry. Why then did he not vote against the tax stamps? If he was such an opponent of tax stamps, why did he go through the aye lobby and vote in favour of the measure? That is the central point of my argument.
Will the member give way?
No, I have just taken an intervention.
The member does not understand the voting system at Westminster.
I know how the Labour MPs voted; they voted in favour of the measure.
John McFall is the Labour MP for Dumbarton, which is an area that depends on the whisky industry for a lot of good, high-quality jobs. I have a copy of an article from last week's Dumbarton & Vale of Leven Reporter, in which John McFall tells us about his campaign, which Jackie Baillie just mentioned, against the imposition of tax stamps on whisky. He is reported as saying that, in his speech in the budget debate, he expressed his "disappointment" about the decision to introduce the tax stamps. What John McFall does not mention in the article is that he voted in favour of the introduction of the tax stamps. With that vote, he voted in favour of putting increased costs on the whisky industry and of putting the jobs of his constituents at risk.
However, John McFall, Brian Donohoe and even Gordon Brown did not impose the tax stamps by themselves. They had the help of every Scottish Labour MP, not one of whom voted against the measure. A Government majority of 104 could have been wiped out if every Scottish Labour MP had voted with the SNP MPs. The Scottish Labour MPs should have voted to defend the whisky industry; they should not have voted to attack it.
That is not true.
It is a fact.
There are 3,500 jobs across Scotland in bottling plants and bonded warehouses, some of which are in the highest unemployment black spots in Scotland. We need those jobs; it is important that they are retained. What will happen if the industry says that it will have to cut costs and jobs because of the measure? What will the Scottish Labour MPs do then? Will they say, "Well, we are sorry about that, but we voted for it"? I doubt very much that that is what will happen.
Although I have sympathy with the Tory motion, the SNP amendment hits the nail on the head. The truth is that the Scottish Parliament would not, if it controlled the whole of the country's national taxation, have voted in favour of tax stamps. We would have united to ensure that tax stamps were not introduced. We would have defended what is a vital industry and we would not have attacked it.
I am delighted to support the motion in the name of my colleague Murdo Fraser. Like him, I welcome the Executive's constructive amendment, unusual though that is. I hope that the First Minister and the Minister for Enterprise and Lifelong Learning will engage with the chancellor as promised.
I deplore the petty, carping comments that we have heard from the SNP this afternoon. It is absolutely disgusting that the SNP has chosen to talk about nationalism and not about the national drink. It is also absolutely disgusting that the SNP is represented in the chamber by only three members in a debate on one of our major industries.
Stewart Maxwell mentioned the
"brave band of Labour MPs".
I do not think that his party has ever understood devolution. The business of the SNP MSPs is not to hold Labour MPs to account, but to hold Labour MSPs to account. The SNP needs to learn that lesson. I say to SNP members that that is why they are in the Scottish Parliament and not at Westminster.
Will the member give way?
No, I have heard enough from Mr Maxwell this afternoon and everything that I heard was totally negative and carping. I do not wish to hear any more. I am very disappointed about the approach that he took. I think that, if Winnie Ewing had been in the chamber, she would have had something to say to him about that.
It is highly appropriate that the Scottish Parliament should make representations on behalf of the Scotch whisky industry. Recently, Diageo tried to interfere with Cardhu by blending single malts and calling the result a pure malt. I am grateful that the First Minister responded positively to that situation. Although I am not sure what sort of talks took place, I am thankful that Diageo came to appreciate the unique nature of the single malt and reversed its decision. I hope that, following today's debate, the Scottish Parliament will put pressure on Westminster to reverse its decision on tax stamps.
The decision on Cardhu was worked out internally by the Scotch Whisky Association, in conjunction with Diageo. We are all pleased at the outcome, but the matter was not the responsibility of the First Minister or the Executive.
Whatever talks took place behind the scenes, the Scotch Whisky Association was certainly very vocal on the issue.
I am sure that all members would wish to do whatever it takes to combat fraud. If Conservative members were convinced that the introduction of strip stamps would succeed in that respect, the measure would have the backing of every one of us. However, as Murdo Fraser and Mike Watson said, no evidence exists to support Gordon Brown's figures. When a Government decides to impose higher taxes and costs on industry, normally the industry can choose to move to another country where the Government is more understanding, sensitive and supportive. That is not the case for whisky, however. Scotland is the monopoly producer of the national drink—there is no substitute for Scotch. As Mike Watson said, the National Audit Office, the Public Accounts Committee and the Scottish Affairs Committee at Westminster have all cast doubts on the chancellor's figures. I hope that that will be a basis for the Executive's future discussions.
Perhaps the chancellor should reconsider the severe cuts in the number of customs and excise officers and put resources into HM Customs and Excise to combat fraud. I was told earlier this week that, about six years ago, there were 12 customs and excise officers in Shetland, whereas now there are two. Such figures are replicated throughout Highlands and Islands communities. We should also reconsider the reduction in the number of trading standards officers at local level. I am pleased to say that Shetland now produces vodka and gin and that a local firm is planning to open a distillery there. We should take into account the impact of measures such as strip stamps not only on the existing whisky industry, but on the future of the industry.
I ask Margaret Ewing, who represents the constituency with the highest number of distilleries in Scotland, to bring pressure to bear on her colleague and persuade him to drop his amendment.
Members have touched on the importance of the Scotch whisky industry to the economy and on the effectiveness of strip stamps, so I do not intend to rehearse those points. I have to say, however, that I find Stewart Maxwell's accusations entirely disingenuous. To suggest that Scottish Labour MPs could vote down a United Kingdom budget, and have a majority to do so, shows that he cannot count and that he is much more interested in empty posturing than in doing something about this matter. I echo the call for the SNP to raise its game and to withdraw its amendment, so that the Parliament can present a united view.
I visited Allied Distillers with John Healey, the Economic Secretary to the Treasury, and my colleague John McFall. We saw at first hand the consequence of using strip stamps: the wastage, the slower production lines and the security measures required. We thought that a convincing case had been made to the minister. Leaving that to one side, however, we should acknowledge that fraud is a problem, although we can, of course, debate the scale of the problem. The National Audit Office suggests that the cost of fraud can fall in the broad range of £10 million to £260 million according to one set of figures or of £330 million to more than £1 billion according to another set of figures—a huge margin of error. That lack of clarity is worrying, because it means that we are not clear about whether the action that we are taking in introducing strip stamps is proportionate to the size of the problem. If the matter can be reconsidered, I would encourage the Treasury to do so.
Assuming that stamps are to be introduced, however, we need to ensure that we minimise the cost and impact on the industry. Other members have outlined the cost of compliance. As I understand it, the Government has made four key commitments. First, it will seek to implement the scheme without requiring up-front payments, so that the industry can continue to benefit from duty suspension and deferment. That is likely to account for about 40 per cent of the cost of compliance, so it is absolutely essential that that measure be in place. Secondly, members have covered the £3 million available to assist with capital investment, but we need to recognise that that impact is not just on small firms; it is on larger firms as well. Thirdly, the Treasury has said that it will bear the full cost of production and distribution of the stamps, which is estimated at £5 million to £10 million. That is helpful. Lastly, the Treasury has indicated that it will examine the likely security costs and the scope for reducing those.
All that is welcome, but I will go slightly further and ask the Government for two more commitments, both of which I have raised with the deputy minister. First, I want flexibility in the legislation. I will explain what I mean. When the legislation is drafted, it would be useful to deal in principles rather than in specifics. For example, instead of saying that a 20mm-wide strip stamp should be applied, why not talk about fiscal marks, which are slightly different? I am encouraged that the Treasury, rather than referring to strip stamps, talks about tax stamps, which are potentially different and potentially much better. Flexibility and the involvement of the industry in determining the most appropriate measures are essential.
Does Jackie Baillie agree that the Treasury must also consider the security of strip stamps, an aspect that she has not touched on? The stamps are valuable items; an A4 envelope can, I believe, contain £50,000-worth.
Absolutely. I will make that my third request, but my second point is that I would like the Government to review the measures after two years, because, by that time, it will be able to revise estimates of the scale of fraud much more accurately and there will be a reasonable amount of operating experience. Good government is all about reviewing what we do to ensure that it is effective and provides value. Not only should that be done as a matter of course, but a specific commitment to review the measures would be welcome. Ultimately, I want the Scotch whisky industry to thrive. Let us help it to do so.
I am pleased to participate in the debate, as I have previously expressed an interest in, and had a members' business debate on, the subject. At that debate on 5 February, I pointed out that there was no need to see the matter as a battle between the Scottish Parliament and the Westminster Parliament, between the Conservatives or members of other parties and the Labour Government or between individual politicians and Gordon Brown. Although the chancellor has declared that he intends to proceed with the introduction of strip stamps, it is still not too late for the Scottish Parliament to unite in calling for the Executive to take further measures that will bring about a change in heart, so we should seek to reach and build on a constructive agreement today.
To be frank, the Conservatives' record in government on duties on whisky and other spirits could have been better—I do not think that I am saying anything that would surprise members. Similarly, the chancellor could do better. I do not say that in a partisan manner, but simply because the cause of the fraud that is associated with whisky, gin, vodka and other spirits is that the duties are too high. If one considers many other international examples, one finds that a cut in duty not only reduces the level of fraud but can lead to an increase in tax receipts. Surely that is a win-win situation, which is just what we should be seeking: the receipts would be available to be used for our public services and fraud would be reduced. I therefore suggest that, rather than introduce strip stamps, we consider the option of a cut in duty.
It would be bad if distilleries and bottling plants were to invest in the capital equipment and subsequently were to find that the decision had been reversed. In such a situation, I would certainly recommend that those distilleries and bottling plants be given some form of compensation. It is entirely possible that, at the 11th hour, the introduction of strip stamps will not go ahead.
I wrote to the First Minister following his concession during First Minister's question time two weeks ago that representations had been made. I call on the minister responsible for those representations to ensure that there is a response to my letter and that the representations are made openly available to the Parliament and are placed in the Scottish Parliament information centre so that they can form part of our overall campaign for a change of mind.
Members have covered many areas, but one final issue needs to be raised. What we are debating does not concern whisky alone. Sure, whisky is our national drink and it is a significant part of the distilling industry, but we should not forget the large amounts of gin and vodka that are distilled and bottled in Scotland. I understand that about 70 per cent of the gin that is produced in the UK is bottled in Scotland. That industry, too, will be affected. We need to recognise the diversity of product and the skills of our distillers, which have been attracting business from the rest of the UK and internationally. The proposals could result in the penalisation of what is a growing industry—indeed, one of our best industries. With that in mind, I call on members to get behind a joint approach.
The whisky industry supports around 40,000 jobs in Scotland and I hope that, if the Chancellor of the Exchequer does not destroy it, it will remain one of Scotland's most successful industries. It is clear to most people—but obviously not to the chancellor—that the main cause of the fraud that he is trying to stop is the unduly high burden of taxation on whisky. Do members really think that there would be any need for strip stamps to stop whisky fraud if whisky was not so expensive? Spirit tax stands at a massive 66 per cent of cost. Imagine it: two thirds of the price is the tax. If someone goes into Deacon Brodie's or another establishment with their mates, buys three drams and drinks one, the other two will go directly to the Treasury. That is quite absurd.
I find it particularly galling that it is possible to buy a bottle on the continent for less than the price that it would be sold for at the distiller's own shop. That is quite amazing. As other members have mentioned, evidence from other countries points to the fact that the introduction of tax stamps does not work. America and Greece abandoned their tax stamp schemes some years ago. We need to discuss with the industry the cost of the introduction of strip stamps. The Government has estimated that the cost will be £3 million, whereas the industry, which is acquainted with what it is doing, estimates that the cost will be £60 million. I do not know who did the arithmetic, but that is quite a difference.
Liberal Democrat MPs at Westminster have called for the tax stamp regime to be abandoned. If there cannot be a reversal, the Government must engage with the industry to develop a comprehensive package of measures to minimise the impact, a point that has been made by several members. There is no agreement between the Government, the industry and the National Audit Office on the level of fraud and on the cost of implementing tax stamps, including the capital cost and costs relating to stock flexibility, the control line and security.
Does John Farquhar Munro accept that there is broad agreement between the Treasury and the whisky industry about the potential compliance costs, specifically on the up-front capital costs of about £23 million to £25 million and on annual running costs in the region of £50 million or £60 million?
I thank the minister for that intervention. The arrangements must be in coded language, because they have not been easily understood by people in the industry.
Tax stamps will impose a massive burden on the entire spirits trade, with a disproportionate impact on smaller producers, whose existence will be threatened. As I have said, tax stamps have not worked in other countries. Experience abroad suggests that tax stamps have little impact on fraud. Several countries, including the United States, Greece and Ecuador, have abolished their tax stamp regimes and others, such as Germany, Belgium and Norway, pulled back from introducing schemes in the first place. Hungary has tax stamps, but estimates suggest that illicit goods account for between 15 and 20 per cent of the market there, which is similar to Government estimates of fraud in the UK, so the stamps do not appear to have worked in Hungary. The situation is even worse in Poland, which has tax stamps but where about 80 per cent of Scotch whisky is believed to be contraband. Other overseas experience suggests that, if tax stamps were introduced, high-quality forgeries would appear in the UK within months and would become common. Indeed, with duty at £5.48 a bottle, there would clearly be a strong incentive for people to produce forgeries, so as a result of the proposals the only growth industry would be counterfeiting.
I suggest that the HM Customs and Excise figures on the scale of tax fraud are highly questionable. If the Government is determined to introduce strip stamps, it must monitor their impact and be prepared to remove the measure if the stamps are found to be ineffective or are damaging the industry, so that we can continue to have a vibrant and profitable whisky industry for decades to come. Slàinte mhath.
I will not take lectures from anyone about working for the Scotch whisky industry. Mike Watson, Lord James Douglas-Hamilton and John Home Robertson, the members with whom I served for a long time at Westminster, will verify that I argued strongly for the Scotch whisky industry and made clear the SNP's views on every occasion when the subject was debated in the House of Commons. The SNP has always been fully supportive of the whisky industry and has argued the case for a reduction in excise duty and for whisky to have a level playing field with other alcoholic beverages. It is important that members of this Parliament understand our commitment to the industry.
There is a consensus in the chamber. Some members are saying that, because the SNP amendment refers to national taxation, we have destroyed the consensus, but no one disagrees about the impact that strip stamps will have on the industry and we are all agreed about the importance of the industry, the number of jobs that it creates and the amount of money that it brings into the economy. The behaviour of some members has lowered the tone of an otherwise sensible debate. It is unusual for me to have a dispute with Mary Scanlon, but she reflects an attitude that is prevalent in the Parliament and on the Labour and Conservative benches in particular, which is that we should just stay in the devolution kennel and hope that a bone will be thrown to us from on high at Westminster. We have to rise to the challenge of having a national Parliament. For goodness' sake, even the Liberals seemed to wake up at the weekend and now support the concept of fiscal autonomy, as do the Scottish Socialist Party, the Greens and the independents who are sitting at the back of the chamber. The reason why the whisky industry is in such a mess is that we do not have fiscal autonomy.
Margaret Ewing is making precisely the point that I made. Stewart Maxwell should concentrate on our national Parliament holding the Executive to account so that we can speak with a single voice in sending Westminster a strong message on the issue. Will the SNP support our motion and agree to withdraw its amendment?
Obviously, I believe in Jim Mather's amendment and we will be supporting the other amendment.
Members have said that we have a consensus, but the fact that the Deputy Minister for Enterprise and Lifelong Learning has been scurrying up and down and sending e-mails to John Healey or somebody or other in HM Treasury has not worked. I remind members that in December last year Gordon Brown 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 we will take it."
The Scotch whisky industry has produced a package with 17 alternatives that are said to be attractive and worthy of consideration, but the chancellor has not taken them on board. To show our commitment to the whisky industry and other industries in Scotland, we should argue strongly the case for Scotland's Parliament to have the right to raise its own taxation. If the Parliament had that right, we would not be facing this scandal.
We have heard in the debate widespread agreement on the whisky industry's importance and on the potential impact of compliance costs on the industry. The challenge is to focus our efforts on achieving the most satisfactory outcome following the chancellor's budget statement. I am disappointed that Margaret Ewing did not take the opportunity to seek withdrawal of the amendment in Jim Mather's name.
Mike Watson referred to the chancellor's budget statement of 2002. We should recognise, as Margaret Ewing did, that the chancellor's view that he wished to avoid tax stamps if he could was where the debate began, far from the bizarre version of policy making at Westminster that the SNP presented. I have outlined the efforts that the Treasury and the industry have made, with our support, to agree on several critical points, such as the scale of the problem. They have discussed recognising the reality of what is very serious fraud—contrary to one or two comments—and its consequences for Government revenues.
Efforts have also been made to agree on the scale of the potential compliance costs if tax stamps are eventually introduced. As I said when I intervened on John Farquhar Munro, much agreement exists between the industry and the Treasury on what those compliance costs might be.
Jackie Baillie said that tax stamps might be withdrawn later. Does the minister agree that it is important to prevent tax stamps from being implemented, because of the high capital charges that will be incurred?
We have made it clear that we seek a satisfactory outcome that allows the chancellor to decide not to proceed with tax stamps and which tackles spirits duty fraud effectively. That is our preferred outcome. However, we must acknowledge that the Treasury and the industry have failed to agree on an adequate package of alternative measures that would deliver the solution to fraud in the industry.
Despite that failure, there is no reason to give up and walk away. There is every reason for the industry to continue to engage with the Government. The chancellor has decided in principle to press ahead with tax stamps but, as Jackie Baillie said, the chancellor's announcement about such fiscal marks may have flexibility. There is every evidence of flexibility in how the decision may be implemented.
The industry's continuing willingness to engage with the Government was made clear to me earlier this month when I met the Scotch Whisky Association and had a detailed discussion not only about tax stamps, but about other domestic and international concerns. The industry recognises that important issues must still be addressed. Treasury ministers are alert to the concern about the impact of tax stamps on smaller distillers, which is one issue that the industry will pursue. If tax stamps were introduced, a large element of compliance costs—towards 40 per cent—would relate to cash flow. If the chancellor proceeded, the industry would want to talk about what could be done to deal with that. The Treasury has made commitments that point in the direction of addressing that aspect.
The minister shows that he understands our distillers' concerns. Is he willing to publish in the Scottish Parliament information centre the material that he has used in representations to the Treasury?
That does not take us forward on how we address the issue, which is to pursue further discussions and engage the industry. That is where I want to keep my focus.
It is clear that we want to find a solution that will allow the UK Government to reverse its decision because it has negotiated with the industry an effective means of addressing the fundamental problem of tax fraud without the need for tax stamps. If that is not possible, it is essential that the dialogue continues on the technical details of the implementing regulations and on the package of measures that would be needed to mitigate the very real concerns that have been raised today.
Yesterday, I spoke to the Economic Secretary to the Treasury, John Healey, as part of an on-going dialogue. I understood clearly from him that the Treasury's intention is, indeed, to monitor measures that are developed by the industry over the next two years and, if tax stamps come in, to monitor their impact.
Will the minister be prepared to publish the communications between him and the Economic Secretary to the Treasury so that members who are interested in the subject can see the representations that the Executive has made in response to today's motion?
I am seeking to describe the representations that we have made and that we will continue to make to ensure that Treasury ministers are aware of our views on the matter. Members will understand that decisions on such matters lie with the Treasury and not with us. The representations that we are making should be seen in that context.
Will the minister advise members whether aspects of the capital investment that will be required by the industry and on-going annual costs are included in the representations?
As I mentioned a few moments ago, I understand that the industry and the Treasury agree on the scale of the upfront capital costs as being around £23 million to £25 million. As the member knows, there is already a provision in the budget statement for capital assistance to the value of £3 million. Clearly, there is a significant difference between those figures, and it is precisely in respect of that that we will continue to talk with the industry and the Government.
We and the Treasury recognise that the implications of tax stamps for the smaller companies that operate in the industry are significantly different from the implications for the larger producers, and I have no doubt that that will be one aspect of the discussions. I assure members that the Executive will continue to work with the industry and the UK Government in efforts to reach a satisfactory conclusion. I have already moved an amendment to the motion and I hope that the amended motion will attract the support of all parties.
I call Jamie McGrigor to wind up the debate.
On a point of order, Presiding Officer. I do not wish to delay the debate. My point of order relates to Fergus Ewing's amendment, the final three lines of which seem to refer to an issue that is quite extraneous to the issue of the BBC and the tapes, which are the subject of the debate. Therefore, my question is—
That is the next debate.
I apologise. I shall raise the matter in writing.
Yes. In that case, I will make my ruling later on.
It is extraordinary that the Labour Government should impose an extra burden—indeed, a stealth tax—on a Scottish industry that already pays 60 per cent of the value of its product in tax. On the SNP's amendment, the only Government that has dropped the tax in recent years was the Tory Government, whose chancellor, Ken Clarke, twice slashed the duty on whisky. The duty has remained frozen for six years, which is probably why Chancellor Gordon Brown thinks he can get away with such a strip stamp ploy. There was certainly not much opposition from his colleagues down south, although the ploy is foolish and unnecessary.
In Scotland, whisky is one of our icons. Other industries may come and go, but Scotch whisky goes from strength to strength and provides the Treasury with one of its most valuable sources of revenue. It is bonded geographically with Scotland, which in some ways makes it more exposed if the competitive environment in the UK becomes untenable. It is down to UK politicians such as Gordon Brown to provide the environment in which Scotch whisky can flourish. By threatening the use of strip stamps, he is threatening the Scotch whisky industry, which was originally unfairly treated in 1909, when a teetotal Prime Minister, Lloyd George, increased the tax by 35 per cent in one go to pursue his personal crusade for a drink-free Britain.
Shame.
That is hardly typical of a Liberal leader nowadays.
The Scottish Parliament should help the Scotch whisky industry by producing whisky more at Scottish Parliament receptions. Uisge-beatha—the water of life—is our national drink and we should be proud of it. When taken in moderation, it is a medicine. The last debate on whisky, on 7 March 2002, centred on the Scottish Executive's document, "A Toast to the Future", in which the Executive pledged to support the industry. I am glad that the Executive's amendment seems to support our motion—frankly, it would be shocking if it did not.
Will Jamie McGrigor define moderation for us?
Moderation is below 80cc for someone who is driving. I think the member knows what I mean.
Less than Charles Kennedy has.
Ooh.
Order.
Spirits are already taxed one and a half times more heavily than other drinks, and the application of strip stamps would compound that disadvantage. Strip stamps do not work. They have been abolished by the USA for that reason. They are easy to forge and expensive to apply. Why is Gordon Brown—himself a Scot—so determined to push ahead with this foolish exercise, despite the National Audit Office's warning that his fraud figures are flawed and do not add up?
Does Jamie McGrigor accept that the National Audit Office said that the figures on fraud that the industry and HM Customs and Excise produced were reasonable in their approach; that the scale of fraud might, therefore, range up as far as £1 billion; that the NAO said not, as he suggests, that the fraud was entirely overestimated, but that there was a lot of room for doubt; and that there is, therefore, room for discussion with the industry?
Yes. I take the minister's point on that.
If the Government's figures were correct, it would mean that 200,000 bottles were being sold illegally every day and that almost every bottle of spirits that was sold outwith the supermarkets was fraudulent. The figures on beer and wine from the same source showed that more duty was being collected than was possible according to the amount of drink that was being consumed. Therefore, the figures are quite possibly utter nonsense, or at least unreliable. In the face of that, why is Mr Brown attacking an industry that supports not only distillery jobs, but the production of bottles and labels, an enormous amount of transport and a big slice of agriculture? Most gin and vodka is bottled in Scotland as well, so there is even more of an employment risk. Whisky contributes significantly to the tourism industry, and whisky tourism is growing every year, especially in the Highlands and Islands where most of the distilleries are located.
The move is not even Euro-friendly. In western Europe, only Spain, Portugal and Italy use strip stamps, and their consumption is tiny in comparison with the UK market. There will be huge compliance costs to industry and supply chains if the UK adopts strip stamps, not only from the purchase of the machines that are required, but due to much slower production. The productivity of a bottling plant that produces 600 bottles a minute would drop to 450 bottles a minute if strip stamps were introduced. Additionally, every stamp is worth £5.40, making them a huge security risk. It is estimated that their introduction would cost the industry in Scotland £24 million in capital costs, with further running costs of £60 million a year. Someone would have to carry those costs, and the price of whisky to consumers would probably rise by a minimum of 40p a bottle. A £3 million fund would mean a payment of perhaps £30,000 to individual companies, although the machines cost £250,000. The security risk also means that insurance costs would soar.
Strip stamps damage competitiveness and productivity. They should not be introduced. I hope that our First Minister persuades Gordon Brown to change his mind. The chancellor has promised to do his best to freeze duty and to minimise the cost to the whisky industry. I hope that the First Minister will hold Gordon Brown to that promise. He can do that and help the industry by doubling the duty deferment period. Currently, it is 45 days after bottling, but it is within the First Minister's remit to make it 90 days, which would be of huge advantage to the industry. He should also examine security funding and come up with a deal that shows his support for the Scotch whisky industry.
I am glad that we have the support of the Scottish Labour party and the Liberal Democrats. I ask the SNP to withdraw its amendment so that the Parliament sends a stronger message to Gordon Brown. We should all be saying slàinte mhath together on this one.