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  The Folly of the Whisky strip
stamps tax
 

This speech was given in the Committee of the Whole House on 27 April 2004 on Clause 4 of the Finance Bill, concerning the proposed whisky strip stamp.
 
Mr. Bacon: It is always a pleasure to follow the hon. Member for Vauxhall (Kate Hoey). I have had great affection for her ever since I stood against her for Parliament. However, the combined efforts of many months of putting out thousands of newspapers saying that I was zooming to victory in the race for the Vauxhall constituency merely increased her majority from 10,000 to about 18,000. Nevertheless, I remember the contest with great affection.

I am glad that the hon. Member for Dumbarton (Mr. McFall) is now back in his place, because I want to congratulate him on what I can only describe as the magnificent mental gymnastics in his speech. He said that he was dismayed by the Government's decision to introduce tax stamps, and I should have thought that the obvious corollary to being so dismayed would be to vote against the Government on this issue. At times his gymnastics were so magnificent that I lost his flow, so fast did he pirouette, but I think I understood him to say that he would support the Government tonight.

Mr. McFall: Let me be clear. I spoke because I received a letter from the Scotch Whisky Association saying that this was a done deal in the Budget. It wants to reach the best outcome for the industry and it asked me, as the Member of Parliament for Dumbarton and as the chairman of the all-party whisky group, to help the association. I said that I would help it by negotiating with the Government. That was very clear and it is acceptable to me and to the association. I hope that it will be acceptable to everyone with whisky interests and who considers the industry as a whole and not in a partisan, narrow and bigoted way.

Mr. Bacon: I commend to the hon. Gentleman an article by Daniel Finkelstein that appeared in The Times this morning. It said that when any politician begins a sentence with the words "Let me be clear" we should start worrying.

I commend the hon. Member for Moray (Angus Robertson) on his powerful speech. It seems to me that four central points have emerged in the debate. The first is that the scheme will impose very high costs on legitimate players; the second is that it will be very damaging to small businesses; the third is that it almost certainly will not work; and the fourth is that it will encourage a whole new area of organised crime.

The Government are not new to fostering organised crime. The Roques report entitled "The Collection of Excise Duties in HM Customs and Excise" came out in July 2001, and Mr. John Roques studied the issue in great detail. He pointed out that Customs and Excise had often encouraged the scale of the fraud because, after identifying diversion fraud, it let loads run rather than knocking them. Paragraph 7.5.3 on page 149 is headed "Decisions to allow loads to run" and it states:

"Of the seven cases where substantial investigations took place before the knock," -

in other words, before the intervention occurred - 

"it was typically the case that large amounts of revenue were lost after the diversion of alcohol was identified."

The report adds that

"in one case I reviewed, it continued for over a year and in another for over two years. This resulted in a large amount of revenue being lost as a result of loads being allowed to run."

I know that things have improved since, and I am sure that that is what the Economic Secretary will say when he winds up. He will be right; things have improved since. However, we must remember that background.

The Government boast - the Economic Secretary did so in his opening speech - that they are one of the few Governments, if not the only one, to have made a reliable estimate of the amount of fraud that is going on, so it is extraordinary that they have not estimated the amount of fraud that is likely to occur from the introduction of tax stamps. There is consistency in their approach. Perhaps we are being a little unfair on them. The idea that one does not do a proper estimate, that one does not carry out a thorough survey or assessment and does not obtain a thorough understanding of the issues - in the case of tax credits, they knew that something would not work but they introduced it - has been common practice in Government IT projects for many years. The policy is now being extended to other areas.

My hon. Friend the Member for Hertford and Stortford (Mr. Prisk) mentioned the statement that the Chancellor made in April 2002, when he appeared to be against tax stamps. Since then there have been U-turns on everything from student tuition fees to the EU referendum, so it is no surprise that there should be a U-turn on this matter. I hope that the Economic Secretary will consider making another U-turn, and I have a suggestion, which I will put to him later, as to how he might accomplish that manoeuvre slightly more elegantly.

The hon. Member for Paisley, North (Mrs. Adams) made a very powerful speech. I was shocked to hear that 50,000 tax strips can be contained in something the size of a paperback book. If that is not enough incentive for a whole new area of organised crime to develop, I am not sure what is. I do not think that the Treasury has given anything like enough thought to that. We have seen in the case of SIM cards for mobile phones a whole new area of fraud, VAT carousel fraud, for example, because the cards are so small, so portable and so valuable. Exactly the same will happen with tax stamps; instead of stamping out a problem, they are much more likely to make it worse.

Solving the problem of diversion fraud involves a simple issue: having full traceability. As the hon. Member for Moray said in his very good speech, there is full traceability now, in the sense that one can identify the precise time at which a bottle of whisky was created in the distillery and track it at every other point in the process. If we can have full traceability for beef and other products, we ought to be able to achieve it for whisky as well. The answer is to head down that route rather than having tax stamps.

The Economic Secretary mentioned the National Audit Office a number of times; indeed, it is fair to say that he prayed it in aid. I do not sit on the Scottish Affairs Committee, but I do sit on the Public Accounts Committee, and when the Committee considered the Customs and Excise standard report on 26 January, we were so concerned about the disparities between the estimates from Customs and those from the industry that we asked the NAO to do further work.

The Economic Secretary, who was quite fair in quoting the NAO report, said that there are substantial uncertainties inherent in any estimate of spirits fraud. He neglected to say, although I think that my hon. Friend the Member for Hertford and Stortford may have mentioned this, that there are differences between the two models even when estimates are presented as a range of possibilities. However, the NAO was careful to say in its conclusion that further work was needed by the Office for National Statistics, by Customs and Excise and by the industry, in the form of the Scotch Whisky Association. That point was made briefly in an intervention by my hon. Friend the Member for Cotswold (Mr. Clifton-Brown).

There is a way forward for the Economic Secretary. I know that he is a fair man, so I do not think that he could honestly say that he has carried the House with him on this. The Government have quite a reputation for rushing ahead with proposals that are not fully thought out, although the Prime Minister has issued a memo saying that that may be a bad idea. I suggest that rather than doing a humiliating climb-down on this clause now, the Economic Secretary should step back a little. Why, instead of doing a U-turn, does he not do two L-turns? In responding to the debate he should say that the House has clearly not been persuaded, that there are some serious concerns and that we are about to spawn a whole new area of organised crime, so we should work harder with the industry. As the NAO said, further work is needed.

In a few months, the hon. Gentleman should come back to the House, having done all that work, and say, "We have decided that tax stamps are not the way forward," thereby completing the second L-turn. I promise, at least on my own behalf, that if and when he does that, Conservative Members will not crow; we will welcome it as a sensible policy from a Government who, just once, have listened to the debate rather than storming ahead with something that plainly will not work.

 


See also:
SPEECHES: General betting duty
SPEECHES: Gift aid


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