Select Committee on Scottish Affairs Minutes of Evidence

Supplementary memorandum from Scottish and Newcastle plc

  1.  In giving evidence to the Committee on 10 January 2001, the Chairman of Scottish & Newcastle, Mr Brian Stewart, offered to provide evidence and further information in two areas: the climate change levy and the regulatory burden on pubs; and the logistics of beer production in Scotland.

Climate change levy and the regulatory burden on pubs

  2.  In his evidence, Mr Stewart repeatedly referred to the burden on pubs in meeting new regulatory requirements (see responses to questions 218, 244, 245, 266 and 282). One specific aspect of that on which he promised to provide further information to the Committee was the cost of the climate change levy.

  3.  As members of the Committee will be aware, the climate change levy comes into operation on 1 April 2001. It is designed to be tax neutral overall, with money raised being returned to business via a reduction in National Insurance contributions. However, that does not prevent a widely different impact on businesses in different sectors and that is the source of our concern.

  4.  Scottish & Newcastle Retail, the pub, restaurant and hotel company of Scottish & Newcastle, is a major user of energy. But that energy use is dispersed across over 2,400 locations, each of which is in effect a small enterprise. So the company, unlike its sister company Scottish Courage, will not come under the terms of the Integrated Pollution Prevention and Control Regulation and is therefore not eligible for a discount on its liabilities under the climate change levy. The company faces a bill in excess of £2.3 million in the first year of operation of the levy.

  5.  This will barely be offset at all by the cut in employer's National Insurance contributions. Because of the nature of employment in the sector, particularly the large number of part-time workers, the reduction in NI contributions will amount to only £62,000, leaving a net £2,238,000 million of liability under the climate change levy.

  6.  This is a very significant increase in the tax burden on the company. It will hit the company despite a very active programme of investment of over £1.2 million to achieve a 10 per cent reduction in energy use in 2001/02, with a saving of 20,000 tonnes of CO2 emissions. If we are to avoid passing the cost on to customers, the bill for the climate change levy will put pressure both on employment in the company and on investment—including our environmental improvement programme.

  7.  Other companies in the sector face similar dilemmas. In effect, the levy will have perverse outcomes, penalising particular sectors because of patterns of locations and of employment and allowing no credit for investment to reduce energy use.

  8.  The Committee expressed concern about the future viability of pubs, particularly in rural areas. The climate change levy may well be the additional regulatory straw that breaks the back of many pubs, with all the knock-on effects on local employment and community amenity. We urge the Committee to recommend in the findings of their report that the Treasury and the Department of the Environment, Transport and Regions undertake an immediate review of the climate change levy to see what can be done to ameliorate these perverse consequences before they do too much damage to the pub and other sectors.

  9.  As Mr Stewart was at pains to emphasise, the climate change levy is only one among a whole series of regulations which impacts on pubs. As stressed above, each pub is in its own right a small enterprise. Regulations are conceived in separate Government Departments but become a cumulative burden on the owner, tenant or manager of each pub. In making regulations, Departments often appear blind to that cumulative impact.

Logistics of beer production in Scotland

  10.  In responding to question 215 about the competitive pressures on brewers in Scotland, Mr Stewart offered to provide further information about the logistics of beer production in Scotland.

  11.  He made the point particularly in reference to packaging materials. These have become more important in beer production as the amount of packaged beer increases to meet the demand in the off-trade. (The on-trade, by contrast, relies mostly on re-usable kegs which circulate continually between brewery and retail outlet.)

  12.  In common with brewers themselves, suppliers of packaging materials have consolidated in recent years. For example, there is now no major beer can manufacturer in Scotland (although the nearest is just over the border in Carlisle). Accessing suppliers, as well as markets, is therefore a vital part of the logistical planning process for any brewery, wherever located in the UK. Combined with the need to keep stock at minimum levels and to meet the just-in-time delivery requirements of the major retailers, this places a heavy reliance on an efficient and smooth-running transport infrastructure.

  13.  For S&N, as for other manufacturers who are integrated into the UK economy as a whole, this puts a premium on the transport links between Scotland and England. While the progress in recent years on improvements to the M74 are to be welcomed, there is still much to be done to improve the A1 up the East Coast—on both sides of the Border. Until this part of the transport infrastructure is completed, businesses in Scotland do face a potential competitive disadvantage.

Scottish & Newcastle plc

January 2001

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