Select Committee on Scottish Affairs Appendices to the Minutes of Evidence


Memorandum submitted by The Gin and Vodka Association of Great Britain (DIS 7)


  You will recall that when you wrote to me on 18 July, you gave me the opportunity to offer any updating of evidence that we had previously submitted. Whilst I realise that it may be too late for your Committee to consider this, I am taking the liberty of forwarding you updated aspects that we have recently submitted to HM Treasury and HM Customs & Excise.

  Size of the Market. The total drinks market is now worth £27 billion, of which spirits account for £5.2 billion. Gin and vodka together are now the largest sector by volume in the UK (or Scottish) retail market for spirits. Our members generated retail sales worth £1,590 million in the last year.

  Unfair Competition. The present standstill in Excise duty has been a welcome step in the reduction of the tax discrimination against spirits. However, we are asking for this trend to be continued because:

    —  Tax on spirits. This is still 1.5 times that on wine, and 1.75 that on beer.

    —  Differential with the Continent. UK excise on spirits is 225 per cent higher than in France and 195 per cent higher than Belgium.

    —  Tax per bottle. Our sector is particularly exposed to tax because the tax per bottle is now 74 per cent for gin; 77 per cent for vodka and 87 per cent for Cheapest on Display.

    —  Alcohol Volume not proportionate to Tax. Spirits account for only 20 per cent of all alcohol drunk in the UK but pay a disproportionate 28 per cent of the revenue.

  Economic Outlook: costs up at home and uncertainty abroad. The Chancellor remarked in his 1999 Budget speech that it is important to hold to our course of stability in the UK when there is a background of uncertainties in the world. This rings truer today than ever. The attached submission makes it clear how much we need the Chancellor's support today. Two aspects are of particular concern:

    —  Competitiveness: Price Pressures and Increased Costs. Our sector has done much to help itself. But we are seeking the Chancellor's assistance to meet the cumulative burden of tax, the Climate Change levy, regulation, competitive pressures, extra costs and tight margins. This is impacting on our industry, notably on our smaller companies.

    —  Contracts going abroad. One result is that Scottish based companies have opened up production overseas and Supermarkets are increasingly sourcing from continental producers. In consequence, our industry's requirement for Scottish raw materials may reduce and rural economies and employment may be hit.

  Smuggling. HM C&E also recently estimated the revenue evaded due to smuggled spirits to be £15 million in 2000 and that lost to be a further £15 million. These initial figures suggest a small but welcome reduction. The estimates do not, however, include freight smuggling of alcohol, which our members believe to be especially significant for spirits. Our smaller companies are concerned that they may have to bear the costs created by new control charges—particularly when a principal cause is the high rate of excise in the first place.

  Fraud: Proposal for Fiscal Marks. The Association welcomed the publication of Mr John Roque's report commissioned by Treasury Ministers on the Collection of Excise Duties in HM C&E. The Report is particularly important as it provides the best estimate of the scale of fraud and smuggling as a whole in the UK market for the first time in open publication and illustrates the size of the problem in the spirits sector. The industry fully supports HM C&E's intention to reduce fraud and there is much in the recommendations arising from the Roques Report. We look forward to engaging with officials in the consultation process. However, we are making strong representation against introduction of any fiscal mark on spirits bottles. These will add cost; put the Duty Deferment agreements at risk with Supermarkets; and have short-lived effectiveness.

  Cross Border Shopping. The media has given this much attention recently. The most recent Customs estimates indicate that the revenue lost due to cross-border shopping in spirits increased in 1999 from £50 million to £90 million. Our most up-to-date surveys show a concerning growth trend in cross border shopping of spirits—a trend of more worrying proportions than that shown by HM C&E.

  The Root Cause: Tax Differential with our neighbours. If UK excise were to be reduced so that the large differential with France and Belgium were reduced or eliminated, smugglers and fraudsters would lose their prime objective. We understand that over 40 per cent of spirits in Sweden are illegal, mostly brought in from Germany. And some 30 per cent of vodka in Denmark is from outside their country. The Administrations in both are reportedly now looking at Excise reductions to reduce differentials with Germany.

  The GVA's Submission. A key to our Submission is the Government Economic Service's econometric analysis. This shows that our industry is walking a tightrope between the two options that lie in the Government's hands. Reduced taxation helps us by creating volume growth—some 1.5 per cent per year since duty has been at a standstill. Sales increases add to duty revenue. The alternative is increased taxation which contributes to decline—our sales in UK would have reduced by 1.5 per year if duty had been increased in line with inflation since 1997. This is the backbone to our request for a reduction in excise. This will give our industry the stability that we need at this time of uncertainty. It will further cut the tax discrimination against spirits; narrow the differential with France, and reduce the incentive for fraud and smuggling.

  Please do not hesitate to contact me if you require further such evidence.

Edwin Atkinson

Director General

The Gin and Vodka Association of Great Britain

October 2001

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