Finance Bill

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Hon. Members: Shame!

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4.45 pm

Mr. John Bercow (Buckingham): I am very grateful to the Financial Secretary for giving way. Would he care to note as he develops his remarks that one of the reasons for the state of permanent happiness in the Christchurch Conservative club, to which my hon. Friend the Member for Christchurch earlier referred, is the fact that my hon. Friend secured on 7 June—as the hon. Member for Kingston and Surbiton (Mr. Davey) will know to his pain—a swing from the Liberal Democrats of no less than 11.7 per cent.? That is why they are so happy; that is why they keep drinking.

Mr. Boateng: I fear that any Conservative club in a state of permanent happiness ought to be investigated by Customs and Excise, but not in relation to any alcoholic beverage.

Be that as it may, we were referred to the drink pronounced ''wicked'', and I am happy to meet the challenge that the hon. Member for Christchurch laid down. In referring us to WKD, he suggested that the Government were putting a stop to innovation in the alcohol industry, and that the measure would in some way inhibit innovation and development of the industry, and the jobs that go with that. That would be a serious charge, and one to be taken seriously, if it had any substance. My attention is drawn to revealing comments made by Karen Salters, the marketing manager of Beverage Brands, the producer of WKD; we should pay some attention to what she has to say. She says that established and well supported brands will be able to withstand the inevitable price increase, and that Beverage Brands is committed to strengthening the coolers category and developing it further through innovation, marketing and business-building with the trade. That was what she said on 26 April in light of the Chancellor's Budget.

I do not think that anyone could argue that the measure will be an inhibitor on the business and will cost jobs. I also do not think that one can get away with suggesting that the Government have done something unheard of in raising tax on a particular category of drinks, or have acted improperly. The treatment of spirits-based coolers has remained largely unchanged since 1996, when the right hon. and learned Member for Rushcliffe (Mr. Clarke) made an announcement—without prior consultation, I believe. The right hon. Member for Fylde is in a much better position than I to know what was in the mind of the right hon. and learned Member for Rushcliffe at the time because he was his constant companion in the Treasury. The right hon. and learned Member for Rushcliffe said that

    ''the tax on alcoholic soft drinks will be increased by over 40 per cent.,''—

he was proud of that; it was a boast that was made when he made his Budget statement in 1996, and I think that I can recollect it—

    ''which will put up the price by between 7p or 8p a bottle. That increase will meet public concern about the attraction of the ''alcopops'' for under-age drinkers.''—[Official Report, 26 November 1996; Vol. 286, c. 168.]

That is what he said. There was no consultation and he simply made the announcement. He may have had

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good reason to keep those drinks in the bucket category of low-alcohol wines. At that time they accounted for only a tiny fraction of the alcoholic drinks market and many had a non-spirits alcoholic base. That is why I think—I am not just being old fashioned—that the term ''spirits-based coolers'' is better. Such drinks have developed over the years. They started with one called Hooch, which was a major cause for concern because its lemon taste attracted the younger drinker. The hon. Member for Buckingham (Mr. Bercow) may recollect it and perhaps he turned to that drink when he left the women's committee of Lambeth council—[Interruption.]—or possibly in 1992, indeed.

The industry developed and became more sophisticated with more attractive drinks. That sector of the market has changed out of all recognition since the time of the right hon. and learned Member for Rushcliffe. Times change and we must consider the matter in light of prevailing circumstances. We asked ourselves whether that concessionary treatment should continue and after careful consideration it became clear that such drinks no longer deserved to be treated as a niche product and that their concessionary treatment had become anomalous. There is nothing odd, unusual or underhand about that. That part of the drinks market has been the fastest growing for the past three or four years and by some reckoning it is ahead of cider as the fourth largest drinks category after beer, wine and ordinary spirits. So we decided that they should no longer be taxed at the same rate as low-alcohol wines but at the same rate as spirits.

Turning to the point made by the hon. Member for Arundel and South Downs (Mr. Flight) before lunch, we decided that vodka and orange or gin and tonic mixed at the bar should be subject to the same tax as vodka and orange or gin and tonic pre-mixed in a bottle. What is wrong with that? Is it odd or unusual? I am addressing my comment primarily to the hon. Member for Kingston and Surbiton because I suspect that Conservative Members are beyond hope. They will do what they will do, but I know that the hon. Gentleman tries to apply his mind rationally to these issues and that he does not come to the Committee with preconceived notions—

Mr. Bercow: No, he is a Liberal.

Mr. Boateng: That is not fair. The hon. Member for Kingston and Surbiton is a Liberal, but that does not have to carry all the connotations that I fear the hon. Member for Buckingham implied.

If the hon. Member for Kingston and Surbiton and his hon. Friend the Member for Torridge and West Devon (Mr. Burnett) apply their minds, perhaps they can see the rationale for the provision.

Mr. John Burnett (Torridge and West Devon): We welcome you to the Chair, Mr. Benton. It is a pleasure to serve under you again.

The Financial Secretary asserted that these drinks are the most lightly taxed of any alcoholic beverage. Will he elaborate on that to justify his proposition?

Mr. Boateng: It does not take much to demonstrate that. If the hon. Gentleman looks at the figures in the

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Red Book he will see that those drinks are not taxed as much as spirits, beer and cider. They are taxed on the basis of an obscure bucket category that was created, understandably, to protect the niche market of British-made wines—the Wincarnises of this world, if hon. Members can recollect that far back. The burden of taxation on them was low.

One of the key issues for consideration was whether the coolers market could support the removal of the concession. Our evidence showed that it could. There is nothing improper about considering whether a market can bear the burden of taxation. Between 1999 and 2001, the consumption of coolers more than doubled, and during that period, the average pub price of a bottle of coolers rose by 60p per bottle. Some hon. Members with peerages suggested that the increase was closer to 20p, but I have to tell them that the figure of 60p comes directly from an analysis of market research data by the Office for National Statistics. Customs has discussed that figure with the industry and I am confident that agreement will be reached to clear up confusion on the part of Opposition Members.

Mr. Christopher Chope (Christchurch): Will the Financial Secretary make that documentation available to Committee members straight away so that we have a chance to consider it while we are still sitting?

Mr. Boateng: I am not sure that I can do that, but I shall certainly write to the hon. Gentleman and make reference to the ONS report and the market survey. He can share that with colleagues.

Mr. Peter Luff (Mid-Worcestershire): If the price has already gone up by 60p a bottle, and binge drinking continues at those price levels, how will putting up tax help to prevent binge drinking?

Mr. Boateng: I am coming to that. It is a mistake for the hon. Gentleman to try to explain our action on tax as a response solely to the phenomenon of binge drinking. We have never presented that argument.

Mr. Bercow: The Financial Secretary is expatiating on the purported rationality of his argument. I do not cavil at that, but may I ask him what assessment he has made of the apparent incongruity between the relatively low excise duty on high alcohol content wine and the relatively high duty on lower alcohol content wine? My right hon. Friend the Member for Fylde referred to that incongruity a few moments ago.

Mr. Boateng: I shall not be drawn into such discussions now, but I hope that we have an opportunity later to discuss wines and their respective proportion of tax. Now, we are dealing specifically with spirits-based coolers.

Recent evidence strongly suggests that the sector enjoys sustainable levels of growth and very low demand elasticity, but even so, the assumptions that we made about growth and demand in our revenue projections were cautious. One has but to listen to the firm of market analysts WestLB Panmure, which said:

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    ''We do not believe that the higher tax and higher prices will materially affect demand because we do not believe that demand is price sensitive but led more by brand preference.''

People are attracted by brands, such as WKD, Reef, Barcardi Breezer and Smirnoff Ice. As Opposition Members have said, they are fashion drinks. People's decisions in relation to fashion are not often based on price elasticity. They pay for a name—surprising but true.

Chris Grayling: Can the Financial Secretary confirm that he believes that the duty increase will not affect demand in the slightest? He has quoted WestLB Panmure, which believes that it will not have a significant impact, so does he accept that the reference to medical factors in paragraph 6 of the explanatory notes on clause 3 is irrelevant? If the increase has no impact on demand, it will not affect levels of drinking or the behaviour of those who drink too much. Therefore, this is entirely a revenue-raising measure rather than a social measure.

5 pm

 
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