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
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
investmentincluding 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
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
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 Coaston 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