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Brewing Industry

Volume 229: debated on Tuesday 27 July 1993

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12.59 pm

The brewing industry, in which I declare an interest, is one of the oldest, proudest and most vital of British industries. We know that barley, the main ingredient, was cultivated in 3000 BC—neolithic times—and in due course a way was found to convert the cereal into a nourishing and refreshing drink which brought cheer to those living a hard life.

Despite the Greek physician Dioscorides writing in the 1st century AD that a British drink
"made from barley and often drunk instead of wine produces headaches and does harm to muscles",
the British people took the drink to heart and to their stomachs, as for centuries it was the only liquid refreshment available to all that was really safe to drink. As Sydney Smith said:
"What two ideas are more inseparable than Beer and Britannia?"
Of course, Burton on Trent is the home and heart land of the brewing industry. A. E. Housman wrote:
"Say for what were hop-yards meant,
Or why was Burton built on Trent?
Oh many a peer of England brews
Livelier liquor than the Muse,
And malt does more than Milton can
To justify God's ways to man."
Burton is still the brewing centre of Britain, with great names like Ind Coope, Bass and Marston's employing 3,000 of my constituents directly. Many thousands more are employed in industries dependent upon brewing—the pubs, the off-licences, the brewing support trades like Briggs, to say nothing of those who provide the services to the brewing workers.

I am privileged to have represented the constituency and the town for nearly 20 years. Despite boundary redistribution and my opposition to Maastricht, I hope to continue that service for many years to come.

Brewing is vital to Britain in a number of ways. Beer is by far the most popular alcoholic drink in Britain today and our beer consumption represents 20 per cent. of the entire European Community total. We spend £13·5 billion per year on it—more than all other alcoholic drinks combined. Beer excise duty and VAT bring the Treasury some ·4·3 billion a year—equivalent to nearly 3p on income tax—and total beer revenue is greater than the combined total of all the other EC member states.

The industry employs 30,000 people nationally, widely spread throughout industrial and country towns and villages in the United Kingdom. More than 500,000 people work in pubs and clubs and, together with the suppliers of services, more than 1 million people—almost 5 per cent. of the total national work force—owe their livelihood to brewing.

The British pub is a national institution, with one third of all adults visiting a pub at least once a week and more than 70 per cent. of tourists to Britain preferring British pubs to their own bars at home.

British brewers have doubled British exports in beer over the past five years; yet, despite the essential nature of the industry and its outstanding performance, I am sorry to have to tell the House that the problems facing the industry are enormous, very largely of the Government's making, and therefore in the Government's hands to remedy.

First, unprecedented damage has been done to the industry by Government interference and the iniquitous Beer Orders, which have cost the industry about £500 million. Since 1989, the brewers have had to sell, or put on long lease, almost 11,000 public houses, and they have had to do so at a time when interest rates were high and beer sales were down, so private buyers were discouraged, and during the worst slump in property prices that anyone can remember.

The result has been a triumph for the industrial planners at the Department of Trade and Industry—fewer breweries, pubs and jobs, less choice for the consumer and considerable damage to brewer-tenant relations as licensees experienced distress and uncertainty with the introduction of new leases.

The brewing industry is strong and has learnt to adapt. There is now a period of stability, which the industry does not want to see disrupted. But the Government made a big mistake, and they owe the industry something.

The second major problem is the decline in the beer market. That has fallen by about 15 per cent. since 1979. Britain has been the only major world brewing industry to lose volume during the 1980s.

The third problem, and a contributing factor to the decline in beer production, has been the ridiculous burden of excise duty. Because it is far too high, it has driven down consumption and is seriously distorting competition in the single market, about which the Government are much concerned.

Tax on beer has risen by 52 per cent. since 1979. The industry has had two duty increases in 1993 alone—5 per cent. in the March Budget, followed by a hidden, although I concede accidental, increase of 2·7 per cent. from the change in the duty collection system. That makes nearly 8 per cent. in all. VAT now accounts for nearly as much of the tax burden, at more than £2 billion, as excise duty does.

Government fiscal policy has discriminated heavily against beer. Its duty has increased in real terms by 31 per cent., while duty on wine has been cut by 26 per cent. and duty on spirits has been cut by 24 per cent. The duty on cider is half the duty on beer.

The tax level is now so high that Mike Hubbard, the general manager of Ind Coope Burton brewery, makers of the fabulous Burton ale, tells me, "We have reached the point of diminishing returns and duty increases are punishing both the industry and the Exchequer. Mike Southwell from Bass tells me that Bass in Burton paid £18 million in beer duty in May this year alone—£550 million from Bass in a full year. The director of the Brewers Society, Robin Simpson, sums it all up as "killing the goose that is laying the golden egg".

Greatly exaggerating the problem is the excessively large differential in beer duty between the United Kingdom and other European Community countries, particularly France and Germany. While Germany pays 4p a pint, France 5p and Belgium 8p a pint, we in Britain have to pay no less than 33p a pint. We produce the second cheapest pint in the European Community and have to pay the second highest duty.

We are now witnessing the utterly preposterous sight of British brewers having to ship their beer to Calais so that British travellers can buy it in French supermarkets and cash and carries and bring it back to England by the lorryload. Because the new personal import limitation has been raised to 110 litres, families of four are bringing back their beer on trailers behind their cars. The hard-pressed customs officers have given up trying to stop that trade, because stopping drugs is more important.

That trade has, according to the Brewers Society, reduced the United Kingdom take-home trade by no less than 8 per cent. during the past year. So much of that traffic is being sold off to cash and carries in the United Kingdom and the financial gains are so considerable that we are in danger of developing an area here for organised crime. There is a massive distortion of competition and a denial of the principles of fair competition enshrined in the concept of the single market, which we in Britain have pioneered. The Government must do something about that quickly.

In his Budget speech in March 1992, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) said:
"This Government have always sought to reduce distortions in the tax system".—[Official Report. 10 March 1992; Vol. 205, c. 757.]
He reduced car tax by half, and abolished it completely six months later. I am sure that my right hon. and learned Friend the present Chancellor will want to do the same. Beer duty must be reduced as speedily as possible to the European Community average rate. When faced with a similar situation with cheap German imports and a wide divergence in excise rates, the Danish Government did precisely that, slashing rates by 46 per cent.

If that is not done, there will continue to be a decline in yield from beer duty as beer consumption, and therefore production and tax payments, decline. That will have destructive implications for value added tax, income tax, corporation tax, business rates, fuel excise duty and amusement machine excise duty, to say nothing of unemployment or other social service benefits. For example, if 30,000 jobs were lost of the 1 million that are now employed in the industry, it would mean a £90 million loss in income tax and national insurance and an additional cost of some £300 million in benefits.

I see that my hon. Friend the Minister is listening intently. While I am on the subject of tax burdens, perhaps he will bring to the Treasury's attention the harmful effect of changing the system of excise duty and the Government's breach of promise on the fiscal neutrality of the changes in the system.

Instead of charging duty on the level of gravity of the wort—the liquid produced prior to fermentation—the duty is now charged on the alcoholic strength of the finished beer as it leaves the brewery. The industry was promised that there would be no additional cost. In fact, it has cost an extra 3 per cent. in excise duty. Although it is said that a delay in payment offsets that, the one to four week delay that is allowed does nothing like enough to counter the additional cost of the change. Please can that burden be remedied forthwith, in the interests of all who work in the brewing industry?

The industry desperately needs some relief from the burdens that the Government have placed upon it. The industry welcomes the Prime Minister's deregulation initiative. If it leads to less restriction in the licensing law, in its hours and Sunday opening restrictions; if it leads to the lifting of restrictions on amusement machine prizes in pubs; if it leads to the lifting of restrictions on planning procedures or the restrictions of over-zealous environmental health and trading standards officers; if it leads to the lifting of some of the restrictions that have been imposed or are likely to be imposed by EC directives on such matters as waste disposal; and if the Government prevent the increased cost of removing the head of beer, some useful and helpful steps will have been taken to ease the burden on our splendid and successful brewing industry.

I am sure that my hon. Friend the Minister has seen my early-day motion which sets out the cost involved in removing the head of beer. It would massively increase the cost to the breweries, as they would have to re-equip their public houses with new glasses.

Above all, we ask for relief from unfair taxation. That is all I ask on behalf of the people of Britain, who enjoy the jobs in the brewing industry, who enjoy our beer and our pubs, and who enjoy our traditional way of life. Long may it continue.

1.14 pm

The Parliamentary Under-Secretary of State for Corporate Affairs
(Mr. Neil Hamilton)

My hon. And learned Friend the Member for Burton (Sir I. Lawrence) is never more seductive than when speaking, as he has just announced he was, on behalf of the people of Britain. I am delighted that he has used the opportunity today to prevent our departure from this place for the summer recess until we have discussed an industry of great importance to British people, and to me.

As one who grew up in a pub—my grandfather kept a pub for 20 years, and my formative years were spent in that beneficent environment—I have much sympathy with what my hon. and learned Friend has said. Before I gave up thinking for myself and joined the Government, I had been known to express some of the concerns that he has repeated today, so I am grateful to him for the opportunity to speak about the brewing industry.

I am responding on behalf of the Government as a whole, but, as my hon. and learned Friend is well aware, responsibility for sponsoring the brewing industry lies with the Ministry of Agriculture, Fisheries and Food. My Department's specific responsibility for the brewing industry includes the Beer Orders and deregulation—both of which my hon. and learned Friend mentioned—consumer affairs, and other competition policy issues.

The policies of other Departments also have a significant impact on the brewing industry, mainly the Home Office and Customs and Excise, both of which were referred to obliquely in my hon. and learned Friend's speech. The extent to which the brewing industry impinges on the policies of so many Ministers and Departments is but one demonstration of its significance to the economy.

As my hon. and learned Friend noted, the British brewing industry is the second largest in Europe and the sixth largest in the world. It has a long tradition of producing beers of outstanding quality and variety, as I can personally attest. Few countries can match us in the range of beers produced—from great cask-conditioned ales to fine lagers, keg beers, stouts, strong ales and barley wines. We also have in this country a great diversity of brewers, from some of the world's finest large brewers to regional brewers of distinction, and to the increasing number of small and micro-brewers, bringing to the consumer a variety of unique quality beers.

One has only to think of the range of beers on offer at CAMRA's annual Great British beer festival to realise the choice available to the British beer drinker—among whom I can no doubt include my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department, whose presence here today I am pleased to be able to advertise to the world. This year's festival will offer the visitor over 300 fine ales to choose from.

The British brewing industry is one of the world leaders in developing innovative processes. A fine example of that is the recent technical development of an "in can" dispensing system that provides the consumer with a beer with the taste and appearance characteristics previously found only in draught beer served from the cask. The new products have been widely welcomed by consumers as providing a beer for drinking at home that is very similar in appearance and taste to their draught pint in the pub.

Of course, as my hon. and learned Friend pointed out, the industry is a major employer, with over 40,000 people directly engaged in production and a further 325,000 employed in public houses. In addition, the industry generates a large number of jobs in off-licence retailing, hotels, restaurants and clubs. The industry is also a major purchaser of agricultural raw materials, thereby generating a significant number of jobs in the agricultural sector with its demand for cereals and hops, and in the malting industry, which annually supplies about 650,000 tonnes of malt to the breweries. The brewing industry also creates jobs in other industrial sectors through capital expenditure on beer production and packaging plant, on distribution plant and on retail outlets. In 1991 overall capital expenditure totalled nearly £1·5 billion.

The brewing industry is also important to our balance of trade. It continues to forge ahead in exporting its products in increasing quantities to appreciative drinkers around the world. In 1992 exports rose by 21 per cent. to reach a value of £116 million. That continued the pattern over recent years that has led to an increase in the value of exports from £53 million in 1988—an increase of 119 per cent.

Our partners in Europe continue to increase their imports of British beer, and exports to the other member states constitute approximately 50 per cent. of total exports. American and Canadian beer drinkers have also been consuming increasing quantities of British beers, with about one third of our exports going to those markets.

It is encouraging to see that it is not only the large brewers who have expanded their exports; smaller brewers such as Bateman's of Lincolnshire have also successfully penetrated the export market.

I referred to the number of different Government Departments with an interest in the brewing industry. It is worth making the point that, just as the Government have a variety of interests in the industry, so there is a wide range of interests within the brewing industry itself. It is not accurate to speak of "the brewing industry" as a monolithic structure. It is not; nor should it be. Views about the structure of the industry or the appropriate means of taxation can vary significantly within the industry. This diversity is a strength of the industry, bur. it can make it difficult for the Government to take action that satisfies everyone, which is what we normally try to do.

My hon. and learned Friend referred, inevitably, to the Beer Orders, which I inherited on assuming my current responsibilities. The period since the Monopolies and Mergers Commission report "The Supply of Beer" in 1989 and the subsequent introduction of the Beer Orders has been one of considerable change within the brewing industry.

Much of the change—for example, the introduction of long-term leases for tenants—reflects the long-term trends in the industry. Mergers between brewers and sales of public houses were already taking place before the M MC report, but I have no doubt that the report accelerated the process of change. Similarly, changes to the size and mix of the national brewers' pub retail estates were also taking place before the 1989 report, as was the move to increased numbers of managed outlets.

It is apparent that, even without the introduction of the Beer Orders, the period since 1989 would have been one of considerable change for the United Kingdom brewing industry. It is not easy to separate the effects of the orders from other developments in the market. I have no difficulty in agreeing with the broad thrust of my hon. and learned Friend's remarks. They have, indeed, been a potent catalyst for change. To some it has been welcome; to others it has not.

The Government noted the conclusion of the Select Committee on Agriculture that the Beer Orders have not achieved their desired objective. The Select Committee concluded, however that it would be possible to assess the full impact of the changes introduced by the Beer Orders only in the long term. My right hon. Friend the President of the Board of Trade made it clear in January that the Government share that view. Consequently, we think that it is too early to draw firm conclusions about the impact of the Beer Orders.

After a period of unprecedented change and turmoil we now need a period of stability in which brewers can get on with their raison d'etre of running their businesses, and tenants and lessees can get on with running their pubs, within the regulatory framework created by the Beer Orders. That is why, earlier this year, my right hon. Friend took his decision that the Director General of Fair Trading should not carry out a full-scale review of the effects of the Beer Orders later this year. I am happy to say that the Select Committee supported the decision and agreed with the Government that it would not be appropriate to intervene at this stage in the regulatory framework governing the brewing industry.

I know that the Minister is taking note of what various Members are saying about the brewing industry. What time scale does he envisage before the Government are prepared to review the Beer Orders?

The Director General of Fair Trading is obliged by the terms of his appointment and the legislation which governs his responsibilities to keep markets constantly under review. Therefore, there is no question of us simply folding our hands, closing our eyes and ignoring developments in this or any other industry. It would be foolish of me to say now that we shall be able to guarantee that date X, Y or Z will be the best time to embark on a review. We shall monitor the position generally all the time.

When we feel, on the evidence available to us, that the time is right to assess the success or otherwise of the Beer Orders, we shall have a review. However, given that they became fully effective only last November, I cannot say when that time will be. If there is evidence of abuse or any other adverse reaction which is caused by the Beer Orders, or which is noticeable even though it has no connection with the Beer Orders, the Department of Trade and Industry is bound to take that into account. But it would be a mistake for us to set a date on which a review will be undertaken as it would inevitably cause greater instability, which is the opposite of what we wish to achieve.

Other opportunities to consider the state of the market will arise, particularly in connection with the review of the block extension under European Community legislation that will be upon us shortly. In deciding whether to compound the previous reviews with the one that is to take place, we considered the fact that to overlay the reviews would place the industry in a constant state of flux and uncertainty. The more that we can do to reduce that, the better.

My hon. and learned Friend the Member for Burton referred to the deregulation initiative, which is the jewel in my crown as Under-Secretary of State for Corporate Affairs. I congratulate my hon. and learned Friend on his support, not least in matters concerning the brewing industry. Following the Prime Minister's announcement of a new drive on deregulation last year, all Departments have identified priorities for deregulatory action, which formed the basis of a discussion that we had at No. 10 in February.

We have set up seven task forces of business men to advise us on the business which they would like to arise from the deregulation initiative. Thanks to representatives of the brewing industry and others on the retail side, we can take account of all viewpoints on how to cut red tape to reduce business costs and hence make business more profitable, and reduce restrictions on wealth creation and the job creation that goes with it. We have agreed that, in future, all proposals for new regulations must be accompanied by a compliance cost assessment. So we are making progress.

Last week, the Prime Minister chaired a progress meeting on deregulation at which we discussed specific deregulation measures to reduce the burden on businesses. We agreed that an important measure that will deregulate further should be introduced as soon as parliamentary time permits. I have in mind some of the issues to which my hon. and learned Friend alluded as candidates for early action to reduce unnecessary restrictions on brewers and those who sell their excellent product, which we are here to celebrate today. I have noted my hon. and learned Friend's comments about some of the regulations with which the brewing industry is required to comply. I have no doubt that representatives of the brewing industry involved in the task forces have been making similar points.

My hon. and learned Friend mentioned several issues for which I am not directly responsible. Most of them are the responsibility of my right hon. and learned Friend the Chancellor of the Exchequer. Unfortunately, I cannot announce the details of the Budget today.

My hon. Friend is anxious for me to do so, but I fear that it would not benefit the Government as a whole.

My hon. and learned Friend mentioned the distorting effects of cross-border shopping to buy brewers' products. The Brewers Society estimated that in the last six months of 1992 duty paid on imports of beer accounted for some 8 per cent. of the United Kingdom take-home beer market. Following the creation of the single market, the Brewers Society commissioned an independent survey that showed that in the early months of 1993 personal imports of duty-paid beer increased to some 9 per cent. of the take-home market.

However, later figures suggest that the level of such imports has declined. The survey results now show that cross-border shopping accounted for about 7·8 per cent. of the take-home domestic beer market in the first five months of this year. The take-home trade is about 21 per cent. of the total United Kingdom beer market, so the apparent increase between late 1992 and early 1993 was equivalent to a very small part of the total United Kingdom beer market—an increase of about 0·3 per cent.

Beer duty rates, especially as they vary significantly around the Community, can have a significant impact in local markets. One cannot consider them in isolation from other indirect taxes and from other sources of revenue. However, I accept that there is a potentially distorting effect, as referred to by my hon. and learned Friend. The beer duty rates in most member states are lower than those in the United Kingdom. In Germany, Spain, Luxembourg and France, the rate is the equivalent—