HC Deb 10 July 1985 vol 82 cc1131-49
Mr. Warren Hawksley (The Wrekin)

I beg to move amendment No. 2, in page 3, line 17, leave out clause 5.

The amendment would remove clause 5 from the Bill. I do not wish to detain the House long, because the matter was debated at length in Committee. Although I was not a member of the Committee, I read its reports, and hoped that there would be a Government amendment to deal with the problem raised by Opposition spokesmen on behalf of my constituents and Cinzano.

Amendment No. 129 dealt with the Cypriot problems, but did not cover the problem of blending for Cinzano. Cinzano resides in my constituency, and for many years has bottled all its vermouth in Telford. The company came in 1977 when the area suffered, as it still does, from high unemployment. Since then, sales of vermouth have fallen by about 20 per cent. in the United Kingdom, and this has obviously created problems for the company. With great relief, last year to save money it was able to start blending the different strengths and so maintain its bottling production in Telford. Clause 5 puts directly at risk about 50 jobs in my constituency and hundreds of jobs throughout the country. I appreciate that that may not be many, but it is important and should be considered.

Before the Budget, my noble Friend Lord Thorneycroft and I put our arguments on behalf of Cinzano to the Minister of State, who listened carefully. Clause 5 arises from a court case which was taken last year by Customs and Excise against Cinzano and which Customs and Excise lost. The question was whether blending was legal or whether it should be liable to double taxation. The House of Lords eventually ruled in favour of my constituents. It is regrettable that the Finance Bill is being used to change that decision, which has been in force for some time. In the past others engaged in blending when it was to their advantage.

In proposing the amendment, I do not blindly argue that the House should accept it to save jobs. Although that is important, sometimes there are more important matters. There are two strong arguments behind Cinzano's case. First, it is desirable to encourage bottling in the United Kingdom. It is better to use British people to bottle imports, and thus create jobs and add value to the raw product, than to import a finished product.

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Secondly, I am greatly worried about the danger that the proposal will lead to retaliation in other countries. I have in mind particularly the problems in the past in Italy where the sale of Scotch whisky has met with resistance, and has had to be dealt with at the highest level. Italy has acted honourably and has agreed to the sale of whisky in Italy without difficulty. If we introduce a piece of legislation that appears to be aimed at an Italian company, or at vermouth producers generally, Italy may try to retaliate. If that were to happen, it would be to the disadvantage of Britain.

Mr. Campbell Savours

The hon. Member is making a substantial case. He will know that many hon. Members feel strongly on the matter. Some of us intend to press the matter to a Division. Will he vote with us against the Government?

Mr. Hawksley

It would not be the first time that I voted against my own party. I certainly have no fears of voting for what I believe in. If there is a Division, the hon. Gentleman will see how I vote. It is important that the matter should be aired. If hon. Members feel that it is necessary to force it to a Division, that is up to them. It is interesting that in Committee the Opposition did not bother to push the matter to a Division.

Retaliation from foreign countries is a risk that must be considered. Cyprus, South Africa and Australia may be satisfied that, following a previous amendment, problems affecting them will not arise, but the risk that I have mentioned should be borne in mind.

I wish to save jobs in my constituency and I make no secret of it. The arguments in favour of encouraging bottling in Britain, and making sure that we do not put our exports at risk, justify the tabling of the amendment. I hope that I have persuaded the Minister that the arguments are just and that he will accept my amendment.

Mr. Fisher

I am delighted to support the amendment tabled by the hon. Member for The Wrekin (Mr. Hawksley). The burden of his argument — although he was too polite to say it—is that the clause as drafted is nonsense and is simply a response to the situation in which the Government have put themselves. As the hon. Gentleman says, as a result of the clause, 50 jobs could be lost in his constituency. As he is an hon. Gentleman and has spoken eloquently on the subject, I am sure that he will back up what he said and join us in the Division Lobby in voting for the amendment. We shall welcome him on that occasion.

The hon. Gentleman related the background to the clause to the judgment in another place in February this year but, as I am sure he is only too well aware, the clause in this year's Finance Bill arose through a piece of faulty drafting of a measure in last year's Finance Bill when the Government were trying to comply with a judgment of the European Court.

The 1984 Finance Bill widened the differential between light and higher strength wines. Cinzano and other companies which are smaller and less well known saw that that gave them an opportunity to blend higher strength wines, with between 15 and 22 per cent. alcohol, with lower strength wines with less than 15 per cent. alcohol, and thus to pay duty on the proportional strength. As I understand the position, it meant a differential for them of 20p less duty per bottle. It arose from a mistake by the Treasury in its drafting last year, but now the Government are saying that what Cinzano is doing constitutes production.

Will the Minister in his reply say whether he agrees with me that production is already defined in the Alcoholic Liquor Duties Act 1979? I hope that the Minister will confirm my reading of that Act, in which it says that production means a material change in the product through a fermentation of grapes. According to that definition, we are concerned here not with production but with something called blending. It is an old practice, well known in Britain. That is how many fortified wines are made. The House of Lords was unanimous in ruling in February that blending was legal. Is the Minister now saying that the House of Lords was wrong in defining blending as legal, and that it was wrong in confirming the definition of production contained in the 1979 Act?

The truth is that the 1984 Finance Bill got things wrong and created a situation of which Cinzano has taken advantage. The Government are supposed to be in favour of business initiative but, when they see a company seizing an area of the market in which it can make money and provide jobs and opportunities and income in Britain, they immediately try to close what they consider to be a loophole.

I ask the Government to reconsider their view. They made a mistake last year and they are trying to cover it up this year, but the measure, as it stands, will lead to double taxation. As the hon. Member for The Wrekin has said, it will lead to job losses. It will also be a false economy, because the Treasury is likely to be the loser.

Mr. Freeman

Will the hon. Gentleman explain to the House in a little more detail how double taxation will apply if the company does not blend the product in future?

Mr. Fisher

I understand that the company wants to blend the product and, if it does so, it will suffer double taxation on the importation of the wine and on the blended product that it produces. That is manifestly unfair, and I do not think that even the Government can have intended that result. The hon. Member for Kettering (Mr. Freeman) shakes his head, but I understand that to be the position. The hon. Gentleman, who was a member of the Standing Committee, will recall that the Minister appeared to give some rather cautious and circuitous reassurances about setting up bonding arrangements, but it is my understanding that the Customs and Excise would not allow small companies to have those bonding arrangements, which are seen as a way round double taxation.

I believe that the Government made fools of themselves in their drafting of the Finance Bill last year. They will not concede that they made a mistake, and in addition they are challenging the ruling in the other place. On both counts we shall oppose them, and I hope that the hon. Member for The Wrekin will join us in the Division Lobby.

Mr. Freeman

I was not intending to speak in the debate, but I should like to declare an interest as a director of Martini and Rossi Ltd., which has two-thirds of the vermouth market in branded products in the United Kingdom. Therefore, I am familiar with the problem which has been brought to the attention of the House.

It might be of assistance to the House to know how the industry has reacted to the problems that my hon. Friend the Member for The Wrekin (Mr. Hawksley) has so clearly portrayed. It is important to appreciate that the ending of blending has merely put the industry back to the position in which it was before initiatives were taken by my own company — and certainly Cinzano and other companies—to blend for the purpose of mitigating the effects of the comparatively higher rates of excise duty that were introduced — with the consequential VAT rates — in the Budget last year. As a result of this year's Budget, all that happened is that we in the industry have gone back to the burden of excise and VAT duties which applied before blending.

Mr. Fisher

I would be grateful if the hon. Gentleman, with his expert knowledge of the industry, could clarify one matter. Is it not the case that the duty arrangements have now been altered? They were altered by the 1984 legislation under which duty on a blended wine was payable at the higher rate rather than at the average and mixed rate. That loophole has created these circumstances, and if the so-called loophole is closed there will be job losses. It is that point which has opened up the whole area of change.

Mr. Freeman

All that has happened is that we have gone back to the situation which existed before, whereby the duty was charged on the blended product as opposed to the constituent parts of the product which was blended. If the duty was charged on the constituent parts, the duty was lower than that charged on the blended product. The hon. Gentleman is absolutely right.

My point is a simple one. The hon. Gentleman talks about employment prospects in the industry. That is a perfectly fair point to make, but it is nothing to do with blending. The problems of the industry, to the extent that there are problems, existed before blending because blending has taken place, as the hon. Gentleman knows, for the last nine months only. Therefore, to connect the argument of job losses with blending and with the ending of blending is a little misleading. If there are problems in the industry because of changing tastes, competitive pressures and comparatively high rates of duty in comparison with the duty on still wine — and, as my hon. Friend the Minister of State knows, all those points have been represented to him in the past, and doubtless will continue to be represented to him—I do not think that there is any validity in the argument which relates the employment problems and prospects of the industry specifically to the episode of blending. It is more relevant to connect the problem of employment prospects and the prosperity of the industry to the situation that prevailed hitherto.

Mr. Austin Mitchell

I still do not follow the point that the hon. Member for Kettering (Mr. Freeman) makes. On the amendment — let us not call it a wrecking amendment, but a Wrekin amendment — the hon. Member for The Wrekin (Mr. Hawksley) said quite clearly that a lower duty was payable on the component parts of the blended product than that payable on the blended product. This gave an incentive to blend it in this country, and thus created jobs. The argument is that 50 jobs have been created in The Wrekin which the Government now seek to wreck. In the case of Martini, a larger number of jobs—possibly 200, but I am not sure, because Martini has a bigger share of the market — have also been created by Martini in the process of blending.

Mr. Freeman

I think that it would be fair to say that no new jobs have been created as a result of blending, and in my company no jobs will be lost by the ending of blending. The episode has had a totally neutral effect on employment prospects and employment in my company.

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Mr. Mitchell

In that case, is Martini blending abroad? The explicit evidence of Cinzano is that it is blending in this country and that, unless the amendment is carried, 50 jobs will be lost. We have assumed that Martini is behaving with similarly patriotic motives, with the desire to encourage jobs in the country, and that it, too, will lose jobs unless the amendment is carried. If that assumption is wrong, the argument concentrates on Cinzano, which, of the two companies, is perhaps behaving more honourably.

I hope that the hon. Member for The Wrekin will push the amendment to a Division because it is an important issue. It is well worth taking a stand against the Government. I was hoping that the Minister of State would give us the "Mr. Nice Guy" routine, of which he is the representative in the Treasury, and accept the amendment, realising that the Government have erred. The Government have erred because they are behaving with clear and simple vindictiveness. Indeed, I speak in the debate to criticise the way in which the Government are acting.

The Government have been defeated. They lost in the House of Lords where their arguments were not acceptable. Having lost at the game, they are now changing the rules of the game to get more money out of firms. In so doing, they are destroying jobs — Cinzano jobs, if not Martini jobs. On the evidence that Cinzano has provided, the Government are certainly destroying jobs. While the Government, albeit accidentally, have created 50 jobs in Cinzano as a result of blending, out of vindictiveness, to get their own back for having been defeated in the House of Lords, they are destroying those jobs, so it is worth making a stand on the issue.

The Government argue that the blending was simply a tax loophole because it was cheaper to pay duties separately on low and high strength wines which were then blended rather than to pay duty on an already blended, imported vermouth. In fact, blending has been practised regularly over the years. It is a traditional process. The great gain of the decision was that the blending was being done in this country.

The House of Lords in its unanimous ruling in February this year found that blending is legal, does not constitute production and, therefore, should not be double taxed. It is that decision that the Government are trying to reverse. The Government claim that, because of the practice of blending, they have lost £3 million from Cinzano and £10 million all told. However, in attempting to recoup the money they have lost, the Government are penalising themselves. The loss of jobs implied in the loss of blending in the country will lead to people becoming unemployed and to a loss in PAYE and national insurance contributions. This almost certainly will knock off something like £1.4 million in costs from the £3 million that the Government will gain in taxation. The Government are cutting off their own nose to spite their face in a fit of petty vindictiveness because they were defeated in the House of Lords. It is as simple as that.

Dr. Marek

It is amazing that in the debates on the Finance Bill one Conservative Member after another is pleading for more money to be given by the Treasury in the form of a tax cut or as extra expenditure for some constituency enterprise. In the past hour, we have heard the hon. Member for Billericay (Mr. Proctor) making a case for extra money to be provided for research and development in engines in his constituency, and the hon. Member for The Wrekin (Mr. Hawksley) stating that a special situation exists in his constituency for which extra money should be provided by way of a tax concession to preserve jobs in the constituency.

Mr. Hawksley

Will the hon. Gentleman accept that I am not asking for extra money, only that last year's status quo should continue?

Dr. Marek

There was a status quo situation last year but not the year before. Conservative Members are very good at looking after their constituency interests. Nevertheless, during the past two years they have voted with the right hon. Lady the Prime Minister against all sorts of public expenditure. No matter what kind of public expenditure it was, it was bad, until last week when the Chancellor suddenly said that perhaps public expenditure was good and that it should be increased.

Mr. John Golding (Newcastle-under-Lyme)

As the hon. Member for The Wrekin (Mr. Hawksley) will vote with us against the Government, is this not the wrong time to chastise him?

Dr. Marek

I am suitably admonished and will not pursue that line of argument. Last year Cinzano took advantage of the loophole. If there is a tax loophole it should be closed, but this one is slightly different. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) said that earlier this year the House of Lords unanimously concluded that blending was not production and that it would be more acceptable if duty was levied on wine at the port of entry; there would be fiscal neutrality. After wine had been imported and duty paid it could be mixed or diluted without the need for further checks by Customs and Excise.

I understand the Government's point of view. They feel that they have been "done" and that legislation has exposed this loophole, as a result of which they have lost revenue. They want to get it back, but I ask the Minister of State, Treasury to think carefully about the matter. If a substantal amount of revenue has been lost something must be done, but if we return to the 1983 position 50 jobs will be lost in Telford. Could not the Government have discussions with Cinzano and find out how small a concession needs to be made for Cinzano profitably to keep open its blending plant in Telford?

Ever since we joined the European Community we have heard about jobs being exported to France, Italy and other countries. For once the position has been reversed. Jobs have come, albeit in an unusual way, to this country and we should do everything that we can to try to keep them here. I hope that the Minister has had discussions with Cinzano. I am sure that the company would not say that the plant will be closed unless the 1984 position is retained; it would be exceedingly silly of Cinzano to adopt that attitude. The concession could be tightened up. Most of the revenue would then be recouped, but a sufficiently significant concession could be made to enable Cinzano to keep open its blending plant in this country. With 4 million people unemployed we must change direction. Manufacturing has not recovered; it is still below the level at which it stood in 1979. The Opposition believe it is most important that these jobs should be retained, and it would not cost very much to keep them here. If the Minister of State has the will, I am sure that he will find the way.

Mr. Campbell-Savours

First, may I refer to what was said by Conservative Members about my sedentary interventions. For some inexplicable reason the Minister of State suddenly took his seat when, it appeared to me., he saw that hon. Members wished to intervene during his speech. Only the Minister knows why he did that.

Since we are debating a subject that is connected with sherry, perhaps I may put to him a question that I had intended to ask during his speech. During his discussions with representatives of the Cyprus Government, were employment questions raised by them? I am informed that they were. Was his judgment on that matter influenced by the possible loss of jobs in Cyprus, in the event of the Government failing to make the necessary changes?

Could it be that the 150 jobs that are at risk at the CWS blending plant at Irlam near Manchester and the thousands of jobs that will be lost in Cyprus affected the Minister's decision? If so, it means that employment implications are on the agenda. If they are on the agenda, the letter that was written by Cinzano to me and to other hon. Members is relevant to our debate. Mr. Farrar, as the managing director of Cinzano, must know his business. I am sure he objects to Government Ministers telling him his business, as may have happened this evening. He said: As you know, we are extremely concerned about this clause which has made it uneconomic for us to continue blending vermouth in the UK. As a consequence our Telford blending plant is likely to close with the loss of 50 permanent jobs and others in ancillary industries.

Mr. Hayhoe

indicated dissent.

Mr. Campbell-Savours

From a sedentary position, the Minister is shaking his head. He complained about my interventions from a sedentary position, but mine were oral. Perhaps the Minister is concentrating on another issue. If so, he should address himself to this issue. Mr. Farrar says that 50 jobs are likely to be lost. That should be a crucial consideration, particularly if it influences the Minister's judgment about Cyprus sherry. Mr. Farrar continued: You will not be alone on this issue. We have had support from all sides of the House and there was a fairly lengthy debate on the subject during the Committee stage when I am afraid the Minister stonewalled. Of the 640 or so hon. Members of this House, only one Conservative Member has said that he supports the Opposition, yet he has been unwilling to give an undertaking that he will vote with us tonight. Where are the hon. Members who support the Opposition? Have they been silenced by the Whips? Have the Whips issued an instruction to Conservative Back Benchers not to speak on this issue and embarrass the Government because of the job implications?

Mr. Fisher

My hon. Friend will remember that in Committee we debated this clause for more than an hour and a quarter. During that time not a single Conservative member of the Committee sought to catch the Chairman's eye and speak. I do not know, therefore, why my hon. Friend is so surprised that Government Back Benchers are reluctant to speak tonight. We welcome the support of the hon. Member for The Wrekin (Mr. Hawksley) and are delighted that he will be voting with us on behalf of his constituents. I do not know where Mr. Farrar got the idea that he has support from the Tory Back Benches, because it was certainly not apparent in Committee.

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Mr. Campbell-Savours

Mr. Farrar met Conservative Members. He asked for their support and they undertook that they would give it. In the light of that, Mr. Farrar wrote to me and some of my hon. Friends. I wish to know why those Conservative Members have been prevented from expressing their support in the Chamber. In reference to the effect of the clause on 50 jobs, Mr. Farrar said: it affects real people, real jobs"—

Mr. John Major (A Lords Commissioner to the Treasury)

Try to keep a straight face.

Mr. Campbell-Savours

The assistant Patronage Secretary suggests that I smiled. He knows the truth about why those Conservative Members have failed—

Mr. Austin Mitchell

Has it occurred to my hon. Friend the Member for Workington (Mr. Campbell-Savours) that the assistant Patronage Secretary might be a consumer of these drinks?

Mr. Campbell-Savours

Perhaps that accounts for the smile of the hon. Member for Huntingdon (Mr. Major). Mr. Farrar said: it affects real people, real jobs and the interests of industry as well as the consumer. We have fought long and hard — and successfully — through the Courts for the right to continue blending without being subject to punitive taxation. Now the Government wants to overrule the decision of the Courts. Please help us to dissuade them from this action. We are trying our hardest to persuade the Government against the course that they currently seem bent upon. We seek the support of Conservative Members.

From a constitutional point of view, there is another matter of interest to the House. I am sure that it will appeal to the right hon. Member for South Down (Mr. Powell), because he specialises in European matters. It has been suggested that the Government exercise positive discrimination against European products. As Britain is a member of the European Community, there is much concern about the matter. Some Members of the European Parliament have tabled questions about it. It is hard to understand why the Minister is unwilling to cede the point while those questions remain unanswered. If it could be proved that there were some form of positive discrimination against European products, the Government might wish to reconsider the matter. Even at this late stage, I ask them to take that into account.

According to Mr. Roth's "Parliamentary Profiles" the hon. Member for The Wrekin (Mr. Hawksley) is sensitive to constituency issues. On one occasion, he was so sensitive that he warned the Patronage Secretary and his assistants that his seat would be at risk if he backed entry for Asian fiances. For many hon. Members, that may be an obscure issue.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. The hon. Gentleman must not stray too far from the amendment.

Mr. Campbell-Savours

I am coming straight back into order, Mr. Deputy Speaker. The hon. Member for The Wrekin expressed his view on that occasion and this is a far more sensitive issue for the people of his constituency. The Labour party in The Wrekin is expressing considerable anxiety about the matter and it hopes that the hon. Member will feel strongly enough to vote against the Government.

Mr. John Golding (Newcastle-under-Lyme)

Unusually, I do not wish to go all round The Wrekin. However, I congratulate the hon. Member for The Wrekin (Mr. Hawksley) on his courageous stand.

Mr. Campbell-Savours

What courageous stand?

Mr. Golding

I assume that the vote will follow the voice. I know that when the hon. Member for The Wrekin votes, he will be putting his career at stake and his chances of promotion at risk.

Dr. Marek

Non-existent chances.

Mr. Golding

No. My hon. Friends are unusually uncharitable today. The hon. Member for The Wrekin is taking a correct and courageous stand against the Government and he may suffer in consequence. I have already seen sinister individuals trying to talk him out of pressing his amendment. The hon. Gentleman will not be alone in the Division Lobby. He should stick to his amendment. We shall vote with him and give him and his constituents the support that they deserve. We could feel malicious towards the hon. Gentleman because he defeated a first-class Labour candidate at the general election. But we are forgiving and we will stand with the people of The Wrekin in support of their hon. Member who has moved the amendment in their interests.

Some of my hon. Friends are slightly cynical about the intentions of the hon. Member for The Wrekin. I do not share that cynicism. I expect the hon. Gentleman to vote on the amendment, because the issue is so serious to his constituents. The Wrekin has one of the highest unemployment rates in the west midlands.

Mr. Campbell-Savours

It is 21.7 per cent. — 13,000 people.

7.45 pm
Mr. Golding

No doubt my hon. Friend will tell me any minute now how many of those people are male, how many are female and how many are young. I know that the youth employment rate in The Wrekin is one of the highest in the country. That is why the hon. Member for The Wrekin has been driven to put his future and his promotion prospects at risk. He is challenging not only the Minister of State, Treasury, but the assistant Patronage Secretary.

Why have the Government brought in the assistant Patronage Secretary? He is a reminder of what might happen to the hon. Member for The Wrekin if he votes in the interests of his constituents against the Government's dirty deed. I am shocked that the Government have not brought in the Patronage Secretary himself. His absence is almost a slight on the hon. Member for The Wrekin. The hon. Member for The Wrekin must go into the Division Lobby. Indeed, he must lead the way into the Lobby.

Mr. Deputy Speaker

Order. I hope that the hon. Gentleman will relate his remarks to the amendment.

Mr. Golding

I am saying that I think that the amendment is of first-class importance and—

Mr. Deputy Speaker

Order. I am talking about the terms of the amendment.

Mr. Golding

The terms are at the heart of the matter for the constituents of The Wrekin.

Mr. Campbell-Savours

Fifty jobs.

Mr. Golding

As my hon. Friend says, we are talking about 50 jobs. It is a matter of good faith. The Government are trying, through legislation, to put jobs at risk. That is the issue tonight.

The House of Lords clearly said "Keep the jobs." What a situation. The House of Lords say that we should not have penal legislation to cripple production. The Law Lords say "Keep the jobs" but Ministers in the Commons say, "Keep the revenue and do not bother about the jobs." That is nonsense.

Has the Treasury calculated how much revenue it will collect. [HON. MEMBERS: "Come on."] Some hon. Members are taking your role, Mr. Deputy Speaker. What calculations have been made about the cost of the loss of the jobs compared with the additional revenue?

Mr. Campbell-Savours

The cost is £1.4 million.

Mr. Golding

I should prefer the Minister to tell me the cost. What is the cost of the jobs? We are talking not about hypothetical jobs but real jobs. Cinzano has said real people and real jobs are involved. It should be possible for the Treasury to make calculations about the cost to the state of the 50 lost jobs. People who are unemployed are a cost on the state.

We want to know the real cost to the state of the unemployment that will be caused compared with the receipts. After that calculation has been made we shall still want to know the cost to the individual of unemployment. What will the social cost be?

The other day I gave a lad from The Wrekin a lift in my car. He had become a market trader in north Wales. He could not get work in Telford because there is no possibility of work there, so he became an itinerant. He described what was happening. It is tragic. There is no work for young people.

Dr. Marek

The Telford area has been given some status in that it has been given some regional development aid recently. That means that the Government recognise the unemployment difficulties in that area. We are talking not only about 50 jobs but about other jobs in ancillary industries. The loss of 50 jobs might not sound very important but it is not insignificant to the 50 who lose their jobs. The loss of those jobs will have knock-on effects, so the problem is more serious than the Government would have us believe.

Mr. Golding

I think that the Government gave assistance to The Wrekin just to spite us in north Staffordshire. The Government might have taken into consideration the marginality of The Wrekin constituency but not the unemployment level there. Granting assisted area status has nothing to do with the Government's sensitivity to unemployment but more to do with their sensitivity to the constituency's marginal status in election terms and the certainty that the hon. Member for The Wrekin will lose his seat at the next election.

It is disturbing that the Government are prepared to go to the length of overturning a House of Lords decision. That is almost incredible. The House of Lords took a decision but the Government, in their determination to make matters worse in the west midlands, have decided to hit Telford even harder. That is intolerable.

My hon. Friends have concentrated on one aspect—unemployment. That is the most important aspect but they have not addressed themselves to the discrimination against those who drink blended vermouth. I wonder why the Government have chosen to impose a further tax on that alcohol. Blended vermouth is a relatively mild drink, which is less intoxicating than many others. Why has the Treasury chosen to discriminate against people who drink blended vermouth? What is the justification for overturning the decision by the House of Lords? [Interruption.] It seems that the Whips now want to prolong the debate. The Whips and the Whips' dummies are trying to intervene and I find it difficult to reply to monosyllabic Members on the Front Bench. If they want to ask a question, let them do so.

Treasury Ministers should not sit on their Benches like dummies in Burton's shop window only opening their mouths to utter a single, useless word. The Government must give way to the enormous pressure coming from their own Back Benches. When Cinzano wrote to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher), it told him that it expected enormous pressure to come from the Conservative Back Benches. That pressure has not manifested itself in speeches, but I assume that those Conservative Members who promised the company that they would speak on its behalf—

Mr. Fisher

They had free meals.

Mr. Golding

My hon. Friend the Member for Stoke-on-Trent, Central forgets himself.

I assume that those Conservative Members who promised to support Cinzano have written to the Minister protesting about the decision. Will the Minister tell us how many Conservative Members, after being wined and dined by Cinzano, have written to him to protest about this tax and in support of the amendment? What undertaking has the Minister given to those Conservative Members?

My hon. Friends are cynical because they assume that those Conservative Back Benchers have not spoken in support of Cinzano because they were not sincere when they gave their undertaking. Of course that may not be so. Those Conservative Members may have discussed the amendment with the Minister and told him that they support it. The Minister may have given them some secret undertaking, which has led them to be absent tonight, thinking it unnecessary to give visible and vocal support in the Chamber. The Minister may have told them that he would do what the company wants. Will the Minister tell us what representations he has received and what replies he has given? If he remains seated, some of us will believe that the company was wrong when it said that there would be Conservative support for my hon. Friend the Member for Stoke-on-Trent, Central on this issue.

Unless the Minister can assure us that these missing Conservative Members have spoken or written to him and discussed this matter with him, we will think that, with the honourable exception of the hon. Member for The Wrekin, who will lead us into the Division Lobby tonight, we shall be alone. There will be only one Tory Member in the Division Lobby surrounded by the supporters of Cinzano, who are the Labour Members present. I am waiting to hear what the Minister will say.

I have just received a note telling me that I am requested to shine my pants. I do not know whether that is a parliamentary note, but I am grateful to my hon. Friend the Member for Great Grimsby (Mr. Mitchell) for his advice. I shall conclude and shine my pants by saying that the Opposition are waiting for the leadership of the hon. Member for The Wrekin and we hope that he will not fail us or his constituents tonight.

Mr. Terry Davis

As the hon. Member for The Wrekin (Mr. Hawksley) said at the outset of his speech, I have taken a particular interest in this issue for several reasons. In moving the amendment, the hon. Gentleman was rather kind to the Government in his summary of the reasons for the problem. He fairly said that the problem began with a decline in sales, but I do not believe that that decline — for which he gave no reason — can be attributed entirely to a change in taste, as was suggested by the hon. Member for Kettering (Mr. Freeman).

There are several reasons. The decline in sales of vermouth began in 1980 with a significant increase in the duty on vermouth. In that year the increase was 30 per cent., and at that point the fall in sales began. That is not surprising. In the past five years total sales of vermouth have declined by 20 per cent. Last year there was a very steep increase in the tax on vermouth. It was a small amount in absolute terms, because it was only 8 per cent., but it was a big increase in relative terms because the duty on wine was reduced by 20 per cent. at the same time. Therefore, the relative duties on vermouth and wine were substantially changed to the disadvantage of vermouth.

In the last five years, the duty on vermouth has risen by 80 per cent. whereas the duty on wine has risen by only 20 per cent. It is therefore not surprising that during those five years there has been such a substantial fall in the sale of vermouth, and that decline in the total market has caused the problem for Cinzano.

The hon. Member for The Wrekin said that it was a relief for Cinzano to start blending last year, but I should remind him that the return to blending was occasioned by the big relative increase in the duty on vermouth. That was not designed to save sales; it was a step to reduce the duty and to improve sales by affecting the retail price of vermouth. Although the duty has risen significantly in the last five years, the retail price of vermouth has risen by much less. Consequently, the increase in duty has tended to be absorbed by Cinzano.

My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said that the Government made a fool of themselves last year. He is absolutely right, because at the same time as there was a big increase in the duty on vermouth there were changes in the categories of wine and fortified wine. The Government made particular fools of themselves in that context because they created a loophole which the makers of Cinzano were right to use to their advantage in order to alleviate the problem caused by the increase in duty.

The Government then tried to cover up their mistake by going to court. In fact, they took the case all the way to the House of Lords on the argument that if blending took place in this country it was a type of production and, therefore, a tax should be paid on top of the tax that was paid on imported wines. In other words, there would be double taxation. That is what the Government tried to achieve by legal proceedings.

I disagree with my hon. Friends in their analysis because I believe that the hon. Member for Kettering is right to suggest that bonding is the answer to the problem of double taxation. The Minister made the point in Committee — I have examined it carefully, and I think that he is correct — that bonding is the answer for Cinzano. There is a level at which an importer must import wine in order to be given the opportunity to import into bond and to pay tax as the wine leaves bond. I entirely accept that Cinzano is above that level and, therefore, that bonding could be described as an answer.

It is not simply a problem of double taxation. Even if Cinzano uses bonding and blends in bond—so that the company pays the tax only once, as the wine leaves the bond—it still faces the overall increase in duty of nearly 8 per cent. in five years, and a decline in sales. That increase in duty applies if the wine has been blended in bond. The bonding arrangement simply puts Cinzano back to where it was a year ago, when it began to take advantage of the loophole.

8 pm

I have described it as a loophole, but let me make it clear that I am not criticising the management of Cinzano. On the contrary, it deserves praise for showing flair in spotting an opportunity to alleviate difficulties created for the company by the Government's increase in the total duty on vermouth. Clearly, sharper people work for Cinzano than work for the Customs and Excise. Indeed, a learned judge said that the Government needed not a lawyer but an arithmetician.

There are some people with extremely sharp pencils working for Cinzano, and it is to the credit of the company that it took the opportunity to save jobs at Telford. It is not true to say that blending created those jobs at Telford. There was already a bottling plant there. Those jobs were jeopardised by the decline in sales, a decline that was the result of the Government's increase in the duty on vermouth. The management of Cinzano saw an opportunity to use blending to save jobs, and I gather that there are 50 full-time jobs at the Telford plant.

What are the Government willing to do about those jobs at Telford, if they intend to insist on clause 5? I appreciate the Government's argument on the issue and I have some sympathy with it. However, that does not get them off the hook from the point of view of those jobs at Telford.

Yesterday we were told by the hon. Member for Beaconsfield (Mr. Smith) to devote more time in our debates to the problems of unemployment. That is precisely what we are doing tonight, although that hon. Gentleman is not in his place. The Government have a responsibility to explain what steps they will take to save those jobs at Telford if they insist on blocking the so-called loophole that has been used by Cinzano in the last 12 months.

We can look a stage further and ask what the Government propose to do to create more jobs in blending. My hon. Friend the Member for Wrexham (Dr. Marek) referred to the number of jobs that have been exported from Britain. As a result of the introduction of blending, jobs have been imported into Britain. To the extent that vermouth is sold in this country, it will be blended either in Italy or here. In the last 12 months, some jobs have been saved in Britain by Cinzano. That has represented, in effect, the importation of jobs. That raises interesting opportunities. What other new jobs can be provided in the blending of other drinks by other companies? I do not know whether Martini blends vermouth. Either way, what can be done to encourage that and other companies to create such jobs here?

I was impressed by the arguments adduced by the Minister of State in Committee about the cost of opposing clause 5. He said that if we did not approve the provision, the Revenue stood to lose £10 million. About £3 million of that would be derived by Cinzano. I accept that it is an expensive way of saving jobs to spend £60,000 per job. Indeed, using the £10 million, it would work out at £200,000 per job. I appreciate, therefore, why the Minister regards that as an expensive procedure.

It was not clear from what the Minister said in Committee whether he was talking about the effect of the current blending operations in this country or was referring to potential blending operations. Is that £10 million the amount that has been lost in the last year, and will be lost to the Revenue in the coming year if we do not approve the clause, as a result of blending operations already located in Britain? Or is it the Government's estimate of the money that would be lost to the Revenue if there was an increase in the amount of blending done here and, therefore, an increase in the number of blending jobs that would thereby be created?

We should know the figures because if we are being told of possible lost revenue in respect of only 50 jobs, we need to know whether the Government are adding to the cost money that would create jobs elsewhere in the United Kingdom. We are satisfied, whatever the figures, that 50 jobs are at risk in Telford new town. We must be told what the Government propose to do to save those jobs if clause 5 is approved.

The Government may be wondering whether my hon. Friends and I intend to vote against clause 5. The hon. Member for The Wrekin lost my sympathy when he said that the Opposition did not vote against it in Committee. He will see at column 103 of the Committee proceedings that the Minister assured us that he would examine the points that we had made, with particular reference to Cyprus sherry.

I am not suggesting that the Minister has not fulfilled every assurance that he gave in Committee. It would have been wrong for the Opposition to have voted against clause 5 at that stage when the Minister had given fulsome and ready assurances not only to consider the points that we had made but to meet a deputation led by Opposition Members. That is why we did not press the point to a vote in Committee.

Not having been a member of the Committee, the hon. Member for The Wrekin may not have been aware of everything that was said at that stage, and he could not have been aware of the flavour of what was said. It would have been discourteous and ungenerous of us to have voted against the Government on this issue then, particularly as we now see that the Minister of State's assurances have been fully fulfilled, for example, in relation to the previous amendment dealing with Cyprus sherry.

We are now concentrating on the issue of vermouth, the jobs at risk at Cinzano and jobs which may be at risk in other companies. We are also concerned with jobs that could be created if only we imported blending jobs into Britain, instead of leaving them in other countries in the Common Market. I await the Minister's explanation before advising my hon. Friends on how to vote on the amendment.

Mr. Hayhoe

This has been a curious debate, since it has taken place by courtesy of my hon. Friend the Member for The Wrekin (Mr. Hawksley). Those outside the House who are not familiar with our procedures may have thought that Opposition Members, who have largely spoken in the debate, were so concerned over the matter that they were determined to have the debate on the motion that clause 5 stand part of the Bill.

That is not the case because the debate is being held wholly by courtesy of my hon. Friend the Member for The Wrekin. If he had withdrawn his amendment last night, there would have been no possibility of Opposition Members having this debate. Normally in these circumstances, if hon. Members are determined to make their point of view heard, they sign amendments so that they cannot be withdrawn. Either Opposition Members were not sufficiently wise to follow the normal parliamentary practice and sign my hon. Friend's amendment, or they were prepared to leave the decision on whether there should be a debate, first to Mr. Speaker, to see whether he would select the amendment, and then to my hon. Friend—

Mr. Campbell-Savours


Mr. Hayhoe

I appreciate the hon. Gentleman's emotion at having been caught out on the procedural inadequacies of his and his hon. Friend's actions.

Mr. Campbell-Savours

Is the Minister not aware that he casts a slur on his hon. Friend the Member for The Wrekin (Mr. Hawksley)? His hon. Friend, as an honourable Gentleman, would never have withdrawn from the Notice Paper an amendment that was crucial to his constituents. We placed our faith, and were right to do so, in his hon. Friend. We are supposed to be honourable Gentlemen. The Minister should apologise to his hon. Friend.

Mr. Hayhoe

I think that my hon. Friend will be able to use what has just been said in campaigning in his constituency. I do not think that I have heard such an open-ended compliment or endorsement of a Member of Parliament by Opposition Members for a long time. Although I know that my hon. Friend will have no difficulty in defeating any candidate who may be put up by the Labour party, that full and forthright endorsement of his position will be noted by him, and he will take advantage of it.

I reiterate the point that the debate and all the speeches that we have heard from Labour Members are wholly by courtesy of my hon. Friend the Member for The Wrekin. I hope that those who study debates in the House and are concerned with the way in which we deal with the important matter of excise duty will read with care all that has been said on this occasion. That will be to their advantage, and I hope that they will draw interesting conclusions from what has been said.

Most of the comments that have been made have concentrated on the issue of jobs, particularly the 50 jobs at the bottling plant in Telford. Some hon. Members who participated in the debate do not appreciate that, before the Budget changes of 1984, Cinzano was imported in bulk and bottled in this country. The blending was the bonus that flowed from the changes made in 1984. Those changes allowed producers of blended products, if those products were blended from two different levels of alcohol in the liquor, to pay less duty than would be paid in respect of the final product if it had been imported or manufactured in accordance with the law as it then stood. As has been said, that matter was taken to the courts, and the House of Lords, in its judicial capacity, ruled that the Customs and Excise view was incorrect and, as a result, the blending taking place was perfectly legal and proper.

Mr. Fisher


Mr. Hayhoe

Let me deal with points that the hon. Gentleman made in his speech. I noted with interest the deference that he paid to the House of Lords and the great unwillingness of Opposition Members even to contemplate overturning a judicial decision by the House of Lords. I am a more robust democrat and a more robust believer in the House of Commons. I believe that in the House of Commons we are perfectly justified in looking at the state of the law that has been determined by the House of Lords—no higher body could so determine it—and deciding that, if we do not like that provision of the law, we can bring to Parliament proposals for change. That is the democratic method, and it is what we are doing in clause 5.

I am astonished that Opposition Members should seek to elevate the decisions of the House of Lords into a constitutional doctrine and that their respect and support for the House of Lords are so intense that the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) should criticise me and other members of the Government for coming forward—

Mr. Fisher

Will the right hon. Gentleman give way?

Mr. Hayhoe

I have listened to a long debate from Opposition Members, and I am wholly entitled to reply to the points that were made.

The 50 jobs at Telford were crucial to the issue. During the debate in Committee the hon. Member for Birmingham, Hodge Hill (Mr. Davis) properly referred not only to those 50 jobs at Telford but to the 150 jobs at Irlam involved in bottling and blending Cyprus sherry. It was the hon. Member for Hodge Hill who reasonably and courteously congratulated me only a short time ago on having brought forward amendments that make the blending of Cyprus sherry unnecessary. Therefore, if the 150 jobs at Irlam are involved purely in blending, they may well be at risk.

Mr. Terry Davis

There may be some misunderstanding between us. I have checked this point. There would not be any loss of jobs at Irlam as a result of amendment No. 129.

8.15 pm
Mr. Hayhoe

In other words, the removal of the need to blend at Irlam is not the determinant; and it would not be with regard to Cinzano, either. I had discussions with representatives of Cinzano, who came to see me before the Budget. I asked the specific question: could the jobs be guaranteed at Telford if the House of Lords judgment—the discussion took place even before we knew that judgment—went against the company and in favour of Customs and Excise? Alternatively, I asked, what would happen if we changed the law? I was not given a categorical assurance about that.

Mr. Davis

The Minister of State will accept my assurance that I checked with both companies and, just as I have been assured that the 150 jobs are not in jeopardy at Irlam as a result of amendment No. 129, I have also been assured that the 50 jobs at Telford are very much in jeopardy as a result of clause 5. I do not make the point in any partisan sense. I believe that those are the facts.

Mr. Hayhoe

Those are representations that have been made to the hon. Gentleman. I note what he said.

It is absurd to say that we should maintain a loophole in the excise duty provisions to allow that blending to take place, as that would create an unfairness, since the blended product would have a lower rate of duty than exactly the same product that had been blended outside the country or manufactured at the same level of alcohol outside the country. I do not believe that that method of job creation or protection would stand up to intensive survey. As has been admitted, the actual cost of those jobs would be considerable.

There could also be the adverse knock-on effects on others involved in the drinks business, who would be hurt by the unfairness and inequity of letting that "loophole" continue—I use the word that was used by Opposition Members. All that I have heard in the debate convinces me of the wisdom of the Government's proposal to maintain clause 5 in the Bill. I hope that the House will so maintain it.

Mr. Hawksley

I thank the Minister of State for his reply to the debate. We have had a good debate, which has been lively and longer than many of us had thought.

Fifty jobs in my constituency are important. I am glad that we have had an opportunity to discuss them. The hon. Member for Newcastle-under-Lyme (Mr. Golding) talked about the assisted area status aid that had come to Telford, which might help us to create more jobs there. He could have mentioned many other things that the Government have done to help Telford. We have had the new hospital and motorway, the enterprise zone and urban aid grants, which should create thousands of jobs. However, I still believe that, in spite of the thousands of jobs that the Government are creating there, those 50 jobs are very important. I do not ask—not that the Opposition would agree anyway—for leave to withdraw the amendment. I leave it to the House to decide how to deal with it. If hon. Members wish to support it, they know what to do.

Question put, That the amendment be made:—

The House divided: Ayes 65, Noes 188.

Division No. 269] [8.19 pm
Abse, Leo Hawksley, Warren
Alton, David Haynes, Frank
Anderson, Donald Hogg, N. (C'nauld & Kilsyth)
Archer, Rt Hon Peter Home Robertson, John
Ashdown, Paddy Howells, Geraint
Barron, Kevin Johnston, Sir Russell
Beith, A. J. Kennedy, Charles
Bennett, A. (Dent'n & Red'sh) Kirkwood, Archy
Bidwell, Sydney Leighton, Ronald
Blair, Anthony Livsey, Richard
Boyes, Roland McDonald, Dr Oonagh
Brown, R. (N'c'tle-u-Tyne N) Marshall, David (Shettleston)
Bruce, Malcolm Maxton, John
Buchan, Norman Meadowcroft, Michael
Callaghan, Rt Hon J. Owen, Rt Hon Dr David
Callaghan, Jim (Heyw'd & M) Parry, Robert
Campbell-Savours, Dale Pavitt, Laurie
Clwyd, Mrs Ann Pendry, Tom
Cocks, Rt Hon M. (Bristol S.) Penhaligon, David
Cohen, Harry Randall, Stuart
Cowans, Harry Rees, Rt Hon M. (Leeds S)
Craigen, J. M. Ross, Stephen (Isle of Wight)
Davis, Terry (B'ham, H'ge H'l) Sheerman, Barry
Dewar, Donald Skinner, Dennis
Dixon, Donald Steel, Rt Hon David
Dormand, Jack Strang, Gavin
Duffy, A. E. P. Thompson, J. (Wansbeck)
Dunwoody, Hon Mrs G. Wainwright, R.
Eastham, Ken Wilson, Gordon
Fatchett, Derek Wrigglesworth, Ian
Fisher, Mark
Forrester, John Tellers for the Ayes
Golding, John Dr. John Marek and
Gould, Bryan Mr. Austin Mitchell.
Hamilton, James (M'well N)
Adley, Robert Heathcoat-Amory, David
Alexander, Richard Heseltine, Rt Hon Michael
Amess, David Hind, Kenneth
Ancram, Michael Hirst, Michael
Aspinwall, Jack Hogg, Hon Douglas (Gr'th'm)
Atkins, Robert (South Ribble) Holt, Richard
Atkinson, David (B'm'th E) Howard, Michael
Baker, Nicholas (N Dorset) Howarth, Gerald (Cannock)
Baldry, Tony Howell, Rt Hon D. (G'ldford)
Batiste, Spencer Hunt, David (Wirral)
Beaumont-Dark, Anthony Hunt, John (Ravensbourne)
Bellingham, Henry Hunter, Andrew
Benyon, William Jessel, Toby
Bevan, David Gilroy Jones, Robert (W Herts)
Body, Richard Joseph, Rt Hon Sir Keith
Boscawen, Hon Robert King, Roger (B'ham N'field)
Bowden, Gerald (Dulwich) Knight, Greg (Derby N)
Braine, Rt Hon Sir Bernard Knight, Dame Jill (Edgbaston)
Brandon-Bravo, Martin Knox, David
Bright, Graham Lang, Ian
Brinton, Tim Lawler, Geoffrey
Brittan, Rt Hon Leon Lawson, Rt Hon Nigel
Brooke, Hon Peter Lee, John (Pendle)
Brown, M. (Brigg & Cl'thpes) Leigh, Edward (Gainsbor'gh)
Browne, John Lewis, Sir Kenneth (Stamf'd)
Bruinvels, Peter Lilley, Peter
Burt, Alistair Lloyd, Ian (Havant)
Butcher, John Lord, Michael
Butler, Hon Adam McCurley, Mrs Anna
Butterfill, John MacGregor, John
Carlisle, John (N Luton) MacKay, Andrew (Berkshire)
Carlisle, Kenneth (Lincoln) MacKay, John (Argyll & Bute)
Carlisle, Rt Hon M. (W'ton S) Maclean, David John
Carttiss, Michael Major, John
Chalker, Mrs Lynda Mates, Michael
Chapman, Sydney Mather, Carol
Chope, Christopher Maude, Hon Francis
Clark, Sir W. (Croydon S) Mawhinney, Dr Brian
Clegg, Sir Walter Maxwell-Hyslop, Robin
Coombs, Simon Merchant, Piers
Cope, John Miller, Hal (B'grove)
Corrie, John Mills, Iain (Meriden)
Cranborne, Viscount Moore, John
Currie, Mrs Edwina Murphy, Christopher
Dover, Den Neale, Gerrard
du Cann, Rt Hon Sir Edward Norris, Steven
Durant, Tony Osborn, Sir John
Edwards, Rt Hon N. (P'broke) Page, Richard (Herts SW)
Evennett, David Parris, Matthew
Fairbairn, Nicholas Pattie, Geoffrey
Fallon, Michael Peacock, Mrs Elizabeth
Fenner, Mrs Peggy Percival, Rt Hon Sir Ian
Fletcher, Alexander Porter, Barry
Forman, Nigel Powley, John
Forsyth, Michael (Stirling) Proctor, K. Harvey
Forth, Eric Rees, Rt Hon Peter (Dover)
Fowler, Rt Hon Norman Roberts, Wyn (Conwy)
Fox, Marcus Robinson, Mark (N'port W)
Fraser, Peter (Angus East) Roe, Mrs Marion
Freeman, Roger Rowe, Andrew
Gale, Roger Sackville, Hon Thomas
Gardiner, George (Reigate) Sainsbury, Hon Timothy
Gardner, Sir Edward (Fylde) Sayeed, Jonathan
Garel-Jones, Tristan Shaw, Giles (Pudsey)
Glyn, Dr Alan Shaw, Sir Michael (Scarb')
Good lad, Alastair Shelton, William (Streatham)
Gower, Sir Raymond Shepherd, Colin (Hereford)
Grant, Sir Anthony Silvester, Fred
Gregory, Conal Sims, Roger
Griffiths, Sir Eldon Skeet, T. H. H.
Griffiths, Peter (Portsm'th N) Smith, Sir Dudley (Warwick)
Grist, Ian Smith, Tim (Beaconsfield)
Ground, Patrick Soames, Hon Nicholas
Gummer, John Selwyn Speed, Keith
Hamilton, Neil (Tatton) Speller, Tony
Hanley, Jeremy Spencer, Derek
Havers, Rt Hon Sir Michael Spicer, Jim (W Dorset)
Hayes, J. Spicer, Michael (S Worcs)
Hayhoe, Rt Hon Barney Stern, Michael
Stevens, Lewis (Nuneaton) Vaughan, Sir Gerard
Stevens, Martin (Fulham) Viggers, Peter
Stewart, Allan (Eastwood) Waldegrave, Hon William
Stewart, Andrew (Sherwood) Walden, George
Stewart, Ian (N Hertf'dshire) Waller, Gary
Stradling Thomas, J. Ward, John
Sumberg, David Wardle, C. (Bexhill)
Taylor, John (Solihull) Watson, John
Taylor, Teddy (S'end E) Wells, Sir John (Maidstone)
Temple-Morris, Peter Whitney, Raymond
Thompson, Donald (Calder V) Wilkinson, John
Thompson, Patrick (N'ich N) Yeo, Tim
Thorne, Neil (Ilford S) Young, Sir George (Acton)
Tracey, Richard
Trippier, David Tellers for the Noes:
Trotter, Neville Mr. Archie Hamilton and
Twinn, Dr Ian Mr. Michael Neubert.

Question accordingly negatived.

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