SUMMARY

  The BLRA will be pressing the Chancellor to initiate a review and modernise the Beer Regulations.

  We are far from convinced that encouragement and enforcement alone will deal with the problem of smuggling. The fundamental problem of the high duty differential needs to be addressed.

  Measures to combat fraud should be more focussed on the illegal trade and not add to the costs of the compliant trader.

  Crime associated with bootlegging and fraud is becoming increasingly damaging to the fabric of society and to compliant businesses.

  The Brewers and Licensed Retailers Association (BLRA) represents the interests of companies producing 97 per cent of UK beer and companies operating more than 60 per cent of the UK's public houses. We welcome the opportunity to submit comments on the work of HM Customs & Excise with particular reference to:

1.  Customs success to encouraging and enforcing compliance across the range of its responsibilities and tackling the shadow economy.

2.  The impact of non-compliance on compliant businesses (especially in relation to small businesses and the bootlegging and smuggling of alcohol and tobacco).

1.  ENCOURAGING AND ENFORCING COMPLIANCE

1.1  The Beer Regulations

  These Regulations deal with the collection of beer duty (1998: £2.7 billion). Excise duty on beer, first raised in 1642, is the oldest source of revenue still collected by the Government. Most recently, the 1993 Beer Regulations replaced a regime that had been in place for more than 100 years.

  Fifty-five companies account for more than 99 per cent of beer duty receipts. The largest contributors to this sum are four companies that account for about than 80 per cent on the market.

  The 1993 Regulations were intended to be simple to operate with low compliance costs. Encouraging and enforcing compliance ought to require only a "light touch" having regard to the small number of brewing companies and long history of working with Customs & Excise.

  In the event this has not been the case, despite the continuing joint efforts of the BLRA and Customs and Excise to improve the working of the Regulations. Significant resources are involved in resolving disputes between brewers and Customs & Excise. This situation is quite unprecedented for an industry that has always enjoyed good working relationships.

  The Regulations are excessively complex, over-reliant on "concessions" by Customs and Excise and difficult to operate fairly. In its recent initiative on business friendly enforcement of regulations (Enforcement Concordat) the Government states that:

"What we need is a cultural change in enforcement—a new approach that emphasises prevention before prosecution and dialogue between businesses and enforcers so that business people are not penalised for innocent mistakes."

The BLRA will be pressing the Chancellor to initiate a review and modernise the Beer Regulations.

1.2  Smuggling

  Each day almost 1.5 million pints of beer are brought into the UK, where 75 per cent of this volume is distributed nationally for illegal resale. Cross-border shopping is one of the rights attaching to the single market. This activity becomes smuggling when the beer is sold-on without payment of UK Beer Duty.

  The recent extra resources put into Dover by Customs & Excise will clearly have a significant effect on the "van trade". However, our view is that illicit activity will not be stamped out until measures are taken that address the cause of smuggling. The incentive for this activity is the high differential rate of duty between the UK and adjacent EU Member States. France has a duty rate one seventh that in the UK.

  At this stage it is too early to judge the consequences of the removal of duty free allowances that took effect from 1 July 1999. However, we have concerns that, once the public understand that there is an opportunity to bring back unlimited quantities of beer (subject to indicative limits), there will be a green light given to even greater volumes of beer coming across the channel. Ferry operators will wish to promote the sale of French duty-paid products to replace the loss of duty-free sales.

We are far from convinced that encouragement and enforcement alone will deal with the problem of smuggling. The fundamental problem of the high duty differential needs to be addressed.

1.3  Fraud

  Fraudulent activity within the UK reduces the duty take from beer by an estimated 1½ per cent. The incentive for fraud is the high rate of duty on beer and the availability of duty-suspended beer. The 1993 Beer Regulations put duty-suspended beer into circulation for the first time and fraudsters have taken advantage of the weakest parts of the system in order to avoid payment of duty.

1.4  Alcohol and Tobacco Fraud Review (ATFR)

  We are fully involved with Customs & Excise on the implementation of the ATFR recommendations. The first recommendations to be implemented were aimed at reducing smuggling by increasing resources at Dover. Our current concern is that recommendations are being introduced piecemeal. Rather than introducing whole rafts of measures, focused recommendations, or groups of recommendations, should be implemented so as to cut off the opportunity for particular fraudulent practices. The blanket approach is likely to lead to significant costs for the legitimate trade. For example, undue emphasis is being given by HMCE to introducing expensive measures to trace illicit beer and too little thought is directed towards ensuring that illicit beer does not enter the system in the first place.

Measures to combat fraud should be more focused on the illegal trade and not add to the costs of the compliant trader.

2.  THE IMPACT OF NON-COMPLIANCE ON COMPLIANT BUSINESSES

2.1  Unfair Competition for Brewers

  Compliant businesses are subject to unfair competition from the 6 per cent of beer that has not paid UK beer duty and VAT. UK brewers forgo the opportunity to compete fairly for trade in this volume of beer. This amounts to Government-sponsored unfair competition to the extent that this volume of trade is driven by the UK Government's high rate of beer duty:

—  Wholesale beer prices have fallen by 16 per cent in real terms since 1992.

—  Sixteen of the 85 largest breweries have closed since May 1997.

—  Beer production has fallen by 15 per cent since its peak in 1979 and by 2¼ per cent this year alone.

  Illegal activity associated with the brewing industry is damaging to its image.

2.2  Unfair Competition for Pubs

  The availability of more than 6 per cent of beer not subject to UK beer duty (or VAT) reduces trade available to pubs. In addition, beer duty distorts the price of beer in pubs. Beer sales in pubs have fallen sharply in recent decades, down 32 per cent since 1979, despite increasing consumer affluence.

  The changes going on in the pubs industry, once they have happened, cannot be reversed. A community village pub that is closed today because it cannot compete with personal imports and bootlegged beer, will not be re-opened tomorrow even if the playing-field could be levelled overnight.

  There are no official figures on pub closures in the UK. However, as an indication, the net loss of licences to sell alcohol in Great Britain fell by some 2,000 in 1998 alone.

2.3  Social Consequences

  Beer smuggling and fraud have serious social consequences. The Excise Alliance (a joint initiative between Customs & Excise and the trade) has exposed evidence of wide scale criminality particularly associated with the "van-trade" in bootlegged beer, for example:

—  Bootleggers sell to children and undermine our licensing system for controlling sales of alcohol.

—  Small shopkeepers are "persuaded" to stock bootlegged alcohol, leading to "protection" violence and undermining respect for the law.

  Beer smugglers are a new class of 1990s criminal.

Crime associated with bootlegging and fraud is becoming increasingly damaging to the fabric of society and to compliant businesses.

29 September 1999