The Gin and Vodka Association of Great Britain (GVA) represents the interests of companies producing98 per cent of the gin and 95 per cent of the vodka produced in the UK, as well as the majority of imported vodka. Together gin and vodka account for one third of the UK spirit industry's domestic sales by volume. In 1998 our members contributed nearly £700 million in UK excise and VAT.

  The stated objects of the GVA are to protect and promote the interests of the gin and vodka generally both at home and abroad and to prevent any malpractices or abuses that might arise in connection with the production, importation or sale of gin or vodka. Membership is open to producers, brand owners and importers of gin and or vodka.

SUMMARY

  The GVA believes that the root cause of the problems of fraud, diversion and smuggling is the current high levels of UK taxation compared with our near neighbours in the EU—encouraging or enforcing compliance cannot solve this fundamental problem.

  Measures to fight fraud should concentrate more specifically on the illegal trade rather than shifting the burden onto the legitimate and compliant trade through further costly administrative regulations.

  The GVA welcomes the opportunity to submit evidence to this inquiry particularly regarding:

1.  Customs' success in 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

  High UK taxation creates the scenario in which cross-border shopping, smuggling and fraud germinate. Typically a bottle of gin costing £10.50 in this country will cost £7 in France duty paid. Increases in UK taxation will exacerbate this differential.

  Although Customs have reported some favourable outcomes regarding fraud, diversion and smuggling, the GVA is convinced that no real success will ever be achieved. Such measures do not address the root cause which is the continuing high levels of UK taxation compared with the majority of our EU neighbours.

  Cross-border shopping is a right conferred by membership of the single market. The shadow economy in large imports of alcohol for illicit commercial trade has grown on the back of the huge differential in taxation rates between the UK and our nearest neighbours in the EU. The cause is not in any way related, in any shape or form, to the normal legal commercial activity of the legitimate trade that is represented by our members[2]. The problem and its solution lie at the door of the UK exchequer.

  Much of Customs' time and resources is needlessly diverted to police a tax regime, which the UK trade is forced to fund through the same financial system that is denying them the ability to compete on an equal footing in the first place.

2.  IMPACT OF NON-COMPLIANCE ON COMPLIANT BUSINESS

  The gin and vodka sector of the UK spirits industry is a major employer with 2,000 directly and 8,000 indirectly employed in legitimate trade run by compliant businesses.

  Recent Alcohol and Tobacco Fraud Review (ATFR) recommendations have resulted in measures which impose unfair burdens[3] on compliant businesses, particularly SMEs. These additional costs serve to increase the frustration of our members who represent the legitimate trade, which has a worldwide reputation and brings considerable credit to the UK in more than mere monetary terms.

  The GVA has concerns about the ATFR proposals in regard to dichotomized nature of the relationship between policy and implementation. The Association's view is that the ATFR as a whole lacks structure and contains a scattergun of proposals.

  Difficulties in timescale of implementation are instanced by the proliferation of sub-committees examining, still, an effective means of achieving the required implementation that is satisfactory to compliant businesses. In the meantime the non-compliant culprits—the real targets of the ATFR—are continuing to flourish because the underlying problem of tax differentials remains.

  The overall concern from GVA members is that the ATFR has resulted in increased costs for compliant businesses and yet there has been no cost/benefit analysis forthcoming from C&E to justify them.

  The GVA continues to participate in the Review's implementation and understands the need to take measures against smuggling and fraud.

  However there is concern, especially by our smaller member companies, at the costs our industry may be expected to bear from the new control charges, particularly when the principal cause is the pre-existing high rate of excise.

  The Association would be delighted to participate further in the Treasury Sub-Committee's Inquiry and to offer additional details on these occasions. A visit to a member company headquarters or distillery could easily be arranged.

4 October 1999

3   ATFR proposals: 25/29 (traceability/tagging); 30/32 (Warehousekeepers and Owners of Warehoused Goods Regulations); 37/38 (guarantees). Back