1.  The IFBB represents 32 family-run brewing companies who together own some 4,500 public houses. Over 3,000 of these houses are tenanted houses, operated by independent licensees. It is arguably these small businesses that have been most hurt by bootleggers.

  2.  Hundreds of our tenants have been bankrupted in the last few years as a direct result of cross-channel beer imports. These tenants have lost their business, their savings, their home, and often their marriage; not through any fault of their own, but as a result of this country's failure to harmonise beer duty before joining the Single Market.

  3.  There is a growing sense of anger in the licensed trade that such an unjust and unfair situation should have ever arisen, and that so little has been done to rectify it. The IFBB welcomes this Inquiry as it has welcomed all of the many recent initiatives to try to crack down on the scourge of bootleggers.

  4.  However, experience shows that regulation can at best stop a bad situation from getting worse; it cannot solve the problem. This problem can only be solved by addressing its root cause, which is that a Single Market cannot operate properly where neighbouring member states have a huge difference in excise duties. There is no doubt that the only long-term solution to the problem of bootleggers is to bring UK rates of beer duty into line with Europe.

  5.  It is disappointing that the terms of reference of this Inquiry prevent it from addressing the key question of duty rates. There is much evidence to suggest that a reduction in UK beer duty would be beneficial to the economy. The Treasury's own computer model suggests that if beer duty was lowered, the loss of beer duty revenue would be more than compensated by the increase in employment taxes from higher employment in pubs. It is of great concern throughout the licensed trade that this evidence has never been completely independently considered.

  6.  All our members suffer from bootleg imports, which are effectively distributed by criminals throughout the country. Our members nearest to Dover also suffer from a high level of "personal" imports which are not strictly illegal as each load is within the indicative limit of 110 litres. Nevertheless, these imports are often shared between friends, neighbours or club members: and their overall effect can be just as harmful to legitimate businesses as organised bootlegging.

  7.  The distinction between bootleggers and personal imports is therefore difficult to define. We believe that approximately one third of beer imports is by criminal bootleggers: approximately one third is for genuine personal consumption: and the remaining one third is a grey area where the beer may not be openly re-sold, but is probably not just for the personal consumption of the importer.

  8.  This analysis is important as it implies that even if all criminal bootlegging could be eliminated, this would only reduce cross-channel beer imports by one third.

  9.  The effect of cross-channel beer imports on legitimate small business traders has been documented in some detail by Shepherd Neame, an IFBB member based in Kent. Their analysis was presented as evidence in their application for judicial review of recent duty increases. It has therefore been subject to the scrutiny of Customs' experts and lawyers, and has been accepted by the courts. The affidavit of S F B Neame sworn on 10 September 1997 has been deposited with the Clerk of the Sub-committee.

  10.  Paragraphs 9 to 13 of this affidavit analyse the decline in volume sales of beer in Shepherd Neame's pubs over the period 1992 to 1996. The affidavit shows that some of this loss can be explained by national trends. But it concludes that 17 per cent of volume was lost over this period for reasons that can only be explained by cross-channel imports. Further losses were sustained prior to 1992, and paragraph 60 estimates that the total effect of duty paid imports has been to reduce beer volumes sold in Shepherd Neame's pubs by 26 per cent.

  11.  Paragraph 64 of the affidavit states that "A decrease in beer sales of more than 25 per cent is in many cases sufficient to make the business unviable and drive the tenant into bankruptcy." Paragraph 65 shows that there was a huge increase in bad debts among Shepherd Neame's tenants in the early 1990s. It states that "Since 1992 the level of business failure among Shepherd Neame's tenants has risen dramatically to average 15 per year."

  12.  Paragraph 68 of the affidavit calculates that the net annual cost to Shepherd Neame of cross-channel shopping is in the region of £2 million per year. This is about one third of Shepherd Neame's total profit before tax.

  13.  The IFBB would be pleased to give oral evidence to the Inquiry should the Inquiry so wish.

September 1999