The government has no current plans to introduce a small spirits relief. However, all taxes are kept under review and the impact of such a change is considered at each fiscal event; including its effect on the industry and wider economy.

Under EU law a reduced rate of spirit duty can be applied to producers who make less than 1,000 litres of product a year.

The government is not minded to introduce such a relief as there is no compelling case to do so at this time given the risk of illicit production and excise duty fraud.

I have regular discussions with the Chancellor who recently announced that Spirits Duty will be frozen for the second year in a row.

This represents a huge boost for the Scotch Whisky industry which directly contributes over £3.2 billion to the Scottish economy.

The Alcohol Wholesalers Registration Scheme was introduced as one of a number of HMRC initiatives to tackle alcohol excise duty fraud. HMRC assesses all applications to ascertain whether the business and key persons within it are fit and proper for approval.

Approved businesses are monitored to ensure compliance with the scheme and to minimise the risk of illicit alcohol entering the wholesale market. To date HMRC has approved approximately 8000 businesses and over 800 applications have been refused.

HMRC publishes alcohol receipts on a monthly basis on the UK Trade Info website. Multiple factors influence revenue receipts. Therefore, HMRC is unable to directly attribute any increases to introduction of the Alcohol Wholesalers Registration Scheme.

The price elasticity of demand for spirits used by the Government is available online on HMRC’s website.

These figures are used to create forecasts and costings, which are compared with actual duty receipts to check that the published elasticities remain reasonable. All costings are subject to OBR scrutiny.

The tax gap for (a) beer, (b) wine, (c) spirits in the financial tax years (i) 2013-14, (ii) 2014-15, (iii) 2015-16 is available in Chapter 3 of ‘Measuring Tax Gaps 2017’ at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/655097/HMRC-measuring-tax-gaps-2017.pdf.

Estimates for the alcohol tax gaps for 2016-17 will be published in due course.

The tax gap was for tobacco tax all financial years including 2016-17 is available in ‘Tobacco tax gap estimates 2016-17’, available at https://www.gov.uk/government/statistics/tobacco-tax-gap-estimates.

There are two strategies in place to tackle these tax gaps: one for alcohol, and one for tobacco.

The HM Revenue and Customs Alcohol Strategy is available at:

https://www.gov.uk/government/publications/hmrc-alcohol-strategy. This is designed to tackle all forms of fraud throughout the supply chain, working with other enforcement agencies and industry. Measures to tackle alcohol duty fraud include:

• Full implementation of Alcohol Wholesaler Registration Scheme on 1 April 2017. This requires businesses to meet rigorous standards to receive approval from HMRC in order to trade. Where standards are not met approval may be refused or revoked.
• The Joint Alcohol Anti-fraud Taskforce, which brings together the alcohol industry and law enforcement agencies
• Sharing HMRC data with alcohol producers to restrict access by fraudsters to UK-sensitive brands, and the introduction of a ‘due diligence’ condition requiring traders to consider the risk of excise duty evasion in their supply chains.

For tobacco, HMRC’s strategy is detailed in “Tackling illicit tobacco: From leaf to light”, a joint publication with Border Force, available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/418732/Tackling_illicit_tobacco_-_From_leaf_to_light__2015_.pdf.

This strategy aims to:

• Create a hostile global environment for tobacco fraud through intelligence sharing and policy change.

• Tackle the fraud at all points in the supply chain from production to retail.

• Change perceptions - Raising public awareness of the links between illicit tobacco and organised criminality to reduce tolerance of the fraud in the UK.

Optimise the use of the sanctions available and, where necessary, develop tougher ones.

The elasticities used to model changes in revenue in the UK spirits market were last updated in December 2014. Full details of the elasticities and the methodology used to calculate them are included in the published working paper, which is available here: https://www.gov.uk/government/publications/estimation-of-price-elasticities-of-demand-for-alcohol-in-the-uk

The Office for Budget Responsibility do not publish the elasticities used within the alcohol duty forecasting models. However, these elasticities were last updated ahead of the March 2017 Economic and Fiscal Outlook. The OBR state in paragraph 4.76 on page 121 that they “have updated the econometric models of alcohol clearances that underpin the forecast” and therefore the elasticities behind the alcohol duty forecasting models. Full details of the March 2017 Economic and Fiscal Outlook can be found here: http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2017/

All assumptions used for modelling are kept under review in consultation with the OBR.

Information about alcohol duty rates by EU countries can be found in the “EXCISE DUTY TABLES (Alcoholic beverages).” document published online at:

https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/excise_duties/alcoholic_beverages/rates/excise_duties-part_i_alcohol_en.pdf

The government published its assessment of the impacts of the alcohol duty changes in the Tax Information and Impact Note, which can be found online at:

https://www.gov.uk/government/publications/alcohol-duty-rate-changes/alcohol-duty-rate-changes

The government ended the spirits duty escalator in 2014 with a duty freeze, followed by a cut in 2015 and a further freeze in 2016. The previous action taken means that the tax on a bottle of Scotch Whisky is now 90p lower than it would otherwise have been since ending the spirits duty escalator in 2014.

The forecast impact of alcohol duty changes on Government revenues can be found in Table 2.1 of the Budget documents from Summer Budget 2015. These are central estimates certified by the independent Office for Budget Responsibility.

It is not possible to retrospectively assess the impact on revenue of a single tax change which forms part of a package of measures affecting alcohol duty.

The OBR evaluate their forecasts each year in the Forecast Evaluation Review, which can be found at http://budgetresponsibility.org.uk/fer/forecast-evaluation-report-october-2017/.

As for every Finance Bill measure, HMRC provided a Tax Impact Information Note which included an impact assessment of alcohol duty changes. This can be found online at:

https://www.gov.uk/government/publications/alcohol-duty-rate-changes/alcohol-duty-rate-changes

The government keeps all taxes under review at fiscal events, and we will consider this issue carefully as part of the Autumn Budget process. Any changes to alcohol duties need to take account of a wide range of factors, including the Exchequer impact, the impact on businesses and consumers, public health and the distributional impact of reform.

Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. We will seek to achieve the right deal for Britain and for the EU.