View from City Road: A case for tax harmonisation

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The Independent Online
The Wine and Spirit Association has been bending the ear of Sir John Cope, the Paymaster General, about the millions of Britons who pop across the Channel and plunder supermarket shelves for cheap booze. Cross-border shopping, the association says, costs the Treasury pounds 8m a week in lost tax on beers, wines and spirits.

But is the problem as big as the association would have us believe? Yes and no. The hit on the Treasury is obvious and painful, but the effect on the brewers and distillers is less marked because much of the drink brought back on the Calais run is produced in the UK. Some smart operators have even reimported wines into France for the benefit of British shoppers.

The simplicity of the association's mathematics is also questionable. There is no accounting for the extra taxation from petrol or the extra corporation tax from the busy ferry operators and foreign exchange dealers.

It would, however, be wrong to dismiss the problem lightly. It can only grow in size, particularly given the extra incentive to travel when the inevitable price war breaks out among ferry operators after the Channel tunnel opens. And it will affect just about every type of retailing.

Anecdotal evidence suggests that for every pounds 1 lost in excise revenue, the British shopper is spending an equal amount on other goods. This drain of sales abroad is more alarming.

It is a problem that Denmark, which had the added complication of a land border, addressed very quickly. The Danes curtailed cross-border shopping by cutting taxes but paid a high price for persuading people to buy at home. Excise revenue from drink has fallen about a third. The Danes must be hoping the krone holds up against other currencies, or nipping across the border might again become attractive.

There is really only one sound solution - harmonisation of excise taxes. While that is a long way off, the Government might like to question why the European Community forces it to levy high taxes on wine while Germany, Greece, Italy, Portugal and Spain do not.