Regina v HM Treasury and others, ex parte Shepherd Neame Ltd; Queen's Bench Divisional Court (Lord Justice May and Mr Justice Moses) 21 January 1998
The court refused the application of Shepherd Neame Ltd for judicial review of the Budget announcement on 2 July 1997 of an increase of 3 per cent (which was the amount of inflation) in excise duty on the price of beer, and of section 8 of the Finance (No 2) Act 1997, amending section 36 of Alcohol Liquor Duties Act 1979, which brought it into effect.
The applicant, a well-known brewing company, contended that the high rate of excise duty in the United Kingdom compared to other member states of the European Union had damaged its trade. It asserted that cross-border shopping and smuggling had caused loss of revenue from its trade which was, substantially, in close proximity to cross-channel rail and ferry services. It sought to impugn the Budget announcement and the statutory provision on the ground that they were incompatible with the EC Treaty.
Michael Beloff QC and Clive Lewis (Travers Smith Braithwaite) for the applicant; Lord Falconer of Thuroton QC and David Anderson (Solicitor, HM Customs and Excise) for the respondents.
Mr Justice Moses said that the applicant alleged that the United Kingdom's increase in excise duty on beer was in breach first of a substantive obligation, and secondly of a procedural obligation imposed by the EC Treaty.
At the heart of the substantive objection lay the submission that an increase in excise duty was a breach of the legal obligation under Article 5, in combination with other Articles or by itself, to abstain from action which could jeopardise the attainment of the objectives of the Treaty. The objective identified by the applicant was such further harmonisation of excise duties as was necessary to achieve the proper functioning of the internal market.
The only legal obligation on member states was, however, to comply with the minimum rates of excise duty set by the Rates Directive (EEC) 92/84. There was no legal obligation to abstain from measures which preserved or increased divergence in excise duty rates. Setting rates for excise duty was a matter which was within the sole competence of member states. The court was in no position to place the rate imposed in respect of beer in the context of other sources of revenue, and neither could nor should make any judgment whatever as to how the Government should exercise its fiscal freedom.
Even if the applicant's arguments had established a legal obligation, it would still have been necessary to show a breach. The rise of 3 per cent had been no more than was necessary to keep pace with inflation, and it was not possible to see how a rise which preserved but did not increase divergence could be said to amount to such a breach.
The second ground of challenge asserted a breach of a procedural obligation to consult the Commission before taking action which there was reason to believe might cause distortion of the conditions of competition, contrary to Article 102(1) of the Treaty. The obligation to consult the Commission only arose where there was reason to fear that the adoption or amendment of a provision laid down by law, regulation or administrative action might cause distortion of the conditions of competition in the common market within the meaning of Article 101. As had already been said, a rise by the amount of inflation caused no distortion by itself, and so the increase in duty in 1997 had not triggered an obligation to consult.
Had there been such an obligation, however, it would not have been fulfilled by a letter of notification from the Government, informing the Commission of its intention to raise excise duty on beer and inviting questions. Consultation required a process whereby all involved in consultation sought jointly to reach a conclusion, not the mere notification of a conclusion.