Anti-smuggling rules under attack

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Small drinks companies will be "crippled" by the threat to introduce tax stamps for spirit bottles to tackle fraud, industry executives said yesterday.

Gordon Brown's decision to press ahead with plans to legislate for tax stamps just 18 months after the Treasury conceded the idea would "severely impact the [industry's] productivity" was attacked as a "backward step" that could cost spirit companies at least £300m.

Quentin Rappoport, director of the Wine and Spirit Association, said the proposal was "a disaster", adding: "Strip stamps can be counterfeited so they are not very effective. Furthermore, they represent significant additional costs to the industry, that will most likely cripple small companies."

The Government, which claimed the black market accounted for one in every six bottles of spirits sold, gave the spirits industry until next year's Budget to come up with an alternative scheme. But it said any proposal must match targets of reducing fraud by at least £160m during 2006.

Gavin Hewitt, the chief executive of the Scotch Whisky Association, said: "We will be working hard to convince the Treasury tax stamps would be a backward step damaging productivity and competitiveness and that alternative, more risk-based measures would be more effective."

If no compromise is reached over the next three or four months, then the next Finance Bill will implement a measure to stamp bottles of spirits from 2006, the Government said.

Edwin Atkinson, the director general of the Gin and Vodka Association, dismissed the Chancellor's pledge that he would consider extending the current duty freeze for the rest of this Parliament to soften the blow. "It would save a company with a small production line tuppence but it would have to pay thousands of pounds to install a line to put on these dreaded stamps," he said.

A similar scheme, which was recommended in a 2001 report by John Roques into the collection of excise duties, operates in France.

The Chancellor intends to set Customs and Excise new targets to cut the illicit share of the spirits market, which hit its highest level in more than a decade in 2001 to 2002 at 16 per cent of total spirits sales. But those numbers were questioned by industry executives.

Mr Rappoport said: "There isn't a simple solution. That's why we don't think strip stamps work. But there ought to be ways of identifying the fraud rather than hassling everyone with enormous bureaucracy."