"Law of unintended consequences" defeats distillery support

Wednesday 16 December 2020

Many States’ members supported the ‘spirit’ of Deputy Simon Vermeulen’s attempt to support local distillers – but concerns over the loss of revenue and efficacy led to his proposals for a lower excise rate for small, independent manufacturers, being shot down by a narrow margin.

The Economic Development Member’s amendment to the 2021 budget would have introduced a second excise rate for spirits, at 50% of the current rate, for manufacturers who produce less than 20,000 litres per year and is fully independent from other distilleries.

While many Deputies acknowledged the difficulties the industry has faced, especially as the pandemic has reduced consumption from tourism and duty-free sales, many felt the proposal would produce a number of unintended consequences. 

Home Affairs President Rob Prow that the amendment had not been properly researched, and that Deputy Vermeulen – and seconder Deputy Nick Moakes – had not consulted with Home Affairs prior to submitting it to the States.

“At a Committee meeting yesterday, Deputy Vermeulen did speak very eloquently to the Committee, and did outline his reasons for the amendment,” he said. 

“However, this amendment is not supported by the rest of Home Affairs.”

Pictured: Deputies such as Gavin St Pier and Lindsay De Sausmarez feared the amendment would result in a number of unintended consequences. 

Deputy Prow was one of several Deputies who raised concerns about the potential loss of revenue as a result of this amendment, especially considering how many distilleries could potentially be entitled to the lower rate. According to him, the production limit of 20,000 litres per year was “extraordinarily high,” roughly a fifth of the total volume of spirits taxed in a year.

Furthermore, there were concerns that the amendment would not even be of benefit to local companies, as the lower rate would technically be open to any international distilleries that fit the requirements. Deputy Roffey said that ‘microdistilleries’ had become quite popular over the last few years, and that any number of those could also claim the lower rate.

But some Deputies felt that the need to support local industry outweighed the potential consequences. In his closing arguments, Deputy Vermeulen said that the need for this support was “more urgent than we realise".

“We can change things any time we wish to. In a way, this amendment does ‘short-circuit’ five years of discussion amongst Committees, but I don’t think we’ve got five years. If we leave it five years, I don’t think we’ll have many companies left.”

Pictured: “This needs to be looked at, it needs to return in an environment where it can be supported – but right now, I don’t think I can [support it]” – Deputy Lyndon Trott.

Deputy John Gollop said the amendment enhanced a commitment to small businesses the States had already made in other areas.

“If there are problems, we can sort them out,” he suggested, “but we don’t want eternal delays to policy just because of technical issues.”

With Brexit on the horizon, and the financial burden of the pandemic being felt in the 2021 budget, neither Home Affairs nor P&R were willing to support the amendment. Deputy Mark Helyar suggested that further consideration would be needed to ensure that measures like this were actually able to support local distilleries.

“For an amendment like this to have proper effect, we would need to make sure that the £8 per bottle [in savings] were not passed on to the customer as a price reduction, but that it was put onto the bottle as a profit,” he said.

“One way in which we could do that is to introduce legislation with minimum unit pricing. This would prevent supermarkets from creating ‘super-value’ discounts, because it isn’t possible at the moment for local dealers to undercut that amount."

“Members of the Committee have a lot of sympathy for the motivation for the amendment, but we can’t support it at this time. I can certainly say that we would be willing to work with other committees that have an interest, including Economic Development and Home Affairs, to achieve something which will work economically, as well as from a health perspective.”

The amendment was voted out during the 2021 Budget debate.

Pictured top: Deputies Vermeulen and Moakes: they proposed a new, lower spirits excise rate, to support local distilleries.