Distillers protest at tax strips on bottles

Distillers yesterday reacted with outrage to the government's announcement that it will mark bottles of whisky, vodka and gin to clamp down on tax fraud.

Gordon Brown said spirits would have to be marked with a paper strip over the top off the bottle cap, to show they had paid tax. The move is intended to tackle the smuggling of spirits, and tax evasion. The Treasury estimates that the tax stamp measure will save the government £160m a year.

"In making my decision that stamps are necessary to tackle fraud, I will help the trade financially with cash flow costs and defer payment for tax stamps and I will assist firms with capital investment," the chancellor said.

Industry associations nevertheless slammed the decision as expensive and ineffective, as the stamps would be easy to forge. They had successfully lobbied against the idea when the chancellor proposed introducing it in 2001.

"Tax stamps will impose financial pain on legitimate businesses, particularly smaller enterprises, but will not defeat the fraudster," said Gavin Hewitt, chief executive of the Scotch Whisky Association.

The Wine and Spirit Association said that the move was a "devastating blow" and "an example of the worst kind of policymaking." The association's director, Quentin Rappoport, said: "It is a particularly big hit for smaller busi nesses, of which there are many in this sector. In a Budget claiming to support small firms and encourage enterprise, this announcement is a cruel irony." Scottish National Party MP Angus Robertson said all the evidence showed the stamp scheme to be expensive, fraud-prone and anti-competitive. "It is extraordinary that a Scottish chancellor should implement such an anti-Scottish policy," he said.

Although the government said it would try to help smaller businesses with the costs of the new scheme, the measures "won't go very far" according to a spokesman for KPMG, the accountancy firm.

The duty paid on spirits was kept the same to mollify the industry, although Mr Robertson said that businesses in his Moray constituency, home to half of Scotland's distilleries, were "apoplectic".

Tobacco, wine and beer taxes would be increased in line with inflation, effective from last night, although small brewers were pleased at the doubling of the threshold at which they will qualify for lower duty - to almost 11 milion pints.

The duty on wine was increased by 4p a bottle, while beer was hit with an extra 1p a pint. Consumers would pay an extra 8p on 20 cigarettes, he said, but Customs and Excise had to point out that he had got his sums wrong and that, with VAT, the increase would be 9p.

Imperial Tobacco, maker of Regal and Superkings, said that increasing tax encouraged smuggling. By contrast, Action on Smoking and Health, the anti-smoking campaign, said that not increasing tax above inflation was a "missed opportunity" to cut the number of deaths caused by smoking.

No major change to gambling taxes was announced although the government said it was reviewing the tax status of lotteries, gambling machines, betting exchanges and hedged bets.