The UK spirit industry has reacted with alarm at proposals set out yesterday by the Chancellor Gordon Brown to combat tax evasion by having stamps put on bottles of vodka, whisky and gin.

The Chancellor wants spirits to carry strips of paper over the bottle's cap that would show that tax had been paid. However, the director of the Wine & Spirit Association said yesterday that tax stamps were not the solution for spirits fraud, before adding that the proposals could cripple smaller companies.

Quentin Rappoport WSA director said: "We agree that there is a serious problem with spirits fraud, but introducing strip stamps is definitely not the solution. Stamps are ineffective as a means of control, as they can be easily counterfeited, even if they have expensive holograms.  Furthermore, they represent significant additional costs to the industry, which will most likely cripple small companies."

The Government plans to legislate for tax stamps in the 2004 Finance Bill, although it will consider proposals put forward by the industry in the coming months.

"We welcome the Government's call for consultation with the spirits industry, and we look forward to finding a more effective solution to a problem that concerns us all. We have been working closely with HMC&E to tackle not only fraud, but smuggling as well, and we trust we will be able to come to an understanding that will benefit all parties involved," said Rappoport.

Meanwhile the Scotch whisky industry also expressed its dismay at the plans.

Reacting to the announcement, Gavin Hewitt, Chief Executive of The Scotch Whisky Association, said:  "Only 18 months ago, the Chancellor dismissed tax stamps as a viable option.  Since then the industry has tried to work in partnership with the government on measures to tackle alcohol fraud, whilst ensuring the legitimate trade is facilitated.  We will be working hard to convince the Treasury that tax stamps would be a backward step damaging productivity and competitiveness and that alternative, more risk-based measures would be more effective. 

"Let there be no doubt, fraud damages the trade of legitimate business every bit as much as the revenue, and Scotch Whisky producers will do everything possible to assist the fight against fraud.  But strip stamps have been shown not to be the solution.

"One of our key concerns is that distillers believe the Chancellor's figures overestimate the level of alcohol fraud in the UK.  We are by no means saying there is not a problem but we have challenged the figures and await a response from the Treasury.

"While the Chancellor has said he will consider freezing spirits duty for the remainder of this Parliament, it must be remembered that high levels of excise tax only serve to encourage the sort of illegal activity we are all committed to tackling."