As the local MP for Islay, I see frequently just how important whisky is to the island. Eight distilleries (and another planned), and the world famous brands they produce, help to drive the local economy and attract tourists from around the world to a remote corner of the Scottish west coast.
What is less easy to understand is why the UK continues to penalise the industry in its home market. Today, nearly 80% of an average priced bottle of Scotch Whisky – four pounds in every five you spend on a bottle – is accounted for by tax, making whisky one of the UK’s highest taxed consumer products.
Excise duty on whisky has increased by 44% since the introduction of an annual 2% above inflation duty escalator in 2008. The result has been predictable and damaging. The UK market for Scotch is now 12% lower than it was when the escalator was introduced, a loss of 6,500 bottles from the market every day.
As the Budget looms, the industry is calling on the Chancellor to be fair to whisky and to finish the job he started in 2013 when he removed the duty escalator on beer. That decision was premised on the need to support local pubs and communities. But, of course, pubs depend on whisky sales as well as beer, with spirits and wine representing over 40% of the value of sales in British pubs. Jobs and investment in many remote rural and economically fragile urban communities across Scotland are supported by the whisky industry.
Whisky drinkers today pay 48% more duty on the same amount of alcohol than beer drinkers. The Budget on 19 March is an opportunity for the Chancellor to abolish the escalator on Scotch Whisky, freeze duty, and start to introduce a fairer balance in the taxation of alcohol in the UK.
Some argue that we should not worry about domestic tax on Scotch Whisky since the industry is clearly doing so well abroad. I believe that is short-sighted.
The UK remains the industry’s third largest – bigger than China and India combined – and is particularly important for smaller companies and start-ups which need a firm base from which to grow both at home and abroad. In addition, we should consider what message we want to send out to export markets about how to treat Scotch Whisky. The current high rate of tax sends the wrong signal and makes it hard to argue for fairer taxation in export markets.
If the purpose of alcohol taxes is to encourage responsible drinking, then surely excise duty should be levied per unit of alcohol. That would be both fair and responsible. Instead, we levy more tax on quality products such as Scotch Whisky, despite alcohol being alcohol in whatever form it is served. This doesn’t make sense and negatively affects an industry that can, by law, only be made in Scotland.
Reform could even have wider positive economic benefits. Research by Ernst & Young suggests that removal of the escalator on spirits and wine would deliver over £200m in additional revenues to the public finances in 2014 alone.
The Chancellor recognised last year that there is a strong case to remove the alcohol duty escalator. He should be fair and support the whisky industry this year. That would be something to raise a dram to on Budget Day.
* Alan Reid is the Liberal Democrat MP for Argyll and Bute
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5 Comments
This is of course a form of pork barrel lobbying for an MP’s local drug industry, but it is a very good point that “surely excise duty should be levied per unit of alcohol.” (I look forward to seeing our MPs from the SW facing off against those from Scotland to argue that this would be unfair on cider!)
As well as the basic logic of such a move (and the deliciousness of much Scotch), the IFS looked at a simpler tax – though one that still favoured beer and cider over wine and spirits – and concluded that:
“It is somewhat curious that the recent debate around alcohol pricing has focused so much on a minimum unit price. Much less has been made of the fact that the current, complex set of alcohol taxes does a poor job of targeting harmful drinking. Reforming the way in which we tax alcohol could provide a better route to reducing harmful drinking than the introduction of a minimum price. It would reduce alcohol purchases among heavy drinkers, have less impact on moderate drinkers, and raise additional useful revenue for the government. Heavy drinkers also buy cheap alcohol, but a minimum price would be less well targeted than the tax reform, reduce tax revenues and increase the revenues of alcohol retailers and manufacturers.”
Perhaps one of the reason duty is higher is that it is much easier to get drunk on small qualities of spirits than on large quantities of cider. Whatever the problems facing pubs, and I have much sympathy with them – I am far from convinced it is the duty escalator – as opposed to say – supermarkets and ruthless contracts.
“The UK market for Scotch is now 12% lower than it was when the escalator was introduced, a loss of 6,500 bottles from the market every day.”
Good!
Oh yes, I agree with Mr Reid, most wholeheartedly. I suggest that the best thing our esteemed(?) chancellor could do for the Scotch industry is give taxpayers’ money to provide a weekly free bottle of Lagavulin for all pensioners – better still, two bottles.
What’s that: ice in good Scotch Whisky? Sacrilege!!!