31 October 2023

The Chancellor needs to prove he gives a dram about Scotch whisky

By Mark Kent

How would you define the perfect national industry?

The starting point would surely be jobs: a sector made up of businesses employing thousands of people in skilled, long-term roles. You would almost certainly want the industry to be a world leader and globally recognised. It would have to generate significant revenue and contribute to the public finances. And you would want to see continual investment and preferably the use of a domestic supply chain.

If that’s your definition, you’ve just described the Scotch whisky industry.

Beloved at home and sought after abroad, Scotch whisky is the country’s number one food and drink export. A mind boggling 53 bottles a second are shipped to 180 markets around the world. It’s an industry that generates billions for the economy, employing 11,000 people directly and supporting more than 42,000 jobs through a supply chain that’s almost entirely UK-based. Distilleries are Scotland’s number one tourist attraction, so Scotch whisky also creates business for other local companies – often in rural communities – including shops, restaurants and hotels. And it is an important source of revenue for the hospitality sector.

These are all hallmarks of a great national industry, worthy of support. So, the question is, why doesn’t Scotch whisky get the support which other countries’ comparable sectors get from their governments?

Excise duty on Scotch in the UK is one of highest in Europe and the highest of the G7 countries. Three quarters of the cost of an average bottle is claimed in tax. Parisians enjoying a dram in a bar on the Champs-Élysées will pay half the tax that a punter in an Edinburgh pub would be subject to. It’s tough to imagine France treating champagne in the same way, the Spanish taxing wine to the hilt, or Germany hamstringing their brewers.

The Treasury will tell you that it has consistently supported Scotch through repeated freezes in excise duty. That has indeed provided stability for business, which is welcome. But it would be a mistake to think that stability has been taken for granted and not been paid back in full and more.

The last decade has seen distillers invest more than £1bn in the UK – strengthening domestic supply chains, building centres for tourists, embracing new technologies and sustainability and introducing new products that enhance Scotch whisky’s global reputation. The consequence of that commitment has been more tourist visits, a growth in exports, and consumer trends moving from dated stereotypes of the old-fashioned boozer to modern day pubs and bars, where premium products like Scotch and experiences like cocktail making are embraced.

Most importantly, from a government perspective, that continual investment has seen duty revenues from Scotch and spirits grow by 50%, far more than successive chancellors would have gained for the public finances by repeatedly increasing tax on the national drink.

Scotch’s delivery for the country and the need to support and protect our leading industries should be reason alone for Jeremy Hunt to back distillers in the Autumn Statement. But there’s an even better reason – delivering on the Chancellor’s and Prime Minister’s pledge to halve inflation.

When the Chancellor decided in the Spring Budget to increase duty by 10.1% from 1 August, alongside reforms to alcohol taxation, the first in more than a century, he committed to the level of tax being determined by the strength of an alcoholic product rather than the number of units in your glass, ignoring the Chief Medical Officer’s guidance on responsible drinking. He also brought in reliefs for products sold on draught – penalising consumers who would rather a cocktail to a pint.

Most importantly in the context of the Chancellor’s and Prime Minister’s pledge, the duty increase from 1 August was the largest for 40 years. The Office for National Statistics has said it caused the biggest contribution to UK inflation from alcohol on record. A further tax rise this autumn would not only hammer businesses for the second time in a matter of months, it would be completely incompatible with the Chancellor’s most important promise on the economy.

We should want to support our great national industries, especially when they have a track record of investment and economic delivery. And, this autumn, the Chancellor can keep his promise on inflation with seven words – ‘all planned alcohol duty increases are cancelled’.

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Mark Kent CMG is the Chief Executive of the Scotch Whisky Association

Columns are the author's own opinion and do not necessarily reflect the views of CapX.