Scotch Whisky Industry

(Limited Text - Ministerial Extracts only)

Tuesday 31st October 2017 Westminster Hall

[The Exchequer Secretary to the Treasury (Andrew Jones)]

It is always a pleasure to serve under your chairmanship, Mr Bone. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing this debate. I understand his passion for the subject, given his constituency’s long-standing tradition of producing fine whiskies. He mentioned the Highland Park and Scarpa distilleries; I have been fortunate enough to visit his constituency and those places on my holidays and I entirely agree with his basic point. I also agree with his underlying point that producing whisky is a lifetime commitment. People cannot enter into it for the short term. It takes a long time to produce the product, particularly in the premium sector. It is a proper, significant long-term commitment. We are seeing huge innovation and people entering the marketplace—both signs of a good, strong sector.

I will try to answer as many of the issues raised as I can, but in particular I must comment on the duty rates—a key element of the right hon. Gentleman’s speech. However, as one might expect, I am unable in discussing that to pre-empt what my right hon. Friend the Chancellor may or may not do in the forthcoming Budget. That is only three weeks tomorrow, so there is not long to wait. Before I discuss the duties, I reassure the House that the Government recognise the important contribution that the Scotch whisky industry makes to both the UK economy and local communities.

I met with the Scotch Whisky Association and with large and small distillers in the run-up to and preparation of the Budget. The Scotch Whisky Association estimates that the industry adds over £5 billion to the UK economy and supports over 40,000 jobs, 7,000 of which are in the rural economy. Its footprint extends beyond those fortunate enough to have a distillery in their immediate constituency. As my hon. Friend the Member for South Suffolk (James Cartlidge) says, the industry creates jobs throughout the UK, whether in the agricultural sector in East Anglia or, in this case, the bottling technology, but primarily it is a great Scottish industry. Distilleries are also increasingly significant tourist attractions in their own right. Some 1.6 million tourists visited distilleries in 2015, an increase of more than 20% in visitor numbers since 2010.

The Government also recognise that Scotch whisky is a UK export success story. Exports account for about 93% of total production. More Scotch whisky is sold in France in one month than cognac in an entire year—an enjoyable stat to consider. In 2015, we exported 1.2 billion bottles of whisky worldwide. The industry estimates that whisky exports were worth nearly £4 billion last year. That is over £7,500 of Scotch whisky sold every minute, accounting for around a quarter of all UK food and drink exports. It is a fantastic success story for the UK to be proud of.

The reach is equally impressive. In 2016, whisky was exported to 184 countries—that means that over 90% of countries have a taste for whisky. South-east Asia in particular has grown as an export market, with Singapore alone importing £224 million of Scotch whisky last year.

We are seeing an increasing premiumisation of some exports, which reflects a broader food and drink trend within the UK, and Scotch whisky is poised to take advantage of the appetite for premium British products in this area.

[Mr Carmichael]

I agree with everything the Minister is saying, but two things are worth consideration. First, although we are seeing that growth in premiumisation, it is on the basis of a shrinking market share globally in a very competitive market. Secondly, when opening up new market opportunities, Governments in other countries look here to how we treat our own industry. That is why the domestic market and taxation of it cannot be divorced completely from the export market.

[Andrew Jones]

The right hon. Gentleman makes points that I broadly agree with. The signal that the UK supports the industry and recognises its impact on our economy and our exports particularly is entirely understood. In recognition of the quality of the product, Scotch whisky was one of the first food and drink products to feature in the Government’s GREAT campaign, which gave it high international visibility in key markets. I assure Members that we will continue to support the Scotch whisky industry, so that it continues to thrive and prosper.

[Kirstene Hair (Angus) (Con)]

I welcome all the export trends the Minister has outlined, but we have the fourth highest excise duty rate in the EU. Other EU countries support their home industries and we need to follow suit—even more so, now. Does he agree?

[Andrew Jones]

That tempts me towards Budget comments, which I cannot make at this moment. I need to rewind a little bit from that question and make a quick point before coming on to duty rates.

The protected food name scheme remains in place while we are still a member of the EU. The European Union (Withdrawal) Bill, which is currently passing through this place, will ensure that all EU law passes into UK law when we leave the EU. That will include the legal definition of whisky, which is a significant point for the protection of the sector in the long term.

[Ian Murray]

I am grateful to the Minister for giving way; I know he has limited time. I wonder whether the Treasury and the Department for International Trade would talk to the industry in Scotland, which is such a successful exporter. In the post-Brexit world, the Government could learn a lot from the industry and how it has been able to export so successfully. That could happen to other sectors when we leave the EU.

[Andrew Jones]

The hon. Gentleman makes an important point. I have to say, though, that I have been talking to the industry and will continue to do so. One thing I have learned in the preparation of Budgets is that a significant number of representations are made either for Government spending or relating to duty. My door is open. I want to hear from the industry and ensure it understands that it can access the Treasury, which will be entirely supportive of British companies developing, investing and exporting. I particularly include the Scotch whisky industry. I have been trying to get across my support for it, and my door will be open for future meetings.

Let us get to the issue of duty rates. The actions taken by this Government are estimated to have reduced all alcohol duty receipts by around £2 billion since 2013. That is a significant duty cut. The actions taken to freeze or cut spirits duty at Budgets in 2014, 2015 and 2016 mean that the tax on a bottle of Scotch is now 90p lower than it would otherwise have been. I understand the point made by the right hon. Member for Orkney and Shetland about price elasticity within the marketplace. The £4 billion of exports per year are unaffected by duty changes as no duty is paid on exported spirits. No UK duty is paid therefore on around 93% of all Scotch whisky produced.

As we approach the Budget, the Government face some pretty tough choices. As I said, I cannot pre-empt what my right hon. Friend the Chancellor of the Exchequer may announce. However, it is the Government’s policy for our public finances to assume that alcohol duties will rise by retail prices index inflation each year.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

We had a success in reducing corporation tax, which increased the tax take, and we are minded to further reduce corporation tax to achieve the same goal. Does the Minister think that that would also apply to a reduction in the duty on spirits? Would that generate an increased tax take, as per the corporation tax?

--- Later in debate ---

[Andrew Jones]

That is a very interesting question, and it slightly tempts me into a Budget thought, which I am sure was entirely my hon. Friend’s intention. While not commenting on the Budget, I assure him that I am instinctively a low-tax Conservative. That is my principle when dealing with the industry, and I think that can be said of my predecessors in the Treasury, otherwise we would not have had the £2 billion reduction in duty rates over the past few years.

[Douglas Ross]

I know the Minister does not want to be dragged into questions about future Budgets, but does he accept the scenarios that have been painted since previous Budgets? As the right hon. Member for Orkney and Shetland (Mr Carmichael) said, a 2% reduction increased revenue by £124 million, yet the increase of 3.9% on spirits in March this year reduced the revenues going to the Treasury in the first quarter by 7%. That is looking not at the future but at the impact these decisions have had in the past.

[Andrew Jones]

That is an important question, and it has certainly been considered within the Treasury. There is a general view that if we cut duties, we can increase growth and therefore revenue, as the evidence suggested in 2015. However, sales of some drinks have increased after duty cuts, and sales of some drinks have increased after duty increases. It is very hard to evidence that the sales growth my hon. Friend talks about is directly caused by that duty cut.

The principle of supporting a sector in a competitive way through a fiscal and regulatory regime, with support for infrastructure and skills, is exactly what the Government are about: creating the most benign environment in which to do business. I reinforce to the House that our public finances are under some significant pressures. The Government estimates of costs to the Exchequer are scrutinised by the Office for Budget Responsibility before they are certified, so they have independent scrutiny.

I would like to emphasise in the last moments that we will carefully consider all Members’ representations this morning as part of the representations for the forthcoming Budget. I want nobody to leave the debate without a clear understanding that this Government support the Scotch whisky industry. We recognise its importance and are utterly committed to ensuring that this great British success story maintains its global pre-eminence and global growth. The passion for the sector is clearly shared by colleagues here today. When we look at recent trends within the industry and the new entrants into the marketplace, new products becoming available, innovation and export growth, I think we can all say that the future for the Scotch whisky industry is bright.

Question put and agreed to.