Scotch Whisky Industry

Alan Reid Excerpts

Thursday 12th February 2015 Commons Chamber

[Mr Alan Reid (Argyll and Bute) (LD)]

I should like to start by thanking Mr Speaker very much for granting this important debate.

With 14 distilleries, the whisky industry is an important employer in my constituency. It provides jobs in remote communities where alternative work would be hard to find. With eight distilleries, whisky is clearly important to the economy of Islay. On Jura, with its small population, the island’s distillery is a vital part of the local economy. There are also distilleries in Campbeltown, Oban and Tobermory which contribute significantly to the economies of those communities. In addition, many of my constituents are employed in the whisky industry or its supply chain in neighbouring West Dunbartonshire and elsewhere in Scotland.

My reason for seeking today’s debate is to draw the House’s attention to the important contribution that Scotch whisky makes to the United Kingdom economy. Whisky distilling began as a cottage industry in Scotland, but its success has meant that it has grown enormously and now contributes significantly to employment and the economy throughout the whole UK. Scotch whisky is the UK’s largest food and drink sector, accounting for a quarter of the UK’s food and drink exports. Scotch whisky adds £3.3 billion directly to UK GDP and, once indirect jobs are taken into account, its total impact is to add almost £5 billion to the UK economy. Every £1 of value added in the industry produces an additional 52p of value in the wider economy.

I should like to give the House an idea of the scale of the Scotch whisky industry in terms of the value added to the UK economy. The industry is bigger than the UK’s iron and steel, textiles, shipbuilding or computer industries, about half the size of our pharmaceutical or aerospace industries and about a third the size of the entire UK car industry. That should give Members an idea of the scale of employment in the industry.

The Scotch whisky industry spends £1.6 billion annually on supplies from within Britain, ranging from cereals and glass to machinery. That economic impact is felt throughout the UK, with 90% of the industry’s operating expenditure being spent with UK suppliers. I am thinking, for example, of packaging from Wales, yeast from Staffordshire, glass from Yorkshire and logistics from Essex. As a result, Scotch whisky supports more than 40,000 jobs directly and indirectly across the UK, many of which are highly skilled. As proof of that, Scotch whisky workers are the third best paid in Scotland, only behind workers in energy and life sciences. Many of those jobs are in rural communities where alternative employment would be hard to find—about 7,400 jobs are in Scotland’s rural communities.

In terms of production, Scotch whisky workers comprise the second most productive sector in Scotland, behind only energy. Scotch whisky exports are worth more than £4 billion annually. Scotch whisky is the second strongest contributor to the UK national trade performance. The 2013 trade deficit would have been 16% higher without the Scotch whisky contribution. As well as those raw statistics, Scotch whisky makes other contributions which cannot be quantified. As an iconic Scottish industry, it helps to put Scotland on the world map and plays a major role in attracting foreign tourists to Scotland. I have reeled off all those statistics to show just what a high-value, high-quality product Scotch whisky is and the very important contribution the industry makes to the whole UK economy.

I also want to put on the record the industry’s thanks to the Government for the great back-up it receives from them on efforts to break down trade barriers throughout the world. Those Government efforts have helped whisky exports enormously and are a very good reason for Scotland to remain in the UK. Having the resources of the UK Government behind the industry results in breaking down trade barriers far more effectively than would be the case were the back-up from a much smaller Scottish Government.

Having praised the Government for the help they give to the industry’s export drive, I have to draw attention to what has become a significant barrier to the industry’s success in the UK market: the level of taxation. A bottle of whisky is taxed at almost 80%. Most people are shocked when they become aware of that statistic and agree that it is far too high. It is important to bear in mind that the UK is the third largest market for Scotch whisky, yet the domestic trade has been in decline in recent years. The taxation is a particular obstacle for the new and small-scale distillers, who rely on a thriving domestic market to grow, and they say that the current duty regime is damaging their prospects. It is important to bear in mind that the cash flow in the whisky industry is very unusual; whisky has to mature in a cask for many years before it can be bottled, so investors in a distillery have to wait for many years to get their money back and must have confidence in the future before they will invest. The many years of the alcohol duty escalator have been very damaging to the Scotch whisky industry. Excise duty on Scottish whisky is now 44% higher than in 2008, and, as a result, the domestic trade declined in recent years.

For reasons lost in the mists of time, whisky is taxed unfairly compared with beers and wines—the tax per unit of alcohol on whisky is far higher. I fail to see the logic in that. Surely a tax in proportion to the amount of alcohol in the drink would be much fairer. The Scotch whisky industry deserves a level playing field. It is important to note that the unfair taxation does not just have an impact on the Scotch whisky industry in the domestic market; the Scotch Whisky Association tells me that when it tries to convince other countries to reduce unfair tax barriers, those countries often highlight the UK’s taxation regime. They say that the UK taxes whisky at a much higher rate than other drinks and use that as a justification for doing the same thing in their own country.

I was delighted when in last year’s Budget the Chancellor announced the abolition of the alcohol duty escalator and froze the duty on whisky—that was a help to the industry, which was seen in a small boost to the volumes of single malt sold at the end of last year. That suggests that the duty freeze resulted in growth in the industry. I hope that the Chancellor will recognise that duty on whisky is too high and will cut it in the Budget. A 2% cut would help to boost the industry and allow it to create more jobs.

As I have set out in this debate, Scotch whisky is a British success story. This industry and its supply chain provide highly skilled jobs throughout the UK and make a significant contribution to reducing our trade deficit. Continuing to tax this industry at 80% will not bring in extra revenue to the Treasury. In fact, it will probably see revenue decline. Such a high level of taxation risks killing the goose that is laying the golden eggs, and will result in lower revenue to the Treasury in the future.

I hope that this afternoon’s debate has shone a light on the unfair treatment of an iconic Scottish and British product and its vital contribution to our economy. I hope that I have convinced the Exchequer Secretary that a 2% cut in the duty on whisky would boost the British economy. I do not expect an announcement this afternoon—that would be a bit much to hope for—but I do hope that, after the debate, she will rush round to No. 11 and convince the Chancellor of the need for a cut in taxation for this British success story. A cut in taxes would boost the industry and help the wider British economy.

Madam Deputy Speaker, the Exchequer Secretary and everyone else present, I say slàinte mhath—good health.