Scotch Whisky Excise Duty

Brian H. Donohoe Excerpts

Wednesday 8th January 2014 Westminster Hall

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

I am grateful to you, Mrs Main. I am aware that we are to vote at 4 o’clock, so we will find ourselves in a short adjournment. As I speak, I am waiting for the vote to come. [Interruption.] There we go.

Sitting suspended for a Division in the House.

On resuming—

[Mr Donohoe]

It is a pleasure to see you back in the Chair this afternoon, Mrs Main. It is just a pity that you do not have a glass of whisky in your hand, with which, at this time of the year, we would share a toast. Water will have to do, I am afraid.

It is quite incredible that we should have to have this debate, particularly in this very important year for the Scots, who are voting on whether to remain in the United Kingdom or to have a separate Government in Scotland. I shall pose a question: can anybody tell me how much taxation there is on a bottle of whisky that costs about £12.70?

[Graeme Morrice (Livingston) (Lab)]

It is 80%.

[Mr Donohoe]

On a bottle of whisky that costs £12.70, more than £10 is tax, including VAT. That is the level of taxation placed on our best industry in Scotland.

[Ian Paisley (North Antrim) (DUP)]

Will the hon. Gentleman give way?

[Mr Donohoe]

I will take interventions towards the end of my speech, if I may. I will give everybody who has made a representation to me an opportunity to speak. I also have an eye for the chair of the all-party group on Scotch whisky and spirits.

As I said, this is the year of separation, so it is important to have this debate as we move towards the Budget on 19 March. I fully support the “UK okay” campaign. One of the areas of vulnerability is the current disproportionate tax on Scottish whisky compared with English beer or cider. Whisky is taxed at 48% more than the same amount of alcohol served as beer. That is the difference in terms of the taxation on whisky and spirits. The beer duty escalator was abolished last year, but the spirits escalator continues at 2% above inflation. That should be addressed and I will come to the reasons why.

Excise duty on Scottish whisky is now 44% higher than in 2008. The escalator in 2014 will mean an increase in duty of 4.8%, or, in terms that I understand, 38p per bottle. That is what the escalator will bring. As I said, taxation as it stands now is more than £10 a bottle. Scotch whisky exports are growing, but the home market remains important, and the UK is the third largest market for Scotch whisky by volume.

However, volumes in the UK have declined by some 12% in the UK since the escalator was introduced—as a result of it, I would argue, and I am sure some of my colleagues would, too. The UK tax on spirits, which of course includes Scotch whisky, is the fourth highest in Europe. When we compare that with Sweden, Finland and Ireland, which have particular reasons for having high taxation, we can see the unfairness of the tax for the spirits industry.

The Scotch Whisky Association, which helped the all-party group, has called on the Chancellor to freeze duty on Scotch whisky in the 2014 Budget and to scrap the escalator. It should be scrapped because UK consumption has declined since it was introduced, and we want to see the UK market expand. Ernst and Young research shows that scrapping the escalator in 2014 would boost the drinks industry contribution to public finance by some £230 million in 2014 alone.

Consumers should be treated fairly across the range of alcohol products, but Scotch whisky drinkers are being heavily penalised. The sales of Scotch whisky form a significant part of the pub trade. Scrapping the escalator would boost UK sales, and therefore UK jobs in the industry. The industry is good not only for Scotland, but for the whole of the United Kingdom, because it accounts for more than 25% of all UK food exports. That is a significant figure that should not and must not be lost on the Treasury. It is good to see the Minister in her position this afternoon.

In 2012, the industry generated £4.27 billion for the UK balance of trade and 35,000 jobs. I can see there are Members present from the remote areas of Scotland; the industry has been the main employer in many small towns and villages in their constituencies. It has always been a major contributor to the support of the infrastructure within such communities, and I do not think that that has been taken into account by the Government.

Some 10,000 of those jobs are directly within the industry. Most of them, if not all of them, are in areas of most need, and they have supported the towns and communities for many years. The jobs are in rural and urban areas, and the industry is the sole employer in some of the smaller areas in Scotland.

The Scotch Whisky Association has called on the Chancellor to freeze duty on Scotch whisky in 2014—I am sure the Minister has seen that request—and also to scrap the escalator. The Chancellor took the decision last year on the basis that he would cancel the escalator for beer and cider, but not for spirits. I think that that is unfair and it does not really stack up when one considers that the reasoning was to safeguard the jobs in the pub industry. In fact, 40% of the pub industry is down to the sale of spirits, so the matter of unfairness between the pint and the wee dram needs to be looked at.

Taking action on Scotch whisky would show that the Government support that major industry both at home and abroad—that they support the jobs it creates and do not disproportionately penalise Scotland’s national drink.

[Grahame M. Morris (Easington) (Lab)]

My hon. Friend is making an excellent point about the benefits of the Scotch whisky industry to the Treasury and to Scotland in terms of jobs. Does he recognise the broader benefits that accrue from jobs in transportation and shipping? South of the border, in my region in the north-east, jobs are derived from transporting Scotch whisky to Teesport and there are jobs in shipping as the product is exported all over the world.

--- Later in debate ---

[Mr Donohoe]

I am grateful to my hon. Friend for making that important point. The issue affects not only Scotland; it equally affects his English constituency.

[Ian Paisley]

I am not the representative of Irish whiskey, but I do have the Bushmills distillery in my constituency. It employs 102 people, but it also supports a vital tourist industry; there are more than 140,000 visitors each year to the distillery. Does the hon. Gentleman agree that the tax impacts on jobs not only in Scotland, but in my part of the United Kingdom? Indeed, 90% of what is manufactured in my constituency’s distillery is exported globally, but if the Government continue with the escalator, we are going to have high taxation on products that are exported. That is a bad signal to send to an industry.

[Mrs Anne Main (in the Chair)]

Order. Please make interventions brief. There are a lot of Members in this room. If everyone has interventions of that length, Mr Donohoe will run out of time.

[Mr Donohoe]

I am grateful, Mrs Main. I hope that Members will note what you have said. What the hon. Member for North Antrim (Ian Paisley) said is important. He is from another part of the United Kingdom and correcting this wrong tax at the Budget is as important to him and his constituents.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

rose—

[Mr Donohoe]

I give way to my hon. Friend, who is the treasurer of the all-party group.

[Gemma Doyle]

I am very grateful to my hon. Friend for giving way. He will be aware that the whisky industry is very important for jobs in West Dunbartonshire, too. Does he share my concern that the concessions previously given to beer and cider are mainly based on the fact that those industries ran a good campaign? I would not take that away from them, but we need a more coherent look at excise duty across alcohol products.

[Mr Donohoe]

Again, I am grateful for that intervention. I am sure that we have learned a lesson in that respect and that we will make damn sure that our campaign this time is as good as, if not better than, the beer campaign.

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

I am grateful to the hon. Gentleman for giving way and also for what he said earlier about the importance of the whisky industry for jobs in remote communities, such as the Isle of Jura and other places in my constituency. It is very unfair that whisky is taxed far more highly than beers and wines. We must be about the only country in the world that taxes our own product more highly than imported products such as wines.

[Mr Donohoe]

I thank the hon. Gentleman for his intervention; he makes a really good point. It is really ridiculous that people can go into a supermarket in Spain, Italy, Germany or France and buy a bottle of whisky far more cheaply than people in this country can.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

rose—

[Mr Donohoe]

I give way to my hon. Friend, who is the chairman of the all-party group.

[Jim Sheridan]

I want to take my hon. Friend back to the important issue of jobs. One of the significant factors of the Scotch whisky industry is that the jobs that it creates are excellent, well-paid, quality jobs. It is possible to tell that by the turnover of staff, which is very low.

[Mr Donohoe]

I am grateful to my hon. Friend for the point he makes, and it is clear that the issue of jobs is part of the equation.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

One of the crucial points that the hon. Gentleman highlighted about the export industry is that the way we treat our own whisky at home sends a signal to foreign importing markets. It is important to send the right signal to those markets, so the Treasury needs to consider the impact that the issue has on the importing countries.

[Mr Donohoe]

That is a very important point. If we go to the European Commission and argue with it, there is that divide between the north and south of Europe; until a few years ago, the Commissioner was very pro-wine and anti-spirits. It is an indicator of the seriousness of the situation that we are discriminated against—the Commission throws at us the level of taxation in our own country. That is an element that must be addressed by the Chancellor at the Budget.

[Sir Malcolm Bruce (Gordon) (LD)]

The Government are arguing that the duty on whisky has gone up by 37% compared with a rise of 42% on beer. The trouble with that argument, of course, is that, because the Government have eliminated the beer escalator, that division will be eliminated very quickly. The point that we have to maintain in export terms is that this is a home-based industry. If something is good enough for beer, it is good enough for whisky; the escalator should go and we should ensure that our most successful industry is supported competitively at home and abroad.

[Mr Donohoe]

I could not agree more with the right hon. Gentleman.

I have taken all the interventions that I will take. I will finish by putting four questions to the Minister. First, can the Treasury explain why it was that, when it stopped the escalator on beer last year to save struggling pubs, it failed to look at the situation as far as spirits and wines were concerned? As I said, they account for some 40% of the sales in those very pubs and the rest of the hospitality sector. Given that the Chancellor wanted to help that sector, it seems strange that the rise in duty on whisky was set against that.

Secondly, what assessment—if any—has the Treasury made of the impact on pubs of last year’s announcement on beer? I hope I can get a response to that question. Thirdly, can the Treasury provide reassurances to the Scotch whisky industry that the annual attack on Scotch whisky will come to an end in the Budget in 2014? Finally, does the Treasury acknowledge that the home market for Scotch whisky, which remains the industry’s third largest market, is diminishing due to excessive tax rises each year?

Sales of Scotch whisky in the UK have dropped by 12% since the duty escalator came into being. Is it possible to hear today what is likely to be in the mind of the Chancellor? I am sure that the Minister is aware that we, as an all-party group, have made a representation to him for a meeting. I hope that what she says today will include an agreement to that meeting.

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[Nicky Morgan]

I hope that the message is going out that this Minister is always willing to listen and that she is willing to engage. I am also very willing to have the meeting that was suggested by the hon. Member for Central Ayrshire. However, I would be a foolish new Minister if I were to commit to announcing Budget moves now. Nevertheless, I shall certainly listen; I have listened; and I shall continue to listen to the debate that we are having and to the wider representations that have been made to me. I thank the hon. Member for Moray (Angus Robertson) for his intervention. As he said, he has a very onerous task in representing his constituency; I am sure that his constituency Fridays are filled with much fun and spirits.

I return to the duty escalator, including that on Scotch whisky. I am aware of the industry’s views on the pre-announced alcohol duty rises for 2014. It may be helpful if I explain the background to these increases before addressing the specific issues that were raised by the hon. Member for Central Ayrshire. Of course, the previous Government were responsible for introducing the spirits duty escalator and are therefore responsible for this year’s increase in spirit duty. The inflation plus 2% rises were first announced at Budget 2008 and they were extended for a further two years, until 2014-15, at the March 2010 Budget. These rises were for all alcohol duties and, as I say, were legislated for by the previous Government.

This Government made changes to beer duty at Budget 2013 to support pubs, which, as we all know from our constituencies, play an important role in local communities. The hon. Gentleman asked about the impact of last year’s Budget on pubs and I shall address that issue in a moment. However, he also talked about 68% of the alcohol that is sold in pubs being beer, so the changes to beer duty were, overall, a measure to help pubs. I can also tell him that although spirits and wine account for 41% of sales by value in the off-licence trade, they account for only 23% of sales in pubs by alcohol volume.

[Mr Donohoe]

I do not know where the Minister got that last figure from. I ran licensed premises, and although it is perhaps different down here in the south-east, I can tell her that in Scotland whisky accounts for at least 40% of sales in the pub, and in the pub that I ran the figure was 60%. [Laughter.]

[Nicky Morgan]

The hon. Gentleman’s pub sounds as though it was a very interesting place, and I am very happy to listen to representations on the figures.

The hon. Gentleman asked about the impact of Budget 2013 on pubs. The British Beer and Pub Association survey showed that, following a reduction in beer duty, 76% of the pubs would increase investment and 61% would employ more staff. That is why this reduction was targeted particularly at pubs. That is not to say that I have not listened to the hon. Gentleman’s arguments.

Given the Government’s commitment to ensuring sustainable public finances, it was not possible to end the escalator on all alcoholic products, so they made a targeted reduction in beer duty. The hon. Gentleman asked whether the Government had failed to consider other alcohol duties. I was not in the Treasury at that point, but I do not think that that was so. However, the decision to reduce the duty on beer was taken in 2013.

I have heard the views of hon. Members and I assure them that I will consider these as part of the Budget process.