Scotch whisky: US tariffs

Debate between Karen Buck and David Mundell

Thursday 30th January 2020 Westminster Hall

[David Mundell]

I absolutely agree. It was very welcoming to hear Ivan Menezes, head of Diageo, one of the most successful spirits companies in the world, focusing on that. He said that although Diageo has a portfolio of spirits and can weather the storms, this is devastating for the industry as a whole; Diageo wants to see a resolution through its own offices and through the Scotch Whisky Association for the whole industry.

Since a tariff was imposed on 18 October, export figures appear to paint a bleak picture, although there may have been some additional exporting ahead of the possible introduction of the tariffs to avoid them. According to the Scotch Whisky Association, single malt Scotch exports to the US in November 2019 fell by 33% by value compared with November 2018, following a fall of 26% in October. Although it is too early to tell the longer-term impact, if such drops in exports are sustained over a year and mirror the fall in US whisky imports to the EU in the last 18 months, that would mean a loss of around £100 million in exports to the United States, with a corresponding impact on investment, productivity and, eventually, jobs at home.

For medium-sized and smaller distillers, single malt is all they have and the US market is vital. They have invested in single malt because that industry is growing. Over the last decade, global sales of single malt have grown 166%, and growth in the United States has been even higher—up 230% over the past 10 years. These small and medium-sized distillers cannot shift their investment and are being hit particularly hard.

Distillers are waiting now to see what will happen in the next few weeks. They have paused investment, reduced exports and delayed launching new brands. Some have cut jobs in the US and have stopped hiring in Scotland. Over time, as stocks in the US market run down, the impact will be clearer. Some brands will disappear from the US market altogether, as it becomes uneconomic for smaller distillers to export them. Market share and brand recognition built up over many years, once lost, will take a considerable time to rebuild. The longer the tariffs are in place, the more profound the impact will be on the industry and in Scotland.

Three months ago, when it became clear that import tariffs would be imposed on Scotch whisky, the UK Government asked the Scotch Whisky Association to suggest a package of support for the industry to help distillers cope with an unprecedented challenge in its largest marketplace worldwide. That request was welcome, but the industry is now looking for action to follow through on the proposals submitted. The Budget is due soon, and yesterday my hon. Friends the Members for West Aberdeenshire and Kincardine (Andrew Bowie) and for Berwickshire, Roxburgh and Selkirk (John Lamont) and I met the Chancellor to discuss those proposals and how the industry, and cashmere and shortbread, could be helped more generally in the current circumstances. I look forward to his formal response in or before the Budget.

Obviously, any increase in excise duty in the March Budget would be unacceptable, and the potential impact of the introduction of a digital service tax on UK/US trade discussions and on whisky needs to be understood. It is too simplistic to suggest that France’s decision not to proceed with the digital services tax as planned is the reason why champagne and cognac are not subject to the tariffs, but the full implications of the unilateral introduction in the UK of a digital service tax need to be understood before that step is taken.

It is instructive that the EU has already agreed to increase the co-financing for wine promotion schemes to help boost exports in the face of the tariff on wine. Since the EU imposed tariffs on US whisky, the US government have delivered a $3 million package for trade promotion activities in the EU. The UK Government can learn from those actions. Support must clearly be focused on the need to build a more secure UK base while the US market, which is the cornerstone of investment and business plans, is under threat. We also need to see a resolution of the underlying dispute, starting by taking unrelated sectors out of the line of fire, as the right hon. Member for Orkney and Shetland (Mr Carmichael) said.

On a visit to Roseisle Distillery on Speyside last December, the Prime Minister committed to removing the EU’s tariffs on US whisky as soon as the UK is legally able to following its departure from the EU. That was a welcome statement. I know the Prime Minister, the International Trade Secretary and the Trade Minister have raised this issue at the highest levels in the US Administration in multiple meetings and calls. As we embark upon a trade negotiation with the US, eliminating existing tariffs on both single malt Scotch whisky and American whisky would be an important early confidence-building measure. I urge the Government to make that explicit when publishing the UK’s negotiating objectives for trade talks with the US; otherwise, one could understand why an industry as pro free trade as the Scotch whisky industry would start to question the value of such talks.

We need to find a solution that works for the Scotch whisky and US whisky industries together. We need to return to tariff-free trade in whisky across the Atlantic. We need to see a laser focus from the Government on resolving the Airbus issue. I hope the Minister will commit to pressing colleagues in the Department for International Trade and 10 Downing Street to do that, and will reassure us that the concerns we have raised about a digital service tax are well understood within the Government, to ensure that no further unintended or collateral harm is done to the Scotch whisky industry.

Every time a small Scotch whisky distiller exports a bottle of single malt Scotch whisky to the United States, it is writing a cheque to the US Government for an additional 25% of its value, to pay for a dispute that has nothing to do with it. We should think about that for a second. On average, one bottle of single malt is exported to the US every second, and every second since 18 October, each bottle has had an additional 25% tax added to it. That equates to 5,400 bottles being taxed over the course of the debate, if it runs its duration. No business or industry could sustain that for long.

The scale of the industry, and its importance to Scotland and the wider UK economy, should focus minds on a swift resolution to this dispute. From my constituency in the south of Scotland, to communities on Speyside and on the islands of Scotland, ambitious small businesses are paying the price for a trade dispute that is entirely unrelated to their industry. That cannot be fair or proportionate, and we cannot allow it to continue.

[Ms Karen Buck (in the Chair)]

It might be helpful to Members to know that we will start the winding-up speeches at about 2.40 pm. Given the number of people who want to speak, Members should limit themselves to about five minutes, so that everybody has a chance to be called.