International Trade

Lord O'Neill of Clackmannan Excerpts

Thursday 23rd January 2014 Lords Chamber

[Lord O'Neill of Clackmannan (Lab)]

My Lords, I am very happy to follow the noble Lord, Lord Purvis, into what may be the Caledonian corner of this debate. Unfortunately, both he and I seem to have the same brief from the Scottish Whisky Association, so some of the statistics that I will be quoting may well be the same, although I have a slightly different slant on the matter.

I share some of the concerns expressed by my noble friend Lord Harrison in opening the debate, but I want to talk specifically about the Scotch whisky industry. When I was a Member of Parliament, I had a sizeable involvement in the textiles industry. Sadly, that industry is now gone, with the exception of a small amount of cashmere spinning, which is important for the rest of what you might call the Scottish woollen knitting industry.

Whisky is identified with Scotland. Indeed, the generic term “Scotch” covers all whisky which is not spelt with an “e”. We have already heard of the great importance the volume of Scotch whisky has for the Scottish economy. While it is correct to say that whisky distilling is set in rural circumstances and a lot of the raw materials come from the agricultural sector, it is also fair to say that the 30,000-plus employees in the Scotch whisky industry cover a variety of trades and economic activity across not only Scotland but the whole of the United Kingdom. It is therefore of great importance.

It is one of the few British products that any foreign traveller will see as they pass through airports with duty-free facilities, because there is always Scotch available. Not only is it available, but it is of consistent quality and people can have confidence in what they are buying. This is partly because of the efforts of the industry to maintain high standards but also because it enjoys a degree of support through the common market—and not only the common market of the United Kingdom but the free market represented by the European Union, which has been invaluable in supporting the Scotch whisky industry over the years.

As I have said, I had a constituency interest in the industry. Indeed, when I was a young candidate more than 30-odd years ago, one of the first bits of local colour that I was given was that I was told that the value of whisky stored in Clackmannanshire represented more than the worth of the gold in the Bank of England. I shall not comment on whether or not that was apocryphal but, certainly, when you drive through central Scotland and you look over to the Ochil hills, you will see miles of what used to be called bonded warehouses, where there is stored cask upon cask of Scotch malt whisky. That whisky can be there for anything up to 15 to 20 years. It represents a massive commitment by investors in the industry. Most of it in these warehouses is produced by the Diageo group, but the fact is that the Scotch whisky industry is a long-term industry.

Indeed, not only are taxes paid to the British Government, there is also the “angel tax”, which is the amount of whisky which escapes through the wooden casks and into the air. As you walk through these bonded warehouses, as I have done on occasion, you can have quite a heady experience if you stay there long enough—which I have not had the privilege of doing. However, as Ken Loach showed in his movie “The Angels’ Share”, there is evidence that the Scotch whisky industry requires the persistence and confidence of investors.

What concerns me is that, in the run-up to the independence or separation referendum in September, people will forget the complications with which the Scotch whisky industry will be presented if there were to be a yes vote. For a start, we would not become members of the European Union immediately. In the short term, we would be denied the services of the European Commission in the opening of new markets. The Commission has done a great deal to ensure what it calls the integrity of the product. This includes a consistent minimum level of alcoholic strength and that the “Scotch” name is protected. As my noble friend Lord Davies said a few minutes ago, the word “Scotch” is protected, and that is a consequence of the United Kingdom’s membership of the EU.

There are several complex international considerations, so it is not for nothing that over the past 10 years the trade association of the Scotch whisky industry has been headed first by Gavin Hewitt and now by David Frost, both of whom are distinguished diplomats in their own right, having been ambassadors representing us abroad. This is a serious business and there will be serious consequences for the industry and for the Scottish economy if we are denied, even for a short period, the protection of the EU.

Any member state joining the EU has to accept the level of tariffs that prevail throughout the rest of the EU. At the moment, Hungary and Greece are in a somewhat acrimonious arm-wrestling process over their own tariffs, but I think it is fair to say that the Commission is confident of success. The fact is that, were Scotland to vote yes in September, this industry would be put at a great disadvantage for some time, and that is assuming that in the end an independent Scotland would be allowed to join the EU. However, much of the protection we enjoy at the present moment might well disappear. If that were to happen, I think that the confidence of investors in the industry would be jeopardised in a major way.

Equally, while Scotch enjoys a fantastic position internationally as a luxury product, a number of other drinks would seek to take advantage of the position of Scotland being denied EU membership. A fact that I always find quite surprising is that more Scotch is consumed in France than French brandy. I am pretty certain that the French drinks industry and the northern European white spirit industries would not stand idly by and let Scotland be given some kind of quasi-preferential status outwith the European Union.

When we hear about the strength of an independent, separate Scottish state, and that one of its elements would be the Scotch whisky industry, it is incumbent on the Government to spell out clearly the costs of not being a member of the EU. Perhaps some people will think about this tomorrow when another debate is held in this place. What is equally important is that it is essential to recognise that it would be not be business as usual for the Scotch whisky industry were there to be a yes vote in September.

It is an important industry; it is not some kind of Sleepy Hollow. As has been said, some 30,000 people are involved in it. Quality control and policing are undertaken by people of the highest calibre. Although it may sound a bit demeaning in some respects, the wages of the workers in this industry are now on a par with those of the best paid chemical process workers, who themselves are among the best paid in the UK economy. For a while, employment conditions in certain parts of the Scotch whisky industry were in a bit of a Sleepy Hollow but, led largely by Diageo over the past 25 years, there has been a dramatic improvement. The quality and nature of employment in the industry goes far beyond pouring drink into bottles. It is of a character that the United Kingdom requires and which Scotland would lose at its peril.

I therefore urge the Minister, not necessarily this afternoon but at an appropriate point, to spell out that whisky is as important to the United Kingdom as it is to Scotland, and that without the European Union alongside us, it would be a disaster for Britain and Scotland.