Scott Wright: Whisky fury easy to understand after 'historic blow'

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According to the Scotch Whisky Association, the duty rise is the largest since 1981 and will mean that the Treasury will collect £11.40 in duty and value-added tax from each sale of a £15.22, average-priced bottle of whisky.

To say the decision was met by a furious response from the industry, which had campaigned vociferously for the spirits duty freeze that had been in place since 2019 to be maintained, would be to downplay the mood across the sector.

Mark Kent, chief executive of the SWA, branded the move a “historic blow” and declared it was a “Budget of bad news”. It was bad for consumers, inflation, spirits, whisky and for Scotland, where 90 per cent of all UK spirits are made, he said. Mr Kent also argued that it puts spirits at a tax disadvantage relative to drinks such as beer, which received “draught relief” in the Budget.

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It is easy to understand his frustration. On the one hand, politicians appear only too willing to pose with a dram at distillery photocalls and talk up how important Scotch whisky is to the economy.

Yet on the other, our elected representatives seem determined to either tax alcohol producers to the hilt or, in the case of the Scottish Government, all but eliminate their ability to market their wares.

Raising duty might seem like a convenient way to boost Treasury coffers in the short term, but what will it mean for the Scotch whisky industry’s ability to invest and create jobs?

Mr Kent signalled that the consequences for investment were grave as he warned the duty rise will “reduce already tight margins for an industry which employs tens of thousands of people and invests hundreds of millions annually across the UK”.

Some observers who follow the fortunes of the Scotch whisky industry may wonder what the fuss is all about. After all, industry heavyweights such as Diageo and Pernod Ricard routinely report bumper profits, without really having lost much ground during the pandemic, and already command a premium price for their products. Would they not simply be able to edge prices up a little in order to maintain margins?

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Moreover, with so much whisky sold at high prices around the world, what difference will a duty rise mean in just one of the industry’s many markets?

However, it has to be remembered that not every product sold by the whisky industry is pitched at the premium end of the market. Much of the whisky sold in the UK and elsewhere is standard blended Scotch, which trades in a price-sensitive part of the market. Distillers of these products will surely have to think twice about raising prices in the midst of a cost-of-living crisis that shows no signs of abating.

Scotch whisky makers have won plaudits in recent years for investing to upgrade facilities at distilleries to cater for the growing number of aficionados keen to visit the places where the magical water of life is created.

Notwithstanding the huge disruption which arose from the pandemic, whisky tourism is now a big reason why people come to Scotland on holiday. That much can be seen with the success of the Johnnie Walker Experience, the whisky attraction on Edinburgh’s Princes Street. The Scotch Whisky Experience on the Royal Mile is in the midst of a £3 million revamp to capitalise on the growing phenomenon of whisky tourism.

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These destinations, in addition to the scores of distilleries around the country, play a huge role in attracting people to Scotland, and will only be able to maintain their appeal by continually investing in their product. But the industry fears higher taxation may threaten that investment.

Fears have also been expressed about the signal the duty rise sends to the rest of the world. The Scotch whisky industry has for years coveted India as a market with huge potential. Efforts to break into the market have been impeded so far by ultra-high import tariffs, though hopes have been raised that greater access could be secured through a free trade deal the UK is hoping to secure with India. But what will India think when the UK asks for lower tariffs to ease the passage of its products into the country when it is busy raising taxes at home?

Euan Mitchell, managing director of Isle of Arran Distillers, summed up the industry’s frustration when he spoke to The Herald this week. “It [the duty rise] was an unwelcome announcement at a time when the industry is doing well,” said Mr Mitchell. “You would think the Government should be seeking to support that and not shackle it in any way. It is difficult because it has been shown that, when they implement these heavy increases in duty, consumption goes down, so actually the tax take reduces – it doesn’t increase. If it is designed as a revenue-generator, it is an odd one because it may well have the opposite effect.”

Mr Mitchell added: “From an export perspective, you just worry that other governments will see what our own Government are doing to our own industry. Will they implement similar measures on spirits where they are? We might see a domino effect, but hopefully not.”

It is not only through the duty system that alcohol producers are currently frustrated with the actions of government. The Scottish Government has recently closed a consultation on proposals that would ban alcohol advertising and place severe restrictions on where it can be sold in outlets such as supermarkets. Unsurprisingly, the measures were met by universal condemnation across the drinks industry, though there remains hope that the new first minister of Scotland, who will be named next week, will see fit to ditch the proposals.

“It’s a hammer to crack a nut, I think it’s the wrong approach,” said Mr Mitchell. “There is no question that there are issues around alcohol consumption but it is a one-size-fits-all approach that doesn’t make any sense to me personally. I believe education is the key. Creating some sort of black window approach just drives it underground.”

Mr Mitchell added: “Again, at a time when the whisky industry is doing so well, why would the Scottish Government want to hamper that by taking this draconian approach? The Government should be supporting the whisky industry.”