IT was a UK Budget that made history as the first to be delivered by a female Chancellor – Rachel Reeves – and the first by a Labour government for 14 years, but for the Scotch whisky industry it was not one overflowing with cheer or positivity.

Patricia Dillon, managing director of Speyside Distillers in the Cairngorms, told The Herald’s Budget Briefing in Glasgow today that the whisky industry had been “absolutely shocked” to hear the Chancellor state that spirits duty will rise in line with retail price index inflation from February.

“We were blindsided,” she told an audience of businesspeople at the well-attended event, stating that Sir Keir Starmer had backtracked on a pledge he made back in November 2023 that “Labour will put growth at the heart of our government and back Scotch producers to the hilt”.

Rachel Reeves makes huge calls in Budget with Scottish spending boost

Ms Dillon said that the Scotch whisky industry had seen spirit revenue fall significantly as a result of the 10.1% excise duty increase imposed by the former Conservative government in August 2023 and the hope had been that the new government would reverse that – despite Sir Keir’s pledge and warnings that a further tax hike would not deliver the revenue ministers are seeking.

She said that small single malt distilleries like Speyside Distillers could be “priced off the shelf” because it will be difficult to absorb the additional costs, asking: “What is the future going to look like?

“We also have the issue of US tariffs hanging over the industry,” she said, alluding to the 25% tariff on single malt Scotch whisky levied between October 2019 and March 2021 by the US government under Donald Trump’s presidency and warning that this could be overturned should he return to the White House.

Sara Thiam, chief executive of Prosper and a member of the expert panel at the Budget Briefing, chaired by Brian Taylor, Herald columnist and veteran political commentator, said it was small businesses like Speyside Distillers that “define a lot of our places in Scotland”, adding: “For the Scotch whisky industry, we have to keep trying to help the government understand it.”

Ms Thiam, chief executive of Prosper, the influential business network, noted: “Much was made ahead of the General Election about this new relationship with business and here we have 70% of the spirit consumer in the UK made in Scotland.

Whisky industry slams 'hammer blow' as Budget shocks firms

“The Treasury lost money through the 10% duty hike it put on whisky – the industry pleaded with the government – and there is a sense of betrayal here. We have to look after own industries.”

Another panel member, David Henderson, head of strategic finance West of Scotland for Virgin Money, discussed inheritance tax and its effect on farms after the announcement in the Budget that favourable inheritance tax relief for farms will be limited to £1m. Above that threshold, there will be 50% relief on qualifying assets, giving an effective inheritance tax (IHT) rate of 20%.

Mr Henderson said: “Farmers are going to start looking at different ownership models to avoid paying that tax.”

He described Ms Reeves’s Budget as a “76-minute marathon”, adding: “What business is craving is stability and certainty. There seems to be an assumption that businesses are not part of society but filters through – there is a burden here that we all have to share.”

Arguably the Budget’s big-ticket announcement was the hike in employers’ national insurance contributions by £25 billion a year, accounting for the bulk of the Ms Reeve’s £40bn tax hike. But on the subject of capital gains tax, audience member David Beveridge, managing director of corporate law firm Macdonald Henderson, said he was aware of several Scottish businesses that had changed hands in the run-up to the Budget. Yesterday, Ms Reeves raised capital gains tax to bring in around an extra £2.5bn a year.

“We anticipated a rise in capital gains tax, and it is not finished yet,” Mr Henderson said, warning that control of many businesses could leave Scotland as a result.

Derek Hanlan, associate tax director at Scottish chartered accountants Martin Aitken & Co, agreed with Mr Beveridge that there were a lot of transactions pre-Budget which was “good for the sellers – the reality is an 80% CGT increase following the Budget”.

Rachel Reeves makes huge calls in Budget with Scottish spending boost

And looking ahead to the Scottish Budget on December 4, which will determine the spending and tax plans for Scotland for the 2025-26 fiscal year, he highlighted income tax – a devolved issue – as an area where the Scottish Government must exert caution. “There are about 20 different effective rates of income tax in Scotland,” he pointed out, urging the government not to make it any more complicated.

Meanwhile, panellist Emma Congreve, the Fraser of Allander Institute’s deputy director, discussed Rachel Reeves’s move to change Britain’s fiscal rules to enable the government to spend up to £50bn extra on infrastructure projects. “This seems to have gone down well with the markets,” she said, “and has given her a lot of room. The UK is seen as having levels of investment that are too low.”

Ms Congreve also welcomed the £3.4bn Barnett consequentials awarded to Scotland for next year. “This was more than expected,” she said, “but what is the Scottish Government going to do with it?”

Chair Brian Taylor, focusing on business growth, asked the question: Is growth achievable, valuable and desirable? Fraser of Allander’s Ms Congreve replied: “Whatever you care about is important. It is a question about the type of growth you are targeting and is it good growth. We want a balanced system and the thing to remember is that the public sector is part of that too.”

In agreement, Ms Thiam alluded to “purposeful growth”, adding: “There are purposeful businesses that are profitable by solving the problems of people and planet.”

For Martin Aitken & Co’s Mr Hanlan, innovation is key to growth in both Scotland and the UK. “Our clients are innovators,” said. “Entrepreneurs are innovative. Scotland is innovative. There is R&D relief still out there and businesses are taking advantage of that. Entrepreneurs do and they are good at coming up with solutions.

“For example, Scotland has a massive space industry because Scottish entrepreneurs have created it.”

Commenting afterwards, sponsor Virgin Money’s David Henderson said: “It was great to see the engagement levels at today’s budget briefing. The measures announced by the Chancellor yesterday will impact on businesses across our economy, so the briefing was a great chance to examine what the changes will mean, and how we can face into them together as a wider business community.”

Fellow sponsor Martin Aitken & Co’s Derek Hanlan added: “The first Labour Budget for 14 years, especially in the current climate, was always going to be tax-raising and agenda-setting.

“Martin Aitken & Co were delighted to support the Herald Budget Breakfast Briefing so that we could engage with colleagues, contacts and contemporaries, discuss how the policies initiated by the Chancellor will be received by the business community, and to understand the challenges facing our clients.

“While there is no getting away from the fact that this was a tax-raising Budget, the general feeling is that worse was perhaps expected, and with that we look forward with some degree of optimism to assisting our clients grow and prosper.”

Grant Johnston, partner and head of wealth planning at law firm Wright, Johnston & Mackenzie LLP, gave his take on the Chancellor’s Autumn Statement. He said: “The biggest change, by a mile, is the national insurance hike for employers which will affect small businesses in particular.

“The Chancellor has acknowledged the consequences of this rise, commenting that businesses will have to absorb the cost or make smaller pay rises to staff. This is where working people are going to feel the impact.

“I suspect some sectors will be affected more than others. Consider those small businesses who employ shift workers to do 10 or 12 hours a week in caring or hospitality, for example. Previously, if the employee earned £9,100 or less then employer didn’t pay NI, but that’s now been reduced to £5,000, so they will now find themselves in a situation where they do have to pay.

“Another key talking point has been the change to inheritance tax on pensions, and HM Revenue and Customs (HMRC) has just opened up a consultation to explore how this work in practice.

“At present, normally when you pass your assets over to your spouse or civil partner, it is inheritance tax free, and many are hoping this will be the same for pensions. However, we’ll have to wait until the consultation ends in January 2025 for the finer details.

“Other big changes of course are the fact there is no fuel duty increase, a penny off a pint and some increases to tobacco pricing.

“By contrast, the changes in capital gains tax (CGT) are going to have limited impact overall.”
The Herald Budget Briefing was sponsored by Virgin Money and Martin Aitken and Co, supported by LocaliQ.