Whisky tax 'could benefit Scots'

Mr Kay said the production of each bottle of whisky could be taxed Mr Kay said the production of each bottle of whisky could be taxed

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A tax should be levied on each bottle of Scotch whisky to give its country of origin a greater share in its growing success, economic experts have said.

It is reckoned a tax of £1 on the production of each bottle could boost Holyrood coffers by at least £1bn.

The call came from Professor John Kay, who served on the Scottish government's Council of Economic Advisers.

The Scotch Whisky Association said the move would hit demand, reduce investment and cost Scottish jobs.

Prof Kay said the recent exporting success of Scotch had brought "disappointing" benefits to Scotland.

In a BBC Scotland investigation, Sir George Mathewson, who was chairman of the Council of Economic Advisers appointed by First Minister Alex Salmond, supported the idea.

tax graphic

The Scottish government cannot now tax the alcohol, as that power is reserved to Westminster.

However the former chairman of the Royal Bank of Scotland said Holyrood could put a levy on the water used in the distilling process.

Powers over charging for water are already devolved to Scotland so it was argued they would not require additional constitutional changes.

The Scotch whisky industry said it exported 40 bottles per second in 2011. When the produce left the distilleries, it was reckoned to be worth about £5bn.

In addition to the huge market in the United States and France, Scotch has had great success in attracting the fast-growing middle class in emerging markets from South America to Asia and Africa.

Scotland's whisky industry generates billions each year

However, Mr Kay, who is an economics professor and author, criticised the industry for the concentration of ownership in major corporations outside Scotland, meaning most of the profits leave the country.

Diageo, which has its headquarters in London and is also listed on the New York stock exchange, is the leading player.

It is expanding towards a 40% share of the Scotch market.

Whisky is about a third of its business, with total profits last year of £3bn.

Prof Kay said: "I think the benefits to Scotland from the whisky industry are really quite disappointing."

"The largest producers are not based in Scotland.

"Their profits go mostly to people who are not resident in Scotland. They don't pay much tax in Scotland, and we don't think they pay much tax in the UK."

Prof John Kay said the benefits to Scotland had been 'disappointing' Prof John Kay said the benefits to Scotland had been 'disappointing'

According to analysis by Biggar Economics consultancy, in work commissioned for BBC Scotland, the Scotch whisky industry spends about £500m on paying fewer than 11,000 direct employees.

Supplies are reckoned to cost the industry around £1.5bn, of which 80% goes to Scottish firms, including grain farmers, packaging and haulage.

That leaves £3bn in profits and the cost of capital.

On that basis, it is calculated that a 10p per bottle tax on the production of Scotch whisky could raise £104m, rising to £1.04bn for £1 per bottle.

That assumes distillers absorb the extra tax from profits, which would lead to a drop in corporation tax paid to the Treasury in London.

If, however, the tax is passed on to customers in higher prices, it is assumed there would be a drop in demand but it would lead to a much smaller drop in corporation tax paid by distillers.

In that case, Biggar Economics said there would be a £128m net gain from a 10p tax and £1.22bn gain from a £1 per bottle tax.

Sir George said a new tax of 50p per bottle could lead to higher prices but that "would not be a major percentage of the sales price".

Sir George Mathewson said he did not think the industry would be damaged Sir George Mathewson said he did not think the industry would be damaged

He said: "It's also highly profitable as I understand it, so it would seem to me there's room there for something."

He argued that employment from whisky was "pretty minimal for that scale of business".

And he said that a bottle tax would be mainly paid from overseas rather than the UK.

"I don't believe it (the industry) would be substantially harmed and I believe that the success could be spread around a little more," Sir George said.

Gavin Hewitt, chief executive of the Scotch Whisky Association, which represents the industry, stressed that Scottish-made whisky was competing in tough international markets where it was up against other whiskies and other spirits, from vodka to distilled rice.

He said: "I cannot see why any government would apply a production tax which would make Scotch whisky less competitive overseas against other drinks which are cheaper to produce and cheaper to sell."

He went on to stress the industry's commitment to Scotland, saying: "We have already enjoyed over £1bn of investment into Scotland in the past four years.

"I will put my head on the block now and say that we're going to enjoy £2bn of investment in the Scotch whisky industry in the next three to four years."

Peter Lederer, director of Diageo in Scotland and a senior figure in the tourism sector, said that a new tax would send the wrong signals to those thinking of investing in the Scottish economy.

He said: "If the argument in an economy is to take a successful business and keep taxing it because it's successful, then I think that gives the wrong impression."

Scotched Earth will be shown on BBC1 Scotland at 22:35 on Wednesday 9 January. It is also scheduled for broadcast several times on the BBC News Channel during Saturday 12 and Sunday 13 January.


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  • rate this

    Comment number 25.

    @13.... nobody is interested in Irish Whiskey, we prefer the real thing.

  • rate this

    Comment number 24.

    What a rubbish idea. Another dodgy tax to administer.

  • rate this

    Comment number 23.

    Tax is good for you???????????.

  • rate this

    Comment number 22.

    Taxation on such products is a good idea, no matter where the tax goes. I'm assured that Scotland receives money from English tax payers so don't act as if Scotland is left as a baron waste land in which its govt. services are left to deteriorate. If you believe otherwise then you are basically agreeing that Scotland is a ruined country that has been ran into the ground and sucked dry.

  • rate this

    Comment number 21.

    If the Scots devolve then all of the tax and duty revenue from Scotch whiskey would go to the Scottish government.

    Much Scotch whisky is now owned by the French Pernod-Ricard and Diageo. Aberlour distillery employs just 5 staff, yet exports millions of bottles every year. This does not benefit the local economy but lines the pockets of investors. No wonder Aberlour is a ghost town.

  • rate this

    Comment number 20.

    For those who object to paying tax on Scotch whisky there is an alternative. English whisky, produced in Norfolk and, in taste and quality, on a par with most whiskies from north of the border. The Welsh also make fine whisky.

  • rate this

    Comment number 19.

    Sounds like an argument preparing to kill the golden goose.

  • rate this

    Comment number 18.

    I'm sure the equally devolved Northern Irish government will be delighted at the future upsurge in demand for Bushmills. Likewise the various other distillers round the world. It would seem that the scraping of the financial barrel (no pun intended) has started to try to balance the books when the oil runs out in a few years.

  • rate this

    Comment number 17.

    "On that basis, it is calculated that a 10p per bottle tax on the production of Scotch whisky could raise £104m, rising to £1.04bn for £1 per bottle."

    Why stop there why not £10 per bottle tax and raise £10.4bn?
    Because the sales would fall of a cliff that's why!
    When will people like this learn that there comes a point where people say I am not prepared to pay extortionate amounts of money.

  • rate this

    Comment number 16.

    Scotch whisky is a good reason for Scottish Independence?
    But why do Scots think they have some sort of monopoly on whiskey?
    Lots of countries make alchohol that is equivalent to whiskey
    Irish whiskey and whiskey made in Wales and English borders from history

  • rate this

    Comment number 15.

    When alcohol was prohibited for sale in Ireland many years ago, a landlady in Antrim had the bright idea of giving her whiskey away free, but charging a healthy price for the water that accompanied it. Almost looks like Scotland is going the same way with its whisky!

    Scotland probably already benefits from current whisky taxes indirectly in the funds received from British Government.

  • rate this

    Comment number 14.

    You would think that politicians would learn past lessons.

    Other year, ConDems added further expense onto N sea Oil exploration, immediate effect was huge drop in investment.
    Year later, due to consequential damage, ConDems reversed policy, but made it seem it was a NEW policy & they were giving extra investment incentive. They were just backtracking on their policys damaging ballsup.

  • rate this

    Comment number 13.

    The Irish Whisky industry will love this.

    "Go ahead, make my day!" comes to mind.

  • rate this

    Comment number 12.

    How about a £1 tax on every purple tin? To pay for the subsidy the long suffering English have to send to Scotland, and to pay for the cleaning of park benches around London fouled by its users?

  • rate this

    Comment number 11.

    More tax solves every problem from economic ills, scrofula, the King's itch and syphilis.

    It's snake oil.

    When will people realise that tax is the problem not the solution.

  • rate this

    Comment number 10.

    7. Unlike Jaguar cars, Scotch Whisky cannot be made anywhere else in the World other than Scotland - that puts a bind on the Scotch Whisky industry. I think a little bit of that £5 billion should really be ploughed back into Scotland instead of being parked off shore, don't you think?

  • rate this

    Comment number 9.

    I am just pleased that I dont drink the stuff.

  • rate this

    Comment number 8.

    Poor old Scotland, it doesn't seem to do anything right. It will always need someone to hold its hand.

  • rate this

    Comment number 7.

    You can begin to see the paucity of thinking that will apply in Scotland if independence ever happens. Many global industryies have a base in one country but is owned elsewhere - Jaguar cars? Accept the reality of business life. As for taxing water - where would that end?

  • rate this

    Comment number 6.

    I guess the Scottish parliament building has to be paid for somehow.


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