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
    -10

    Comment number 45.

    Frankly, the disparaging and downright inflammatory ramblings of some of the comments here will be part of the reason why people in Scotland will vote for independence. I cant quite believe these baseless and idiotic scare tactics are still making the rounds here on the BBC...then again...

  • rate this
    +3

    Comment number 44.

    Diago has a licence to print money, branded Scotch is vastly overpriced. The government could take a slice of that money as tax and sales would be unaffected. Its only possible because big business is operating as a monopoly on pricing and is overcharging, They only have themselves to blame.

  • rate this
    0

    Comment number 43.

    hahahaha.

    raise more money for the Government says the chairman of the state supported biggest bankrupcty ever.

    The Government will look after you better if you throw billions at them - look at what they do at the moment!

  • rate this
    -8

    Comment number 42.

    @12. Eh? What are you talking about?
    And the rest of you .... We Scots do pay to Westminster and get SOME of it back in subsidies. Don't think we don't pay our way.

  • rate this
    -1

    Comment number 41.

    The economy is already bankrupt. The act of quantative easing has made the economy even more reliant on a consumer/government credit lead basis.
    Despite what the government says about reducing spending and raising taxes, nothing will ever pay off the national debt... certainly not this proposal.
    It's time to do away with fiat currency and move to one that's backed by units of energy.

  • rate this
    +19

    Comment number 40.

    33. philpho
    "Fishy Logic is being unveiled in the first step to a sustainable Norwegian style Republic"
    --
    Norwegian Style Republic presumably meaning 'having a royal family'

    Norway's head of state has been Harald V since 1991. As in Britain he's nominally head of their church and armed forces too.

  • rate this
    +2

    Comment number 39.

    16. Nautonier

    To those suggesting that Irish, Welsh or English whiskies could benefit from this, yes, they probably could but the reason the Scots have a monopoly is that the water and other conditions in Scotland are ideal for whisky making, whiskies from elsewhere cannot emulate the flavour. They can match the cheap brands but cannot compete with the best single cask bottlings of aged Scotch.

  • rate this
    +2

    Comment number 38.

    Wow: taxing water! Sounds like something Gordon Brown would do!!

    I've not bought a bottle of usquebaugh for about 15 years as the prices for a decent single malt already make it an unaffordable luxury for many Scots! Additional taxation could make it even more of a 'niche' product which would be entirely reliant on the vaguries of far eastern economies. It's like shooting the golden goose!

  • rate this
    -11

    Comment number 37.

    35 - Scotch Whisky cannot move anywhere else other than Scotland. And this tax is for bottles consumed in Scotland - it doens't effect international trade - where much of the money comes from.

  • rate this
    0

    Comment number 36.

    #26 J. Robertson. I'm more inclined to agree with the Professor. As far as alcohol goes, whisky is relatively price inelastic & is therefore more likely to survive a price hike than many 'competitors' (& that's if u believe vodka could ever compete with single malt). £1 on a £25 bottle of whisky is less of a deterrent than £1 on a £10 bottle of vodka. That's not to say I support their proposal

  • rate this
    +8

    Comment number 35.

    Another 'Fortress Scotland' argument.
    Put up the barriers boys if you think it will help you.
    It won't. Businesses will just move to where they are made welcome.

  • rate this
    +2

    Comment number 34.

    This is just another way of taking money off people which will never find its way back to them.

  • rate this
    -1

    Comment number 33.

    Given most of the distilleries have been sold off to Diageo, Pernod-Ricard, United Spirits (etc) over a sustained period, its hardly surprising is it. Fishy Logic is being unveiled in the first step to a sustainable Norwegian style Republic given alcohol is a prime conundrum for Scotland. Tax and export the good stuff and give the locals Roseisle vodka to fuel the Tweed Gunboats

  • rate this
    +3

    Comment number 32.

    bad idea - when Scotland goes independent, the oil runs out six months later, sectarian violence erupts overnight and doesn't go away - gets refused entry to the EU and comes to a shock realisation that they were a net beneficiary of being in the union all along - they will need as much whisky as possible to drown their sorrows when there is now no one else left to blame.

  • rate this
    +26

    Comment number 31.

    Diageo pays barely an tax in the UK, despite being a UK registered Company. Google "outward domestication"..

  • rate this
    +24

    Comment number 30.

    I can buy a bottle of Glenlivet for less in the US than here in the UK. What does that tell you about the levels of UK tax/duty already applied to Scotch?

  • rate this
    +5

    Comment number 29.

    More tax, spend, splurge until they bankrupt the economy.

    When will they ever learn?

  • rate this
    +27

    Comment number 28.

    Good idea... and whilst we are at it can we start locally taxing English Tea, Welsh Rarebit and all the other products with national names in them?

    I love the SNP, they make local councils look almost professional.

  • rate this
    +18

    Comment number 27.

    21. BigFacedBoy
    If the Scots devolve then all of the tax and duty revenue from Scotch whiskey would go to the Scottish government.
    --
    No it wouldn't. Only the tax and duty revenue from bottles SOLD IN SCOTLAND would go to the Scottish govt. The Japanese won't be sending Hollyrood the tax from bottles sold in Tokyo.

  • rate this
    +6

    Comment number 26.

    Does this professor not understand the simple rules of the marketplace? Scotch competes in a global market against other drinks such as vodka, brandy, rum etc and if we were to apply the kind of tax he is proposing the product would be priced totally out of the market place resulting in a collapse in demand and a consequent decline in the industry in Scotland. Please think ideas through !

 

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