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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  • Comment number 125.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -3

    Comment number 124.

    Scotch is foul anyway, even American and Japanese whiskies is better than that. Irish every time for me.

  • rate this
    +1

    Comment number 123.

    The only difference here as opposed to the pasty tax is that most of us can't afford whiskey anyway.

  • rate this
    -1

    Comment number 122.

    116 - The Scots have total and utter exclusivity on Scotch whisky. There are, of course, other types of whiskey, but not whisky. Scotch dominates the market and always will. There are other colas on the market, but Coca Cola will always dominate the market.

  • rate this
    0

    Comment number 121.

    #116 You don't need to go that far. Bushmills (Co Antrim) make a very nice bottle. Lighter tasting that the majority of Scotch as its unpeated but their single malt is highly drinkable.

  • rate this
    -17

    Comment number 120.

    103.blastygoose - "......Unhelpful, off topic and essentially racist comment."


    The comment your refer to could only be racist if the person saying it was off a different race to the stereotypical Englishman/woman.....

    ....which they almost certainly are not.....

    ....one person from one country CANNOT be racist to someone from another country if they are both white, or black etc......

  • rate this
    +2

    Comment number 119.

    Adding a small tax to resources used to produce a product in a country that does not directly see a proportional benefit is fair.

    The customs value of whisky is 3.1bn and 600-700m in excise duty which Scotland does not control. Companies are making billions in profit from whisky.

    Whisky contributes about 800m to the Scottish economy.

  • rate this
    +3

    Comment number 118.

    This will be a great shot in the arm for the Welsh Whisky industry.

  • rate this
    +5

    Comment number 117.

    My whisky consumption has already dropped to an all time low because the bitter taste of the tax rather spoils the flavour.....

  • rate this
    +1

    Comment number 116.

    As a Whisky Drinker, I'd just like to point out that there is now some very good Whiskey comming out of Japan; the Scots may have an exclusive on the name, but they don't have one on the product.

  • Comment number 115.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +4

    Comment number 114.

    Smoke & mirrors. Considering who the author is, it's not hard to be cynical & say this is a non starter dreamt up by the 'belters together'
    propaganda machine. (set whisky industry against Scottish govt)
    Nice of them to highlight the amounts of £££ involved though.
    Excise powers will come with independence soon enough, no need to tax 'water'.

  • rate this
    -6

    Comment number 113.

    @103

    lol, i'm choosing to believe that your comment is tongue in cheek and that you actually got the reference. If not i would urge you to take a look at the highest rated comments to see the truly "Unhelpful, off topic and essentially racist comments".

    Cheers.

  • rate this
    0

    Comment number 112.

    Some things never change find something/anything which brings a little joy into peoples lives and then tax it.
    I really enjoy going for a pee when I'm absolutely bursting I expect soon it will cost me a quid.

  • rate this
    +6

    Comment number 111.

    LOL, 99 Sodapop.
    I'm half jock and live in England, so I just sit back and watch verbal tennis match :) If the UKofGB&NI (the most successful Union in History) cannot stay together, then what hope does the EU have once the Gravy Train drys up? If you think the English/Scotish are bad, try 27Million others on and average $7k/year wage..they're going to LOVE both of you!...Long Time!

  • rate this
    +1

    Comment number 110.

    98. Dai the Hanky

    As someone that rarely drinks alcohol, why stop there. Why don't they tax the air that we breath as well? What d'you think Lewis Jones?

    Apologies I meant to type: Next they'll be taxing the air that we breath as well. Thank goodness Lewis Jones has opened up membership

  • rate this
    +4

    Comment number 109.

    Basic facts on tax a bottle of Blend Scotch at £13.99 is made up of UK Duty £7.51 VAT £2.34 giving a total of £9.85 leaving both retailer and distiller £4.14 to distil, bottle pack ,distribute and make a profit out of.The UK gorverment gets three bites at the Whisky Industry, DUTY,VAT and Corporation tax why do we need a fourth either distribute UK Duty fairly or revise the whole tax on drink

  • rate this
    0

    Comment number 108.

    #95 nothing I said was wrong. I didn't mention VAT. I did say offshoring would be an issue. If whisky is exported to England, then the Scottish operation exporting it makes a profit, and without offshoring that is taxed with corporation tax. Understand now?

    John

  • rate this
    -3

    Comment number 107.

    Scotland gets next to nothing in return for its best known international product. Only independence will make any difference to this state of affairs. At the moment our hands are tied by westminster.

    I see the new black ops anti-Scottish dept is up and running!

  • rate this
    -3

    Comment number 106.

    A lot of independence / playground arguments on here, saddening. Regardless of whether it happens or not, too much of the positive progress that has already been made is ignored, IMO.

    In my view the current Scottish parliament has fought for people's day to day quality of living more than any other party with a majority representation in Scotland those past 30 years. Long may it continue.

 

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