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
    -3

    Comment number 165.

    151.
    penguin337 - As usual, the Scots get the crumbs
    And you think that the BBC has some kind of Pro-English agenda because it's based in London? I think you'll find that London is a law unto itself and serves noone except it's Londoncentric Views...You only need to look at the hissy fit they had over moving the news to Manchester to see this....

  • Comment number 164.

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

  • rate this
    -4

    Comment number 163.

    156 - And how much does Scotland benefit from the obscene profits RBS made before and after paying off their loan? 0. All monies either off shore or nestling in Westminster coffers to fund various lovely London and SE England infrastructure jobs Gideon is so fond of.

  • rate this
    0

    Comment number 162.

    Is this something to do with the whisky companies taking the case that the government were trying to introduce the minimum price per unit scheme to the european courts? Is this a side deal where whisky will be exempyt from the pricing scheme? Just seems a bit suspicious

  • rate this
    -3

    Comment number 161.

    Why not tax it per unit of alcohol? That would make loads of money....

    Oh no wait.... that would be a RIDICULOUS thing to do!!!

  • rate this
    +4

    Comment number 160.

    83,60,49

    This is a proposal to actually ensure that Scotland gets more of the pay-back on Whiskey production. ATM It is Global Corporations and their non-Scottish shareholders that benefit most. Companies like Diageo avoid tax in the usual way.

    Perhaps that is where the problem is.......

  • Comment number 159.

    All this user's posts have been removed.Why?

  • rate this
    +3

    Comment number 158.

    Adding extra costs on will result in falling sales. Whisky may have regained a greater share of the spirits market but that will not always be the case. The industry have spent to promote it and gain market share, why sabotage this effort. Tax on spirits and petrol are more than enough as it is without adding more.

  • rate this
    +2

    Comment number 157.

    Benefit Holyrood, more like.

  • rate this
    -3

    Comment number 156.

    gruntfuttock
    I live in the idustry and know rightly that the crisis was caused by gready borrowers thinking buying a house was easy money, Buy house you can afford, wait a year, increase mortgage to pay interest arrears and buy BMW you could otherwise never have dreamed of owning...
    Remind me how much did the Scotish government put towards the bail out of RBS... 0, so this case isn't for banks

  • rate this
    +3

    Comment number 155.

    Sounds like a cynical attempt to damage our whisky industry prior to Scotland gaining independance! Just saying!

  • rate this
    +5

    Comment number 154.

    All this will do is increase the price of the bottle to consumers who will vote with thier pockets and start buying cheaper foreign imports, especially in the current climate.

  • rate this
    0

    Comment number 153.

    150 - Indeed and some blended whisky in Scotland is a wonderful drop. Chivas Regal, some of the new Grouses, Teachers etc.

  • rate this
    -1

    Comment number 152.

    #150 Blended Whiskys (Bells, Grants, Grouse) etc can have up to 100 different malts in them. Problem is that the vast majority of the spirit is just cheap grain alcohol with a few percent malt whisky in there for flavour.

    Whats better value- 750ml of single malt at £30 or 20ml of malt plus 730ml of grain whiskey for £12?

  • rate this
    -11

    Comment number 151.

    the independence bandwagon. Do we really have to put with this for another 18months!!
    ----

    It's called DEMOCRACY

    We live in an ersatz version of it, especially if the establishment feels threatened

    Have a look at the Welsh site
    Commenting on blogs... allowed

    On the Scots site
    Commenting on blogs... not allowed apart from an occasional crumb like today

    As usual, the Scots get the crumbs

  • rate this
    -4

    Comment number 150.

    I do not understand all this about single malts, surely it is better value to get four or five lumped in together.

  • rate this
    +2

    Comment number 149.

    Yes,taxes are good for governments on alcohol and smoking products,which has brought bad health to public.Governments enjoy and people suffer.But governments have to pay back in national health and they have to cry about expenses..

  • rate this
    +5

    Comment number 148.

    This is basically just an advert for BBC Scotched Earth, to be shown on BBC1 Scotland 9 January.

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

    11,000 jobs.

    Perhaps if original Scottish owners had NOT sold out to Johnny foreigner & Scots invested in their own PROSPEROUS companys, then they would have benefitted mucho moro, ONLY have themselves to blame

  • rate this
    +5

    Comment number 147.

    If the market would bear another £1 per bottle, we'd already be paying it.

  • rate this
    +1

    Comment number 146.

    Be careful it isn't suicide. A bottle of decent Scotch now costs more than £30. 10 years ago one of my favourites costs £15 and has more than doubled. I won't go on indefinitely paying more. I gave up smoking when a pack of 20 exceeded £1, hating the thought that I was handing the money to politicians to fritter. I'll do the same with whisky if I have to.

 

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