Scotch whisky industry hit hard by increase in duty

The Scotch whisky industry has reacted with anger to the rise, claiming that it will damage the industry at a time when there has been a push to tap into new foreign markets.

Duty on spirits has been increased in the March 2008 budget; the first rise in a decade. The Chancellor, Alistair Darling, confirmed that duty would be increased by 6% over and above inflation. Industry experts have stated that this is effectively an increase of 9%. This increase is to be followed by a yearly increase of 2% above inflation for the next four years.

Potential damage to exports

The Scotch whisky industry has reacted with anger to the rise, labelling it “punitive,” and have claimed that it will damage the industry at a time when there has been a push to tap into new foreign markets.

The chief executive of the Scotch Whisky Association (SWA), Gavin Hewitt, has claimed that "a tax rise is a blow to international competitiveness when the industry has been investing significantly to meet growing global demand for Scotch whisky…it sets a damaging precedent that export markets may follow."

Only days after the budget, the state government of Delhi, India, have announced that they are examining the possibility of imposing a 30% tax on all imported liquor. With Delhi representing 40% of India’s whisky market, such a large increase makes it near impossible for Scotch whisky to gain a foothold in emerging markets such as India.

The SWA are pushing for lower taxes in markets such as India, China and Brazil, but are in a weak bargaining position because of the level of tax imposed in Scotland. Seventy-five percent of the price of a 70cl bottle is tax. Foreign governments will pointedly ask why they should impose lower taxes than its country of origin.


Economic importance of Scotch Whisky

In the immediate aftermath of the budget, the SWA issued a press release highlighting the importance of the industry to the Scottish and UK economy.

• Industry exports contributed £2.5bn to the balance of trade in 2006, representing nearly 25% of UK and 67% of Scottish food and drink exports.

• 65,000 jobs depend upon the industry, including among cereal suppliers, bottle and packaging manufacturers, transport and tourism providers.

• In addition to annual expenditure of £1bn with UK suppliers, the industry has announced new capital investment in 2008/09 of around £400m in distilling, bottling and warehousing across Scotland.

John Swinney, the Cabinet Secretary for Finance and Sustainable Growth in Holyrood, has condemned the tax increase stating that ”this runs the risk of encouraging international competitors to introduce punitive tariffs, and threatens our ability to export as well as the jobs this industry sustains.”


Related article:

» Scotch Whisky, Scotland's most successful export industry