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Scotch Whisky Industry

Volume 592: debated on Thursday 12 February 2015

Motion made, and Question proposed, That this House do now adjourn.—(Damian Hinds.)

I should like to start by thanking Mr Speaker very much for granting this important debate.

With 14 distilleries, the whisky industry is an important employer in my constituency. It provides jobs in remote communities where alternative work would be hard to find. With eight distilleries, whisky is clearly important to the economy of Islay. On Jura, with its small population, the island’s distillery is a vital part of the local economy. There are also distilleries in Campbeltown, Oban and Tobermory which contribute significantly to the economies of those communities. In addition, many of my constituents are employed in the whisky industry or its supply chain in neighbouring West Dunbartonshire and elsewhere in Scotland.

My reason for seeking today’s debate is to draw the House’s attention to the important contribution that Scotch whisky makes to the United Kingdom economy. Whisky distilling began as a cottage industry in Scotland, but its success has meant that it has grown enormously and now contributes significantly to employment and the economy throughout the whole UK. Scotch whisky is the UK’s largest food and drink sector, accounting for a quarter of the UK’s food and drink exports. Scotch whisky adds £3.3 billion directly to UK GDP and, once indirect jobs are taken into account, its total impact is to add almost £5 billion to the UK economy. Every £1 of value added in the industry produces an additional 52p of value in the wider economy.

I should like to give the House an idea of the scale of the Scotch whisky industry in terms of the value added to the UK economy. The industry is bigger than the UK’s iron and steel, textiles, shipbuilding or computer industries, about half the size of our pharmaceutical or aerospace industries and about a third the size of the entire UK car industry. That should give Members an idea of the scale of employment in the industry.

The Scotch whisky industry spends £1.6 billion annually on supplies from within Britain, ranging from cereals and glass to machinery. That economic impact is felt throughout the UK, with 90% of the industry’s operating expenditure being spent with UK suppliers. I am thinking, for example, of packaging from Wales, yeast from Staffordshire, glass from Yorkshire and logistics from Essex. As a result, Scotch whisky supports more than 40,000 jobs directly and indirectly across the UK, many of which are highly skilled. As proof of that, Scotch whisky workers are the third best paid in Scotland, only behind workers in energy and life sciences. Many of those jobs are in rural communities where alternative employment would be hard to find—about 7,400 jobs are in Scotland’s rural communities.

In terms of production, Scotch whisky workers comprise the second most productive sector in Scotland, behind only energy. Scotch whisky exports are worth more than £4 billion annually. Scotch whisky is the second strongest contributor to the UK national trade performance. The 2013 trade deficit would have been 16% higher without the Scotch whisky contribution. As well as those raw statistics, Scotch whisky makes other contributions which cannot be quantified. As an iconic Scottish industry, it helps to put Scotland on the world map and plays a major role in attracting foreign tourists to Scotland. I have reeled off all those statistics to show just what a high-value, high-quality product Scotch whisky is and the very important contribution the industry makes to the whole UK economy.

I also want to put on the record the industry’s thanks to the Government for the great back-up it receives from them on efforts to break down trade barriers throughout the world. Those Government efforts have helped whisky exports enormously and are a very good reason for Scotland to remain in the UK. Having the resources of the UK Government behind the industry results in breaking down trade barriers far more effectively than would be the case were the back-up from a much smaller Scottish Government.

Having praised the Government for the help they give to the industry’s export drive, I have to draw attention to what has become a significant barrier to the industry’s success in the UK market: the level of taxation. A bottle of whisky is taxed at almost 80%. Most people are shocked when they become aware of that statistic and agree that it is far too high. It is important to bear in mind that the UK is the third largest market for Scotch whisky, yet the domestic trade has been in decline in recent years. The taxation is a particular obstacle for the new and small-scale distillers, who rely on a thriving domestic market to grow, and they say that the current duty regime is damaging their prospects. It is important to bear in mind that the cash flow in the whisky industry is very unusual; whisky has to mature in a cask for many years before it can be bottled, so investors in a distillery have to wait for many years to get their money back and must have confidence in the future before they will invest. The many years of the alcohol duty escalator have been very damaging to the Scotch whisky industry. Excise duty on Scottish whisky is now 44% higher than in 2008, and, as a result, the domestic trade declined in recent years.

For reasons lost in the mists of time, whisky is taxed unfairly compared with beers and wines—the tax per unit of alcohol on whisky is far higher. I fail to see the logic in that. Surely a tax in proportion to the amount of alcohol in the drink would be much fairer. The Scotch whisky industry deserves a level playing field. It is important to note that the unfair taxation does not just have an impact on the Scotch whisky industry in the domestic market; the Scotch Whisky Association tells me that when it tries to convince other countries to reduce unfair tax barriers, those countries often highlight the UK’s taxation regime. They say that the UK taxes whisky at a much higher rate than other drinks and use that as a justification for doing the same thing in their own country.

I was delighted when in last year’s Budget the Chancellor announced the abolition of the alcohol duty escalator and froze the duty on whisky—that was a help to the industry, which was seen in a small boost to the volumes of single malt sold at the end of last year. That suggests that the duty freeze resulted in growth in the industry. I hope that the Chancellor will recognise that duty on whisky is too high and will cut it in the Budget. A 2% cut would help to boost the industry and allow it to create more jobs.

As I have set out in this debate, Scotch whisky is a British success story. This industry and its supply chain provide highly skilled jobs throughout the UK and make a significant contribution to reducing our trade deficit. Continuing to tax this industry at 80% will not bring in extra revenue to the Treasury. In fact, it will probably see revenue decline. Such a high level of taxation risks killing the goose that is laying the golden eggs, and will result in lower revenue to the Treasury in the future.

I hope that this afternoon’s debate has shone a light on the unfair treatment of an iconic Scottish and British product and its vital contribution to our economy. I hope that I have convinced the Exchequer Secretary that a 2% cut in the duty on whisky would boost the British economy. I do not expect an announcement this afternoon—that would be a bit much to hope for—but I do hope that, after the debate, she will rush round to No. 11 and convince the Chancellor of the need for a cut in taxation for this British success story. A cut in taxes would boost the industry and help the wider British economy.

Madam Deputy Speaker, the Exchequer Secretary and everyone else present, I say slàinte mhath—good health.

I congratulate the hon. Member for Argyll and Bute (Mr Reid) on securing this extremely important debate. Like him, I have many constituents who work in the whisky industry and who benefit from it. I emphasise that the whisky industry is not just a Scottish industry; it is very much a UK industry, and UK workers enjoy quality jobs, permanent jobs and quality pay as a result of the whisky industry.

I also genuinely congratulate the Minister on her work. She has been extremely generous with her time, as she has met the representatives from the Scotch whisky industry. There is all-party support for a tax cut for the industry.

I will not repeat all the statistics around the Scotch whisky industry; I am sure that the Minister is well aware of them. I am not doing a disservice to the people who work in the industry, but we have rehearsed all the arguments with the Minister, and she knows what they are. The only brief comment I wish to make is to reflect what the whisky industry is saying. David Frost, chief executive of the Scotch Whisky Association, met the Minister recently. He said :

“We had a warm and constructive discussion with the Exchequer Secretary to the Treasury…The Minister clearly understands Scotch Whisky’s economic importance and we welcome her interest in the industry. In the UK, Scotch Whisky is under sustained pressure from taxation. 80% of the price of an average bottle of Scotch Whisky is taxation and we hope the government will take on board our concerns about the negative impact of this onerous tax burden.”

He went on to say:

“In last year’s Budget, the Chancellor highlighted Scotch Whisky as a ‘huge British success story’. We hope this year too he will show his support for this world-class manufacturing industry, which adds £5 billion to the UK economy and £4 billion net to the UK trade performance every year. We hope the Government will back us by cutting duty by 2% for Scotch Whisky this year. This would be fair to consumers, send a powerful signal to export markets, support public finances, and most of all promote investment and jobs.”

We hope that the Government can see clearly where they are going with this and I look forward to the day of the Budget when the Chancellor will have a dram at the Dispatch Box as a way of promoting good Scotch whisky.

I congratulate the hon. Member for Argyll and Bute (Mr Reid) on securing this debate, and I thank him for the constructive points he has raised today. Anyone who has enjoyed a dram will recognise the historic whisky producing names in his constituency. Islay and Jura in the hon. Gentleman’s constituency has some of the finest malt whiskies in the world, and that is something that we should all commend, celebrate and be proud of. The world-famous whiskies and distillery experiences on offer are also key contributors to the tens of thousands of visitors who come over every year. I absolutely understand the significance of tourism in his constituency thanks to the whisky industry, which translates into jobs.

There is no doubt, as we have heard from both the hon. Member for Argyll and Bute and the hon. Member for Paisley and Renfrewshire North (Jim Sheridan), about the wider economic benefits of Scotch whisky to the Scottish and British economy. They are significant and have also been highlighted in the report by the Scotch Whisky Association. It is only fair and right that I should pay tribute to everybody who has spent time engaging with me, including all hon. Members in the Chamber this afternoon and the all-party group. In particular, I thank them for highlighting that Scotch whisky is the biggest food and drink sector in the United Kingdom, representing nearly a quarter of our food and drink exports.

The industry supports, both directly and indirectly, more than 40,000 jobs, 92% of which are in Scotland. The significance of the industry is phenomenal, with a contribution of in excess of £3 billion directly to UK GDP, and an overall impact of £5 billion.

Distilleries and visitor centres add an additional £30 million to the Scottish tourism industry every year. Of course, this is also about the tremendous image that the industry presents of both Scotland and the United Kingdom across the world. The hon. Member for Argyll and Bute talked about the export markets, and in particular the work of UK Trade & Investment, the work we do across Government to ensure that Scotch whisky is a major economic asset to Scotland and the UK, and why it is important that we keep it in its unique position.

For example, we have introduced the spirits verification scheme to protect the integrity and high reputation of Scotch whisky brands in the export market, which is where 90% of Scotch whisky ends up. It is about having high standards and setting standards on production and labelling for producers to sign up to. That particularly helps with non-compliance in the industry, ensuring that those who buy Scotch get the real deal. That is of course a step change and we have worked in conjunction with the SWA. The hon. Gentlemen will be very familiar with that work. Of course, UKTI has an important role to play in supporting Scotch whisky across our worldwide network of embassies and in bringing it to new and emerging markets, from Lebanon to India to Taiwan, all of which have seen exports increase by more than a quarter in the past year alone.

The hon. Member for Argyll and Bute was right to talk about the lobbying on the abolition of the hated duty escalator in the Budget last year. I campaigned for that myself, so I am familiar with the campaign. Of course, it demonstrates that we should not punish a successful, world-famous industry with excessive taxation. The all-party group on Scotch whisky and spirits has been very good in its representations and I thank it for that. It is fair to say that although I am naturally not in a position to discuss anything to do with the Budget at this stage, I have heard clearly from all Members this afternoon the arguments that have been made about the level of taxation on whisky, particularly when compared with other alcoholic drinks. Those points have come out in my meetings with stakeholders and the industry, too.

I speak not as a producer but as a drinker of whisky, as are many of my constituents. The archivists at HMRC and the Treasury might be able to dig out the meetings some of us had with the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), back about 19 years ago, when he was convinced that it was better not to increase and to drop the whisky duty. That led to an increase in revenue, so was fair to drinkers, to producers and to the Revenue, which seems to be a sensible thing to do, and we look forward with confidence to the Budget.

I thank my hon. Friend for his recommendations and advice to go back and look in the archives. I shall certainly do that.

I need no persuading of the considerable impact that the industry brings to Scotland and the United Kingdom. Obviously, all decisions on taxation are under constant review, and we are particularly receptive to helping industries flourish in some of our most remote regions. As I have said, decisions on the duty will be made by the Chancellor at the Budget, and I do not wish to pre-empt anything in relation to the Budget. We want to ensure that Scotch whisky continues to be enjoyed around the world for many years to come, and we want Scotch whisky to continue to be a great flagship brand.

Question put and agreed to.

House adjourned.