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Alcohol Duty

Volume 689: debated on Thursday 25 February 2021

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

I am grateful for the opportunity to debate today how we deliver a competitive duty system for alcohol producers. It will not surprise Members to know that my central interest here is in supporting Scotland’s national drink. Moray is home to more than 50 Scotch whisky distilleries. However, many other Members from across the United Kingdom will in the weeks and months ahead be making calls of support to the Treasury team for producers of other drinks. Indeed, my constituency also has several small craft breweries that will be keeping a close eye on any proposed changes in the UK alcohol duty system, and I will come to some of their concerns later.

Since I was first elected in 2017, all my Scottish Conservative colleagues and I have continually worked with partners from the whisky and wider spirts industry in Scotland to secure substantial wins for the sector. In every Budget since my election, the UK Treasury has taken the decision to freeze the duty on spirits. That has been very much welcomed and illustrates the major show of support from successive Conservative Governments for this vital sector.

However, it is still the case that just under £3 in every £4 spent on the average bottle of whisky is taken as tax. That is among the highest tax rates on an alcoholic beverage in the world and higher than the tax paid on wine, beer, and cider. In fact, a unit of alcohol served as Scotch whisky or gin is taxed 16% more than wine, 51% more than beer and 256% more than cider. That is why I was pleased when the Conservative party committed in its 2019 manifesto to

“review alcohol duty to ensure that our tax system is supporting British drink producers.”

Indeed, I well remember the Prime Minister’s visit to Diageo’s Roseisle distillery, less than 1 mile from where I am speaking today, to make that announcement as I joined him on the campaign trail for the 2019 general election.

I welcome the fact that the Government are currently taking that review forward, as promised. This is even more important in the context of the UK’s departure from the European Union. We now have the opportunity to think differently about how we tax alcohol in this country. This is an opportunity, which the Government have to seize, to redress the many historical injustices in the alcohol duty system and use it not simply to raise revenue but as a tool to back our domestic producers with a solid foundation in the home market as they look to expand to new markets around the world.

The Scotch whisky sector employs 11,000 people in Scotland and supports more than 40,000 jobs across the United Kingdom, contributing £5.5 billion to our economy in the process. Much of that employment is in rural areas such as my constituency, Moray, where distilleries are a key local employer. It is a sector of significance and tradition, with a long history. However, it is also a sector that is facing real challenges right now, some of which are unique to the alcohol industry, while others are symptoms of the times we live in.

The covid pandemic and the resulting restrictions imposed on our day-to-day lives have affected all parts of the economy. We all know that these restrictions were necessary to curb the spread of the virus, but we must also acknowledge the economic damage that has been done as a result. The whisky and wider drinks sector has lost tourism income because of the travel restrictions in many parts of Scotland that we have now faced for more than 11 months. It has also lost many of its business customers due to the closure of pubs and restaurants for long periods both here in Scotland, since the whole of mainland Scotland went into lockdown again on Boxing day, and across the rest of the United Kingdom.

At the same time, for much of the last year those in the sector have been unable to access Scottish Government grant funding because they were not directly affected by the restrictions under the strategic framework. That would have meant that distilleries could open as tourism visitor attractions, even though most people in Scotland—not to mention international visitors and those from elsewhere in the United Kingdom—would have been unable to travel to those visitor centres. The impact that this has on the local economy here in Moray and other parts of the country cannot be overestimated. Tens of thousands of visitors come to Moray every year to follow the Speyside whisky trail or go on individual tours of distilleries. All those visitors spend more money elsewhere in the local economy—on accommodation, on food and in our local shops.

The Scotch whisky sector is also struggling with the impact of the 25% tariff introduced by the United States in October 2019. The industry has estimated that this has resulted in a cut in exports worth £500 million. As the Scotch Whisky Association has pointed out, this is a 35% drop in exports to the United States that is being borne by producers both large and small. For a sector with a trading history of more than 150 years, this is damaging an essential part of its business and trade with its biggest market. The Scotch whisky sector is in no way involved in the dispute between Airbus and Boeing, but it is paying the price for it, alongside a range of other iconic products, some of which are sadly based here in Moray as well, so we are really feeling the impact. This is clearly unfair and a source of great distress for the sector.

I am grateful for the efforts of the Secretary of State for International Trade over the last few months and years to get these tariffs removed. It is no easy task, but I believe that with the support of her Cabinet colleagues, she will prevail. In the meantime, I urge the UK Government to do all they can to deliver clear support for the sector, both in the short term, through next week’s Budget, and in the longer term, to build a solid foundation through duty review.

I would also like to take some time to acknowledge the contribution made by spirits other than whisky. Scotland has a long and rich history of gin distilling, and Scottish gin has seen an enormous level of growth over the past decade. Twenty years ago, we would only have found two Scottish gin distilleries, but in 2020, there were more than 60 across the country. With many gin producers making more than one type of gin, the number of Scottish gin brands is believed to have climbed to around 140. Like whisky, 70% of the price of a bottle of gin is currently collected in tax. By comparison, less than €1 is claimed in duty on a bottle of wine in France. This takes us back to the central point of my contribution. We have a huge opportunity to look at how we put duty on alcohol differently in this country and to introduce a fairer system for producers in Scotland and other parts of the United Kingdom.

As I mentioned earlier, while my focus is on whisky, other Members will no doubt be making the case to the Minister for changes to the taxation of other drinks, including cider and beer. Despite the dominance of whisky distilleries here in Moray, there are craft brewing firms that are also making a significant impact, with businesses such as the Lossiemouth-based Windswept Brewing Co. It is one of 60 independent craft brewers in Scotland that are also making a huge contribution to our UK alcohol receipts.

Ahead of this debate I was contacted by Nigel Tiddy from Windswept, and the work those there have done to build up that business has been so encouraging. Seeing them continuing through this pandemic, I want to ensure that we continue to support companies such as Windswept and other craft brewers throughout this country as we come out of this pandemic. I know that they are watching this debate and this review very closely, and I will continue to engage with them after today’s debate.

This is another fast-growing sector of our economy that has faced major challenges over the last 11 months. We all want to see the existing growth in the craft brewing industry continue. I know that such businesses and their trade body, the Society of Independent Brewers, are calling for changes to small brewers relief and supporting the pubs and taprooms that these companies rely on for most of their sales. They are also calling for recognition by Government of the role of smaller producers and the challenges they face growing their businesses.

As I have already said about the argument for changes to the spirit taxes, there is an opportunity to review the entire system of alcohol taxation. The Treasury said at the time of its call for evidence in September 2020 that the current alcohol tax structures are “complex—and arguably outdated”, and I agree. We can reform these structures and develop a system that is fairer and, importantly, encourages the growth we want to see in these vital sectors of our economy.

To close, my message is that it is time to right the historical wrong in our tax system. It is time to see Scotch whisky taxed properly, not to see it continue to be more heavily taxed in its home country than imported wine. It is time that we backed Scotch whisky with a tax system that supports home producers in their own market. I have met the Exchequer Secretary to the Treasury on this matter, and I know her interest in the subject.

I hope that, in responding to the debate, the Minister is able to outline where we have got to with the review, the timescale for it and what more the UK Government need from stakeholders as the overhaul of this system progresses. There is a need to set out a clear timetable to complete the current review of alcohol duty, and this should deliver a pathway to reform that better serves consumers and enables growth that will benefit our whole economy.

I was proud to campaign on this much-needed reform at the last election, just as I have been proud to stand up for Moray’s huge array of Scotch whisky distilleries and other producers at every opportunity since I became the MP for this seat in 2017, but now words and promises must be turned into action. A duty review is long overdue, and I look forward to working with the UK Government to deliver our manifesto commitment on this. I think we can all agree that if we do that, it is something we can raise a glass to.

I did not suspend the House after the Welsh affairs debate because both contributors to this Adjournment debate are coming via video link, but we have sanitised the Dispatch Box in the unlikely event that the video link goes down and we need to use it.

May I start my response by congratulating my hon. Friend the Member for Moray (Douglas Ross) on securing this debate, particularly since his constituency of Moray lays claim to hosting the largest number of distilleries in any United Kingdom constituency? He has indeed been a tireless advocate for the interests of Scotland. From lobbying for the removal of US tariffs to ensuring officials press on with the alcohol duty review, he has continually supported the Scottish alcohol industry, and he is absolutely right to do so. Distillers such as those in Moray are not just a source of refreshment; they are part of our heritage, they are significant tourism attractions in their own right, and they are important employers up and down the country. In 2019, the number of visitors to the Speyside whisky trail surpassed 2 million. That is a reflection of the sector’s remarkable growth, which my hon. Friend mentioned, and the innovation that it has seen in recent years. I am confident that, post pandemic, the sector will continue to flourish, attracting millions more visitors each year. Distillers, like so many other businesses, have had a very challenging year, and as hon. Members will know, the Government have acted decisively to help them, just as we have acted decisively to help thousands of other businesses across other sectors.

Today, though, we are debating the future of the UK’s alcohol duty system—a system that in fact has a long and fascinating history. Dating back to 1643, it was first introduced by Parliament as a way of financing its fight in the English civil war. Over time, the UK alcohol duty system evolved to become an important provider of Government revenue, and that is very much still the case. As my hon. Friend noted, the sector has experienced an impressive period of growth, helping to generate billions of pounds for the UK Exchequer. Each year the UK’s alcohol duty system raises over £12 billion, helping to fund public services such as the NHS. In that way it helps to address the harm caused to society and public health by excessive or irresponsible drinking.

Those benefits, though, are balanced by the Government’s pragmatic, reasonable approach to the level of duty applied. The Government have cut or frozen duty at seven of the last eight Budgets. In fact, the price of a typical bottle of Scotch whisky is £1.79 lower than it would have been, since we ended the spirits duty escalator seven years ago, in 2014.

As hon. Members may be aware, the current UK duty system is comprised of four distinct categories—beer duty, cider duty, spirits duty and wine duty. That means that the tax applied to each unit of alcohol varies according to whether the alcohol used to produce it came from malt, grapes or apples. That inconsistency was, in part, a consequence of EU directives. Now that the United Kingdom has left the European Union, the Government have the opportunity to take a fresh look at the alcohol duty system to see whether we can create a system that is simpler, more consistent, less administratively burdensome to producers, and does a better job of protecting public health. I know that many of our constituents agree that there is need for reform.

My hon. Friend has once again eloquently voiced his concerns, urging the Government to create a system that works in the best interests of business, his constituents and the industry as a whole. As he noted, at Budget 2020 the Chancellor announced that the Government would review the alcohol duty system. That, of course, was a commitment made in our manifesto, which, as my hon. Friend said, was announced when the Prime Minister visited the distillery in his constituency at Roseisle during, I think, the election campaign, and this review came about only because of the campaigning efforts of my hon. Friend and other Scottish Conservatives to raise the need for reform. The review has come about in part because the Treasury recognises that the alcohol drinks industry is innovative and entrepreneurial, and that traditional assumptions may no longer hold. I was heartened to hear from his speech that Scotland is turning its distilling expertise to gin, with explosive growth in the number of Scottish gin brands.

Since that announcement at the 2020 budget, my officials and my hon. Friend the Exchequer Secretary have engaged with stakeholders across the industry, as well as with public health officials and tax experts. Our goal has been to assess how well the alcohol duty system works now and how it could work better in future. A call for evidence launched in October 2020 asked a series of key questions such as: overall, how well do the different duties work when combined together as a system? Is there a case to move to a standard method of taxation? Would a more consistent systemic approach to indexing alcohol duties be of benefit? Could we reduce burdens by standardising the way businesses declare and pay their duty?

I am pleased to say that we received more than 100 submissions expressing, as one might expect, a wide range of views, which we—my officials and my hon. Friend the Exchequer Secretary—are now analysing. We will provide further updates from the review in due course, as quickly as we can. I would like to assure my hon. Friend that my right hon. Friend the Chancellor and my hon. Friend the Exchequer Secretary are taking a very close interest in this issue and the detailed analysis and work that has been undertaken and are keen to make the most swift progress possible.

Since my hon. Friend the Member for Moray has also raised the issue of small brewers’ relief, I should add that the Government are running a separate technical consultation specifically on this issue. That closes on 4 April. I encourage any craft breweries based in his constituency or in Scotland to make their views heard by responding to this consultation. The Chancellor will set out plans for the coming year at the Budget next Wednesday, and hon. Members will understand that it would be inappropriate for me to comment in any more detail at this stage. I note that my hon. Friend has also rightly raised concerns about the 25% US tariffs on Scotch whisky, and I agree entirely with his assessment that the continued application of these tariffs is particularly disappointing and unfair, given that they have nothing to do with the Scotch whisky industry. To be clear, the UK has negotiated intensively with the US and the EU on these disputes and remains committed to reaching a fair and balanced settlement. I share my hon. Friend’s desire to help struggling producers and reach a settlement that works for the UK as a whole.

To sum up, Mr Deputy Speaker, the UK’s alcohol duty system makes an important contribution to funding vital public services and addressing alcohol-related harms. However, as my hon. Friend has compellingly explained, once again the current system is in need of reform. Leaving the EU provides an invaluable historic opportunity to undertake that reform, and our guiding intention is to do what we can to support this country’s historic and vibrant drinks industry for the long term. By challenging and tackling existing anomalies and reducing inconsistencies that distort the market, our hope is to support innovation and growth within the industry and thereby give the sector the future that it deserves.

I thank my hon. Friend for his contribution today. I know that he will be a little bit frustrated that I cannot set out a clearer timetable, but he certainly can know that the Government are fully committed to addressing the issue and will urgently respond to the challenge that he has set us.

At the end of this week I thank everybody at the broadcasting unit, the technicians and their teams for working supremely well to ensure that the vast majority of Members were able to make their contributions remotely, thereby making this Parliament much safer for those who have to work here.

Question put and agreed to.

House adjourned.