Higher duty on alcohol could create a “grey market” and drive people to fraud, which already costs the taxpayer more than £1 billion a year, the Scotch Whisky Association has claimed.
The trade group also said that removing the escalator on spirits and wine could increase the industry’s contribution to public finances to £262 million by 2018, through an increase in the number of jobs in the industry.
The association said in its submission to the UK government ahead of Chancellor George Osborne’s 2014 Budget that a “fairer” rate of tax would remove the incentive for people to cross-border shop or avoid paying excise duty.
“The unfairly high level of excise duty on Scotch whisky, and all spirits, has a number of unintended consequences,” said Rosemary Gallagher, of the Scotch Whisky Association (SWA).
“One issue is that high excise taxes can offer an incentive to alcohol fraud, which damages the industry, the economy and impacts on consumers.”
The alcohol duty escalator – which was introduced in 2008 and goes up by inflation plus 2 per cent each year – was abolished for beer in the Chancellor’s last Budget.
The SWA has called for Mr Osborne to this year remove the duty escalator on Scotch whisky and freeze all alcohol duties.
The SWA, which recently appointed new chief executive David Frost, is working with the UK government on its anti-fraud taskforce, which was launched last month.
The government has highlighted the most prevalent forms of alcohol fraud – the largest of which is the smuggling or “diversion” of alcoholic drinks into the UK in large commercial quantities, without duty being paid on them.
Alcohol duty fraud in the UK can involve exporting alcohol to the EU untaxed, and then bringing it back into the UK with false paperwork.
Carousel fraud means that fraudsters import goods VAT-free from other countries, then sell the goods to domestic buyers, charging them tax. The sellers then disappear without paying the tax to the government.
But the SWA warned that higher taxes made black or grey market tactics more attractive to consumers.
“Higher excise duty also encourages people to avoid paying excise duty by turning to the grey market,” added Ms Gallagher.
“We believe that scrapping the alcohol duty escalator and freezing duty on alcohol would help address alcohol fraud and benefit the UK economy.”
The SWA, which launched the “Call Time on Duty” campaign, has claimed that figures show the UK market for Scotch whisky has declined 12 per cent in volume and is now 21 per cent lower than a decade ago. The last ten years have seen a loss of more than 23 million bottles of Scotch from the market.
However, despite decline at home, international exports have been increasing and hit a record level of £4.3bn in 2012 to earn £135 per second for the UK balance of trade.