The great whisky con

Published on Wednesday 12 March 2008 21:13

THE Chancellor was at the centre of a Budget storm last night, as it emerged that his plan for a huge rise in whisky duty may not raise a single penny for the Treasury.

Despite adding 59p to a bottle of Scotch, Alistair Darling's own figures reveal falling sales will cancel out any gain.

Furious whisky producers viewed the rise for no gain with "utter dismay". Gavin Hewitt, the chief executive of the Scotch Whisky Association (SWA), said: "Scottish distillers are astonished by the Chancellor's announcement. The government's own figures show that any duty increase on whisky is likely to reduce revenue at a time when public finances are tight."

Treasury figures show the package of levies Mr Darling slapped on alcohol will raise an extra 400 million in the year from April. Some 300 million will come from the 14p on a bottle of wine, while 100 million will be generated by 4p on a pint of beer and 3p on a litre bottle of cider. But the tax take from spirits, including whisky, will remain unchanged at 2.3 billion.

Treasury officials insisted the projections were estimates and that revenues would flow from all drinks duties announced yesterday, allowing the Chancellor to fulfil his pledge to tackle child poverty.

The embarrassing revelation came at the end of a day on which the Chancellor was attacked by David Cameron, the Conservative leader, for a "dire" Budget, delivered "with all the excitement of someone reading out a telephone directory".

Delivering the toughest Budget in 11 years of Labour rule, Mr Darling attempted to steady the ship and emphasised "stability" and responsibility. However, he was forced to downgrade his growth forecast, and he published figures showing national borrowing would be 140 billion over the next four years. Inflation has broken the 2 per cent target, but he predicted it would fall back in line next year.

National debt is perilously close to breaking the "sustainable investment rule", which decrees that it cannot rise above 40 per cent of national income.

Among the Chancellor's other changes are a shake-up in vehicle duty to punish drivers who buy higher-polluting vehicles, and extra cash to lift an extra 250,000 children out of child poverty.

Mr Darling followed the style of his predecessor, Gordon Brown, by announcing a series of changes but making the public wait before they come into force. Child benefit will increase to 20 a week from next April – a year earlier than planned. From October 2009, housing and council tax benefit will be changed to give parents an incentive to work rather than claim benefits. Child tax credits will increase by 50 above inflation from April next year.

However, the National Insurance "upper earnings" limit is being raised by 15 per cent, an annual increase of 520 a year for those earning 40,000 a year.

This increase was announced in the 2007 Pre-Budget Report and comes into force next month.

Major changes will follow to vehicle duty, focusing on newly purchased cars. Seven tax bands, already dependent on emissions, will be widened to 13, with vehicles in the highest category paying 950 for their first year's disc. A planned 2p a litre rise in petrol duty has been postponed until October.

The cost of cigarettes jumped 11p for a packet of 20 at 6pm last night, while the extra costs to drinkers will kick in from midnight on Sunday.

Announcing the increase in alcohol duty, the Chancellor failed to disclose the true scale of the increase, saying only that spirits would jump 55p. But the SWA said it would add 59p to a bottle of whisky, pushing the tax burden on the final price of a typical bottle towards 75 per cent. As white spirits such as gin and vodka have a lower alcohol content, when the levy was recalculated for whisky, it added an extra 4p.

Last night, a Treasury spokesman told The Scotsman duties from whisky would increase, but was unable to say by how much. "We are dealing in billions here," he said. "Figures are being lost in the roundings. But we don't have anything more specific right now – these are all estimates."

However, Stewart Hosie, the SNP's finance spokesman, said: "Alistair Darling has chosen to clobber one of Scotland's premier products." Mr Darling said increasing the alcohol levy was "the right thing to do" as it would help children and pensioners, whose winter fuel payments will increase from 200 to 250 (from 300 to 400 for the over-80s).

The whole package of measures saves businesses and individuals 140 million from April, but takes an extra 2.5 billion in the two following years, and it left observers wondering when it would allow Mr Brown, the Prime Minister, to believe it safe to call a general election.

The Chancellor's monotone address lasted 51 minutes. Mr Darling's aides said he was happy for it to be regarded as a "steady-as-she-goes Budget" as it will take longer than expected for the global economy to turn round.

Speaking to the Scottish media, Mr Darling defended the imposition of the first increase in the duty on spirits since Labour came to power in 1997, but said it was motivated by the need to raise cash rather than to tackle binge drinking. He said: "The reason I have been able to help families with children and the reason I have been able to help pensioners is because I have raised duties on alcohol."

Meanwhile, he is to close a tax loophole on profits from North Sea oil, saving 490 million over the next three years. "One or two" unidentified firms are offsetting offshore profits with management expenses incurred on mainland Britain. This means they can avoid the higher rate of corporation tax that applies in the North Sea. That is to stop.

Mr Darling also threatened legislation to ban plastic carrier bags by 2009 if supermarkets failed to act voluntarily.