Craft gin, rum and vodka producers are seeking the same tax ‘gift’ enjoyed by beer companies, writes Kristy Dorsey
SMALL-scale Scottish distillers making everything from gin to rum and vodka are gearing up a renewed campaign for changes which they believe could see their sector take off with the same explosiveness of the craft beer movement.
Drinks industry veteran Paul Miller is leading the charge, and the extent of the devolution of powers in Scotland is key as he takes aim at easing the tax burden on small-batch producers.
“This is something that could be a really useful and exciting way of stimulating the economy,” says Miller, the head of Fife’s Eden Mill and a member of the Scottish Craft Distillers Association (SCDA). “It is perfectly within the government’s gift to give that, whatever government is in power. In the case of alcohol duty, that is currently the UK Government.”
The “gift” he seeks is the same sort of allowance that then-chancellor Gordon Brown granted craft brewers in 2002. The Progressive Beer Duty, which gives tax breaks to brewers below a certain size, has led to a surge in the number of producers and the variety of beers on offer.
“That has been the catalyst for the creation of a whole raft of craft brewers across the UK, but especially in Scotland,” says Miller, whose Eden Mill turns out brews such as St Andrews Blonde and Shipwreck IPA. “The same opportunity potentially exists in craft distilling.”
The rise of craft brewing is impressive. Across the UK, an average of roughly three new breweries pop up every week, with numbers higher than at any time since the 1940s.
The biggest noise-maker is BrewDog, the “punks” of craft beer, who have clashed with traditionalists in the form of both the Campaign for Real Ale and mainstream financial institutions. Based in Ellon, near Abderdeen, BrewDog announced this month that it has raised £5 million in its latest £25m crowdfunding drive.
But many others are more quietly ploughing the same furrow, with names like Black Wolf, Fyne Ales and Harviestoun gathering a growing following. An initial analysis by recently formed trade group The Brewers’ Association of Scotland found more than 100 craft brewers in Scotland with a sector turnover in excess of £35m.
It’s a similar story across the UK as a whole. The Society of Independent Brewers (SIBA) welcomed 100 new members last year. A further 13 joined in the first two months of 2015, taking the total to more than 800.
Craft beer production in the UK increased by an estimated 15.8 per cent in 2014, an acceleration on growth rates of 9.4 per cent and 5.7 per cent in the previous two years.
SIBA says three-quarters of its members expect turnover to increase in 2015, while more than 80 per cent anticipate hiring at least one additional member of staff this year.
Miller reckons there has been a five to six-fold increase in the number of Scottish craft brewers since the introduction of the Progressive Beer Duty, and believes the same could be the case for craft distilling.
In addition to beer, Eden Mill makes its own range of gins, including last week’s launch of Golf Gin, which is flavoured with conventional botanicals as well as shavings from the traditional hickory clubs produced by the nearby St Andrews Golf Company.
Gin is expected to account for about one-third of this year’s projected £3m turnover at Eden Mill, one of about a dozen craft distillers operating in Scotland. Others include Dark Matter, which makes rum in Banchory, and Angus-based Ogilvy, making vodka from Scottish potatoes.
Gin remains dominant, however, with the likes of the Glasgow Distillery Company, Perthshire-based Strathearn and Thurso’s Rose Rock also turning out their own blends.
The potential within this category was highlighted this year with figures from the Wine and Spirit Trade Association (WSTA) which revealed a 9.6 per cent rise in UK gin sales during 2014. This is being driven by the emerging independent distillers, though the WSTA has joined others in warning that high rates of excise duty could stifle the sector.
The SCDA has asked Miller to look at how the trade body can tackle the taxation issue as the arrangements for further devolved powers become clearer in the coming months. Miller, who has worked for Glenmorangie and later headed the Scottish operations of Molson Coors, says progressive duty like that in place for small brewers would be a significant boon to the nearly two dozen Scottish distilling projects currently in early to advanced stages of launching.
The Progressive Beer Duty stipulates that all small-batch runs must be made on the premises of the craft brewer. Any production outsourced to a larger brewer is taxed at the standard rate.
Some commentators have questioned the “authenticity” of certain craft gin brands, noting that they are owned by larger drinks groups. In the US, meanwhile, artisan distillers such as Colorado’s Tincup bases its products on whiskies made by other major producers, much like an independent bottler or blender in Scotland.
None of these practices are illegal, but Miller says they could undermine the principles of craft distilling and he advocates clearer guidelines in conjunction with any tax breaks.
“There needs to be a range of mechanisms to ensure the integrity of craft distilling,” he says. “Otherwise, there are real risks to the industry.”
Gin craze: Our other national drink
WHISKY is Scotland’s most famous and valuable export, but the history of gin north of the Border dates back to the 18th century. It was then that gin’s predecessor, genever, began arriving from the Netherlands through Edinburgh’s port of Leith. It quickly grew in popularity until the government imposed a heavy tax on imported spirits during the war between Britain and France.
British distillers began producing their own version. This new gin was much cheaper and brought on a period known as “The Gin Craze” that lasted until the 1736 Gin Act. The hefty tax imposed played into the hands of bootleggers who thrived towards the end of the century.
The rise of the industrial revolution saw gin fall out of fashion. This came about with the invention of the column still, which popularised grain spirits, and the sanctioning of whisky distillation by the 1823 Excise Act.
“Craft” distilling of gin was revived in Scotland in 1999 when Hendrick’s began producing a version in Girvan infused with the essence of cucumber and rose petals.