Rosemary Gallagher: Whisky tax grab is hard for drinkers to swallow

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Why would any government punish a local industry that supports 35,000 jobs across the UK and one that is a lynchpin for many communities in Scotland?

Why should responsible drinkers who enjoy a dram be forced to pay 48 per cent more than a beer drinker because their preference is for Scotch whisky?

Puzzling as it may seem, that is where the Scotch whisky industry and spirits drinkers have found themselves since the Budget in March.

The alcohol duty escalator was introduced in March 2008 by then-Chancellor Alistair Darling, with duty being increased by 2 per cent above the rate of inflation each year. The exception was this year’s Budget when Chancellor George Osborne removed the escalator from beer and beer duty was cut, while still applying above-inflation increases to all other alcoholic drinks. As a result, responsible drinkers of Scotch whisky are being forced to pay 48 per cent more duty on their alcohol than someone who chooses beer.

We can see no justification for spirits being taxed more heavily than other drinks and drinkers of Scotch whisky being treated any differently from those who prefer a pint.

The Budget decision is treating consumers, the Scotch Whisky industry and its employees unfairly.

The Chancellor’s move, designed to help pubs, ignores fact that 40 per cent of turnover in bars is generated by spirits and wine. The decision hardly helps pubs if the tax on 40 per cent of their business is pushed up by 2 per cent over inflation. The alcohol duty escalator must be scrapped if the government wishes to rejuvenate the licensed trade sector. Some 73 per cent of the total price of a bottle of Scotch is now made up of duty and VAT following the 5.3 per cent increase in spirits duty in this year’s Budget, which increased the average price of a standard 70cl bottle of Scotch whisky to £12.89 from £12.42.

Scots, along with consumers across the UK, are paying more than almost all of their European counterparts to enjoy their national tipple. Only Ireland, Finland and Sweden have higher taxation on spirits in the EU than the UK.

Such a high level of taxation appears to be having a detrimental impact on the industry.

Since the introduction of the duty escalator, Scotch whisky sales have declined by 12 per cent in the UK. UK sales volumes have dropped from 102 million 70cl bottles of Scotch a year in 2007 to 90 million bottles in 2012.

During the same period, exports of Scotch grew by 10 per cent from 1.1. to 1.2 bottles a year. Such overseas success in contrast to a decline in the UK points to the negative impact of government policies on the domestic market.

The government seeks to claim that UK tax does not hamper the industry because its sales are primarily overseas. However, despite recent declines, the UK remains the third most important market for Scotch whisky producers, accounting for 7 per cent of global sales volumes.

The duty escalator punishes ordinary people at a time when their household budgets are already under pressure and increases the burden of inflation for all.

Scotch whisky by law must be made in Scotland and the industry is a major employer, often in rural and urban areas where alternative job opportunities are limited. It is an industry worthy of fair treatment, a point government ministers make when challenging discrimination overseas.

A halt to the duty escalator is well overdue to prevent further damage to an industry vital to the economy and to treat consumers more fairly.

• Rosemary Gallagher is 
communications manager at the Scotch Whisky Association