Scotch whisky: Why is Scotland's national drink penalised by higher taxes? – Graeme Littlejohn

How alcohol is taxed in the UK is the policy equivalent of Frankenstein's monster.

The UK government plans to reform alcohol taxation with an emphasis on health (Picture: Daniel Leal-Olivas/WPA pool/Getty Images)

Over time, different parts have been bolted on, creating a hideous being which attempts to fit into society. Ultimately – as with Mary Shelley’s creation – this approach is doomed to failure.

So it was welcome when, in 2019, the UK government announced that they would reform how alcohol is taxed in the UK. More so, because their commitment started from the basis that reform would ensure fairness for the Scotch whisky industry and the 42,000 jobs our distillers support across the UK.

Many people will know someone who knows someone who works in this sector or its supply chain, which stretches the length of the UK. Jobs and investments are not limited to urban centres, but extend across rural and island communities.

As tourist destinations and a key part of the hospitality sector, the industry underpins further economic growth. What better industry to back as part of the government’s levelling-up agenda and as the economy recovers from the impact of the pandemic?

Scotch whisky has been disadvantaged for decades by outdated taxation structures that don’t reflect the realities of consumer trends or business innovation.

UK duty on Scotch and other spirits is the highest in the G7 and one of the highest in the world; £3 in every £4 that you spend on Scotch whisky is collected in tax by the Chancellor.

The imbalance in the current system affects consumers, especially as we feel the cost of living squeeze. It affects business, with the Scotch whisky industry facing a higher tax burden than other alcohol producers. And it affects the government’s ability to call on our international trading partners to support Scotch through their own tax regimes, impacting the vision of a Global Britain.

Unfortunately, whilst the sector remains supportive of the need for reform, distillers have been left disappointed by the Chancellor’s reform proposals, which he outlined during the October budget last year.

When Rishi Sunak stood at the Despatch Box, he promised a fairer and healthier system, which would be based on the principle of taxing by strength of the alcohol product. The problem is that this underlying principle will result in a tax system that is neither fairer nor healthier – and will not meet the government’s commitment to support Scotch whisky.

The proposals set out by the Chancellor are based on the false premise that lower alcohol products are less harmful and those with higher alcohol content, like Scotch or gin, are more so. The reality is quite different.

Go to the pub this weekend, order a Scotch whisky highball (two units of alcohol) and then stand beside someone who has ordered a pint of 4% ABV cider (2.3 units). Based on the Treasury’s plans, you would pay more than three times as much in tax than on the pint of cider, despite the Scotch containing less alcohol. Fairer? Healthier?

It is difficult to claim the reform proposals herald a new modern way of taxing alcohol when consumers are forced to pay far more tax on a drink containing fewer units of alcohol.

What the proposals do instead is penalise responsible drinkers who would rather have a dram, a G&T or a Scotch whisky cocktail than a pint. It also makes little economic sense, given spirits have been the fastest growing category of alcohol in recent years.

This fact, demonstrated repeatedly by HM Revenue and Customs’ own figures, shows that consumers are increasingly choosing alternatives to beer, cider or wine, all while overall alcohol consumption is decreasing.

The principle of taxing by product strength will only increase the competitive disadvantage faced by Scotch whisky distillers who – let’s not forget – are still recovering from 18 months of tariffs in the United States which cost the industry over £600 million. Speak to any of the small-to-medium-sized distillers across Scotland, and they will tell you they are still suffering the impact of that trade dispute which was not of their making.

The Treasury has been consulting on its proposals and still has time to turn back from the brink. The UK should be reforming how alcohol is taxed, but doing so in a way that supports domestic business and their supply chains, reflects consumer trends and modern consumption patterns, and does not penalise responsible drinkers.

The Chief Medical Officers’ guidelines on alcohol consumption recommend drinking no more than 14 units a week on a regular basis – it doesn’t single out spirits, or any other alcohol, as the guidelines recognise that alcohol is alcohol, a unit is a unit.

You have to ask the question, why is the Treasury singling out Scotch whisky, which will pay more duty per unit, than any other alcohol category?

Fundamental changes to taxation don’t come around very often. The last time alcohol excise duty was properly looked at was more than a century ago.

Getting the underlying principles wrong now – trying just one more bolt in hope it will make the Monster fit into society – will leave the Scotch whisky industry facing further competitive disadvantage compared to other products.

These are businesses that have innovated, invested, and remain economic and employment cornerstones of their communities. These are the sort of businesses government should be championing.

Rather than asking companies and the people they employ to try and succeed with the system tilted against them, their efforts, which have brought handsome rewards to the Treasury, should be supported.

The Chancellor is right to reform the system. But the proposals as currently designed won’t deliver the fairer and healthier system we all want to see – nor will they support the Scotch whisky industry as the government promised. There is still time to think again.

Graeme Littlejohn is the director of strategy and communications at the Scotch Whisky Association

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