Budget 2023: Scotch whisky industry dealt 'historic blow' amid tax hike

The Scotch whisky industry has been dealt a “historic blow” after Chancellor Jeremy Hunt announced one of the largest tax hikes in recent decades, the sector has warned.

Mr Hunt confirmed duties on alcohol would “go up in line with inflation in the usual way” after the existing freeze ends on August 1.

The Scotch Whisky Association (SWA) said the resulting 10.1 per cent increase in duty would be the “largest tax increase for decades”, while opposition politicians argued distillers were being “hung out to dry”.

Setting out his first Budget in the Commons, Mr Hunt increased duty across all four alcohol categories. The only exception will be for drinks sold on draught in pubs, where from August the duty charged will be up to 11p lower than it is on products sold in supermarkets.

The whisky industry has criticised Chancellor Jeremy Hunt's Budget.

Mr Hunt said this was only possible now Britain was no longer part of the European Union, promising to maintain it as “part of a new Brexit pubs guarantee”.

Elsewhere, he announced Scotland would receive an additional £320 million as a result of the Budget over the coming financial year and 2024/25.

He said the UK Government would deliver 12 new investment zones, which he labelled “12 potential Canary Wharfs”, with at least one of these in Scotland.

The Chancellor also confirmed £8.6m of targeted funding for the Edinburgh Festivals – first exclusively revealed by The Scotsman earlier this week – as well as £1.5m in funding to repair the Cloddach Bridge south of Elgin.

The duty rate on spirits will rise to £31.64 per litre of pure alcohol, meaning of the £15.22 average price of a bottle of Scotch whisky, £11.40 is collected in taxation through duty and VAT. The tax burden on the average bottle of Scotch whisky has risen from 70 per cent to 75 per cent.

The SWA had called on the UK Government to extend the freeze announced back in December. It said the decision to increase duty would inevitably fuel inflation, further dent consumer confidence and add to pressures in the hospitality industry.

Mark Kent, chief executive of the SWA, said: “This is an historic blow to the Scotch whisky industry. The largest tax increase for decades means that 75 per cent of the average priced bottle of Scotch whisky will be collected in tax, reducing already tight margins for an industry which employs tens of thousands of people and invests hundreds of millions annually across the UK.

“In addition, the Chancellor has chosen to further increase the competitive disadvantage faced by the industry in the UK by giving additional tax breaks which are not available to the vast majority of distillers. Spirits account for more than a third of hospitality sales, but the extension of ‘draught relief’ cuts out 99 per cent of the spirits sector, alienating both producers and consumers who choose premium quality drinks.

“We have been clear with the UK Government that increasing duty would be the wrong decision at the wrong time, so it is deeply disappointing that one of Scotland’s largest and longest-standing industries has been treated in this way. The industry continues to grapple with significant domestic headwinds, including the soaring cost of energy, intense pressure on the hospitality sector, and increasing regulatory burdens like the deposit return scheme. This tax hike just adds to the pressures on the sector and breaks the UK Government’s commitment to support Scotch.

“Scotch whisky has consistently delivered for the UK economy when given stability and certainty through duty freezes, enabling the industry to reinvest in job creation and growth across the country. The Chancellor has chosen to ignore the evidence and increase the pressure on hard pressed businesses, including many in the hospitality sector.”

Louise Gilmour, of the GMB trade union, said it was “yet another unhelpful political measure for Scotland’s whisky and spirits sector”.

SNP MP David Linden said the Scotch whisky industry had been “hammered by the Treasury”.

Scottish Liberal Democrat MP Christine Jardine said: “This is terrible news for one of Scotland’s most iconic products. It seems the industry cannot catch a break. Energy bills have spiked, the SNP’s alcohol consultation threatened to close down their gift shops and now the Chancellor is whacking up tax. Distillers are being hung out to dry.

“I know that the Conservatives are desperate for ways to fill the economic black hole that their policies have created, but additional taxes on Scotland’s national drink will not help our economy to grow.”

Speaking to journalists, Chief Secretary to the Treasury John Glen said he did “understand the concern” from the Scotch whisky industry.

He said: “Whatever you do, you won’t satisfy everyone. We recognise the strength of the Scottish whisky industry and the massive export strength it is to the economy. These are tough decisions that we make across a range of produce.”

Scotland Office minister Lord Offord said while he could “understand the Scotch whisky industry is upset with a 10 per cent hike”, he said the sector had benefited from “nine out of the last ten budgets being a freeze”.

On the planned investment zones, Mr Glen said: "They are complementary to the freeports, and we want to provide a zone with a hospitable growth-enabling environment for investment, where we can see a cluster of economic opportunities. Our intention is to work collaboratively to land those in the best possible way with the Scottish Government."