Scotch Whisky (Excise Duty)

Part of the debate – in the House of Commons at 12:51 pm on 20th December 1990.

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Photo of Mr Bill Walker Mr Bill Walker , North Tayside 12:51 pm, 20th December 1990

The House will know that my interest in Scotch whisky is purely a constituency interest and that, as a teetotal Member of Parliament, I am motivated largely by my recognition of the fact that the Scotch whisky industry is Scotland's premier exporting industry. Unlike oil and gas, whisky is not finite. The barley, the grain and the water are all renewable. The skills and the knowledge of how to produce the whisky are passed on from generation to generation. If we husband the resources and maintain the quality, provided we do not foul the market, this marvellous wealth and job-creating product will continue for ever.

I welcome my hon. Friend the Member for Chislehurst (Mr. Sims), who is adviser to the Scotch Whisky Association; and I also welcome my hon. Friend the Member for Eastwood (Mr. Stewart), the Under-Secretary of State, to the Front Bench. I know that he, like me, has taken a long-standing interest in the well-being of the Scotch whisky industry. I have already made a contribution towards maintaining the quality. The Scotch Whisky Act 1988 was the result of my private Member's Bill. I now look to the Government to play their part to ensure that this wealth-creating product has a continuing European and worldwide growth share of the drinks market. That market is as much a fashion market, and taxation and local conditions can have a massive impact on spending patterns and habits.

When the Conservatives came to office in 1979, the Scotch whisky industry was in a parlous state. Stocks were high, distilleries were being closed and the bottling and blending plants were on short time. Sensible taxation policies changed all that and today, the industry is reopening distilleries, bottling and blending plants are busy and stocks are far more in balance. The industry thanks the Government for their sensible taxation policy.

I welcome the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey) to the Opposition Front Bench, where he should have been years ago.

As a Conservative Member, I have to be an optimist. I am optimistic that Ministers will listen carefully to what I have to say and that, as in previous years, they will respond positively to my proposals. It is, after all, in their interests as well as in the interests of the people of Scotland that the Scotch whisky industry should continue to prosper. Why do I say that?

The Treasury benefits each year to the tune of more than £1,000 million, which is made up of £750 million in excise duty and about £250 million in value added tax. The contribution of Scotch to the Treasury is equivalent to almost £20 for every individual in the United Kingdom.

It is interesting to note that the United Kingdom is the second largest market in the world for Scotch whisky. That is important to us. However, in contrast to its overseas competitors, Scotch whisky is penalised in its own home market by an inequitable tax regime that discriminates against it and other spirits in favour of wine and beer.

It would be an understatement to say that the Scotch whisky industry was extremely disappointed by the 1990 Budget decision to widen the already substantial excise duty discrimination against spirits in favour of wine and beer. The industry and Scottish Members of all parties had understood that the Government accepted the justice of the case for seeking a change in the United Kingdom's structure of excise duties.

The Scotch whisky industry is no lame duck industry with special pleadings and in need of a prop. It is an export success industry which exports more than 90 per cent. of everything produced amounting to £1,500 million worth of exports. It is unquestionably one of the United Kingdom's winners. Consequently, it makes no sense to its export efforts to weaken its important home markets.

It is in the national interest to introduce a structure of excise duties under which all alcoholic drinks are taxed at the same rate per degree of alcohol. The industry and I recognise that such a system cannot be introduced overnight. However, could not the differentials in the duty on different drinks be phased in over a period of, say, three years?

Why do we need to act now? I hope that my hon. Friend the Minister will think carefully before she replies and will accept the logic of the case. I ask her to bear in mind the compelling arguments for the reforms that I am proposing. I believe that it is in the national interest to end discrimination against an industry that makes such a major contribution to this country's economic prosperity through employment, corporate strength, Exchequer revenues and export earnings.

About 16,000 people are directly employed in the production of Scotch, and 95 per cent. of the jobs are in Scotland. Many of those jobs are in constituencies such as mine, a large rural constituency.

The industry also supports many other jobs in related sectors such as retailing, transport and tourism and in the many activities that supply inputs to production like bottling, distribution and marketing, which involve farming, engineering, glass production, construction, packaging, advertising and many other services.

Scotch whisky contributes to the corporate strength of the United Kingdom drinks industry as a core element of some of the United Kingdom's largest companies. Three of the four largest drinks companies in the world—Guinness, Allied Lyons and Grand Metropolitan—are British-owned, and more than 120 United Kingdom companies are producers or traders of Scotch whisky.

As I said earlier, the industry contributes more than £1,000 million to Exchequer revenues. I only wish that every other industry could contribute so handsomely to the Exchequer's coffers.

In the year to July 1990, Scotch exports were valued at more than £1,500 million. Scotch whisky is sold in every country that permits its import, and I wish that that could be said of all British products. In value terms, it is the United Kingdom's fifth largest manufacturing export, and it is the largest export to the important market of Japan, earning more than 5 per cent., of the total value of United Kingdom exports to that country. In that regard, I thank my right hon. and hon. Friends on the Government Front Bench for their magnificent efforts in recent years to improve the market in Japan.

Scotch exports make a major contribution to the United Kingdom's balance of trade. The trading account on alcoholic drinks products shows a trading surplus that is entirely due to Scotch. Indeed, 98 per cent. of our wine consumption is imported, producing an annual trading deficit of £760 million. Surprisingly—as a teetotaller, I was certainly surprised—we also have a deficit on trade in beer.

Scotch whisky alone is responsible for turning a trading deficit of £867 million on other alcoholic drinks into an overall surplus in the United Kingdom's interest of over £400 million. The export earnings of Scotch per employee are £80,000, which is four times that of the engineering and manufacturing industries, eight times that produced by those in the food, drink and tobacco industries, and more than twice that produced by chemicals and man-made fibres.

In contrast to its export success, Scotch has faced intensive competition in its own domestic market in the United Kingdom, especially from imported wine. This is where excise duty really bites. Scotch whisky's share of domestic expenditure on alcoholic beverages is falling and has been falling for many years. A major contributory factor is that Scotch carries much higher excise duties in a market where the general level of excise duties is high by the standards of other countries. Domestic sales of Scotch are stagnant and have never recovered from the sharp falls of the early 1980s when there was an almost 18 per cent. drop over five years. In the first six months of 1990, home sales of Scotch were down by 2·5 per cent. compared with the same period last year.

The decline of Scotch and other spirits in the domestic market is associated with an increase in the share taken by wine. Beer's share of the total consumer expenditure has been stable for some time. The consumer of a typical glass measure of Scotch pays nearly double the excise duty of the consumer ordering a glass of wine or half a pint of beer. In that example, all consume the same volume of alcohol. It is no wonder that consumers and customers switch their expenditure away from spirits.

The tax structures of many member states of the European Community have the opposite effect to the structures of the United Kingdom. Of the six EEC states which have wine as their main product, five have no tax at all on their home product, and the sixth, France, imposes a duty which is equivalent to about 1p per litre. All six countries, except Greece with no alcohol duty, impose a duty on spirits, thus benefiting home production against imports. As a result, the present United Kingdom tax structure makes any future moves towards harmonisation or approximation much more difficult for Scotch whisky within the European Community.

I remind my hon. Friend that, for the United Kingdom alone among European Community countries, the spirits industry is of predominant significance. If we get it wrong and adversely affect the Scotch whisky industry, the political consequences for our party in Scotland cannot be overstated. We could be described almost as a unique species in Scotland. I tell people that I am a minority of a minority, being a Scottish Conservative Member of Parliament.

In a letter dated 20 July 1989 to my hon. Friend the Member for Stirling (Mr. Forsyth), the Chief Secretary to the Treasury wrote: The existing duty system allows the Chancellor the opportunity to take account of changes in the economic conditions affecting each of the drinks industries in setting duty rates. I only wish that the evidence supported that claim.

Wine, which is not a United Kingdom-based industry, is taking an increasing share of the United Kingdom's drinks market. As I said earlier, beer's share is static. Only spirits have experienced both a reduced market share and a decline in the real price of the product. It is not possible for the Exchequer to squeeze more excise duty out of the Scotch whisky industry, as it cannot sustain its present market share while facing competition from other cheaper drinks bearing a much lower rate of duty. I welcome my hon. Friend the Member for Eastwood to the Front Bench. This shows the interest that Scotch whisky has for Scottish Members—of course, I mean the industry, not the product.

The 1988 family expenditure survey shows that beer and spirits drinkers have a similar income distribution, while wine drinkers are more concentrated in the high-income groups. That is a significant and important fact. I am saying in a roundabout way that those people can afford to pay more. If equity is the objective, taxes should be raised on wine relative to those on spirits and beer.

What are the social considerations? As I said, I am a teetotaller. I have campaigned actively on alcohol-related health problems, drink-driving and anti-social behaviour, including under-age drinking. I believe, as does the Royal College of Psychiatrists, that it is the alcohol content which matters—rather than the unique qualities of a particular drink. The widespread belief —that only spirits drinkers become alcoholics—is quite without foundation.' I understand from a parliamentary answer that, in England and Wales, 90 per cent. of drink-related road accidents are caused by people drinking beer. Social considerations demand that all alcoholic drinks are treated equitably and there can be no justification for discriminating against spirits. After all, if someone is stopped while driving a car and is tested, the police are not interested in what he has been drinking; they are concerned with the alcohol content of the blood. That should be the same measure for taxation.

All the evidence suggests that, for social reasons, all drinks should be taxed at the same rate per degree of alcohol content. It is in the national interest that we should cease discriminating against Scotch whisky. It encourages imports of wine and has an adverse affect on the balance of trade. It encourages emulation by overseas Governments. Indeed, recently in Japan the director-general of the Scotch Whisky Association was invited to explain to the Ministry of Finance why the Japanese Government should not follow the United Kingdom Government's example and discriminate against Scotch whisky.

The Institute of Fiscal Studies recently recommended that all alcoholic drinks should be taxked at the same rate per degree of alcohol content. Therefore, it is not just the Scotch whisky industry. Scotch Whisky Association or me making these comments. The institute calculated—this pleases me no end—that equalising rates of duty per unit of alcohol at the present rate for spirits and the rates for all drinks would raise excise duty by 14 per cent. and that VAT revenue would increase by almost 3 per cent. To anyone who is interested in getting funds into the Government's coffers, that must be a good way of going about it, because it is an indirect tax, of which Conservative Members approve.

Another important benefit of levelling up taxes is that it would reduce wine imports. Using customs and excise drinks equation estimates of elasticity of demand for wine, the Institute of Fiscal Studies estimates that wine imports would fall by more than £200 million per annum. That could only be good for the balance of payments.

Taxing all drinks at the same rate per unit of alcohol content would be administratively easy to operate. It would also improve United Kingdom employment prospects, reduce the distortion of consumer choice and discourage emulation of United Kingdom practices overseas. The time for tax reform is long overdue. There is no conceivable interest that provides any rational basis for continuing discrimination against the Scotch whisky industry.

I have made my contribution by ensuring that the quality and quantity of alcohol in Scotch cannot be diluted. I look now to the Government to take the measures necessary to create an environment and tax regime in which this industry—Scotland's premier exporting industry and one of the United Kingdom's main exporters—will continue to provide massive revenues for the Treasury, huge exports and, from a constituency point of view, continuing employment.

I welcome the opportunity to place on record my views about this important and fundamental industry in Scotland. It would not be overstating the case to say that Scotch is recognised worldwide as unique. It can be obtained from only one country in the world, and it is up to us to protect it.