Scotch Whisky (Excise Duty)

Part of the debate – in the House of Commons at 1:22 pm on 20th December 1990.

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Photo of Mrs Gillian Shephard Mrs Gillian Shephard Minister of State (HM Treasury) 1:22 pm, 20th December 1990

I congratulate my hon. Friend the Member for Tayside, North (Mr. Walker) on initiating this debate on Scotch whisky at an appropriate and festive time of year. I congratulate him on being such an excellent advocate for a product that he does not even enjoy. I am in the same position as my hon. Friend, but, like him, I can appreciate that it is a fine, high-quality product of which we should all be proud.

Obviously, the Government fully recognise the valuable contribution made by the Scotch whisky industry to exports. The industry is to be congratulated on its magnificent achievement of exporting 85 per cent. of its total production, resulting in about 1·5 billion of income. It has emerged from the difficult years of the mid-1980s strengthened and invigorated largely, although not entirely—there has been Government help—by its own effort in marketing and targeting. I am delighted to note that some distilleries that had been mothballed for some years have successfully reopened.

The burden of my hon. Friend's debate has been the question of taxation of whisky but, in passing, I should like to mention some ways in which the Government should helped the Scotch whisky industry over the past 10 years.

It is fair to say that the duty ratio in relation to alcohol content between spirits and beer and wine has fallen from 2·8:1 to 1·7:1 and the tax on a normal bottle of whisky has fallen from some 80 per cent. of the retail price in 1980 to 66 per cent. today. Taking inflation into account during the period May 1979 to April 1990, the duty on spirits has fallen by some 27 per cent. in real terms, while that on beer has risen by 19 per cent. I understand my hon. Friend's concern about the interaction between the duty on wine and beer on the one hand and spirits on the other. I hope that he will accept that such movement as there has been has been positive and in favour of whisky.

My hon. Friend was right to mention his successful private Member's Bill, which is now the Scotch Whisky Act 1988. It enshrines the traditional method of producing Scotch whisky and its maturation in oak casks. He will accept that the Government took the lead in Brussels on the European Community spirits drinks regulations, which came into force last December and ensures that the name and quality of Scotch whisky is protected throughout the Community. The regulation defines the minimum alcoholic strength as 40 per cent. alcohol by volume and ensures that only whisky distilled in Scotland can use the name Scotch whisky.

The Government were instrumental in opening up the Japanese market and reducing the discriminatory duties against Scotch whisky there. We are continuing efforts to remove restrictions on imports of Scotch to Korea and Taiwan. Both markets have great potential. We are fully aware of the general concern to liberalise the Taiwan market for imported spirits and we give support wherever possible. We shall continue to co-operate with the Scotch Whisky Association in certification procedures to prevent counterfeiting and look-alikes.

My hon. Friend mentioned the 10 per cent. duty increase in the last Budget. I must point out that it was the first duty increase on spirits since 1985, in contrast to beer, wine and cider, the duty on which was increased in 1988. The duty on spirits in real terms has fallen by 27 per cent. in the past 10 years. I feel constrained to mention cider because I have Gaymers in my constituency and I want to go home safely at the end of the debate.

The burden of my hon. Friend's argument has been the question of unitary taxation. He argued that all alcoholic drinks should be taxed strictly according to their alcohol content. I have paid careful attention to his views. As he rightly says, we must not lose sight of the fact that the basic purpose of alcoholic drinks duties—sometimes it is overlooked, but not by my hon. Friend—is to raise revenue for the Government. In the past financial year, those duties brought in nearly £4·5 billion. To achieve that, successive Governments have set out to collect revenue from various drinks rather than from alcohol as such.

I was amused when my hon. Friend quoted our right hon. and learned Friend the Chief Secretary to the Treasury. I am obliged to tell my hon. Friend that the present flexible structure allows my right hon. Friend the Chancellor of the Exchequer to take market and industrial factors into account. For example, sparkling wine, which is often regarded as a luxury product, has traditionally been taxed at a higher rate than still wine of the same alcoholic strength. Similarly, cider, which is of the same strength or stronger than average beer, is taxed at a lower rate. To link duties on the basis of alcoholic strength would limit the Chancellor's room for manoeuvre and produce a major upheaval in the market place.

I note that my hon. Friend suggests that time should be taken to look at this and that if such changes were considered they could be phased in over some years. I can assure him that those questions will be considered most carefully by my right hon. Friend the Chancellor in the run-up to next year's Budget. My hon. Friend will not expect me to give any more undertakings now.

My hon. Friend mentioned the European Community. The Government's attitude to centrally imposed tax harmonisation is well known. Such harmonisation as is necessary should come about as a result of the operation of market forces. We have consistently said that member states should be free to set their own rates of duty, in the light of their own fiscal, social and other policies. I believe that my hon. Friend agrees, because part of his argument is that the Government should take into account the interests of the Scotch whisky industry in setting its own duty policies. His comments about the European Community will be taken into account when discussions get under way.

I assure my hon. Friend that I listened most carefully to his remarks, which were preceded by my meeting with the Scotch Whisky Association. Clearly that industry is vital to Scotland, and I assure my hon. Friend that the Government will ensure that, just as we have protected its interests in the past, we shall do so in future.