Scotch Whisky Industry in Turmoil

In the warm afterglow of Burns night it’s perhaps time to once again take a look at the Scotch Whisky and its role and treatment within the UK economy. Recent reports value its contribution at over 5bn placing it higher than steel, iron or computers and half the size of pharmaceuticals but the industry is groaning under taxes and suppliers are looking outwards rather than inwards for growth.

Scotch on the National Stage

While the Yamizake Sherry cask may currently hold the number one position, for many Whisky is still synonymous with Scotland and for good reason. With over 80 distilleries in operation and another 30 being planned or built, Scotland produces more per annum than any of the other Whisky producing countries, America follows in second place, while Japan with only 2 distilleries takes third. And while only a handful of Whisky producers such as Glenfiddich are still sat in family owned hands the industry, directly or indirectly employs some 40,300 people (92% of these are in Scotland).

In this context it’s hardly surprising that the Scottish Whisky Association (SWA) report on the Economic Impact of Scotch Whisky Production in the UK values the Spirits contribution to GDP at some £5bn a year, with a direct impact of £3.3bn and a further £1.8bn being spent on related costs such as transport, packaging and distribution. In spite of this contribution the Scottish whisky industry enjoys no special privileged place within the UK, in fact the reverse is true. Current taxation levels hurt local growth and leave businesses looking to exports for expansion. While the report correctly identifies the 1970s as the industries peak then and long before the troubles of taxation have long been the bane of Robert Burns, the Scots Makars, muse and “guid auld Scotch Drink!”

A Uniquely Scotch-ish Problem

Unlike craft beers, Gins, Rums and Vodkas which are sold comparatively quickly Whiskies, at least the kind that the world rejoices in drinking suffer a very significant financial handicap, in the same way that wines are aged, so too are Whiskies. For a Whisky to be called a Scotch it must spend a minimum of 3 years ageing, and reducing in alcohol by up to 2% per year a loss is known as the “Angels Share”. While 3 years ageing is perfectly respectable for a nice bottle of wine, a 3 year old Whisky is going to receive very little attention, on either the local or global stage. 12, 18, 21 and 25 are the numbers you’ll find in your average supermarket though this can climb far higher if you’re looking at a specialist retailer. The consequence is that the initial investment takes an incredibly long time to recoup, this has lead to a great many distilleries closing their doors and acts as a substantial barrier to smaller producers entering the market. That bottle on the shelf is never going to be cheap when compared to other spirits with such storage costs and alcohol loss, but right now 78% of the price of that bottle in your hand is tax.

The Devil Take the Taxman

In 1785 Burns pleaded for the Devil to take away “Thae curst horse-leeches o’ the’ Excise, Wha mak the whisky stells their prize”, whereas today the SWA would happily settle for an equal footing. The [Drop the Duty campaign] (http://www.droptheduty.co.uk/), spurned on by their 2014 success in abolishing the alcohol duty escalator, is now fighting for a drop of 2% in the 2015 budget. With the country’s economic woes this may sound counter intuitive, I’ll leave you to puzzle over the facts yourself as I’m personally dubious about statements such as “a 2% cut in duty would boost public finances by £1.5bn” but personally I’ll be supporting this campaign for one reason, Parity taxing Whisky at a higher rate than Vodka can only curb our enthusiasm for Whisky at home at a time when structural changes are hurting exports.

Whisky is prohibitively expensive for many already, but it is also a national treasure with a significant role to play in both the culture and the economy of Scotland, surely it is one we should cultivate.

Sláinte

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