Alcohol Duty Debate

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Department: HM Treasury
Thursday 25th February 2021

(1 year, 4 months ago)

Commons Chamber
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Douglas Ross Portrait Douglas Ross (Moray) (Con) [V]
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I am grateful for the opportunity to debate today how we deliver a competitive duty system for alcohol producers. It will not surprise Members to know that my central interest here is in supporting Scotland’s national drink. Moray is home to more than 50 Scotch whisky distilleries. However, many other Members from across the United Kingdom will in the weeks and months ahead be making calls of support to the Treasury team for producers of other drinks. Indeed, my constituency also has several small craft breweries that will be keeping a close eye on any proposed changes in the UK alcohol duty system, and I will come to some of their concerns later.

Since I was first elected in 2017, all my Scottish Conservative colleagues and I have continually worked with partners from the whisky and wider spirts industry in Scotland to secure substantial wins for the sector. In every Budget since my election, the UK Treasury has taken the decision to freeze the duty on spirits. That has been very much welcomed and illustrates the major show of support from successive Conservative Governments for this vital sector.

However, it is still the case that just under £3 in every £4 spent on the average bottle of whisky is taken as tax. That is among the highest tax rates on an alcoholic beverage in the world and higher than the tax paid on wine, beer, and cider. In fact, a unit of alcohol served as Scotch whisky or gin is taxed 16% more than wine, 51% more than beer and 256% more than cider. That is why I was pleased when the Conservative party committed in its 2019 manifesto to

“review alcohol duty to ensure that our tax system is supporting British drink producers.”

Indeed, I well remember the Prime Minister’s visit to Diageo’s Roseisle distillery, less than 1 mile from where I am speaking today, to make that announcement as I joined him on the campaign trail for the 2019 general election.

I welcome the fact that the Government are currently taking that review forward, as promised. This is even more important in the context of the UK’s departure from the European Union. We now have the opportunity to think differently about how we tax alcohol in this country. This is an opportunity, which the Government have to seize, to redress the many historical injustices in the alcohol duty system and use it not simply to raise revenue but as a tool to back our domestic producers with a solid foundation in the home market as they look to expand to new markets around the world.

The Scotch whisky sector employs 11,000 people in Scotland and supports more than 40,000 jobs across the United Kingdom, contributing £5.5 billion to our economy in the process. Much of that employment is in rural areas such as my constituency, Moray, where distilleries are a key local employer. It is a sector of significance and tradition, with a long history. However, it is also a sector that is facing real challenges right now, some of which are unique to the alcohol industry, while others are symptoms of the times we live in.

The covid pandemic and the resulting restrictions imposed on our day-to-day lives have affected all parts of the economy. We all know that these restrictions were necessary to curb the spread of the virus, but we must also acknowledge the economic damage that has been done as a result. The whisky and wider drinks sector has lost tourism income because of the travel restrictions in many parts of Scotland that we have now faced for more than 11 months. It has also lost many of its business customers due to the closure of pubs and restaurants for long periods both here in Scotland, since the whole of mainland Scotland went into lockdown again on Boxing day, and across the rest of the United Kingdom.

At the same time, for much of the last year those in the sector have been unable to access Scottish Government grant funding because they were not directly affected by the restrictions under the strategic framework. That would have meant that distilleries could open as tourism visitor attractions, even though most people in Scotland—not to mention international visitors and those from elsewhere in the United Kingdom—would have been unable to travel to those visitor centres. The impact that this has on the local economy here in Moray and other parts of the country cannot be overestimated. Tens of thousands of visitors come to Moray every year to follow the Speyside whisky trail or go on individual tours of distilleries. All those visitors spend more money elsewhere in the local economy—on accommodation, on food and in our local shops.

The Scotch whisky sector is also struggling with the impact of the 25% tariff introduced by the United States in October 2019. The industry has estimated that this has resulted in a cut in exports worth £500 million. As the Scotch Whisky Association has pointed out, this is a 35% drop in exports to the United States that is being borne by producers both large and small. For a sector with a trading history of more than 150 years, this is damaging an essential part of its business and trade with its biggest market. The Scotch whisky sector is in no way involved in the dispute between Airbus and Boeing, but it is paying the price for it, alongside a range of other iconic products, some of which are sadly based here in Moray as well, so we are really feeling the impact. This is clearly unfair and a source of great distress for the sector.

I am grateful for the efforts of the Secretary of State for International Trade over the last few months and years to get these tariffs removed. It is no easy task, but I believe that with the support of her Cabinet colleagues, she will prevail. In the meantime, I urge the UK Government to do all they can to deliver clear support for the sector, both in the short term, through next week’s Budget, and in the longer term, to build a solid foundation through duty review.

I would also like to take some time to acknowledge the contribution made by spirits other than whisky. Scotland has a long and rich history of gin distilling, and Scottish gin has seen an enormous level of growth over the past decade. Twenty years ago, we would only have found two Scottish gin distilleries, but in 2020, there were more than 60 across the country. With many gin producers making more than one type of gin, the number of Scottish gin brands is believed to have climbed to around 140. Like whisky, 70% of the price of a bottle of gin is currently collected in tax. By comparison, less than €1 is claimed in duty on a bottle of wine in France. This takes us back to the central point of my contribution. We have a huge opportunity to look at how we put duty on alcohol differently in this country and to introduce a fairer system for producers in Scotland and other parts of the United Kingdom.

As I mentioned earlier, while my focus is on whisky, other Members will no doubt be making the case to the Minister for changes to the taxation of other drinks, including cider and beer. Despite the dominance of whisky distilleries here in Moray, there are craft brewing firms that are also making a significant impact, with businesses such as the Lossiemouth-based Windswept Brewing Co. It is one of 60 independent craft brewers in Scotland that are also making a huge contribution to our UK alcohol receipts.

Ahead of this debate I was contacted by Nigel Tiddy from Windswept, and the work those there have done to build up that business has been so encouraging. Seeing them continuing through this pandemic, I want to ensure that we continue to support companies such as Windswept and other craft brewers throughout this country as we come out of this pandemic. I know that they are watching this debate and this review very closely, and I will continue to engage with them after today’s debate.

This is another fast-growing sector of our economy that has faced major challenges over the last 11 months. We all want to see the existing growth in the craft brewing industry continue. I know that such businesses and their trade body, the Society of Independent Brewers, are calling for changes to small brewers relief and supporting the pubs and taprooms that these companies rely on for most of their sales. They are also calling for recognition by Government of the role of smaller producers and the challenges they face growing their businesses.

As I have already said about the argument for changes to the spirit taxes, there is an opportunity to review the entire system of alcohol taxation. The Treasury said at the time of its call for evidence in September 2020 that the current alcohol tax structures are “complex—and arguably outdated”, and I agree. We can reform these structures and develop a system that is fairer and, importantly, encourages the growth we want to see in these vital sectors of our economy.

To close, my message is that it is time to right the historical wrong in our tax system. It is time to see Scotch whisky taxed properly, not to see it continue to be more heavily taxed in its home country than imported wine. It is time that we backed Scotch whisky with a tax system that supports home producers in their own market. I have met the Exchequer Secretary to the Treasury on this matter, and I know her interest in the subject.

I hope that, in responding to the debate, the Minister is able to outline where we have got to with the review, the timescale for it and what more the UK Government need from stakeholders as the overhaul of this system progresses. There is a need to set out a clear timetable to complete the current review of alcohol duty, and this should deliver a pathway to reform that better serves consumers and enables growth that will benefit our whole economy.

I was proud to campaign on this much-needed reform at the last election, just as I have been proud to stand up for Moray’s huge array of Scotch whisky distilleries and other producers at every opportunity since I became the MP for this seat in 2017, but now words and promises must be turned into action. A duty review is long overdue, and I look forward to working with the UK Government to deliver our manifesto commitment on this. I think we can all agree that if we do that, it is something we can raise a glass to.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
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I did not suspend the House after the Welsh affairs debate because both contributors to this Adjournment debate are coming via video link, but we have sanitised the Dispatch Box in the unlikely event that the video link goes down and we need to use it.