Scotch Whisky Industry

Ian Murray Excerpts

Tuesday 31st October 2017 Westminster Hall

[Mr Carmichael]

The hon. Gentleman tees up my next point for me beautifully. I promise that is the last time there will be a reference to “tee” this morning. The work in question was done for the Scotch Whisky Association by KPMG, an organisation that is not just going to tell clients what they want to hear. The work is underpinned and supported by the Treasury’s own figures. The increase in March damaged confidence and led to a sharp decrease in sales—1 million fewer bottles were sold in the first two quarters of this year, compared with last year. That can be tested against the experience of 2015.

I was a Cabinet Minister in 2015 and was proud of the fact that that Government delivered a 2% cut in the level of whisky duty. I cannot remember exactly, but I recall that the expectation in the Government at the time was that a 2% cut would cost in the region of £600 million. That was what we thought we would lose in revenue. In fact, however, a significant increase in revenue was delivered as a result of lower taxation.

[Ian Murray (Edinburgh South) (Lab)]

The right hon. Gentleman is a massive defender of the whisky industry and I am sure he likes a tipple himself. Will he comment on the way in which the Treasury is set up? Perhaps the problem is that the Red Book would have to determine a minus figure when the reality might be positive. The Treasury should look more imaginatively at how it taxes not only Scotch whisky but spirits in general.

[Mr Carmichael]

I am keen to encourage creativity within the Treasury. I must say that that message is not always well received in that particular Department and change is often slow in coming, but I encourage the Minister to pursue that agenda, because—to return to the experience of 2015—having anticipated a £600 million decrease, there was an increase of £124 million in revenue to the Exchequer. Although I obviously have some concerns about the Chancellor, I do not believe that he put the rate of duty up in March believing that he would take in less money. The underlying problem is that the elasticities that underpin the modelling used by the Treasury are clearly out of date. They have not been updated since 2013 and they have been wrong at least twice. They were wrong in a good way in 2015, when the cut in duty delivered an increase in revenues, but they were also wrong in March, when the increase in duties delivered lower revenues.

My essential message to the Minister is that to embark on a progressive increase of the sort planned, with a year-on-year 3% increase on the basis of Treasury modelling that is at best flawed and in need of updating, is ill conceived and risks the emerging growth not just in whisky but in other spirits. It is difficult to go on any social media platform these days without seeing an advert for yet another craft gin. Gin is another emerging spirit and important part of our export portfolio. From the outside, as the industry sees it, it looks as if one of our most successful industries is being punished by the Treasury at a time when, frankly, we are going to need the contribution it makes to our economy.

I say to the Minister that it is now time to be bold. The Chancellor could use 22 November as an opportunity to cut duty, as was done in 2015. If he is not prepared to do so, there is a good business case for at least a freeze or for walking away from the escalator effect. If he continues with the escalator, he must come up with some justification for it, because all the indications go in the opposite direction.

Turning briefly to the question of the medium to long term, there is an opportunity to recalibrate the way in which the Treasury engages with the industry. During my time in Parliament, the successful PILOT partnership scheme between Government and the oil and gas industry has allowed the Government to better understand what is happening in the industry and allowed industry to engage, see the direction of travel and plan accordingly. The Scotch Whisky Association now talks about a sectoral deal, perhaps for the whisky industry but more likely for spirits or alcohol manufacturers as a whole. I encourage the Minister to take that suggestion seriously. We have seen tremendous success as a result of the city and regional deals, a model that has worked well. Taking that to a sector such as spirits production or the whisky industry would be a new iteration of the model. Given the opportunities that exist, the model is well worth considering. Those are the medium to long-term opportunities. In the medium to long term, the Government can do good to help the industry and, most importantly, the communities that depend on it. In the short term, on 22 November, the very least they can do is stop doing damage.

--- Later in debate ---

[Andrew Jones]

That tempts me towards Budget comments, which I cannot make at this moment. I need to rewind a little bit from that question and make a quick point before coming on to duty rates.

The protected food name scheme remains in place while we are still a member of the EU. The European Union (Withdrawal) Bill, which is currently passing through this place, will ensure that all EU law passes into UK law when we leave the EU. That will include the legal definition of whisky, which is a significant point for the protection of the sector in the long term.

[Ian Murray]

I am grateful to the Minister for giving way; I know he has limited time. I wonder whether the Treasury and the Department for International Trade would talk to the industry in Scotland, which is such a successful exporter. In the post-Brexit world, the Government could learn a lot from the industry and how it has been able to export so successfully. That could happen to other sectors when we leave the EU.

[Andrew Jones]

The hon. Gentleman makes an important point. I have to say, though, that I have been talking to the industry and will continue to do so. One thing I have learned in the preparation of Budgets is that a significant number of representations are made either for Government spending or relating to duty. My door is open. I want to hear from the industry and ensure it understands that it can access the Treasury, which will be entirely supportive of British companies developing, investing and exporting. I particularly include the Scotch whisky industry. I have been trying to get across my support for it, and my door will be open for future meetings.

Let us get to the issue of duty rates. The actions taken by this Government are estimated to have reduced all alcohol duty receipts by around £2 billion since 2013. That is a significant duty cut. The actions taken to freeze or cut spirits duty at Budgets in 2014, 2015 and 2016 mean that the tax on a bottle of Scotch is now 90p lower than it would otherwise have been. I understand the point made by the right hon. Member for Orkney and Shetland about price elasticity within the marketplace. The £4 billion of exports per year are unaffected by duty changes as no duty is paid on exported spirits. No UK duty is paid therefore on around 93% of all Scotch whisky produced.

As we approach the Budget, the Government face some pretty tough choices. As I said, I cannot pre-empt what my right hon. Friend the Chancellor of the Exchequer may announce. However, it is the Government’s policy for our public finances to assume that alcohol duties will rise by retail prices index inflation each year.