What the Budget means for Scotch

08 Mar 2017

Commentators could be forgiven for some initial confusion about what is really happening to alcohol duty, including excise on Scotch Whisky, following today's UK Budget statement. Rosemary Gallagher, SWA head of communications, sets out what today's Budget means for the industry.

This afternoon, Chancellor Philip Hammond delivered what sounded like a throwaway line about half-way through his inaugural Budget statement. He announced there would be 'No change to previously planned upratings of duties on alcohol …'.

Some people immediately tweeted that alcohol duties had therefore been frozen. We decided to wait until we could read the small print once the Chancellor sat down in the House of Commons before we issued our reaction - and that's when the reality became clearer.

Excise on spirits, including Scotch Whisky, is being hiked by 3.9%. Tax - excise and vat - on an average priced bottle of Scotch in the UK now stands at an exorbitant 79%, i.e. four pounds in every five a consumer spends on whisky goes straight to the Treasury. This isn't, as some have been saying, a previously announced increase. While the Treasury forecasts several years in advance the revenue it wishes to raise, it is always open to a Chancellor to make annual choices about how to do so.  In other years, Chancellors have decided to freeze duty rather than impose the inflationary increase. In 2015, George Osborne went as far as cutting excise by 2%. And this year's increase isn't even in line with current levels of inflation - it's based on the OBR's forecast for retail prices inflation (RPI) to reach 3.9% in 2017/18, up from around 2% in 2016.

This excise increase is therefore an unwelcome blow to a successful home-grown industry that supports 40,000 jobs and adds value of £5 billion every year to the UK economy.

No matter how you look at this there are no winners from today's announcement:

  • Scotch in the UK is now taxed more than 80% higher than the EU spirits tax average.
  • Scotch would face an extra £31 million excise bill in the UK on the basis of 2016 volumes. 
  • The tax burden on an average priced bottle of Scotch will now be nearly 80%.
  • The excise duty on Scotch is now 21% higher than in 2010.

It's puzzling to try to work out why the government has decided to punish an industry that contributes so much at home and abroad - with exports worth £4 billion annually - especially as we prepare for the seismic changes heralded by Brexit.  A fair and competitive domestic tax regime - providing a strong platform for investment and growth - is an important part of that Brexit jigsaw. 

And this move comes just days after the Prime Minister Theresa May told an audience in Glasgow that Scotch Whisky is a 'truly great Scottish and British industry' and the 'world's pre-eminent spirit'.

The increase also doesn't make sense in terms of the likely impact on government revenue. The government's own figures show that the public purse has benefited from a previous excise cut and freeze. Last year spirits excise was frozen and revenue from spirits duty increased by 4.2%, or £132 million, to £3.25bn. Spirits revenue accounted for 56% of total alcohol income growth which was up 2.2%, or £132m, to £10.9bn.

Consumers who enjoy a dram will tonight be reflecting on the fact that from Monday they will be paying 36 pence more to buy a bottle of Scotch.

Looking ahead to the autumn Budget, it is clear that it is time for change. We'll be arguing strongly for a fundamental review of the excise duty system once the UK leaves the constraints of EU excise law and finally deliver a 'Fair tax for Whisky'.