AFTER a decade of relatively amiable treatment by the taxman the Scotch whisky industry claims Chancellor Alistair Darling's first budget has got them over a barrel.
Last month, Scotch Whisky Association chief executive Gavin Hewitt said Scottish
distillers were "astonished" by the Chancellor's decision to raise the duty on spirit sales by nine per cent, claiming it would reduce revenue, hit international competitiveness and set a damaging precedent that export markets may follow.
The increase comes after a ten-year freeze in spirit duties, partly in response to Scottish Executive lobbying to protect the nation's chief export.
Much of that lobbying was done by a largely Westminster-friendly Scottish Labour administration, but now that the tax freeze has thawed and the Scottish nationalists are in charge the response has been scathing.
SNP finance secretary John Swinney called the tax rise "savage" and "punitive" – echoing the SWA's sentiments almost word-for-word.
While Scottish Labour leader Wendy Alexander tries to hold the Union together in the face of the SNP's separatist onslaught, it hasn't stopped her husband having a go at the Treasury for the "damaging" above-inflation increase.
Economics professor Brian Ashcroft, who has just stepped down as policy director of the Fraser of Allander Institute at University of Strathclyde, has predicted the levy will result in Scotch whisky sales falling by about nine per cent over five years.
He said: "The Scottish Government has been ridiculed for arguing for price rises to combat alcohol abuse, while at the same time lobbying the Treasury to lower excise duty on whisky.
"There is clearly an ethical dilemma here. Alcohol abuse is a growing problem in Scotland but Scotch whisky is our principal net exporter, and a major provider of jobs and income."
He suggests a fairer way to tax alcohol and safeguard public health would be to equalise beer and wine duty upwards, which would cut beer sales by around a tenth, wines sales by just under a fifth and keep spirit sales relatively buoyant with just a two per cent drop.
He added: "With a little economic knowledge we could come closer to resolving our ethical dilemma, without damaging a key industry."
However, the Treasury was not impressed by Mr Ashcroft's suggestion – issuing a single-line response which puts the Scotch whisky industry's protestations of poverty in perspective: "Ninety per cent of all Scottish whisky is exported, so it will not be affected by the duty increase."
Scotland produces a billion bottles of whisky every year, but only 100 million of those are sold in the UK – the industry's third largest market. Tax is only levied on UK alcohol sales, so the predicted nine per cent drop in sales would amount to less than one per cent of total sales worldwide.
The SWA has countered by claiming the increase will amount to a 30 per cent tax increase by 2013 and cull their investments in Scottish operations. But it claims the most profound aspect of the new levy is the "potentially damaging message" it sends to export markets.
The SWA has been engaged in a long battle with Indian authorities to overturn a tax burden it claims can be as high as 550 per cent over there, and has just won a similar battle in Japan.
An SWA spokesman said: "One of the criticisms that was increasingly levelled to us by Japanese authorities is that they were only reflecting the high taxation that we have in the UK.
"Now that the tax-freeze has been removed in our home market and taxation is rising, it sends the message that large duty increases on Scotch Whisky are acceptable."
He added: "Professor Ashcroft is right that the Government could support the competitiveness of Scotch Whisky while modernising the tax system.
"We have long argued that all drinks should be taxed on the same basis, according to alcohol content. Not only would this remove the discrimination faced by Scotch Whisky in its home market, it reflects that beer, wine and spirits share one characteristic – they all contain alcohol."
However, the SWA freely admits that the industry is experiencing a long period of international growth, and while the domestic market remains "challenging" the Chancellor may be forgiven for attempting to co-opt part of this success for greater investment in the welfare state.
Mr Darling said that the increased revenues from alcohol would go towards tackling child poverty, supporting families and providing help to vulnerable members of society.
With the financial and economic costs of alcohol abuse hitting £110m per year to the NHS, and costing Scotland £1.1bn as a whole, perhaps a 0.9 per cent dip in Scotland's international whisky market is a small price to pay if Mr Darling's revenue forecasts prove to be correct.
The full article contains 834 words and appears in Edinburgh Evening News newspaper.
