He’s new to the job, and with the whisky industry holding its breath and crossing its fingers, Humza Yousaf no doubt wanted his first face to face meeting with Rishi Sunak to end on a positive note regarding the proposed increase in alcohol duty. Alas, it seems things did not quite go as planned.
In the last budget, Chancellor Jeremy Hunt announced that alcohol duty tax would increase by 10.1% this August, leading the New SNP leader to state that he would be “making it crystal clear to the Prime Minister that it is time to bring fairness back to the way whisky is treated.”
How does the proposed hike compare to previous years?
For the last nine out of ten budgets, the alcohol duty increase has actually been frozen, which the Prime Minister likened to meaning that “whisky duties are the lowest they have been in something like a hundred years.” He went on to justify this by adding “As well as the fact we have been able to open up export markets around the world for fantastic Scotch whisky.”
So, what’s all the fuss about then?
Well, this is where it gets wonderfully political. Humza Yousef is arguing that Jeremy Hunt’s alcohol duty hike is actually a direct breach of the manifesto pledge made by the Conservative party – and to be fair, he has a very valid point. Page 48 of the Conservative Manifesto 2019 states:
“Alcohol Duty Review: Scotch whisky is a national export that supports 42,000 jobs across the UK. Yet the tax on each bottle of Scotch sold in this country represents almost three quarters of its price. That is why over the past two years we have frozen the duty on spirits, cutting the price of a bottle of Scotch by 30p. Now, we want to do more, which is why we will review alcohol duty to ensure that our tax system is supporting British drink producers.”
Now it could be said (certainly from a defensive political stance) that stating you will ‘review’ something doesn’t necessarily mean it will be a favourable outcome for those concerned. However, there can certainly be no doubt that the implication given is that the review will be designed to support the industry. And whilst the recent freeze has certainly been welcomed, it surely, must be taken in context with other economic factors. Every industry has suffered to some extent following the Covid 19 pandemic, but on top of that there is the current energy crisis, and let’s not forget, the spirits industry was unequivocally excluded from the Energy Bill Relief scheme. That’s all on top of spiralling supply chain costs.
Is the Prime Minister likely to change his mind?
Hmm…..whilst speaking to the BBC, the Prime Minister said “The chancellor makes all tax decisions, and that decision has been made.” Likely not then.
The Chancellor meanwhile has defended his decision stating that following the freeze “The UK will then introduce “big reforms” to the alcohol duty system, which will mean duty is linked to the strength of the drink.” He seemed to think this approach would be “beneficial to whisky distillers.” He went on to say “We will continue to engage with the industry and we want to do something that will mean they are successful and prosperous going forward.”
So, what is the industry’s response to this?
Hardly surprisingly, the whisky industry rather lacks the optimism displayed by Mr Hunt. In a tweet by the Scotch Whisky Association in March, it states “We have written to Chancellor Jeremy Hunt calling for a reversal of the 10.1% tax hike on Scotch Whisky and an urgent meeting to discuss how the UK Government will keep its manifesto commitment to the industry.”
Looking at the contents of the referenced letter, Mark Kent, Chief Executive of the SWA opens by stating “This iconic product has been an economic anchor for growth, supporting tens of thousands of jobs – from rural Scotland to our UK supply chain and in the hospitality and tourism sectors.”
He further details how the budget has discriminated against 99% of the spirits sector, widening the gap between them and taxation on beer and cider. He goes on to say:
“This was a fundamental flaw in the duty reforms published by HM Treasury, due to be implemented in August, which we have repeatedly pointed out. Today’s action compounds the problem and ensures the new system will be a broken system, disadvantaging the Scotch Whisky industry from the outset.”