Excise Duty Increase ‘Major Blow’ for Scotch Whisky Industry

on the rocks

Yesterday, the 8th of March, the British Government unveiled their 2017 Spring Budget, and a joyous time was had by all. Many industries, especially the drinks and tobacco sectors, were hit hard by the budget changes. The Chancellor of the Exchequer, Phillip Hammond, revealed that excise duty on all spirit drinks would increase by a huge 3.9%. Which doesn’t sound like much, but on your average bottle of Scotch whisky the overall tax (excise duty and VAT) is now sitting at a staggering 79%! An increase of 21% since 2010.

Long and hard campaigning by industry giants, whisky producers and the SWA (Scotch Whisky Association) resulted in a freeze in excise duty in George Osborne’s budget last year, and an historic cut of 2% in 2015 the year before, but this is a major blow for the industry. Especially after the PM, Theresa May, referred to the Scotch whisky industry as a “truly great Scottish and British industry” at the Scottish Conservatives Conference last week.

It isn’t overly clear where these percentages come from at a glance but it is actually quite simple:

Excise duty is paid on the amount of litres of pure alcohol i.e. 100% ABV. So for example, if you were to open a cask after ‘X’ amount of years and from it you got 100 litres of whisky at 55% ABV. You would be required to pay excise on the amount of alcohol in this – 55 litres of pure alcohol. Before this latest budget the rate of excise was already set at a staggeringly high £27.66 per litre. With the 3.9% increase it is now set at £28.74 per litre.

To put this into perspective, your ‘average bottle of whisky’ has a selling price of £12.90 (for a 70cl at 40% ABV (September 2016)). With this hike a whopping £8.05 is now paid on excise duty. And a further £2.15 is then paid in VAT! This means that for your £12.90 bottle of whisky £10.20 is now paid in tax (Excise duty and VAT) which is 79% of the price. This means that the producer is then only left with £2.70 minus the cost of producing the bottle.

As the whisky producers are only seeing such a small amount of the cost of a bottle there is only one thing that can happen – the price goes up for us as consumers. Which could undermine the recovering home market within the UK, as warned the SWA acting Chief Executive Julie Hesketh-Laird, warning that a “4% duty rise and a 79% tax burden on a bottle of whisky is a major blow, reversing recent progress”.

The Scotch whisky industry has been going through a fantastic spell of late and is in demand all over the world, but increasing the excise duty is only going to stifle this prosperous period, and put undeserved pressure onto producers. In these uncertain times with Brexit and austerity measures it is absolutely senseless and downright stupid to further burden an industry which contributes £4.9 Billion to the UK economy and supports (directly or indirectly) 550,000 jobs according to the WSTA.

Charles Ireland, the Managing Director for Diageo’s UK operations said this “tax blow from the Chancellor is bad for the economy, bad for business and bad for the British public”. He later said that “(Diageo) are calling on the Government to reverse this punitive tax hike and fundamentally overhaul what is clearly a flawed excise duty system”. I don’t often agree with much of what Diageo does in terms of NAS and bottling releases – don’t even get me started on Haig – but I can certainly drink to that.