What 4% hike in spirits duty means for national tipple

The chancellor’s surprise decision to squeeze more taxes from the Scotch whiskey industry may not pay off for the tax man, writes Julie Hesketh-Laird

The Chancellor’s announcement on alcohol duty, including excise on Scotch whisky, in the spring Budget caused some furrowed brows in the industry as we made sense of what he was saying. Chancellor Philip Hammond delivered what sounded like a throwaway line about half-way through his first Budget statement when he said there would be ‘No change to previously planned upratings of duties on alcohol’.

It was no surprise that many commentators quickly reported that alcohol duties had been frozen.

But the small print reveals the reality – excise on spirts, 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% - four pounds in every five a consumer spends on whisky goes straight to the Treasury. This isn’t a previously announced increase.

While the Treasury forecasts years in advance the revenue it wishes to raise, it is open to a Chancellor to choose how to do so.

Last year George Osborne froze excise and in 2015 he cut it by 2%. And this year’s increase is higher than 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 2% in 2016/17.

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

There are no winners from the Budget announcement. Scotch in the UK is now taxed more than 80% higher than the EU spirits tax average hitting consumers in the pocket.

The onerous tax burden on an average priced bottle of Scotch will now be nearly 80% and the excise duty on Scotch 21% higher than in 2010.

The announcement came 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”.

We are trying to understand why the government has decided to punish an industry that contributes so much at home and abroad – with exports worth £4billion annually – especially as we prepare for the seismic changes heralded by Brexit.

A fair and competitive domestic tax regime is an important part of that Brexit jigsaw.

The increase doesn’t add up for the potential impact on government revenue. As tax goes up, revenues can go down.

Following last year’s freeze revenue from spirits duty increased by 4.2%, or £132million, to £3.25billion. Increased tax potentially points to reduced income for the Treasury ahead.

We’re now looking ahead to the autumn Budget when we hope the Chancellor will stand up for Scotch and commit to fundamental review of the excise duty system once the UK leaves the constraints of EU excise law.

Julie Hesketh-Laird is the acting chief executive of the Scotch Whisky Association

Julie Hesketh-Laird