HARD TO SWALLOW
Excessive excise duty is hammering the whisky industry. It’s high time the Chancellor gave the distillers a (tax) break
The tax man is not the friend of the whisky manufacturer or drinker
Our ignorance about tax matters is remarkable. A recent survey shows that only one in 85 Scots knew they were about to become subject to a new Scottish rate of income tax. Similarly, I would bet that an even smaller proportion of whisky drinkers know how much tax they are paying on each bottle they buy.
There is, believe it or not, a 76% tax on a bottle of whisky, which works out at £10 on an average bottle of blended whisky. This time last year, the amount was closer to 80%, but the Scotch Whisky Association (SWA) had a major breakthrough when it helped to persuade the Chancellor to cut the amount of excise duty by 2% on spirits. This was no mean feat; the duty on whisky has only been cut four times in the past century. Excise duty is not the only tax added to whisky; VAT is charged as well – twice, in fact: once on the duty and again on the final bottle price.
In short, the primary beneficiary of whisky sales is the government, rather than the spirit’s producers. That fact is starkly illustrated by the SWA’s breakdown of the average bottle of blended whisky. Of the £13 price paid, £7.74 goes in excise duty and £2.17 on VAT. So the total tax on a bottle is £9.91, leaving the retailer and the distillery to share just £3.09.
There are very few people who would argue that this is equitable. Even the 2% tax cut – for which the SWA has been lobbying for years – represents a miserly drop in excise duty of around 17p per bottle. Moreover, in line with the Laffer Curve orthodoxy, which counterintuitively suggests that when you drop taxes you end up with more revenue, the SWA has shown that t he 2% drop led to revenues increasing by 4%, which ended up boosting the Treasury by £97m.
On the back of that research, the SWA has launched a ‘Stand up for Scotch’ campaign to lobby the Chancellor for another 2% cut in excise duty in the March Budget.
I find the comparative historical rates of duty on our favourite drink fascinating. In 1840, the duty paid per bottle of whisky was 5d (2.5p). By 1914, duty had risen to 1/81/2d (9p) per bottle. In 1939, an average bottle of whisky would cost 14/3d (72p) of which 9/71/2d (48p) was duty. By 1992, after a flurry of duty increases, an average bottle was costing around £10.80, of which £5.55 was duty. In 1995, for the first time in one hundred years, the tax on whisky was reduced, with duty falling from £5.77 to £5.54 per bottle.
You may have wondered why, when abroad, you have seen bottles of whisky for much less than they would cost at home, and have rightly concluded that the amount of excise duty is the answer. I’ve often been left scratching my head at the fact that a bottle of whisky that has been shipped to America, Europe or Asia could cost a fraction of the price that it costs in the land of its production; it makes no sense.
Interestingly, excise duty is applied to all mature spirits, regardless of where they are produced. Whisky is not protected from competing spirits that have been produced overseas, even though these other countries will, more often than not, discriminate against imports of whisky.
Tax can be a very dry subject, although when it comes to the price of a bottle of whisky or the amount of cash stumped up by Google, it takes on a wider significance. That is particularly the case in Scotland, where we produce not just all Scotch whisky, but the lion’s share of the UK’s vodka lake. The SWA is doing a sterling job at campaigning for whisky to be treated fairly, but this is a national issue, and the way the Chancellor is hammering the industry is just not cricket.
‘The primary beneficiary of whisky sales is the government, rather than the spirit’s producers’