Comment - Spirits - Scotch: It’s Scotland’s Water
This month, Ian Buxton takes a look at an idea that, should it come to fruition, will send shockwaves through the Scotch whisky industry. In Scotland, he notes, there seems to be water, water everywhere, but not a drop that is taxed. Yet.
“I think the benefits to Scotland from the whisky industry are really quite disappointing,” says Professor John Kay. “The largest producers are not based in Scotland. Their profits go mostly to people who are not resident in Scotland. They don’t pay much tax in Scotland and we don’t think they pay much tax in the UK.”
That's good for Professor Kay. But, who cares what he thinks?
Well, anyone making whisky in Scotland should. This time last year I suggested, in a humorous piece, that “First Minister Alex Salmond declares Scottish independence and reveals ‘Resource Tax’ on distillery water supplies”.
Who’s laughing now? Let’s take a closer look at the good Professor’s thoughts, first aired in a BBC Scotland programme Scotched Earth (which can be viewed here before 20 January).
What you need to know, as background, is that Kay is a former economics adviser to Alex Salmond’s Scottish National Party (SNP); the political scene in Scotland is dominated by the 2014 referendum on Scottish independence and the SNP are desperate to show that an independent Scotland could be economically viable, especially as oil revenues decline.
The tone of the debate is already highly charged - one might say febrile - with emotions running high. Add to this the recent UK-wide furore on multi-national corporations not paying their “fair share” of tax, and you can see that the idea of taxing whisky will have political traction appeal at several levels.
For Starbucks, Google and Amazon substitute Diageo, Pernod Ricard (Chivas Brothers) and Bacardi (Dewar’s). Before long, we may anticipate an argument that these rapacious global giants are exploiting Scotland’s water to export profits to shadowy, distant shareholders.
The prudent new SNP Government (if we get one) could then reasonably suggest that it’s only “fair” that Scotland takes a “fair” share of these profits, based on the use of an important national resource. What’s more, they can argue, this is a green tax encouraging responsible use of a natural asset. This is great, populist stuff and will play well with several constituencies – after all, “it’s Scotland’s water” – and individual Scottish taxpayers (aka ‘voters’) appear to get off Scot free.
The BBC estimated that a tax of GBP1 a bottle on whisky could generate as much as GBP1bn for the Scottish Government, a very substantial amount in the context of Holyrood’s finances of around GBP28bn in total. You can well appreciate that some greedy eyes will be cast longingly in the direction of this sort of potential windfall.
It seems to me that what we saw in the BBC programme was a flare being fired to spark a public debate, with the SNP still keeping their distance from a politically explosive issue, but ready to step in quickly and claim this policy if they saw mileage in it.
Remember, it came from someone close to powerful figures in the party.
Confronted with the idea on camera, Gavin Hewitt , the chief executive of the Scotch Whisky Association, naturally voiced concerns, arguing that Scotch whisky is competing in challenging international markets against other spirits and whiskies.
He said: “I cannot see why any government would apply a production tax which would make Scotch whisky less competitive overseas against other drinks which are cheaper to produce and cheaper to sell.”
Well, I can. It hasn’t stopped governments in the past and it won’t stop them in the future if they think there’s a larger political gain in it for them. And even if Scotch lost an unimaginable 25% of its international business, that’s still GBP750m for the nationalist cause.
So, the industry had better come up with some pretty powerful arguments pretty quickly. This one is going to run and run.
Oh, and two final thoughts to prompt some hard thinking amongst the brains of the drinks industry. Firstly the calculation was on whisky alone: Just wait until some bright spark at the SNP realises how much vodka, gin and beer is made in Scotland. It all uses Scotland’s water.
And, finally – and this is the really scary bit - Scotland already has the devolved power to charge for water. Forget independence: constitutional lawyers argue that no further legislation is required.
It never rains but it pours, eh?
The drinks sector is particularly fertile ground for mergers and acquisition activity, with a number of big businesses accustomed to making acquisitions to spur growth, new players popping up all over...
In a recently-published global briefing 'Diageo in Spirits', Euromonitor International's senior alcoholic drinks analyst Jeremy Cunnington takes a look at what are the challenges facing Diageo in spi...
- SABMiller & Meantime: Notes for the New Owner
- Are Coca-Cola, A-B InBev at a FIFA Crossroads?
- Focus - The Prosecco shortage that isn't
- Comment - How to Target Cognac's Mok Generation?
- Interview - Illva Saronno CEO Augusto Reina
- Whyte & Mackay takes on Flor de Caña in UK
- Diageo takes Baileys, Gordon's marketing in-house
- Carlsberg cuts 180 staff
- Suntory to buy Japan Tobacco beverage unit
- Mixto Tequila poised for "golden age"
- Global Tequila insights - market forecasts, product innovation and consumer trends research
- Africa: The Final Frontier for Beer
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends research
- Global rum insights - market forecasts, product innovation and consumer trends research
- Diageo plc (DGE) - Financial and Strategic SWOT Analysis Review