Ian Buxton

Comment - Spirits - Scotch: It’s Scotland’s Water

By | 11 January 2013

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?

Expert analysis

Whiskey in Emerging Markets to 2016: Market Guide

"Whiskey in Emerging Markets to 2016: Market Guide" provides in-depth detail on the trends and drivers of the Whiskey market in Emerging Markets. The report includes quantitative information (historic and forecast market values), as well as data, to help companies in the Alcoholic Drinks industry better understand the changes in their environment, seize opportunities and formulate crucial business strategies.

Sectors: Legislation, Spirits

Companies: Diageo, Pernod, Ricard, Chivas Brothers, Bacardi, Scotch Whisky Association

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Comment - Spirits - Scotch: It’s Scotland’s Water

There is currently 1 comment on this article

Having read Ian Buxton’s piece on your site, I was somewhat surprised that in mentioning vodka and gin he fails to point out that these drinks can easily be removed from Scotland leading to a loss of jobs in bottling halls, local glass suppliers and packaging and logistics firms. A loss of income tax, NI etc in other words, plus a reduction in the economies of scale for the Scotch Whisky industry.

As Ian will appreciate, unlike the BBC apparently, there are several highly regarded Scottish-owned family businesses within the industry. One has told us their £4m profit would become a £9m loss with a £1 a bottle tax.

Not sure this is an industrial policy impact the Scottish Government would wish to promote, which is why the Finance Secretary is opposed to it, as is the SNP party leader at Westminster.

Campbell Evans,
Director of Government and Consumer Affairs,
Scotch Whisky Association

 

Scotch Whisky Association said at 2:41 pm, January 15, 2013

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