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Scotch whisky worth £5bn to the UK economy

Scotch whisky is an iconic product recognised around the globe and new research, published this week, reveals its vast contribution to economic growth in Scotland and across the UK.

The report ‘The Economic Impact of Scotch Whisky Production in the UK’, commissioned by the Scotch Whisky Association (SWA) from 4-consulting, shows the industry contributes nearly £5 billion overall to the UK economy. For every £1 million of value added, the industry generates another £520,000 across the UK, for example, the spending on suppliers in a range of sectors, from packaging to haulage.

In terms of the value it adds to the UK economy, Scotch whisky is bigger than a number of industries, such as iron and steel, textiles, shipbuilding and computing. It is also larger than other UK food and drink sectors, including meat, dairy, beer and soft drinks. In Scotland, it makes up almost three quarters of the food and drink sector and is three times the size of Scotland’s digital or life sciences industries.

Key findings of the report include:

  • Overall economic contribution of Scotch whisky industry to UK is almost £5bn (£4.956bn).
  • Direct economic impact of industry, ignoring its wider economic benefits, is £3.3bn, up 21% since 2008.
  • Each year, Scotch whisky producers spend £1.8bn on suppliers. 90% of that expenditure is in the UK, including £1.4bn in Scotland. Dry goods, including bottles and packaging, cereals, energy and transport and distribution make up the majority of purchases.
  • Capital expenditure makes up £140m of the total industry spend. Some 70% of that is outside Scotland in other parts of the UK and overseas. The specialist nature of capital equipment, such as machinery, vehicles and software, means it often has to be sourced from further afield, spreading the impact of the Scotch whisky industry across a wide geographical area.
  • The industry supports 40,300 jobs in the UK - up from around 35,000 in 2008 - in a range of sectors including glass manufacturing and labelling. This total includes 10,900 people directly employed by the industry in Scotland, up 6%.
  • Every job in Scotch whisky supports a further 2.7 British jobs.
  • Scotch whisky workers are among the most productive in Scotland – they are around four times as efficient in production as employees in aerospace, life sciences and the digital sectors.

As well as supporting employment in towns and cities, for example in large bottling halls, Scotch Whisky is the lifeblood of many rural communities where it sustains 7,400 jobs, contributes around £900m in gross value added (GVA) and generates around £250m of income.

Despite a slowdown in exports, the Scotch whisky industry is expanding at unprecedented levels with around 30 new distilleries being planned or built across Scotland. Capital investment reached £142m in 2013, up 31% since 2008.

Finally, Scotch exports are vital to the UK’s balance of trade. They are worth around £4bn a year and without them the UK’s trade deficit would have been 16% larger in 2013.

David Frost, Scotch Whisky Association chief executive, said: “This new report shows just how significant the Scotch Whisky industry is to the wider UK economy, adding £5bn of value, supporting over 40,000 jobs, and contributing £4bn to Britain’s trade performance. Scotch Whisky must be recognised as a cultural asset that boosts growth and jobs, supports communities and combines the best of the traditional and the modern.

“Given the scale and impact of the Scotch Whisky industry we believe the government should show its support. One way of doing so, in the short term, would be for the Chancellor to cut excise duty by 2% in the March Budget. It is unfair on the industry and consumers, and detrimental to the economy, that almost 80% of the average price of a bottle of Scotch is taxation.”

Small distilleries join forces to support ‘Drop the Duty!’ campaign

Distillers from across the UK have come out in support of the SWA’s ‘Drop the Duty!’ campaign, which is supported by the TaxPayers’ Alliance.  

A 2% cut in duty would provide an additional £1.5 billion to the Treasury through increased investment across the industry, greater income from corporation tax and VAT, and from the benefits of jobs created in pubs, bars, restaurants, shops and the wider supply chain.

UK consumers currently pay nearly 80% tax on an average priced bottle of spirits and almost 60% on an average priced bottle of wine. This equates to consumers paying £10.06 in tax on an average bottle of whisky. The British public is also against this tax, with 84% saying that this level of tax on Scotch Whisky and other spirits is unfair.

Today, the UK’s smaller producers outlined how these punitive tax rates are stifling their growth ambitions. Commenting on the campaign, Dom Roskrow, director of the Craft Distillers’ Alliance (CDA), said:  “The UK spirits industry has grown rapidly over the last 18 months largely due to the successes of craft distillers. Up and down the country there are small distilleries creating jobs, boosting tourism and raising tax revenue in towns and cities. The government should be doing all it can to develop and encourage growth in this industry rather than focusing on punitive tax measures.”

Similarly, Ian Hart, founder of Sacred Spirits Company in London that specialises in gin production, explains the devastating impact the almost 80% level of tax has on the industry:  “Our burgeoning craft spirits industry is significantly held back by the current exorbitant duty regime.  We are characterised by small balance sheets and cannot finance the duty cashflows required under the present scheme. Growth is severely hindered, while craft distilleries in other countries have an easier time of it.  We are stifled by duty at the current level.  We can barely get started, let alone finance exports due to UK duty outflows.”

Demonstrating his support for the Drop the Duty! campaign, Stephen Davies, MD of Penderyn Distillery in the Brecon Beacons National Park, comments: “As a craft distiller in the UK, we feel the strain of the alcohol duty on our business. The spirits we produce are of high quality, and have a reputation to match, however such punitive tax puts constraints on our growth. We support the ‘Drop the Duty’ campaign in their efforts to reduce alcohol duty and give distillers like us the support we need to be part of a successful home-grown industry.”

Anthony Wills, founder and manager director of Kilchoman Distillery on Islay, adds: “The whisky industry welcomed last year’s duty freeze, but with tax still accounting for nearly 80% of an average bottle’s price more action is needed.  The UK is vital for many new and small distillers, both as a key market but also a base to grow exports in the future. A 2% duty cut would be a significant boost to investment in the sector.”  

SWA’s David Frost summarises the objectives of the campaign, commenting: “Small distillers and British consumers are being unfairly penalised.  Not only is the spirits tax rate the fourth highest in the European Union, it is double the rate applied in France and two and a half times higher than in Germany.  We are calling on the Chancellor to build on last year’s duty freeze to support an important, home-grown industry.”

The ‘Drop the Duty! campaign wants supporters to email their local MP and ask them to write to the Chancellor through calling for the alcohol super tax to be reduced by 2% in the March Budget.

30 January 2015 - Felicity Murray The Drinks Report, editor