Select Committee on Scottish Affairs Minutes of Evidence

Examination of Witnesses (Questions 300 - 308)



  300. With the percentage of losses we have had in the whisky industry it would be fanciful to say that the tourist centres could pick up the job losses, is that true?
  (Mr Duff) I would have thought so, yes. From the thousands that are employed, I do not think the tourism side of that would completely replace that.
  (Mr Diggens) There is also a split on where people are employed between the urban areas, where it does tend to be the bottling processes, the marketing services, the legal administration services, and the employment in rural areas which is based directly on the staffing of the distillery which is actually a much smaller number to start with.

  Mr Tynan: That is a different skill as well. Thank you very much.

Mr Brown

  301. I am sorry if I am about to look at the more pessimistic side of that. The question I am asking is on the basis of the increased concentration of production which is evident in whisky. Do you think that would have an adverse affect on rural whisky tourism, this whole aspect of the concentration of production which has become evident in recent years?
  (Mr Duff) The attraction, I would have thought, is the fact that you can see the whisky being produced, the experience of going to a working distillery. From the research we did for some of the submission, some of the distillery owners see a potential in keeping perhaps a more unusual brand being distilled because there is a niche market which can insulate them from price competition, say, but also because it can attract people to the distillery to see that particular product being made. If too many of these brands were to disappear then, yes, that would take that side of the production of whisky away. If the experience you get from going to see it was not there then obviously you are not going to go. Yes, if there are pressures to consolidate in the industry then that will have a knock-on effect on many of the services that rely on the core product.

Mr Swayne

  302. Aside from whisky tourism, are we missing any other tricks here in terms of using the product image associated with whisky and other quality Scottish products to promote other kinds of activity, using that brand image to stimulate demand for other economic ventures?
  (Mr Diggens) I suppose the classic example you are getting at is the move into tourism from the production side of things.
  (Mr Duff) I think the clean, green image of Scotland is something which we can do a lot more with. Whisky certainly likes to associate itself with that. A few years ago SCDI did a paper on sustainability within Scotland and part of the attraction seemed to be, and companies do recognise this and we heard it earlier today, that Scotland as a brand internationally can be used as a clean, green place and to develop that as a place people can go to to get away from it all, if you like, and just experience a different sort of lifestyle, even if it is for a finite time, can be marketed. I think the same can be said for other products in Scotland. One of the themes of that paper was should companies be more open to try to use that clean, green image to market the product. Obviously there is a cost implication if you are going to market yourself that way because you do have to check probably more rigorous than otherwise you might as to how clean and green a company and its processes are. There was an implication there and when we took that paper to our Executive there were some concerns as to how that could properly be marketed and put forward and how companies could relate to that. Again, there is potential there, that the Scottish image, throughout products and services, can be developed. Scotland the Brand is one organisation that is trying to do that.
  (Mr Diggens) You could probably add to the work of Scotland the Brand, the work of the Food and Drink team, for example, in Scottish Enterprise, and Highlands and Islands Enterprise. This is an example of the Enterprise agencies and support services for industries looking at the food and drink cluster and trying to connect those images and those marketing possibilities together and trying to use that cluster to move that industry on.

  Chairman: Moving on to the contentious issue of taxation on the product, Mr Clarke.

Mr Clarke

  303. The Council noted that "the whisky sector has historically been the victim of discriminatory fiscal treatment" and argues that whisky should be taxed at the same rate as competing alcoholic beverages. Would you agree with the argument made by Customs and Excise in its memorandum to the Committee that "Excise duties provide an economical way of raising revenue" because "the expenditure is of a discretionary kind" and because the "price elasticities of demand are relatively low". That is too many tongue twisters for me in that particular question. Do you understand what I asked?
  (Mr Duff) I do understand what you asked. On the revenue that the Treasury receives from the industry there is a table produced, and that is one of the figures that I can provide you with updated, which shows that the revenue to the Exchequer has been falling from spirits in general and also, particularly, the whisky portion of that. Speaking to individuals in the industry and to the SWA, who are all members of SCDI, it is felt that is partially a result of the taxation regime. In relation to the elasticities that you talk about, it actually shows that whisky and spirits have a higher elasticity in that when there is a price increase the demand falls by more than the proportion that the price has increased, therefore your total revenue falls. Since the mid-1990s we have certainly seen a fall in revenue going to the Exchequer because of excise. We do feel that is because the duty is at too high a level and because of the elasticities. If that was reduced then revenues might actually increase and would actually increase the amount that the Exchequer receives. That is certainly the evidence we have received from others within the industry. It is something that I think the Exchequer are aware of because the last couple of Budgets have seen a freeze and the Chancellor implied, when he made those announcements, that it was because there was an issue about the duty and how much the spirits have to bear of that duty. We see it as the Treasury or the Exchequer actually suffering from too high a duty on whisky.

  304. You say a freeze, there have been about three freezes and even the previous Government froze it as well, but there has been a price increase in whisky because the whisky industry itself put the prices up.
  (Mr Duff) I am not sure about those figures but certainly in terms of the duty, from the figures I read, the elasticities show that whisky has an elasticity of 1.37. If the price increases then demand will drop by a larger proportion and so the Exchequer will gain less. I am not sure whether the core price of whisky has increased, I could not comment on that, but in relation to the duty part there have been freezes and also duties on other competing beverages have been increased, so the differential has reduced. We believe that there should be a further reduction, and in our Budget statement to the Chancellor for the March Budget, in common with the industry itself, we will be calling for a further four per cent reduction because we feel that would both stimulate the industry but also perhaps even increase the amount going to the Exchequer because demand would increase.

  Mr Brown: Obviously this was the question that was raised at the end with the last people here and I think the Chairman indicated something like a year. Keeping in mind that the Chancellor is extremely prudent, do you think—

  Sir Robert Smith: Or was.

Mr Brown

  305. Do you think there is an exercise here that he should be looking at potentially for one year to actually reduce that duty to see if it reverses this trend that appears to be happening? Do you think it is a gamble worth taking?
  (Mr Duff) Actually the latest figures that I have received show that in 1999 there was a slight upturn in the excise duty and that follows the freezes and also the lowering of the differential because duties on other beverages increased. I am not saying that is a direct cause and effect but that does show there is something happening there. As I say, we are calling for a four per cent further drop in this Budget and until the figures are out we will have to wait and see. If you take the elasticities, if the price does fall then revenue should increase other things being equal. We would have to see what effect that did have, I cannot predict. Again, there are other things that may impact upon that. I would have thought it would be beneficial and as a longer term goal this harmonisation based on alcohol content, which would make it a lot more simple across the board in terms of spirits duty in general and drinks duty in general, SCDI feel would be a good goal to try to achieve, to simplify the whole process.


  306. Following on from that, you no doubt heard the questions I asked about health to the previous witnesses. If there was a reduction and, as a result, increased consumption and increased revenue in that respect to the Treasury, do you have any concerns that there could equally be more people suffering from the problems caused by alcohol and, therefore, an additional cost to the health service, or is it a case that you benefit in one way but lose out in another? Do you have any concerns about the health aspects of drink? Is it part of your remit at all? Does it come into the equation when you are doing studies of this kind?
  (Mr Duff) Yes. SCDI is a broad membership organisation and we do have a social side to us, if you like. Also, from the plain economics, the finite resources available to any government, if there is too much being spent, or the differences that could be made on, say, the health side because we have a healthier population, that would mean more resources being available for other initiatives. The interaction between the social side and the economy is very close. We do have concerns on health issues. Our sister organisation, the Scottish Council Foundation, works very closely on that side, on health issues. In terms of the potential increase in whisky, I think the issue is really there are many competing alcoholic beverages and whisky is discriminated against. It is a choice between types of alcoholic beverage. We are not wanting any particular special treatment for whisky, it is just a level playing field based on alcoholic content, that has always been SCDI's position. The industry itself works quite hard, as you heard from previous witnesses, and whisky as well also works hard, on sensible, moderate drinking and to ensure there is proper education and knowledge of the impact of alcohol misuse. We would support that categorically.

  307. Thank you for that. There are no final questions from Members of the Committee but are there any final remarks that either or both of you would like to make to the Committee?
  (Mr Diggens) Could we just say that the 1999 export figures are currently in production and we would be happy to pass the latest data on, specifically for the food and drink sector, to the Committee as soon as we can.

  308. We would be very grateful if you did.
  (Mr Diggens) I feel there is significant good news. Whisky and drinks together as a sector make up just over ten per cent of the manufacturing and exports figure for Scotland and that is really quite a success story. I feel there is a lot of good news there as well. Hopefully competitive plants and skilled workers in Scotland will continue to contribute to that success story.
  (Mr Duff) To summarise, we do feel that the whisky industry is a significant part of the Scottish economy and can significantly enhance Scotland's reputation and Scotland as an economy and a country internationally. We very much welcome the Committee's interest in the whisky industry and also the Scotch drinks industry in general because it is a significant contributor. We are thankful that you have asked us to come and speak to you today, thank you.

  Chairman: Thank you both for those remarks. On behalf of the Committee can I thank both of you very much for your attendance today, your evidence has been very helpful to us and will be helpful in the further conduct of our inquiry. Thank you for your time.

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