Select Committee on Scottish Affairs Minutes of Evidence

Examination of Witnesses (Questions 309 - 319)




  309. It is now 10.30 am. Good morning on behalf of the Committee and welcome. Can I ask you, first, for the purposes of the record, to introduce yourselves to the Committee?

  (Mr Atkinson) I am Edwin Atkinson, the Director-General of the Gin and Vodka Association which is based in Andover.
  (Mr MacEachran) I am Ron MacEachran, Treasurer of the Association and also the Finance Director of Jim Beam Brands, Europe.
  (Mr Morrison) I am Fraser Morrison, a member of the Association and Company Secretary of Highland Distillers Limited in Perth. I have had 11 years experience in the industry.

  310. Thank you. Are there any brief opening remarks that any of you would like to make to the Committee; not remarks to pre-empt our agenda this morning, but anything you think is relevant to this stage in our proceedings?
  (Mr Atkinson) Thank you, Mr Chairman. If we may, Mr MacEachran is a council member and wishes to make a brief statement.
  (Mr MacEachran) Essentially, as a major player in the Scottish economy, the gin and vodka industry recognise the opportunity to speak to you this morning and also welcomes the Committee's decision to conduct a study of the industry in Scotland. On behalf of the industry we hope to be able to impress upon you the importance of the spirit industry in Scotland, inform you of the current issues that face us and also answer any questions that you may have. The Association represents 24 member companies, which accounts for 95 per cent of gin and vodka distillers, bottlers, importers and traders of gin and vodka in the UK. Gin and vodka account for one-third of the UK spirits market and over 70 per cent of gin and vodka is now bottled in Scotland. You received our written submission and I do not propose to take your time going through it. However, I would ask your permission to emphasise a few key statistics and a few points from the submission. Spirits, including Scotch whisky, is Scotland's leading indigenous industry. More than 40,000 jobs either in the industry or with its suppliers depend upon the industry. Many of these are in rural and economically disadvantaged areas. Around 10 per cent of Scottish agricultural jobs and one in every 54 of Scottish jobs rely on the spirits industry. The spirits industry spends approximately £1 billion a year with local suppliers. Our written submission summarised many of the issues that presently pressurise the industry. A couple meriting special attention include UK excise duty and exports. Spirits face long-standing duty discrimination in this country, in spite of it being a major UK industry. We welcome the narrowing of the duty differential in the recent Budget but urge the Chancellor to continue the trend. The excise tax today, literally today, on a 70 cl bottle of Sainsbury's vodka in Aberdeen is 84 per cent. That emphasises, I think, the proportion of tax that the consumer and the industry is having to bear. Exports are another issue. Over 70 per cent of UK-produced gin, and rather less of vodka, was exported in 1999 to over 200 countries. Because white spirits are produced in one form or another around the world, a number of countries apply various duties and tariffs which are discriminatory against gin and vodka. These are different from those which apply to Scotch whisky. We welcome the consistent support of the DTI, MAFF and the Foreign and Commonwealth Office in fighting these tariffs and look forward to their continued support. In conclusion, I should like to say we welcome this inquiry. The major industry issues I raised are of vital importance to the future prosperity of the industry and the economy of Scotland. We clearly fall within the remit of Westminster and we look forward, hopefully, to answering your questions.

  311. Thank you for that. Can I begin with what may seem like a daft question, but we have the Scotch Whisky Association. Why a Gin and Vodka Association? Why not just a Spirits Association and how many other associations in the spirit trade are there?
  (Mr Atkinson) If I may answer your last point first. There is the Scotch Whisky Association, the Wine and Spirit Association which are importers, the Gin and Vodka Association and then there are some other associations such as the Maltsters, who are related in some way. The reason we remained separate—we recognise fully that it might be logical to have one association— from in particular the Scotch Whisky Association, though I cannot speak for them, it is my understanding that they recognise the special identity of Scotch whisky. We work closely together, I hope in harmony, but we do have different issues and different product details.

  312. How old is your association, Mr. Atkinson?
  (Mr Atkinson) It was originally two different associations. It is over 50 years old.

  313. Mr MacEachran referred to the question of excise duties. Can I ask, with regard to the legislative burdens which this imposes on your industry, your memorandum stated that, "the major concern is the discrimination against our products due to excise duty in favour of other drinks". Could you elaborate a bit more and explain how that favours other drinks and, if you could, what reforms in the UK excise system you would like to see made?
  (Mr Atkinson) If I can answer your last point first on reform, it comes in two ways. We recognise that we cannot have a total levelling of duty in one go. We appreciate the Chancellor's move that he has already made to narrow the gap, the differential between spirits and the other alcohol drinks. So in the way to go we first ask that he continue to narrow that differential. In the longer term we ask for a level playing field in the tax on the alcohol in spirit drinks as much or should I say on a level with the other alcohol drinks. It is difficult to give you an easy and level example because some of these drinks are sold by the bottle and some are not, and some are in different sized bottles. The easiest example is servings, where gin and vodka, similar to whisky, is 27 per cent in the tax on that serving. The comparable one, wine 19p and beer 15p. So we still have a long way to go before we get near what we call a level playing field. I could elaborate further on the excise point but I hope that answers your question.

  Chairman: Does anyone else want to ask anything on that?

Miss Begg

  314. It is more for the Scotch Whisky Association really but is not your competition with the other spirits, where you are not discriminated against rather than with other alcoholic drinks? Your main problem is with whisky and spirits and there you do have a level playing field.
  (Mr MacEachran) We tend not to find that. If you look at global alcohol trends you will see that there are movements between spirit and non-spirit categories and that would suggest to us that we compete very much against other categories. If you look at the UK specifically, you will see that there are different trends in different alcohol markets. Scotch declined, white spirit and premium beers increased significantly and premium beers attack our sector of the market where Scotch and white spirit would like to be in. So it is very much a broad competitive field.
  (Mr Atkinson) May I just develop one point that was made in our introductory statement? We said that 84 per cent on a bottle of vodka in Aberdeen today is tax. That is excise plus VAT. I can also tell you that Asda are selling a litre bottle of Protocol vodka in Bridge of Dee at £9.70 and the tax is 90 per cent. Up to this year the practice has been that people take a premium bottle off the shelf and work out the tax, and it may be about 68 per cent. What we have done is look across the whole market at the average and it is at the cheaper end where the tax is highest. It is the cheaper end where the less well-off buy their alcohol and they pay the highest tax. On the cheapest on display in the particular sector of our markets, where we have particular concerns, the tax on average on the cheapest on display is 86 per cent. This is particularly concerning to us because we have companies, indeed in Scotland, who service this end of the market and where the margins are tight and we have particular pressures on the prices. So that is why we emphasised the tax in our introductory statement.

  315. So would you prefer, instead of the tax being levied by volume, it being levied as a quarter of the price? In other words, if somebody produces a cheap product, then it will be 70 per cent in tax on one bottle of gin and 70 per cent will be tax on another bottle of gin, but that 70 per cent will be a quite different value because one bottle of gin is a lot cheaper than the other?
  (Mr Atkinson) No, we are happy with the system of taxation. We are trying to make the point that this is having a particular effect at the bottom end of the market. It is a regressive tax and it is the bottom end of the market where our members are under particular pressure. It is the bottom end of the market where Scottish suppliers will be finding the pressure as well, including Scottish cereals.


  316. Its my morning for asking daft questions, but if a bottle of vodka is of the same proof and is made in the same way, presumably—I do not know anything about gin—why is there such a difference between the cheapest product and the dearest product? Should they not all be at the same price?
  (Mr MacEachran) It is due essentially to where either the brand owners or the retailers decide to position the product. In the UK, which is probably the best example, major retailers particularly now like to have a selection of brands with their own label products which sit at various pricing points. What has happened in the last few years is that beneath their own label they like to position the category called "cheapest on display", which can be of the order of £1 for a 70 cl bottle cheaper than their own label brand. It is entirely due to the equation of price position for a retailer and his portfolio and the volume and margin.

  317. Some of the differentials are colossal. You can buy a bottle for, you mentioned £10; if you buy Gray Goose, the French vodka, you can pay over £20. Why should there be such a big difference?
  (Mr MacEachran) It is the premiumisation that some of these brands attract, depending on the brand support they have. There are people that are prepared to pay that for that particular brand where there are people that generally, during the course of the year, prefer to buy on price rather than on brand and they have got that offer available to them.
  (Mr Morrison) There are definitely two sectors of the market. There is the fashion statement and there is the practicality and there are two definite strands of customer, and they have that choice.

  Chairman: Premiumisation is a new one to us. I am sure we will hear a lot more of it.

Sir Robert Smith

  318. In a sense, if someone is buying whisky you can see that there has been more process gone into the more expensive whisky in terms of the time it has sat in storage. But in the gin and vodka, is it much more to do with image and brand rather than different processing?
  (Mr Atkinson) Before I hand you over to our expert, in the broadest terms obviously you have some which are specifically labelled "grain" and some which are specifically labelled "London" and those are associated with the processes that go with them. If I may, Mr Chairman, although the company is not represented here, I am sure if you would like to come and visit a London distillery at any time we will be happy to accommodate you.

  319. Does it use London water?
  (Mr Atkinson) They have so much London water at the moment they do not know what to do with it.

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