The Scottish Affairs Committee has agreed to the
THE DRINKS INDUSTRY IN SCOTLAND:
ISSUES AND CONCERNS
1. When we decided on our inquiry we wanted to explore
the relative importance to Scotland of all the drinks sectors:
bottled water, brewing, soft drinks and distilling. A long and
enthralling investigation has been interrupted by the expectation
that the dissolution of Parliament will be announced soon. To
complete our programme we had planned to hold two further evidence
sessions involving Ministers and officials from: the Ministry
of Agriculture, Fisheries and Food, HM Customs and Excise, the
Department of Trade and Industry, the Scotland Office and HM Treasury.
We then anticipated some lengthy deliberative sessions as we considered
the complex issues that had emerged. Sadly, we are now unable
to finish the job to the extent we would have liked.
2. To provide some proper conclusion to our inquiry
and perhaps to assist our successors, we should briefly like to
highlight some of the more significant areas of interest and concern
that have been illustrated to us.
3. During the inquiry we received over 40 written
memoranda. We held six oral evidence sessions at the House, involving:
the British Soft Drinks Association; representatives of bottled
water companies; the Scotch Whisky Association; the Brewers' and
Licenced Retailers' Association; Scottish & Newcastle plc;
The Scottish Council Development and Industry; The Belhaven Brewery
Company Ltd; The Gin and Vodka Association of Great Britain; the
Institute for Fiscal Studies; Mr John McFall MP; Diageo plc; the
Scottish Trades Union Congress; Scottish Enterprise; the Scottish
Environment Protection Agency; Greater Glasgow Health Board and
the Alcohol and Health Research Centre. Full details are on page
4. It is our custom also to talk informally to as
many interested parties as possible connected with a given inquiry.
Consequently, we undertook a series of visits to Glasgow, Dumbarton,
Islay, Beauly, Speyside and Cumbernauld, in order to further our
investigation. A list of those we met can be found on page xiii.
5. We also decided to visit the European Commission
in Brussels and the World Trade Organization in Geneva to discuss
at first hand some of the issues that had been raised with us
for which the EU and the WTO has responsibility. These included:
excise duty differentials, smuggling, export refunds and the implications
of EC Directives related to water and waste; and matters pertaining
to trading arrangements, for example access to markets and tariff
6. We are grateful to all those who contributed to
the success of our visits. We should like to offer special thanks
to both HE Nigel Sheinwald CMG, UK Permanent Representative to
the European Union and HE Simon Fuller CMG, UK Permanent Representative
to the Office of the United Nations and other international Organisations
in Geneva and their staff for the constructive and diligent way
they helped our endeavours in Europe.
7. We were fortunate that our efforts received the
invaluable assistance of Mr Stewart Dunlop, Research Fellow, Fraser
of Allander Institute, University of Strathclyde, whose expertise
allowed us more easily to understand the issues of concern.
8. Let other poets raise a fracas,
'Bout vines, an' wines, an drunken Bacchus,
names an stories wrack
I sing the juice Scotch bear
can mak' us,
In glass or jug.
9. The anthem to the "water of life"
contained in Robert Burns' Scotch Drink is indicative of
the historic importance and reputation of Scotch whisky. The spirit,
which international law requires can only be distilled in Scotland,
is known and admired the world over. It is a major export earner
for the UK. Scotch whisky as a product gives emphasis to the quality
aspect of Scotland as a brand: a place of origin which denotes
and guarantees the very best.
10. When we decided to undertake the inquiry, we
were, of course, well aware of the standing of Scotch whisky and
the contribution it has made to both the Scottish and the UK economy.
The whisky industry has recently been responsible for crediting
£2 billion per year to the balance of trade; 90 per cent
of sales are exports.
It contributes over £1.6 billion annually in excise duty
The industry currently has 10,000 direct and 20,000 indirect employees
and spends £1 billion a year with local suppliers.
11. What we were less certain about was to what extent
the role and significance of the whisky industry had changed over
recent years, particularly when direct employment in the industry
had fallen quite considerably and ownership had, by and large,
passed into the possession of a small number of multi-national
companies where decisions involving the development of the whisky
industry were now taken outside of Scotland.
12. Moreover, we were in no doubt of the nature of
some of the serious problems faced by whisky distillers. The comparatively
high level of UK duty and the consequential increase in cross-border
shopping and smuggling, the European Union minimum rates arrangement
which has helped create these conditions, trade and trade barriers,
and the higher tax on spirits compared to other types of alcohol,
all feature strongly in the whisky producers' premier league of
complaints. These areas are reserved issues, which, following
devolution, fall within our remit.
13. As the inquiry progressed we learned of the growing
importance to Scotland of white spirit production. It is estimated
that currently "some 75 per cent of UK gin and vodka is produced
This is an important benefit conferred by consolidation in the
distilling industry and the rationalisation of production and
bottling. Clearly, levels of duty on spirits will influence whether
or not Scotland can in future retain its grip on the level of
white spirit manufacture. Unlike the distinct and special Scotch
whisky, gin (with the exception of Plymouth gin) and vodka have
no "geographical designation" and can be produced anywhere
in the world.
Much cheap white spirit is now being distilled in Europe. The
fastest growing line in London gin is made in Poland.
14. Bottled water, notably that bottled in Scotland,
is a growth industry. In 1999 Scotland produced 35 per cent of
the total production of bottled water and supplied 25 per cent
of UK bottled water consumption.
Areas of concern raised with us included the suggested consumer
confusion over definitions of bottled water (of which there are
three: natural mineral water, spring water and table water). In
other countries in the EU there is tighter control for example
over what might be designated as "spring water". This
matter and the possible competitive threat of "engineered"
water to the purer natural mineral water, which is more expensive,
exercised some witnesses.
We would have liked to explore the argument further.
15. The question of water abstraction also arose.
Both bottled water producers and the whisky industry were anxious
about the implications of a licensing regime similar to that operating
in England and Wales, being developed in Scotland, in compliance
with European Commission requirements through the Water Framework
Directive. The argument was that Scotland is a water-rich nation.
Any attempt to impose undue control on industries which by the
very nature of their business were environmentally aware, would
be costly, bureaucratic and unnecessary. The Scottish Environment
Protection Agency on the other hand believed that climate change
was leading to summer drought and overuse of some water courses
in certain parts of Scotland. It thought that licensing was important
in these areas. The Scottish Environment Protection Agency also
considered that the registration of water users was a useful tool
which could work to the advantage of the users themselves.
16. Soft drinks production in Scotland has been in
decline since the end of the Second World War. The only major
intrinsically Scottish company operating on the world stage is
A G Barr, who produce Irn Bru. Witnesses from the British
Soft Drinks Association talked to us about some of the regulatory
burdens on the industry in Scotland and noted the inevitable additional
transport costs that businesses there have to cope with. We were
disappointed to learn that there were now no manufacturers of
cans or plastic bottles located in Scotland.
17. An indirect problem associated with soft drinks
which was drawn to our attention in written evidence from Laura
was the price of non-alcoholic drinks in public houses. The Government
was aware and concerned about the matter
and had established that the difference in the price of soft drinks
between supermarkets and off-licences on the one hand and pubs
and restaurants on the other was greater than for beer and wine.
Seventy per cent of pubs did not display prices adequately.
18. Scotland is home to a number of small brewers,
including the Caledonian Brewery Company, Belhaven Brewery Company
Limited (both gave oral evidence to us) and the Orkney Brewery.
Scottish and Newcastle plc, an important brewer and multi-national
company is also based in Scotland. They too appeared before us.
There was consensus between large and small on the iniquities
of tax differentials in the EU, particularly between France and
the UK, which lead to increased participation in cross-border
shopping and to an increase in smuggling operations and illegal
sales of alcohol, often involving children.
19. We were pleased to see that the 2001 Budget statement
proposed to cut tax rates for smaller brewers, leading to a progressive
system of excise duty based on annual output. This idea was put
to us in evidence from the Belhaven Brewery Company Limited.
Such a development must be a fillip for small brewers, although
what will ultimately be defined as a small brewer has yet to be
20. The small brewers we spoke to differed on the
impact of the growth in Scotland of the so-called super pubs,
whose commercial clout was forcing discounted prices beyond the
reach of the smaller outfits. The progressive duty rate to which
we refer in the preceding paragraph might go someway to changing
the circumstances of those currently excluded. The dynamics here
could, without the time constraints forced upon us, have benefited
from further analysis.
21. All of the witnesses from all of the sectors
laid stress on the weight of the regulatory burden to which they
were subject. Environmental measures, including the Climate Change
Levy, featured large. There did indeed appear on the surface of
it to be some queer anomalies attached to the eligibility for
rebates of the Climate Change Levy, which are linked to the use
of animal, vegetable or dairy products in manufacturing. For example,
bottled water producers who limited themselves solely to that
item were ineligible. Those who added flavouring qualified for
rebates because of their use of the fruit extract.
22. The Scotch whisky manufacturers we encountered
felt that the Scottish Environment Protection Agency might be
over-rigorous in its policing of European Directives in particular.
The Agency strongly defended its activities both in oral evidence
and in a subsequent memorandum to us. Informal discussions in
Brussels with Directorate-General Environment confirmed the intention
of the European Commission to ensure proper compliance with the
Water Framework Directive. It was, however, suggested to us that,
where appropriate, derogations might be granted. We believe there
is scope here for further investigation of the equation between
proper environmental control and the imposition of a bureaucracy
which causes unnecessary time and cost burdens for industry.
23. An aspect of our inquiry which we regarded as
of the greatest importance related to health matters. We have
reservations about the likely impact on the health of the people
of Scotland if excise duty rates on alcohol were ever significantly
reduced. Oral evidence from health professionals did though seem
to suggest that advertising merely encourages a change in brand
or type of alcohol rather than acting as an enticement to use
in the first place. Comments from the Alcohol and Health Research
Centre also seemed to confirm the view of distillers that "alcohol
is alcohol is alcohol"
in whatever form it is taken, be it wine, beer or spirits, and
should be taxed accordingly.
The use of soft drinks raised issues of dental health and the
effects, perhaps addictive, of additives such as caffeine.
24. All the written and oral evidence we have received
has been published in separate parts in the series HC 973-i and
ii, Session 1999-2000 and HC 114-i to v in the current Session.
HC 114-v is the Appendices to the Minutes of Evidence. We commend
this evidence to the House and to any future select committee
charged with the monitoring of Scottish affairs, which we hope
might decide to produce the substantial report the subject demands.
8 Irritable, annoying. Back
Uisge beatha. Back
Ev. p39, para 1.2; See also Ev. p104. Back
Ev. p104. Back
Appendix 1, p204. Back
Ev. p114, para 1. Back
Ibid, para 23. Back
Ibid, para 9. Back
Ev. p17. Back
See, for example Qq83, 87, 93, 95, 97, 99, 100. Back
Appendix 11, p.254. Back
Appendix 21, p.280, para 5.1. Back
Q32; Q103. Back
Giving oral evidence on 28 February 2001, Dr Gruer of the Greater
Glasgow Health Board said: "...alcohol is a drug, let us
not beat about the bush. It is the only drug that gets good publicity
in the sense that it is widely advertised.". Q648. Back
Ibid; Q663. Back
Appendix 14, p52. Back