Select Committee on Scottish Affairs Appendices to the Minutes of Evidence


Memorandum from Professor Mike Danson and Geoff Whittam, University of Paisley (DIS 4)

  Thank you for the invitation to submit further evidence to the Scottish Affairs Committee "Inquiry into the Drinks Industry in Scotland". Unfortunately we have been extremely busy over the last two months and have been unable to devote any time to updating our initial evidence, as presented in December 2000 and incorporated into the Appendix to the Inquiry[4]. As way of a substitute for a formal paper, therefore, we would like to take this opportunity to make a few comments which we trust will be of some use to yourselves in the coming deliberations.

  While we believe that the inquiry has made a promising start and made some valuable introductions, the General Election obviously limited the analysis and restricted the Committee from pursuing more in-depth discussions and analysis. Meanwhile, some of the issues and challenges we raised in our submission have appeared to be generating some interest and, though unconnected to ourselves, we do note a number of initiatives. So, the recent improvement in sales to France and other European markets by certain companies has been based upon better training of sales staff, consumers and intermediaries. Such moves usually have been through moves to the higher value added parts of the market, especially in malts. The education and identification of tastes and preferences as an essential element of a long term and intensive campaign is very much consistent with the arguments we articulated in our submission. The benefits to the economy of Scotland are greater than similar export based growth in blended whiskies. Thus as we strongly suggested, the interests of the duopoly which controls most of the market can be very different from those of remote distilleries in the Highlands and Islands and of communities dependent on large scale bottling plants in the lowlands.

  Addressing the industry at the level of the locality, the region, Scotland and the UK in terms of outputs, needs, exports, value added, employment, taxes and profits will produce very different pictures. What is good for the UK Chancellor may not be beneficial for large multi-national companies, but the effect of duties and excises on Scotland may well be neutral, with jobs and purchases from Scottish households and enterprises fairly independent of output. Interestingly, the needs of the Chancellor of an independent Scotland probably would lead to the same sort of taxation and duties policies as is currently adopted at the UK level; but that does not mean that the interests of the industry's workforce in Scotland, the smaller producers, bottlers and blenders and suppliers are the same as either the Chancellor's or the two multi-national corporations' who dominate the sector. Thus, promoting a higher value added Scotch Whisky industry based more on malts may well secure a more sustainable future with similar levels of employment and incomes for households and indigenous companies, but would not be necessarily advantageous to those who dominate the industry at present nor to the UK Chancellor.

  The potential for such restructuring and repositioning cannot be divorced from the rest of the spirits sector, as we argued in our earlier submission, but the Scotch Whisky industry is often treated in isolation. We would refer you back to the original arguments.

  The other area which we believe would be worth further consideration concerns the links within Scotland between Scotch Whisky and other areas of the economy. Again developments since the Inquiry, not least the effects of foot and mouth disease and other more recent events which will have long term damaging effects on the tourism and rural economies, increase the rationale for considering the Scotch Whisky industry in its local and regional context. Too little recognition has been given to the linkages, current and potential, between tourism and whisky, but also education and a number of other areas, where synergies are possible. As before, we argue that the needs of communities and enterprises will not be addressed automatically by the market place. Further, the government agencies active in promoting economic development in Scotland have not been able to realise many of these for a number of reasons.

  While we do not want to explore these here, there are good grounds to believe that much more could be achieved in rural Scotland by a more proactive approach to connecting up the sector at a local and regional level to other parts of the economy. Lessons from the French wine industry and Irish golfing holidays are but two examples of state intervention in the market to boost employment, activity and profits. A role of the Scottish Affairs Committee usefully would be to bring such matters to the attention of the UK Parliament; as we have argued elsewhere and above, the effects of changes in taxation and duties on whisky on the Scottish economy are not great, they mostly impact on the Chancellor's tax take and the profits of companies. That such companies are multi-national and their shareholders are spread across the world means that the only effect on Scotland of such fiscal changes can be through (dis)investment decisions, otherwise jobs etc are inelastic with regard to changes in taxes.

  The comparative advantages of Scotland are becoming increasingly apparent through this very domination of the sector by a duopoly, with the recent establishment of "bottling glen" progressively securing the wider spirits sector here for some time to come. Encouraging Scottish Enterprise, Highlands and Islands Enterprise, the tourism boards, higher and further education and the other partners and stakeholders around the sector in Scotland to be more pro-active also could well have significant and positive implications for the economy. The need for a strategic view of such potentials is not being recognised elsewhere, so the Scottish Affairs Committee Inquiry could promote such a debate and policy initiative.

  Again, can we apologise for the rushed nature of this response? As our research has been unfunded to date, other duties and responsibilities have limited our abilities and capacities to deal with the sector in greater depth. However, we believe that the report we published last year remains largely valid, and indeed many developments since we compiled it confirm the basic messages. We, of course, would welcome the opportunity to expand on any of the points and issues raised here.

Professor Mike Danson and Geoff Whittam

Department of Economics

The Business School

University of Paisley

September 2001

4   See HC 114-v, session 2000-01, pp 204-227. Back

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