Examination of Witnesses (Questions 309
WEDNESDAY 17 JANUARY 2001
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
(Mr MacEachran) I am Ron MacEachran, Treasurer of
the Association and also the Finance Director of Jim Beam Brands,
(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
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 separatewe 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
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
Chairman: Does anyone else want to ask anything
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, presumablyI do not know anything about ginwhy
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
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
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
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.