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The best is yet to come

Handsome dividends could be in store for whisky drinkers and the Scotch industry, now Scotland has its own government.Tom Bruce-Gardyne reports
By Dave Broom
The southernmost distillery in Scotland is William Grant’s at Girvan, in Ayrshire, 400 miles from where the British Parliament sits in the House of Commons in London. If Scotch whisky workers ever felt neglected by the Government, such a distance can hardly have helped. So when Scotland finally achieved devolution on 6 May 1998, the move was broadly welcomed. “The members of the new Scottish Parliament have to listen to us,” declared Ian Gourlay, managing director of Allied Distillers, “because they’re on our doorstep and because whisky plays such an important role in the Scottish economy.”

To mark devolution, Allied Distillers unveiled an independent report by the Fraser of Allander Institute which highlighted how every part of the whisky industry is integral to Scotland. As Gourlay explained, “With Scotch you’ve got a production that comes from the grain off the field, right through the distilling process into maturation, through vatting and bottling into the warehouse and off for export.”

With 90 per cent of sales coming from overseas, whisky contributes £2 billion to the UK’s balance of payments. This makes it one of the country’s top five manufactured exports says the Scotch Whisky Association. Some 12,000 people work directly in the industry, the great majority of them in Scotland.

When you add the related employment, from the farms that grow the barley to the factories supplying the bottle tops, the total comes to 60,000. This may not seem a huge number when looked at within a UK context, but seen within a Scottish one, whisky matters a whole lot. Indeed it is an absolutely vital part of the economy in remote, rural areas where so many distilleries are to be found, and where alternative jobs are few and far between.

A month after election to the new Scottish Parliament, Henry McLeish the enterprise minister, met a delegation of distillers. “In the spirit of the new politics,” he told them, “the parliament will listen to the industry, learn and champion its wider concerns in relation to taxation and other issues.”

As Fergus Ewing, Scottish National member for the Scottish Parliament for Inverness, whose constituency includes Dalwhinnie, Ben Nevis and Tomatin distilleries, points out, “If one stands back for a minute and looks at the way in which Scotch whisky is taxed, isn’t it odd that Scotland’s major commodity is also the second most highly taxed in Britain after petrol?”

In Britain the duty on a bottle of Scotch is now £5.48 which, together with valued added tax, means that for most standard blends over half the shelf price goes to the Treasury. Taxes on so-called sinful habits such as smoking and drinking have always been regarded as a good and reliable way to raise revenue. Then in 1995 and 1996 the then Chancellor Kenneth Clarke marginally cut the duty on spirits, since when it has remained frozen. It appeared as if the politicians’ noble crusade of protecting us from ourselves had been done, or perhaps they just realised that this particular cash cow had been milked dry. Either way the 1998 tax revenue from whisky declined seven per cent in line with falling sales.

David Davidson, the Tory Scottish Parliament member for north-east Scotland, accepts that there is a disproportionate amount of money being taken out of Scotch whisky, saying “Personally I do go along with industry demands for equal tax per unit of alcohol.”

At present whisky, like all spirits, is heavily penalised when directly compared with wine. “The effect of the current policy,” says the Scotch Whisky Association, “is to export jobs from the glens of Scotland to the vineyards of southern Europe.” But for Labour Scottish Parliament member Margaret Jamieson, whose Kilmarnock constituency includes the Johnnie Walker bottling line, the industry’s problems are to do with image rather than tax. “I think a lot of young people under 40 or 45 don’t generally drink spirits,” she said. “Whisky is not seen by the younger generation as a drink for them. This has got nothing to do with its high price. But I do think that there should be a standardisation among alcoholic drinks, but in terms of increasing sales I don’t think it would achieve what the whisky industry is hoping for.”

“Let’s try that and see,” says Ian Gourlay. “Because until you have a level playing field you will not know.” As for whisky’s image, Gourlay admits that that is something of an issue in the UK, but in other markets he feels there have been some notable successes. “One only has to look at Spain, where we have a very big market for Ballantine’s Finest which is drunk by younger consumers, mixed with Coke.”

Up in Inverness, Fergus Ewing says his party is committed to equalisation and harmonisation of duty rates within the European Union. This was the dream of the Single European Act of 1993, however it still remains just that and not a reality. Yet if tax is the industry’s biggest bone of contention, any legislation on the subject remains firmly in the control of Westminster. Like other ‘reserved matters’ such as defence and foreign affairs, taxation has not been handed over to the Scottish Parliament in Edinburgh, although the issue can still be debated there. In the words of Mr Enterprise, Henry McLeish, “just because certain powers, such as the setting of excise duty, are reserved, it does not mean that the Holyrood Parliament will remain mute on these matters.”

This ability to let off steam, enshrined in the Scotland Act, is considered an important safety valve. On the other hand some say that this might ultimately lead to further strains between London and Edinburgh and confirm one of the main arguments against devolution in the first place. This warned that frustrations would mount because the new parliament could not decide big issues. On the matter of whisky, optimists claim that the new legislature should be able to lobby on behalf of the industry more effectively than in the past. Before devolution secretaries of state for Scotland found themselves hamstrung by collective Cabinet responsibility. Whatever they really thought, they had to take the same line as the rest of their government colleagues.

Devolution has somewhat removed this obligation, so Scottish Parliament members like Davidson will try to persuade Donald Dewar (no relation to the famous whisky family), the head of the Scottish Parliament and known as the First Minister, to relay the concerns of the industry to his government colleagues down south. Meanwhile the Scotch Whisky Association will carry on its lobbying campaign at Westminster while planning a full representation to the new Scottish Parliament this spring.

In November this same parliament opened an office in Brussels to increase its contacts with the European Commission. Though discriminatory tax regimes exist throughout Europe many in the industry believe the situation must be cleared up at home first. It is an argument the country’s beef farmers know all too well, where having beef on the bone banned at home provided ammunition for opponents of British beef abroad. Barriers to international trade is another subject reserved for Westminster, but again the Scottish Parliament should be able to lobby on behalf of the industry or at least act as a pair of ears.

So far the Scottish Parliament has been preoccupied with constitutional matters of its own. When the navel-gazing stops and the business of government begins will there be a shared sense of achievement or a growing resentment at the lack of self-determination? If the parliament proves to be little more than an acrimonious talking shop, it may turn into an apprenticeship for full-scale independence. For what it’s worth the Scottish National Party is pledged to cutting the rate of duty by ten per cent, and would consider further cuts assuming the savings were passed on to the consumer.

The proximity of the parliament should certainly benefit the industry on those issues that have been devolved to Edinburgh such as health and safety, business rates and product labelling. There is a sense that the new members should be more aware of the consequences to Scottish enterprises of, say, the application of European Union to environmental directives than their colleagues down south.

Yet the Scotch Whisky Association is concerned that parts of Westminster and the media could see Scotch whisky issues as solely the preserve of Edinburgh, despite the clear split between matters reserved for Westminister to decide and those now devolved to Scotland. Let’s hope not, and that soon the Scottish executive will be another valuable voice for the industry. For now the worst thing about the parliament is that it sits in temporary accommodation on Edinburgh’s Mound in a building belonging to the Church of Scotland. Until its new home at Holyrood is ready, in two years’ time, the bars in the Scottish Parliament will remain dry, with not a dram to be had.