Scottish fears over 'shocking' Sunak policy are justified

Twenty-four hours later, Sunak and his Government were coming under heavy fire from different but important parts of the Scottish economy.

The UK Government, which likes to adorn its policy announcements with a hint of jingoism, said on Tuesday that its Brexit Pubs Guarantee would result in a tax cut on pints of beer and cider served up in more than 38,000 pubs across the UK. The cut comes with the expansion of draught relief and was one of a series of changes made to the UK alcohol duty regime announced in the Budget in March, which took effect on August 1.

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Ministers stated the changes were possible because of Brexit and the guarantees set out in the Windsor Framework.

Sunak and Chancellor of the Exchequer Jeremy Hunt, who have also reduced duty on the likes of pale ale and English sparkling wine in shops and supermarkets, may have expected to receive a warm welcome the next time they crossed the threshold of their favourite watering holes.

But the new system, which sets duty for products based on their alcoholic strength, in fact sparked a sceptical response from pubs in Scotland, with the Scottish Licensed Trade Association branding the policy “naïve”. The Scotch whisky industry, meanwhile, was furious.

SLTA spokesman Paul Waterson said: “We are not convinced that this change in draught beer and cider duty will help us or our customers in any way. For the Chancellor to say this cut in draught beer duty is a Brexit Pub Guarantee is as naïve as it is fanciful.

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“We know from experience that we don’t benefit from cuts to alcohol duty because the duty is paid by producers, who do not adjust their prices down accordingly when selling to us. It is a system designed to benefit the producers and the big pub companies. They are able to negotiate price discounts whereas smaller independent operators, such as our members, do not have that power.”

While the SLTA questioned the impact the changes will have, the verdict from distillers' body the Scotch Whisky Association was scathing.

Although the changes mean the rate of duty on draught beer and cider has been cut by 9.2%, for packaged beer and other alcoholic drinks – including Scotch whisky - it has risen by 10.1%. It represented the biggest hike in whisky duty in 40 years.

The SWA branded the move a “hammer blow for distillers and consumers” and declared Sunak, Hunt and co had failed to keep a commitment made when the UK Government promised to “ensure the tax system is supporting Scottish whisky”.

As a result of the change, the tax burden on the average priced bottle of Scotch whisky has gone up to 75% from 70%, with the SWA contending that it puts whisky at a disadvantage to products such as beer and cider in pubs, bars, and restaurants.

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“The 10.1% duty increase is a hammer blow for distillers and consumers,” said SWA chief executive Mark Kent.

“At a time when inflation has only just started to creep downwards, this tax increase will continue to fuel inflation and make it more difficult for the Scotch whisky industry to invest in growth and job creation in Scotland and across the UK supply chain.

“HM Treasury had a choice to make. Rather than choosing to back an industry which the UK Government promised to support through the tax system, the Government has chosen to impose the largest duty increase in almost half a century, increasing the cost of every bottle of Scotch whisky sold in the UK by almost a pound and taking the tax burden on the average priced bottle to 75%.”

Ever since the UK’s exit from the European Union was sealed, the messaging from the Conservative Government, whether regarding new policies or trading arrangements with countries around the world, has been ladled with bombastic talk of so-called Brexit dividends. But time and again, cold analysis of the changes being trumpeted point to their actual outcome being far less impressive than ministers would have you believe, as underlined by the new trade deals proposed with the likes of New Zealand and Australia.

With regard to this week’s changes to alcohol taxation, not only are there serious questions as to whether the cuts to beer and cider duty will make any difference to pubs, there are genuine fears that they could be harmful to Scotch whisky, one of the UK’s biggest economic success stories.

Alongside concern that the duty increase will put Scotch whisky beyond the financial reach of consumers in pubs, there are fears it will undermine distillers’ capacity to invest, which has been so crucial to the sector’s success in recent decades.

Speaking to The Herald on Tuesday, Ewan Andrew, procurement chief at Johnnie Walker distiller Diageo, was open that companies the size of his own have the balance-sheet strength and global presence to absorb the shock of the duty hike. But he worries it will have a major impact on the many smaller distillers currently making their way which are adding so much to the diversity of the sector yet rely heavily on sales in the domestic market.

Mr Andrew said it was “quite shocking” that the UK Government had hiked whisky duty by 10.1% after signalling its intention to make Scotch and gin producers more competitive.

“I’m not a supporter,” he said. “I think that it causes probably some of the smaller players who are reliant on the domestic market [problems]. Diageo has got some natural insulation with its global footprint.

"The UK is the fifth-biggest global market for the Scotch whisky industry, and it needs to be seen as competitive and at the right price points. It needs to encourage all of us to continue to invest in Scotch.

“Diageo will continue to invest in Scotch in years and decades [to come]. We have a big balance sheet and the cash to do so. If you are a smaller business and you are trying to invest in tourism, you are trying to invest in sustainability transition and you are now being hit with the cost of your product going up on the shelf by about £1.16 [for a one-litre bottle], that is going to go right through the price at a time when consumers are quite sensitive to that.”

Mr Andrew added: “Diageo will be fine. We are confident of continued growth, but we are quite concerned from a sector perspective over what is a shocking increase in excise tax.”