Select Committee on Scottish Affairs Minutes of Evidence

Memorandum from the Scottish Council for Development and Industry


  Whisky contributes an estimated £595 million in excise duty to the Exchequer out of a total Spirits contribution of over £1.6 billion per year. Including VAT, Whisky's contribution equates to nearly £1 billion in round terms.


  The whisky industry is characterised by significant linkages to other economic activity, such as tourism and a higher than average proportion of product content is sourced within Scotland.

  Whisky is one of the largest value-added activities in Scottish manufacturing with an output multiplier effect of 1.73.


  A propensity to export is an outstanding feature of the whisky industry with around 90 per cent of sales estimated as exports.

  In 1999 whisky exports were worth £2 billion.


  Although a relatively modest employer of just over 11,000 people directly and 36,000 including indirect jobs, at a local level the employment effects are important due to the rural location of many distilleries and the limited alternative employment in the areas around many bottling and blending operations.

Other Issues

  The whisky sector has historically been the victim of discriminatory fiscal treatment in the United Kingdom market.

  The long-term ambition should be the fair treatment of this industry by taxing whisky's alcoholic content at the same level as competing alcoholic beverages.

  Whisky companies can experience a significant loss of value-added in premium markets due to cross-border trading.

  The Government should press for progress in the harmonisation of excise duties across borders and in categories of alcoholic drinks within the European Union in the wake of the abolition of intra-EU duty free trading.


  1.  The Scottish Council for Development and Industry (SCDI) is an independent, broadly based membership organisation which influences and strengthens Scotland's economy through the formulation and promotion of innovative, non-partisan public policies and the delivery of market driven services for members.

  2.  This submission concentrates on one aspect of the Scottish drinks industry, namely the Whisky Industry. For an international audience the words "Whisky" and "Scotland" are synonymous. Not only is whisky Scotland's most famous product, it is promoted as intrinsically Scottish with images of Scotland as a "clean" and "green" place.

  3.  It is projected as a traditional product with emphasis on its long pedigree and aspects of its production that are labour intensive. Both are true but do not communicate the reality that whisky is mainly a modern product, certainly in terms of mass-production, and that its production overall is marked by high technology and a relatively low labour content. Faced with the question of how to invent a mass-marketing consumer product with high value-added involving Scotland's rural areas and an international client base, it would be difficult to invent this. Whisky may have a traditional image, but its production is consistent with the economic development quest for internationally competitive products with high value-added per employee.

  4.  The spirits industry is also of great value to the Exchequer. Revenue collected from excise duty is estimated to be over £1.6 billion per year. Whisky's contribution to this was estimated at £595 million in 1999. Including the VAT paid on whisky, which it is estimated contributes up to a further £350 million, the total contribution (excise duty plus VAT) equates to nearly £1 billion in round terms. This figure under-estimates the industry's contribution to the Exchequer as it does not include the Corporation Tax paid by the individual whisky producers. However, it must be noted that the revenue receipts received by the Exchequer from whisky were declining until 1998 with a slight upturn being recorded in 1999 under the present taxation regime.


  5.  Whisky production is a particularly valuable form of economic activity because it is mostly sold as exports and because its inputs do not involve much importing. To whom and where a product (or service) is sold are known as forward linkages. What is brought in, and from whom, are backward linkages.

  6.  Exports are a distinguishing feature of an industry whose output features are notoriously difficult to track—because today's production of spirit is not tomorrow's sale. Second only to forestry, the whisky industry's sales are sales of product made several years previously. By definition it has to be aged and most of it is aged longer than the statutory minimum. Few industries make something and then deliberately involve themselves in the expense of such inventory and warehousing costs. Exports are dealt with separately below but at this stage of commenting on forward linkages, it is estimated that around 90 per cent of sales are exports.

  7.  Other forward linkages are obviously modest and are dominated by sales within the sector, ie inter company sales for blending purposes. Generally, visitors' expenditure in Scotland is modest but notable, accounting for about 7 per cent of home sales within Scotland. However, distilleries are significant tourism attractions in their own right, and in many distilleries more people are employed in tourism than in distilling.

  8.  The fascinating aspect of the industry's input structure, the backward linkages, is how strongly it is tied to other sectors. Overall, Scottish industries and services only buy around 57 per cent of their purchases (excluding labour and capital goods) from other Scottish producers. For whisky, the equivalent proportion is circa 84 per cent.

  9.  Agriculture and maltings supply grain and yeast for the fermentation process. Packaging involves purchases of paper, cardboard, glass and metal caps. Energy is involved at each stage. Holding maturing supplies in bond involves substantial purchases from warehousemen. Product movement involves the whole range of transport services, principally road transport. And the industry is a substantial purchaser of financial and business services. (Much of the expenditure outwith Scotland is marketing expenditure to export markets and this is increasing.)

  10.  Whisky is among the largest value-added activities in Scottish manufacturing. Several sectors are larger but this does not take account of the multiplier effects through stronger linkages to the rest of the economy. Multiplier effects are the impact on the economy as a whole of an increase in demand in a specific industry. For example, whisky's output multiplier effect was recently recorded as 1.73 with the equivalent multiplier for computers recorded as 1.37.


  11.  As noted in the context of linkages, propensity to export is an outstanding feature of the whisky industry. Scotland's industry and commerce is particularly "export" orientated with manufacturing mainly exporting in the conventional sense of overseas sales. Services' "export" sales are mainly to the rest of the United Kingdom. Manufacturing export propensity owes much to the operations of subsidiary companies of non-United Kingdom parentage. Whisky involves some overseas ownership but is mainly controlled from the United Kingdom. However, its export significance at a Scottish level is the principal concern of this submission.

  12.  Scotland's leading manufactured exports (in gross terms) are computers and other electrical equipment, whisky and chemicals. For some time, computers and whisky have been paramount accounting for well over 50 per cent of total manufactured exports. In 1999 computer exports were worth £7.16 billion and whisky £2 billion, although for many people outside the United Kingdom whisky is the Scottish export.


Summary of Exports of Scotch Whisky by Market Groups (%)


European Union
North America
Central and South America
Middle East


*Totals do not sum to 100 due to rounding error.


  13.  The popular, and therefore political, importance of industries is usually measured in terms of employment. However, the concept of "competitiveness" is increasingly recognised as an issue in assessing the relative importance of different activities. Thereby, it has to be recognised that there is no paticular virtue in employment numbers. Saddling a company, or an industry, with an employment creation role is incompatible with advancing its competitiveness. Increasingly, Scottish employment is concentrating on services and the phenomenon is repeated in most other industrialised countries.

  14.  Employment generated by the whisky industry is identifiable at a number of levels. Much of initial spirit production has the virtue of providing a few well-paid jobs in rural areas of limited population and limited alternative employment opportunity. Much of the packaging and distribution end of the business provides quite substantial units of employment in some urban areas that are often otherwise economically disadvantaged. As noted already, both processes involve quite substantial inputs from other industries and services and therefore have consequences for employment generation outwith the industry itself. At the Scottish Executive's 1996 assessment, each job in the whisky industry was accompanied by an additional 2.2 indirect jobs in other activities.

  15.  Looking at whisky in the narrow definition, it has an employment of 11,178 in 1999 having reduced partly through productivity improvements from circa 25,000 in 1978.

  16.  The overall employment impact of the industry can be placed around the 36,000 mark by including the effects of linkages. Even taking this wider definition it is therefore a modest employer in the context of an employed population of 2.3 million.


  17.  Whisky's long-standing traditions and reputation give it a special place within Scottish culture. It is also, as has been shown, a significant manufacturing industry, probably larger than is shown by conventional measurement. However, despite its traditional image, whisky, along with all other industries, is exposed to external influences, dependent on factors outside its immediate control and susceptible to global economic conditions. It must constantly be aware of these pressures and change accordingly.

  18.  In recent years there has been increasing competition between companies within the industry and domestic price rises have been limited. This has encouraged a rash of mergers and attempted mergers. This will undoubtedly lead to some rationalisation and reduced labour demand. However, due to the relatively small numbers employed in the industry, this will not have a major effect at a national level. At a local level, on the other hand, the employment effects can be quite severe in relation to the immediate population due to the rural location of many distilleries and limited alternative employment in the areas around many bottling and blending operations.

  19.  Distillery closures can also have an adverse effect on tourism. Using distilleries to attract visitors to outlying areas of Scotland is extremely important.

  20.  A long-standing issue within the direct influence of Government is the discriminatory fiscal treatment applied to whisky in the United Kingdom market. The freeze on the level of duty on whisky announced in the 1998 and 1999 Budgets was welcome, although SCDI had campaigned for reductions as seen in previous years. The long-term ambition should be the fair treatment of this industry by taxing whisky's alcoholic content at the same level as competing alcoholic beverages. This is not just a domestic issue. It affects other countries' approaches to the taxation of whisky in their markets.

  21.  One of the most significant problems facing the industry, apart from the problem of heavy and discriminatory duties in the United Kingdom and elsewhere, is parallel trading. Although beer suffers most in cross-border trading, whisky can experience a significant loss of value-added in premium markets.

  22.  Now that intra-EU duty free trading has been abolished, the Government should press for progress in the harmonisation of excise duties across borders and in categories of alcoholic drinks. By harmonising duties a true level playing field across Europe will be established. Until then, whisky is subject to various discriminatory tax regimes throughout the EU with all 15 states within the EU taxing spirits at a greater rate than other drinks.

The Scottish Council for Development and Industry

January 2001

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