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
A propensity to export is an outstanding feature
of the whisky industry with around 90 per cent of sales estimated
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.
The whisky sector has historically been the
victim of discriminatory fiscal treatment in the United Kingdom
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
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
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 trackbecause 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 (%)
|Central and South America||14.5
|*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