Examination of Witnesses (Questions 300
- 308)
WEDNESDAY 10 JANUARY 2001
MR IAIN
DUFF AND
MR ROLAND
DIGGENS
300. With the percentage of losses we have had
in the whisky industry it would be fanciful to say that the tourist
centres could pick up the job losses, is that true?
(Mr Duff) I would have thought so, yes. From the thousands
that are employed, I do not think the tourism side of that would
completely replace that.
(Mr Diggens) There is also a split on where people
are employed between the urban areas, where it does tend to be
the bottling processes, the marketing services, the legal administration
services, and the employment in rural areas which is based directly
on the staffing of the distillery which is actually a much smaller
number to start with.
Mr Tynan: That is a different skill as well.
Thank you very much.
Mr Brown
301. I am sorry if I am about to look at the
more pessimistic side of that. The question I am asking is on
the basis of the increased concentration of production which is
evident in whisky. Do you think that would have an adverse affect
on rural whisky tourism, this whole aspect of the concentration
of production which has become evident in recent years?
(Mr Duff) The attraction, I would have thought, is
the fact that you can see the whisky being produced, the experience
of going to a working distillery. From the research we did for
some of the submission, some of the distillery owners see a potential
in keeping perhaps a more unusual brand being distilled because
there is a niche market which can insulate them from price competition,
say, but also because it can attract people to the distillery
to see that particular product being made. If too many of these
brands were to disappear then, yes, that would take that side
of the production of whisky away. If the experience you get from
going to see it was not there then obviously you are not going
to go. Yes, if there are pressures to consolidate in the industry
then that will have a knock-on effect on many of the services
that rely on the core product.
Mr Swayne
302. Aside from whisky tourism, are we missing
any other tricks here in terms of using the product image associated
with whisky and other quality Scottish products to promote other
kinds of activity, using that brand image to stimulate demand
for other economic ventures?
(Mr Diggens) I suppose the classic example you are
getting at is the move into tourism from the production side of
things.
(Mr Duff) I think the clean, green image of Scotland
is something which we can do a lot more with. Whisky certainly
likes to associate itself with that. A few years ago SCDI did
a paper on sustainability within Scotland and part of the attraction
seemed to be, and companies do recognise this and we heard it
earlier today, that Scotland as a brand internationally can be
used as a clean, green place and to develop that as a place people
can go to to get away from it all, if you like, and just experience
a different sort of lifestyle, even if it is for a finite time,
can be marketed. I think the same can be said for other products
in Scotland. One of the themes of that paper was should companies
be more open to try to use that clean, green image to market the
product. Obviously there is a cost implication if you are going
to market yourself that way because you do have to check probably
more rigorous than otherwise you might as to how clean and green
a company and its processes are. There was an implication there
and when we took that paper to our Executive there were some concerns
as to how that could properly be marketed and put forward and
how companies could relate to that. Again, there is potential
there, that the Scottish image, throughout products and services,
can be developed. Scotland the Brand is one organisation that
is trying to do that.
(Mr Diggens) You could probably add to the work of
Scotland the Brand, the work of the Food and Drink team, for example,
in Scottish Enterprise, and Highlands and Islands Enterprise.
This is an example of the Enterprise agencies and support services
for industries looking at the food and drink cluster and trying
to connect those images and those marketing possibilities together
and trying to use that cluster to move that industry on.
Chairman: Moving on to the contentious issue
of taxation on the product, Mr Clarke.
Mr Clarke
303. The Council noted that "the whisky
sector has historically been the victim of discriminatory fiscal
treatment" and argues that whisky should be taxed at the
same rate as competing alcoholic beverages. Would you agree with
the argument made by Customs and Excise in its memorandum to the
Committee that "Excise duties provide an economical way of
raising revenue" because "the expenditure is of a discretionary
kind" and because the "price elasticities of demand
are relatively low". That is too many tongue twisters for
me in that particular question. Do you understand what I asked?
(Mr Duff) I do understand what you asked. On the revenue
that the Treasury receives from the industry there is a table
produced, and that is one of the figures that I can provide you
with updated, which shows that the revenue to the Exchequer has
been falling from spirits in general and also, particularly, the
whisky portion of that. Speaking to individuals in the industry
and to the SWA, who are all members of SCDI, it is felt that is
partially a result of the taxation regime. In relation to the
elasticities that you talk about, it actually shows that whisky
and spirits have a higher elasticity in that when there is a price
increase the demand falls by more than the proportion that the
price has increased, therefore your total revenue falls. Since
the mid-1990s we have certainly seen a fall in revenue going to
the Exchequer because of excise. We do feel that is because the
duty is at too high a level and because of the elasticities. If
that was reduced then revenues might actually increase and would
actually increase the amount that the Exchequer receives. That
is certainly the evidence we have received from others within
the industry. It is something that I think the Exchequer are aware
of because the last couple of Budgets have seen a freeze and the
Chancellor implied, when he made those announcements, that it
was because there was an issue about the duty and how much the
spirits have to bear of that duty. We see it as the Treasury or
the Exchequer actually suffering from too high a duty on whisky.
304. You say a freeze, there have been about
three freezes and even the previous Government froze it as well,
but there has been a price increase in whisky because the whisky
industry itself put the prices up.
(Mr Duff) I am not sure about those figures but certainly
in terms of the duty, from the figures I read, the elasticities
show that whisky has an elasticity of 1.37. If the price increases
then demand will drop by a larger proportion and so the Exchequer
will gain less. I am not sure whether the core price of whisky
has increased, I could not comment on that, but in relation to
the duty part there have been freezes and also duties on other
competing beverages have been increased, so the differential has
reduced. We believe that there should be a further reduction,
and in our Budget statement to the Chancellor for the March Budget,
in common with the industry itself, we will be calling for a further
four per cent reduction because we feel that would both stimulate
the industry but also perhaps even increase the amount going to
the Exchequer because demand would increase.
Mr Brown: Obviously this was the question that
was raised at the end with the last people here and I think the
Chairman indicated something like a year. Keeping in mind that
the Chancellor is extremely prudent, do you think—
Sir Robert Smith: Or was.
Mr Brown
305. Do you think there is an exercise here
that he should be looking at potentially for one year to actually
reduce that duty to see if it reverses this trend that appears
to be happening? Do you think it is a gamble worth taking?
(Mr Duff) Actually the latest figures that I have
received show that in 1999 there was a slight upturn in the excise
duty and that follows the freezes and also the lowering of the
differential because duties on other beverages increased. I am
not saying that is a direct cause and effect but that does show
there is something happening there. As I say, we are calling for
a four per cent further drop in this Budget and until the figures
are out we will have to wait and see. If you take the elasticities,
if the price does fall then revenue should increase other things
being equal. We would have to see what effect that did have, I
cannot predict. Again, there are other things that may impact
upon that. I would have thought it would be beneficial and as
a longer term goal this harmonisation based on alcohol content,
which would make it a lot more simple across the board in terms
of spirits duty in general and drinks duty in general, SCDI feel
would be a good goal to try to achieve, to simplify the whole
process.
Chairman
306. Following on from that, you no doubt heard
the questions I asked about health to the previous witnesses.
If there was a reduction and, as a result, increased consumption
and increased revenue in that respect to the Treasury, do you
have any concerns that there could equally be more people suffering
from the problems caused by alcohol and, therefore, an additional
cost to the health service, or is it a case that you benefit in
one way but lose out in another? Do you have any concerns about
the health aspects of drink? Is it part of your remit at all?
Does it come into the equation when you are doing studies of this
kind?
(Mr Duff) Yes. SCDI is a broad membership organisation
and we do have a social side to us, if you like. Also, from the
plain economics, the finite resources available to any government,
if there is too much being spent, or the differences that could
be made on, say, the health side because we have a healthier population,
that would mean more resources being available for other initiatives.
The interaction between the social side and the economy is very
close. We do have concerns on health issues. Our sister organisation,
the Scottish Council Foundation, works very closely on that side,
on health issues. In terms of the potential increase in whisky,
I think the issue is really there are many competing alcoholic
beverages and whisky is discriminated against. It is a choice
between types of alcoholic beverage. We are not wanting any particular
special treatment for whisky, it is just a level playing field
based on alcoholic content, that has always been SCDI's position.
The industry itself works quite hard, as you heard from previous
witnesses, and whisky as well also works hard, on sensible, moderate
drinking and to ensure there is proper education and knowledge
of the impact of alcohol misuse. We would support that categorically.
307. Thank you for that. There are no final
questions from Members of the Committee but are there any final
remarks that either or both of you would like to make to the Committee?
(Mr Diggens) Could we just say that the 1999 export
figures are currently in production and we would be happy to pass
the latest data on, specifically for the food and drink sector,
to the Committee as soon as we can.
308. We would be very grateful if you did.
(Mr Diggens) I feel there is significant good news.
Whisky and drinks together as a sector make up just over ten per
cent of the manufacturing and exports figure for Scotland and
that is really quite a success story. I feel there is a lot of
good news there as well. Hopefully competitive plants and skilled
workers in Scotland will continue to contribute to that success
story.
(Mr Duff) To summarise, we do feel that the whisky
industry is a significant part of the Scottish economy and can
significantly enhance Scotland's reputation and Scotland as an
economy and a country internationally. We very much welcome the
Committee's interest in the whisky industry and also the Scotch
drinks industry in general because it is a significant contributor.
We are thankful that you have asked us to come and speak to you
today, thank you.
Chairman: Thank you both for those remarks.
On behalf of the Committee can I thank both of you very much for
your attendance today, your evidence has been very helpful to
us and will be helpful in the further conduct of our inquiry.
Thank you for your time.
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