APPENDIX 4
Memorandum from Allied Domecq plc
INTRODUCTION TO
ALLIED DOMECQ
1. Allied Domecq is the second largest spirits
company in the world, with annual sales in excess of £2.0bn.
Company brands include:
Ballantine's, Teacher's & Laphroaig Scotch
Whisky
Kahlua & Tia Maria Liqueurs
2. The company's UK distilling operation,
Allied Distillers, is centred on Dumbarton (Dumbartonshire), and
has approximately 1,000 employees. Allied Distillers owns and
operates 11 distilleries in the United Kingdom:
— Ardmore (Aberdeenshire):
— Glencadam (Angus); Glendronach (Aberdeenshire);
Glenburgie (Morayshire); Miltonduff (Morayshire); Scapa (Orkney);
Glentauchers (Banffshire); Tormore (Morayshire); Laphroaig (Islay);
Strathclyde (Glasgow); Beefeater (Kennington, London).
3. The company also has distilling facilities
in Spain, Mexico, U.S.A. and Canada, as well as wineries in California,
Spain and Argentina.
THE INDUSTRY
IMPORTANCE TO
SCOTLAND'S
ECONOMY
4. Last year the company published the latest
findings of the Fraser of Allander Institute (FAI) assessment
of the importance of Allied Distillers, and the industry as a
whole, to the Scottish economy.
Key findings were:
— Allied Distillers operations in Scotland
contribute £390 million a year to the Scottish economy;
— 76 per cent of Allied Distillers
expenditure is in Scotland;
— Every £1 million spent in Scotland
by Allied Distillers generates a further £2 million within
the economy;
— Every 100 jobs at Allied Distillers
in Scotland supports a further 215 Scottish jobs;
— The Scotch Whisky industry directly
employs over 11,000 people in Scotland, some economically fragile
areas—but supports in excess of 30,000 jobs in the wider
Scottish economy;
— 10 per cent of all agriculture jobs
in Scotland are dependent upon the industry;
— In excess of 90 per cent of industry
production is exported (accounting for more than 20 per cent of
all UK food & drink exports);
— Based upon analysis of Allied Distillers,
the FAI estimated that a total of £3.5 billion of Scottish
output is generated by the Scottish spirits industry annually.
5. The FAI report stated that the greatest
benefit to a "host" economy occurs when the maximum
amount of raw materials and services are sourced locally and the
maximum amount of goods and services are exported. On this economic
measure the Scottish spirits industry is ahead of many other locally
based industry sectors, including oil and gas, electrical/computer
related manufacturing, and banking, insurance and finance.
6. Scotch Whisky is a unique Scottish product,
which, by law, cannot be made anywhere else in the world. Geographic
concentration, combined with the embedded reliance on local sourcing
of raw material and supplies, forms a natural and prime example
of an industrial cluster, the type of modern industry which the
government seeks to foster.
EXAMPLES OF
COMPANY INNOVATION,
INVESTMENT & BEST-PRACTICE
7. Over the last twelve months Allied Domecq
has undergone radical change, selling its pub and off licence
retail chains, leaving the company focused upon two sectors of
business—Spirits & Wines and Quick Service Restaurants.
This refocusing has served to raise the pace of change and innovation
in the Wine & Spirits business.
8. Some highlights are:
— A £15 million investment in
the creation of the first fully integrated bottling, manufacturing
and office complex in the Scottish Spirits industry, based at
Kilmalid, Dumbarton; this facility is on schedule to be fully
operational by early 2001. As well as bottling spirits distilled
in Scotland the facility also bottles our London distilled Beefeater
Gin and Tia Maria Liqueurs.
— Conclusion of joint venture agreements
with Jinro Ltd, the leading spirit's producer and distributor
in South Korea. Korea is the fifth largest export market for Scotch
Whisky, and the third largest world market for premium whisky.
— Allied Distillers has long been an
participant in Dumbarton community affairs. Both the company and
employees actively work across a wide range of projects including:
Lomond Enterprise Partners (assisting small business start-ups);
Scholarships to local schools; Support for Erskine Hospital; Business
Support Group within the West Dumbartonshire Partnership (assisting
the community with work experience, managing projects on issues
such as domestic violence and action against vandalism); Lomond
& Clyde Business Network; the Dumbarton Annual Festival.
— We enjoy excellent labour relations.
In partnership with our three main unions, GMB, AEEU and the MSF,
we have established a progressive working relationship built upon
trust and mutual respect. Our unions have been actively involved
in the design of the Company "People Strategy" and play
a positive role in all change initiatives. They have played a
major role in supporting Allied Distillers build commitment with
the workforce and drive performance. They have been the inspiration
for many positive suggestions which have both improved the working
life of our employees whilst meeting the increasing demands of
our customers.
— In support of the government's Sensible
Drinking Message, Allied Domecq, along with some other leading
drinks producers, introduced unit labelling—indicating on
the product pack the number of units of alcohol contained within.
— Publication of Allied Domecq's Environmental
Performance Report, which outlines company policy, achievements
and goals; most notable is the goal to implement the international
management standard ISO 14001 across all major production sites.
This standard demands commitments to continues improvement; prevention
of pollution; compliance with relevant environmental legislation;
monitoring the environmental performance of activities, products
and services. By end 2001 all UK production sites will have achieved
this certification.
Issues of Concern
UK Excise Duty
9. The UK spirits industry faces inbuilt
discrimination in the structure of the excise rates for alcoholic
drinks.
Based upon a typical pub serving, three types
of drink, all containing the same amount of alcohol, have the
following duty levels:
10. It has been acknowledged by government
that there is no reason for this discrimination other than history—the
fact that current rate structures were established many years
ago (when market, economic and social structures were radically
different).
11. This discrimination hinders sales, threatens
Scottish jobs, encourages duty fraud and smuggling, and impacts
export competitiveness by sending the wrong tax policy signals
to overseas markets.
12. We are encouraged by the Chancellor's
duty freeze on spirits in the last three Budgets. We hope that
the Scottish Affairs Committee will urge the Chancellor to continue
the process of progressively, and over time, narrowing and ultimately
removing the burden of discrimination from spirits; developing
an equitable system under which all alcoholic drinks would be
taxed at the same rate according to alcohol content.
Lack of a Single European Market & Discrimination
Across the EU
13. The UK spirits industry accounts for
50 per cent of the intra-EU spirits trade, and the EU is a vital
export market for Scottish producers (accounting for some 40 per
cent of all exports, worth in excess of £800 million in 1999).
14. Thus far, there has been no positive
progress towards a true Single Market for alcoholic drinks. We
still have 15 separate Member States each with differing structures
and rates of excise duty (a stimulus for smuggling and fraud between
neighbouring nations with significant tax differentials).
15. Nearly ten years ago, as a first step
towards establishing a Single Market, the EU established Minimum
Excise Rates for different categories of alcoholic drinks (below
which Member States could not go). Thus far, no positive progress
beyond this measure has been achieved. However, as a (negative)
step to allegedly further progress to a Single Market, inter-EU
sales of Duty Free goods were abolished in mid 1999. This removed
a valuable sales showcase for the UK spirits industry—but
with no counter balancing positive measures.
16. The Minimum Rates institutionalised
discrimination against Spirits, allowing a zero rate on wine,
a relatively low rate for beer, and a high rate for spirits. In
all Member States actual tax rates on spirits reflect the discrimination
established in the Minimum Rates, and are higher (on the same
measure of alcohol) than the rates levied for wine and beer. Seven
Member States, mostly wine producers, choose to adopt a zero duty
rate for wine, and one other (France) levies only a nominal rate
for control purposes.
17. For only the second time in nearly ten
years, the Commission has embarked upon its long overdue mandated
Review of Minimum Excise Rates. We ask the Committee to support
our aims, namely that the UK Government will, at the appropriate
time in the review process, make strong representations to the
Commission and within the Council of Ministers:
— against upwards revalorisation of
the Minimum Duty Rates for spirits, which could be potentially
damaging to our valuable Southern European export markets;
— to press for a fairer and more equitable
duty system, which reduces the inherent duty discrimination against
spirits.
International Trade
18. In excess of 90 per cent of Scottish
spirits production is exported. Thus, open markets, unhindered
by discriminatory tax regimes, tariff and non-tariff barriers,
are essential.
19. With excellent support from the Department
of Trade & Industry, as well as the Ministry of Agriculture
and the Foreign Office, over the last three years, the industry
has been successful in gaining positive judgements from the WTO
against discriminatory tax regimes in Japan, South Korea and Chile.
However, a range of obstacles remain; for example, unduly high
tariffs in India (the largest "Whisky" market in the
world), equitable market access in the EU accession nations, and
the removal of tax discrimination against imported spirits in
the Philippines. Of particular concern are the on-going tensions
around trade complaints between the EU and the USA (eg Beef Hormones,
Bananas, GMO's, Foreign Sales Corporations), which have the potential
to give rise to retaliatory trade sanctions impacting our sales.
20. The industry supports the objective
of a Comprehensive Round of world trade talks, and is hopeful
that many of the global barriers can be addressed through this
process. The industry is working closely with both national government
and the Commission to gain its primary objectives from the talks,
namely:
— liberalisation of non-tariff barriers;
— liberalisation of restrictions on
services (including advertising and distribution);
— simplified and improved measures
for import and export procedures;
— stronger protection of indications
of geographic origin;
— a more effective WTO dispute settlement
mechanism.
The Cumulative Burden of Regulation
21. The Scottish spirits industry operates
in the global market place, an extremely competitive environment,
where both domestic and international brands vie for the consumer's
income. In mature markets, where growth rates can be measured
in fractions of a percent, cost containment, and where possible,
cost reduction are essential components of meeting the ever present
goal of improved performance.
22. While we recognise the need to be properly
regulated and legislated, we ask that we do not suffer from an
undue burden of regulation, whereby our export competitiveness
is ultimately injured by "a thousand cuts" of cumulatively
expensive regulation/legislation.
23. Some current examples are:
Climate Change Levy (CCL)—we support the
principles behind the impending CCL, as demonstrated by our own
Environmental Report (see Section 3). However, as currently structured
the eligibility criteria for production sites to qualify for inclusion
in a scheme to receive rebate from the levy, are at best confused
(and confusing) and at worst flawed and inconsistent; as a result
added cost burden to the industry could be measured in hundreds
of thousand pounds (a burden many of our overseas competitors
do not have).
We seek a logical and equitable structure allowing
all significant production sites to be eligible for rebate, subject
to meeting the agreed energy efficiency targets.
Export Refunds—Scottish spirits compete
across the world against a raft of competitive spirits. Traditionally,
these competitor products have had the benefit of being produced
with cereals purchased at prices lower than those available to
Scottish producers who are required to buy at CAP prices in excess
of world prices. To compensate producers, and thereby allow us
to be competitive, a system of export refunds was established
payable on products exported to non-EU markets.
Earlier this year the European Commission severely
reduced the refund entitlement available to Scottish spirits producers,
claiming that we were better able to absorb this cut than other
product sectors also receiving refunds. It has been estimated
that this measure could cost Scottish spirits producers some £6
million a year.
We ask that the government presses for early
reform of the CAP, and in the short-term, for the establishment
of an accessible Inward Processing Relief system (IPR), allowing
us access to non-EU cereals, without price penalty, for goods
destined to be produced for export to non-EU markets.
Duty Fraud & Smuggling—In 1997-98
the industry worked with H.M. Customs & Excise in the government's
Alcohol & Tobacco Fraud Review (ATFR), to identify problem
areas and remedies to address them; this dialogue has continued
beyond publication of the Review in 1998-99. Recently there has
been the announcement of the Independent Inquiry into Excise Control
Regimes, headed by John Rocques, which the Scottish spirits industry
has been given the opportunity to make some initial input to.
We understand that Mr Rocques will produce a report later this
year for the Paymaster General. It is likely to include proposals
for improving control measures and revenue collection.
24. Duty fraud and smuggling are socially
subversive, distort and undermine the structures of our markets,
as well as causing revenue loss to HMG. We wish to work with government
to minimise the opportunities for such criminal activities. We
hope that once the recommendations of the Rocques Review are given
to the Minister, government will not choose to establish procedures
placing onerous financial/administrative burdens on our industry
using us as the banker to protect its revenue. Rather, we hope
that through a process of full consultation government will work
with us, in partnership, to tackle the problem to our mutual benefit.
CONCLUSION
25. Allied Domecq is proud to be part of
the Scottish spirits industry, an industry making a significant
and strategic contribution to the economies of both Scotland and
the UK as a whole. We have a talented and motivated workforce
working to build upon past and current successes. As mentioned
earlier, we now look forward to exploiting the full potential
of our multi-million pound investment at our Kilmalid facility
in Dumbartonshire; we would like to offer an invitation to the
Scottish Affairs Committee to visit the site in early 2001, when
it will be fully operational.
26. To allow the industry to achieve its
full potential we must continue to fight tax discrimination both
at home and abroad, as well as breaking down trade barriers in
export markets. The support of Westminster is essential to our
aims, and we shall be grateful for any guidance or assistance
the Scottish Affairs Committee may be willing and able to give.
Allied Domecq plc
September 2000
| 
