House of Commons - Scottish Affairs

Select Committee on Scottish Affairs First Report

FIRST REPORT

The Scottish Affairs Committee has agreed to the following Report:—

THE DRINKS INDUSTRY IN SCOTLAND

1. Towards the end of 2000 our immediate predecessor committee embarked on a broad inquiry into the drinks industry in Scotland, encompassing all the principal sectors, including spirits, beer, soft drinks and bottled water. The thoroughness of the investigation prevented the Committee from completing its work and publishing a detailed report before the General Election of June 2001. Instead it issued a short report which highlighted the issues and concerns that had arisen during the inquiry.[5] This report expressed the hope that any successor committee might try to complete the unfinished business.

2. Our predecessors received and published a wide range of evidence in separate parts in the series HC 973-i and ii, Session 1999-2000 and HC 114-i to v, Session 2000-01. HC 114-v was the Appendices to the Minutes of Evidence. We have studied this carefully. We wrote to all those who had submitted evidence asking them for any update or additional comments. We also decided to invite oral evidence from Ministers from those departments we considered most relevant to the issues we had identified, specifically those related to excise duty, trade and competition and the Water Framework Directive.

3. Baroness Symons, Minister of State for Trade and Investment, Department of Trade and Industry and Mr Paul Boateng, MP, Financial Secretary, HM Treasury agreed to appear together, joined by Ms Rhona Brankin, the Deputy Minister for Environment and Rural Development of the Scottish Executive. On 31 October we held a fruitful and constructive session. This evidence, along with additional appendices, has been published as HC 324-i and ii (in one volume), for the current Session.

4. We thank Mr Stewart Dunlop, Research Fellow, Fraser of Allander Institute, University of Strathclyde, who, following the example of our predecessors, we engaged as a specialist adviser.

5. We recognise that the drinks industry makes an important contribution to many aspects of Scottish life and culture. This report focuses on its economic importance. When we speak of drinks and Scotland, the whisky industry comes immediately to mind. We examined it in some depth. However, whisky is not the only drink produced in Scotland. For example, Scotland is also home to Europe's second-largest brewer, Scottish and Newcastle plc.

6. The inquiry covered a wide range of issues. However, a number of distinctive themes emerged. We focused on the following broad areas of investigation:

Economic change in the drinks industry

7. The effects of the increasingly global nature of competition, which marks a key change in the economic conditions facing the drinks companies. Globalisation occurs where large companies seek to treat the world as one marketplace. Attention becomes focused on efficient, low-cost volume production, using advertising to persuade the global consumer to purchase standardised brands. One of the disadvantages of this process can be the end of distinct regional or even national markets.

8. Scotland has seen some benefits from the process, but there have also been several adverse effects. In whisky production, which remains the key drinks sector in Scotland, global pressures have almost certainly led to fewer jobs and to threats to employment in peripheral areas of Scotland where whisky distilleries have traditionally been important employers. Consolidation pressures were also evident in other sectors. Global change, particularly the necessity to compete through branding, also creates pressure for small companies throughout the drinks industry. It appears that difficulties in creating brands was largely responsible for diminishing the soft drinks industry in Scotland.

Taxes and Regulation

9. Concerns were raised throughout the inquiry about the current structure of excise taxes in the UK. The spirits sector had a particular complaint, alleging that the UK system discriminates against spirits. It was also suggested that the current UK regime encourages both smuggling and cross-border shopping.

10. While the tax question mainly exercised spirits and beer companies, the implications of other recent regulatory requirements exercised all drinks companies. The report examines a number of both UK and European regulations, including the Climate Change Levy (CCL), the Water Framework Directive (WFD) and the Control of Major Accident Hazard Regulations (COMAH).

Policy Support

11. We also considered how policymakers in Scotland support the drinks industry. Our main evidence in this regard was from Scottish Enterprise. We examined its cluster strategy for drinks and point to several ways in which we believe it could be improved in order to address some of the issues raised.

Health issues

12. Finally, to a limited extent, we considered some of the health issues connected to the drinks industry in Scotland.

5 The Drinks Industry in Scotland: Issues and Concerns, First Report from the Scottish Affairs Committee, Session 2000-2001, HC 114. Back