Memorandum submitted by The Scotch Whisky
Association
1. INTRODUCTION
1.1 The Scotch Whisky Association (SWA)
is the trade body which represents the interests of the industry
at home and abroad. Its main objective is to promote and protect
the Scotch Whisky industry.
1.2 Scotch Whisky is important to the economy
of Scotland and the UK as a whole. With exports contributing £2.5
billion to the balance of trade, Scotch Whisky represents 25%
of all UK food and drink exports and supports 65,000 jobs.
1.3 Scotch Whisky production is closely
linked to its natural environment, from distillery location to
raw material supply. Protecting that environment is fundamental
to ensuring future industry sustainability. Energy-efficiency
is therefore a key area of industry activity, with SWA members
investing in a range of improvements and energy-efficiency technology.
As a result, the industry continues to successfully meet its Climate
Change Agreement targets.
1.4 The SWA welcomes the Committee's inquiry,
and the opportunity to provide evidence on the Scotch Whisky industry's
experience of the Climate Change Levy and Agreements.
2. GENERAL IMPACT
OF CLIMATE
CHANGE LEVY
AND AGREEMENTS
2.1 The SWA is a member of the UK Emissions
Trading Group (UK ETG) which represents a wide range of organisations
involved in emissions trading schemes. We are aware that the UK
ETG has made a comprehensive submission to the Committee's inquiry
and the SWA wishes to note its support for the position outlined.
2.2 Rather than repeat the contents of the
UK ETG submission, we would therefore like to take the opportunity
to focus our comments on one area of specific concern to the Scotch
Whisky industry.
3. INDUSTRY-SPECIFIC
IMPACT OF
CLIMATE CHANGE
LEVY AND
AGREEMENTS
3.1 Over 60 Scotch Whisky distilleries currently
participate in the Climate Change Agreement (CCA) of the Spirits
Energy Efficiency Company (SEEC)—a joint venture between
the SWA and The Gin & Vodka Association. Under this Agreement,
at the last milestone, the industry has achieved a specific energy
consumption (SEC) of 6.66 kWh/lpa against a final adjusted target
of 6.75 kWh/lpa. SEEC participants have improved energy efficiency
significantly with energy use per litre of alcohol produced some
13.5% below the 1999 baseline level.
3.2 There are a number of key stages in
Scotch Whisky production, a process defined and protected in law
under The Scotch Whisky Act 1988 and Order 1990. After distillation,
the spirit (not yet called Scotch Whisky) is required, by law,
to be matured for a minimum of three years in oak casks in Scotland.
Upon maturation, the whisky may be blended with other whiskies
and then bottled.
3.3 Production often—for reasons of
history, geography and economics—does not take place on
a single site. Many distilleries are, for example, located in
rural locations, whilst blending and bottling operations take
place at separate, central facilities. Despite this "separation",
the various stages flow from one to another through to the final
bottling and dispatch of the product and, in that sense, the process
is just as integrated as the manufacture of other food and drink
products.
3.4 Unfortunately, however, packaging processes
which are not co-located with distilling processes are excluded
under the CCA eligibility criteria because it is deemed there
is a physical break in the production process. This anomaly has
resulted in a long-standing concern about the operation of the
arrangements and faced Scotch Whisky producers with a competitive
disadvantage.
3.5 A practical illustration might better
illustrate the implications. One may imagine five bottles on the
shelf of the local supermarket: one of ketchup, one of beer, one
of spirits from an integrated distillery/bottling plant, one of
a fizzy soft drink and one of Scotch whisky from a distillery
with no integrated bottling. It is inequitable that of all of
these, only the last example would not qualify for Climate Change
Levy relief on its bottling process. The Scottish Affairs Committee
has previously called for the scheme to be reviewed to remove
this anomaly ("The Drinks Industry in Scotland", HC324,
November 2001).
3.6 The Government and indeed the Trade
& Industry Committee (eg "Impact on Industry of the Climate
Change Levy", HC678, 1998-99) have remarked on a number of
occasions that the scheme should seek to minimise damage to international
competitiveness. The CCA discount arrangements were specifically
supposed to protect sectors exposed to international competition.
We believe this is especially true in relation to the Scotch Whisky
industry, given that 90% of its sales are overseas.
3.7 The industry's bottling/packaging plants
are well-defined, and specifically approved and controlled, as
trade facility warehouses for spirits, under existing excise legislation.
We therefore believe that it should be possible to describe them,
for eligibility purposes, in such a way that would meet the requisite
criteria for inclusion.
3.8 If such sites were eligible and able
to benefit from the discount arrangements, it is estimated the
cost of the Climate Change Levy to the industry could fall by
around £0.5 million per annum, an industry saving of £3.5
million since the scheme's introduction in 2001.
3.9 The Association continues to believe
that the CCA eligibility rules should be reviewed to allow the
range of similar industry facilities to benefit from the discount
arrangements. To remove a competitive disadvantage faced by distillers,
eligibility should therefore be extended to include all stand
alone bottling and blending sites in the spirits sector.
28 September 2007
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