By Keith Aitken in Edinburgh | 9 January 2013
Two former economic advisers to the Scottish Government have called for a windfall tax on whisky producers to raise up to £1bn.
Professor John Kay and Sir George Mathewson argue that the tax could be imposed through water charges, which Holyrood has the power to increase.Kay, a former member of the Scottish Government’s Council of Economic Advisers, floats the idea in a documentary to be shown on BBC Scotland this evening. He is backed by Mathewson, the council’s ex-chair who is also a former Royal Bank of Scotland chair and Scottish Development Agency head.
But the proposal has caused furore in the industry, with Scotch Whisky Association chief executive Gavin Hewitt dismissing it as ‘hare-brained’ and ‘naïve’.
Kay argues that the industry’s mostly foreign ownership means Scotland has benefited relatively little from the export success of whisky, which has carved a fashionable niche in the emerging economies of China, India and South America in addition to already robust demand in Europe, the US and the Far East.
Whisky output is thought to be worth around £5bn. A consultants’ report commissioned for the BBC programme suggests that around £500m of this goes on paying a Scottish workforce of just over 10,000; and a further £1.5bn in purchasing and distribution costs, mostly spent in Scotland – leaving a margin of around £3bn.
The consultants, Biggar Economics, calculate that a water charge of £1 per bottle could raise £1bn in revenue, while Matthewson suggests that 50p a bottle would not substantially harm the industry’s competitiveness. If demand did fall, the main fiscal impact would be on corporation tax revenues and VAT – paid to the UK Treasury, not to Holyrood.
The idea was welcomed by the Scottish Greens, who said it showed a growing mood in Scotland to ensure that big corporations paid their way. But Hewitt today hit back furiously.
‘I find this idea completely hare-brained,’ he said. ‘Success is usually to be praised, not penalised. It is economic naivety.’
He said that the success of the whisky industry was due in large measure to its readiness to reinvest profits in improving produce and production. More than £1bn had been reinvested in the past four years, and a further £2bn was in the pipeline.
Hewitt said that it would send the wrong message to international mobile investment if foreign-owned firms were financially penalised for making profits in Scotland. He also argued that any price increase would hamper whisky’s prospects against the global drinks brands it competes with.
