Slashing excise duty on spirits is a popular move that brings money into the Treasury coffers – so why have only three Chancellors ever done it? Asks Mark Kent
When George Osborne cut the duty on spirits in 2015, he did so at a time when the OBR predicted the move would cost the Treasury, but it didn’t. It brought in more money. It boosted our industry’s investment, and it delivered more cash to the Chancellor. He wasn’t the first Chancellor to cut duty, but he was only the third. Anthony Barber did it in 1973 while the inimitable Ken Clarke did it twice – in 1995 and 1996. Other Chancellors have of course frozen duty, but surprisingly few have gone that one step further.
It’s quite remarkable when you think about the popularity and the heritage of Scotch Whisky and how it is admired and sought after both at home and abroad that more Chancellors haven’t been bold enough to cut duty. It’s even more remarkable when you think that reducing excise duty – or at least not increasing it – delivered more for the Treasury coffers than a tax rise.
As City AM reported a couple of weeks ago, HMRC’s own figures show that when duty on a bottle of Scotch was frozen between 2018 and 2022, tax revenue went up by £1.4bn more than if successive Chancellors had allowed duty to rise by inflation. Contrast that with the impact of the 10.1 per cent increase in duty last August. The Treasury is now down an average of £17m a month in tax revenue when compared to the six months since August in 2022. That’s more than £100m that could fund public services.
In the days and weeks before a Budget, there are two questions asked of the Chancellor – what’s he going to do, and how is he going to pay for it? The latter question is often the trickiest, both economically and politically. In a tight fiscal position, HM Treasury is rightly concerned about raising revenue, not actions which are going to reduce revenue over time.
In cutting duty on Scotch Whisky and other spirits, the Chancellor can achieve the rarest of things in a Budget – a win-win. Economically a cut can bring in more revenue, as it did in 2015, and politically there is cross-party consensus on the need reduce the UK tax burden on Scotch Whisky – which is one of the highest in the world.
The 147 Scotch Whisky distilleries dotted across the landscape, from island and rural communities to urban areas supporting a vast and interconnected supply chain, do so much more than just producing Scotland’s national drink and the UK’s number one food and drink export. They are cornerstones of local economies, jobs creators and supporters and tourist destinations that bring revenue into surrounding businesses. And they are engines of economic growth and revenue for public services.
The numbers speak for themselves. A £7.1bn industry that has grown by nearly 30 per cent in the last half decade by committing £2bn in investment to innovate and build, creating new products and developing the infrastructure to entice and accommodate the millions of tourists flocking to distilleries every year. This is all aided by positive decisions – by freezes and cuts – by Chancellors in the budget.
And the most positive of decisions – a duty cut on 6th March – can deliver even more. Modelling shows that a five per cent cut in spirits duty, followed by four years of freezes (rather than the automatic inflationary uplift) would bring the Treasury an extra £1.6bn in revenue – money that is sorely needed to support public services, and the advantage of supporting the premium spirits category over a high-volume beer industry where revenue has stagnated for more than a decade.
Jeremy Hunt can write his name into the history books as just the fourth Chancellor to cut duty in a century. And he can do so for all the right reasons – generate cash for the Exchequer at a time of challenging fiscal headroom and limited growth, with the bonus of not stoking inflation.
Win-wins don’t come along all that often in the zero-sum game of politics. The Chancellor should seize this opportunity with both hands.
Mark Kent CMG is the Chief Executive of the Scotch Whisky Association.