Experts estimate £1 tax per bottle could bring in £1bn a year
A leading economist and former Scottish Government advisor has called for a new tax to be levied on Scotch whisky.
Professor John Kay, who served on the Council of Economic Advisers appointed by First Minister Alex Salmond, has suggested a tax of £1 on each bottle of whisky would generate around £1 billion for the public purse.
He claims, in a BBC One Scotland programme, Scotched Earth, to be shown on Wednesday evening, the industry in Scotland generates sales of around £ 5 billion a year.
The figure comes from an estimate the industry creates finished product worth around £5 billion a year, with £500 million going towards staffing costs for the 11,000 people employed in the industry and supply costs put at around £1.5 billion.
Professor Kay believes a tax on each bottle of whisky produced would not lead to a drop in demand if distillers absorbed the cost instead of passing it on to consumers.
He said the benefits to Scotland from the Scotch whisky industry's export success in the emerging markets have so far been “disappointing”.
Professor Kay told the BBC: “I think the benefits to Scotland from the whisky industry are really quite disappointing.
"The largest producers are not based in Scotland. Their profits go mostly to people who are not resident in Scotland.
"They don't pay much tax in Scotland and we don't think they pay much tax in the UK."
Gavin Hewitt, chief executive of the Scotch Whisky Association, argues any additional tax levied on Scotch whisky would affect the industry's competitiveness in overseas markets.
He said: "I cannot see why any government would apply a production tax which would make Scotch whisky less competitive overseas against other drinks which are cheaper to produce and cheaper to sell.
"We have already enjoyed over a billion pounds of investment into Scotland in the last four years.
"I will put my head on the block now and say that we're going to enjoy £2 billion of investment in the Scotch whisky industry in the next three to four years."
Former Royal Bank of Scotland chairman Sir George Mathewson, who has also served on the First Minister's Council of Economic Advisers, said although a tax of 50 pence per bottle may lead to higher prices, he argued the tax "would not be a major percentage of the sales price".
He said: “"It would seem to me there's room there for something.
"I don't believe it [the industry] would be substantially harmed and I believe that the success could be spread around a little more."
However Peter Lederer, Scottish director of drinks giant Diageo, said a new tax would send the wrong signals to those thinking of investing in the Scottish economy.
"If the argument in an economy is to take a successful business and keep taxing it because it's successful, [that] gives the wrong impression,” he said.
Figures released by the Scotch Whisky Association (SWA) last March revealed Scotch whisky exports rose by 12 per cent to £4.2 billion.
The SWA said Scottish Government plans to introduce minimum alcohol pricing at 50 pence per unit of alcohol from spring 2013 could cost the whisky industry £500 million a year in exports.
Last October, the SWA and the European Spirits Organisation mounted a legal challenge against minimum alcohol pricing.
The challenge argued the Scottish Government has no authority to legislate on minimum pricing as this is an area of policy reserved for Westminster and the proposed law goes against EU trade rules and is in breach of the Acts of Union of 1706 and 1707.
The SWA believes other countries “are likely to adopt measures similar to MUP [minimum unit pricing]", with a “protection and health” justification which would target imported products, and such “copycat measures could cost the Scotch whisky industry £500 million in exports”.
A formal complaint against the proposed legislation has also been filed by the SWA to the European Commission.