The Silence of the Drams

The Silence of the Drams

Which way will Scotland turn?

Thoughts from... | 25 Apr 2014 | Issue 119 | By Ian Buxton

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The whisky industry is keeping its head down on the question of Scottish independence, subject of a September referendum that may split the 300 year old Union with England and Wales and break up the UK.

There's a polite 'no comment' from Diageo, Pernod Ricard and William Grant & Sons and the best the Scotch Whisky Association can come up with is this anodyne plea: "We are asking for clarity from both governments so that we can weigh up the likely impact on the Scotch whisky industry."

Well, good luck with that.

The tone of the debate is already highly charged, one might say febrile, with emotions running high. Interventions by the Prime Minister, UK Ministers and the Governor of the Bank of England have been greeted with something close to abuse by the 'cyber-Nats'. So why the studied silence from the distilling industry? What are they scared of?

"I think the benefits to Scotland from the whisky industry are really quite disappointing," says Professor John Kay. "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."

What you need to know is that Kay is a former economics adviser to Alex Salmond's Scottish National Party (SNP); and the SNP are desperate to show that an independent Scotland could be economically viable, especially as oil revenues decline. Add to this last year's UK-wide furore on multi-national corporations not paying their "fair share" of tax and you can see that the idea of taxing whisky will have political traction at several levels.

For Starbucks, Google and Amazon substitute Diageo, Pernod Ricard (Chivas Brothers) and Bacardi (Dewar's). Kay's argument is that these rapacious global giants are exploiting Scotland's water to export profits to shadowy, distant shareholders - and, in fairness, he might have a point.

The prudent new SNP Government (if Scotland gets one) can then reasonably suggest that it's only "fair" that Scotland takes a "fair" share of these profits, based on the use of an important national resource. What's more, they can argue, this is a green tax encouraging responsible use of a natural asset. This is great, populist stuff and will play well with several constituencies - after all, "it's Scotland's water" - and individual Scottish taxpayers (aka 'voters') appear to get off Scot free.

So the industry had better come up with some pretty powerful arguments pretty quickly. This one is going to run and run, especially as a lot of vodka, gin and beer is also made in Scotland, using water naturally. Add just £1 to a bottle and you're looking at billions.

Oh, and here's something else that should prompt some hard thinking amongst the brains of the drinks industry: as well as the potential water tax, it won't be long before some bright spark in an SNP think tank realises that, as Scotch whisky can't leave Scotland for a minimum of three years, a few pennies annual tax on every single barrel in Scotland would fill some of the inevitable hole created by declining oil revenues (assuming that Shetland doesn't declare UDI and grab the fields themselves, as geography might suggest).

As we've seen, the SWA are officially neutral. But I was fascinated to sit down recently with their recently-retired Chief Executive Gavin Hewitt (Ian's interview with Gavin will appear in a future issue of Whisky Magazine, Ed) who was happy to put on record - speaking, he emphasised, from a personal perspective - his view that with independence "Scotland would lose influence in the world and the clout that a big country has with Brussels; lose access to a superb network of UK embassies and trade support and I am concerned about the consequences [of a 'yes' vote] for whisky. If it ain't broke," he argues "then don't fix it."

This is about investment; about jobs; about the costs of production, and thus in the end the price we pay for whisky. So, whisky producers, it's time to stand up and be counted! Scottish independence - yes or no?
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