A year has passed since the former Chancellor imposed a staggering 10.1% increase in excise duty on Scotch whisky and other spirits. This was the largest such tax hike in over four decades, and the result has been nothing short of disastrous for both the industry and the wider economy. It has become increasingly clear that the policy has not only failed to achieve its intended fiscal goals, it has also undermined the stability of a key, local industry. It is vital to the industry that the new Government reconsiders this approach to ensure long-term business stability and economic growth.
The decisions made in Labour’s first budget will have lasting consequences, not just for the Treasury, but for the stability and future of industries like Scotch Whisky which are huge contributors to the UK’s economy. If the Labour Government is serious about backing Scotland and its iconic Scotch Whisky industry, the mistakes of the previous administration must not be repeated and a different approach has to be taken.
Over the past year, the excise duty hike contributed 0.35 percentage points to inflation, leading to £2.3 billion in additional interest payments on Government borrowing. This is money that could have been better used to support our vital public services such as the NHS. Instead, it has been wasted, exacerbating the fiscal challenges that the new Government is now grappling with.
Moreover, the increase has not even achieved its primary objective of boosting revenue. Recent figures from HM Revenue & Customs reveal that revenue from excise duty on spirits actually fell by £298 million in the year following the tax hike. This shortfall is a stark demonstration that the policy has backfired, reducing demand and shrinking the market. This is a textbook example of how instability and short-sighted tax policies can undermine economic growth and erode confidence in key industries.
The Scotch whisky industry, which generates £7.1 billion annually for the UK economy, and £507 million in Fife and Mid Scotland, cannot afford another year of such instability. This industry is not just a major contributor to the economy; it is also Scotland’s number one food and drink export and a significant source of employment, particularly in rural areas. Yet, despite its importance, it is being choked by an excessive tax burden that claims nearly 70% of the cost of every bottle – with the UK rate of excise duty on Scotch whisky being the highest in the G7 and fourth highest in Europe.
Labour now have the opportunity to provide stability to the Scotch whisky industry. The upcoming budget is their chance to demonstrate that Labour’s commitment to backing Scotland is more than just rhetoric. By reconsidering the 10.1% increase in excise duty and ensuring that no further hikes are implemented, Labour can provide the certainty that businesses need to plan for the future, invest in growth, and continue to contribute to the UK’s economic success. Reviewing the increase would also provide immediate relief to producers and consumers. Such a move would align with Labour’s broader economic goals of promoting growth, boosting employment, and ensuring that the benefits of economic success are shared across all regions of the UK.
For the Liberal Democrats, we are clear that stability and fairness are the bedrock upon which businesses thrive. When companies can operate in a predictable fiscal environment, they are more likely to invest, expand, and innovate. For the Scotch whisky industry, this means continued investment in distilleries, the creation of jobs, and the ability to compete effectively on the global stage.
The path forward is clear. The Labour Government must not repeat the mistakes of the past. They must urgently review the damaging 10.1% excise duty increase and commit to no further hikes. The Liberal Democrats know that this is the best thing for Scotland – and we are calling on Labour to take action to back growth and back Scotland.
A Year of Uncertainty: Why Labour Must Reconsider the Harmful Whisky Tax Hike
