Extra whisky duty set to cost Treasury pounds 100m

The emergency 4 per cent increase in taxes on Scotch whisky in the wake of last November's fiasco over the Government's failure to increase VAT on fuel is poised to cost the Treasury more than pounds 100m in lost revenue this year.

According to the Treasury's tax ready-reckoner, the higher tax on all spirits should have yielded an extra pounds 30m of revenue in fiscal 1995/96.

Figures from Customs & Excise to the Scotch Whisky Association show the amount of whisky released from bond, the stage at which tax is levied, fell 26 per cent in the first three months of 1995.

Tony Tucker, of the association, said the drop from 5.5 million to 4.07 million litres of pure alcohol released from bond had cost the Treasury pounds 25m in lost revenue. And there are signs that the decline in the amount of stocks coming out of bond is continuing.

"There is a hole, but it's a hole of the Government's making. If the pattern was to continue, the Treasury can look at a loss of pounds 100m," Mr Tucker said.

The Treasury last year raised pounds 729m in excise duty from Scotch and pounds 2bn from all spirits. Consumers in the UK buy 15 per cent of all the whisky produced in Scotland, but that figure is likely to fall this year with consumers cutting back spending on whisky and other spirits.

Sales of Scotch in supermarkets, off-licences and other retailers could well be heading for a 10 to 15 per cent decline this year.

The sharp drop in releases from bond highlights the troubles retailers are having in shifting stocks built up before the duty increased was imposed in January.

More than 2.5 million litres of pure alcohol from distilleries in Scotland were cleared for consumption in the UK in the month before the extra tax was levied, against 994,400 litres in the same month in 1994.

Drinks analysts have argued for the past couple of years that the Government had exhausted the laws of diminishing returns regarding tax on spirits. The same case has also been argued for beer, also penalised last December as Kenneth Clarke, the Chancellor, slapped an extra 2p of duty on a pint.

Beer consumption this year will, at best, show a rise of 1 per cent but the underlying trend is one of decline into the early part of the next millennium. Brewers are also suffering from the continuing growth in personal imports across the Channel.

A bottle of Scotch costing pounds 11 in the UK retails for an equivalent pounds 8.50 in France. Tax on the UK bottle amounts to 67 per cent, or pounds 7.41, comprising pounds 5.77 in excise duty and pounds 1.64 in VAT.

Taxes charged by Continental countries on beer are also considerably less. Many hypermarkets in and around Calais no longer put beer on shelves, but have to stack up crates on pallets to cope with the demand from Britons crossing the Channel on day trips.

Anthony Fuller, chairman of Fuller, Smith and Turner brewers,based in London, said the amount of beer being shipped on ferries from France amounted to the output of six breweries.

"I despair of our Chancellor continuing to disregard the impact that cheap beer from Calais has on the British drinks industry. I challenge him and his fellow Cabinet ministers to go there to see the size of the trade," he added.