The whisky industry and the regional Scottish economy : an economic analysis of the impact of imminent innovations in public policy

Abstract

This dissertation analyses imminent innovations in public policy that will impact upon the whisky industry, and, through linkage adjustments, the regional Scottish economy. An analysis of the interconnectedness between the whisky industry and the wider Scottish economy reveals that such linkages are substantial.

A holistic conspectus of the whisky industry in the first part of the dissertation reveals that the predominant form of structural change in the past has been merger & acquisition. Such consolidation has permitted economies in marketing & distribution, but it is contended that in this arena at least there is scope for further performance improvement in the industry. Nevertheless, with taxation forming such a significant proportion of the final price of the product, realising a sustained increase in demand is deemed to be largely outwith the capability of the industry.

It is advanced, therefore, that two tax-related developments in public policy in the next few years will impact not merely upon the whisky industry, but materially upon the regional Scottish economy as well. The first of these imminent innovations examined is the proposed abolition of the intra-EU duty free concession in 1999. Whilst it is concluded that such a move is inevitable (and economically logical), it is nonetheless determined that this will have a meaningful detrimental impact upon the whisky industry and Scottish economy.

Secondly, the current proposals of the European Commission for the harmonisation of alcohol excises across the European Union are critically appraised, and are shown to be grounded on no logical economic principles, but instead, enshrine protection for European vinicultures. The rationale for alcohol taxation is considered de novo, concluding that within the United Kingdom & across the European Union, at a minimum all alcoholic beverages should be taxed on an equal basis according to alcoholic content, at a level sufficient to cover an estimate of the negative externalities associated with alcohol consumption.

Mindful of the importance of the whisky industry to the Scottish economy, it is revealed that in times past, the public authorities have been proactive in intervening to secure the continuing prosperity of the whisky industry, and it is contended that such a stance may be required of the present government. The dissertation concludes by advocating a set of reforms to the structure of alcohol excises in the United Kingdom.

An approximate halving of the excise applied to spirits, such that all alcoholic beverages are taxed equally according to alcoholic content, would ensure that the whisky industry & government could lobby with credibility for comparable structures to be adopted overseas, particularly in any revised proposals for European excise harmonisation. In addition, it is suggested that the fillip such a reform would give to domestic sales of whisky would mitigate the negative effects upon the whisky industry & regional Scottish economy of losing the intra-EU duty free concession in 1999.