China cuts tariffs on Scotch whisky
China has agreed to halve its import tariffs on Scotch whisky, offering export gains for UK distillers. At home, however, a new rise in excise duty has reignited industry anger over taxation and lost growth.
It is not without irony that within hours of Prime Minister Sir Kier Starmer hailing China’s reduction of its import tariff on spirits produced in Britain as the result of his trade mission to Beijing, excise duty on spirits in Britain was increased by 3.66%.
Downing Street said last week: “The Prime Minister has secured a significant win for Scotland’s iconic whisky industry, with China agreeing to cut tariffs on Scotch whisky from 10% to 5%.”
That takes effect from today. Starmer said it “will be worth £250m to the UK economy over the next 5 years”.
“China is currently Scotch whisky’s 10th largest market by value, and this tariff reduction will help Scottish distillers compete more effectively in one of the world’s fastest-growing consumer markets,” Starmer said.
“Our whisky distilleries are the jewel in Scotland’s crown. Having already slashed tariffs on whisky exports to India, we’re now doing the same with China – proof that our pragmatic, hard-headed international engagement brings benefits at home.”
Duty rise fuels industry backlash
Yet in the home market, duty increases cut Treasury receipts from spirits last year by a projected £600m.
In a joint letter yesterday to the government, industry representatives attacked Chancellor Rachel Reeves’ November budget for further harming the sector by increasing excise duty in line with inflation from yesterday.
The letter was signed by Charandeep Singh, Chief Executive of the Scottish Chambers of Commerce, Wendy Chamberlain, MP for North East Fife and Chair of the Scotch Whisky All Party Parliamentary Group and Mark Kent, the chief executive of the Scotch Whisky Association.
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They urged fair treatment of spirits in UK taxation, highlighting this year’s scheduled duty review as an opportunity for the government to address the imbalance amid significant domestic and international pressure on the Scotch Whisky sector.
Cumulative tax burden concerns
Kent said: “February 1st saw the increase of 3.66% in excise duty on every bottle of Scotch Whisky come into effect – a cumulative increase of 18% in less than three years. That means that the total tax on an average bottle of Scotch has gone from £10.58 in 2023, to £12.45 today.
“Our sector has warned that repeatedly raising excise duty leads to stifled growth, and we are seeing that come to pass, not just for Scotch Whisky producers, but for the wider supply chain and hospitality sector.
“Continually pushing up spirits duty also costs the public purse, as evidenced by the Office of Budget Responsibility downgrading its own spirits receipts forecast by over £600m late last year,” he continued.
“Distillers need domestic support and stability to help weather the headwinds we are seeing in key global markets, and fair tax here at home is in the government’s gift to deliver.
“This year’s review of excise duty is an opportunity for the government to provide that stability, with a fair duty system that does not punish spirits producers but supports their ambitions for growth and investment.”
China spirits market shows early signs of recovery
Meanwhile, hopes of a revival of growth in Chinese demand for spirits rose last week. Recovering wholesale prices and robust pre-Lunar New Year demand lifted investor confidence in a sector that had been in decline for more than a year, with big baijiu producers such as Kweichow Moutai seeing their shares rise by almost 10%.
While baijiu accounts for more than 90% of all spirits demand in China, observers said that any easing of the country’s mammoth housing debt burden and an upturn in hospitality demand could spur stronger business for Western spirits, including premium Scotch.
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