Independence Debate, Independence Referendum
Published: 03/07/2014 16:51 - Updated: 09/07/2014 13:34

Will independence put Scotch on the rocks?

Written byTony Mackay

 The total economic impact of Scotch Whisky on Scotland's economy is nearly £4.2 billion supporting around 36,000 jobs in the industry
The total economic impact of Scotch Whisky on Scotland's economy is nearly £4.2 billion supporting around 36,000 jobs in the industry

During the countdown to the referendum Inverness economist Tony Mackay is providing a series of updates on the likely implications of independence.

This article discusses the Scotch whisky industry.

"Scotish whisky has a high profile, partly because it has a very active and well-run representative body in the Scotch Whisky Association (SWA).

About 50 per cent of the whisky produced each year is distilled in the north and about 75 per cent of the malt whisky, notably on Speyside.

However, the industry is a relatively small employer, although important in many smaller communities. It is also a major purchaser of barley grown in the region.

I believe that the whisky industry is a very good example of the challenges facing Scotland’s export industries from the independence referendum. Most whisky is exported, so the implications for exports are obviously the key factor.

Important issues include the volumes and values of exports to England and the rest of the UK, as well as to European Union (EU) members.

The SWA produces an excellent annual statistical publication, the latest edition of which is for 2012. It shows that only about five per cent of annual whisky consumption is in the UK, with 95 per cent of production exported. The value of exports in 2012 was a massive £4.3 billion.

There are no statistics available for whisky consumption in Scotland compared with the rest of the UK. We account for just under 10 per cent of the UK population, however, I believe it is reasonable to assume that our whisky consumption is higher than the UK average.

Nevertheless, even if Scotland accounts for 20 per cent of the UK total that still only represents one per cent of total annual consumption and the rest of the UK would account for four per cent, with the other 95 per cent overseas.

These statistics demonstrate very clearly that in relation to Scottish independence, the volume of whisky exports is the key factor. The domestic market is almost insignificant.

The SWA statistics show that the five largest export markets in 2012 were the USA (by far the biggest), France, Singapore (a surprise to me), Germany and Spain. I believe that Scottish independence should make no difference to non-EU export markets such as the USA, Singapore, China and many other countries. These have different import taxes and other requirements, but there is no reason to expect any changes if Scotland voted for independence in September.

The crucial issue is what happens in the EU export markets such as France, Germany and Italy. As I have written in previous columns for Executive, it is vital that Scotland remains part of the EU.

It is evident that there would not be automatic EU membership for an independent Scotland. The current European Commission president José Manuel Barroso made that clear recently, although he was criticised for doing so by first minister Alex Salmond and other SNP politicians.

Some countries such as Spain might object to Scottish membership of the EU. At best, there might be a three-year delay before an independent Scotland was accepted.

If not, Scotch whisky and other exports such as salmon would face EU import duties and other restrictions, which would inevitably reduce demand. It seems obvious that not being part of the EU would have negative consequences for the Scottish economy.

Another issue would be what domestic tax regime an independent Scotland would have. It could be significantly different from the current UK regime.

The Scottish Government has stated that it could reduce the rate of corporation tax, which would benefit whisky distillers, but I doubt that would happen.

It is also important to remember that most of the Scotch whisky industry is now in the ownership of foreign companies such as Diageo, which has its headquarters in England.

Slàinte!

< Back
Reddit Facebook Digg Del.icio.us Twitter Bebo