The Scotch Whisky Industry

HL Deb 24 November 1982 vol 436 cc944-64

6.30 p.m.

Lord Tanlaw rose to ask Her Majesty's Government what effect the depressed state of the Scotch whisky industry is having on the Highlands and Islands of Scotland and what financial assistance is being given to the industry. The noble Lord said: My Lords, I am most grateful to those who arrange business in your Lordships' House for having found time to include this Unstarred Question on the Scotch whisky industry. In case there is any misunderstanding because it has been given to me on a Liberal day, so to speak, may I say that this is not an annex to the very interesting and important Liberal debate just introduced by my noble friend Lord Banks, though only where the social element is concerned in this subject is there perhaps a link in that direction. It is completely on a non-party basis that I am speaking, I am very pleased that the Scottish Peers Association have supported this Question, and I am glad for the concern which has been shown for the industry in the parts of Scotland which are so well represented by noble Lords in this House.

I regret that my noble friend Lord Mackie of Benshie has been unexpectedly called North and so is unable to take part in the debate this evening, but he mentioned to me that he hoped that at least one noble Lord would make the point that the habit of drinking brandy after dinner should perhaps be replaced by using the wide range of malt liquors that are available, for the simple reason that they are much better for one's demeanour and one's digestion than French brandy. No doubt this point will be taken up later on. I should like to thank all noble Lords who have put their names down to speak on this important Question, which is divided into two parts: the first covering the effects on employment and future employment in the Highlands and Islands of Scotland which are connected with the Scotch whisky industry, while the second part concerns Her Majesty's Government's attitude towards taxation of spirits in general.

Some people might ask, Why raise this question now; why should the Scotch whisky industry be different from other industries, engineering for instance, which have been suffering from the recession, from unemployment and from lack of orders? This question was put to me outside the Chamber earlier this afternoon. It may be helpful if I give a brief outline of the state of the industry today and how it has reached its present predicament, with the consequent effects on employment in Scotland.

Over the last three years the Scotch whisky industry has been experiencing a period of extreme difficulty, primarily owing to the world recession, but aggravated by the heavy taxation at home. These two factors have had a serious effect on the sales of Scotch whisky, with the inevitable result that distillation has had to be drastically curtailed. It is this last point which is affecting the prosperity of the Highlands and Islands. Out of a total of 130 distilleries in Scotland no fewer than 106 are situated in the Highlands and Islands. The cut-back in distillation has caused several closures and long-term unemployment, while the majority of distillers remaining open have been forced to introduce short-time working. There is hardly a single distillery which has not been affected by one or other of these factors.

The reason can be found in the nature of the process by which Scotch whisky is produced. Noble Lords will be aware that before it can be consumed Scotch whisky must, by law, mature for a minimum of three years. Usually whiskies are matured for several years longer than this, which means that it must be distilled and left to mature to meet forecasts several years ahead of actual demand. The heyday of Scotch whisky sales, as no doubt noble Lords will recall, was from the mid-1950s up until the 1970s. The annual growth rate of this industry varied between 8 and 10 per cent., with no reason to suppose at the time that this was not to continue into the 1980s. No one foresaw at the time how deep the world economic recession was to bite and in particular how this would affect the long-term projections of the consumption of Scotch whisky. Even as late as 1978 a working group set up by NEDO, on which both the industry and the Government were represented, forecast that world sales would continue to grow through the 1980s by a compounded annual rate of 4.4 per cent. Those forecasts have proved hopelessly inadequate. Most other industries, in spite of that, have been able to adapt to reduced sales, but the Scotch whisky industry was unable to do this effectively for the reasons I have given, namely the long lead time required for the distillation process.

The situation has been further aggravated owing to a fall in home sales as a result of three successive increases in excise duty imposed by the Chancellor of the Exchequer. It may be of interest to noble Lords to know that these additional tax burdens amounted to £1.36 per bottle, including VAT, which makes the total tax content of a single bottle of whisky about 80 per cent. of its selling price. It is not surprising, therefore, that the United Kingdom duty paid clearances of Scotch whisky have fallen drastically. The Treasury's own estimate for 1983 suggests that the volume of Scotch whisky sold in the United Kingdom will be less than 12 million cases.

Furthermore, the traditional export markets are also suffering from lack of demand, coupled with tax discriminations for national beverages against imported spirits. This policy is, unfortunately, practised by some of our EEC partners. I would like my first question to Her Majesty's Government to be: are they willing to take more action than they have done hitherto in this area, action which can be based on the recent judgments passed by the European Court of Justice?

As a result of this rather unfair treatment, both at home and abroad, the Scotch whisky industry is now grossly over-stocked in maturing spirit, which is far in excess of current and anticipated demand. The companies concerned have of course cut back in distillation in order to match their production levels with revised sales forecasts, so the amount of whisky distilled in 1982 will be only slightly more than half of the total which was produced in 1979.

As I said earlier, the whisky producing companies have shut down distilleries only as a last resort and have, wherever possible, introduced short-time working. Even so, this is causing hardship through loss of earnings in the communities affected, as well as the long-term worry about the whole future of the Scotch whisky industry, which has both directly and indirectly maintained these isolated communities. For instance, in places like Dufftown in Banffshire some 500 people out of a community of only 1,500 are dependent in one way or another for their livelihood on the distilleries. On the island of Islay three out of its eight distilleries have been temporarily closed and the remainder are on short-time working. Two years ago this island alone produced about 10 million gallons of whisky a year. Today it may not be distilling more than a mere 3 million gallons. Other noble Lords will no doubt be in a position to give examples of the problems in the localities with which they are familiar in Scotland and the worries that are being expressed by community leaders.

It is particularly difficult to know what advice to give young people in these areas, whether or not they should move South or to a larger town and join the unemployed there, but hopefully find some future in some career, or stay on in their local communities in the hope that the distilleries will one day be able to offer a long-term career for those who are prepared to work in the industry just as their fathers and grandfathers have done. This is the important point as far as employment goes. Once these young men and women have moved from their areas of rural Scotland they will not come back; they will have to make their way abroad or down South or in the big cities. But, more often than not, they are lost forever from those small communities of which they have been an individual and proud member. This is one aspect which the Government should look at as a special category of case from those of other industries because it provides the foundation of local communities in Scotland.

The question is: what measures should the Government take to ensure the stability of these communities and the industry on which they are dependent? The companies concerned must expect some form of guidance as well, in order that their long-term plans of capital and investment can be secured. The Scotch whisky companies are indeed relieved that the long delayed payments of production refunds from the EEC have at last begun to flow. This can have an alleviating effect on cash liquidity. Regrettably, I am informed, it is not enough to alter the real financial problems that the industry faces today.

The industry also welcomes the recent announcement by Her Majesty's Government that there will be a provision for deferment in the payment of duty of four weeks, which is much more in line with the provisions already in force for beer, cider and cigarettes. The industry also appreciates the Economic Secretary to the Treasury's recognition of the outstanding export achievements in increasingly difficult markets.

However, the present crisis concerns more funds that are urgently required for overseas promotion of Scotch whisky if the return to the export figures of the past is to be maintained and exceeded. The Scotch Whisky Association is already financing public relations campaigns in the United States and Japan, and may also find it necessary to do so in other markets, simply to maintain the existing Scotch whisky percentages.

The industry is not looking for any form of subsidy or direct financial aid from the Government but more a greater recognition of its problems in relation to the other sections of the consumer market. I refer in particular to excise duty which at present discriminates against all spirits, including Scotch whisky, because they are much more heavily taxed proportionately than wines, and even more so than fortified wines such as sherry and vermouth. Surely the only fair and logical way of taxing spirits of all kinds is on a flat rate per degree of alcoholic strength. Unfortunately, it seems to have been the practice of successive Chancellors of the Exchequer, irrespective of party, to look upon the taxation of whisky as a balancing factor in their books on Budget day. It would appear that the levels of duty on spirits have been of a discriminatory and arbitrary nature, brought in at the last minute, especially when they are compared to the taxation on beer and wine.

I am sure that it is not just the Scotch whisky industry which feels it has been singled out by successive Chancellors. I suspect the consumer also feels that he has lost out. The consumer would surely appreciate paying the Government the same duty, regardless of whether he is drinking wine, beer or spirits, if the amount payable is based on the degree of alcoholic strength. This would also strengthen the industry's case and, indeed, her Majesty's Government's case, when taking action in the EEC. This would be a basis for looking at all our consumer drinks in the Community. I should like the United Kingdom to take a lead in this direction rather than just use the spirits industry—I refer not only to the Scotch whisky industry but to the whole range of them—merely as a milch cow at Budget time. That does a disservice to the whole country as well as to the industry unless there is a new basis on which the Government can look for taxation.

The Chancellor may select whisky yet again in his forthcoming Budget as a source of funds for the central Exchequer. The plea I make on behalf of the Scotch whisky producers, as well as consumers, is that if any further tax is envisaged it should be based on the reasonable assessment of the degree of alcoholic strength, whether for spirits, wine or beer. I should like the industry to consider coining the phrase, "There should be no taxation without equalisation". They could pursue that with effect on the Government's ears or, more particularly, the ears of the Lord Chancellor.

The three latest duty increases have sharply reduced the level of clearances in the United Kingdom without enhancing the revenue obtained for spirits. Therefore, any further increases in the present level of taxation would be self-defeating in revenue terms. In terms of this Question under debate this evening, Her Majesty's Government's attitude might also affect the future employment in the Highlands and Islands of Scotland by causing permanent closure of distilleries which have been the backbone support of these isolated communities. The Government's re-assurances would be most helpful, but what is even more important is to ascertain the Government's attitude towards the whole future of the Scotch whisky industry as an earner of much needed foreign exchange and as a source of future taxation.

Finally, one point brings me back to the Liberal debate we had earlier. In every element of pleas to Government for any particular industry there is a social element, a matter of social conscience. That is also the responsibility of the whisky producing industry itself. The industy feels, as I hope the Government will, that it has a responsibility to these isolated communities in Scotland. If the Government do their bit in reassuring the industry on its long-term future I have no doubt that the commercial companies concerned will give those communities the benefit of their doubts and add an element of social conscience into their future planning. That is the main reason why I have put this Question down for consideration this evening.

6.46 p.m.

Lord Ross of Marnock

My Lords, the House is grateful to the noble Lord, Lord Tanlaw, for raising this matter which is so dear to the heart of every Scot and, sadly enough, becoming dearer to the pocket of every Scot. He will appreciate that he is only obeying probably the most historic injunction ever given to representatives of Scotland at Westminster. On the very same subject of the tyrannous attitude of the Department of Excise and the closing down of distilleries in Scotland there was quite an outcry and Scotland's national bard penned some words "An Earnest Cry and Prayer to the Scotch Representatives": Some of ye nicely ken the laws To round the period and pause And with rhetoric clause on clause To mak' harangues Then echo through St. Stephen's wa's Auld Scotland's wrangs. Of course, it was a subject that he knew a little about. It was a subject that led him in the final verse to give expression to a phrase that has probably been linked with Scotland, and Scotland's attitude to whisky, over very many years. He said: Freedom and whisky gang thegither Your Lordships can all get ready for the Burn's suppers on that.

I did not give any guidance to the Question. It is far too easy for the Government to answer. What financial assistance is being given to the industry? The answer is, none. The industry does not want it either. All it wants is fair play. It would be much more interesting if the Government would tell us what financial assistance the whisky industry is giving to the Government. Just imagine it, four-fifths of the cost of every bottle of whisky goes straight to the Treasury in excise duty and in VAT. The last three increases have added—I repeat, added—£1.36 to the Government's take on the price of a bottle of whisky. It reaches the point where that is pretty penal and it has had its effect.

The noble Lord gave figures relating to Islay. I am sorry that my noble friend on the other side is not here because he could tell us about this. In the eight distilleries on that small island production, which was 10 million gallons, is down this year and is likely to be only 3 million gallons. The implications for employment in these places are extremely serious. I am looking round the chamber for all the people who were interested in the integrated plan for the Western Isles the other week; but they are not here. I am interested in what will happen to people. This situation is having an immediate effect. There have been some closures, not all that many, but there have been lay-offs and short-time workings. If this continues there may be further closures affecting employment in those areas into which it is most difficult to introduce employment. I hope that the Government will bear that in mind.

The record of the industry is not only supported through home consumption, because its export record is quite fantastic. Indeed, it is so much so that the Government take it for granted. My interest in this subject is not as a consumer. After all, for 33 years I was the Member of Parliament for Kilmarnock. Your Lordships will find Kilmarnock on an awful lot of whisky bottles, because that is where Johnnie Walker is blended. So I know a lot about it. I am sure my noble friend will appreciate that, although there is a cutback to meet the decline—the unexpected decline—in consumption and exports, the immediate cut-back is at the distillery. There is distilled whisky galore; it is all there in store. It is maturing. Until there is a rise in consumption it will not be increased to the same extent.

However, that leads to the question of where it is blended. It does not always take place in the Highlands and Islands. It is in places like Paisley, Glasgow, Kilmarnock and round about that it is blended, bottled and is shipped away to the ports. There are thousands of jobs involved. Indeed, that is the next step; the loss of jobs in those areas. It is an extremely serious matter and one to which I shall return, because I believe that it is even more serious than people imagine. Of course it is due to the recession at home and abroad, but more than that it is due to the activities of the Government who are taking more and more from this industry. We cannot add £1.36 to a bottle of whisky without its having an effect upon sales. Whereas people used to enjoy a glass of whisky with their half-pint, now they are probably lucky if they are able to afford the half-pint. This is not a time when the Government should be further increasing the tax. Indeed, I think that the Treasury themselves realise that they have reached the point of diminishing returns and they should be thinking again about any further taxation on whisky. Enough is enough.

There is also the question of exports. It is in spite of very considerable difficulties that record exports have been achieved by the whisky industry. The Government have tried to help in many cases, but not with success in respect of even some of our EEC partners, because, unlike Britain, they have been protecting the production of their own brands. For example, there is France and brandy. There is discriminatory taxation in respect of that. There should not be, but there still is. I think it would be only fair if the Government equalised the excise taxation on spirits and fortified wines in this country, because then they would have a better argument for asking people to do that abroad. It would be real harmonisation. So there is something to be done there.

The Government should be looking at ways of removing what we consider to be unfair treatment of the industry. If they were to remove that unfairness they would be helping financially. We are grateful for what is being done. The EEC deferred payments had to come some time, and it is lucky that, at this time of cash flow difficulties in the industry, the back payments are coming now. Moreover, there will be the continued payment of the production grants. As regards what they have done about the four weeks deferment of duty, that applies already to cigarettes and other things. So it is only being fair to the industry.

I hope that the Government will appreciate the difficulties. People have been switching to wines. There is no doubt that there has been a change in tastes and maybe because wines are cheaper. I cannot say that one could suggest that Scots would prefer that—they may prefer it as a supplement, but if you have any sense you will never mix anything with your whisky; you would just spoil it. We are the only country in the world which discriminated in favour of imported products, and so it would be only fair to get rid of that discrimination.

I am interested in the bottling aspects and the question of employment in other areas. There are probably more jobs around Glasgow involving whisky than there are in the Highlands and Islands, whether it is Buchanan's, Teacher's, Chivas, Paisley and so on. I can assure your Lordships that one of the matters that has been concerning us and should have concerned the whisky industry—and this is where they could do something for themselves—has been the question of bulk exports. Can your Lordships imagine that Scotch whisky is being exported in bulk to Japan? A very considerable amount of it is being sent there. And what happens to it? Is it further blended? Mind you, a Scot would not say "blended"; he would say "adulterated." All that, to my mind, has a long-term effect on the reputation of the quality of Scotch whisky. In the short term it has an immediate effect upon the employment of people bottling whisky in Scotland. It is exported in bulk not only to Japan; the same applies to America as well. It was only last week that 200 people were made unemployed in Paisley directly owing to the bulk export of whisky.

From the short-term point of view of employment and from the long-term point of view in respect of the quality and value of Scotch whisky being consumed worldwide, the industry is being shortsighted. It may well be that in the early 1970s or before that when it started, it did not matter so much, from an employment point of view, when consumption was rising by 8 per cent. to 10 per cent. a year. But now consumption is falling. Now there is competition from other so-called whiskies and the Scotch whisky industry should be aware of the effects.

However, the Government can do quite a lot. They can help with the level of taxation. They can adjust the incidence of excise duty to end the discrimination, and I think that they should strive further to end the discriminating tariffs that we have even among our EEC partners. There is a great deal that the Government can do without giving direct. The Government have a big stake in this matter. If the noble Lord, Lord Lyell, would examine it and I think he is close enough to the subject (I should say "where he lives"; I did not imply anything else), he would realise exactly what it means financially to the Government to maintain the income they get from this hard-pressed industry. So thanks again to the noble Lord, Lord Tanlaw, for having raised this historic subject.

7 p.m.

Lord Mottistone

My Lords, I too should like to thank the noble Lord, Lord Tanlaw, for introducing this important subject to debate in your Lordships' House. I would ask your Lordships to forgive me if I do not stay right to the end of the debate because I have an important engagement which will involve, among other things, drinking whisky: I shall, however, stay as long as I can. I apologise in particular to my noble friend on the Front Bench, whose reply I may not fully hear. The point I want to re-emphasise, because much of the ground has been covered by both earlier speakers, is the fact that 85 per cent. of Scotch whisky is exported. It is to that area that I believe the Government have to direct their attention. I am sure it would be helpful if they had a more equitable way of handling the problem of internal taxation, but I shall concentrate my remarks on exports.

There is no doubt that the protectionism overseas is at an extraordinary level, and in particular within the EEC, where the principal offender, as has already been mentioned, is France. In passing, I would mention to your Lordships that I gave up drinking brandy when President de Gaulle refused to let us into the European Community and only started drinking it again when we were members of the Community. I would recommend that to all my fellow countrymen against the present practices exercised by the French.

Since 1st January 1978, when the transitional period ended and the United Kingdom became a full member of the European Community, our European partners have levied over £250 million in unlawful taxation on Scotch whisky; that is to say, taxation at a higher rate than that imposed on locally-produced competing spirits such as grappa, cognac and aquavit. The impediment which this unlawful tax disadvantage has caused for Scotch whisky is only too self-evident.

In February 1981 the European Court of Justice condemned French taxation of Scotch whisky at a higher rate than brandy. Today, more than two and a half years later, France still taxes Scotch whisky more heavily than brandy and has passed clever legislation to make challenges in the European Court more difficult. The success of this has not gone unnoticed. The Italian Government, for example, levies at least two unlawful taxes on Scotch whisky. I really think that the Government might take more positive action than they have taken hitherto to make sure the French realise that this is something which we cannot stand, particularly as it is contrary to the Treaty of Rome, and that practices such as finding some excuse in a clever sort of way, as the French do, to make it difficult for their types of products to come into this country, will perhaps be the only alternative that we can use. I think that we must start thinking about taking the same sort of retaliatory action, sad though that is for a trading nation to have to do.

The situation is, of course, due to the Community having a large over-production of wine and an embarrassingly expensive wine lake. The surplus of wine leads to increasing demands for more subsidies to wine producers. Unfortunately, the subsidies tend to encourage even greater over-production. This is in stark contrast to the reduction in output and employment in the Scotch whisky industry. It is, therefore, desirable that Her Majesty's Government should be alert to the danger that over-production of wine in the Community will lead to an increasing distortion of the competiton between wine and spirits—spirits such as Scotch whisky—in order to increase consumption of the former at the expense of the latter. So we are not only in difficulty with brandy; we are also in difficulty with wine.

Your Lordships may be interested to know that I have some statistics which show that the wine-drinking countries consume more litres of pure alcohol per head of population in a year than either the beer-drinking countries or the spirit-drinking countries. The wine-drinking countries, which include France, Hungary, Italy, Portugal, Spain and Switzerland, consume an average of 13 litres of pure alcohol per head of population in a year. The beer-drinking countries, which include Austria, Belgium Czechoslovakia, Denmark, Ireland, the Federal Republic of Germany and the United Kingdom—and the United Kingdom is near the bottom of this table—consume an average of 10.4 litres of pure alcohol per head of population. The brandy and spirit drinkers, which include Finland, the German Democratic Republic, Iceland, the Netherlands, Norway, Poland, Sweden and Yugoslavia, consume an average of 7.9 litres of pure alcohol per head of population.

The reason for spelling that out to your Lordships is to show that if the French are telling us that they want to encourage wine drinking because it is healthier for us, the answer is that it is not. The healthiest countries are the ones which are mainly spirit drinkers. This is a matter of considerable importance and one which might, indeed, be reflected in the thinking of the Government in the way in which they treat the taxation within this country.

I would suggest that the point made by the noble Lord, Lord Ross, and, indeed, by the noble Lord, Lord Tanlaw, that the only fair and logical way of taxing alcoholic drinks is at a flat rate per degree of alcohol strength, is the solution to the problem. It is the solution that ought to be applied both nationally and on a harmonised basis within the EEC. What one must say to the Government above all else is that they must bring pressure to bear on their fellow members of the EEC for all sorts of reasons, which include not only fair treatment of important industries like the whisky producers of Scotland, but also the health of the nation. That formula is the solution which must be pressed forward without any delay throughout the European Community.

7.8 p.m.

The Earl of Halsbury

My Lords, in common with those who have preceded me in the debate, I am extremely grateful to the noble Lord, Lord Tanlaw, for bringing forward this subject. I speak as a Sassenach with a mother who was pure Scots, but also as an ex-director of the Distillers Company on whose board I sat for many long years. It is now, of course, forgotten that the Distillers Company was once upon a time the second biggest chemical manufacturer in this country and the fourth biggest in Europe. Those days have gone because they sold their interests to BP, by which time I had become so interested in the whisky production side that I stayed on with them for a long time and became accustomed to all their problems.

I agree with every word, with knobs on, which the noble Lord, Lord Mottistone, said. I want to see a Government that are very much tougher in the interests of Britain. I could add to what the noble Lord, Lord Mottistone, said. Someone has to take the Commission by the scruff of the neck and shake it out of its dogmatic attitudes towards distribution problems. No proprietary liquor company of any kind whatever is big enough to manage worldwide sales and distribution on its own without agencies. No clos, no chateau, can export worldwide with its own sales staff; it has to sell through factors, wholesale houses, to whom in each market it gives exclusive representation.

The Commission dislikes exclusivity in these contexts; but if you do not have exclusivity, then what interest does your distributor have in making a good show of the product that he is distributing? Does the noble Lord want to intervene? The noble Lord, Lord Lyell, has caught my eye and I wonder whether he wants to rise.

Lord Lyell

My Lords, no.

The Earl of Halsbury

The Commission has to be taught that the pattern of an established trade must not be wrecked for dogmatic reasons. This, of course, was the reason that Johnnie Walker had to be withdrawn from the English market—because of the entirely arbitrary action of the Commission. The Distillers Company is in a rather sensitive position compared to any of its competitors, because nearly all of them have either a flourishing home trade or a flourishing export trade; but only this large company, the Distillers, has a balance of trades which are equally susceptible to interference. Many of its competitors can forget the home market and do whatever the Commission tells them abroad, others can forget the Commission because they do not export anything, but DCL is extremely sensitive to this.

I want to draw attention to the cockeyed situation we have over the excise on spirits. I want your Lordships to imagine that I have five bottles in front of me, each containing one litre of pure alcohol. They are labelled 100 per cent. pure alcohol with a small postscript: prepared from whisky; prepared from imported table wine; prepared from British fortified wine; sherry; and beer. The excise paid on those five bottles of pure alcohol would be as follows: on that derived from whisky, £14.47; imported table wine, £8.90; British fortified wine. £7.66; sherry, £7.38; beer, £6.80.

Notwithstanding everything that the noble Lord, Lord Ross, said in the way of good advice to whisky drinkers, what do the great balance of whisky-drinkers do with the whisky they have bought which has paid £14.47 per 100 per cent. of pure alcohol? They dilute it with soda water, or burn water, or distilled water, or Malvern water, or whatever it may be, until the actual alcohol they are drinking is of the same strength as beer or sherry. Why do not the producers sell whisky and soda in bottles? They would pay much less excise, and, if they did, it would almost bankrupt the Government in lost revenue. It is simply that people like taking the whisky and adding the water in the proportion that suits them. Some people like it 50/50, others 2 to 1, others 3 to 1, and so on. I think that that reduces this differential excise on whisky to proportions which are, quite literally, ludicrous.

But for all the brave words the noble Lord, Lord Ross, spoke, if he found himself on the Treasury Bench, he would find that the excise and the Chancellor's little fingers were thicker than his loins, and he would not be able to do anything about it because of the loss of revenue to the Exchequer. The only thing one can do is to start a process of compression; bringing whisky slowly down and bringing the others slowly up until we tax alcohol on the alcohol content of what the consumer buys. Here we have a Government that are said to be pledged to the free market, to non-interference—all the best Adam Smith traditions—with the structure of trade, but they are going to be just as impotent as every Government before them because of the immense amount of revenue locked up. Nevertheless, with determination and goodwill, justice could be done to this industry which provides a livelihood for a very important section of the Scottish nation, which is a very important kingdom in the joint kingdom of the United Kingdom. And, not only that, a delicious drink, whether you dilute it with soda, of which the noble Lord, Lord Ross, disapproves, or drink it with a chaser such as Guinness.

7.13 p.m.

Baroness Elliot of Harwood

My Lords, I find this debate most fascinating. I was a little doubtful whether I ought to put my name down to speak, for the simple reason that I am no expert on whisky. However, I have been very generously elected chairman of the Scottish Peers Committee in your Lordships' House and I thought it only right that I should support the noble Lord, Lord Tanlaw, in the admirable subject that he has put down and has led to this fascinating discussion. I listened to the noble Earl, Lord Halsbury, with the greatest possible interest, because I have never before heard put forward half the things that he said, but I agree completely with him. I thought his speech fascinating. The noble Lord, Lord Ross of Marnock, like me, has a great interest in Scottish literature. His quotations from our national bard were most apt and important.

I am speaking because I feel keenly about this matter. This is such an important industry, as has been demonstrated by what has been said. It affects the Highlands and Islands, and if there is one area we want to try and help it is that one. From the EEC we have got this admirable scheme financed by, I think, two-thirds by the EEC. But to reduce one of the most important industries in the Highlands and Islands at the same time seems to me to be really cutting our own throats.

"Whisky" in all my life has been a joyful word. Whisky adds pleasure to life, provided it is not abused by people turning themselves into alcoholics. It is a healthy drink. It is important for our export trade. Somebody in this debate said that 85 per cent. of Scotch whisky is exported. All that is of vital importance today. Therefore, it is depressing to hear and read of the drop in production because of the drop in consumption. This, as the industry tells us, is due largely to very high taxation. There have been three successive increases in excise duty in the last few years, and, in addition to that, VAT has to be paid on the duty. This has led to a reduction of 15 per cent. in whisky consumption, and naturally a further drop in sales arising from that in 1981 and 1982.

Inevitably, this drop will affect particularly the areas of the Highlands in which we are extremely interested where, as the noble Lord, Lord Ross, said, he is interested in the question of employing people. We are all interested in that. Undoubtedly if this continues there will be a heavy drop in employment in the areas we are trying to help, and the people leaving the Highlands and Islands will find great difficulty in finding work elsewhere.

In the island of Islay there are eight distilleries, and three are temporarily closed. Two years ago Islay produced 10 million gallons of whisky. In 1982 it distills only 3 million gallons. These figures come from the brief which we have all been sent by the whisky organisation. But there are many other areas, as the noble Lord, Lord Ross of Marnock, has said, where whisky is important in many ways, and these are going to be cut back too.

It is vital that the Government should realise that this reduction is cutting our own throats. The level of taxation on whisky must be changed so that, at the very least, Scotch whisky is not taxed more than any other wine or spirit coming into this country. The noble Lord, Lord Mottistone, has given us excellent details of cost, taxation and so on. These figures are important, and I hope that the Government will take them to heart and will see that this is something that must be dealt with now.

I know that the Government have tried hard to get trade barriers against our whisky removed, especially in EEC countries, These barriers, as I understand it, have been ruled illegal, but still they continue. I hope that the Government will continue to fight against discrimination of this kind, whether from the EEC countries or any other country, because it is doing a great deal of damage. We have this splendid scheme for the development of the Highlands and Islands, which we debated in this House, but it is going to be severely affected by what is happening in the whisky trade.

I should like to see such alteration in taxation as would help the whisky trade to expand. They are not asking us for subsidies. They are not asking us for money. What they are asking for is fair play. If there is one thing that this country has stood for in many generations and in many centuries, it is fair play. I beg the Government to realise that this is of vital importance and that we must see that the whisky industry has fair play.

7.20 p.m.

Lord Belhaven and Stenton

My Lords, I am grateful, as I am sure we all are, to the noble Lord, Lord Tanlaw, for raising this subject and for getting it on the Order Paper at such a reasonable time of day—and, I must say, not before time. I lived in the island of Isla until just over a year ago. The situation when I left there was critical and I have no reason to believe it is any better yet. I never thought I should be attending even a short debate in your Lordships' House in which I would agree with practically everything that had been said, including every word uttered by the noble Lord, Lord Ross.

Lord Ross of Marnock

Delighted!

Lord Belhaven and Stenton

I agree with some of the things the noble Lord says but I do not usually agree with everything. The only trouble, my Lords, is that I have been left as what I would call the last lay, or Back Bench, speaker with very little to say because your Lordships have summed up the situation so well.

Having lived in Isla for seven years, I do not think people who have not lived in remote areas, and particularly in islands, understand the knife-edge on which the economy of such areas is balanced. When one is living there—it does not matter who one is—one is definitely afraid about what is going to happen. If any industry is affected, be it agriculture or any other, it affects everybody in the island, and the recession in the whisky trade has affected Isla very badly. It has affected Port Ellen, where I used to live, more particularly than many of the other areas; it is one of the two biggest villages. I ran a small tourist hotel there and most of the people who worked for us were the wives of distillery workers. Their husbands were quiet, hardworking men who had never been on strike or anything of the like, although they belonged to unions. They worked quietly all their lives. Yet suddenly, out of the blue, they were hit by unemployment and short-time working.

It is not easy for them. If such a situation occurs in, say, Hammersmith or Birmingham there is the possibility of getting a job five miles away, but in a place like Isla one is nearer the possibility of getting a job in Glasgow—and the prospects there are not too good—and that is 100 miles and a six-hour journey away—not the sort of place to go to work and come home in the evenings. Therefore one must move. For those reasons I say that people who have not lived in the Hebrides and places like that do not realise that there is a real danger of dereliction. We who live there see the results of past dereliction, in the pathetic villages with only some walls standing. Nobody is there, just the cows and sheep grazing over them. So we see what happened in the past. No wonder the people living in those areas fear what may happen in the future.

Coming to the Question asked by the noble Lord, Lord Tanlaw, one asks what are the Government to do about he situation? In many ways successive Governments have done quite well. We have the Highlands and Islands Development Board, a rather bureaucratic and expensive body but in fact it does a good job, and I have had experience of that. But it all seems to be, to some extent, negative in relation to the attitude of successive Governments. And I must say, although I sit on this side of the House, that we must consider the way in which this Government in particular have dealt with the Scotch whisky industry: three successive increases in the tax at a time of extreme difficulty. As I understand it, those increases have actually become counter-productive and the Government are not actually getting any more money. I may not be as clever as some, but that seems to be the economics of the padded cell. I fail to understand the logic of it. The Government should give themselves a self-denying ordinance not to put up the tax on whisky for, say, four years. Even better—though I do not expect this to happen—they might even consider reducing it, and then they might increase Government revenue and make things slightly easier for the industry.

There is in the remote areas a feeling that the Government do not care and do not know anything about what is going on. Indeed, one sometimes feels one is not living in the same country when one is living there. It is a very bad situation because I am sure the Government do care—not just this but also the previous Government—because they have tried to do things. However, in respect of the whisky industry they have behaved as if they were dealing with a foreign country, and that is deplorable.

Local politics in the sort of areas about which I am speaking hardly exist. The local councillor we had in Port Ellen was a most estimable man, widely criticised locally by people who would not have thought of doing the job he did, which I considered he did very well. He once explained his politics to me. He said he was really a Conservative but was a paid-up member of the Scottish National Party, that his sympathies were basically Socialist, but he had always been a Liberal.

Lord Blease

Was he under the influence?

Lord Belhaven and Stenton

My Lords, that is very much the way people feel when they live in such an area, because everybody must pull together and the interests of the area in which one lives and has one's job or property are paramount.

May I comment on an argument which I have always thought to be specious; namely, that while the Government put the tax up by, say, £1 a bottle (or whatever the case may be) in fact the price has not increased in real terms since 1969, 1975 or whatever other date people care to mention. That does not seem to be a sensible way of dealing with an industry which has actually kept its prices down. I thought we were trying to bring inflation down. To penalise an industry for maintaining its prices by saying that what it produces is cheaper in real terms now than it used to be seems to me to be the most inflationary argument one could possibly put.

The Treasury and Her Majesty's Government—whichever party is in Government—should realise that the Highlands and Islands are part of the United Kingdom just as much as Hampstead, Croydon, Coventry or anywhere else, and should make a little more effort, particularly in respect of the whisky industry, to encourage the people who live in the remote areas to feel that the Government, whatever their colour, are on their side.

7.28 p.m.

Lord Lyell

My Lords, I am sure the whole House is grateful to the noble Lord, Lord Tanlaw, for providing this opportunity to discuss one of the most renowned products of our islands and for his fine and, I would say, optimistic speech. I wish also to thank him for the care he took in making his remarks and for the kind things he said about not wishing to make a partisan or political speech, a note which has been echoed by every speaker. We are indeed grateful for the great interest that has been shown by so many of your Lordships, both in speaking and in listening.

We believe it is indeed fortuitous that we have been discussing the great industry of distilling whisky, selling it and exporting it, so soon after the announcement that, as from February 1983, a deferred payment system will be introduced for excise duty. We understand that the industry has indeed welcomed this proposal, since it means that the distillers will be able to defer payment of duty for an average period of four weeks. This will provide considerable cash flow advantages for the industry, and there has been an estimate that it will represent something in excess of £100 million.

Duty deferment under the Finance Bill legislation will not become operative until after Royal Assent. However, in order to give relief to the industry at the earliest practicable date, Customs and Excise has been authorised to introduce duty deferment arrangements for wines and spirits from 15th February 1983 on an extra-statutory basis. In order to assist the smooth transition to the new duty deferment arrangements, Customs and Excise has also been authorised, exceptionally, to extend the average period of deferment to five weeks for wines and spirits that are cleared between 15th February and 14th May 1983. That is in addition to the welcome injection of funds that many distillers will have received as a result of our successful negotiation of export refunds for Scotch whisky. Again the sum is about £100 million paid out since last autumn. If I may say so, those are not insignificant sums, especially to the hard-pressed industry about which we have heard so much this evening.

However, it would be foolish to deny that the industry has been affected by the recession which has hit the whole world. After years of steady growth the industry is facing smaller current and indeed projected demand, and the long maturation period that is required, and the high level of stock that has to be carried, have compounded the problem. This has of course led to cutbacks in production, with—as we have heard from my noble friend Lord Belhaven and Stenton, in a very eloquent speech—consequent layoffs, as well as the problem of short-time working.

The drop in production between 1980 and 1981 was much sharper than the drop in sales. That clearly reflects a rundown of stocks in bond, and to us it seems to represent both a reaction to the interest charges entailed in stockholdings, as well as an effort to reduce stocks in line with a more modest assessment of market prospects. For that reason an unchanged level of demand should in the medium term lead to some small recovery of output. Indeed, some independent commentators see growth in demand for the rest of the decade, which should lead to yet more marked recovery in the medium term; and that is speaking in whisky terms.

Only this week there was published a new review of the Scotch whisky industry, and that expressed a confident view of the industry for the future. The review claimed that the industry has coped extremely well with the recession and that whisky will continue to be one of the world's major liquors, with further growth to be expected. While consumption and exports have fallen, whisky has increased its share of the home spirits market to over 55 per cent; and I understand that the latest figure is 55.5 per cent. The Government, and I believe the industry, as well as the great country of ours which produces it all, will be grateful for every entire percentage point increase in its share of the home spirits market. Despite a small drop overseas, the United States still accounts for 30 per cent. of the exports of whisky.

During the past few months there have been many examples of companies announcing good results. Pretax profits of £2.7 million, with sales up 8½ per cent., have been reported by one very famous distiller near to my home, and indeed the home of my noble friend the Minister. Profits have more than doubled in the half year, with sales up from £4.5 million to £4.7 million, in a major group in the North of Scotland. At the beginning of August the Scotch Whisky Association announced that in the first five months of this year—1982—exports were close to record levels. They were 3 per cent. better than in 1980, and were within 2 per cent. of the levels achieved in 1978, which, as your Lordships will know, and indeed the Scotch Whisky Association knows, was the best year ever for exports. Another company recorded pre-tax profits up almost 11½ per cent. I understand that, among its other products, this company produces a very famous blend of, I think, single malt—though I fear that I am not a great expert on this particular brand. A further company announced that it had experienced a drop of 10 per cent. in home sales, but it found that that was more than offset by an increase of 14 per cent. in export sales.

As the noble Lord, Lord Tanlaw, pointed out, the industry has also taken its own steps to improve its prospects by introducing major public relations campaigns in the United States of America and Japan. Both the campaigns are due to last for three years and will concentrate on maintaining and developing the already superior and very great image of Scottish whisky.

However, it is the production side and its effects on the Highlands and Islands that mainly concern us this evening. As your Lordships may be aware, the Scotch whisky industry employs about 21,000 people, which represents about 4 per cent. of all employment in manufacturing industry in Scotland. Of course a substantial part of the employment is to be found in areas where there is little other industry, and for that reason it is particularly valuable to the regional economy. One example which was clearly spelt out by the noble Lord, Lord Tanlaw, is that, of 130—give or take one or two—distilleries in Scotland, 106 are already located in the area administered by the Highlands and Islands Development Board. According to the Scotch Whisky Association, employment fell by a total of 4,300—that is, about 17 per cent.—in the two financial years of 1980–81 and 1981–82.

I am sure that your Lordships will previously have been told—but I have to reiterate it once again—that Governments cannot simply create jobs in this industry, or indeed in any others, and our experience in the past of trying to pick winners has not, I regret, always been crowned with success. While the Government do not rule out constructive intervention at the margin where industrial support may help to promote adaptation of the economy, we consider that industrialists, rather than civil servants or—dare I say?—Government Ministers, are best placed to identify the investment opportunities that create new jobs. Having said that, I must point out that the Government's economic strategy will give priority to the control of inflation and the creation of a climate that is favourable to enterprise. These are the necessary conditions for a resumption of sustainable growth in output and employment, as well as in consumption of this great liquid that we are discussing tonight. The success of our policy is central to the long-term interests of the whisky industry. This is a policy which has to be sustained over a period, because there are no short cuts.

But there is no complacency either in the Government or in their agencies about the need to maximise additional investment to help to provide secure jobs. For example, following the 1979 review of assisted areas, all the Highlands and Islands Development Board areas with three exceptions retained development area status. However, following a further review, even those three exceptional areas retained intermediate status, so that firms anywhere in the area of the Highlands and Islands Development Board meeting the criteria of the various schemes are eligible for assistance in creating or safeguarding employment.

To ensure that the benefits to be derived from the various schemes are widely published, my noble friend the Minister of State will early in the New Year launch an industrial development drive for the Highlands and Islands. My noble friend will himself be closely involved in this programme, which will be undertaken by the HIDB. The drive will be similar to the extensive and, we believe, successful, campaign that has been carried out for the rest of Scotland over the past few months by the Scottish Economic Planning Department, and it will involve a series of seminars at selected locations throughout the Highlands and Islands area. The seminars will ensure that companies throughout the board's area are fully aware of the generous financial incentives that are available for investment and the creation of employment.

I should like to turn to one or two of the specific points that have been raised in what all of us believe has been a very stimulating and interesting discussion. It has been claimed by, I think, every single speaker in your Lordships' House this evening that excise duty discriminates against spirits and, above all, that tax should be levied per degree of alcoholic strength. I have to admit that in this country spirits have traditionally been taxed more highly than other drinks, and that is a matter which has gone on for many years—certainly for the whole of my lifetime. These taxes are an important source of revenue. The provisional total of receipts for 1980–81 amounted to £1,222 million, of which Scotch whisky accounted for about half. So the noble Lord, Lord Ross, can see that Scotch whisky contributed about £610 million, or thereabouts, to the Exchequer in the last financial year.

A source of revenue of this magnitude is clearly an important consideration that my right honourable friend the Chancellor of the Exchequer would find almost impossible to forgo. But there is no real reason why duty should be related to alcoholic strength, as we believe that customers, drinkers, do not in the main buy their drinks on this basis. But I would stress that in the last two Budgets spirits have been relatively lightly treated in comparison with other drinks. I would remind your Lordships that had duty gone up in line with inflation, then the extra duty would have been more than 50p per bottle. Instead, in recognition of the important role that this product plays in the economy of Scotland especially, as was described by my noble friend Lord Belhaven, the rise in duty was pegged at 30p. I would say that in real terms the value of duty on Scotch whisky has fallen substantially in recent years from the peak year of 1975, but no doubt my right honourable friend the Chancellor of the Exchequer will carefully note all your Lordships' comments on this particular point in tonight's debate.

The noble Lord, Lord Tanlaw, and other Members of your Lordships' House—I think my noble friend Lord Mottistone also raised this point—had a query on what we call unfair trade barriers. I would assure your Lordships that the Government share the industry's concern, and we find these barriers which are erected by our Community partners to be particularly distressing. To ensure that we are fully aware of the industry's problems, a high-level steering group was set up comprising the Department of Trade, the Ministry of Agriculture, Fisheries and Food—which, I am reminded, is the major sponsoring department for the industry—and, thirdly, the Scotch Whisky Association. This group meet regularly to discuss what they call priority areas.

In the Community context we have made full and very strong representations to the Commission to ensure that member states honour their obligations and that the European Court of Justice rulings are complied with speedily. To aid the industry we have taken the unusual step of intervening in three European Court of Justice cases, and we shall be attending the oral hearing in the Italian VAT case. I assure your Lordships that we shall continue to press for equality of treatment for all spirit drinks.

Perhaps I may now try briefly to cover some of the points that have been raised in the course of your Lordships' debate. I hope I shall cover most of them, but if I miss any of them I assure you Lordships that we shall carefully scrutinise all the remarks that have been made this evening and I shall write to any noble Lord missed out, lest he should feel aggrieved. The noble Lord, Lord Tanlaw, raised the problem of what we call the European barriers and unfair discrimination. As I have said, in the Community context the Government have made very strong representations to the Commission to ensure that they honour their obligation. We intend to keep up our pressure on this line, and I am sure the support given by your Lorships this evening will considerably aid us in our efforts.

The noble Lord, Lord Ross, as we have all come to expect of him, but not necessarily in the Chamber, showed that he is a great champion of our national poet Robert Burns. Of course, all of us are particularly proud in this respect; and I am sure we are all equally convinced that it is the poet with whom the noble Lord, Lord Ross, will forever be associated. Indeed, I am given to understand that the addresses given by the noble Lord, Lord Ross, at Burns Suppers are legend throughout Scotland, but so far I have not had the pleasure of hearing the noble Lord in (if I may so put it) full flow.

I would join with the noble Lord, Lord Ross, in commending the tremendous efforts made by the industry itself to increase our export sales. I would also join with the noble Lord in mentioning my own abstemiousness in relation to this particular liquid, but I would stress to him and, indeed, to your Lordships, that when abroad I always do as the Romans do. I do have occasion to visit friends in Rome from time to time, and I support my local industry very considerably. The trouble is that my friends seem to think that I am a great expert, and they ask me which particular brand—single malts, blended malts, liqueur whiskies or others—will give them the least possible after-effects the next morning. I am afraid it is very much their trial, my error.

My noble friend Lord Mottistone gave us his customary robust support, and we are very grateful for it, in our efforts to persuade the French Government to change their outlook on the treatment of spirits. My noble friend indeed has great expertise in this field, and many of your Lordships may have heard my noble friend broadcasting last night, giving his views on the current meeting of the General Agreement on Tariffs and Trade in Geneva. Because, of course, my noble friend is a major spokesman for, I believe, the Food and Drinks Industry Council. My noble friend made an interesting comment on what I think he called the whisky lake. Those of your Lordships who travel north of the Border will know of this great loch at Campbeltown which is made famous in song, but I hardly think that the whisky mentioned in that song or, indeed, contained in that great loch befits the quality we have all come to expect of Scotch whisky.

The noble Earl, Lord Halsbury, gave us great encouragement to increase our efforts to persuade the Commission of our just cause and, above all, in implementing the decisions of the European Court of Justice, and we are grateful to him for his support in this area, particularly in view of his great expertise. I must say that I was not aware, as I am sure many of your Lordships were not, that he was for many years—indeed, he may still be—on the board of the Distillers Company. He shakes his head. I am sure that will be the loss of that great company, the Distillers Company; but they and all of us are, I know, grateful for the support he has been able to give to the industry. The noble Earl caused my mind to boggle slightly in imagining five bottles—I think he mentioned litre bottles—of varied alcohol in front of him. I am sure your Lordships' House would not wish to be seen as a place where every noble Lord brings five bottles brewed from various sources into debates. Nevertheless, we were very grateful for the robust support of the noble Earl.

I must congratulate my noble friend Lady Elliot on her new distinction as leader of the Scottish Peers. Indeed, this is one more of the hundreds of similar distinctions which she has acquired in her public life. My noble friend referred, naturally, to the problems of production and employment in Scotland. We take her point, and we regard them as very important. But I was a trifle puzzled—though I was full of joy—when she mentioned that she regards whisky as being allied to happiness. Perhaps she and other noble Lords have not yet had to endure what is known as the weird amalgam of William Wallace, who is so beautifully commemorated in St. Stephen's Hall, of Harry Lauder and of advertisements for Alcoholics Anonymous, which descends upon London in some weird way at the end of May in the odd-numbered years. I am afraid that Scotland does not always display the attitude of happiness allied to drink.

My noble friend Lord Belhaven I believe made one of the most interesting and, indeed, the most poignant speeches this evening. All of us understand the major problem of a predominant industry in particular islands or, indeed, in particular areas of Scotland. My noble friend mentioned one island—I think it was Islay—of which he has special knowledge and I think the noble Lord, Lord Tanlaw, mentioned Dufftown, which is, of course, right across the other side of Scotland. This, too, is particularly dependent on one industry, and that is the distilling industry. Above all, my noble friend Lord Belhaven introduced the dark side (if I may call it that) to our debate, as opposed to many interesting and amusing anecdotes. My noble friend stressed the major problem of employment and short-time working in what one can call a one-industry area or a one-industry town. We are very grateful to him for his warning. Once again, my noble friend made a significant plea to my right honourable friend the Chancellor. I am quite sure that we shall ensure that my right honourable friend knows of the concern of your Lordships' House for this major industry.

My Lords, from what I have said this evening—I hope at not too great length—I hope that it is abundantly clear that we are conscious of and concerned about the whisky industry's present difficulties and about the effects on the Highlands and Islands of Scotland resulting from the worldwide recession. But I hope that it will also be accepted that we are taking action through our economic strategy in general and our programme of assistance available in the Highlands and Islands in particular.

House adjourned at nine minutes before eight o'clock.