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With Scottish Independence in the Balance. . . Whither Scotch Whisky?

Ian Buxton

 

 
   


Did you know? In a little under five months the United Kingdom might start to split up.

Not physically, of course; but a political fault line that runs across the nation threatens to split the country in two.

I'm referring to the forthcoming referendum on Scottish Independence. On September 18, Scots will go to the polls to answer yes or no to one simple question: "Should Scotland be an independent country?"

The answer could lead to a permanent divorce, with Scotland going its own way and the rest of the U.K. (England, Wales and Northern Ireland) going another. As you may imagine, the debate is a heated one, with strong feelings expressed on both sides, and it seems probable that many, many more words will be spoken on the subject before the historic vote.

I'm not going to try to explain the tangled history, or the pros and cons of the argument, and I'm certainly not going to express a personal view (not that it would matter, as only residents of Scotland may vote and I don't live there any longer—for family reasons, I hasten to add). But I do want to explain what it might mean to Scotch whisky.

And that means I have to start from an assumption of a yes vote and then engage in some crystal-ball gazing.

So let's assume that on September 19, Scots wake up to find themselves on the way to becoming an independent nation for the first time in over 300 years. Or, to put it another way, England will be a foreign country. Whither whisky?

We should start by remembering that the largest part of the Scotch whisky industry is owned and controlled outside of Scotland. Diageo, Pernod Ricard (Chivas Brothers), Bacardi (Dewars), ThaiBev (Inver House) and others are true multi-nationals with their HQ well outside the hills and glens and with much wider interests than just whisky.

   
   Glasgow-based Edrington is one of the most important spirits
 companies with its headquarters in Scotland.
Even large, apparently Scottish companies such as William Grant & Sons are run from London. Perhaps the only Scottish company of any scale remaining in Scotland is Edrington (owners of The Famous Grouse, Cutty Sark, The Macallan and Highland Park among other brands). After that we can count J & G Grant (Glenfarclas) and Ian MacLeod Distillers (Glengoyne, Tamdhu and the Isle of Skye blend), but beyond this, and with every respect to their fine products, we're dealing with comparative tiddlers, at least in terms of organizational scale.

So a new Scottish government may well feel that they don't owe the global giants who control the whisky business any favors. But there has been a noticeable silence on the subject from the ruling Scottish National Party who have forced this debate and, as their name would suggest, lobbied energetically for independence.

This is despite calls from the scrupulously neutral Scotch Whisky Association who have come up with this anodyne plea: "We are asking for clarity from both governments so that we can weigh up the likely impact on the Scotch whisky industry."

Since then, their new Chief Executive David Frost has dropped a strong hint when he was reported as saying ". . . as an industry exporting to around 200 markets we will continue to need the backing of an effective diplomatic network with the necessary global reach, commercial expertise and capacity to influence."

As a former career diplomat, Frost will have been well aware that while the United Kingdom has about 270 diplomatic posts in 160 countries and uses this network to promote British business, an independent Scotland would operate fewer than 100 overseas embassies and consulates.

In fact, behind the scenes and the industry's studied silence, concern has been expressed that a new Scottish government would look to the tax potential of whisky, especially as North Sea oil revenues are set for long-term decline.

There are two obvious ways in which tax could be levied—and would be hard to avoid.

   
Scotland's water is essential to the taste of Scotch whisky.  
The first is a tax on water extraction. "It's Scotland's water," would be the cry-but giant multinationals are getting the benefit. Tax the industry's use of water and billions of pounds (or Euros, depending on the currency the fledgling nation finally adopts) could flow in. The idea has already been raised by Professor John Kay, a former economics adviser to Scotland's First Minister Alex Salmond.

"I think the benefits to Scotland from the whisky industry are really quite disappointing," says Professor Kay. "The largest producers are not based in Scotland. Their profits go mostly to people who are not resident in Scotland. They don't pay much tax in Scotland and we don't think they pay much tax in the U.K."

So that's one to watch out for. The second tax opportunity lies in the fact that, by law, the spirit must mature in Scotland for all of its life to earn the prized description "Scotch whisky." A tax on every barrel for every year it stays in a Scottish warehouse-a sort of rent, if you like-would also top up the coffers. It would be easy to count and hard to avoid-a taxman's dream!

But if those are the dangers, what good might come of Scottish independence? 
   
  A tax on every barrel for every year it stays in a Scottish
warehouse is one proposed idea for generating revenue.

I could see it benefitting smaller, locally-based companies with a strong sense of national identity and belonging (they might even argue for tax breaks). Greater international visibility for Scotland might just boost the image of whisky, and there's a great marketing campaign in the idea of Scotland breaking free of the English yoke to take its own place in the world.

There is definitely an emotional pull for Scottish expatriate communities around the world, not least in North America, with their sentimental attachment to the old homeland.

But will those drinkers be willing to pay more to toast an independent Scotland?

That's the key question that no one can answer. But one thing is sure: If Scotland votes to go it alone, there will be no way back and nothing will be same ever again for the nation's most famous export.

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