Despite its best efforts, all the industry's lobbying of the Treasury has been in vain. Scotch like other spirits is braced for yet another hike in duty next February. Tom Bruce-Gardyne explores why the message is still not getting through … 

Somewhere between a landfill tax and taxing the rise in online gambling, Rachel Reeves laid into that hardy perennial of chancellors on budget day – booze and cigarettes. "I will continue with the planned uprating for tobacco duties that I set out last year and uprate alcohol duties by inflation," she declared last week.

It was as predictable as it was disappointing for the Scotch whisky industry that had lobbied once more for a freeze in duty. Tax already accounts for at least £12 of every bottle in the UK, and is 70% of the average retail price. Our duty rates on spirits are the highest in the G7 and double the European average.

All this was carefully spelt out in the budget submission of the Scotch Whisky Association (SWA), and again, routinely ignored by the Treasury. Campbell Evans, now retired from the SWA, spent much of his career pleading for some respite on duty, often to no avail.

His crowning glory was persuading the Tory Chancellor Ken Clarke to cut the duty on spirits in 1995 for the first time in a century, and then do so again the following year. Such victories are rare in the extreme.

There was no chance of that this time, nor for the industry's age-old desire to end the discrimination against spirits which pay significantly more tax than other drinks per unit of alcohol. That unfairness is deeply ingrained.

As one industry insider who is intimately involved in the lobbying process told me: "Chancellors hate to distinguish between beers, wines and spirits when it comes to duty, because they either want to clobber everyone or no-one. Any benefit they get from helping one sector is drowned out by the pain felt by others."

"The only Chancellor who has ever breached that in recent years was Philip Hammond (2016-19) who in one of his budgets put up the duty on wine, and froze the other two categories."

But forget the unfairness and the industry bleating about its tax burden when there are plenty of other more deserving causes, there is one obvious reason why Rachel Reeves should have listened. For such a cash-strapped economy as ours, it would have been in her own best interest.

Spirits have been rinsed by the taxman to the point of diminishing returns. Since the last duty hike came into effect in February, adding 33p to a bottle of Scotch, the total revenue from spirits has slumped by 7% - a loss of £150 million, compared to the same period in 2024.

"There is now over 25 years of solid evidence that there's more growth, more investment and more revenue when chancellors freeze, and even cut, duty, rather than raise it by inflation," says Graeme Littlejohn, SWA director of strategy & communications.

Between 2014 and 2021, when the rates were effectively frozen, rising just 1.8% during the period, the revenue from spirits swelled by 46%. Since then, the revenue has seen almost no growth while duty has jumped 17.5%.

If the maths is so compelling, why is the message not getting through? My inside source points to the Office for Budget Responsibility (OBR), which has to cost up any changes in duty. "Every year they put out a very optimistic forecast across the three drinks categories, and every year the receipts come in lower."

One theory, he explains, is that consumers are more price-sensitive as they flip between beers, wines and spirits more than the OBR cares to admit. "The OBR is very resistant to lobbying, and guards its independence fiercely, but sooner or later it is going to have to move because it's starting to look embarrassing." In March, defying all reality, it suggested spirits revenue would rise 38% by 2030.

"There is also that 'Treasury mindset'," he adds, "where you never pass up a tax rise if you can persuade the chancellor to do it, especially when public finances are in a mess." And there may be a fear within No. 11 of tax freezes becoming too entrenched.

Campbell Evans is unimpressed. "I think there's laziness involved – a sense of 'this is what we always do'. None of this can be justified by the Treasury based on their own figures. To put the tax up three times in such a short period, suggests they're not looking at it properly."

In the greater scheme of things, the tax take from spirits - certainly Scotch whisky of which 90% is exported, is a rounding error. And yet, as Campbell says: "It's not working for the Treasury because they're losing revenue, and it's starting to cost jobs."

It was not just the industry trying to bend the ear of Rachel Reeves. "The government heard representations from stakeholders ranging from a duty cut or freeze to above inflation increases," she told the Daily Mirror on November 26th. "This decision balances the important contribution of alcohol producers and the hospitality sector to the UK's culture and economy, with the duty's role in reducing alcohol harm."

And yet no-one I've spoken to in the industry believes that last point had any impact whatsoever on last week's decision in the budget. It is all about the money, and almost always has been, as far as the Treasury's concerned.

Of course, "reducing harm" is a useful fig leaf for the government. "When they get criticised in a year's time for reducing the tax take, they can always hide behind the health lobby," says Leonard Russell, MD of Ian Macleod Distillers. Like many, he can't help feeling a little cynical about Keir Starmer who, in November 2023, promised that Labour "would back Scotch producers to the hilt."