The Scotch whisky industry yesterday reacted with fury and dismay at Alistair Darling's "punitive" increase in duty on their product and warned that the crucial export market could be severely damaged by the latest measures.
The industry had called for a freeze on duty, contending that it already faced a competitive disadvantage in the UK by being taxed more heavily than the same amount of alcohol served as wine, cider or beer.
What it got instead, when VAT is taken into account, was a 59p hike in the price of a bottle - the biggest increase for the whisky industry in 17 years.
"I am utterly appalled. There is no other way to put it," said Mike Keiller, chief executive of Morrison Bowmore Distillers, the maker of the eponymous Bowmore malt on Islay, the lowland Auchentoshan and the Highland Glen Garioch.
"The government has made its position very clear. It has abandoned this country's fifth-largest export and it has also now set a very dangerous example for other countries to introduce punitive taxes on the product. I'm thinking particularly about India, but other big export markets as well."
He also said it was clear that the government had "abandoned" moves towards a fairer alcohol tax policy.
Darling yesterday told parliament that alcohol duty will rise by 6% above the inflation rate with beer up 4p a pint, wine 14p a bottle and spirits 55p a bottle, taking effect this weekend.
He added alcohol duties would increase by 2% above the rate of inflation in each of the next four years.
Keiller added: "In the short term, this measure will have almost no effect, but my concern is the long term, where I fear this will have extremely damaging consequences."
These latest measures come at a time when the Scotch whisky sector has been enjoying a strong run, with particular buoyancy in malts - but it is also facing a period of dramatically rising raw material and energy costs.
The sale of Scotch has soared in recent years on surging demand from areas such as China, India, Russia and parts of South America, and the industry has reacted with multimillion-pound investments in new distilleries. Some 90% of Scotch whisky is exported.
Industry relations with India, however, have been particularly touchy. While the country eventually lowered its previously restrictive import duties, India had attempted to make political capital from the industry's tax position in the UK.
Similar situations have also arisen in other important export markets, such as Turkey and Korea. European distillers have long complained that drinks such as whisky and rum ace Turkish tax rates that are double those on the locally-made raki spirit.
According to figures from the Scotch Whisky Association (SWA), industry exports contributed £2.5bn to the balance of trade in 2006, representing nearly 25% of UK and 67% of Scottish food and drink exports.
The trade group also said that some 65,000 jobs depend upon the industry, including cereal suppliers, bottle and packaging manufacturers, transport and tourism providers.
In addition to annual expenditure of £1bn with UK suppliers, the industry has also announced new capital investment this year of around £400m in distilling, bottling and warehousing across Scotland.
The SWA also said that UK excise duty on Scotch whisky was now the fourth-highest in the European Union.
Nonetheless, the Chancellor's latest measures now takes the tax burden on the whisky industry towards 75%, the group contends.
Gavin Hewitt, chief executive of the SWA, said: "Scottish distillers are astonished by the Chancellor's announcement.
"The government's own figures show that any duty increase on whisky is likely to reduce revenue at a time when public finances are tight.
"A tax rise is a blow to international competitiveness when the industry has been investing significantly to meet growing global demand for Scotch whisky.
"It sets a damaging precedent that export markets may follow."
While the inflation-busting increase on alcohol was a clear attempt to address Scotland's and the UK's binge-drinking problem, Doug Ross, a co-founder and director of Perthshire-based Tullibardine malt whisky distillery, believes the approach is misdirected.
"If the government thinks that by punishing the whisky industry they are in some way tackling binge drinking, they couldn't be more wrong," said Ross.
"The whisky that we produce is a quality product at £30 a bottle. People don't go out and buy a bottle of Tullibardine malt to binge drink on. That's just ridiculous."
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