Diageo boss warns Government against causing a Scotch sales downturn

The British boss of Diageo has warned the Government against triggering another downturn in Scotch whisky sales by serving up a tax hike in November's Budget.

Charles Ireland, general manager for Great Britain, Ireland and France, said the move would be counterproductive because Treasury takings from Scotch fell when the Chancellor imposed a 3.9% tax rise earlier this year.

Sales of the spirit dropped by one million bottles in the first half of 2017 following March's tax rise, which pushed the duty on an average bottle to 80%.

Mr Ireland, who has worked at the Bell's-to-Johnnie Walker group for 20 years, said the "unfair" levy not only harms the domestic market, but hampers its overseas business by encouraging countries to impose harsher tax regimes.

Speaking to the Press Association, Mr Ireland said: "Our modelling shows there would be a negative impact on the strength of the market at home.

"The spirits market suffered a downturn when the last increase happened earlier this year and that there would be another downturn if the tax increased in the next Budget.

"On top of that, it will make it more difficult for us to argue against increases and unfair treatment overseas.

"I think there is both a domestic impact for our industry and an international impact for our industry."

Scotch whisky is Britain's biggest food and drink export, with Diageo holding around a third of the global market.

The Government is in the midst of trying to bolster UK exports by laying the groundwork for free trade deals (FTD) once Britain breaks from the European Union (EU).

Diageo chief executive Ivan Menezes joined the Prime Minister's trade delegation to India last year, where Theresa May suggested Scotch whisky producers could benefit if the UK strikes an FTD with the Asian nation.

Mr Ireland said Diageo had passed the March tax hike down to consumers, but would also reduce prices if the Government cut the levy.

Asked whether the firm has pushed up prices in response to rising inflation, he added: "We manage our pricing against a number of different factors.

"Some of those are about import costs and a lot of our production in the UK is based on UK-sourced products.

"Our barley is largely sourced in Scotland, our packaging material and labour is sourced in the UK.

"We have a different burden in terms of inflationary pressures and overall we have seen stable prices in the market.

"To remain competitive we try and keep our prices relatively stable, but from time to time we have to look at our businesses and put in price increases outside of excise tax."

The FTSE 100 firm behind Smirnoff vodka and Guinness said in July that operating profit surged 25% to £3.6 billion for the year ending in June, while reported net sales climbed 15% to £12.1 billion.

A Treasury spokesman said: "We recognise the importance of the Scotch whisky industry.

"In the UK, tax on a bottle of Scotch is 90p lower now than it would have otherwise been, thanks to duty freezes and cuts introduced in the last three years.

"In addition, both businesses and their customers have saved over £2 billion since 2013 thanks to changes to alcohol duty."