Budget fury over whisky hike

SCOTCH whisky will be hit by the first increase in duty for a decade in this week's Budget, prompting SNP claims that Alistair Darling is damaging Scotland's economy in a bid to prop up UK finances.

The new Chancellor is expected to ignore the pleas of Scots producers by putting up duty on Scotch when he unveils his first Budget on Wednesday.

SNP ministers in Edinburgh last night warned Darling against the move, accusing the Chancellor of using Scotland's whisky industry as a "cash cow" to compensate for his financial "bungling" in the wake of the Northern Rock crisis.

But Scottish Labour hit back, accusing the SNP of double standards for opposing an increase in whisky duty while promoting high-profile health policies north of the border aimed at making alcohol more expensive.

Whisky producers said the move would slash demand for whisky, placing doubts over the future of 43,000 workers in Scotland who rely on the sector for their livelihoods.

The duty on all spirits has been frozen since 1997 but it is still higher than both wine and beer, a factor which the whisky industry claims has left it at a disadvantage.

The tax of 4.93% on a half-pint of beer is 19p, on a 125ml glass of wine at 11.2% is 22p, but on a 35ml glass of Scotch whisky is levied at 40%, raising 27p for the treasury.

The Government is believed to want to boost all levies on alcohol, as it seeks to show the public it is serious about cracking down on binge drinking.

Darling is also under pressure to find extra revenues as he seeks to haul in spiralling public deficit.

He is expected to allow borrowing to rise this week in a bid to avoid a fiscal tightening which could further damage Britain's fragile economy.

Darling used a pre-Budget interview to declare that he would use his debut "to support the economy in what are undoubtedly difficult times".

Finance Secretary John Swinney gave notice that a rise in duty would trigger a fresh cross-border row between the UK and Scottish Governments.

He said: "Scotch whisky is already unfairly taxed. It would be entirely wrong to further increase punitive taxation on one of Scotland's premiership industries. The Scotch whisky industry must not be used as a cash cow to solve the Treasury's financial bungling of taxes and the economy."

Campbell Evans, spokesman for the Scotch Whisky Association, said: "A tax rise would be very disappointing. The market is flat at best at present and this would lead to consumers switching to other drinks. A continued freeze would allow us to carry on investing in the market but an increase in tax sends out the wrong signals to the rest of the world."

Such is the predicted drop in demand caused by a tax hike, he claimed that ministers would have to raise whisky duties by 40% to increase their revenues.

There was speculation last night that the rise could be around 30p a bottle. Tax on Scotch whisky already accounts for some 72% of the price of a typical bottle. The UK has the third-highest spirits duty rate in the EU.

Last night, both the Conservatives and the Lib Dems backed demands to exempt whisky from a price hike and accused the Government of punishing sensible drinkers for the sins of the minority.

Shadow chancellor George Osborne said: "When it comes to alcohol taxes, Alistair Darling should follow our lead and make sure increases in tax on problem drinks are offset with a reduction on lower alcohol drinks."

He added: "It's very important, particularly when families are feeling the rising cost of living, that alcohol taxes don't become an excuse for yet more stealth taxes. The responsible majority should not be punished for the irresponsible drinking of a minority."

Liberal Democrat shadow chancellor, Vince Cable, said: "Whisky should not be included in a big assault on binge drinking when it is drunk in an entirely different context. We want to increase the tax on high-strength drinks and use the money to cut the duty on fruit drinks and smoothies."

Darling is also expected to use his first Budget to delay plans for a 2p increase in fuel duty, following pressure from motoring organisations and hauliers.

The Chancellor is believed to have agreed that the rising revenues pouring into the Treasury caused by the record high costs of petrol and diesel have allowed him to put the rise off.

However, there is likely to be bad news for drivers of high-polluting or gas-guzzling vehicles as Darling seeks to demonstrate his commitment to the environment. Road taxes for band G vehicles, such as Land Rovers and sports cars, are likely to see an increase in road tax while drivers of greener Toyota Prius and other low-carbon vehicles will pay less tax.

MP Angus MacNeil, the SNP's transport spokesman, said the Treasury could afford to freeze fuel duty because it was taking more in revenue from increased fuel prices.

He said: "Fuel prices are beginning to cripple Scotland's economy. Our hauliers are being priced out of business by rising costs. Our farmers are struggling to make ends meet because of fuel costs and families are seeing weekly fuel bills go through the roof. And all the time, without putting the tax on fuel up, the UK Government is making more in revenue because the price is higher."

In another traditional revenue-raising move, smokers will have to pay. Some observers calculate that the Chancellor will add 20p to a pack of 20 cigarettes, 5p on cigars and 8p on pipe tobacco.

Some City analysts say reduced tax receipts could lead to a 1p rise in National Insurance for people earning more than £40,000 a year or an increase in employer contributions.

John Whiting, of Price Waterhouse, said: "He is going to have to raise some taxes or cut spending because the economy really isn't doing as well as he was hoping."

However, the Chancellor's insistence that he will "support the economy" as recession looms could mean some tax rises could be delayed. After the anger over his handling of Northern Rock, capital gains tax and tax on non-domiciled foreign workers, Darling will be desperate to restore confidence in the business community.

Boxing clever

Alistair Darling will revive an old tradition when he stands on the steps of Downing Street and holds up the box of Budget papers.

The Chancellor has said he wants to retain the historic link with William Ewart Gladstone by dusting down the leather box used by the former Midlothian MP. Instead of the box used in recent years he will take the Budget from Downing Street to the House of Commons in the hand-crafted wooden box, which is lined with black satin and covered in leather.

"Tradition is important," said Darling. "As an Edinburgh MP I want to maintain the link with Gladstone and Midlothian."

In 1860 it was Gladstone who started the tradition of Chancellors waving a box containing the Budget. In 1997, Gordon Brown became the second Chancellor to use a new box for the Budget. Made by trainees at Babcock Rosyth Defence Ltd dockyard in Fife, it was made of yellow pine, with a brass handle and lock, covered in scarlet leather and embossed with the Royal initials and crest and the Chancellor's title.

Brown shared his photo-call on the steps of Number 11 with four trainees from the dockyard.