WORTH £5 billion a year, Scotland’s most important export by far is whisky. What might be the effect of Brexit on the industry and what might be the effect of a separate deal for Scotland to remain in the single market?

Within the EU, spirits are taxed in the member state of production, not in the destination state where it is being sold. With Brexit, whisky sold in the EU would be taxed in the destination country. If UK taxation remained the same, this might put the price of whisky in the EU up by perhaps 20 PER CENT as a rough average. A dram costing five euros would then cost six. It might be that this would have no more than a marginal effect on sales. After all, if someone likes Scotch, they’re not likely to switch to vodka or Swedish whisky (yes, it does exist) because the price goes up by a euro. The main disadvantage would be complexity – having to pay tax in 27 countries, many with different tax rates. UK law will have to be changed to incorporate current EU protections and regulations, but there is a Scotch Whisky Act on the statute book which presumably could be amended without too much difficulty. On the positive side, freedom from the EU directive on alcohol taxation structure would give greater flexibility for the Scotch whisky industry and restoration of so-called “duty-free” sales for travellers to Europe will make the industry happy.

If Scotland has a separate deal to be in the single market if the rest of the UK is not, does this have advantages? The avoidance of double taxation seems an obvious advantage, but it has complications. Scotland is not an EU member state and whisky would be taxed by a non-member state, that is, the UK after Brexit. Would the other 27 states accept this and forgo their tax-take? Scottish independence and application to join the EU would solve that problem, though not in the short term, but other issues would remain, even assuming that Scots would vote for independence to keep the price of a dram down in Belgian bars. The really big issue is that Scotland does not produce enough barley to feed the Scotch whisky industry. At least 60 per cent of the barley in Scotch is imported from England. At £100 per tonne spot price, it is unlikely that Scottish farmers would be lured into expanding barley production. Only the “barley barons” of Lincolnshire and East Anglia have yields high enough to consistently make money with this crop. Importing barley into the single market carries a mandatory tariff, currently about 170 per cent, which would have to be levied on this import from England.

If there are people within the industry who have better figures than I have quoted, I would be happy to be corrected. At the moment, though, it looks like Brexit has disadvantages and a few advantages for the industry, but a separate deal that leaves Scotland in the single market but on the wrong side of a tariff wall from a key ingredient could prove ruinous to the Scotch whisky industry.