INTERVIEW: David Frost, CEO, Scotch Whisky Association
‘Osborne accepted last year that tax is too high. We think he may do so again’
A meeting with David Frost at the new head office of the Scotch WhiskyAssociation produces two immediate surprises. Firstly, he can’t put his hands on a bottle of Scotland’s finest to help provide a prop for the photograph and, secondly, this former Oxford graduate and diplomat turns out to be a bit of a heavy metal fan.
Motorhead are a particular favourite and a broad smile spreads across his face as he recalls seeing one of the loudest bands on the circuit play live.
However, there has been bad news in the previous 24 hours and he is still reeling from the death of frontman Lemmy. “It was a bit of a shock,” he says.
It is New Year’s Eve and everyone else in Edinburgh is winding down ahead of the big night of celebration, but the chief executive of the SWA has been at the gym and is happy to open up the office housed nearby on the first floor of one of the city’s new squares. The swanky glass block in Lister Square, part of the Quartermile development, is a striking contrast to its former office in the historic west end.
Here the organisation’s neighbours include the two “unicorns”, FanDuel and Skyscanner, both representing the ultra-modern face and future of the city. Frost says the SWA’s switch to a modern office will help freshen up its image. The entrance will eventually house an exhibition, which will include some of the counterfeit products the association helps to stamp out. The walls are already being decked with a mix of images and slogans that he believes will help promote it to the many international visitors it receives.
“Being in a building like this helps to showcase the industry as both traditional and modern,” he says. There are 32 staff at Quartermile and five in London, another new office which opened in the summer to raise the SWA’s profile, particularly at Westminster.
Frost is two years into the job, arriving from the Department for Business, Industry and Skills which he joined after a career in the diplomatic service that took him around the world. His current role – in private sector industry – marks a significant change of direction, but he also notes the similarities.
“I used to represent a country, and now I am representing a product, but the product is also closely associated with the country so promoting one, to some extent, is also promoting the other.”
The day-to-day issues he faces are those that have been well-rehearsed and played out by his predecessors: persuading Westminster and overseas governments to reduce punitive taxes, tackling the counterfeiters, and promoting responsible drinking. Nonetheless, they need to be policed and constantly monitored and as Scotch is one of Britain’s biggest exporters it gives the SWA a strong hand when it comes to lobbying.
The 2% cut in duty in last year’s Budget was only the fourth in a century and followed an aggressive Drop the Duty campaign, a joint action by the SWA, the Wine & Spirit Trade Association (WSTA) and the Taxpayers’ Alliance to argue that a cut would boost the industry’s contribution to economic activity by £3.9 billion. The Chancellor appeared to agree.
A repeat performance will be mounted for this year’s Budget, though the rate of success – one cut every 25 years – suggests the odds are stacked against another quite so soon.
“I wouldn’t say that,” says Frost, adamantly. ” We think the case stands on its merits.”
The SWA set the ball rolling last week with a survey revealing that a majority of Britons believe the 76% rate of duty is “unfair”. Frost says the figure will play strongly in the push for another cut.
“The Chancellor accepted last time that taxation is too high and is becoming counterproductive. There is every chance that our case will be heard favourably again,” he says.
The new campaign will be supported by more data-based evidence, much of it produced internally by the SWA’s first full-time economist, James Park.
“We have never had a dedicated economist and it is important that we are able to talk economics and do better analysis,” says Frost.
Targeting the Budget will run alongside the ongoing legal challenge to the Scottish government’s legislation introducing minimum unit pricing on alcohol. Before Christmas a European court ruled against the government, stating that there were other alternatives, such as tax, that could be used.
Frost says the SWA agrees with the “intellectual” argument that favours tax over MUP to tackle consumption through price, though clearly it does not favour increased taxes either. “Those who drink excessively are not sensitive to price,” he says.
The case will next move to the Edinburgh Court of Session which may rule definitively, unless the Scottish government takes it to the Supreme Court. It has now rumbled on for more than two years and costs are rising. The SWA has employed Aidan O’Neill of Matrix Chambers and its solicitors are Brodies. The legal fees so far are in excess of £100,000, suggesting that the government has run up a similar bill to contest the action.
There is no hint of either side conceding, but in spite of their fiercely opposing views on the issue Frost says relations with the Scottish government are good. In fact, he says Holyrood has done some “good work” for the food and drink industry and continues to be generally supportive. But he warns about negative taxation and pricing policies that are closely watched by overseas governments.
“What I learned from my years working overseas is how people underestimate how much foreign governments imitate UK policy,” he says.
The industry has been fighting a tougher export climate but is confident overseas sales will resume their upward trend after the dip which followed 10 years of strong growth.
Single malts continue to grow faster than other categories as the process of “premiumisation” gathers pace on the back of a greater knowledge about the product.
“Sales went off the boil in the last year due to emerging market slowdown, some de-stocking and other matters,” admits Frost. “They are now turning back in our favour. The US decline has stopped, China is growing again, as are Korea and Japan. 2016 is looking like a better year.”
Education: Nottingham High School; Oxford University, St John’s College (First in Modern History and Modern Languages)
Career highlights: Joined the Foreign and Commonwealth Office where he was a specialist in European issues, trade and global economic affairs, and multilateral diplomacy; HM Ambassador to Denmark (2006-8); Department for Business, Innovation, and Skills, as Director for Europe, Trade, and International Affairs, where he was responsible for external trade policy, EU issues, and the UK’s export controls regime.
Other interesting fact: Speaks French, German, Modern Greek, and Danish, and has some Russian, Dutch, and Spanish, plus a smattering of other languages. He is now learning Gaelic.
Who or what has been the biggest influence on you?
Studying languages. It gives you a different outlook on the world, making your realise that what seems natural to us is not natural to others.
Have you managed to visit many distilleries in your two years in the SWA hot seat?
So far I’ve got to 37, about a third. Will I visit them all? That’s ambitious. There more coming on stream. We’re aware of plans for about 30 to 40.
Who is behind these plans?
Well, they are more than just enthusiasts. Enthusiasm is nowhere near enough. The barriers to entry are high. You need a lot of capital.
Do you have a favourite Scotch?
Yes, but I won’t tell you which one.
Main photo: David Frost at the new head office of the SWA (by Terry Murden)