Insight - Drinks industry nervous at UK VAT rise
A restoration of value added tax to its standard 17.5% rate at the end of the year will come at the "worst possible time", the Wine and Spirit Trade Association (WSTA) has said. Here, just-drinks examines the industry mood.
A temporary VAT reduction, to 15%, was introduced in November last year in order to prop up consumer spending. It was accompanied by a duty tax rise on wine and spirits by 8% and 4% respectively, because the Treasury wanted to ensure the impact of the VAT change was broadly cost-neutral for alcohol.
The WSTA yesterday (10 November) urged the Government to cut excise duty rates when it puts VAT back up in January 2010.
"It's problematic. I think the impact is more likely to be felt in terms of convenience frankly and this has been a common theme that has been fed back to Government by retailers in particular, but also by the rest of the supply chain," Gavin Partington, spokesperson for the WSTA, told just-drinks today.
"It is the worst possible time of the year to be making changes that involve retailers in re-pricing of product."
Partington also said it was "questionable" as to whether the lowering of VAT last year really had any impact on stimulating consumer demand.
"It didn't make any difference for us because it was counter-balanced in our case with a price rise. If there has been any stimulus in consumer spending at all it's more likely been related to an increase in people's available domestic income as a result of falling interest rates.
"It is perfectly reasonable that [the Government] withdraw the excise duty increases."
The British Beer and Pub Association (BBPA) echoed WSTA's sentiment and said it would be "quite wrong" if the rate was not cut to compensate for the VAT increase.
"All we're asking for is to be treated on a level footing with other sectors of the economy," Neil Williamson, spokesperson for the BBPA told just-drinks.
"Like them, we are also struggling in these difficult economic times. Beer is an entirely home grown industry and the vast bulk of the beer drunk in the UK - over 90% - is made here in the UK. It's an industry we should be supporting and it would be only fair for the Government to reverse that duty increase when they put VAT back up."
Williamson added that three increases in beer duty in the last 18 months has "completely cancelled out, many times" any benefit the sector may have gained with the VAT cut.
The British Retail Consortium (BRC) told just-drinks it will be up to individual retailers to decide whether to pass the increase in VAT on to consumers in January.
"Obviously retailing is very competitive and each retailer wants to give themselves the edge compared to their rivals," a spokesperson for the BRC told just-drinks.
"It would be an individual retail decision on what they do but obviously January is a low retail sales month. One of the lowest of the year so there will be an incentive to discount and promote, and those may well be much higher to a larger extent than the VAT change."
Retail giant Tesco confirmed to just-drinks today that it will pass on the increase.
"We don't know what the increase will be yet but we would always intend to pass things back on to the consumer and that's what we did with duty going up as well this year," a spokesperson said.
Philip Griffiths, an analyst and excise duty specialist for PricewaterhouseCoopers, said he believes the Government has used excise duty as a "book balancing" tool.
"[The government] billed the groundbreaking excise increases to claw some of the money back [from VAT reduction] but now they're putting the VAT up. Why aren't they putting the excise down?" Griffiths said.
"They're planning on increasing it again up until 2012, every year. Why now aren't they at least freezing the excise duty…otherwise it's just a cash cow. They do use excise duty very much as a book balancing tool," Griffiths said.
The UK Government should freeze duty tax on wine and spirits in its upcoming annual Budget to prevent further job losses in the drinks industry, the Wine & Spirit Trade Association has said....
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