• VAT back up to 17.5% in Jan 2010
  • Cider faces tax rise in next Budget
  • BBPA report highlights Treasury earnings on beer.

UK chancellor Alistair Darling has confirmed that value added tax will return to 17.5% next year, but there will be no further direct rise on alcoholic drinks duty tax.

Value added tax (VAT) will increase as expected from 1 January, the chancellor said in his pre-Budget Report today (9 December).

He added that the Government is "confident that the UK economy will start growing by the turn of the year".

Duty tax on alcohol will remain level for the time being, however the chancellor has ordered a review of the tax rate on cider for the next Budget announcement in April 2010. 

All drinks industry trade bodies have lobbied to prevent further increases in duty tax in the pre-Budget report, particularly given the anticipated rise in value added tax.

Value added tax was reduced to 15% a year ago, although the Government effectively erased any benefit for drinks firms by further raising tax on alcohol at the same time.

"Today's confirmation that these tax increases will remain in place is disappointing for the trade and the millions of British consumers they serve, though sadly it is not surprising given the state of public finances," said Jeremy Beadles, chief executive of the Wine & Spirit Trade Association.

Today's announcement came as new research claimed that the UK Government makes five times more money from the beer and pub sector than pub and brewing companies.

Annual Government revenue from beer sales, including value added tax, employment and corporation taxes, is GBP7.2bn (US$11.7bn), according to research published by consultancy group Oxford Economics today.

Annual industry profits on beer sales amount to GBP1.4bn from net sales of GBP19bn, says the report, which was commissioned by the British Beer and Pub Association (BBPA).

"This analysis highlights a considerable and unsustainable imbalance in who makes what from sales of beer in Britain," said BBPA chief executive Brigid Simmonds.

Returning the VAT rate to 17.5% will add GBP0.06 to the average pint of beer sold in pubs, the BBPA said.

The Government's four-year "tax escalator" on alcoholic drinks already provides for a 2% duty tax rise above inflation in the next UK Budget, due to be announced in April 2010.

Click here to read just-drinks' analysis of the pre-Budget Report.