UK: Diageo calls UK spirits tax "unsustainable"

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Diageo has said that tax levels on some of its biggest-selling spirits brands in the UK will be "unsustainable", following duty tax rises announced by the Government.


Duty tax on alcoholic drinks in the UK will rise by 2% above inflation, which means a 7% increase in real terms, the Government has announced in its 2011 Budget. If fully passed on to consumers, the increase will mean an extra GBP0.54 on average on a bottle of spirits.

For some of the country's largest drinks producers, the increase removed the shine from a cut in corporate tax on UK-domiciled companies.

"Over 70% of the average retail price of a bottle of Gordon’s gin or Bell’s whisky now consists of tax," said Diageo today (24 March). "That is a staggering and unsustainable figure," it said.

When asked to clarify what the company means by "unsustainable", the company declined to be specific. "We meant nothing more than the fact that if the Chancellor keeps putting up duty on spirits at the same rate then there will inevitably be a range of consequences," said a Diageo spokesperson.

"At the moment we can’t really speculate what those consequences (whether it be job losses or otherwise) might be or might look like."

With duty on alcohol having risen by around one third in the UK within the last three years, one of the consequences is likely to be sector job losses, according to both the Wine & Spirit Trade Association (WSTA) and the British Beer & Pub Association.

The CEO of the WSTA, Jeremy Beadles, accused Chancellor George Osborne of putting drinks industry jobs at risk. "With close to 2m jobs supported by the sector, the Chancellor has missed an opportunity to help it play its part in the UK's all-important economic recovery," he said.

The hike in duty took the shine off the Government's announced plan to reduce the corporate tax rate in the UK by 2%. From next year, Corporate tax will fall by 1% annually for three years, to a rate of 23%. If all other countries maintain their current rates, this would give the UK the lowest corporate tax rate within the richest seven nations in the world, the G7.

"Britain should have the most competitive tax system in G20," said Chancellor Osborne during his Budget Speech.

The move is a further sign that the Government is keen to keep big businesses domiciled within the UK. Diageo, for one, has made it clear that it would consider leaving if the tax regime becomes too tough.

In February, at the company's half-year results, Diageo CEO Paul Walsh said he was "encouraged" by the Government's stance on tax. The company declined to comment further this week.

SABMiller, which also strongly criticised the duty tax rises, was sanguine on the corporate tax cut. "We certainly welcome the development, but our corporation tax bill in the UK is small owing to the fact that profits from Miller Brands are largely off-set by the costs associated with our various corporate functions located here," a spokesperson said.

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