Cheaper alcoholic drinks brands will be hit hardest by plans to restore value added tax to its standard 17.5% rate in the UK, an analyst has told just-drinks.

Sanford C Bernstein analyst Trevor Stirling told just-drinks today (12 November) that premium brands are usually bought by higher income individuals who are "more price "inelastic", therefore it is likely that cheaper brands will be hurt most when the increase comes into effect.

The Government temporarily lowered VAT to 15% in November last year in order to boost consumer spending as the UK battled against recession. To ensure the move was cost neutral for alcohol, the Treasury also raised duty tax rise on wine and spirits by 8% and 4% respectively.

Drinks trade bodies want duty lowered once VAT goes back up, which is set to happen in January 2010. 

Stirling said the increase is "bound to be directionally negative, but more incremental than catastrophic" for drinks.

"Because VAT is percentage based rather than excise (p/pint), it will affect all brands equally in term of percentage increase," he told just-drinks.

However, he added: "It is going to play hell with retailers 99p price points; so they will probably keep some brands where they are and take more than 2.5% on others.

"You will probably see some stocking up ahead of the rise. However, less than in a typical Budget because it's not just alcohol going up, it's all items. So the stocking up kitty has to be spread across many different categories."

The British Retail Consortium yesterday insisted it would be up to individual retailers to decide whether to pass the increase in VAT on to consumers in January.

Tesco confirmed to just-drinks that it will pass on the increase, while Sainsbury's and Asda didn't comment.

The Wine & Spirit Trade Association told just-drinks yesterday that the VAT increase was set to happen at "the worst possible time".