UK alcohol duty is to rise in line with inflation this August, Chancellor Jeremy Hunt has confirmed.
The move, announced in today’s UK Budget, will see alcohol duty increase in line with RPI inflation from 1 August. Alcohol duty was frozen in December ahead of a new duty system coming into force this summer.
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The decision has prompted criticism from the wine industry, which said it would be hit by a “double-pronged tax hike” of the inflation-linked rise and the impact of the new “simplified” duty system.
The Wine and Spirits Trade Association (WSTA) said the changes would be felt most keenly by producers of still wine, with 90% of these products facing a tax increase.
This increase, which the WSTA described as “the biggest increase in duty on wine in nearly 50 years” is estimated at around GBP0.45p (US$0.54) a bottle and likely to be passed onto consumers in the form of higher prices.
““The government’s decision to punish wine and spirit businesses and consumers with a 10% duty hike for spirits and a massive 20% for wine, from 1 August, is staggering,“ WSTA chief executive Miles Beale said on Wednesday (15 March).
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By GlobalData“This Budget directly contradicts what this government claims it is trying to tackle,” Beale continued. “It will further fuel inflation. It will heap more misery on consumers. And it will damage British business, especially those in the hospitality supply chain, who are still trying to recover from the pandemic.
“The double whammy tax hike for wine is a particularly bitter blow for the UKs SME-rich wine businesses. It begs the question – yet again – what does government have against people who choose to produce and drink wine?“
“These crippling inflationary tax hikes will be lumped on top of stealth tax rises for some alcoholic products, which the Government has built into the move to taxing alcohol by strength.“
The reformed system will see the number of total alcohol duty bands reduced, with products taxed according to their strength and beverage category.
Any product with an abv at least 8.5% but not exceeding 22%, however, will be taxed at GBP28.50 per litre of alcohol. A transitional arrangement is to be introduced for wines at 11-14.5% abv.
These products will be treated as if they were 12.5% abv for the purposes of calculating UK alcohol duty from 1 August 2023 until 1 February 2025, Budget documents said.
Quite simply this is the problem when you let people that don’t drink get control. This level of tax increase will REDUCE the overall yield for government tax receipts for wine. So it’s bad for the consumer, bad for business, bad for inflation and bad for government.
— Daniel Lambert (Wines). 🇪🇺🇫🇷🏴🍇🥂 (@DanielLambert29) March 15, 2023
Chapel Down, the UK’s sparkling wine producer, however, welcomed the changes. CEO Andrew Carter described the move as a “sensible and positive step”.
He added: “We remain very positive about the support being shown for the English sparkling wine producers, and the changes to the duty levels will support the continued investment in the growing English wine industry.”
Elsewhere, Hunt announced an increase in the level of duty relief for products sold on draught. The UK Chancellor claimed the discount would not have been possible before the UK exited the EU, and that it amounted to up to a GBP0.11 differential on duty versus beer and cider sold in the off-premise.
“Today I will do something that was not possible when we were in the EU and significantly increase the generosity of draught relief,” Hunt said. “From 1 August the duty on draught products in pubs will be up to GBP0.11 lower than the duty in supermarkets. It’s a differential a Conservative government will maintain as part of a new Brexit pubs guarantee.”
According to Budget documents, the draught duty rate will increase from the previously announced 5% to 9.2% for beer and cider draught products, and from 20% to 23% for wine, spirits based and other fermented draught products.
Hunt said the draught duty rate would also apply to products sold in pubs in Northern Ireland, as part of the new ‘Windsor framework’, a post-Brexit legal agreement between the EU and the UK announced last month.
“British ale is warm but the duty on a pint is frozen,” Hunt added.
The decision to offer duty relief to draught products only was met with dismay from distillers, In a statement, The Scotch Whisky Association said serving products on draught was “not available to 99% of distillers” and called for a reversal of the inflation-linked rise.
UK spirits market leader Diageo also criticised the hike, calling it a “hammer blow for pubs, drinkers and for Scotch”.
SWA chief executive Mark Kent said: “The Chancellor has chosen to further increase the competitive disadvantage faced by the industry in the UK by giving additional tax breaks which are not available to the vast majority of distillers. Spirits account for more than a third of hospitality sales, but the extension of ‘draught relief’ cuts out 99% of the spirits sector, alienating both producers and consumers who choose premium quality drinks.”
In another move likely to impact food and beverage companies headquartered in the UK, the rate of corporation tax is to rise from 19% to 25% from April.
