Consumers to see ‘biggest single alcohol duty increase in almost 50 years’

Drinkers face significant price hikes from Tuesday when tax increases will see the duty on a bottle of wine rise by as much as 20%.

First set out by then chancellor Rishi Sunak in 2021, the new system aims to encourage consumers to cut back by taxing all alcohol based on its strength, rather than the previous categories of wine, beer, spirits, and ciders.

Mr Sunak described the overhaul as “the most radical simplification of alcohol duties for over 140 years”, enabled by Britain’s exit from the EU.

At March’s Budget, Chancellor Jeremy Hunt also announced that the freeze to alcohol duty would end on August 1 and increase by inflation, at 10.1%.

The increase will see duty rise by 44p on a bottle of wine, which when combined with VAT will mean consumers will pay an extra 53p, according to the Wine and Spirit Trade Association (WSTA).

Duty on 18% cream sherry will go up from £2.98 to £3.85, with VAT adding up to an increase of more than £1 a bottle, while a bottle of port will go up by more than £1.50.

The total tax on a bottle of gin or vodka will go up by around 90p.

Inflationary misery

WSTA chief executive Miles Beale said: “We are careering towards an extremely tough period for wine and spirit businesses with tax hikes and other costs, including a prolonged cost of living crisis for their consumers, persistently high inflation, especially for food and drink, and rocketing prices for glass, leaving little room for many businesses to turn a profit. Inevitably some won’t be able to stay afloat, with SMEs most at risk.

“Amongst all this pressure the Government has chosen to impose more inflationary misery on consumers on August 1, with the biggest single alcohol duty increase in almost 50 years.

“Ultimately, the Government’s new duty regime discriminates against premium spirits and wine more than other products.

“Wine from hotter countries, like new trade deal partner Australia, will be penalised most of all, because the grapes grown in hotter climates naturally produce higher alcohol wines.

“And, at the same time, you cannot reduce alcohol in wine like you can for some other products.

“Making wine isn’t an industrial process; reducing wine’s alcoholic content is limited, changes the product and is costly to carry out. Nor can the alcohol in full strength spirits be reduced for products such as gin, vodka and whisky where a minimum strength prescribed by law.

“In the end the Sunak-Hunt changes to wine duty will reduce consumer choice and push up prices.

“For spirits you can expect at least a £1 increase on a bottle of gin or vodka and a leap of £1 per bottle of wine when duty is increased by 20% (plus VAT).”

The Chancellor is cutting the duty charged on draught pints across the UK by 11p in August in a major boost for pubs and draught beer drinkers.

Hammer blow

However the British Beer and Pub Association (BBPA) said brewers will pay 10.1% more tax on bottles and cans of beer from Tuesday, meaning tax will make up around 30% of the cost of a 500ml bottle.

Despite the draught freeze, the BBPA said the tax increase on packaged beer will add an extra £225 million of costs per year across the industry.

Scotch Whisky Association director of strategy Graeme Littlejohn said: “The 10.1% duty increase is a hammer blow for distillers and consumers.

“At a time when inflation has only just started to creep downwards, this tax increase will continue to fuel inflation and make it more difficult for the Scotch Whisky industry to invest in growth and job creation in Scotland and across the UK supply chain.

“Rather than choosing to back an industry which the UK government promised to support through the tax system, the Government has chosen to impose the largest duty increase in almost half a century, increasing the cost of every bottle of Scotch Whisky sold in the UK by almost a pound and taking the tax burden on the average priced bottle to 75%.

“In a further blow, distillers will now face a further competitive disadvantage in pubs, restaurants and bars by being unfairly excluded from tax breaks available to beer and cider.

“Pubs and other on-trade businesses are about far more than beer and cider.”