Chancellor Rishi Sunak used his autumn Budget speech to announce the biggest overhaul of the UK alcohol duty rules for more than a century, yet the plans are not certain to be implemented after the government also said it was launching a three-month consultation.
Outlining a simplified system based on ‘the stronger the drink, the higher the rate’, Sunak said the government would slash the number of main duty rates from 15 to six.
He said reform would make an outdated and overly complicated system ‘simpler, fairer and healthier’.
There was good news for fans of UK sparkling wine, Champagne and Prosecco as Sunak said the premium duty rate on sparkling wines will be removed, yet he indicated that some still wines could also see duty tax rise.
Figures provided by the Wine & Spirit Trade Association suggested the duty rate on a bottle of still wine at 15% abv would see duty rise by 68p, with fortified wine also set to see an increase.
If confirmed, new rates would take effect from 1 February 2023, said the government’s consultation document.
While there was widespread relief across the trade that the chancellor said duty tax on drinks will remain frozen for the time being, instead of rising with inflation, industry leaders gave the reform plans a mixed response.
UK wine producers welcomed the move on sparkling. ‘We are delighted by the government’s decision to equalise the duty between sparkling and still wines,’ said Simon Thorpe MW, CEO of trade body WineGB trade.
‘This reform will have direct benefit to English and Welsh sparkling wine which accounts for some two-thirds of Britain’s annual production and will undoubtedly help to underpin our ongoing growth as one of the UK’s most exciting and fast-growing agricultural sectors.’
Matthew O’Connell, director at UK-based merchant Bordeaux Index and CEO of the group’s LiveTrade platform, also welcomed the sparkling wine move from a Champagne perspective.
Yet he and others expressed caution about other aspects of the proposals.
‘It is still difficult to justify the premium per [alcohol] unit applied to wine vs beer – fixing the specific anomaly that people were overtaxed for celebrating with fizz rather overlooks the broader issue that both wine and Champagne should be brought level on a per unit basis with beer.’
In spirits, Scotch whisky distillers joined others in welcoming the latest freeze on duty tax across alcoholic drinks, but said they wanted to look at the government’s reform plans in more depth.
‘Despite the duty freeze, spirits are still taxed more than beer, wine and cider and we will now want to scrutinise the reform proposals announced by the Chancellor today,’ said Karen Betts, CEO of the Scotch Whisky Association.
‘At first glance, it appears that Scotch whisky will continue to be put at a competitive disadvantage against beer and cider through the tax system.’
Other trade bodies also took a cautious approach.
Miles Beale, CEO of the Wine & Spirit Trade Association, said the duty freeze under the current system was a ‘huge relief’ to businesses and consumers as the cost of living rises and companies deal with Covid’s economic impact.
On the reform plans, he said, ‘We welcome the reduction of the sparkling wine super tax, which is long overdue. However, while simpler, the proposals for the overhaul of a new alcohol taxation system does not make the regime fairer, which was a fundamental aim of the [recent government] review.’
He added: ‘We are mystified by a proposal that embeds unfairness between products meaning that beer will be taxed between 8p -19p per unit, wine increases to 26p per unit and spirits remains at 29p per unit.’
Despite recent freezes, duty tax on wine in the UK has still risen by 39% since 2010. And recent WSTA figures showed that the average price of a bottle of wine rose by 18p in the year to October, to £6. Christmas drinks prices could hit ‘all-time’ highs, it warned.
Campaign group Wine Drinkers UK also welcomed the reform plan for sparkling wine, but added: ‘On the proposed wider reform of the alcohol duty we await clarification from HM Treasury in the coming days. We hope this will put a stop to the historic unfairness of favouring one drink over another.’
The government’s consultation document cited evidence from health groups that taxing drinks on the basis of abv strength made sense.
Its plans also include proposals for a reduced duty rate for drinks sold on draught in pubs, bars, restaurants and the wider ‘on-trade’ sector. In his Budget speech, Sunak said this could constitute the biggest drop in duty on beer for 50 years, cutting the cost of a pint by 3p.