The Government’s decision to raise alcohol duty by RPI has been described as “counterproductive” and “a real kick in the teeth” by the wine and spirit sector, following punishing duty increases last year which saw alcohol hit with the largest tax rise in almost 50 years.
The Wine and Spirit Trade Association (WSTA) and its members have long argued that raising taxes is counterproductive and doesn’t guarantee revenue increases – proven by the latest HMRC data which show alcohol duty receipts were down almost £500 million in the first six months of the financial year, on the back of 20% duty hikes for nine out of ten and 10% for average-strength spirits.
The trade association warns that hiking duty will not help businesses to invest and grow, but will result in price rises for consumers and, crucially, it will not help the Treasury to claw back much needed funds to plug the black hole in the public finances.
To add insult to injury, for the wine trade, the Chancellor Rachel Reeves, failed to reverse the unnecessary and costly changes – devised by the Tories – to the way wine is set to be taxed from 1 February next year.
Miles Beale, Chief Executive of the Wine and Spirit Trade Association, said: “The Chancellor’s decision to increase alcohol duty by RPI is a real kick in the teeth for both businesses and consumers. We simply cannot understand why Government has said they are trying to protect income and in the next breath raising alcohol duty in a move that is totally counterproductive. Recent history has shown us that duty increases lead to price rises for consumers, a dip in sales and, as a result, fewer receipts for the Treasury. The near £500 million loss in alcohol duty receipts, in the last six months, couldn’t make that clearer.
We are bitterly disappointed that Labour, despite their manifesto pledge to prioritise growth, has chosen not to listen to business – especially SMEs, which will be hit hardest of all. Instead of reversing the last Government’s damaging plans to bring in unnecessary, complex and costly changes to the way wine is taxed, Labour wants to plough ahead. And for what?
Raising alcohol duty and ending the wine easement will not bring in more revenue for the Chancellor, but it will mean businesses will now be obliged to tussle with more costly and complicated red tape. This will increase costs and push up prices for consumers and make economic growth unlikely or unachievable.
It’s bewildering that Labour has chosen to support a Rishi Sunak-inspired tax complication when a long, desperate queue of wine retailers and businesses have beaten a path to the new Government’s door to explain why abolishing the easement adds pointless cost and complexity and undermines economic growth. The decisions made at this Budget are a bitter blow for all, they will stifle the growth of British business and add another nail in the coffin for hospitality and result in less choice and price rises for consumers.”
While the new system for wine tax may appear simpler on a spreadsheet, in practice, for the wine sector, it is categorically the opposite. When Chancellor Reeves ends the easement on 1 February next year, the single amount of duty paid on wines between 11.5-14.5% abv – £2.67 a bottle – will be replaced with up to 30 different payable amounts according to the strength of the wine. For a bottle of wine at 14.5% abv this will see wine duty increase from £2.67 a bottle to £3.09.
Ministers were warned not to compare wine with other alcoholic drinks when considering the impact of the new duty system. Unlike beer, cider and spirits, wine cannot be made to a pre-determined strength. Winemakers are severely limited by strict production rules in what they are permitted to do to change alcoholic strength, while strength depends on various factors, including growing conditions and climate.
Wine businesses, along with the Wine and Spirit Trade Association, have been campaigning for over a year calling for the temporary easement to be made permanent, to avoid red tape costs and instead help businesses grow, keep prices down for consumers and stabilise Treasury income.
Earlier this month, in exasperation at the looming red tape that will stifle their businesses, some of the UK’s biggest wine retailers launched a poster campaign and contacted their extensive customer bases to warn that price hikes were on the horizon.
