Wine and spirits industry in one last push to halt duty escalator in next week's Budget

By Gemma McKenna

Published: 14 March, 2014

The wine and spirits trade is readying itself for one last push to convince the Chancellor to scrap the alcohol duty escalator in next week's Budget following intensive campaigning across the industry.

The Wine & Spirit Trade Association, which has been running the Call Time on Duty initiative alongside the Scotch Whisky Association and TaxPayers' Alliance, said the Treasury was "playing its cards close to its chest", but added that it was confident its "message had been heard". Beale added that the best case scenario for the trade - a halt to duty increases - would "provide much-needed relief".

Chancellor of the Exchequer George Osbourne Chancellor of the Exchequer George OsbourneThe Budget will take place on Wednesday March 19, and the trade has been campaigning hard for an end to the punitive alcohol duty escalator.

The WSTA said there was still time for anyone in the trade that has not taken part in the Call Time on Duty Campaign to write to their local MP calling on them to lobby the Chancellor to look after the interests of members of their constituency. You can access the MP's letter here.

But the industry is also realistic its calls for a duty freeze might fall on deaf ears in such difficult economic times and is preparing itself for what would be a 2% + inflation duty hike, or around 10-12p per bottle of wine, added to current prices. Leading trade figures have told Harpers.co.uk that whatever happens next week they felt momentum was building so that even if the Chancellor does not accept the trade's arguments in the short-term, by the time 2015 arrives he may be more inclined to do so.

Bibendum's Michael Saunders called on the trade to look beyond March 19 at the Budgete. "Sticking to the escalator will allow Mr Osborne to raise revenue and save face whilst also opening the door for negotiation going forward - and that is the big opportunity for the trade."

Concha y Toro (UK)'s managing director Simon Doyle praised the WSTA and wider trade efforts, adding: "Even if we don't succeed in persuading the Chancellor on this occasion, I feel that a marker has been put down for future Budgets."

PLB's director of business development James Burston, said he did not foresee an end to the duty escalator, which combined with inflationary figures, would make "managing margin mix" tricky.

Independent merchant Ted Sandbach, who runs the Oxford Wine Company, said he suspected the trade's efforts would come "to no avail" this year, meaning an extra 10-12p on a bottle of wine. Sandbach is also cynical about what will happen next year. "These guys are sly though so I could well see the scenario of the Chancellor announcing that the duty escalator will be scrapped from March 2015 which conveniently happens to be just before the election. He is a past master at headline announcing but only implementing things a year or so ahead. Next year I could even imagine a duty freeze as a pure electioneering move."

Fellow independent merchant Hal Wilson of Cambridge Wine Merchants, said he envisions a continuation of the duty escalator this year, which would make for "another year of poor growth" for the trade, with the possibility of "1,500 pubs and independent wine merchants that will go out of business" before the next Budget.

Read on for full responses from those quoted above.

Miles Beale, chief executive of the Wine & Spirit Trade Association

"UK consumers now have a far greater understanding of the unfair and disproportionate amount of duty they pay on wine and spirits, when compared to their European counterparts.

"Polling by the campaign shows 80% of Brits do not believe there should be further tax hikes on wine and spirits.

"The coverage the campaign has received from Harpers has been excellent and, with the help of industry, has helped ensure our message has been heard inside and beyond the corridors of power.

"While the Chancellor is keeping his cards close to his chest, which is standard practice ahead of the Budget, we're confident the sector has made its voice heard.

"The best case scenario would be if the Chancellor sees sense in calling time on duty and introduces an inflationary freeze, which would provide some much needed relief for the industry, consumers and pubs after six years of inflation busting increases. It is important to note that we are not actually asking for a cut in duty but simply for the escalator to be scrapped one year early and for duty to be frozen.

"Any decision by the Chancellor to use the escalator for another year would be disappointing. It would also be very hard to understand given independent research from Ernst and Young has found scrapping it would boost the public finances by £230 million in 2014 alone and create 6,000 jobs."

Michael Saunders, managing director of Bibendum

"The WSTA and its partners have done a brilliant job with the Call Time on Duty Campaign but I am not optimistic than the Chancellor will have taken the arguments on-board. I hope I am wrong but I strongly suspect that he will stick to the duty escalator for its final year - so I expect to see another 11p increase or so per bottle. Sticking to the escalator will allow Mr Osborne to raise revenue and save face whilst also opening the door for negotiation going forward - and that is the big opportunity for the trade.

"Once the escalator has run its course we need to ensure the policy that replaces it does not further damage our industry.

"We need to be looking beyond March 19 and plan for the future. An extension of the escalator beyond this budget - or any other policy that increases duty rates - would have severe consequences for businesses."

Simon Doyle, general manager of Concha y Toro (UK)

"The only 'benefit' of the duty escalator is that it gives the trade notice and a depressing degree of certainty, on timing and impact of duty increases. Other than that it is a wholly negative and significant cost burden to the trade that is clearly doing damage to the prospects of our industry in terms of business, employment and ultimately revenue for the government.

"We have met and lobbied our local MP to make the case for the immediate end to the duty escalator. Meanwhile Miles Beale and his team have been unstinting in their efforts on behalf of WSTA members to highlight the injustice of the relentless increases. Even if we don't succeed in persuading the Chancellor on this occasion, I feel that a marker has been put down for future Budgets."

James Burston, director of business development, PLB

"The differential treatment of some alcohol categories versus others continues to drift further away from fairness and consistency. Example would be a 7.5% abv wine in a 75cl bottle attracting £2 existing duty compared to £0.45 duty for a 7.5% abv equivalent cider. Only argument in past for this has been that cider was a UK agricultural industry but this doesn't stack up quite so much when Belgian and Swedish ciders sit in the top ranking products.

"A real opportunity for a longer term value trend lies in lower alcohol market, around the 7-9% abv level where a mid-point tax rate, could fulfil consumer demands for a great tasting drink that becomes part of their regular drinking repertoire, while lowering overall alcohol consumption. How would these wines fare against the "duty diluted" British Made Wine consumer offering?

"With January stated inflationary figures, and no indication of a move away from the maligned duty escalator this budget period, this equates to around 8p a bottle increase. With market pressures and low disposable income for many households, cost price is still an absolute focus and it is doubtful that the market can take the full impact of this. The key focus to manage this increase will be how we manage margin mix discussions and ensure we focus on the growth above £7 a bottle as well as the best value offers to the UK consumer."

Ted Sandbach, managing director of independent merchant the Oxford Wine Company

"The trade has obviously be working hard to end the duty escalator but I suspect to no avail this year and I expect to see about 10-12 p on a bottle of still wine. These guys are sly though so I could well see the scenario of the Chancellor announcing that the duty escalator will be scrapped from March 2015 which conveniently happens to be just before the election. He is a past master at headline announcing but only implementing things a year or so ahead. Next year I could even imagine a duty freeze as a pure electioneering move.

"I would love to see some parity in the duty for still and sparkling wine as a way of helping our embryonic English sparkling wine industry which needs all possible encouragement.

"It would also be helpful if the duty increase were announced a lot earlier in the year so we can all prepare our new lists. More of us have had our price increase in January and February but have to wait to produce a new list until the Budget. I have had to therefore delay our new prices until May 1 in order to give time for my sales team to alert all customers and reprint lists etc. If we knew in the pre-Budget statement what increase was planned it would allow us to charge the correct prices earlier in the year.

"Customers always assume that a budget increase announcement is all that is likely to be charged. They forget about dry goods and transport costs increasing and have no idea about regional variations in harvest or frost damage. Trying to explain a 50p increase to a trade customer when the budget states 10p is a perpetual issue and one of the most frustrating aspects of the job."

Hal Wilson, managing director of Cambridge Wine Merchants

"British wine drinkers already pay 67.5% of all the duty raised in the entire European Union on wine sales.

"That is already a worst case if not a nightmare scenario. We pay more than twice as much wine duty as the other 440 million inhabitants of the EU put together. It is unnecessary, punitive and counterproductive to the stated aims of this government to encourage growth and employment among SMEs.

"Wine and spirits are the only products still suffering a UK tax escalator policy, with beer, fuel and landfill having been scrapped or deferred.

"Payment of duty on wine and spirits is the single most important factor holding back SMEs in our industry from expanding, investing in employment and contributing more to the economy. Studies have shown that scrapping the escalator will result in 6,000 more jobs being created in the wine and spirits industry.

"The Office of Budget Responsibility has consistently over estimated wine consumption on which the Treasury bases its assumption on taxes raised on wine sales. Wine consumption has fallen but OBR has predicted an increase in each of the years consumption has fallen. It is no surprise that wine retailers are now the most tax-oppressed group of businesses in the UK, with excise having increased by 50% during the worst recession ever.

"I imagine George Osborne will announce with his customary smirk that there will be no change to existing policy on wine excise, meaning that it will grow by inflation +2% again.

"The result of which will be less money raised by way of alcohol duties and less growth in our industry than could be the case.

"I applaud all the efforts to put pressure on the government to scrap the escalator policy and hope that we can continue to build pressure for the next budget in 2015, when the existing policy will have ended.

"It will be little comfort for the estimated 1,500 pubs and independent wine merchants that will go out of business in the intervening period.

"The best we can hope for is that we tough out another year of poor growth, ramp up the pressure on MPs to support our industry in their constituencies and look forward to the possibility of fairer treatment from a future Chancellor of the Exchequer."

David Gleave MW, managing director, Liberty Wines:

"We congratulate the WSTA on putting the Alcohol Duty Escalator firmly on the agenda and uniting the industry behind its Call Time on Duty campaign and we wait to hear the government's response in next week's Budget.

"We believe that the consumer should not be penalised unfairly, as they have been in recent years when duty has risen at a higher rate than inflation. We would also stress that our investment in education tries to point out to consumers that by choosing higher quality wines, they benefit from getting a bottle where the value of wine is an increasingly higher percentage of the overall cost than that of duty."

What's your opinion on what next week's Budget will hold for the trade? Let us know by emailing Gemma McKenna, tweeting us @harperswine, or commenting below.

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