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A decent proposal, by Jeremy Beadles

Published:  18 January, 2007

As I was writing this column, I received confirmation that the Chancellor will make his Budget speech to the House of Commons on 21 March 2007 at 12.30pm. This is always a tense time of year for the industry as we wait to see what duty changes there will be. There have not been any indications at this point that the Treasury will follow a different pattern to that of the past few years (freeze on spirits, inflationary increase on wine and beer, freeze on sparkling wine), although we recognise that there are serious pressures on public finance at the moment and that the Chancellor is looking to increase revenue.

The Wine and Spirit Trade Association's Budget 2007 submission calls for the Chancellor to recognise the need for:

announcement of changes to wine duty in the Pre-Budget Report

specific reductions in the regulatory burden to promote business development and entrepreneurship

a freeze in the excise duty rates for wine and fortified wine

a freeze in the excise duty rates for spirits

parity in still and sparkling wine excise duty rates.

We have continued to oppose increases to wine and spirit duty, as well as arguing for parity for sparkling wine duty, but we are also seeking to persuade the Chancellor to make a simple change that would improve productivity and relations within the supply chain.

The current timing of announcements for changes in wine duty creates huge administrative problems for the whole wine supply chain. The WSTA would like to see any changes in wine duty announced during the Pre-Budget Report (usually in November or December) and coming into effect at the time of the Budget, usually in the spring of the following year.

Currently, the duty on wine is set by the Chancellor in the Budget and applies to all wine sold after the Budget Resolution, in a similar way to duty on products such as fuel and tobacco. However, in contrast to these products, the wine-buying process has long lead times and there is the added complication of fitting in with both the northern and southern hemisphere harvests.

Any increase in the duty on wine gives rise to an abrupt change in the economics of the contract between suppliers and retailers, as previously negotiated margins are reduced. From an administrative perspective, an individual retailer or supplier can be faced with the need to renegotiate contracts for hundreds of different wines with potentially a whole range of suppliers and retailers.

This renegotiation process is cumbersome and disruptive and could be avoided if the increase in duty were known far enough in advance. Publication of the proposed duty rate at the Pre-Budget Report stage would remove a significant amount of uncertainty and unnecessary administration.

Thus the key elements of the proposal we have made are as follows:

announcements of duty changes should be made at the time of the Pre-Budget Report

the duty changes would come into effect immediately following the Budget.

We have identified the following benefits of our proposal:

it is a simple and straightforward change

annual supply contracts can be negotiated in more certain knowledge of the level of duty that will apply

less time and cost will be wasted on re-negotiation

there will be a reduction in the amount of wasted promotional materials and wine lists, since these can be produced with full knowledge of the applicable duty

it will promote a more harmonious and stable relationship between the suppliers and retailers, which will contribute to the sustainability of the industry.

We believe the risks of pre-announcement are easily surmountable.

A delegation from the WSTA will meet the Financial Secretary to the Treasury, John Healey MP, to put forward our proposal and the rest of our Budget submission within the next week. We hope to get a fair hearing from the Treasury. Although we are asking the Treasury to consider something new, it is a simple and straightforward change that will help solve real and unwarranted problems for the industry. In addition, our proposal offers sustainability of duty revenue for the Exchequer while reducing distortions to the market.

If our case is accepted by the Treasury, it will not come into effect in time for this year's Budget. But we hope that our discussions will open possibilities for exploring the options further.