Chancellor confirms death of a £5 bottle of wine

In the pre-budget report announced to the House of Commons on Monday 24th November, the Chancellor reduced the rate of VAT from 17.5% to 15% with effect from 1st December 2008. This should be good news for those in the wine trade. However, at the same time, he increased the rate of duty on a bottle of wine from £1.46 to £1.57 per bottle, an increase of 11p.

The overall effect is that cheaper wines will cost more from next Monday and more expensive wines will become cheaper. The 'neutral' point is a bottle costing £5.95 where the saving in VAT directly offsets the increase in duty.

For those of us selling 'quality' wines, this should be goods news. The old Spanish proverb that cheap wines damage your stomach but expensive wines damage your wallet becomes less meaningful as the phrase 'cheap wine' passes into history.

The £4 bottle of wine, will now have more than £2.09 in duty and VAT applied to it. By the time the glass, cork and distribution are taken into account, the value of the wine inside the bottle comes down to a matter of pence. For a £5 bottle, duty and VAT account for £2.22, still not leaving much for the contents of the bottle. Retailers who heavily discount initially over-priced wines will suffer the most.

However, the ever growing £6 - £10 market level will have a bit of a boost as the bottom end of the market is squeezed, these price levels will now appear better value than ever. Perhaps the Chancellor does have the stomachs of the British consumer in mind when he put the Pre-budget report together!

Ben Stephens is the managing director of Wine2laydown.com.

• Harpers Says...