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Ban on post duty point dilution could hammer British made and low abv wine

Published:  05 November, 2018

A change to legislation in the 2018 Budget policy document could have a significant impact on products made from concentrate in the UK, including British made wine, low abv wines, RTDs, sherry-style drinks and flavoured ciders – anything which is diluted after fermentation.

For the past week, a clause which could see British made wine rise from between 30p to 50p a bottle has been overshadowed by the news that all alcohol duty paid on wine in the UK will rise with inflation in 2019.

But several areas of the wine industry are set to be dealt a second blow in 2020, when an option for companies to apply duty post dilution will be officially removed.

As of April 1, 2020, the duty payable on British made wines will be calculated on the volume of the finished product, rather than before dilution, when duty is payable under the current system.

This means the duty will be applied to the product once is has been diluted, pushing up the price per litre.

As duty is calculated on the volume of products, this could have major ramifications for several areas of UK wine production, which Miles Beale, chief executive of the Wine and Spirit Trade Association (WSTA) said could put “at risk several hundred jobs, significant local investments and the consumer’s ability to choose from a wide range of products”.

“This includes a number of lower abv products and so goes against the government’s own priorities in relation to responsible alcohol consumption. This shows the Chancellor is failing to back British businesses and instead heaping more pressure on the sector,” he continued.

Mark Lansley, CEO of Broadland Wineries which makes British made Three Mills told Harpers: “The government talks about a freeze on beer and cuts to business rates to save the working man’s pub, but at the same time it’s gutting the manufacturing industry. What will happen is more imported wines will come in. We’ll see a lot of more cheap, Spanish wine on shelves, adversely impacting consumer choice, the balance of payments as well as employment in the UK.

“This will affect consumers shopping on a budget, and the removal of the option will lift the prices of all the products on the lower shelves. By the time you put VAT on top that’s going to be between 30p and 50p extra. All those wines which are £3.70 are going to disappear.”

Some however welcome the changes – including WineGB, the organisation which emerged from the merger between the UK Vineyards Association (UKVA) and English Wine Producers (EWP) last year.

The body represents the English and Welsh wine industry, which produces wine made from grapes grown in UK vineyards, and which has spoken out against the practice of diluting wine made from concentrate.

“This issue was raised with us by a number of our members and we could see no justification for allowing post bottling dilution,” Simon Robinson, chairman of WineGB said.

“We are therefore very pleased that the government has listened to our arguments and is intent on ensuring that a fair and level playing field exists.”

Lansley however argued that a level playing field will not be achieved by the removal of the option, because the products aren’t aimed “at the same consumer. I don’t think there are many consumers out there buying British wine for £4, who would then start buying an English sparkling wine for £22”, he said.

In August 2011 HMRC warned that the Option could be withdrawn.

Since then, Lansley said Broadland has been concentrating on building other aspects of its portfolio in anticipation of the changes, including expanding its portfolio of own label and imported brands.

Some flavoured ciders - which pay duty at the rate of 'made wine' - could also be affected, the WSTA confirmed.