Soapbox: Duty to change

By Harpers Editorial

Published: 14 January, 2022

With time fast ticking, Liberty Wines director of insights & business development, Alex Linsley, shares his company’s deep concerns around the government alcohol duty review, which is under consultation until 30 January 2022.

There are a few key areas in the alcohol duty review that we welcome. First, the decision to freeze duty until February 2023, which helps our customers in the on-trade deal with the myriad challenges they currently face. We also welcome the government’s willingness to make duty a simpler and more consistent system. And we are delighted by the decision to end the duty premium on sparkling wine – there was no good reason for this.

However, there are three key areas we are concerned about. One is the proposal to link duty directly to abv. We believe this will distort and thus damage the market for quality wine in the UK, which is currently in a very strong position and accordingly generates significant tax for the government.

The quality wine market is driven by a new generation of consumers who prize provenance and authenticity. This involves the winemaker expressing a marked sense of place, of which abv is a key component, to create a ‘wine of origin’. This is true whether the wine is from Priorat, the Mosel or the Barossa Valley. The thought that you could simply remove alcohol from Penfolds Grange to lower costs is as risible as it is absurd. And yet this proposed change would spark a move by more commercial wines to remove alcohol, which in turn would lead to a greater commoditisation of wine. As the only growth in the market is coming from ‘wines of origin’, such a commoditisation would very likely lead to a loss of interest in wine, which would affect not only our industry but also the Treasury’s duty ‘take’ on our sales.

The government has expressed the benefits of the new system as a “consistent and fair way to levy duty, because the higher the amount of alcohol, the higher the amount of duty you pay”. I can perhaps see why, in a theoretical sense, they think that is a sensible thing to do. But wine is, as outlined in the previous paragraph, much more than just an alcoholic beverage. In practical terms, the reason good-quality producers make wines of different abvs, and the reason consumers choose wines of different abvs, is not because of that abv. The abv a producer achieves is not a deliberate choice, so this is a reductive approach.

Therefore, we think the sensible thing to do is continue with a version of the existing system – levying a flat rate per given volume of wine sold in a band of degrees of alcohol, regardless of the abv within that range.

The diversity of wine sold in the UK gives us a role as a global shop window for the world’s wine trade, which creates significant economic benefits including, but not limited to, the resulting duty receipts.

The second area of particular concern is, in the government’s own words, that “this review of the duty system is not intended to materially affect the amount of duty collected”. However, when you look at the numbers, there are some changes to beer, but they’re small, and it’s similar with spirits. But the overall duty burden that would fall upon wine, even with the premium on sparkling wine removed, would add about 5% to the duty charged on an average bottle. According to the Wine & Spirit Trade Association, the Treasury already collects £4.4bn per annum from wine duty. Based on this figure, the proposed wine duty reform would bring the government an additional £220m per year.

That brings us to our third reason for concern. An increase in duty will add additional pressures on businesses, particularly in the on-trade, that are already dealing with Covid, staff shortages, rising prices and supply chain disruptions.

In turn, this diversity cascades through the market, allowing our customers and businesses across the trade – and particularly the hard-hit on-trade – to offer a compelling range of wines to their customers. That encourages people to visit those businesses and spend money, helping them to succeed. So, we are very concerned that these proposals are going to have a significant and damaging effect.

In addition, the hospitality industry sold over £4bn worth of wine in 2019. It will struggle to get back to that level of sales as it recovers in the post-lockdown world if wine is subject to punitive duty rates.

The WSTA has made its position very clear on this, just as we and other importers have. Collectively, we need to make this point forcefully or the full burden of an increase in excise duty will fall upon us.

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