Budget misery for UK drinks trade

By Andrew Catchpole

Published: 15 March, 2023

The trade is facing what has been dubbed a ‘double-pronged tax hike’ following the UK’s Spring Budget earlier this week (15 March), with the freeze on alcohol duty increases to end on 1 August 2023.

The Chancellor’s reversal of the freeze, which will now see a hike in duty, paralleling inflation, is now set to coincide with the new alcohol duty regime, also to be enforced from 1 August, which will tax alcohol in multiple bands according to rising abv.

The Wine & Spirit Trade Association (WSTA) estimates that some 90% of still wine consumed in the UK will see “at least a 9% duty rise” under the latter regime.

This, in turn, will now be compounded by an inflation-linked rise in duty pegged to 10.1% RPI, amounting to a near 20% tax rise of 44p per bottle of still wine, and £1.30 on a bottle of fortified wine, up some 44%. (See chart below.)

The WSTA described wine drinkers as “facing the biggest single increase in almost 50 years”, the biggest duty hike since 1975, adding that “history has shown that freezing duty does not have a negative impact on Treasury revenues”.

With the cost-of-living crisis now heavily impacting consumers, the drinks trade has been warning that this double tax whammy could drive down sales and thus also Treasury revenues, while still stoking the inflation at the heart of the crisis.

The trade has also made clear to government the impact of such tax hikes, which will also impact especially harshly upon smaller and specialist importers and retailers, with squeezed margins reducing the appeal for producers of exporting to the UK. While prices inevitably rise, this will also ultimately reduce choice for hard pressed consumers.

Furthermore, the increases are not limited to wine, with spirits also being hit, with a 76p hike in the price of a bottle of spirits.

This is in contrast to the announcement that from 1 August duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, described by Chancellor Jeremy Hunt as "a differential we will maintain as part of a new Brexit pubs guarantee".

Miles Beale, chief executive of the WSTA, said of the duty hikes: “This Budget directly contradicts what this Government claims it is trying to tackle. It will further fuel inflation. It will heap more misery on consumers. And it will damage British business, especially those in the hospitality supply chain, who are still trying to recover from the pandemic.

“The double whammy tax hike for wine is a particularly bitter blow for the UKs SME-rich wine businesses. It begs the question – yet again – what does Government have against people who choose to produce and drink wine?”

Reaction from the UK drinks trade has understandably been swift and furious, with Diageo GB's MD Nuno Teles, saying: “Today’s decision is a hammer blow for pubs, drinkers and for Scotch, a UK homegrown industry supporting tens of thousands of jobs. We urge the Chancellor to reverse this punitive and inflationary tax hike.”

Independent Scottish merchant St Andrews Wine Co tweeted its displeasure, highlighting the discrepancy between the treatment of beer drinkers and wine drinkers.

"We are already taxed more on alcohol than nearly all countries and wine duty will go up by 20% in August. Also, as wine is generally drunk more by women than men, this tax hike on products women drink comes in a budget where draught beer (drunk mostly by men) gets a duty decrease."

Ed Baker, MD of Kingsland Drinks Group, one of the UK's biggest independent drinks firms, added: “The budget announcement to cut the duty charged on draught products is a welcome measure to protect UK pubs. It is both overdue and necessary. However, it’s also an alarmingly narrow decision that fails to recognise the struggles of the wider drinks industry and the assault it has endured in recent years.

“The Chancellor’s failure to recognise the needs of the entire UK drinks industry in the budget is a disaster that that will have catastrophic impact. The hike on prices will penalise all sectors, and ultimately hit the consumer hard, when they are already tackling the crippling effects of the cost-of-living crisis."

Britain's most recent homegrown success story, namely English and Welsh wines, also reacted via industry body WineGB, with another damning indictment of the budget rises for wines.

"We have been hit with an unprecedented increase in duty in the budget. With the other inflationary increases in fuel, dry goods and costs of production an increase of the selling price of our wines will be unavoidable and may well impact on sales and be potentially damaging for our producers. This is very disappointing for a growing category such as ours."

The cost to trade and consumer of the new duty regime and inflationary duty rise in the budget have been provided by the WSTA.