1. Home
2. People & Opinion

Soapbox: Cambridge's Hal Wilson scrutinises government duty forecasts

Everything seems rosy in the garden of the OBR. The economy is going gangbusters and alcohol duty receipts will be hitting £16bn by the end of this parliament. Wine is the most important contributor to overall alcohol duty receipts, but despite this tax on wine has risen by over 40% in many cases since 2023, actually depressing duty receipts. The OBR, however, can see nothing but straight line future graph rises in duties generated, as published below. With forecasts like that it is understandable perhaps that the Treasury has gone ahead with the duty easement.

But we know, and the Treasury knows, that forecast to be nonsense. I am particularly concerned by the Summary of Impacts section on the government policy paper that accompanied the Budget and sets out its thinking on its alcohol taxation policy. This predicts falls in overall duty receipts as a result of the Budget, over the same period the OBR forecasts duty to rise by £3.4bn.

It also assumes a fall of £10m in this tax year. Moreover, the true tax receipt figures reported by HMRC in the first seven months of this tax year show historic drops of £386m compared to April-October 2023, during which period taxes rose significantly.

The trade’s prediction is for much more than a £10m fall in 2024-2025, following the end of the duty easement and additional 3.65% duty increase, not least as the first seven months of that period has already seen that £386m fall, according to those HMRC figures.

↓

Flatlining Economy

Does the Treasury think that duty receipts will increase by £376m, or 7.6%, between November 2024 and March 2025, in order to make the OBR-certified figures come true? How does it think that miracle will be achieved in the face of a flatlining economy? I think we’d all like to know because it is not our experience, and it is our livelihoods that the government is playing with here, not just a spreadsheet exercise.

Surely the OBR and government need to produce more rational forecasts, ones that take into account actual HMRC data and the most basic awareness of elasticity of demand, before charging on with a policy that is already having a major effect on demand?

There’s a strong argument that the 5% reduction in receipts following previous increases in duty might be an indication of what happens if you keep pushing that duty. It’s very basic economics: put prices up, you restrict demand. If they want to restrict demand, that’s one thing, but if they want receipts, they shouldn’t put up taxes in order to try to get more receipts on something which people do not need to buy.

I don’t know how the government can justify the OBR assumptions that the receipts will go up through alcohol over the term of this parliament. It’s very, very unlikely. And we’ve got lots of evidence to the contrary. We all deserve better.

• alcohol
• tax
• HMRC
• duty
• Government
• OBR
• policy
• duty easement