Budget 2017: does the UK pay too much tax on its alcohol?

The UK Government is due to announce its 2017 budget on 8 March. With Brexit looming and Prime Minister Theresa May sticking to the end-of-March deadline for the triggering of Article 50, the various sectors within the UK drinks market are seeking some form of reassurance from the government that they will be able to weather any upset that might be caused as a result of an uncertain market and a potentially weak pound.

Penny off your pint

While on the face of it the beer market looks to have been treated quite favourably in the budgets of the past few years, having benefitted from three consecutive years of tax reductions and then a freeze on duty last year, Campaign for Real Ale (CAMRA) head of communications Tom Stainer explains that this could never have fixed the damage done to the industry between 2008-2013, when the alcohol duty escalator was in effect.

“This saw an initial 6% increase in beer duty above inflation, which was then followed by automatic increased beer duty by 2% above inflation every year,” says Stainer. “Under the escalator, beer duty increased by a total of 42%, yet duty revenue increased by only 12%…The beer duty escalator had a huge impact on the beer and pubs industry.”

CAMRA, along with the British Beer and Pub Association (BBPA) and the Society of Independent Brewers (SIBA), have launched a call to ‘cut the beer tax’, with CAMRA recently announcing its ‘penny off your pint’ campaign. According to CAMRA statistics, the UK pays the highest rate of beer duty in Europe, at 52.2p per pint. This is more than 13 times as much as the duty rate in Germany or Spain, and if the UK hopes to compete with brewers elsewhere in Europe, the government might need to begin its investment in the industry now.

“The industry is currently facing a great deal of uncertainty,” says Stainer, “and we believe that a cut in beer duty would help boost confidence in the British pubs industry, help brewers invest in their business and improve their competitive position.”

Standing up for scotch

The spirits industry has arguably been the most affected by historical hikes in alcohol duty. Currently, for the average bottle of scotch, the tax (VAT and excise duty) is 77% of the price. According to figures from the Scotch Whisky Association (SWA), scotch drinkers can expect to pay 19% more duty than wine drinkers, 51% more than beer drinkers, and 327% more than cider drinkers.

The dissolution of the alcohol escalator in 2014 did alleviate some of the pressure on spirits, however as SWA head of communications Rosemary Gallagher expresses, the industry still feels unfairly imposed upon. “In the UK we pay about 25% of all EU spirits tax, despite the UK only having about 11% of the EU's population…For a bottle of scotch in the UK, about £7.74 is excise duty, but the EU average is £4.40.”

The SWA has proposed a 2% cut in excise duty for spirits, and is asking the government to ‘stand up for scotch’, claiming that the vital role scotch plays within the UK economy should not be snubbed.

“In terms of food and drink, scotch whisky makes up about a quarter of all UK food and drinks exports, and about two thirds of all Scotland’s food and drink exports,” says Gallagher. “Scotch exports are worth around £4bn a year.” says Gallagher, “As an industry we also support 40,000 jobs across the UK, including across supply chain. We add about £5bn of value to the economy every year in the UK, both domestically and in export terms; we're very important for the UK economy.”

On the positive side, the scotch market is one of the few UK drinks sectors to not be too afraid of the upcoming Brexit uncertainty. As one of Britain’s most popular exports, the product is expected to remain strong as the country develops relations with new and existing trade partners outside the EU, and according to the SWA, scotch will still pay a 0% tariff when exporting to Europe.

“We've done a lot of analysis since the vote, and before the vote we did say that we'd like things to stay as they are,” says Gallagher, “but we're relatively optimistic about any opportunities that we can take advantage of.”

Wine triple whammy

While wine duty was frozen in Budget 2015, the industry suffered a 3.6% rise the following year. According to a statement from the Wine and Spirit Trade Association (WSTA), the sector is set to suffer from the “triple whammy impact” of Brexit, inflation and alcohol duty hikes. 55% of the average bottle of still wine goes on tax, with sparkling wine rates being 28% higher still.

Similarly to the SWA, the WSTA is also asking for a 2% duty cut for both the wine and spirits industry. “We are urging [UK Chancellor] Philip Hammond to recognise the monumental challenge facing an industry that supports 270,000 jobs and contributes £19.9bn to the economy,” WSTR chief executive Miles Beale said in an accompanying statement.

The disparity between sparkling and still causes a rift within the wine sector. As many home-grown British wines are sparkling, WSTR fears the significantly higher rates of duty could dissuade customers from buying local.

All the drinks bodies asking for tax cuts are quoting the same rhetoric; that reducing the duty on their sector will increase economic activity and benefit the economy in the long-term. While it is true that a negative impact has been seen across the board as a result of higher taxation (and therefore higher prices), the government may take some convincing to give up the short term gain of higher tax for the potential of more economic growth at a later date.

The theme appears to be that the drinks market wants to know that it has the government’s support in the uncertain future facing the UK, and cuts to taxation in Budget 2017 would be the perfect way to demonstrate this.