In the latest UK Budget, chancellor Rishi Sunak announced a freeze on alcohol duty, providing relief for distillers, brewers, cider producers, and winemakers alike. At the same time, the chancellor announced a radical overhaul of the UK’s centuries-old alcohol duty system, which will be implemented in 2023.
But the proposed shake up has not been positively received by all parts of the drinks trade.
Under the government’s plans – which are subject to a three-month period of consultation and mark a departure from EU standards post-Brexit – all products, no matter what category they sit in, would be taxed according to ABV, as is currently the case with spirits.
Central to the reform is cutting red tape to simplify alcohol duty, the government has said. As such, the number of alcohol duty rate bands would be slashed from fifteen to six.
This would mean that duty on lower-alcohol beverages such as liqueurs, fruit ciders, and lower-ABV wines and beers would be lowered, while duty on higher-ABV alcohol beverages, such as white ciders, fortified wines, and higher-ABV red wines would be increased.
Duty on spirits would largely remain unchanged, though tax on spirits below 22% ABV would be reduced to match that of wine. This, in turn, could spur innovation in the already buoyant low/no sector.
“The principle of drinks being taxed in line with alcohol content seems fair, but inevitably there will be winners and losers. Some products will have been taxed too highly historically and other products too lightly,” says Richard Corbett, Research Analyst at IWSR.
In particular, the proposed changes have been criticised by some members of the trade for placing higher-alcohol beverages at a competitive disadvantage, since these products will be taxed more per unit of alcohol than their lower-alcohol counterparts.
As Miles Beale, chief executive of the WSTA, notes: “We are mystified by a proposal that embeds unfairness between products meaning that beer will be taxed between 8p-19p per unit, wine increases to 26p per unit and spirits remains at 29p per unit.”
The new streamlined bands mean that most wines will be affected by the proposed duty rise, since most are bottled at around 12% ABV or higher. The change would prove difficult for winemakers to navigate, since it is rare for different markets to receive the same product bottle at different ABVs, and what’s more, in this age of climate change, higher ABV wines are becoming more commonplace.
On the flipside, wine is set to benefit from a proposed reduction on duty for sparkling varieties. Prosecco, which seemed to lose steam in the UK market before Covid-19, could in turn receive a boost of renewed momentum, as could English sparkling wine, which has doubled the number of hectares planted under vine over the past eight years.
For cider, an extension of the small brewer’s relief to producers of 8%-and-below products will be very well received. Furthermore, the proposed tax cut on fruit ciders would reverse the negative affect of 2019’s tax increase on ‘made wines’, and in particular could benefit the likes of Sweden’s Kopparberg and Rekorderlig, as well as Strongbow Dark Fruits.
While the RTD category has proven to be particularly buoyant in the UK, and has even been boosted by lockdown trends, a potential revival of fruit ciders could destabilise this growth, as both categories play in the same occasions and appeal to broadly the same audience.
With regards to beer, “cutting draught duty is a way of giving the chancellor a lever with which to help the struggling on-premise recover,” says Corbett.
Under the proposals, duty rates for draught beer and ciders served from kegs of more than 40 litres will be cut by 5%. However, since most craft players use smaller keg sizes, this section of the market would be placed at a disadvantage by the proposals.
Artisanal producers of spirits have also expressed concern over the proposals, stating that they inherently benefit larger distillers, which typically create lower ABV products.
The question for the market now is whether brand owners will pass the duty increase – or the tax saving – onto the consumer.
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