Budget duty increases on alcohol
In yesterday’s budget you had to be sharp to spot George Osbourne’s very brief reference to alcohol duty increases. He basically gave the subject one sentence, saying it remained unchanged – fantastic!
Well, no. Not when you study exactly what he said and what remains unchanged – it is not the excise duty rates but the excise duty rate escalator as put in place by the previous Labour government. That means duty on all alcohol is set to increase by 2% above the rate of inflation (currently 3.3%).
So what does this mean in real terms?
The current excise duty on a bottle of wine is £1.81, so this will increase to £1.90.
On wine above 15% abv it is £2.41 increasing to £2.53.
On sparkling wine current duty is £2.32 increasing to £2.43.
On a standard pint of 4% beer current duty is 42 pence increasing to 44 pence.
On a 70cl bottle of 40% spirit such as whisky or gin current duty is £7.15, increasing to £7.50.
Remember though excise duty is also subject to another tax – VAT, so we need to add another 20% to all these prices!
So what does this mean when we buy a bottle of wine?
The average price of a bottle of wine sold in the UK off-trade (supermarket, convenience store, off licence) is expected to increase to £5 after this duty hike. So let’s take a look at the figures.
At £5 per 75cl bottle, 83p is VAT and £1.90 is duty. So £2.73 goes direct to the Treasury in taxes. That leaves £2.27 for all the costs – supermarket margin (normally 35% =£1.40), production, bottle, labelling, cardboard case, winery margin and shipping from country of origin and internally in the UK.
So the Treasury is taking a whopping 55%!
And a pint of beer?
The average price of a pint of beer in the pub is expected to be £3.17.
So that is 53p VAT. Add 44p duty and the Treasury are getting 97 pence per pint. Basically every time you buy a pint in the pub at £3ish the Treasury gets £1 of it! And these are just the direct taxes of course. Remember the pub has to pay a raft of different licences, and then pay tax on any profits it makes too!
Was it a good idea to raise alcohol duties yet again?
Tax on beer in the UK has increased by 60% since 2004. Have tax receipts increased by 60% then? No, in fact they have risen by only 10% which in real terms means that volumes have shrunk. This has hit UK manufacturing of course as much of the beer, cider and spirits we drink are produced here. So these companies have made less, sold less, employed fewer people and paid less tax and VAT.
The pub and hospitality industry employs nearly 1 million people in the UK with a wage bill of over £13 billion a year. These tax increases have forced pubs to close with the loss of thousands of jobs every year – employees who would have paid taxes into the system but who are now claiming benefits from it. Pubs who would have paid VAT and tax are closed paying nothing into the Treasury.
In fact every time the alcohol duty has been increased it has cost the UK significantly in real terms. Cheap alcohol and tobacco are widely available, whether smuggled into the UK or manufactured illegally over here. And every time the taxes increase the black market gets stronger. Is it any wonder the vast majority of youngsters do drugs rather than drink these days? It’s cheaper, and because it’s illegal it isn’t subject to tax rises every year!
The Uk now pays a massive 60% of all alcohol duties in Europe! And consumes only 13% of the booze!
There is a combination of factors behind the government’s thinking of course. They want to reduce the amount many of us drink. They want to prevent the supermarkets selling alcohol at pocket money prices but have legal issues with competition laws in the EU to contend with.
I think they know the damage these taxes are causing to the pub industry but unfortunately this isn’t a priority for them at the moment as there are so many problems left by the previous Labour government that it is impossible to tackle them all in one go. They know smuggling will increase and more pubs will close, but they also know their revenue will increase directly from the extra duty to cover this.
Sadly going for a pint – that great British tradition – has become an expensive luxury. It seems it is no longer the right of our hard working population to enjoy a few beers on a Friday night. Beer sales across the country have been in steep decline since the smoking ban came into force at about the same time as the ill thought out duty escalator was introduced.
With our expensive excise duty and VAT on wine we’re seeing more European companies selling direct to the UK consumer as it can actually be cheaper to buy from the continent and pay poor FX rates and international shipping charges than it is to buy the wine in the UK. If this latest strategy takes hold the Treasury won’t make anything in excise duty or VAT.
Within the EU we pay local excise duty and local VAT so if we order from a French company we pay French taxes. UK taxes are only levied on imported wines which are brought in for commercial purposes, not for those brought in for personal consumption! So your local wine merchant would have to pay these taxes when he imports wine but you as the consumer could import the wine and wouldn’t have to pay it!