Duty plans split industry

The spirit and beer industries are at odds following the news that Britain will raise the tax rate on high-strength beer and cut duty on weaker beer from late 2011 as part of efforts to tackle alcohol abuse.

The new rates for beer containing more than 7.5% alcohol and for beer at or below 2.8% will be set out in the budget on 23 March.

The government has bowed to pressure to clamp down on cheap, strong cider and, according to ministers, forms part of the government’s wider public health strategy aimed at reducing the financial burden on health services.

"The government recognises that in some areas taxation can have a role in helping to address the harms associated with problem drinking," said Treasury minister Justine Greening in a written statement to Parliament.

Currently, the UK imposes duty worth £17.32 for every percent of alcohol strength per 100 litres.

Industry bodies broadly welcomed the move as a way to improve incentives for low-strength beer producers.

Brigid Simmonds, chief executive of the British Beer and Pub Association, declared herself “pleased” with the news and added: “There are also welcome signs that when it comes to beer and other lower-strength drinks, the Government recognises that moving towards duty based solely on alcohol content across all drinks would ‘significantly penalise responsible drinkers’.

“It is also encouraging to see an explicit recognition that pubs are hit far more than supermarkets when it comes to duty increases. 

“However, when it comes to the increase in duty on higher-strength beers, these account for less than half of 1% of total alcohol sales, and less than 1% of beer sales. Duty rates remain untouched for higher strength drinks such as spirits and wine.

“Overall, we need a duty system that nudges consumers to choose lower-strength, pub-based drinks such as beer. It would create a win-win situation – a more balanced system of alcohol taxation that would bring in more revenues, and create up to 30,000 jobs in the UK.”

Simmonds’ stance was in direct contrast to that of the Scotch Whisky Association (SWA), which claimed the announcement of the Treasury’s plans represented a “missed opportunity” to close the taxation gap between beer and spirits.

Scotch Whisky is already taxed some 250% higher than the same amount of alcohol served as cider, 37% higher than beer, and 30% higher than wine.

“The Treasury review is a missed opportunity to introduce a modern alcohol duty system that is simple and transparent,” argued SWA chief executive Gavin Hewitt.

“Scotch Whisky is a uniquely British product, adversely affected by the historic inequality in the duty regime. We encourage the government to address this.

“Taxing all drinks on the same basis, according to alcohol content, is the fairest, most responsible way to tax alcohol. It would also secure over £1billion a year extra tax revenue for the government.

“The higher duty levied on Scotch Whisky means the tax gap with other drinks will widen when VAT increases in January.”

The beer companies, naturally, feel that spirits are not getting hammered enough.

Kristin Wolfe, head of alcohol policy at SABMiller, said: "Today’s proposals do little to change the overall status quo where the tax on spirits is unchanged.

“A future comprehensive tax review might help nudge more people back towards lower strength products including beer.

Without further change the UK fails to recognise the higher risk that spirits pose. It is at odds with other European countries, where spirits are taxed at a much higher level compared to lower strength alternatives, such as beer.

The European average is 3.2 times but the UK is only 1.4 times and today’s proposals do little to redress that imbalance.”

The cider industry body, which has previously stated its support for the taxation of strong varieties, also gave its backing to the proposals.

Henry Chevallier Guild, chair of the National Association of Cider Makers (NACM) said: “We are pleased to see that the government has taken a considered view on cider duty based on the evidence and not just assumed that the answer is an increase in taxation.

“Today’s announcement reflects the outcomes of the Cider Tax Review, conducted earlier this year. This led to the introduction of a new, robust, definition of cider rather than relying on taxation which would have adversely impacted upon all ciders.

“In the last 12 months or so there has been a lot of noise around the treatment of cider. The clear determination of the coalition government to consider in detail the duty and definition of cider is to be applauded in this context.

“We are quite clear that the cider industry does not enjoy beneficial treatment based on an anomaly on duty. As an industry we confront unique challenges like the need to consider our investment cycle over the 30 years and more we invest in every orchard.

“We also make a unique contribution to the landscape, the rural economy and our collective carbon footprint.

“A sensible and stable duty regime will enable cider makers to continue to grow the industry – that means greater choice for consumers, increases the planting of new orchards and makes an even greater contribution to government revenues – the best result possible.”

Alan Lodge, 01.12.2010