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Friday 3 July 2015

Treasury papers reveal Budget smokescreen

21st March, 2013 by Ron Emler

Last year George Osborne came up with his “omnishambles “ Budget, which included the farcical pasty and caravan taxes that were rapidly withdrawn under the weight of public protest. Has he shot himself in the foot this year with his uneven treatment of wine and spirit drinkers?

George OsborneSmoking was banned in public buildings six years ago, but Osborne put up an effective smokescreen in Parliament when unveiling the 1p cut to the price of a pint of beer. That grabbed the headlines but analysis of the detail in Treasury background papers reveals considerable sleight of hand.

Osborne is cutting the excise duty on beer by 2%, or just below the rate of inflation, rather than putting it up by almost 5% or 3p a pint. But the Treasury background papers state firmly that beer duty “will be increased by RPI (Retail Prices Index) in 2014-15”. So the cut is a one-off.

Latest projections put inflation next year at about 2.5%, so Osborne will at least recoup then what he has “given away” in his headline-grabbing gesture to populism about the “working man’s pint”.

But he will not be reducing his take from alcohol duties. That’s why he cynically retained the duty escalator on wines and spirits.

The maths look like this: according to the Treasury, the chancellor is taking £10.2 billion from drinkers (excluding VAT) in the year to the end of this month based on HMRC figures for clearances. Just £3.4 billion (one-third) of that total comes from beer. So the 1p duty cut from Sunday will cost Osborne about £70m in the next 12 months.

By contrast, this year’s £6.8bn take from wines and spirits will go up by 5.3% (10p on a bottle of wine and 50p on spirits), giving him an extra £360m in the new tax year if sales volumes are unchanged. So Osborne is taking an extra £290m in excise duties on alcohol over the next 12 months – but all of it comes from consumers of wines and spirits.

Even before these figures were revealed, the respected forecasting agency Capital Economics was pointing out that spending in pubs, bars and restaurants was still 9% below its pre-recession peak, a figure that may have influenced Osborne. But given that real incomes remain under heavy pressure, the probability is that real spending in the on-trade will not return its 2007/08 level until about 2016. His 1p off the price of a pint is a token at best.

In addition, while the brewers (now largely foreign-owned) may be raising a glass to the beer duty cut, Osborne has left numerous pertinent questions about fairness unanswered. Notably, why did he listen to the brewers but take no heed of the wine and spirits lobby?

In his speech he said: “We’re looking at plans to stop the biggest discounts of cheap alcohol at retailers. But responsible drinkers – and our pubs – should not pay the price for the problems caused by others.”

Yet those “responsible drinkers” are largely middle-class consumers who prefer wines and spirits. On the other hand, the beer duty cut will apply to off-sales with the probably unintended consequence of making “Wife Beater” cans of lager cheaper!

And lest Osborne had forgotten, The Wine and Spirits Trade Association points out that 41% of all alcohol sales in pubs are of wines and spirits. So his measures only partially help publicans while penalising those who drink moderately at home.

Duty rates on wines and spirits have risen by 44% and 50% respectively since the escalator was introduced in 2008. Yet in the past year alone clearances of wine fell by 2.7% and spirits by 0.5%. Spirit clearances are down by more than 4% since 2010. Is that a coincidence?

And after the shenanigans over cider duty in recent budgets, why has Osborne seen fit to raise duty on it while cutting beer prices?

Nor does the retention of the escalator set an example to those overseas countries who continue to penalise British-produced spirits, notably Scotch, with high import tariffs. No wonder the Scotch Whisky Association called the measures “unfair and incomprehensible”. It reckons that Scotch now attracts 48% more tax than beer.

That’s hardly likely to endear Westminster to Scotland or further the Prime Minister’s hopes of a “No” vote in next year’s referendum on independence North of the Border.

Osborne went out of his way in the speech to single out two MPs who had lobbied for a beer tax cut in the Budget. No doubt his office will now be besieged by angry and confused members with distilleries in their constituencies. His reasons for differential treatment between beer and all other alcohol will make interesting reading.

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