Diageo under fire over tax proposals

Diageo has come under fire from the UK beer sector after its call for a review on alcohol taxation.

JD Wetherspoon’s chairman Tim Martin kicked off the backlash with a scathing attack on Diageo, labelling the group’s hierarchy a “bunch of morons”.

He also threatened that, when the time came, the pub group would not renew its contracts with Diageo unless it “radically changes its tune”.

The outburst came after Diageo called for the tax per unit on beer and wine to be raised to the same level as spirits.

The drinks group said that the “fairest” form of taxation would be to freeze duty on spirits, currently taxed at 22.3 pence a unit, and use the 2% increase on the duty escalator to bring beer and wine, taxed at 21.3p and 18.8p per unit respectively, to the same level.

This new system of taxation would generate between £524 million and £1.9 billion a year for the Treasury, according to Diageo.

The British Beer and Pub Association (BBPA), of which Diageo is a member, claimed that the changes would push the average price of a pint up by 17p for the brewer, with prices in pubs going up accordingly.

The association also stated that: “Using the tax system to discourage the consumption of low-strength products would not fit with the government’s stated aims of helping pubs.”

Joe Laventure, sales director at Budweiser Budvar UK, told the drinks business that Diageo might be under the assumption the coalition goverment will treat it with the same regard as the previous Labour administration.

He said: "It seems to us that in coming up with this idea Diageo are assuming, along with the other spirits producers, that they enjoy the same cosy relationship with the new government as they did with New Labour, when as a result they were able to succeed in narrowing the duty gap between them and the beer and cider producers.

"The things that shouts at you about the Diageo plan is its simplicity and like most simple answers for complex problems it is deeply flawed.

"This is because it ignores the fact that beer costs three times more to make than white spirits do. Traditionally this has always been reflected in the level of duty levied.

"Get rid of this complex but well tried system of checks and balances and we can certainly say goodbye to the great cask ale revival and to hundreds more of the pubs that sell it. This is because, forget food, wine and spirits it’s still beer at the heart of the English pub.

"Implementing the Diageo plan would result in hideously expensive beer and cheap spirits, which would boost rather than curb binge drinking."

Speaking to The Daily Telegraph Kristin Wolfe, head of alcohol policy at SAB Miller, said: “Excise tax ‘equalisation’ is a ruse for making high strength alcohol cheaper relative to low strength alternatives.

“Unless spirits are taxed proportionately higher, they can be sold at a much lower price per unit.”

Even Mark Hunter, head of Molson Coors UK, called Diageo’s suggestion “self-serving”.

The Wine and Spirit Trade Association (WSTA) joined the row, claiming that raising taxes could in fact hurt the Treasury rather than boost its coffers.

Gavin Partington, head of communications at the WSTA, said: "Our view remains that further tax increases on alcohol are not welcome.

"Moreover the excessive increases that have occurred since the start of 2008 combined with a continuing fall in consumption suggest that the Treasury risks failing to meet its revenue forecasts if it increases excise duty further."

However, one unnamed brewer told the Telegraph that it was “hypocritical” of the industry to shout down Diageo for its supposed “vested interest” when the the industry itself is defending a tax advantage for beer.

Rupert Millar, 07.09.2010