Alcohol duty hike results in Treasury ‘losing cash’

The negative impact on sales from alcohol duty hikes means the Treasury is losing out on tax revenue, according to the Wine and Spirit Trade Association (WSTA). 

The WSTA has therefore said that the Chancellor should freeze alcohol duty at the Autumn Statement this Wednesday, following data revealing the worrying decline in sales.

It made the comments as the UK government is expected to announce a rise in duty — the second in only four months — at this week’s Autumn Statement, which would raise the overall increase in wine duty to 30% since the summer. The rise is likely to be line with the retail price index, which currently stands at 8.9%.

But according to the WTSA’s unpublished figures, off-trade sales showed a drop of around 20% in spirits in the last 28 days, and a double digit drop for wine in the same period.

The large downturn follows the largest hike in duty rates in almost 50 years in August, with UK firms “extremely concerned”, according to the WSTA, that another increase in the Autumn Statement would threaten the survival of some businesses.

Despite an overall drop in inflation reported last week, wine and spirits have seen nearly a triple digit increase in the last three months – remaining in double digits – as the alcohol sector diverges from the rest of the economy in terms of inflation levels.

Counterproductive

Miles Beale, chief executive of the Wine and Spirit Trade Association, said that duty rises are “counterproductive”, as they reduce sales, and result in less revenue to the Treasury.

Beale said consumers were “still in the grip of a cost of living crisis”, and “cannot afford to keep stretching their budgets”.

He said: “We are asking the Chancellor to stop, think and freeze alcohol duty. In August the Treasury introduced the largest alcohol tax hike for almost 50 years adding over 10% duty increase for spirits and over 20% increase for 4 out of every 5 wines of all wine sold in the UK. A further rise is damaging to British businesses, will pile on more misery for consumers resulting in less cash for the Exchequer.”

Assault

The current situation, including failed deposit return schemes, was described as an “assault on the industry for no net-gain” by the Wine Society.

Steve Finlan, chief executive of the Wine Society, said: “Jeremy Hunt said this was a budget for growth, instead his actions will cause misery for consumers, wine retailers and wine producers and threaten the survival of many businesses at a time when consumer confidence is slowly returning.

“One tax rise in a year is alarming, two is unacceptable. We ask the Government to reconsider.”

Talking about the inflationary pressures as a producer, Simon Doyle, general manager of Concha y Toro Europe, said that duty was “disproportionately” impacting shoppers at the lower end of the market.

Doyle said: Wine has been an affordable luxury for many – but those couple of glasses at the end of a working week will become even more expensive. 61% of a bottle of wine bought at £6 already goes to the government in tax.”

Not contributing

The managing director of Brighton Gin, Kathy Caton, agreed with Doyle and the WSTA, stating that the August duke hike has had “a very clear and damaging effect on sales.”

Caton said: “There have already been some very high-profile closures of distilleries within our sector and anecdotally I know of many others who are considering shutting operations – if distilleries go bust, they won’t be contributing anything at all through taxes and duty.”