Budget 2024: what drinks firms could expect

Drinks producers and the hospitality trade are waiting with bated breath for the government’s tax decisions on Wednesday, but what can they expect?

The Spring Budget this Wednesday (6 March) is likely to be the last fiscal statement by the Chancellor of the Exchequer Jeremy Hunt ahead of the next UK general election, which is due before the end of the year.

But there are questions for what Hunt will decide. There is still inflationary pressures, especially for alcohol, which has remained stubbornly high in the last few months, as the duty changes last year and declining consumer confidence hit the sector hard.

In addition, growth has been weaker than expected, with the UK falling into what could be called a “technical recession”, after the Office for National Statistics (ONS) reported that UK gross domestic product shrank by 0.3% in the final three months of the year, notching the second consecutive quarterly decline.

Cash in pocket

The big headline cut from the budget could be National Insurance. Hunt may see an income tax cut as a way to incentivise consumers to buy more booze and other products again, despite the higher overall costs of such a move.

Although reports claim that Hunt is considering axing a potential 2p cut to income tax, there is an option for a 1p cut.

Cutting the basic rate of income tax by 1p or cancelling the personal allowance freeze in 2024-25 would both cost £7 billion each though, according to the Resolution Foundation.

Hospitality

It would be hoped that any cut in income tax would also create more spending power for consumers, which would help the struggling on-trade as well as booze retailers.

But hospitality bosses also have three other big asks for the chancellor: a cap on business rates increases from April at 3%; a temporary cuty in the lower rate of Employer National Insurance Contributions to 10%; and to review the benefits of a reduced rate of VAT for the sector to 12.5%.

UKHospitality Chief Executive Kate Nicholls said: “The sector’s message to the Chancellor is loud and clear: without further economic support at the upcoming Budget, we risk losing more of our institutions and doing irreversible damage to our world-leading hospitality sector.”

Alcohol duty

Perhaps most obviously and directly for the drinks sector, a cut in alcohol duty is being considered by the Treasury.

As highlighted by the Wine and Spirit Trade Association, cash into the exchequer has decreased due to the increase in alcohol duty announced last August. In fact, it argues the black hole from rising inflation and duty could be as much as £600m into government coffers.

The WSTA has also called to make “permanent the wine easement will save thousands of wine businesses pointless and costly bureaucracy.”

The news follows HMRC excise duty receipts, which showed the Treasury lost £436m between September 2023 and January 2024 compared with the same period in 2022/23 and when added with beer and cider, came to more than £600m.

Changes to the alcohol duty system in August 2023 were the most significant in 50 years, adding 20% to excise duty on more than 85% of all wines on the UK market, and more than 10% to duty paid on full-strength spirits.

Lunacy

Alongside the call for a duty cut, it has also requested that the Treasury pull back on the “costly and fiendishly complex” new taxation plans, due to come into force from 1 February 2025, which have been described as “un-administrable” and “sheer lunacy” by WSTA members.

Instead, the Chancellor should keep in place the temporary, simplified procedure for taxing 85% of wines on the UK market, it has argued.

Miles Beale, Chief Executive of the Wine and Spirit Trade Association, said: “Wine and Spirit businesses across the country are urging the Government to do the right thing at the Budget next week: support British business and boost Treasury coffers by cutting alcohol duty.

“Record high duty hikes last August have now been shown to achieve the exact opposite – and have instead fuelled inflation and significantly reduced excise duty receipts to the Exchequer.”

One way that Hunt could raise cash to deliver an alcohol duty cut would be through a so-called vaping products levy. This would be paid on imports and manufacturers of vaping products, as part of a move to make the products unaffordable for children.

Under the reported plans, a tax would be put on the liquid in vapes, and duties would increase for the more nicotine in the product. In addition, as part of the adult public health incentive to make vaping cheaper than smoking, another increase in tobacco duty could be in the offing, which could raise £0.5bn by the end of the decade.

According to Sky News, Hunt is considering the vape levy as “an option”.

Fuel duty cut

Fuel duty has been frozen in more than a decade, since the-then chancellor halted it in 2011. But it is currently due to rise by 5p at the end of this month.

Why does this matter to booze? Simply, the supply chain.

Increased fuel costs for transportation is directly put onto the supply chain bill, which could well be passed onto the consumer at the shelves or at the bar.

Operating costs for an HGV have increased by almost 10%, based on figures from the Road Haulage Association, and this is in addition to a 20% increase in operating costs in 2022.

Will it happen? Such a move would cost Hunt around £2bn, according to the Resolution Foundation.

No cuts?

There is a realistic chance that none of the above cuts could happen, or at least only in minor ways.

According the i, Treasury sources said plans have been “hard” due to challenging forecasts by the Office for Budget Responsibility, the government’s official budget watchdog.

As a result, Hunt has only £13bn to play with. As many of the above plans cost billions of pounds each, and £6bn is likely to be held in reserve to reassure markets, drinks businesses shouldn’t be getting their hopes up of a big tax cutting budget.