UK spirits market experiences subdued growth

The UK spirits market has grown at its lowest rate by value in more than five years following the government’s decision to freeze all duty on spirits.

The UK spirits market has grown 1.5% by value since excise duty in the sector was frozen

According to the Spirits & Liqueurs market report by Key Note, the UK spirits market has grown 1.5% in value since January 2014.

Analysts claim this growth, the lowest since 2008, is due to “fairly static” pricing in 2014 following UK chancellor George Osborne’s announcement in last year’s Budget that all duty on spirits would be frozen for one year.

The UK’s automatic tax escalator, which saw duty on wine and spirits increase 2% above the rate of inflation since its introduction in 2008, was also scrapped.

Osborne said that the government’s recently announced ban on sales of below cost alcohol in supermarkets, was a “more targeted approach than the escalator”.

It is estimated that taxation on spirits increased more than 40% since the escalator was implemented.

“This period of significant duty increases also occurred at a time of national economic recession, financial instability and squeezed consumer expenditure,” the report reads.

“As a result, volume consumption in the UK of spirit and liqueur drinks has fallen over the last five years, while much of value the growth has been directly driven by taxation increases.”

The report adds that due to the duty freeze over 2014/15, value growth in the sector is likely to remain restrained.

However, spirits taxation will rise in line with inflation from March 2015 onwards, which coupled with rising consumer expenditure, growth in the cocktail sector and the continuing trend of premiumisation, means “the market is expected to exhibit healthy annual growth over the next five years”.

In the run-up to the Budget Statement for 2015, the Scotch Whisky Association (SWA), Wine and Spirit Trade Association (WSTA) and Taxpayers’ Alliance once again teamed up to lobby the government to lower alcohol excise duty, launching the Drop the Duty campaign.

Supporters of the campaign claim cutting duty on spirits and wine in the UK by just 2% would lead to an extra £1.5 billion for public finances.

The trade bodies successfully lobbied the government over alcohol taxation in 2014 with their joint Call Time of Duty campaign.

George Osborne is set to deliver his Budget Statement for 2015 on 18 March.