Budget: UK reveals ‘radical’ overhaul of alcohol duty

The UK government has cancelled the planned spirits tax increase and introduced a “radical simplification” of the alcohol duty system, among other measures revealed in today’s autumn Budget announcement.

Speaking at the House of Parliament today (27 October), chancellor Rishi Sunak scrapped the planned duty increase on spirits, wine, cider and beer, a tax cut worth £3 billion (US$4.1bn).

The development was welcome news for spirits producers and industry bodies such as the Wine and Spirit Trade Association (WSTA), which has been campaigning for the cancellation.

WSTA president Miles Beale commented: “The decision to freeze wine and spirit duty comes as a huge relief to British businesses, the hospitality sector – including its supply chain – and consumers, giving everyone a much-needed break to help them recover from the pandemic.

“Chancellor Rishi Sunak should be commended for listening to our calls for support and understanding that punishing tax hikes are not the best way to reinvigorate the sector.

“By offering continued respite to the UK wine and spirit sector, his actions will help save jobs and – in time – replenish revenues to the Treasury through growth in our potential-filled sector.”

In the Budget announcement, Sunak also called the current alcohol duty structure “outdated”, and outlined actions “to create a system that is simpler, fairer and healthier”.

He said the government will slash the number of main duty rates from 15 to six, resulting in a new structure designed around the principle “the stronger the drink, the higher the rate”. The structure aims to “help end the era of cheap high-strength drinks” and allow “overtaxed” producers of lower-alcohol beverages to pay less.

“We look forward to seeing the detail of a new system, which should remove the existing unfairness of how different products are treated,” Beale said of the reforms.

Sunak also revealed a small producer relief, which will “encourage craft producers” by “extending the principle of brewers’ relief to alcohol producers of less than 8%”, and cut the “irrational” 28% duty on sparkling wines and fruit ciders.

Hospitality-focused measures

In the realm of the on-trade, Sunak introduced a 50% business rates discount for the hospitality, retail and leisure sectors, a tax cut worth nearly £1.7bn (US$2.3bn). “Apart from the Covid relief, this is the biggest business rates tax cut in over 30 years,” he commented.

The government also introduced a relief on draught beer to create a “fairer, healthier system” that “supports pubs”.

Kate Nicholls, chief executive of trade body UK Hospitality, was pleased with the business rates announcement. “We have been lobbying hard for significant reform of the outdated business rates system and therefore very much welcome the chancellor’s move today to extend the 50% business rates relief for the hospitality and leisure sector for the next financial year. The devil will be in the detail, though, so we look forward to learning to what extent it will benefit businesses,” she said.

“The chancellor’s announcements simplifying – and in many cases reducing – alcohol duties, are great news for pubs, bars and restaurants, and will benefit all. The chancellor has shown real innovation and creativity in reforming an archaic system of duty, which we applaud.”

However, Nicholls warned that the hospitality industry “remains incredibly fragile”, citing 13% inflationary costs that business are absorbing along with the impact of supply chain issues and staff shortages.

“Given this toxic cocktail, it is imperative the government go further to support businesses in our sector,” she urged.

“The most effective way to achieve this would be to maintain the current lower 12.5% of VAT for the sector. The chancellor has been bold and radical with alcohol duty – we urge him to adopt the same approach when implementing root and branch reform of business rates, to ensure industries share the burden equally.

“Hospitality has shown this summer that it has the potential to kickstart the nation’s recovery and deliver jobs, growth and investment at pace across all parts of the country but that could grind to a halt next year. It can only lead recovery with the right measures of support in place.”