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Spirits duty hike costs UK govt £2.3bn

The UK’s double-digit duty rise on spirits has resulted in an extra £2.3 billion (US$2.9bn) in government interest payments and lost the Treasury £132 million (US$168m) in tax revenue.

Glass of whisky with fast flowing mountain river on background, Scotland
The SWA is calling on the UK chancellor to support Scotch by cutting duty on spirits

The industry faced the biggest alcohol tax hike in nearly 50 years on 1 August 2023, with spirits duty increasing by 10.1%.

During this year’s spring budget in March, former chancellor Jeremy Hunt announced a freeze on alcohol duty until February 2025.

According to analysis by the Scotch Whisky Association (SWA), the increase in alcohol tax added 0.35 percentage points to inflation from 1 August to 30 June, resulting in £2.3bn in additional interest payments on government borrowing.

Furthermore, recent figures from His Majesty’s Revenue and Customs (HMRC) found that revenue from excise duty plunged by £132m over the same period, compared to the same timeframe in 2022/2023.

The Office for National Statistics concluded last September that the increase in excise duty had made the biggest contribution to inflation by alcohol on record.

Mark Kent, chief executive of the SWA, said: “We said last August that increasing excise duty on Scotch whisky would be inflationary and bad for the economy.

“The evidence a year on is very clear – the tax hike imposed by Jeremy Hunt has been calamitous, with a price tag of nearly £2.5 billion given the impact on government interest payments and lost tax revenue.

“Raising excise duty has significantly contributed to the fiscal gap which the chancellor is now trying to plug.”

With a new Labour government in control, the SWA is calling on UK chancellor Rachel Reeves to cut spirits tax in the upcoming budget on 30 October.

The SWA said duty on Scotch in the UK is the highest among the G7 countries and the fourth biggest in Europe, with nearly 70% of the cost of a bottle claimed in tax.

Scotch whisky also generates £7.1bn (US$9bn) annually for the UK economy, the trade body noted.

Kent added: “The chancellor should use the October budget to support Scotch, support Scotland and reverse some of the damage caused to the UK economy. This means reducing the tax burden on spirits, which is one of the highest in the world, which will increase tax revenue.

“The new Labour government has promised to back Scotch producers to the hilt, and the first budget of the new Parliament is the first opportunity to make good on that commitment.”

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