Chancellor deals 2% blow

24 April, 2009

Chancellor Alistair Darling has ignored the trade and gone ahead with a 2% increase in alcohol duty in the Budget.

Despite lobbying from the drinks trade, including OLN’s E?nough is Enough campaign, backed by more than 2,000 people in the trade and consumers, calls for a duty freeze have gone unheeded.

The 2% increase, above a notional zero inflation rate, was implemented as of midnight on Wednesday, and 2% tax was added to tobacco from 6pm on Wednesday.

The increase is expected to add 13p to the cost of a bottle of spirits, 4p to a bottle of wine, 5p to a bottle of spirits, 1p to a pint of beer and 7p to a pack of 20 cigarettes.

The trade has condemned the Chancellor’s move.

WSTA chief executive Jeremy Beadles told OLN: “We’re disappointed the Chancellor has carried on going with the tax escalator, and particularly that he hasn’t taken into account the fact that the Retail Price Index is now running at -3%.

He added that the return to a 17.5% VAT rate, announced for December, will come at “exactly the wrong moment”?.

“That amounts to another duty increase, and we will be campaigning to see if we can stop that happening.”?Beadles added: “?It’s a bitter irony that with falling sales, these tax hikes are unlikely to deliver the revenues forecast by the Treasury.”?Troy Christensen, president of Constellation Europe, said his company’s board will cut investment in the UK, primarily because of the government’s intervention.

“This has put the trade in a position of volatility, and it is the factor that has the largest single impact on the wine business. We have to move capital to more stable platforms,” he said.

“The worry now is [the increase] is so small that retailers will just say, you take the hit.”?Beadles said: “It is a number that is neither here nor there – it will be very difficult to pass through to the consumer, but at the same time suppliers are telling us that they genuinely can’t afford to absorb any more duty increases or cost increases at all.”?He noted that 4p is a big chunk of a supplier’s margin, especially at the bottom end of the market where margins can be as low as 5-10p a bottle.

In March last year the Chancellor announced a 9% hike in alcohol duty and a plan to introduce a four-year tax escalator, increasing duty rates by 2% above the rate of inflation from the 2009 Budget.

And in November the Chancellor announced an 8% increase in alcohol duty and 4% for spirits? to offset a temporary reduction in VAT?.

The Association of Convenience Stores welcomed steps to support trade credit insurance announced in the Budget, but warned that they would not go far enough and that business rates and national insurance hikes would hit small retailers hard.

Chief executive James Lowman added: “The increase in duty on cigarettes and alcohol is depressingly predictable?.”?The Scotch Whisky Association described the duty rise as “a blow to the industry that comes at the worst possible time” and claimed the Budget will add 14p to the price of a bottle of Scotch whisky.

Christopher Ogden, chief executive of the Tobacco Manufacturers’ Association, said: “The increase in tobacco tax will do nothing to reduce the level of tobacco smuggling and cross-border shopping which lost the Treasury more than £4 billion in revenue last year. The decision helps to maintain the UK’s position as one of the world’s most profitable destinations for tobacco smugglers.”?

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