Osborne: no change on duty

23 March, 2011

Chancellor George Osborne has announced he will stick to an alcohol duty increase of 7.2% in today's Budget.

He has refused to reverse the alcohol duty escalator so it will rise at 2% above inflation.

Osborne said: "I have no further changes to announce to the rates of alcohol duty put in place by the previous government."

The new rise will take effect from midnight on Sunday.

Tobacco duty rates are set to increase by 2% above inflation from 6pm tonight and the tobacco duty regime will be "changed to narrow the differential" between lower-cost brands, rolling tobacco and other brands.

"This will reduce smoking and improve our nation’s health," said Osborne.

The Tobacco Manufacturers’ Association reacted by saying the government "risks undermining its own Tackling Tobacco Smuggling Strategy".

Chief executive Christopher Ogden said: "The government has today increased tobacco duties by 2% above inflation which clearly demonstrates a complete lack of joined-up-thinking as taxation is the acknowledged driver of the illicit tobacco trade.

"The refreshed Tackling Tobacco Smuggling Strategy is to be announced shortly, yet this increase will only serve to undermine the effectiveness of this strategy.

"The Irish government recognised that tax increases were driving the illicit trade in tobacco and decided not to raise duties in the last two Budgets. The Chancellor should have followed their example."

The TMA said according to latest data available from HM Revenue & Customs, up to 22% of cigarettes and 61% of handrolling tobacco consumed in 2008/09 avoided UK duty, equating to a revenue loss to the Treasury of £3.8 billion (£10.4 million per day).

Ogden added: "As part of the Tackling Tobacco Smuggling review we are working closely with HMRC on a number of specific areas. This is an extremely positive development, but since January 2010 tobacco taxes in the UK have increased more than in any other EU Member State. With the further tax rise announced today, there is great concern that the cumulative effect of these tax increases will lead to an escalation in illicit trade."

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