UK wine and spirits makers brace for post-Brexit tax duty as government tries to incentivize low alcohol drinks

31 Jul 2023 --- Inflation-battered UK consumers will have to deal with higher prices for most spirits, wines and beers at grocery shelves and pubs. Alcohol brewers flag that the new tax duty that come into force tomorrow (August 1) are inflationary, anti-business and anti-consumer and will likely fuel the ongoing cost-of-living crisis.

The Wine & Spirits Trade Association (WSTA) says that consumers will have to pay £0.44 (US$0.57) more for wine and £0.76 (US$0.98) more for spirits. The association estimates tax rises will affect 90% of wines sold in the country. 

The UK government argues that the duty will simplify the tax system, which currently consists of four separate taxes covering beer, cider, spirits, wine and made-wine, making the system “fairer” and “responsive to new products” as consumer taste evolves.

Authorities are incentivizing consumers toward lower alcohol offerings with drinks below 3.5% ABV subject to a new lower rate of £9.27 (US$11.92) per liter – with alcohols with less than 1.2% ABV content being free of the duty. 

“After listening to feedback from industry, economists, public health groups and many business owners, the new Alcohol Duty system will be based on the founding principle of taxing alcoholic products by strength, ensuring consistency across the board for the first time,” says Jonathan Athow, director general of customer strategy and tax design at the Revenue & Customs UK Government department.

UK food inflation – which doesn’t include alcoholic beverages – was at 17.4% in June, much higher than most EU nations. Alcohol inflation was at 9.2%, its highest rate since 2011, according to the Office for National Statistics.

Increases across the board
The WSTA says the tax increase is the largest in 50 years.

“We are careering toward an extremely tough period for wine and spirit businesses with tax hikes and other costs, including a prolonged cost-of-living crisis for their consumers, persistently high inflation – especially for food and drink – and rocketing prices for glass, leaving little room for many businesses to turn a profit,” says Miles Beale, WTSA chief executive. 

Authorities are incentivizing consumers toward lower alcohol offerings, drinks below 3.5% ABV subject to a new lower rate.“Inevitably, some won’t be able to stay afloat, with SMEs most at risk,” he highlights.

Reducing alcohol content in wine is also not easy and sometimes not possible.

“You cannot reduce alcohol in wine like you can for some other products. Making wine isn’t an industrial process; reducing wine’s alcohol content is limited, changes the product and is costly to carry out. Nor can the alcohol in full-strength spirits be reduced for products such as gin, vodka and whisky where a minimum strength is prescribed by law,” he explains.

Wine from hotter countries will be more penalized since grapes grown in hotter climates naturally produce higher alcohol wines.

Poor timing concerns
Authorities have not listened to the sector demands to at least move the duty changes to October, January or March when businesses have more time to adjust prices and re-cost for the pending season. 

“You will also know the huge labor shortage in the hospitality sector, which is still not allowing many businesses to trade at an optimum level. Yet now the government are asking for both of us, as suppliers and operators of pubs, restaurants, clubs, hotels, to try and find time to re-cost all their alcohol products and reprint prices lists and retrain staff on pricing at their busiest time,” says Matthew Hennings, managing director of Hennings Wine. 

“Not only will the new duty increases have a fueling effect on inflation in both off and trade establishments throughout the region as no businesses can afford to hemorrhage the margin, but the timing could not have been worse.”

He highlights that most establishments make the majority of their profits in summer.

“In almost 35 years in the trade, I have never known the government to put through a duty change in the middle of the summer.”Reformulation for some hard alcohols toward lower alcohol contents is not always possible, flags the WSTA.

Supporting small businesses
UK authorities say that the reform will support businesses producing alcohol products with less than 8.5% alcohol content, which will be eligible for reduced rates if they make less than 4,500 hectoliters per year.

“To support the hospitality industry and recognizing the vital role played by pubs in our communities, there will also be a reduced rate for draught products – known as Draught Relief. This will reduce Alcohol Duty on qualifying beer and cider by 9.2% and 23% on qualifying wine-based, spirits-based and other fermented products sold in on-trade premises such as pubs and restaurants,” explains the authorities.

“The reforms will mean that every pint in every pub across the UK will pay less duty than their supermarket equivalent, in line with the government’s Brexit Pubs Guarantee.”

The strategy toward lower alcohol content follows the trend of consumers opting to moderate alcohol consumption, as there is greater social acceptance of drinking low and no-alcohol beverages.

Brewers, such as Guinness, are increasing their production capacity of non-alcoholic beer to satiate the increasing demand for alcohol alternatives.

By Marc Cervera