Changes to alcohol tax from August 1 could see wine and spirits become more expensive
The tax on alcoholic drinks is changing and it could be about to make your favourite tipple more expensive.
A new system for taxing drinks based on their strength is to come into force while the freeze on alcohol duty is also coming to an end – so here’s what it could mean for your next round.
What is happening from August 1?
The current freeze on alcohol duty is coming to an end on Tuesday, August 1.
Alcohol duty rates haven’t changed since the Autumn Budget of 2020 but the Chancellor is about to bring this policy to an end. It means levies will rise in line with inflation at 10.1%.
That change will also coincide with a new system for taxing alcohol – which is launching on the same date –and means drinks will face more tax the stronger they are.
As part of the Chancellor’s efforts to support the pub and hospitality industry, also coming into effect is a ‘draught relief’ that will reduce the alcohol duty on drinks that contain below 8.5ABV such as some beers and ciders.
What will it mean for prices?
The Office for Budget Responsibility estimates alcohol tax will raise £13.1 billion in the 2023-2024 financial year.
Ministers say changing the duty system and taxing drinks on their strength, will be ‘fairer’ and support government public health policy.
But the measures will impact drinkers if the change in rates are passed onto customers. HM Revenue and Customs has shared a list of how the system will alter the duty on certain products:
- a 4% ABV pint of draught beer won’t increase in price
- a 4% ABV 500ml bottle of non-draught beer will be 5p higher
- a 5% ABV pint of draught cider will be 2p higher
- a 5% ABV 500ml bottle of non-draught cider will be 5p higher
- a 40% ABV 25ml serving of whisky will be 3p higher
- a 5.4% ABV 250ml can of spirits-based RTD (ready-to-drink) will be 6p lower
- a 11% ABV 250ml glass of still wine will be 5p higher
Individuals who drink stronger alcoholic products, say ministers, are going to pay more through the new system.
The UK Spirits Alliance, which is a coalition of distillers from across the UK, says the changes will impact spirit producers and customers the most and the duty hike is ‘another hit in the pockets of hardworking people’.
The group claims 80% of the price of gin will soon become tax.
It is also raising concerns about the government's decision to end the freeze on alcohol duty rates at the exact same time as it brings in the tax reform.
In a tweet it wrote: “The spirits tax freeze, which has done so much to support and grow this thriving part of the British drinks industry, comes to an end on 1 August. Spirits make up ⅓ of all drinks in pubs - why isn’t the Government backing them?”
Its views are supported by the Wine and Spirit Trade Association, which has described the inflation rise and tax change as a ‘two pronged attack’ on drinkers.
Miles Beale, chief executive said: “On the first of August this year the wine and spirits industry is going to be impacted by a double whammy. First of all there will be an entirely new system of taxation for alcohol introduced and at the same time there’s going to be huge inflationary increase of more than 10%.
“Together those will make up the biggest increases in wine tax since 1975 and for spirits the biggest increase since 1981.”
Britain’s oldest brewer Shepherd Neame has already cut the alcohol content of some of its beers. The company says the changes are aimed at meeting growing demand from customers seeking a “healthier lifestyle”.
But cynics and industry experts also point out that producing weaker beers can save tax, and potentially production costs.
The company has lowered the ABV of two of its bottled beers. Spitfire Amber Ale is down from 4.5% to 4.2% and Bishop’s Finger is down from 5.4% to 5.2%.
Both Fosters and Old Speckled Hen are reported to have done the same in recent months.
A rise in inflation
An end to the duty freeze is going to contribute to a price increase for many of our favourite drinks.
The British Beer and Pub Association estimates that ending the alcohol duty freeze will cost the industry around £225 million.
The Wine & Spirits Association says the shake up to the tax system – and the removal of the duty freeze – could see the price of a bottle of wine with an ABV of more than 12.5 % increase by around 44p.
A bottle of vodka, it adds, could rise by 76p and port lovers could see around £1.29 put on the cost of a bottle – based on the change to duty combined with inflation of 10 per cent.
Sparkling wine however may notice a small price cut – shaving a possible 19p in tax off the cost of a bottle.
Drinks bought from the bar
There might be a small amount of good news however, when it comes to some drinks bought from a bar.
Some of these are set to benefit from a price cut in duty from August under the government’s ‘Brexit pubs guarantee’ promise.
To support the hospitality industry, and to recognise the vital role played by pubs in communities, there is going to be a reduced rate for draught products – known as Draught Relief.
This will reduce alcohol duty on qualifying beer and cider by 9.2%, meaning - says the government - a pint in a UK pub will pay less duty than its supermarket equivalent.
According to Chancellor Jeremy Hunt he believes this will see some beer and cider sold in hospitality venues become 11p cheaper than equivalent products sold in supermarkets.
Exchequer Secretary to the Treasury Gareth Davies added: “Because we left the EU we can make sure our alcohol duty system works for us. From next month the whole system will be simpler – the duty will reflect the strength of the drink.
“We will also protect pubs and brewers with our Brexit Pubs Guarantee keeping Draught Duty down, and a new Small Producer Relief.”