WSTA Budget 2017 Programme: Spirits core narrative

The WSTA is calling on the Government to cut duty on Spirits by 2%in the 2017 budget and the follow are the key messages that we are looking to reinforce with MPs and Ministers. This briefing sets out these key messages and provides data to support its arguments.

  1. UK Spirits consumers and businesses are over taxed

The 31m Spirits consumers in the UK face some of the highest taxes in the world. They currently pay £3.2bn in Spirits duty in the UK, around £11.06 per litre bottle of Spiritsat 40% abv. This means that for every bottle taken off supermarket shelves around 76% of the cost is taken up in tax when duty and VAT are considered. This leads UK consumers to pay 27% of all Spirits duties collected by EU member states.

Spiritsconsumers and businesses have faced significant rises in duty, with increases in duty rates of over 41% since 2007. The Alcohol Duty Escalator increased Spirits duty by 2% above inflation for 5 years between 2008 and 2013. Spirits remain the highest taxed of any alcoholic drinks products at around 28p per unit of alcohol.

  1. Brexit has already impacted consumers and the industry

The impact of Brexit has led to an increase of inflation overall, expected to reach 3% over the next year. A duty increase for spirits at the same time would be a double whammy for consumers. For every 1% spirits duty increases it hits consumers and businesses with a further £25m of costs, the equivalent of 11p per bottle.

Additionally, spirits is a hugely important export market and in order for UK spirits to meet the export challenge it is vital that there is a strong domestic market and that production rates can keep up with the demand. High tax levels stifle new start-ups which are vital in meeting the growth in exports that would help make Brexit a success.

  1. A duty cut is popular, fair and beneficial to the Government

Given the pressures faced by Spirits consumers and businesses, through high duty rates and the impact of Brexit, the WSTA is calling on the Government to take action to support the industry by cutting alcohol duty 2%. This would save businesses and consumers 55p on a litre of spirits or 51p on a 70cl bottle of spirits compared to an inflationary duty rise. It is publically a very popular policy, polling shows that 70% of British adults think that spirits duty is too high and 69% thought the tax take per bottle of spirits was actually lower than it really is.

EY have calculated that a 2% cut will increase economic activity in the wine and spirit industry by £2.9bn. The duty cut will mean that the pressure on Spirits prices will be reduced and consumers won’t face a double whammy of price rises at a time when inflation is already on the up. It would help to wipe out the damaging effects of the Alcohol Duty Escalator, bringing duty closer to the level it would have been had the Escalator not been in place.

Additionally, this will help the Exchequer too. EY also found that this increased activity will lead to increased revenues to the Exchequer of £368m. There is evidence that backs up the claim that reducing the UKs excessive Spiritsduty rates can lead to an increase in Treasury revenues. Following the 2% cut toSpirits duty in the 2015 budget, Spirits duty income actually increased by £124m (+4.1%) the following year.

Impact of a duty cut for wines and spirits

Economic modelling by EY shows that a 2% cut to wine and spirits duty would mean:

  • An increase overall economic activity in the wine and spirit sector by a projected £2.9bn (+6%) in 2017
  • An increase in overall revenues to the Treasury by a projected £368m (+2%) in 2017, including and extra £254m (+2%) in duty and VAT in 2017.
  • An increase in industry contribution to the UK’s GDP by a projected £1.6bn (+6%) in 2017. This includes ‘direct’ effects (basically, economic output of the W&S sector) totalling a projected £720m in 2017 (+6%).
  • A 2% spirits duty cut, compared to a 3% inflationary rise, would save businesses and consumers 55p on a 40% litre of spirits or 51p on a 70cl bottle of spirits.

UK Spirits industry[1]

  • The UK Spirits industry employs some 170,000 people directly in the UK, and a further 105,000 people in the supply chain.
  • The UK Spirits industry generates £30bn per annum in economic activity including sales of £4bn in shops and supermarkets and a further £6bn in pubs, bars and restaurants.
  • There are over 31m Spirits drinkers in the UK, making it the second most popular alcoholic drink
  • The UK spirits industry is export driven: in 2015, the UK spirits industry traded £5.66bn, £690m (12%) of which was imported and £4.97bn (88%) exported.

Spirits duty

  • Spirits duty rates are £11.06 for a litre of spirits at 40% abv or £7.75 for 70cl at 40% abv. Duty rates are £10.37 for a litre at 37.5% abv and £7.26 for a 70cl bottle at 37.5%;[2]
  • 76% of a bottle of spirits is accounted for by tax[3];
  • Spirits paid £3.2bn in duty in 2015/16 accounting for 29% of all alcohol duty income[4].
  • The total contribution of the alcohol industry in duty and VAT is £17.4bn - the equivalent of nearly £341 per UK adult[5]- and for wine and spirits alone this is £10.5bn;
  • Following the cut in spirits duty in the 2015 budget, spirits duty income increased on the previous year by £124m (+4.1%) from April 2015 to March 2016 inclusive[6].

Impact of Brexit

  • Brexit has led to an increase of inflation, expected to reach 3% over the next year. As duty increases are pegged to inflation this would lead to addition duty bill of £60m for spirits business and consumers, the equivalent to 34p on a litre of spirits.

Spirits duty increases since 2007

The following table shows the accumulative Spirits duty increases since 2007. The Alcohol Duty Escalator was introduced in the Budget 2008 and was eventually scrapped for Spirits in 2014. However, since the escalator was introduced Spirits duty has increased by 41%.

Date / Duty per litre pa / Duty 70cl bottle @ 37.5% / Rise / Approximate cost to industry/ consumers
26/03/2007 / £19.56 / £5.13
17/03/2008 / £21.35 / £5.60 / 9.2% / £184m
01/12/2008 / £22.20 / £5.83 / 4.0% / £80m
23/04/2009 / £22.64 / £5.94 / 2.0% / £40m
29/03/2010 / £23.80 / £6.25 / 5.1% / £102m
28/03/2011 / £25.52 / £6.70 / 7.2% / £144m
26/03/2012 / £26.81 / £7.04 / 5.1% / £102m
20/03/2013 / £28.22 / £7.41 / 5.3% / £106m
20/03/2014 / £28.22 / £7.41 / 0.0% / £0
23/03/2015 / £27.66 / £7.26 / -2.0% / -£40m
16/03/2016 / £27.66 / £7.26 / 0.0% / £0
increase 07-16 / 41%
increase 10-16 / 18% / Total: £758m

[1] Economic Impact Assessment, Ernst and Young February 2015

[2] HMRC Duty Rates, March 2016

[3] Off Trade Data, Analysis from WSTA using Nielsen Average Price data and HMRC duty rates at Budget 2016

[4] HMRC Alcohol Bulletin April 2016

[5] WSTA Analysis based on ONS and HMRC data, April 2016

[6] HMRC Alcohol Bulletin April 2016