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Alcohol duty reform ‘missed opportunity’ for spirits – The Spirits Business

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Despite Boris Johnson having vowed to boost the Scotch industry by fixing the UK’s alcohol taxation system, new plans by the Treasury show the sector will be penalised in comparison with other drinks.

The UK government’s plans to reform the alcohol duty system favours beer and the ‘great British pub’

When Boris Johnson stepped into the role of prime minister of the UK in 2019, he made a vow to review the nation’s ‘broken’ alcohol taxation system, signalling that he would make Scotch more competitive around the world. The move was welcomed by the Scotch Whisky Association (SWA) and other trade groups, who had noted the inconsistencies within the system.

However, after several years and a global pandemic, the UK government revealed its proposal to modernise the tax system for alcohol, which appeared to be in favour of beer. Miles Beale, chief executive of trade body the Wine and Spirit Trade Association (WSTA), called the proposal a “missed opportunity” that is “definitely worse for wine, and not great for spirits”.

Under the proposal, the spirits tax rate will remain the same, at £28.74 per litre of pure alcohol, equivalent to paying 29p per unit of alcohol.

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According to the WSTA, chancellor Rishi Sunak’s proposed model continues to tax spirits and wine more harshly than other alcohol categories, reinforcing existing market distortions rather than rebalancing them. For example, wine will be taxed at 26p per unit (10ml), while cider will be charged at 9p per unit. Under the proposed system, wine duty will increase by £250 million a year, while duty on beer and cider will fall. The proposal will also include 27 tax rates for wine. Beale added that the proposal favours beer to “support the great British pub”, despite the hospitality sector being “much more diverse now”.

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The WSTA also highlighted that a canned G&T would be taxed less for a 50ml pour at 45p than a 50ml pour from a full‐sized bottle of gin at 57p. Spirits producers could benefit from having lower‐alcohol products (under 22% ABV) or spirit‐based RTDs. Beale noted the proposal is aimed at encouraging people to drink lower‐ABV alcohol rather than higher‐strength serves. Additionally, English spirits distillers and wine makers will be excluded from Small Producers Relief as they make products above 8.5% ABV.

As such, the WSTA is calling on the government to reduce the differences between rates paid by different categories of alcohol by taxing products by their alcoholic strength. The WSTA also noted that reduced rates should be extended to support all small producers in all categories.

The SWA also said it was disappointed by the chancellor’s proposal. Graeme Littlejohn, its director of strategy and communications, said the proposed system was “baffling for distillers and responsible drinkers who don’t feel they should be forced to pay over the odds for drinking a Scotch rather than a pint or a glass of wine”.

He said: “The industry has been calling for reform for a long time, as the current system is tilted against distillers, but the proposed reforms do very little to change that. Under the reforms, someone in a pub enjoying a Scotch whisky cocktail will pay three times as much in tax on their drink as someone in the same pub drinking a pint of cider, despite the fact the pint contains more alcohol. This cannot be described as fairer, nor is it healthier.

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“There has been some recognition from HM Treasury that spirits should not be charged a premium duty rate compared with other alcohol categories when the alcohol content of the drink is the same – but only between 8.5% and 21% ABV. Why stop there? The chancellor should extend the equalisation of rates to include most Scotch whisky in the UK bottled at 40% ABV.”

At a disadvantage

The SWA said it had submitted a response to the Treasury’s consultation in the hope that it would change its mind. Littlejohn said: “As they currently stand, the reforms will further embed the competitive disadvantage faced by distillers and not meet the UK government’s commitment to ensure the tax changes support the Scotch whisky industry and the 42,000 jobs the sector supports across the UK.”

Stewart Hainsworth, CEO of Whitley Neill gin maker Halewood Artisanal Spirits, noted that the pandemic has caused significant disruption to hospitality, as well as the drinks industry. “As a result, many spirits producers, particularly smaller businesses, are facing tougher trading conditions than ever before,” he explained.

“To help financially ease this pressure, we’re calling on the government to extend the payment terms on duty payments. Moving the payment terms from the 30‐day timeframe to 60 days will have a significant, one‐off impact on business cash flow, help those who have fallen behind on payments due to the pandemic and restore long‐term business success.”

Other producers, including Cornwall’s Tarquin’s Gin, had hoped to see a tax break for distillers. “It should be fairly simple to run, with a discount on spirits duty up to a threshold of volume,” said founder Tarquin Leadbetter. “Without huge economies of scale, and with mounting inflationary pressure up the supply chain, such tax relief would really help create more of a level playing field for British craft distillers.”

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Diageo, owner of brands including Smirnoff vodka and Captain Morgan rum, said it welcomed the chancellor “setting out his proposals for a reformed system in October, as well as his decision to freeze duty for the fifth time in a row”. A spokesperson for the firm said: “We are currently engaging with the consultation process and look forward to seeing the next stage of proposals.”

New system

Now that the initial consultation has come to an end, the WSTA’s Beale said if the proposal was reasonably contested then the Treasury would need to begin a lot of discussions with think tanks, trade groups and companies.

The WSTA will continue to lobby MPs in the hope that there are changes made to the proposal. Beale said a new system could be in place by February 2023, but legislation would need to be passed by the end of this year for that to happen.

Littlejohn added: “The consultation may have closed but the campaign will continue. This reform process was an opportunity to introduce a fairer system for Scotch whisky producers, but the industry will continue to campaign until spirits are no longer singled out for higher taxes than other forms of alcohol.”

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