As a key announcement in the Autumn Budget, much has been made of the Chancellor's proposals to reform the alcohol duty system in the UK. Whilst cancelling the planned increase of duty on spirits, wine, cider and beer with same-day effect, Rishi Sunak also set out a raft of measures aimed at rationalising the alcohol duty system in the UK; a system that many view as outdated, complex, inconsistent and, in places, inherently discriminatory between product categories.
The Government considers that there is an overwhelming case for reform to create a fairer, healthier alcohol duty system which reflects modern trends and commercial realities. The key principles underpinning this view are that
- products should be taxed in direct proportion to their alcohol by volume (ABV);
- products of the same ABV should pay the same rate of duty regardless of origin and qualitative differences (e.g. whether a product is still or sparkling should not affect its duty rate) and;
- there should be a progressive structure of alcohol duty so that lower ABV products pay proportionately less duty.
The current Government proposals for a new structure of alcohol duty include slashing the number of main duty rates from 15 to just six, with products across all categories to be taxed in proportion to their alcohol content, moving to a standardised series of bands to which the rates apply. The Government also intend to effectively cancel the duty premium on sparkling wines so that duty is paid at the same rate as still wines of equivalent strength.
The message really is: 'the stronger the drink the higher the rate'.
To support the on-trade, a 5% cut in duty for draught beer and cider sold from containers over 40 litres will be implemented in order to reduce the tax burden on products sold predominantly in pubs and hospitality venues. This is expected to result in a 3p cut to the price of a pint.
The introduction of a new small producer relief (modelled on small brewers relief) has also been proposed which will also be applicable to small producers of cider, wines/made-wines such as fruit ciders or fruit wines, and spirits-based products (under 8.5% ABV).
Alongside the substantive rate and relief changes, various administrative changes have also been proposed in order to simplify processes and procedures, such as the introduction of single alcohol approvals for producers which may apply across multiple premises, and consolidated alcohol duty returns utilising monthly accounting periods.
Although few in the sector will argue that the existing duty system is not complex and inconsistent, there are concerns that these proposals outlined by the Government deliver more for some producers than others.
For example, whilst there are clear messages of support coming down the track for beer and cider producers in the form of 'draught relief' and a new small producer relief, what about producers of gin, Scotch whisky and other spirits? The small producer relief excludes small scale distillers from the scope of this valuable tax break and there is no suggestion that an alternative for spirits is forthcoming.
In a similar vein, do the reforms reduce the 'gap' between the on and off trade or reinforce it? Some argue that there should be a clear duty 'differential' between alcohol sold in the on and off-trades in order to provide support to operators of pubs, bars and restaurants across the country. Should supermarkets pay more than pubs, bars and restaurants, particularly given the disproportionate effect of lockdowns on the on-trade over the last 18 months?
It is also clear that the effects of the proposed duty reform must be seen in context. Any 'cut' in the price of a pint which may be generated by 'draught relief' will simply be swallowed up by the increased costs faced by businesses operating in the sector in the next several years, including increased staff and utilities costs, continued supply chain disruption, not to mention the ongoing cost of covid-recovery. Practical support, such as a permanent 12.5% VAT rate or further business rates reliefs, would complement, and arguably pack a bigger punch than, the more nuanced and technical alcohol duty reform measures.
Whilst reform of the alcohol duty system may be overdue and broadly welcome, the view of the sector is that it needs more comprehensive support, not just promises of rationalising technical rules in the coming years. Also, some commentators think that the reform proposals have simply not gone far enough.
A consultation on the proposed reforms to the alcohol duty system has been launched by HM Treasury and HMRC, and is open until 30 January 2022, offering the opportunity for stakeholders to share their views and comments.
Subject to the outcome of the consultation, the Government aim to legislate for the changes to the rates structure through the 2022/23 Finance Bill, with changes to take effect from 1 February 2023.