A double-whammy for the industry
In addition to the RPI-linked increase, from 1 August 2023, the new alcohol duty structure will be in place, where duty will be charged on a sliding scale, in line with the principle 'the stronger the drink the higher the rate'.
First announced by Rishi Sunak, the then Chancellor in his Autumn Budget 2021, the Government announced a raft of reforms to the duty structure for alcohol products, which was seen to be complex and out of date.
Although the lower rate for the lower ABV products will be welcomed, breweries, distillers and vineries who produce products with a higher ABV will be disadvantaged, and there is criticism in particular from the Scottish whisky industry.
Draft Relief Increased
It is not all bad news, as in the Spring Budget, the Chancellor increased the relief on draught beer, wine and spirits, under the Draught Relief scheme, which is designed to help drive customers to on-trade venues such as pubs, clubs and restaurants during a time of increased energy costs, the general cost of living being high and the long lasting impact of Covid-19 on the hospitality sector.
Whilst the relief on qualifying products will be welcomed, its effect will be minimised by inflation. This will be in addition to the increased duty on higher strength drinks. The measures will affect all alcoholic products produced in or imported into the UK.
The Draught Relief scheme, which cuts the price of eligible drinks purchased in hospitality venues, is a two-fold recognition that drinks served in pubs are less associated with alcohol harms and the financial support that is required by the industry at this time. The new rates including the increased draught relief differential are:
- All draught alcoholic products, of less than 3.5% ABV, £8.42 per litre of alcohol in the product.
- Draught still cider, of at least 3.5% but less than 8.5% ABV, £8.78 per litre of alcohol in the product.
- Draught Sparkling cider, of at least 3.5% but less than 5.5% ABV, £8.78 per litre of alcohol in the product.
- Draught beer, spirits, wine and other fermented products, of at least 3.5% but less than 8.5% ABV, £19.08 per litre of alcohol in the product.
- Draught sparkling cider and perry, of at least 5.5% but less than 8.5% ABV, £19.08 per litre of alcohol in the product.
The Draught relief is only available to products that are in large containers of at least 20 litres, and sold as to connect to a dispense system.
How will this affect consumers?
The impact of these changes will depend on whether producers and retailers pass on these cost changes to consumers. The Draught Relief means that duty on drinks purchased in a pub or hospitality venue will be lower in price than the same drink purchased in the supermarket. But again this is dependent on the on-trade venues passing on the relief to consumers.
How will this affect Producers, Importers and Retailers?
Alcohol manufacturers, importers and retailers are likely to face significant changes as a result of the revised duty rates and the lifting of the duty freeze. Aside from deciding on whether to pass on the cost increase to their customers, they will also have to update the processes they have in place to calculate the revised duty, the applicable reliefs and the payment systems used to pay their alcohol duty obligations.
It is the Government's view that whilst the RPI increase may lead to a decreased alcohol consumption overall, that this could be counteracted by the increase in Draught Relief which may increase supervised drinking in pubs and other hospitality venues.