Alcohol duties

What are alcohol duties?

Most products containing alcohol are subject to a series of excise duties: either spirits duty, wine and made wine duty, beer duty or cider and perry duty. These duties are collected by HM Customs and Excise, and are levied on manufacturers and importers.

All alcohols are also subject to Value-Added Tax.

The rate of alcohol duties is adjusted annually by the Chancellor of the Exchequer as part of the Budget, with changes coming into force that day under the terms of the Provisional Collection of Taxes Act 1968.

In March 2008, then-Chancellor Alistair Darling introduced a four year tax escalator under which the duty rate on all alcoholic drinks was set to increase by two per cent above the rate of inflation. In March 2010, Mr Darling announced that the escalator would be extended for a further two years, to 2014-15.

In his Budget statement of March 2012, Chancellor George Osborne, confirmed that there would be no changes to the duty rates set out by his predecessor; therefore rates would continue to rise by two per cent above the rate of inflation.

Background

Governments have taxed the consumption of alcohol for centuries, with different intentions at different times. Usually, governments were simply taking advantage of high demand to raise money from alcohol, and in the wake of high duties, smuggling has typically followed. In some parts of Britain, such as Cornwall, during the 18th and 19th centuries, smuggling of luxury goods (including drink) from Europe was more economically significant than the legitimate economy.

One of the best known and earliest attempts to use alcohol duties for social and health purposes, however, occurred in the early 18th centuries. At the end of the 17th century, cheap gin began to be consumed in large quantities in Britain, and laws introduced by William III actively encouraged distillation. With gin sometimes being distributed as part of workers' wages, consumption soon outstripped beer-drinking. Gin was taxed at 2d per gallon, while strong beer was taxed at 4 shillings 9d. The widespread consumption of gin was causing serious health and social problems, particularly in London (most famously depicted in Hogarth's "Gin Lane"). Research has suggested that gin-drinking was one of the main causes behind the death rate in the capital overtaking the birth rate in this period.

In 1729, gin sellers were required to be licensed (at a cost of £20) and the duty was raised to 2 shillings per gallon. In 1736, the Gin Act raised the cost of a licence to £50 and the duty to £1 - making gin prohibitively expensive. Rioting followed, and in the seven following years, only three licences were bought - yet gin, now frequently adulterated and harmful, continued to be consumed in huge quantities. The unenforceable Act was repealed in 1742 and the gin problem reached its peak during that decade, before a new system of regulation was introduced in 1751.

Today, the framework for alcohol duties is provided by the Alcoholic Liquor Duties Act 1979. The advent of the EU single market in 1992 was a critical turning point for alcohol duties: for the first time, most of the restrictions on people travelling to other European countries - where duties were usually far lower - were removed. This led on to large scale "bootlegging" (the bringing back of alcohol from the continent "for personal consumption" which was then resold without UK duty being paid). The Major government recognised this problem, and froze alcohol duties in its final years in an attempt to stem the tide of duty evasion, a policy continued by Labour.

In 2003, in response to the extent of spirit smuggling, the Chancellor Gordon Brown announced plans to require bottles to display a stamp confirming that UK duty had been paid - in the face of industry opposition. Measures were included in the 2004 Finance Bill.

The Coalition government on being elected in May 2010 stated that it would "review alcohol taxation and pricing to ensure it tackles binge drinking without unfairly penalising responsible drinkers, pubs and important local industries."

Controversies

Many drinkers resent the high and regularly rising prices that they have to pay for alcoholic beverages as a result of alcohol duties. Nonetheless, the principle of government taxing alcohol heavily as a source of revenue and to provide a price-based deterrent to drinking is widely accepted as legitimate.

However, a significant problem of smuggling has emerged in recent years. The causes of this phenomenon are disputed, but perhaps the most important is the desire of large sections of the public to pay less for alcohol and its willingness to evade paying duty to do so. For this reason (and on grounds of cost), the distilling industry warned that the stamp system would have little impact. In 2001-2002, Customs claimed that it had lost £600 million through alcohol duty evasion, compared to £450 million in 2000-2001.

Some critics of the UK's alcohol duties regime put the problem down to the differential rates in the UK and the rest of Europe. This has certainly generated the problem of the "white van man", who makes money by bootlegging drink. The drinks industry campaigns vigorously for UK duty levels to be lowered to those seen on the continent. The harmonisation of alcohol duties is also an objective of the European Commission.

The Government faces a dilemma with regard to alcohol duties. Increasing duties can be expected to stimulate duty evasion and revenue loss, while reducing them leaves the Government open to accusations of social irresponsibility and reduces legitimate revenue.

The introduction of the alcohol duty escalator in 2008 and the current Chancellor's decision to continue with it have proved highly controversial, attracting huge criticism from within the drinks industry. 

Organisations such as CAMRA (the Campaign for Real Ale), BBPA (the British Beer and Pub Association), and SIBA ( the Society of Independent Brewers) are amongst those supporting a beer tax e-petition which has been launched to stop the duty escalator.

BBPA chief executive Brigid Simmonds said beer tax had risen by 42 per cent since the "misguided" escalator policy had been introduced, resulting in the loss of 5,000 jobs in one year and "hundreds of pub closures". She urged the Government to "rethink this damaging policy before even more harm is done to the British brewing and the pub trade.”

The Wine and Spirit Trade Association (WSTA) said the continued increases in alcohol taxation added to the pressure on a sector which had seen volume sales continue to decline as consumers reined in spending.

According to WSTA, the rate of alcohol taxation in the UK was now "so out of step with our European neighbours" that visitors to the London Olympics would face paying 50 per cent more for an average bottle of wine (£4.89) than if the Games were being held in Paris (£3.26) and triple what they would pay in Madrid (£1.52).

Statistics

Alcohol Duty rate changes from 26 March 2012:

Rate £ per litre of pure alcohol:
Spirits - 26.81
Spirits-based: Ready-to-drinks - 26.81
Wine and made-wine: Exceeding 22% abv - 26.81

Rate £ per hectolitre per cent of alcohol in the beer:
Beer: General Beer Duty - 19.51
Beer High Strength: Exceeding 7.5% abv -in addition to the General Beer Duty - 4.88
Beer Lower Strength: Exceeding 1.2% -not exceeding 2.8% abv - 9.76

Rate £ per hectolitre of product:
Still cider and perry: Exceeding 1.2% - not exceeding 7.5% abv - 37.68
Still cider and perry: Exceeding 7.5% - less than 8.5% abv  - 56.55
Sparkling cider and perry: Exceeding 1.2% - not exceeding 5.5% abv - 37.68
Sparkling cider and perry: Exceeding 5.5% - less than 8.5% abv - 245.32
Wine and made-wine: Exceeding 1.2% - not exceeding 4% abv - 78.07
Wine and made-wine: Exceeding 4% - not exceeding 5.5% abv  - 107.36
Still wine and made-wine: Exceeding 5.5% - not exceeding 15% abv  - 253.39
Wine and made-wine: Exceeding 15% - not exceeding 22% abv  - 337.82
Sparkling wine and made-wine: Exceeding 5.5% - less than 8.5% abv  - 245.32
Sparkling wine and made-wine: 8.5% and above - not exceeding 15% abv  - 324.56

Source: HMRC - 2012
 

Quotes

"MPs must not lose sight of the importance of taxation as a means not only to lower levels of alcohol harm but also to direct revenues to the public purse. If minimum pricing is not combined with an increase in duty or some form of levy, any extra monies will increase the profits of the supermarkets and the drinks industry.

"We urge MPs to use the opportunity today to push for an effective solution on cheap drink. With alcohol harm costing the UK an estimated £25bn each year, they can’t afford not to act."

From a letter to the Telegraph on the Alcohol Taxation Debate, signed by a group of leading doctors and academics, including Professor Sir Ian Gilmore, chairman, UK Alcohol Health Alliance and Special Advisor on Alcohol, Royal College of Physicians; and Dr Hamish Meldrum, chairman, British Medical Association Council – December 2011

"The Government will shortly be publishing its Alcohol Strategy to address the growing problem of alcohol abuse, and the many billions of pounds it costs our NHS and criminal justice system.
"But today I have no further changes to make to the duty rates set out by my predecessor."

Chancellor George Osborne; Budget statement - March 2012

"Today’s Budget puts Britain on course for an Olympic record that gives no cause for celebration.
“Consumers and businesses are already paying the price for the excessive duty increases in recent years and today’s news means more price rises are on the way.
“Whilst we recognise the pressure on the public finances, the mounting duty burden on the sector is holding it back from contributing fully to the UK’s economic recovery.”

WSTA interim chief executive Gavin Partington – March 2012