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.

From 28th March 2011, spirits and spirit-based ready-to-drink mixes (RTDs) and wine and made-wine of greater than 22 per cent alcohol by volume are liable for duties at a rate of £25.52 per litre of alcohol.

Beer is subject to a general beer duty of £18.57 per hectolitre per cent of alcohol.

For still cider and perry: exceeding 1.2% - not exceeding 7.5% abv. the rate is £35.87 and for still cider and perry: exceeding 7.5% - less than 8.5% abv. £53.84.
For sparkling cider and perry: exceeding 1.2% - not exceeding 5.5% abv. the rate is £35.87 and for sparkling cider and perry: exceeding 5.5% - less than 8.5% abv. £233.55.

For wine and made-wine: exceeding 1.2% - not exceeding 4% abv the rate is £74.32 and for wine and made-wine: exceeding 4% - not exceeding 5.5% abv. £102.21. For still wine and made-wine: exceeding 5.5% - not exceeding 15% abv. the rate is £241.23 and for still wine and made-wine: exceeding 15% - not exceeding 22% abv. £321.61.

For sparkling wine and made-wine exceeding 5.5% - less than 8.5% abv. the rate is £233.55 and for sparkling wine and made-wine: 8.5% and above - not exceeding 15% abv. £308.99.

A range of reliefs apply for alcohol-based products used for purposes other than drinking (eg as ingredients in other products, methylated spirits etc) and for small brewers.

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.

The UK's alcohol duties are significantly higher than those that exist in most other European countries and much of the rest of the world. Since the removal of restrictions on alcohol importation from the EU as part of Single Market reforms, the collapse of the Soviet bloc and the opening up of trade with Eastern Europe and general greater global mobility, significant problems of widespread duty-evasion and large-scale organised smuggling have developed.

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.

Statistics

Alcohol duty rates will increase by 2 per cent above the Retail Price Index (RPI) on 28 March 2011. This will add 4 pence to the price of a pint of beer, 15 pence to the price of a bottle of wine, and 54 pence to the price of a bottle of spirits.

Higher duty on stronger beers
From 1 October 2011, the government will introduce a new additional duty on high-strength beers. This means that for beers over 7.5 per cent alcohol by volume (abv) in strength there will be an extra duty at a rate of 25 per cent of the general beer duty. This will add 25 pence to the price of a can of 'super strength' lager.

Lower duty on low alcohol beers
A reduced rate of 50 per cent of general beer duty will be introduced for beers above 1.2 per cent abv up to 2.8 per cent abv in strength. This will reduce the price of a pint of beer at 2.8 per cent abv by 18 pence. These changes will come into effect from 1 October 2011.

Source: Directgov - 2011
 

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