What is happening with alcohol duty?

Alcohol duty is a type of tax paid by companies that produce alcohol. Duties are paid on the product, either by volume or strength, rather than the income generated. Alcohol duties are NOT paid by retailers, pubs or consumers.

Every year the government announces how the rates of alcohol duty will change for the year ahead, taking into account inflation. The default position is that alcohol duty should increase in line with the retail prices index (RPI), which stops the amount of duty received by the country from being devalued by inflation. However, for most of the past decade, the government has chosen not to apply this standard inflationary uplift, which means that the alcohol industry has received real-terms (after inflation) cuts in the duty it pays. In fact, £8.6bn has been lost, just by failing to keep duty in line with inflation. The value of duty paid by the alcohol industry has been devalued over time, despite the country’s finances being in a relatively poor position for most of that decade.

Recent events

In September, the Truss Government announced that duty would once again be cut and devalued, by ‘freezing’ it rather than keeping it line with inflation. This decision was quickly reversed by the Sunak Government in October, with the increase due to come into force in February 2023. We then asked our wonderful supporters to email the Chancellor, Jeremy Hunt, to stress the importance of keeping this decision. We are grateful that so many supporters took part.

However, in the fiscal statement in November, the exact rate of the new duty increase was not announced.

Then on 19 December, the government announced that the duty rate will continue to be frozen until August 2023, with a decision on the planned increase to be made at the next Budget. This flip-flop from the previous decision in October is a result of intense lobbying by the alcohol industry, using the false argument that a duty increase would hurt hospitality. We are calling on the government to do the right thing and not give into this pressure and keep their previous decision in place. Read more on our response to this announcement here.

Where next?

It is vital that we keep the pressure on, to ensure that the Chancellor properly increases the duty rate, by at least inflation, so that the alcohol producers are paying their way and making a fair contribution to the public finances, along with the rest of us. The vast majority of households across the UK are being asked to pay more tax next year, so why should alcohol producers be the only ones exempt from that?

The alcohol industry is predicted to see record profits over the next few years and were not hit hard by the pandemic (unlike the hospitality industry). People simply bought their alcohol from supermarkets and corner shops instead of pubs and bars, with many heavier drinkers drinking even more than normal, which is partly why we’ve seen such a tragic upsurge in alcohol deaths. Producers do not have to pass the cost of alcohol duty on to the hospitality industry or retailers. They can choose to just make a little less profit, contribute a bit more to the country’s finances, and not increase prices for the hospitality and retail sectors.

With almost everyone else is paying more tax in the coming year, it’s simply not right that the alcohol industry should be exempt. This is why we are calling for the government to set duty at the rate of RPI + 2%. The +2%, over the next few years, will allow the country to recover the lost £8.6bn. With alcohol harm costing the NHS at least £3.5bn a year, we must fight for what is right.

Separately from this, last year, the government announced it would be conducting a review of the alcohol duty system, to simplify it and to improve public health. The government’s proposal linked duty to strength across all product types for the first time, a big win for both public health and fairness for the industry. Linking duty to strength across the board means that it’s only the actual alcohol of the drink that is being taxed. The more actual alcohol, the more tax paid.

What we like about the new system

• We like the clear link between duty rates and strength.
• We like the explicit objective to use duty system to improve public health.

How the new system could be further improved

• We don’t like the cider exceptionalism – cider is being taxed much lower than every other alcohol type, for no good reason. Most cider in the UK is sold by big non-UK multinational corporations and it makes no sense to give them an artificial subsidy.
• We don’t like the fact that the higher rate for strong beers now starts at 8.5% instead of 7.5%. We want the higher rate for beer to be lowered to 6.5%. This is likely to mean more higher strength beers on sale, which cause more harm.
• We don’t like the fact there is no automatic annual increase for the duty rate built into the reforms (see below).
• We don’t like the fact that there is no mechanism for evaluating the public health benefits of this, despite this being a stated objective. We fear this means the measure won’t, actually, increase public health.

We will continue to press the government to keep the good bits and remove the bad bits!