The proposed overhaul of the alcohol duty system was given a cautious welcome by many in the independent trade. But as the detail is digested, there are warnings that the new regime could be “catastrophic” for wine importers and retailers.
Chancellor Rishi Sunak has listened to industry calls to harmonise the tax on still and sparkling wines, and is planning to introduce a new framework in 2023 which taxes wine and other drinks according to their alcoholic strength in six duty bands. The proposals are subject to a consultation ending on January 31, 2022.
According to the Treasury’s consultation document, published on October 27, “wines with a strength between 8.5% and 22% abv will be taxed at a single flat rate per litre of pure alcohol”.
It adds: “This will be between existing still and sparkling rates and will be set at approximately the current rate per unit of an 11.5% abv still wine.”
But Daniel Lambert of Daniel Lambert Wines says the Treasury is being “incredibly devious” by dressing up an estimated £4.5bn increase in alcohol duty as a reduction in the trade’s tax burden.
Lambert says that, far from being the “single flat rate” that the Chancellor described, “the base level they’re using is 11.5% and then it increases: basically you’re then penalised for every 0.5% unit of alcohol in a wine, all the way up to 22%”.
He adds: “From a declarations point of view, I do not know how you could do a groupage pallet because with potentially 25 different rates to choose from across, say, 10 or 15 wines, you would literally be there hours trying to do the right coding.
“That in its own right isn’t going to work. It probably explains why CDS [the new Customs Declaration Service] has got 156 parameters when CHIEF [the system CDS replaces] had 66 parameters.”
Lambert warns that retailers will struggle to calculate margins and pricing under the proposed system. He also says that shippers will be bound to increase their fees to cover the extra admin involved in duty clearances.
The budget also includes a 50% temporary reduction in business rates and a 5% tax decrease on draught beers.
Reaction from independents
Chris Connolly’s, director, Connolly’s, Birmingham
Changes to wine duties will make pricing a lot more difficult. What happens when abv changes from vintage to vintage?
This strikes me as a measure thought up by someone who really doesn’t understand how the trade operates. No longer can we do the mental arithmetic required to add duty to an ex-cellar price. It might play well with certain parts of the electorate but, without seeing the detail, it looks as though we’re going to have to factor in the abv of every product whilst calculating selling prices.
Noel Young, owner, NY Wines, Cambridge
Sparkling wine duty being in line with still wine makes perfect sense.
But equating stronger red wines to high alcohol ciders is a bit wrong. We will wait to see how much the Chancellor increases the stronger and fortified wines. I would have thought a minimum price on unit of alcohol was more sensible.
Louisa Fitzpatrick, co-owner, Old Chapel Cellars, Truro
Once again it’s a mixed bag of positives and negatives. The main positive being a simplification on the number of duty bands, especially on sparkling and still.
My concern is that there will be additional confusion, paperwork and miscommunication for customers on what duty is charged on each wine. The alcohol level can change with different batches of the same vintage of a wine. How will duty be monitored and applied, and will red wine become generally more expensive or less profitable than whites because of the duty implications of higher alcohol level on some styles?
It is good that there is no change until February 2023, but this proposed new change is not even confirmed yet and is under review until January 2022. So in summary it all just seems like more confusion and time fathoming out the implications on businesses and customers.
Ted Sandbach, managing director, Oxford Wine Company
The duty system was very irrational, and I commend the Chancellor for listening to the lobbyists – a rare occurrence.
I’m really pleased about the plans for rectifying the anomalies of the duty rates and encouraging British producers with further duty cuts.
This is so much more sensible – although we’ve yet to analyse the detail.
There was some encouraging news about business rates and the 50% discount for one year.
Also premises being re-rated might help, but I still fear that many companies will not survive once full rates are reintroduced.
It is a really encouraging budget for the industry including pubs and bars with a draught beer cut. But don’t expect any reduction in selling prices – just an ability to absorb some of the other increases that have been thrown at us.
Stuart Vass, owner, York Wines, Sheriff Hutton
It’s good news for English wine producers and their sparkling wine. Hopefully this will also assist in all the complicated calculations when pricing wines and wine imports and make English sparkling wine more affordable – but also cheap Prosecco, which has flooded the supermarket shelves, will also be cheaper.
Taking 3p off a pint of beer I feel will not have any real effect on selling prices, but again may assist English beer producers.
Chris Piper, chairman, Christopher Piper Wines, Ottery St Mary
As independents with strong trading with the on-trade sector, the business rate relief to the hospitality and retail sectors must be a good thing, although the cap at £110,000 per business will mean that there are too many of our customers who will be unable to benefit.
The duty freeze will certainly help stabilise things and is ultimately a decrease given that inflation is running over 5% in our sector.
At least this and the business rate relief will have immediate effect, but the proposed duty streamlining, based on alcoholic strength, is not due to come into play until February 2023, which is a way off.
Certainly, the harmonisation of sparkling wine duty rates with still wine rates will be of great benefit to producers of English sparkling wine. One can only hope that the duty rates on still wine will not be brought in line with sparkling wine by putting them up to the same level!
The proposed increase in duty on strong reds and fortified wines may not be something that the port and sherry trade were expecting.
All in all, there is a lot to discuss and unscramble between now and February 2023.
Nicola Davies, finance director, JN Wines, Crossgar, Northern Ireland
For us here in Northern Ireland I’m not sure how things will work. Because Northern Ireland is under the protocol it still falls under EU legislation, and they have to discuss it with the EU.
It’s going to be a big task, I think, switching the duty and thankfully it’s probably going to take another six months after that before they put out what they are actually intending to do.
Obviously all the systems have to change, which is a big burden on people. Have they thought about the practicalities and all those electronic systems?
The nice thing has been the 50% business rate relief for retail and hospitality.