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From next week, lovers of full-bodied red wines and boutique gins may have to pay more as new alcohol duty rules come into effect in the UK. These post-Brexit regulations will result in higher prices for certain alcoholic beverages, while beer drinkers may end up paying the same amount for weaker lagers, leading to what’s being called “drinkflation”. The new system, first introduced by Rishi Sunak in 2021, aims to promote moderation by taxing drinks based on their alcohol content rather than categorizing them into four groups: wine and made-wine, beer, spirits, and ciders. Sunak described this overhaul as “the most revolutionary simplification of alcohol duties in over 140 years”, made possible by the UK’s exit from the EU. In March, the government also announced a higher draught relief on beer purchased in pubs as part of the “Brexit pubs guarantee”.
While some publicans, like Carl Hanley of the Hand and Shears in the City of London, don’t anticipate the duty increase having a significant impact on customer habits, producers and suppliers are concerned about the potential decline in sales volumes for certain wines and spirits, as well as the impact on craft distillers. Andrew Bewes, managing director of wine distributor Hallgarten & Novum, predicts a significant drop in sales volume, particularly in the retail sector. The Wine and Spirit Trade Association, which represents over 300 companies, states that 80% of wine consumed in the UK is purchased from supermarkets and smaller retailers. Currently, the duty on a bottle of wine with an alcohol percentage by volume of 15% or less is £2.23. Starting from August 1, still and sparkling wines with an ABV between 11.5% and 14.5% will be taxed an additional 44p, based on the rate for a 12.5% ABV bottle. Wines with an ABV stronger than 14.5% will face a sliding scale of duty, for example, a bottle of port with a 20% ABV will see duty increase from £2.98 to £4.28. On the other hand, still wines under 11.5% ABV, which account for 12% of total wine produced, will experience a reduction in duty.
It is more challenging to lower the alcohol content in wine due to factors such as the climate in the region of production. In contrast, reducing the alcohol content in beer is relatively straightforward. In recent months, many brewers have reduced the alcohol levels in their beers to avoid the higher duty rates. Some breweries have even introduced new low-alcohol products. For instance, Carlsberg has decreased the ABV of its Danish Pilsner brand from 3.8% to 3.4%, while Greene King has lowered the ABV of its Old Speckled Hen from 5% to 4.8%. This trend has been labeled “drinkflation” and draws similarities to “shrinkflation”, where food packaging sizes are reduced while prices remain the same or increase.
Simon Hales, an analyst at investment bank Citi, predicts that consumers will end up paying the same prices for alcoholic beverages with lower alcohol content. He believes this will result in a disadvantage for consumers, except for those purchasing draught products in pubs who may benefit slightly. The popularity of no- and low-alcohol drinks has surged as younger consumers prioritize a healthier lifestyle. In 2022, sales of “no- and low-” alcohol products in 10 global markets, including the UK, increased by 7% compared to the previous year, reaching over $11 billion, according to research group IWSR. Non-alcoholic products accounted for 70% of these sales.
Andy Wood, CEO of Adnams, a Suffolk-based brewery, mentioned that they have released a 3.4% ABV pale ale called Lighthouse, which will not be affected by the new regulations as it falls into the lowest alcohol content band. Wood highlighted the benefits for both Adnams and consumers, emphasizing the popularity of their 0.5% ABV beer called Ghost Ship. He mentioned that consumers of all ages are reducing their alcohol intake.
Craft brewers will benefit from a 50% duty reduction, specifically for drinks with less than 8.5% ABV. However, according to Alan Powell, the founder of the British Distillers Alliance, it is unfair that full-strength products are not included in the small producer relief. Powell argued that this approach ignores the fact that consumers are unlikely to consume high-strength craft products. Some members of the British Distillers Alliance have considered closing their businesses due to the additional costs associated with higher duty rates.
Paul Sharrocks and his wife Cheryl, who started distilling small-batch gin in their garage in 2019, are preparing for a decline in sales due to the new duty rules. Their business experienced growth during the pandemic when at-home drinking became more prevalent, allowing them to open a distillery and store in Stockport. Despite holding off on price increases last year, Sharrocks recently raised the price of a bottle by £1 to match the 10% duty increase. He expressed frustration with the government’s support for the hospitality industry amid Brexit, claiming that it does not extend to the spirits sector. Sharrocks plans to diversify the business by focusing on distillery tours.
The government defends the new alcohol duty system, stating that it will finally reflect the alcohol content of drinks, making it easier to understand. They believe these changes will encourage small craft spirit and wine producers to innovate and create new lower-strength products.
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