Starting from Tuesday, the prices of many alcoholic drinks will be higher due to tax increases implemented by Rishi Sunak and chancellor Jeremy Hunt. The new tax system, first proposed by the prime minister when he was chancellor in 2021, will now levy duty based on the strength of alcohol rather than its type. While most wines and spirits will experience a price increase as a result of a 10.1% overall duty increase in line with last September’s inflation figure, prices will decrease for drinks with lower alcohol percentages and most sparkling wines. So what do these changes entail exactly?
The increase in alcohol duties is intended to encourage drinkers to reduce their weekly units by taxing all alcohol based on strength, in accordance with plans announced two years ago. Previously, duties were based on categories such as wine, beer, spirits, and ciders. The chancellor initially proposed these changes earlier this year but postponed them due to the cost of living crisis. Despite ongoing price increases in drinks, though at a slightly slower rate, the government has decided to proceed with the system overhaul while implementing a 10.1% increase in alcohol duties overall.
How does the new system function?
Under the new system, drinks with an alcohol by volume (ABV) below 3.5% will be subject to lower taxes, while drinks with an ABV above 8.5% will be taxed at the same rate regardless of their type (wine, spirits, or beer). This means that still wines below 11.5% ABV and certain sparkling wines will become cheaper, while higher-strength wines will become more expensive. Jeremy Hunt stated, “The changes we’re making to the way we tax alcohol catapult us into the 21st century, reflecting the popularity of low-alcohol beverages and supporting small producers financially to boost growth in the sector.”
To ensure that pubs always pay less alcohol duty than supermarkets, the duty paid on draught drinks in pubs will be up to 11p lower than the price at shops, as part of the government’s “Brexit pubs guarantee”.
Which prices will increase?
The duty increase will lead to a 44p rise in the price of a wine bottle with an ABV between 11.5% and 14.5%, resulting in consumers paying an additional 53p when combined with VAT, according to the Wine and Spirit Trade Association (WSTA). Duty on 18% cream sherry will increase by an additional 87p, with VAT contributing to a total increase of over £1 per bottle. The total tax on a bottle of port will rise by over £1.50, while the average bottle of whisky will cost £1 more. A bottle of gin or vodka will increase in price by approximately 90p.
Which prices will remain the same or decrease?
Duty on a 4.5% beer will rise by 4p in shops, but remain unchanged for draught pints in pubs, as the government aims to protect the hospitality sector from price hikes. Cider with the same percentage will experience a 1p increase in shops, but a 1p reduction in pubs.
Sunak stated, “Not only will today’s changes mean that the price of your pint in the pub is protected, but it will also benefit thousands of businesses across the country.”
How has the drinks industry responded?
Graeme Littlejohn, director of strategy at the Scotch Whisky Association, described the duty increase as a “hammer blow for distillers and consumers.” Colin Neill, CEO of Hospitality Ulster, stated that the increase would force them to raise prices for alcohol. William Robinson, managing director of Robinson Brewery, which operates 250 pubs, appreciated the difference in draught beer duty between pubs and supermarkets, but mentioned that tax increases on other alcoholic drinks might be passed on to customers. He added, “We’ll have to figure out how to manage these increases, whether to pass them on to consumers or absorb them.”
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