Chancellor reforms outdated alcohol duty system

The Chancellor has announced a radical simplification of alcohol duties for "more than 140 years".

As a result of his announcement, shares in the pub and leisure sectors jumped.

The government will slash the number of main duty rates from fifteen to just six and making the duty higher for stronger drinks: the stronger the drink, the higher the rate.This means that some drinks, like stronger red wines, fortified wines, or high-strength ‘white ciders’ will see a small increase in their rates because they are currently undertaxed given their strength.

To help the hospitality industry, a planned increase in duty on spirits, wine, beer and cider will be cancelled, from tonight. This is a tax cut worth £3 billion the Chancellor said.

Many lower alcohol drinks are currently overtaxed - and have been for many decades, said the Chancellor.

"Rosé, fruit ciders, liqueurs, lower strength beers and wines – today’s changes mean they will pay less."

He also wants to encourage small, innovative craft producers:

"I’m announcing proposals for a new Small Producer Relief. This will extend the principle of the Small Brewers Relief to include small cidermakers and other producers making alcoholic drinks of less than 8.5 per cent ABV."

He is also modernising the system to reflect the way that people drink today. Over the last decade, consumption of sparkling wines like prosecco has doubled. English sparkling wine alone has increased almost tenfold.

So Mr Sunak said he would end the "irrational" duty premium of 28 per cent that they currently pay.

Sparkling wines – wherever they are produced – will now pay the same duty as still wines of equivalent strength. And because growing conditions in the UK typically favour lower strength and sparkling wines, he said, this means English and Welsh wines, compared with stronger imported wines, will now pay less.

Cidermakers will also benefit from the Chancellor's largesse.

Sales of fruit cider have increased from one in a thousand ciders sold in 2005 to one in four today. But they can pay two or three times as much duty as cider that is made with apples or pears, so he's cutting duty on them too.

He has also turned his attention to pubs.

"Even before the pandemic, pubs were struggling: between 2000 and 2019, consumption in the on-trade fell by 40 per cent. And many public health bodies recognise that pubs are often safer drinking environments than being at home."

He has introduced Draught Relief, a new, lower rate of duty on draught beer and cider. It will apply to drinks served from draught containers over 40 litres and he says it will particularly benefit community pubs who do 75 per cent of their trade on draught. Draught Relief will cut duty by five per cent.

He said: " It’s a long-term investment in British pubs of £100m a year. And a permanent cut in the cost of a pint of 3p."

The British Beer and Pub Association has welcomed the chancellor's support for the beleaguered pub and bar sector in the form of additional grants, as well as extensions to the job retention scheme, 5% hospitality VAT rate and business rates holiday.

Emma McClarkin, Chief Executive of British Beer & Pub Association, said: "“The new grants are worth £400 million for pubs and will go some way in helping many of them survive through to the time when they can reopen and operate viably. It is, however, crucial that the Government ensures all pubs benefit, including those that are part of a group, by removing the current State Aid cap.

"Overall, this is a good Budget for pubs and breweries in the short term, reflecting just how vital they are to the social, cultural and economic fabric of our communities.

“However, this is just the start of the journey on the hard road to long-term recovery for our sector. The Chancellor has made it clear today he recognises the vital role local pubs play in their communities. Now he must continue that commitment by ensuring Britain’s pubs and breweries are supported in the long term."

Helen Peters, Chief Executive of Shakespeare’s England, the Destination Management Organisation for south Warwickshire and a director of the Coventry and Warwickshire LEP, said:

“The Chancellor’s announcement of a 50 per cent business rates discount for the hospitality sector and an increase in the headline rates of tax relief for theatres and museums will be welcomed by our members, many of who are still very much on the road to recovery after what has been a devastating 18 months.

“It will be a long time before hospitality and tourism businesses in Shakespeare’s England get back to pre-pandemic levels, and the measures included in today’s budget is an acknowledgement of that and at the same time a show of confidence in a sector that is so important to the local economy. There were also announcements which will help some of our drink producers especially in cider and wine.”