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Sunak unveils overhaul of alcohol duty and tax cuts on some drinks

·4 min read

Taxes on draught beer and prosecco will be slashed after the chancellor announced sweeping changes to alcohol duty that reward lower-strength drinks.

Announcing the move, Rishi Sunak, who is teetotal, said the UK’s 380 year old system of alcohol duty was “outdated, complex and full of historical anomalies”.

Sunak’s five-point plan, which takes effect in 2023, will simplify the tax brackets at an overall cost to the Treasury of £555m by 2027. The plans will cut the cost of a range of drinks but increase the duty levied on wine with alcohol content above 11%, such as high-strength ciders and fortified like port and Buckfast.

Budget alcohol duty changes

The chancellor said the plans represented the biggest overhaul of alcohol duty for 140 years and claimed the changes had been made possible by the UK’s exit from the EU.

Share prices in pub companies jumped after the announcement, with JD Wetherspoon gaining 5.3, Mitchells & Butlers5.7% and City Pub Group 1.2%.

Sunak’s overhaul of alcohol duty rewards lower-strength drinks, pubs that sell draught beer and cider, as well as English wine producers, which are more heavily weighted towards low ABV and sparkling wines such as prosecco.

Pointing to the government’s response to a consultation on alcohol duty, which found that such drinks were “no longer the preserve of the wealthy”, Sunak said the move would help English winemakers, many of which make sparkling wine thanks to the similarity of the topography of southern England with France’s Champagne region.

In a separate measure he said would help pubs struggling because of the effect of the pandemic, the chancellor announced “draught relief”, cutting the tax on drinks served from pumps, such as beer and cider, by 5%. The duty cut will bring down the cost of a pint by 3p, or as much as 25p for beer below 3.5% ABV.

In the short term, an increase in alcohol duty that was due to take effect from midnight on Wednesday will be cancelled, at a cost of £3bn.

But the broadest change in his five-pronged plan for alcohol duty involves, according to Sunak, a “radical simplification”, under which the number of bands at which different duties are levied will be cut from 15 to six.

Drinks will be taxed in line with how much alcohol they contain, a move the chancellor said was aimed at encouraging healthier choices.

This means that a bottle of 9.5% wine would be 47p cheaper, factoring in VAT, while an 11% bottle would rise by 12p, a 15% bottle would be 81p more expensive and a bottle of port at 20% would be £1.09 higher.

Low-strength ciders will attract up to 2p less duty in pubs and shops, while duty on 2.5-litre bottles of high-strength cider will rise by as much as 45p.

Andrew Carter, the chief executive of Kent-based sparkling wine specialist Chapel Down, said: “The duty saved will enable the industry to create jobs, support families, and bring even more young talent into this exciting, developing sector as it recovers from the pandemic.

“The English wine industry – comprising of 3,800 acres under vine, 800 vineyards, 178 wineries – is expanding rapidly and governmental support provides the opportunity to build English wine on a global level.”

The British Beer and Pub Association (BBPA) welcomed the immediate freeze in alcohol duty, as well as the “draught relief” due to take effect in 2023.

“This is great news for our local pubs and recognises the crucial role they play in our economy and society,” said the BBPA’s chief executive, Emma McClarkin.

But small brewers’ trade body Society of Independent Brewers (SIBA) pointed out that the cut only applied to products sold in containers of 40 litres or above, meaning craft brewers, which typically sell their product in 30-litre kegs, will lose out compared to large beer corporations.

“By amending this lower threshold to 20 litres the Treasury can ensure all independent breweries benefit from this welcome new duty relief on draught beer,” said the SIBA chief executive, James Calder.

Small brewers already enjoy some tax relief, a measure introduced when Gordon Brown was chancellor and credited with sparking a craft beer revolution.

The Treasury is consulting on possible changes to the regime.

Sunak also announced a “small producers’ relief” that would broaden the relief to include cider makers who produce drinks with a strength of less than 8.5%.

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