At least 5 reasons why wine duty should be cut
Duty on wine: a wine merchant's view
It's the time of year when the wine industry in the UK awaits with bated breath the decision of the Chancellor on alcohol duty. Will he or won't he raise duty on wine again in the Budget on Monday 29th October 2018? As a reminder alcohol duty is, according to HM Revenue and Customs (HMRC) "a tax that is charged on alcohol produced or processed in the UK, or brought into the UK for consumption." You may not notice increases in duty directly as this tax is paid by your retailer when the wine leaves a bonded or customs-controlled warehouse to go onto their shop shelves or to be sent directly to their customers; it is incorporated into the price that you pay. And we all know how wine prices have been rising recently.
Duty on wine is charged at different rates according to the type of wine and according to alcoholic strength which means that currently £2.16 of the price of a bottle of still wine between 5.5% ABV and 15% ABV is duty. This excise duty is in addition to value added tax (VAT) and in fact excise duty itself incurs 20% VAT. And that £2.16 rate of duty - or £2.77 on a bottle of sparkling wine - is regardless of whether the bottle of wine has cost you £5 or £50.
This by the way is one of the reasons why the starting price of my wines with attitude is £12. For a £5 bottle of wine, £3 or 60% is made up of duty and VAT whereas 'only' 34.6% of a £12 bottle of wine goes to the government. But, don't get me started on the subject of cheap wine, let's get back to the Budget and the likelihood of an increase in duty on wine.
The UK government's policy paper on duty on alcohol states that all alcohol duty will rise by the Retail Price Index every year. This means that next week the wine industry is expecting the Chancellor to raise those rates of duty by about 3.3% (September 2018's RPI rate) to £2.23 for still wine and £2.86 for a bottle of sparkling wine, ignoring VAT. Gulp!
You might think that a rise in line with inflation is fair - there is a deficit to sort out after all - however there are a number of things to bear in mind...
- We are already paying rates of duty that are way higher than most other EU countries. How can that be you might wonder? The level of excise duty payable on wine is set locally in each country; the EU just sets a "harmonised minimum rate" of alcohol duty for wine. That harmonised minimum rate however is... €0, yes €0. So each country is free to choose what it charges and many countries choose not to charge any duty at all on wine. In the chart below produced from rates per hectolitre (in Euros according to the European Commission Excise Duty tables you can see that 14 of the 28 EU members do not charge excise duty on wine; some of the remaining 14 charge it just on sparkling wine. As you can see the UK pays one of the highest rates in the EU, the third highest rate after Ireland and Finland. The top 4 countries pay over €100 more per hectolitre than the rest of the excise duty paying countries; in the UK we pay about £1.10 more in duty per bottle of still wine than Lithuania does and about £2.42 more per bottle than France.
Revenues to the UK Treasury from wine duties has increased 2.3 times over the last 17 years to over £4.25 billion. According to the European Commission's July 2018 Excise Duty tables, wine duty paid in the UK 35% of all the wine duties collected across the EU's 28 countries.
Duty on wine in the UK has risen by an average of just over 5% p.a. in the 17 years to 2017 whereas the annual rate of inflation averaged 2.2% over the same period. Doesn't seem quite fair somehow does it? 2008 was the worst year for wine lovers - the rate of duty rose 9% in March and then 7% in December so perhaps we should be thankful that it is likely to be only around 3.3% for 2018.
- To make matters worse the value of the pound has declined by 30% in those same 17 years. Over the last couple of years since the Brexit referendum we have all felt the impact of the currency devaluation with the rising costs of holidays abroad and of imported goods; I have certainly noticed it when importing wines from the EU in particular.
- At the same time that excise rates have escalated and we are receiving fewer Euros for our pounds, inflation is now rising again so we have a triple whammy. And wine prices in some areas are going up above the rate of inflation. Chablis for example has seen (until this year) a succession of poorer vintages hit by frost and hail; they have increased their prices by double figure percentages in the last 2 or 3 years. The cost of the lovely Chablis Les Vaillons from Domaine Billaud-Simon has rise by 54% in 4 years; I have tried not to increase the retail price by the same amount and it still remains a popular wine with customers. Since yields have been much lower in the poorer vintages supply and demand dynamics are at play but it will be interesting to see if after a successful and more prolific 2018 harvest, Chablis prices decrease.
- Health is cited as one of the main reasons for the high rates of tax on alcohol and there is no denying that it makes sense to support the health services required for alcohol-related illnesses. Whilst much is made about high levels of duty being a much-needed means to reduce alcohol consumption in the UK, there is as much evidence to suggest that the two are not directly linked as there is evidence to the contrary. Nor do health concerns explain why increases in duty on wine seem to be excessive when compared to rises in the rates applicable to beer and spirits.
We should perhaps cut the Chancellor some slack. After much lobbying from the industry late in 2017 alcohol duty was frozen at the last Budget and there is evidence to suggest that, despite the freeze, revenue from wine duty in the UK grew; HMRC figures that I have seen suggest by about 3.5% in the six months post Budget although other analysis estimates by as much as 5%. The Wine & Spirit Trade Association say that they have recent independent analysis "set out in a report we had commissioned, showing that the boost in economic activity if duty were frozen again would leave the wider economy better off, at no cost to the Treasury".
A freeze would certainly help the wider industry at a time when wine sales are in decline - certainly in volume terms - and we are all aware that pubs across Britain are closing down every week. In my view the government also needs to have a re-think on duty in order to show support for UK wine makers as the market for English and Welsh wine grows, helped by vast improvements in recent years in quality. How can it be that a bottle of English wine bought in England incurs £2.77 excise duty but if purchased in Spain would incur no excise duty at all?
Bear in mind if the Chancellor sticks to the plan, increases in alcohol duty tend to be effective immediately. Since the timing of the Budget has changed from Spring to Autumn this is an added burden for consumers at an expensive time of year. And it's an added burden for wine retailers, especially small businesses like mine, because the run up to Christmas accounts for a high percentage of sales and since it is such a busy time it is difficult to implement price increases. It feels like a tax on Christmas for us all. Bah humbug!
Letters have been written to the Chancellor, pleas made via Twitter so all we can do now is keep our fingers crossed for a cut or a freeze; I suspect that a cut is unlikely but a freeze would be nice. And at the very least, if there has to be an increase, please Mr Hammond postpone it till January so we can all enjoy Christmas!
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