WSA outraged by smugglers’ budget

Duty rise on wine widens tax gulf between UK and France

THE UK 2003 budget was a muted affair, with the Iraq conflict taking the limelight.  The main issue for most of Britain was the increase in borrowing to £27bn and the new baby-bond scheme. For the drinks industry, however, it was the news of a hefty 4p on a bottle of wine and 1p on a pint of beer; and that is headline news.

The explanation from the Treasury is that the rise is in line with inflation, but the industry’s Wine & Spirit Association (WSA) points out that the increase results in a rise that is actually above the current inflation rate of 2.2%.

Quentin Rappoport, Director of the WSA, said he thought it was “outrageous to increase the duty on a bottle of wine in such a way that the gap in tax between here, where we now pay £1.16 on a bottle, and France, where they pay just 2p, becomes so vast that it can only serve to promote cross-border purchasing and smuggling.” According to the WSA, one in seven bottles of wine drunk in the UK is bought in France and that figure does not take into account those bottles that have been smuggled in. Naturally, the WSA believe that something has to be done.

Mr Rappoport is also concerned about the effect of the rise on the off-trade. “This is meant to be a consumer tax after all,” he said, “but when you look at supermarkets, the cost is going to be squeezed from other sources. Shippers, in particular, will lose out but off-trade margins in general are going to be squeezed to compensate.”

There was some good news, however, with duty on spirits frozen for the sixth consecutive year. This was welcomed by the industry, though many would like to have seen a tax reduction.

The RTD market did not receive the news it had been hoping for, however, with last year’s confusing duty rules receiving no further clarification. “We were hoping that this year’s budget would clarify the difference between spirit- and wine-based RTDs and those that are made with both,” commented Mr Rappoport. “At the moment we are in a situation where similar products might well be taxed totally differently. The situation is a mess.”

Sparkling wine, too, was the recipient of good news, with duty frozen; a move that was welcomed by those, such as the WSA, who have been urging the Chancellor to bring the duty rate for sparkling wine down to the same level as that of still wine.

All in all the Chancellor was not as kind to the industry as he was last year – when he froze duty on beer, spirits and wine and cut cider duty by 2%. Many of us will be waiting to see who bears the burden of that extra 4p on each bottle of wine.

Who will absorb extra 4p duty on bottles of wine?

“WE’VE had to increase the price by 4p on about a third of our range and customers will be seeing that on the shelves already.  That rise is on a range of wines across the price brackets and we are in discussions with suppliers now to try and do what we can to keep other product prices low. It’s early days to know if the 4p will affect consumer buying. We’ll just have to wait and see.”  Helen McGinn, Wine buyer Tesco

“WE ARE in the middle of reviewing prices anyway and in light of this there will be some price increases on the shelves. Obviously, we are hoping to make as few changes as possible and since we already have a lot of stock already in the system, that isn’t affected by the increase. It’ll be a few weeks before we know who the change will affect the most.”  Corrina Thompson, Public relations, Oddbins

“WE’RE obviously looking closely at our pricing policy in light of the new duty rate. But it’s something that needs to be handled very carefully. It’s not such a problem with a price point of, say, £3.79 – a rise to £3.83 isn’t necessarily a problem for the consumer. But at, say, £4.99 moving to £5.03 there is more of a psychological challenge.”  Angela Mount, wine buyer, Somerfield

“WE PROBABLY have little choice but to swallow some of it ourselves as a retailer, although obviously there will be negotiations with suppliers. However, there’s a limit to how much can be passed down the chain and at sensitive price points it will be interesting to see what happens.”  Rowan Gormley, CEO, Virgin wines