Budget blues as UK moves further adrift

The drinks industry suffers again at the hands of the man with the red briefcase, says Chris Losh

DEPRESSION, weariness and resignation were the overriding reactions of the drinks industry to Gordon Brown’s latest budget. While spirits saw an easing of the potential pain of duty stamps, for wines and beer, it was a case of more of the same unpleasant medicine.

It could, as all were grudgingly prepared to admit, have been worse.  The rises of 4p a bottle on wine and 1p on a pint of beer were in line with inflation and, therefore, the Treasury would contend, not really rises at all.

Plus, the duties on spirits and sparkling wine were frozen, there were none of the radical rises suffered by FABs last year, and no legislative nasties such as strip stamps lurking in the wings.

All in all, it was certainly better news than Mr Brown’s 2004 offering, so why such disillusion within the drinks trade? The answer, it seems, lies not so much in the size of the increases but in the fact that there are any at all.

With Britain’s duties among the highest in Europe, by any logical measure the rate should be coming down in the interests of harmonisation.  That it is going the other way, even by a small amount, suggests a Treasury that simply isn’t listening to the industry.

"We have the second highest wine duty in Europe, behind Ireland," says Quentin Rappoport of the Wine & Spirit Association.  "The difference is that everyone else is cutting theirs."

Not only that, but as Mike Paul of Western Wines and driving light behind the Wine Industry Trade Action Group points out, the rises in themselves, however small, are incredibly disruptive.

"The Treasury doesn’t understand the administrative pain across the whole trade of these annual rises," he sighs.  The third consecutive rise in wine duty, of 4p a bottle, takes duty to £1.26 – 10p higher than it was three years ago.

The rise is sure to heap further pressure on suppliers who are already struggling with voracious retailers, tight margins and promo-addicted consumers.  The only chink of light for the wine world was the freezing of duty on sparklers, which remains at £1.65.

But the idea that still wine’s continued duty rises now mean that fizz is less discriminated against and that this is to be welcomed, as some have claimed, is either an exercise in straw  clutching or an embracement of Orwellian logic.

For beer, it was a similar story to wine.  A small rise that in itself is hardly punitive, but simply exacerbates problems that are already there, rather than addressing them.

For beer, this means cross-border shopping, and Mike Benner of the Campaign for Real Ale is not alone in his depression. 

"No-one would expect the chancellor to knock 10 pence off a pint, but we live in a single market, and it’s because of these tax distortions that people go to Calais and fill the boot of the car up with beer," he says. Currently, as with wine, Britain’s beer duty is among the highest in Europe.

At 35.8p a pint, only Finland and Ireland’s are higher.  Only the spirits industry can take any joy from Gordon Brown’s announcement, gaining, if not a victory, at least a scoredraw.

On the issue of duty stamps, the industry seems to have achieved all the concessions it was looking for. 

The duty stamp can be included as part of the label, producers will not be held liable should the bottles be mis-sold once they leave their warehouses, and nor will duty be payable until the bottle is released for consumption.

All big issues for an industry that was worried a year ago that the measures as they stood could cripple smaller operators and that has lobbied hard for a half-way solution ever since. Yet still duty rates remain high and, as with wines and beers, there is absolutely no sign of them coming into line with the majority of other European countries.

The industry continues to lobby more in hope than in expectation.  For Mike Paul, there is only one solution; to accept that rises are inevitable and work with the government to manage them better, perhaps by negotiating three years’ rises all at once, then nothing for several years.

"We’ve got to face reality," he says. "Whatever people have been saying to the chancellor about bringing our duty in line with the EU, it’s not working.  Anything is better than death by a thousand cuts."  

Insider opinion

Mike Benner, CAMRA

"It’s an inflation-related increase so no one should moan too much about it, but we need to see the government moving towards a strategy to deal with the problem of cross-border shopping.  The beer industry supports 1m jobs in Britain, and the smuggling industry is increasingly professionalised. Something like one pint in 20 in the UK is either smuggled or cross-border shopped in."

James Samson, Pol Roger UK

"We’re not delighted by this year’s budget but we’re not surprised either. Lukewarm, really. The freeze on sparkling wine is good, but then it’s obscenely high anyway. Why should there be an additional tax on fizz? I think most people will pass the rise on wine duty on to the consumers, so anyone who was struggling to hit a price point will probably allow it to nudge over."

Quentin Rappoport, Wine & Spirit Association

"It could definitely be worse.  The duty rise on wine is only the same as inflation, so from the chancellor’s point of view, he’s been neutral.  The difference is that everyone else in the EU, bar Ireland, is cutting their duty."

David Williamson, Scotch Whisky Association

"There have been big steps forward on the issue of duty stamps, and we welcomed the announcements on this issue in the budget. Ideally, we would like to see tax fairness through a gradual reduction in spirits duty, but the eight freezes have been very welcome."

Mike Paul, Western Wines

"The view of a lot of people now is that we’re going to get increases of this nature – cost of living increases – ad infinitum unless we go along to the treasury with a radical proposal other than to say ‘please don’t put duty up’."