“Reckless” Darling angers the trade

Alistair Darling used Monday’s Pre-Budget Report to announce a 2.5% cut in VAT for 13 months. However, this was not good news for the drinks industry, as he also revealed there would be an 8% rise in alcohol excise duty.

The changes will take effect from 1 December, with VAT reduction being heralded by the Chancellor as a means of encouraging consumer spending. However, with the increase coming into effect just before Christmas, consumers who are looking to stock up on drink for the festivities will suffer, as buying alcohol will now prove more costly.

The Conservatives have attacked the measures, and branded Darling "reckless".

The addition of a further 8% on the back of the 9% excise rise in March translates into a 17% rise on alcohol this year alone. Also, when the VAT cut is suspended, alcohol taxes will go even higher.

The announcement of yet more increases to alcohol is a massive blow to the industry. In April, Darling said: "Alcohol duties will increase by 2% above the rate of inflation in each of the next four years."

However, no mention of this Duty Escalator was made during Monday’s report. If Monday’s permanent rise in duty is in addition to the Escalator, to be imposed in March, then the duty on alcohol will rise by a further inflation plus 2% in March 2009. Such a move would hit both the on- and the off-trade with considerable force.

The industry has been angered by Darling’s announcements, with a number of commentators aggrieved that alcohol has been targeted yet again.

Chris Carson, chairman of the WSTA, said: "8% is a massive increase for the wine trade on top of the 9% that was already imposed in March, especially given the falling sales for alcohol in the on- and off-trade and the subsequent decline in Treasury revenues.

"I am sure that this increase will only serve to further exacerbate decreasing sales in the mid-term and implies that the government seems to think that ours is the only industry that doesn’t need support in this difficult economic climate. Our industry is made up of many small to medium-sized companies and funding this kind of increase will be a further burden on cash flow when we all know that banks are not free with their cash at the moment.

"It is an outrage to use the alcohol industry as a cash cow and it goes against the government’s own declaration of working together with business. It is deceiving the consumer and the trade. An 8% increase above the £5 mark might work but given that 82% of wine is sold through the off-trade below £5, consumers are once again paying more in taxes."

"There is no logic to any duty increase," said Gavin Hewitt, chief executive of The Scotch Whisky Association. "Alcohol revenues have already fallen by £40m this year. After a 59p a bottle tax rise in March 2008, [Monday’s] tax changes, taking account of the VAT reduction, will add another 29p on to a standard bottle of Scotch Whisky.

Edwin Atkinson, director general of the Gin and Vodka Association, was similarly bemused: “If he wants more revenue, he will not achieve it by increasing taxes. There is seemingly no likelihood of his achieving his projected revenue increase of £600m this year. The average tax on a bottle of spirits sold in the supermarkets was already 68% before the March Budget. This will now be over 75%.

"This unplanned duty change coming at such short notice before Christmas will hit businesses very hard," he continued. "But the smaller traders without credit capacity will find life particularly difficult."

The Association of Licensed Multiple Retailers (ALMR), reacted with "disbelief and dismay" at the news of "yet another" alcohol duty hike. Chief executive Nick Bish said: "The whole of [Monday’s] announcement is one big gamble and yet again the Chancellor is risking the future of Britain’s pub industry.

"[The report] is entirely based on the assumption that the economy will grow again in 2010 which is when the new personal taxation starts to bite. But for pubs the tax grab starts next week, continues in April with the Duty Escalator and strikes again on New Years Day 2010 when the VAT goes back to 17.5%.

"Mr Darling is squeezing pubs and bars for the stake money for this gamble and all based on optimistic Treasury forecasts of economic recovery by 2015; these will inevitably be wrong – how wrong we don’t yet know."

The Chancellor’s plans will see the national debt doubled, and borrowing is set to reach £118bn by the end of 2009.

Alexis Hercules 26/11/08