Implementing duty escalator will cost trade and Darling dearly

The numbers are staggering. Britain’s national debt is now about £1,300,000,000,000, which is more than £200,000 for every inhabitant – man, woman or child. With myriad pressure groups demanding Government help, there is every chance that it will increase. After all, the argument goes, what difference will a few million here or there make? In the overall context it is small beer.

But as the Government is only too eager to stress, one too many small beers is bad for you. And so it is with the national finances. The Chancellor, Alistair Darling, has to draw a line and start a process of repayment that is likely to take a generation. The picture is far from encouraging; unemployment is heading rapidly towards three million, company profits are collapsing, and even the revenue from stamp duty is shrivelling as the housing market shrinks. His tax take is disappearing almost as rapidly as the national debt is soaring.

Little wonder, then, that the drinks industry has united for the first time to issue a joint warning that its members will be further penalised by Darling implementing the already announced excise duty escalator in his budget on April 22. If he ploughs ahead, duties will rise by 2% more than inflation, or about 5%, a pattern that will continue until 2012.

The industry has warned that over the next four years, it could lose about 75,000 jobs as a result. It has based its submission to the Chancellor on a study by Oxford Economics that predicts that his plans would produce an 11% fall in total alcohol sales as the retail price rises by 17%. Crucially, the Exchequer would reap £1.6 billion less from tax revenues on alcohol over the four years than if it left them alone.

The five trade bodies backing the joint submission – the British Beer & Pub Association, the Gin & Vodka Association, the National Association of Cider Makers, the Scotch Whisky Association and the Wine & Spirit Trade Association – are meeting the Chancellor on March 16 to press their case. But the precedents do not augur well.

Over the years, industry representatives have stressed the Law of Diminishing Returns but it is not one recognised by the Treasury – at least for the drinks sector. The SWA had more effect (at least when Gordon Brown was at No 11) with the argument that exports were hit when countries followed Britain’s example and imposed penal tariffs on Scotch. But even when he sought to boost the economy by lowering VAT to 15% in the run up to Christmas, Darling raised excise duties on drink as a counterbalance.

On Wednesday Jonathan Neame, the chief executive of brewer Shepherd Neame, asked: “Why is it that with other industries the Government reaches for its chequebook, but for pubs it reaches for the revolver?” The answer will apply not just to pubs, but the whole drinks sector.

Finance on Friday, 27.02.09