Darling stings but Tories offer no remedy

Having already promised to increase alcohol duties by two percentage points above the rate of inflation (ie by 5.1%), UK chancellor Alistair Darling would have been brave indeed to have abandoned his escalator. It would have sent out the wrong signals about the need for frugality.

Yet despite the Treasury’s own figures showing that extra duty does not raise extra revenue, it retains the conviction that alcohol is a “soft touch” and Darling chose drink as the only significant single sector on which to impose immediate extra burdens.

While even the increases in fuel duty are now to be introduced in stages, the full rises on alcohol go ahead in one fell swoop, adding what the British Beer & Pub Association (BBPA) calculates will be a £161 million hit to drinkers this year.

Worse, there was a sting in the tail. Labour plans to extend the life of the duty increase “escalator” by a further two years – to the end of 2015.

While unwelcome, the extra 10% increase in cider duties was widely forecast (It will raise the equivalent of just 25p a year from every adult in the country, so the deterrent effect on binge drinkers is unlikely to be significant). But at least Darling did not opt for some of the more widely feared measures such as VAT going up to 20% or a “luxury” tax on items such as champagne. They are left in the armoury for whoever becomes chancellor after the May general election.

Even so, the WSTA calculates that still wine goes up by an average 10p a bottle, spirits by 36p for 70cl and beer by 2p a pint. Yet the BBPA reckons this will be 8p a pint once all the other budget costs such as higher National Insurance are taken into account.

What this Budget may be remembered for, however, is what was not said. Not by Darling, but by the opposition party.

While Conservative leader David Cameron immediately promised to reverse the stamp duty rise on homes above £1m if elected, the party has been silent on alcohol duties. They are the dogs who have not barked – but nobody is betting on a less punitive duty regime under Cameron.    

The Liberal Democrats were more open. Treasury spokesman Vince Cable says the extra cider duty (which affects the Lib Dem West Country heartland where costly apple orchard development has been extensive) will do nothing to curb the alleged target – binge drinking.

The Lib Dems therefore favour minimum pricing for alcohol to reduce the disparity between supermarket and pub prices. And to be fair, the latest increases can only widen the price gaps between pubs and supermarkets.

What did the market make of it? Not a lot. The “escalator” duty rises had been well trailed and were no surprise. Diageo went up by a couple of pence and most brewers were unaffected. Even C&C Group, the biggest cider producer (whose shares have doubled this year) rose modestly.

The industry knows where it is with Labour. It is not a happy relationship. Would a change in Downing Street make life less difficult for drinks producers and retailers? Nobody knows until Cameron makes his views known and the voters have their say.

Finance on Friday, 26.03.2010