Master of Malt hits back against ‘incredibly damaging’ alcohol duty system

Master of Malt has rolled back all alcohol duty increases on pricing across its trade business in August, hoping to do the same for consumers in the future, to combat the duty reforms implemented by the Government at the start of this month which threaten to “destroy a massive industry in the UK”, CEO Justin Petszaft told db.

Online retailer Master of Malt has taken the decision to absorb all duty increases on the pricing across its trade platform during August.

Learn more about the new duty reforms here.

Justin Petszaft, company CEO, told the drinks business that the idea came about late last week, when the team were considering how to assist the struggling industry.

“During the pandemic we raised hundreds of thousands of pounds for hospitality action UK, to help out struggling bars and people who had lost their jobs because of the pandemic,” he said.

“It’s been one thing after another since then. Covid has decimated the industry, Brexit has made so many of the people who were working in it go back home. We’ve got inflation out of control and we haven’t got enough people to do the jobs, so it’s been one blow after another and we’ve been thinking about what we can do to help.”

Master of Malt rolled out the first part of its discount on duty on Monday 7 August, focusing on its trade business to begin with.

“We wanted to focus on trade because I think trade is where it’s going to have the most impact and where they’re going to be the most aware of it,” Petszaft explained.

The idea was conceived on Thursday last week and functionality was created on the site within 24 hours to calculate the “duty roll-back” refund at checkout. “It gives you a feel of how quickly things move at Master of Malt. We had the idea, worked out the impact and got our software development team working on it. It was done basically the next day,” Petszaft said.

Trade customers will be able to see the amount of money taken off at checkout, an important part of communicating just how much duty has increased for most alcoholic products. “If we just reduced prices, the message would get lost,” the company CEO said, explaining that the new code allows customers to “see visually what the impact is and how much has changed”.

Master of Malt hopes to roll the same refund scheme out to the public in the future, but Petszaft foresees challenges with how to clearly communicate the duty change to consumers, “because they’re much less aware of it”.

“It’s like talking to people about death. People just do not like talking about duty and tax. It’s something they want to push away and not have to think about.”

The roll-back for customers will come out of the online retailer’s own margin, as Master of Malt will still have to pay the full duty. “The hope is that we’ll be able to do enough business to offset that,” Petszaft says. “With consumers that’s probably going to be a bit more of a challenge, but it’s something we’re actively working on.”

The CEO, who trained as a theoretical physicist, chastised the Government’s “missed opportunity” to simplify the alcohol duty system, calling it a “halfway house”.

“I’m a huge fan of simplifying duty, but they haven’t gone all the way,” he said. “It’s not simplifying it if you change all the rules. If you had 10 rules and you’ve simplified it to five but those five are all new, arguably you’ve just made everyone learn five new things.”

He urged the Government: “If you’re going to have a sin tax, then tax the sin,” criticising the decision to introduce different duty rates depending on ABV.

Petszaft challenged the basis of the tax, arguing that it disproportionately impacts those on lower incomes.

“Taxing what people buy, not what people make, that’s just something that targets the poor,” he argued. “This isn’t a tax that’s payed more by rich people. It’s not linked to income, it’s not linked to land. It’s linked to people trying to have a drink at the end of the day and relax and that disproportionately hits lower income people.”

He warned: “The government is raising taxes wherever it can, and the more the government wants to spend the more we’re going to have to pay for it.”

Duty reforms, which were first announced by Rishi Sunak when he was Chancellor in 2021, came into effect on 1 August. Petszaft said it is currently “too early to tell” what the major impact will be.

“What we saw, understandably, were loads of bars stocking up beforehand. Any bar with any spare money was putting that into stock and trying to buy one or two months ahead.” But, he argued, this again disproportionately benefits those with higher cash flow. “People with additional resources are paying a lower effective tax rate. If you’ve got the money to buy six months’ worth of stock upfront, then you’re paying yesterday’s duty price. If you haven’t and you’re close to the wire and are struggling more, you can’t. Just like with everything else, those with the fewest resources are hit the hardest.”

As such, Master of Malt’s duty roll-back is designed to assist all of the retailers customers equally. “If you squeeze people enough then someone is going to come in and try to help them out,” he said of the Government, warning that “it’s going to carry on like this unless we as an industry unite and speak together with one voice to really clearly articulate why this is so incredibly damaging”.

However, the sheer level of uncertainty thrown up by the duty changes meant he had no advice for retailers on how to future proof.

“Future proofing only works when you’re fighting a non-complex system. If I’m fighting the weather or some rocks falling on me I can future proof against that because it’s not going to respond. But you can’t future proof yourself against something made by humans, because humans will adapt. The idea of trying to future proof ourselves against the Government when the Government holds all the cards is pretty futile.”

Public support is therefore the only way forward, Petszaft said. “They’re not going to tax things people really care about and are going to rebel over, so I think that’s the only way to do it. We need to get people on side to see how extreme the tax on alcohol has already become.”

He admitted: “I think we all know that alcohol is terrible for you, like hamburgers and extreme sports, but we’re also grown ups, so we’re allowed to do stuff that’s bad for us. To a large degree it’s about behaviour manipulation.”

The Government has taken a “security through obscurity” approach to the new duty system, Petszaft argued, making a system so complex that people don’t understand how high the tax really is.

“The government has a great business selling alcohol to people. It’s the government’s business, we’re just the facilitators. We’re taking just enough off the top to cover our costs, and the government is doing very well out of it.”

But he argued that in light of this, “I feel like they should be supporting the industry because it’s their industry, so support them a bit more when times are hard, and times are definitely very hard right now”.

“Nothing which is controlled by human decisions is too late,” the Master of Malt CEO said, suggesting that if enough public support can be mustered then the duty reforms could be overturned.

However, a much darker future potentially lies ahead. “We’re also on an escalator. This isn’t going to be the last duty increase we’re going to see. When was the last time we saw a reduction in duty? We can’t continue like this unless we want to destroy a massive industry in the UK, and a really valuable part of our cultural heritage.”