Darling confirms VAT return to 17.5%

Chancellor Alistair Darling today confirmed that the rate of VAT in the UK will return to 17.5% on 1 January 2010 but made no further announcements on the taxation of alcohol.

While not coming as much of surprise, the VAT announcement in today’s Pre-Budget Report will come as a blow to alcohol industry insiders already reeling from the Beer Tax increase that cancelled out the benefits of the temporary 2.5% cut introduced last year.

The Chancellor insisted there is growing evidence that confidence is returning to markets around the globe and said the measures taken by the government since the onset of recession has “reduced the impact of the downturn on families and businesses.”

There are many in the alcohol industry who might well disagree with that claim – just ask any of the 3,646 people made redundant following the collapse of off-licence operator First Quench Retail or one of the thousands of licencees who have seen their pubs closed down amid rising taxes and falling trade.

Indeed, the British Beer and Pub Association (BBPA) today claims the government has made over five times more money from the sale of beer in Britain than the country’s brewing and pub sector.

The Oxford Economics study on behalf of the BBPA compares the government’s tax take on beer with the profits made by the brewing and pub sector on the sale of beer.

The numbers show that the total taxes – excise, VAT employment and corporation taxes – raised by government on the sale of beer amount to £7.2 billion. At the same time, the profits of the brewing and pub sector on beer sales amount to £1.4bn.

The total beer market in the UK generates £19bn in revenue. According to the BBPA, when the profit and tax receipt numbers are added together, the UK government takes an 84% share of the £8.6bn total tax and profit generated by beer sales.

There is growing disquiet in Westminster over the taxation of beer in the UK, with 92 MPs, including 47 Labour MPs, having signed an Early Day Motion that opposes government plans for another tax increase in January, when VAT is due to return to the standard rate of 17.5%.

“This analysis highlights a considerable and unsustainable imbalance in who makes what from sales of beer in Britain,” said Brigid Simmonds, chief executive of the BBPA.

“Government is extracting enormous value from the beer sector in tax, while the profit margins of the companies that make and sell beer are being squeezed wafer thin.

“We fully acknowledge that taxes on beer play an important role in the public finances, particularly at this difficult time.

"However, it is important they do not become unsustainable and restrain the ability of the sector to invest and grow. Government is in danger of slowly strangling the goose that lays this golden egg.”

Alan Lodge, 09.12.2009