Live: Budget watch

Chancellor George Osborne has delivered an unexpected boost to the UK alcohol industry. Alan Lodge brings you the latest news and views.

12.15pm: We have heard all the usual suspects (BBPA etc) trot out their lines about how the public wants to see beer duty frozen, how we need to protect jobs and keep the cost of alcohol affordable for the responsibe majority, but do we really believe in our heart-of-hearts that this will actually be the case?

12.20pm: A rise in VAT is widely expected in today’s budget as is yet another increase in duty. What will this actually mean? James Bercovici, of Big Red Wine, writes: "Given that VAT is a percentage and duty a flat rate, this is actually quite simple to work out. VAT is expected to rise to 20% so it is only duty that is uncertain at the moment. But it is reasonable to assume that any VAT rise will be a percentage increase on the current £20.25 per dozen (still wines). A 5% increase will mean a 2.593% increase in the price of any bottle; a 7% increase will amount to 2.7792%. In monetary terms, a £10 bottle of wine should increase by around 35 pence."

12.25pm: This is the first time we’ve tried doing this whole ‘live’ thing you know – it’s a bit of an experiment so bear with us! In the meantime, I would love to hear your thoughts on today’s Budget as we go along. Email alan.lodge@thedrinksbusiness.com with your musings and rantings, otherwise I’m on my own with this thing!

12.34pm: We’re about to get underway – brace yourselves!

12.38pm:  Chancellor George Osborne is on his feet, lambasting the previous administration for missing targets and forcing him and the new coalition government to deliver this budget. They can never resist having a dig, can they.

12.40pm: Mr Osborne says everyone will be asked to contribute to reducing the deficit and that everyone will "share in the rewards when we succeed". Does that mean drinks prices will fall in a few years time then? Of course not.

12.44pm: Finally, some measures are set to be announced…

12.46pm: …Maybe not. He’s still whittling on about reducing the deficit and all that.

12.49pm:  An ominous sign – Osborne says he is aiming to balance the books by the end of the parliament, signalling steep cuts and tax rises ahead…

12.50pm: Britain will not be joining the Euro in this parliament and the Treasury’s Euro Preparation Department (or something like that) has been axed. Can’t quite believe there was one in the first place, but there we go.

12.55pm: While we wait for news on duty and VAT, here’s a snippet from last Sunday’s Telegraph: "The Treasury is considering repeating the 5 per cent increase in alcohol duty imposed in the March Budget as part of a tax-raising package to be unveiled by George Osborne, the Chancellor, next week. The emergency budget is also likely to see VAT increased from its current level of 17.5 per cent as ministers battle with Britain’s huge £156 billion deficit. A VAT hike – possibly up to 20 per cent – would also hit drinkers in the pocket". Doesn’t look like we’re going to see an end to this blasted escalator for a long time yet.

1.01pm: Noise levels rising in the Commons as Osborne lets rip on allowances and benefits. Lots of shouting as he says lone parents must find work once their first kid is old enough to go to school, but still no news on booze…

1.07pm: Corporation Tax set to go down to one of the lowest rates in the EU, cut by 1% per year for four years from next year, eventually down to 24%. Small companies’ Corporation Tax rate to be cut to 20%. Great news for db, but is it simply the good news before the bad?

1.16pm  Here we go – From 4th January VAT will rise from 17.5% to 20%. Chaos in the Commons, the speaker tells them all to calm down. "Years of debt and spending made this unavoidable," says Osborne.

1.18pm: No new duties on alcohol!! Those products associated with binge drinking will be examined seperately.

1.18pm: Reversing the 10% above inflation cider duty imposed by the Labour government!!  This is something of a dream budget for the alcohol industry!

1.20pm: Well well well, who saw that coming? There was much disbelieving shrieking at db Towers when those stunning let-offs for the alcohol sector were announced. Come on people – let me hear your reactions! Email alan.lodge@thedrinksbusiness.com

1.23pm: Just to reiterate, Osborne says that he will report back in the autumn on possible health-related measures on alcohol.

1.25pm: It’s not quite party time – we’re still facing a VAT increase – but it’s so refreshing to see alcohol, so often a "soft target" for tax rises, getting let off for a change.

1.30pm: I suppose I shouldn’t be too surprised that responses from the BBPA, WSTA and the like haven’t yet landed in my inbox. They’re probably frantically re-drafting them as I write this. Nobody can honestly say they saw this coming.

1.38pm: Hurrah! the BBPA have got their response to us. Brigid Simmonds, BBPA chief executive says: “We applaud the Government’s decision to freeze beer tax and deliver on its promise made in the coalition agreement to not penalise pubs, responsible drinkers and important local industries.

"This is a welcome relief for struggling pubs during difficult times. A beer tax freeze will also help the beer and pub sector’s ability to play its part in contributing to much needed economic growth and generating valuable private sector jobs. The VAT rise is a price to pay for tackling the deficit and bringing Britain’s balance sheet back in order.

"This tax increase is not welcome, but is understandable and applies to everybody. We hope this will be short-term pain for long-term gain. Once the nation’s finances are back on a more even keel, we look forward to VAT rates returning to more favourable levels. We also look forward to the promised review of our alcohol tax system tax as an opportunity to rebalance our tax system to one that is more fair towards community pubs and our national drink – beer."

1.41pm: Not really sure what’s better – the fact alcohol is off the hook or the outraged reaction from acting Labour leader Harriet Harman. She’s struggling to make herself heard over the chorus of "sit down" from the opposite benches, but she seems really quite upset by all  this and is accusing the Lib Dem’s of acting as patsies to the Tories. Of course, this has nothing to do with alcohol duties whatsoever, but it’s damn entertaining.

1.44pm: "The VAT rise makes this a Budget of broken promises," roars Ms Harman. She reminds Conservative leader David Cameron of pre-election quotes stating he had no plans to increase the tax, and the Lib Dems of their "Tory VAT bombshell" poster.

1.55pm: "Yippee!" writes Katharine O’Callaghan, in the first real email response we’ve had. "Well – as you say, who would have guessed it? Maybe George, Nick & co decided that they’d all be needing lots of stiff drinks after breaking the bad news re all the other cuts or maybe they realised that after announcing all the cuts, it would just be too much for the public to stomach to increase duty on booze – one of the few remaining affordable luxuries for those who can’t afford a proper holiday this year (that includes me, being self-employed)."

1.58pm: WSTA Chief Executive Jeremy Beadles says: "Today’s announcement provides some relief for a sector that has faced substantial tax increases in recent years and I welcome the Chancellor’s decision. Repeated tax hikes have produced less revenue for the Treasury and punished responsible drinkers, while failing to tackle the problem of binge-drinking."

2.00pm: William Kirkness, a senior analyst at Royal Bank of Scotland, says: "I heard people yesterday saying they were going to fill their cars yesterday because they were worried about fuel tax. Have to say I didn’t think fuel or alcohol would receive a bashing given the historical rises and the fact that it hits lower earners proportionately harder…. difficult to say if they won’t be hit next time round though.

"VAT was a shocker, especially after FT peddled this morning that a rise today was unlikely. If growth remains embryonic Jan 2011 could be a dire month for retailers. Glad the cider duty was reversed!"

2.05pm: A word of caution from db‘s Ron Emler: "Be careful with this one. Osborne said there will be no NEW duty increases on alcohol. We do not yet know whether this means the escalator is still in place or not. Will require some clarification."

2.15pm: This just in from the Treasury documents: "1.120 The Government confirms the across the board increase in cider duty rates of 10 per cent above inflation announced in the March Budget will be reversed from 30 June 2010. Secondary legislation will be introduced shortly to increase tax on cheap, strong ciders. The Government will also review alcohol taxation and pricing and will report in the autumn. There will be no increases in the rate of duty on beer, wine or spirits at this Budget but the Government will continue with the plans it inherited to increase the rates by 2 per cent above inflation each year to 2014-15."

2.20pm: So then, looks like the escalator is here to stay for a few years yet. However, maybe the autumn review of taxation and pricing will throw a curve-ball into the mix.

2.25pm: This just in from Jo Wehring, UK market manager at Wines of South Africa: "Wines of South Africa is pleased with the news that there are no further duty increases on wine in the latest budget. The wine industry has been hit hard by the increases in recent years and a further duty hike would have impacted negatively on jobs and businesses, in both the UK drinks trade and abroad.

"The increase in VAT will be felt; wine was penalised by Labour when VAT was reduced to 15 percent and this has not been redressed, but at least our industry has not been hit by a double whammy of VAT and duty."

2.30pm: Just got off the phone to Richard McLelland, sales and marketing manager at Scottish brewers Brewdog, who admits noone in the industry was expecting these Budget surprises. "It’s a bold and very logical move," he said. An increase in VAT puts the whole country on a level playing field.

"In this instance we probably would have understood a duty increase more than in the past, but the decision has been dictated by logic I think. The VAT increase has to come in as it can wipe about £12 billion off the national debt as opposed to £6bn. We have just recently had a mass hike in duty on beer and to revisit that so quickly would not be sensible. Instead of taxng unpopular things, they are looking at what else they can make money from. It seems like a far less aggressive stance towards booze, when we were all prepared for the worst." 

2.38pm: Guess who’s come along to rain on the parade? Step forward Chris Sorek, chief executive of Drinkaware: “Supply and price are not the only factors that influence binge drinking, consumer’s demand for alcohol and our culture’s acceptability of drunkenness are key issues to be dealt with. Alcohol misuse costs the NHS in England £2.7 billion per year and the financial, social, physical and emotional impact of alcohol misuse is felt by everyone in society. We need to tackle the problem head on and through a coordinated effort.

 
“To permanently change people’s relationship with alcohol, prevention and education must play a central role. Consumers need to know the effects of regularly drinking to excess and providing tips and advice on cutting down will go a long way to changing people’s attitudes and, ultimately, behaviour. Regularly exceeding the daily unit guidelines can increase people’s chances of developing liver damage, some cancers and mental health issues – as well as compromise personal safety and leave people vulnerable to crime"

Cheerful stuff as ever from Drinkaware then. Party poopers.

2.41pm: But who’s this stepping up to the plate and getting the good times rolling again? Why, it’s Gavin Hewitt, chief executive of the Scotch Whisky Association: “The Chancellor has made a sensible and welcome decision to freeze excise duty. He is also right to press on with an early review of the current excise duty system. We encourage the Government to look closely at taxing all drinks at the same rate according to alcohol content, coupled with a ban on below tax sales.

"We believe this route would help the Government address its concern over the pricing of alcohol, would secure greater social responsibility and would offer increased revenue. Today’s announcement on corporation tax will also help Scotch Whisky play its part in growing the UK’s manufacturing and export sector."

2.44pm: If anyone should be celebrating today, it’s the cider industry. However, Henry Chevallier, chair of the National Association of Cider Makers, seems oddly downcast in his statement. “We offer a cautious welcome to this Budget if it signals the intention to introduce stability and sanity on duty rates," he says. “After successive increases in duty this news offers some respite, but it only adds to the chaotic approach to duty if next time rates go up again.
 
“The cider industry has a very long investment cycle – perhaps 40 years. It means we need stability in order to plan and manage our businesses. For government, of whatever persuasion, to keep moving duty rates means very considerable disruption and a lack of certainty that undermines everything we do. Yet we have the recent history to show that stability on duty and policy creates a virtuous circle that means everyone wins. In 2002 there was a very modest reduction in cider duty – in recognition of our value to the rural economy – followed by duty being frozen for four years. This supported the innovation and investment already underway in the industry.  The result – between 2004 and 2008 the value of the cider industry was doubled to £2billion a year in sales.
 
“Consumers won because they had a broader range of quality drinks to enjoy. Producers won because they could invest further to plant orchards and innovate further. And government won because the revenues to the Treasury doubled. If this government promises us a sensible and stable duty regime we promise to do everything we can to grow our industry, invest further and make a greater contribution to help close the budget deficit.” 

With regards to the Autumn review of "harmful" drinks, Chevallier adds: “It is vital that the new Government considers health-related measures on alcohol are evidence-based. When they consider the evidence they will understand that there are no problem drinks, rather problem drinkers. We will work with the Government and any other agency to address the issue of alcohol misuse and the misery it creates.

 
“It is essential in doing so that we do not simply displace the problem from one form of alcohol or substance to another. If we target drinks and not people we fail the people who deserve our support and we penalise the majority that drink responsibly and damage responsible producers and retailers in the process. This review creates an opportunity we must seize, but we must put the formulation of sensible policy ahead of a misguided notion that a minority of drinks create problems that affect everyone in our society.”

3.05pm: Right, that’s all folks – I have other stuff to be doing now, mainly writing this whole Budget malarchy up for the July edition of the drinks business magazine. Thanks for your company and comments (even the ones I couldn’t print – you know who you are!) and Budget Watch will be back…errr… next time there’s a Budget.

Alan Lodge, 22.06.2010