Drinks trade warns Chancellor about raising taxes

Drinks and hospitality trade bodies have warned Rachel Reeves, the Chancellor of the Exchequer that it would be disastrous if she were to increase excise duties or business taxes in her first Budget in five weeks’ time.

Despite saying in the run up to the general election that she wanted to “save the British pub because I know what an important institution they are in so many communities”, she is refusing to rule out increasing alcohol duties as part of her package to plug what she says is a £22 billion hole in the public finances.

Having promised not to increase taxation on “working people”, Reeves has little scope when making what she terms “difficult choices” but to increase indirect taxation such as excise duties and imposts on companies such as business rates.

But the drinks industry has warned that to do so would be counter-productive, leading to lower revenues and having a “catastrophic” impact on pubs and brewers who already generate £15 billion a year for the Treasury.

Forecasts

The Telegraph has reported that Reeves has been presented with forecasts from the Office of Budget Responsibility that putting up alcohol duties could raise an extra £800 million next year. To meet that figure, they would need to rise by 6%.

The industry rejects those calculations warning that sales would slump on the back of already low consumer confidence and cost hundreds of millions in lost revenues.

Alcohol duty automatically rises every year in line with the Retail Price Index, which is set to be 2% next year, which would theoretically raise just under an extra £200 million.

By comparison, receipts rose marginally when duties were frozen between 2020 to 2022 despite the Covid lockdowns.

When they were increased in 2023, tax takings plummeted by £1.3 billion as Britons baulked at the higher prices.

The loss in revenue to the government was just £100 million less than Reeves has said will be raised by abolishing the winter fuel allowance for the elderly except those claiming benefits.

Hospitality bosses and alcohol producers have warned that any increase would turn yet more drinkers away from pubs and restaurants.

Damaging

Miles Beale, the chief executive of the Wine and Spirits Trade Association, told the Telegraph: “Last year’s damaging reforms to the alcohol excise duty system, including the largest single duty hike in almost 50 years, have hit businesses, consumers and the Government purse.

“Prices have risen, sales are down and so is duty income by over £1.3 billion.

“Increasing duty – which is the Government’s inherited policy – will serve only to reduce income to the Government further at a time it can least afford it.”

Official figures show that from September 2023 to August 2024 alcohol duty raised £11.8 billion, down from £13.1 billion in the same period the year before.

The biggest drop was for spirits, from which receipts plunged £750 million, followed by a £320 million drop for beer.

Imperative

Emma McClarkin, the chief executive of the British Beer and Pub Association told the Telegraph: “We know from experience that beer duty increases rarely raise expected revenues, especially when many consumers are facing the cost-of-living crisis and are increasingly sensitive to price.

“It’s imperative that the Government realises that any hike in beer duty won’t just turn away customers, it could have a catastrophic knock-on effect.

“Any fall in demand might reduce other taxes and employment opportunities. Only when they reduce the cost of business can pubs continue to be a vital asset to both the economy and communities.”

The BBPA is calling on the Government to cut beer duty this year to help save more pubs. It also warns the chancellor that the scheduled ending next April of the 75% relief for the sector on business rates will force more closures.

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