What can the drinks trade expect from the Budget?

With Chanceller Rachel Reeves due to make her Budget announcement on Wednesday, Ron Emler dissects the key issues at stake for the drinks industry.

Last year the UK Treasury forfeited an estimated £1.3 billion in alcohol duty because of the effective increases generated by the adjustment to the band levels.

If they had been left alone, the famous £22 billion  “black hole” which new Chancellor Rachel Reeves plans to plug in her budget on Wednesday would be £1.3 billion smaller

The changes effectively put more than an extra 10% duty on spirits and beer and at least a 20% increase in duty for most wines, the largest single tax rise in a year for more than half a century.

As a result, sales declined accordingly as consumers tightened their belts in the face of inflation.

Receipts from spirits fell by £757 million, from wine by £238 million and beer and cider by £320 million and £24 million respectively.

Lesson learned?

The industry is hoping that Reeves, herself a former Treasury official, will learn the lesson of diminishing returns from higher duty rates.

The Wine and Spirit Trade Association has asked the new Labour Government to freeze duty for at least two years to allow sales to recover and in turn boost Treasury coffers.

Meanwhile the Scotch Whisky Association says spirits sold in the UK are subject to the highest rate of taxation in the G7, and double the average across Europe. It says that reducing the tax burden on Scotch in next week’s next Budget will “boost business and back a home-grown success story.”

Reeves could look for an example to Hong Kong.

Until earlier this month Kong Kong had one of the highest spirits duties in the world, with drinks with 30% ABV or higher taxed at 100%.

That has been slashed to 10% for alcohol with an import price of HK$200 and above, but only on the proportion of the price above that level.

The betting is that Reeves is unlikely to cut alcohol duties, however. And there is a widespread anxiety that she may be tempted to introduce to England a minimum pricing regime that has already been brought in in both Scotland and Wales.

While that would force up prices to consumers it is not only the threat of potential duty rises that worries the industry.

Overhaul of the system

During and since Covid, hospitality business have been helped by a substantial discount to business rates. Hospitality UK  wants a thorough overhaul of the system but in the short term says that unless Reeves extends the present discount beyond next April they will face paying the full rate.

The trade body reckons that a business with a rateable value of £80,000 would see their annual business rates bill quadruple, rising from £11,000 to £44,000 per year.

To that add the almost certain increase in employers’ national insurance contributions, possibly by a further 2 percentage points of the wage bill.

Combined they would push many pubs and small restaurants over the brink of bankruptcy.

For its part the British Beer and Pub Association has called on Reeves to cut beer duty and to introduce a new VAT rate of 12.5% on hospitality as part of a plan to slow the closure rate of 50 pubs a month.

In a letter signed by industry heads it told her: “Our industry faces a ‘cost of doing business’ crisis. We know ministers are aware of our challenges; we have highlighted them clearly in our representations to Government and it is why the five-point plan for pubs was devised on the campaign trail. If that plan is not delivered, we will see pubs close and the end of the affordable pint. 

“When a pub struggles to survive, it cannot continue to be the beating heart of a community, keep employing staff, or contribute to economic growth.” 

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50 pubs closed each month in the first half of year