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Nick Gillett: How the duty rise reveals the lack of duty to business

Published:  08 August, 2023

It doesn’t seem to matter what flavour of government you have at the moment – when it comes to the spirits and hospitality industries, there’s a stench of incompetence. In Scotland we have the incredibly public failure of the DRS scheme, which, as a result, has wasted millions of pounds of taxpayers’ money. But don’t be fooled – it really is no better, south of the border. Westminster will raise you a cock up, in the form of the increased duty rates.

Picture this

Imagine a scenario where you have to find an additional 10% of capital, just to maintain the running of your business as it was. But also imagine that this change happens at a time with soaring energy costs, inflated wage bills, high fuel prices, additional complicated bureaucracy caused by what feels like an abstract referendum and average interest rates of 6% that mean borrowing is frankly too expensive to be an option. Many of you reading won’t have to imagine it – that’s our reality as of 1 August.

From a consumer point of view, the damage really kicks in when you look to purchase something stronger than beer. If, as I’m sure many readers will, you regularly pop a bottle of spirit in your shopping basket, you’re looking at at least a few pounds onto the price you’re used to. A bit contradictory to the government’s ‘big aim’ of slowing the rate of inflation in 2023.

    • Read more: Over the line on duty

The new duty rises are nothing but an attempt to grab money from an already hard-pressed industry. And I don’t reckon we’ll see the benefits of the estimated £13.1 billion (OBR Alcohol Duties Forecast, March 2023) that the duties will raise, in the likes of public services, education or in our NHS. I predict that instead, the funds will disappear into the government’s black hole of inefficiency.

Over in hospitality, the situation is just as challenging. There’s now 20% VAT charged on food and drink – that’s the highest rate in Europe. We’ve got an industry that’s been hammered by Covid, struggling with staff thanks to Brexit, ongoing train strikes damaging footfall, all while more and more people choose to dine at home thanks to overall pressures on cost of living. No wonder one in 18 venues has closed doors in the last 12 months.

An unhealthy environment for business

Conservative governments are, traditionally speaking, meant to be good for business. And looking at our current Prime Minister and chancellor, with their extensive financial backgrounds, it astounds me that I’m having to be so critical of the regime. Don’t get my disdain here mixed up – I believe in capitalism, in that I fully support a pro-business environment. But capitalism only works when you have a free market, and with everything that’s going on and harming the spirits and hospitality industries, it really is starting to feel like that free market is fast disappearing.

But don’t get me wrong – the government is certainly still supporting some businesses. Energy companies are making mammoth profits through the misfortune of others (largely unhindered), whilst banks do the same with soaring interest rates that are adding to the overall cost-of-living crisis. All while we squeeze every last copper out of people’s income and savings.

In utopia

So, what would I replace our new hyper-taxed regime with?

It’s fairly simple. No duty rise for wines and spirits, so sack this new regime that’s supposedly been implemented to ‘simplify’ the job of HMRC. I’d reduce VAT to 5% on food and drink in hospitality, and I’d reduce corporation tax – now I’m really asking for the good stuff. A big ask you say? Well not really. That’s simply what it would take to create an environment that allows our industry to thrive.

And what if it did thrive? In years gone by we’ve been the government’s golden goose; a cash generator and significant employer. We could drive an economic recovery in this country, if we were supported. Instead, they’ve chosen to shoot the golden goose, stuff it, and serve it up on a platter – ripe for the picking.

A massive contradiction

Beyond everything that I’ve touched upon above, is the maddeningly contradictory element to all of this. Our government brandishes warnings to supermarkets and producers about ‘food profiteering’; don’t inflate your prices and harm people’s purses. And what will happen once the inflated bottles hit the shelves of retailers? Eventually, the supermarkets will be chastised by government for inflated grocery prices, and we in turn will be asked to offer better wholesale prices. For the sake of our own margins, the answer then has to be, ‘NO’.

The thing I find it hardest to get my head around, is that there is no empathy, no understanding of the spirits or hospitality industries. The government clearly doesn’t have a grasp of the economies, costs and margins involved – neither do they understand the bureaucratic burden that has been placed on us since Brexit. What businesses are they consulting with to inform all this policy? The big ones? Or is it just an echo chamber of bad ideas.

So what are we left with after all of this? Well, if you’re a consumer, it’s going to be more expensive to drink good spirits or wine. If you’re a business – it’s a fairly scary time. There will be a proportion of businesses that just can’t cope with this final costly nail in the coffin. Quality, small and medium-sized producers will go under, and you’ll be left with the big businesses and conglomerates that have the economies of scale and cash reserves to survive. But the worst part of all that is, the booze shelf of your nearby supermarket or retailer of choice will be a very, very boring place indeed.