Government U-turns on duty hike for spirits

Published: 26 November, 2008

The government has made a u-turn on planned tax changes for spirits, by reducing the duty charges from 8% to 4%.

The government has made a u-turn on planned tax changes for spirits, by reducing the duty charges from 8% to 4%.

The Treasury today announced that it would be cutting the duty rate, first announced on Monday, after recognising that an 8% duty rise would have resulted unintentionally in a price increase.

According to figures calculated yesterday by the Wine and Spirit Trade Association (WSTA), an 8% rise in duty, coupled with the still-planned 2.5% reduction in VAT, would have made a £9 bottle of spirits 34 pence more expensive for the consumer.

The WSTA is now urging the government to apply the same rate reduction to wines, saying that it "inexplicably leaves the wine sector shouldering the burden of higher prices".

WSTA figures show that the vast majority of wine buyers face paying more, with prices for the 92% of wines sold under £6 in the off-trade set to increase. Figures calculated by the WSTA yesterday showed that despite the lower VAT rate, the 8% duty rise will increase a £4 bottle of wine by five pence, a £5 bottle by 3 pence and a £6 bottle by one pence.

Jeremy Beadles, chief executive of the WSTA, said: "We welcome the admission that the tax change was wrong because it meant consumers paying more, but if that's true for spirits it's also true for wine.

"It is baffling that the government should think that what's right for spirits is wrong for wine. The Chancellor must remove this anomaly as a matter of urgency."

Chancellor Alistar Darling confirmed on Monday, in his pre-Budget speech, that he will cut VAT from 17.5% to 15% but will increase duties on alcohol as part of a £20 billion package of tax cuts designed to revive the ailing economy. Many drinks industry leaders have reacted with fury at news.