Current UK government policy dictates that alcohol duty increases are pegged to inflation which means that if inflation increases by 3%, as many experts have forecast, a bottle of gin along with all other spirits will go up an extra 34p a litre according to the latest figures from the Wine and Spirit Trade Association.
UK consumers already pay £3.3bn in spirits duty and this measure could hit them with a bill for £60m more.
As the “covered forward” foreign currency ‘cushion’ draws to an end the cost of a bottle of wine could go up by 29p on average following Brexit, but the same bottle is in line for a second blow with an extra 6p added were wine duty to go up 3% tracking a 3% inflation rate.
With imported wine accounting for 99% of the 150 million cases of wine drunk in the UK, any added tariffs will have a punishing effect, reveals WSTA figures which indicate that – if passed on – the average bottle of wine coming from outside of the EU would rise by 22 pence.
With 74% of the cost of the average bottle of spirits already taken up in tax the industry has called these planned hikes counterproductive as evidence shows that following the cut in spirits duty in the 2015 budget, spirits duty income increased on the previous year by £125 million (up 4.1%) from April 2015 to March 2016 inclusive.
And following the freeze in wine duty in the 2015 budget there, wine duty income also increased on the previous year by £139m (up 3.6%) from April 2015 – March 2016 inclusive.
Tax accounts for 55% of the cost of the average bottle of wine in shops and supermarkets. A 3% increase in wine duty at the Budget in March would cost the industry and consumers an additional £120m.
“Wine consumers could face a double blow if potential duty rises of £120m are added to the impact of the devaluation of the pound” explained WSTA Chief Executive Miles Beale, “which – together – could cost over £400m this year alone.”
Wine duty in the UK is currently the equivalent to £2.08 on a bottle of still wine, £2.67 on a bottle of sparkling wine, while spirits duty runs at £11.06 for a litre at 40% ABV.
Wine consumers paid nearly £4bn in duty in 2015/16 accounting for 37% of all alcohol duty income. Sales of spirits paid £3.15bn in duty accounting for 29.4% of all alcohol duty income.
The UK considers itself the global hub of the international wine trade being the second-largest wine trader by volume (behind Germany) and value (behind the US), cementing its role as a key international player. The industry believes that the present threat risks losing their status as a world wine trading country and directly damaging the UK economy.
“While currency fluctuations are an accepted risk for importers, three months on there appears to be little prospect of a return to pre-Referendum values,” explained one importer.
As a result of the 15% drop in sterling’s value since 23rd June, the cost of importing EU wine could go up £225m per annum, a WSTA analysis indicates.
The cost of importing wine from outside the EU could up by £188m per annum.
A year like this would cost the industry £413m in total – the equivalent to a 10% hike in total alcohol duty – some of this may get passed on to the consumer, but some will probably need to be absorbed by wine businesses.
Nick Clegg, the Lib Dem EU spokesman, has published a food and drink Brexit impact report warning that a hard Brexit will put imported beef, cheese and wine prices on a “cliff edge”.
The wine and spirits industry there is therefore bracing itself for a tough time ahead and asks for government support by way of not raising duty and inflicting more damage at the next budget.
“We are just weeks away from the Autumn statement,” Miles Beale explained, “Any increase in duty on top of the post-Brexit sterling devaluation would have dire consequences on Britain’s wine trade.”