Wine Industry Fears Tax Hike in UK

On October 30, the UK's Chancellor of the Exchequer, Rachel Reeves, will present her first budget, and the wine industry is concerned about potential changes to alcohol taxes. Currently, the excise duty on all wines with an alcohol content between 11.5% and 14.5% is calculated under a simplified system introduced last year during the Conservative government's term. However, starting February 1, 2025, this measure is scheduled to be eliminated, replacing a single tax rate with a system of up to 30 different rates depending on each wine's alcohol level.

Currently, the tax is £2.67 per bottle for wines within the 11.5% to 14.5% alcohol by volume (ABV) range. With the upcoming change, a wine with 14.5% ABV would pay £3.09 in tax. Miles Beale, chief executive of the UK's Wine and Spirit Trade Association (WSTA), has stated that despite the initial introduction of the simplified measure, the previous government showed little interest in maintaining it permanently. Now, there is hope that the new administration will reconsider, as preserving the current system would help reduce administrative burdens and benefit both British businesses and consumers.

The changes come after the largest increase in alcohol taxes in almost 50 years, which took effect in August 2023. At that time, the tax on a bottle of still wine with an average alcohol content of 12.5% ABV rose by 20%, or £0.44, while the tax on a bottle of sparkling wine at 12% ABV was reduced by £0.19. Recent figures from the UK's HM Revenue and Customs (HMRC) show that alcohol sales have declined since the tax increase, with a £1.3 billion drop (10% less) in revenue for the Treasury between September and August compared to the previous year. This figure is comparable to the savings generated by the winter fuel subsidy.

The new system of alcohol bands would primarily benefit beverages with lower alcohol content, which directly affects the wine industry. Nicola Bates, chief executive of Wine GB, the association representing the wine industry in England and Wales, stated that implementing ABV bands for tax calculation complicates the situation for wine producers. The lowest threshold for a reduced tax rate is 8.5% ABV, a limit that, according to the International Organization of Vine and Wine (OIV), falls below the level at which a product can be called wine. This means that if a producer tries to create a wine below 8.5% ABV, it cannot be marketed as wine either in the UK or internationally.

Some English wine producers believe this could work in their favor. British wines typically have lower alcohol content than imported wines, so if a lower tax is applied, these products could become more competitively priced and appeal to consumers. However, for importers of wines with higher alcohol content, the new regulations would inevitably result in higher prices. Leading wine retailers in the UK, such as Majestic, Laithwaites, The Wine Society, and Cambridge Wine Merchants, have already warned their customers about potential price increases if these changes are implemented. In an email to their customers on October 4, Cambridge Wine Merchants mentioned that the government aimed to create a simpler and fairer tax system but that the reality is the proposed system would be more complex and costly. Businesses estimate they would have to invest six-figure sums to develop the systems needed to manage the new approach, with ongoing administrative costs reaching similar figures annually.

The WSTA has been advocating for the simplification measure to be made permanent, but so far, there has been no indication that the government intends to do so. Beale warned that alcohol producers should be concerned since previous government forecasts did not account for the impact of tax hikes on demand. This year has shown conclusively that consumers are highly sensitive to price increases, and the drop in alcohol sales has reduced tax revenues for the Treasury. If the government is truly committed to protecting public spending, it should reassess its forecasting model and consider freezing the tax rates.

Nicola Bates noted that wine has been treated unequally compared to other alcoholic products. While the UK imposes taxes on both imported and locally produced wines, most wine-producing countries in Europe do not tax wines made within their borders. For instance, 10 European countries do not tax locally produced sparkling wines, and 15 do not tax domestic still wines. Wine GB is asking the government to level the playing field so that English and Welsh wines can compete fairly in the market.

The WSTA has also called for a freeze on current alcohol tax rates for at least two years and the confirmation of the abolition of the duty stamp regime for spirits, a change that the previous government promised to implement in March this year. Although another tax increase has not been ruled out, it will not be known for certain until the budget is announced. Rachel Reeves has been considering possible hikes, and the WSTA advises those affected by these changes to reach out to their local representatives to express their concerns about the impact on their businesses. According to Bates, the previous increases have already backfired, as shown by the £1.3 billion drop in revenue for the Treasury and the £238 million decline specifically in wine tax collections.

The Chancellor will have to take these factors into account when presenting her budget, as a further tax increase could have negative effects not only on the industry but also on the country's finances.