Our response to the government’s alcohol duty review


We would like to share our views and concerns around the government’s upcoming alcohol duty review, the consultation for which ends on the 30 January 2022. We have communicated these to our local MP and will also be submitting them via the official consultation response form.

We welcome some of the government’s proposals, particularly the decision to freeze duty until February 2023 and the proposal to end the duty premium paid by sparkling wine. 

However, we are concerned by the government’s proposal to directly link wine duty to ABV. The ABV of a wine is just one way in which the origin and grape variety are expressed. It is not, and should not be, a commercial decision. We believe that this duty proposal, in providing a commercial advantage to certain styles of wine, will make it harder for our customers to sell particular wines and restrict the diversity of wines that underpins the success of the UK trade. 

We also believe that the government should not use these changes to increase duty. They have stated that this is not their intention; however, their proposals represent an overall rise in wine duty of 5%. This increase creates an unnecessary burden for business already fighting the effects of Covid-19, staff shortages and supply chain challenges. Our full position is outlined clearly below.

We welcome several of the government’s proposed changes to duty:


1. We welcome the decision to freeze duty until February 2023, given the damage that increased duty would cause to businesses still recovering from the effects of Covid-19 while navigating supply chain issues, staff shortages, and rising costs.

2. We welcome the principles of a simple, fair and consistent duty regime that reflects the changing nature of alcohol sales.

3. Accordingly, we welcome the decision to end the duty premium on sparkling wine. There was, and is, no good reason for this to exist.

4.
We welcome the government’s assurance that ‘[these] reforms are not intended to significantly adjust the amount of revenue raised from alcohol duty’ A, for the reasons stated in point 1.

However, we note:

5. These reforms propose directly linking duty to ABV. While this may appeal in theory it is a poor idea in practice. These reforms have the potential to undermine the success of the UK’s quality-led wine industry, its leading role in the global wine trade and, ultimately, the duty receipts it generates. Our definition of high-quality wine is wine made with care, that expresses its origin and the characteristics of its grapes, that delivers great value regardless of price point, and is fault free. High quality does not necessarily mean higher in price.

Quality-focused winemakers do not aim to achieve a specific ABV: some wines best express their origin and style at a lower ABV (e.g., 9.0% Mosel Riesling), others at a higher ABV (e.g., 14.5% Barolo). A 14.5% ABV Barolo does not result from a decision to produce a higher-alcohol wine but instead reflects the grapes the wine is made from, the climate those grapes were grown in, and the winemaker’s efforts to create the best possible wine. Similarly, a 9.0% ABV Mosel Riesling does not result from a decision to reduce alcohol, but from a winemaker best expressing a different grape and climate. In short, quality wine cannot be ‘reformulated’ to a lower ABV, as other alcoholic drinks (including commodity wines) can, without smothering regional identity and thus compromising quality. Just as quality-led winemakers do not set out to produce wine of a specific ABV, nor do consumers search them out. They seek out wines with distinct qualities, some of which relate to ABV, many of which do not. Consequently, the success of the UK’s quality-led wine sector is dependent upon a market and a duty regime that supports sales of a diverse range of wines that reflect their place of origin. 

If wine duty is linked to ABV it will distort this quality-led wine market, limit the diversity of wine sold in the UK, and inevitably undermine the success of the UK quality-led wine industry. The resilience of the UK’s wine industry overall, and the duty receipts it generates, is dependent upon the performance of premium wine. UK wine drinkers are choosing to consume less but better wine, meaning premium wine accounts for an increasingly high share of the total market (a long-term trend accelerated by Covid-19) B. Furthermore, the diversity of high-quality wines sold gradually transfers to the commodity wine market, enabling the industry to remain relevant and resilient as consumer preferences change B. This dynamism and diversity has made the UK’s quality-led wine industry a global hub. Linking wine duty to ABV will restrict this diversity and thus undermine the resilience of the UK wine market, its leading global position, and the duty it generates.


6. These reforms effectively represent a duty increase for wine while little changes for beer and spirits. Current and proposed duty rates are the same for wine at an ABV of 11.5% – but the average ABV of still wine in UK supermarkets is 13% C. We expect still wine duty to rise across our business by an average of 18p a bottle (+8%) and wine duty overall to rise 5% (accounting for the removal of the sparkling wine duty premium) D. This contradicts the government’s pledge not to significantly adjust the amount of revenue raised (see point 4) and their stated intention of implementing a fair system across all alcoholic drinks (see point 2).

7.
Reducing the diversity of wines available, by linking duty to ABV, and making wine more expensive, by increasing duty, creates unnecessary additional challenges for the hospitality industry and the 2.4 million people it employs E, a sector amongst the hardest hit by Covid-19, supply chain issues, staff shortages, and rising costs. The government correctly highlight the declining number of pubs but fails to recognise the increase in licensed restaurants from 23,000 in 2001 to 35,000 in 2019 (creating 238,000 extra jobs) F. These restaurants depend upon wine for half of their total beverage sales G. Their success has created a vast number of jobs, encouraged large numbers of people to visit the UK, and contributed enormously to the Exchequer through duty, rates and other taxation, all of which would be undermined by these proposals.

8. Any duty reforms will create an administrative burden for the industry at the point they are implemented.

Therefore, we call upon the government to:

9. Levy duty at a single rate for a given volume of still or sparkling wine, regardless of ABV, and a separate single rate for a given volume of fortified wine, regardless of ABV. The definitions of wine and fortified wine should continue to correspond with international standards (8.5%-15% ABV and 15%-22% ABV respectively) H. In charging a fixed level of duty for all still/sparkling wine and a separate fixed level for all fortified wines, sales of wines of diverse origins and styles can continue to thrive in the UK. This will protect the dynamism, economic contribution and global reach of the UK wine market while giving government a simple and robust means to continue to levy duty on these wine sales (see point 5).

10. Honour their stated intention not to increase the revenue raised from wine duty (see point 4). If the government will not meet this commitment, they should communicate honestly with the electorate that these proposals entail an increase in wine duty. This increase should not be made by stealth (see point 6).

11. Communicate any changes in a timely manner to give the industry opportunity to adapt (see point 8).

References


Government’s proposed changes to duty taken from HM Treasury/HMRC, ‘The new alcohol duty system: Consultation’ (Oct 2021)

(A) Point 1.8, HM Treasury/HMRC, ‘The new alcohol duty system: Consultation’ (Oct 2021)
(B) Liberty Wines premium on-trade wine report 2021 (available to view here)
(C) Knowledge Gaps, week commencing 8th November
(D) Liberty Wines calculation of increased duty payable under new proposals for sales made between November 2020 and October 2021. 
(E) ONS, Vacancies and jobs in the UK: September 2021, JOBS02: Workforce jobs by industry
(F) ONS, Data on public houses and bars, licensed clubs, licensed and unlicensed restaurants, takeaways and mobile food stands, 2001 to 2019
(G) Liberty Wines premium on-trade wine report 2019

(H) The International Organisation of Vine and Wine, Definition of vitivinicultural products by code sheet (available at: https://www.oiv.int/en/technical-standards-and-documents/products-definition-and-labelling/definition-of-the-vitivinicultural-products-by-code-sheet)