The new alcohol duty system

The Finance (No. 2) Act 2023 implemented a major restructure of the taxation of alcohol. It took effect on 1 August 2023.

Broadly speaking, the change created a system of taxation of alcohol where drinks are taxed more the stronger they get.

Alongside changes to the structure of alcohol taxation, the government also increased the rates of duty in line with inflation. Although this is supposed to happen for all types of alcoholic drink each year, it was the first time it occurred since 2020. Certain drinks, such as beer, had not had a duty increase since 2017. This caused concern among sections of the industry, as expressed by the chief executive of the Wine and Spirit Trade Association (WSTA), Miles Beale, who said the increase in tax would cause “an extremely tough period for wine and spirt businesses”.

What is alcohol duty, and what does the new system look like?

Alcohol duty is a tax charged at the point of production or importation of drinks of alcoholic strength exceeding 1.2% alcohol by volume (abv – the percentage of pure alcohol per litre of product). Duty rates differ for beers, ciders and perries, and wines, spirits, and other fermented products. Value Added Tax (VAT) is also charged on the duty-inclusive price.

There are exceptions to the principle that stronger products will pay a higher rate of duty. In particular, wines of strength between 11.5% and 14.5% abv are currently classed as if their strength was 12.5% for duty purposes. This ‘temporary easement’ was introduced to help the industry adapt to the new system and is due to end on 1 February 2025.

How much does alcohol duty raise?

The Office for Budget Responsibility (OBR) estimates that alcohol duty revenue was £12.6 billion in 2023/24, rising to £16.1 billion in 2028/29.

What alcohol duty reliefs are available?

Small Producer Relief

Small producers of alcoholic products below 8.5% abv may be entitled to a lower rate of duty. To be eligible, the total product made in the previous production year has to contain less than 450,000 litres of pure alcohol. Producers also have to reasonably expect that the production in the current production year will not exceed the 450,000 litre limit.

Some small producers may also be entitled to a full duty exemption for the first 5,000 litres of pure alcohol produced (PDF).

Draught relief

Alcoholic products below 8.5% abv sold in venues such as pubs may be entitled to a lower rate of duty. To qualify, products must also be able to be connected to a pump system or a drinks tap and be contained in a container of capacity of 20 litres or higher.

Alcohol duty and Northern Ireland

The new alcohol duty system applies in Northern Ireland as well. Originally, some changes to the alcohol duty system would only have applied in Great Britain, due to the terms of the Northern Ireland Protocol.

However, the agreement between the UK and the EU on changes to the Protocol (the ‘Windsor Framework’) agreed by both entities in February 2023 meant that the changes to the alcohol duty system would apply to Northern Ireland too. However, some EU legislation still applies.

Why did the system change?

The previous alcohol duty system applied until 31 July 2023. The change aimed to simplify the system, and to align it more closely with public health goals.

The previous system had more duty rates than the current one. The structure of duties for different drinks varied across, and often within categories. This often resulted in different products at the same alcoholic strength being taxed at significantly different rates. The previous system was described by commentators, such as the Institute for Fiscal Studies, as “a mess”. There was broad consensus, as expressed in response to a government consultation (PDF), that the system needed to be reformed and simplified.

Additionally, campaigners (such as the Alcohol Health Alliance) pointed out that the availability of cheap, high-strength drinks was contributing to alcohol misuse, with significant consequences to wider society and public services. Alcohol misuse can cause long-term consequences, such as higher risk of brain damage, liver disease, dementia, and a number of cancers. This has a particular effect for health services. In 2022/23, there were over 320,000 alcohol-specific hospital admissions. NHS England estimate that up to 15% of A&E attendances are alcohol related. Alcohol-specific deaths in the UK were over 10,000 in 2022, a 70% increase from 2002.

How are alcohol duty rates increased?

In absence of specific policy initiatives, public finance forecasting assumes that alcohol duty will be increased year-on-year. This typically happens on 1 February, based on the rate of Retail Price Index (RPI) measure of inflation. This process is known as ‘uprating’. However, Many policy decisions on alcohol duty since 2010 have differed from this uprating assumption. At several fiscal events, consecutive chancellors had either frozen or reduced the rate of duty on most products.

Since the implementation of the new duty system, the duty rates have been frozen at their levels by the Conservative Government at Autumn Statement 2023 and Budget 2024. The rates are due to stay at this level until February 2025.

What has been said about the new system?

The change in the structure of the new duty system was broadly welcomed across the political spectrum and by expert commentators. Campaigners who argued the previous system was enabling alcohol misuse, such as the Alcohol Health Alliance, said the new system was a welcome first step.

There was a negative response, however, from the wine and spirits industry, whose products would be largely excluded from the new reliefs and would be taxed more on average (as wine and spirits tend to be stronger than beers or ciders).

The wine industry expressed concern at the ending of the easement, arguing that the new system would become more burdensome than what was in place previously.

There was also a negative reaction to the decision to uprate alcohol duty for the first time in three years. MPs expressed this during the debate on the Finance (No. 2) Bill 2022-23, and industry representatives (such as the Wine and Spirit Trade Association and the Society of Independent Brewers) commented that raising alcohol duty during a difficult time for drinks producers and hospitality outlets alike would cause negative consequences for them and for consumers.