Taxation on beer and pubs

Antony Seely; Fintan Codd

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Taxation on beer and pubs (192 KB , PDF)

Download ‘Taxation on beer and pubs’ report (192 KB , PDF)

Background

Excise duties are levied on three major categories of goods – alcoholic drinks, tobacco products and road fuels.[1]

Generally excise duties are charged a flat rate: a certain number of pence per pint, per litre, per packet – though tobacco is subject to an additional ad valorem tax. Duty rates across these categories, and the share of the selling price taken in duty, and tax, as of April 2016, are illustrated below:^[2]

Duties on alcoholic drinks are forecast to raise £12.6 billion in 2019/20 – split between beer & cider, £4.1bn; wine duties, £4.6bn, and spirits duties, £3.9bn. In this year fuel duties and tobacco duties are forecast to raise £28.4 billion and £9.1 billion respectively.^[3]

Further statistics on the receipts from alcohol duties are published by HM Revenue & Customs.[4]

As flat-rate duties are expressed in cash terms, they must be revalorised (ie, increased in line with inflation) each year in order to maintain their real value.

In its last year in office the Labour Government proposed that the rates of duty on alcoholic drinks would rise each year by 2% in real terms at least until 2014/15. A commitment to raise duty rates by a specified percentage each year is called a duty ‘escalator’.

In its first Budget in June 2010, the Coalition Government launched a review of the taxing and pricing of alcohol “to ensure it tackles binge drinking without unfairly penalising responsible drinkers, pubs and important local industries.”^[5] Subsequently two changes were made to the structure of beer duty: an additional tax on high strength beers and a reduced rate of duty on low strength beers.^[6] The review did not offer a view on the level of duty rates, though it noted there was little consensus on the right level of tax as “the debate about the absolute level of alcohol duty rates is often polarised.”^[7] That said, many commentators attributed the difficulties being faced in the pub trade at this time to the impact of the duty escalator on the price of beer.[8]

In his 2013 Budget the then Chancellor, George Osborne, announced that the rate of beer duty would be cut by 1p and the duty escalator would be removed from this drink category.^[9] In the 2014 Budget Mr Osborne announced the duty escalator would be scrapped from other drinks,^[10] and in Budgets over the next three years the rate of beer duty was cut by 1p on two occasions, and then frozen.

In his Spring 2017 Budget the then Chancellor, Philip Hammond, announced duty rates for alcohol go up in line with inflation for the coming year.^[11] In addition the Government launched a consultation on options for reform to ensure that “duty rates better correspond to alcoholic strength”; specifically, a new duty rate band to target cheap, high strength ‘white’ ciders, and a new lower strength still wine band, to encourage the production and consumption of lower strength wines.^[12] Subsequently in his Autumn 2017 Budget the Chancellor confirmed that the Government would introduce a higher duty rate on white ciders, although duty rates on alcohol would be frozen.^[13]

In the last Budget in October 2018 the then Chancellor Philip Hammond announced the rates of duty on beer, cider and spirits would be frozen for the coming year. The Chancellor also announced that the duty rate on most wine and higher strength sparkling cider would be increased in line with inflation from 1 February 2019, while the new duty rate band on ‘mid-strength’ still cider and perry (6.9%-7.5% abv) would come in from this date. These measures were forecast to cost £165-£185m a year from 2019/20.^[14]

No further changes to alcohol duty rates have been made since then.

Following the postponement of the Budget due to the timing of the General Election, the Chancellor Sajid Javid has announced the next Budget will be on 11 March 2020.[15] In its Election Manifesto the Conservative Party stated that in government it would “review alcohol duty to ensure that our tax system is supporting British drink producers.”[16] No further details have been published to date.

In answer to a recent PQ on the Government’s approach to beer duty, Simon Clarke, the Exchequer Secretary said the following:

Fiscal changes to alcohol, and tax rates are kept under review, and further announcements to duty changes will be made in due course. To date, since 2010, government has scrapped the beer duty escalator, making the price of a typical pint 14p cheaper than it otherwise would have been. Pubs are also able to benefit from wider reforms including the Pubs Code and reductions to business rates.[17]

[1] Duty rates on alcoholic drinks, tobacco products, and road fuels, are on Gov.uk.

[2] Institute for Fiscal Studies, A Survey of the UK Tax System, November 2016 p19. The tax burden on these different excise goods reflects the fact that both duty and VAT is charged on their sale

[3] OBR, Economic & Fiscal Outlook, CP 50, March 2019 p76 (Table 4.3: current receipts); and, Fiscal Supplementary Tables (Table 2.11)

[4] HMRC, Alcohol Bulletin, Last updated 29 November 2019

[5] Budget 2010, HC 61, June 2010 para 2.96

[6] HC Deb 30 November 2010 c65WS. The new duty rates came into effect from 1 October 2011.

[7] HM Treasury, Review of alcohol taxation, November 2010 para 2.2

[8] For example, Society of Independent Brewers press notice, BPA, SIBA and CAMRA publish ‘The Story of Beer Duty’ setting out damage caused by Beer Duty Escalator, 11 November 2016

[9] HC Deb 20 March 2013 c943

[10] HC Deb 19 March 2014 c791

[11] HC Deb 8 March 2017 c815

[12] Budget 2017, HC 1025, March 2017 para 3.33; HMT, Alcohol structures consultation, March 2017

[13] HC Deb 22 November 2018 c1053

[14] HMRC, Alcohol Duty Uprating – tax information & impact note, 29 October 2018. see also, HM Treasury press notice, Treasury backs British brewers with duty freeze, 1 February 2019.