New alcohol duties introduced: The small business reaction

The government's new system of alcohol duties, which means an increase in the tax on some products, has come into force.

First announced in the government's March 2023 Budget, the changes halt the freeze on alcohol duty that has been in place since 2020. Duties have now been increased by 10.1% alongside an overhaul of the system that means alcohol products are taxed according to the strength of a drink.

A lower rate applies to drinks with alcohol by volume (ABV) below 3.5% , while the tax on drinks with ABV over 8.5% stays the same.

It means the duty on products like still wine, vodka, sherry and port has increased, although the tax on sparkling wine has fallen because it previously had higher duty than still wine, with Irish cream and ready-to-drink mixers among the other products seeing a decrease in duty.

There are two reliefs. One is a 11p cut in the duty for draught pints of beer. The government said it will benefit 38,000 pubs and means they can "compete on a level playing field with supermarkets".

There is also a reformed and extended Small Producer Relief which provides a lower rate of duty on all alcoholic products with ABV below 8.5%.

Transitional arrangements for producers and importers of some wine products are in place until 1 February 2025. This allows businesses to use an 'assumed strength' of 12.5% ABV, when working out the duty for wines with an ABV between 11.5% and 14.5% ABV.

The Wine and Spirit Trade Association (WSTA) provided the following table that outlines the duty changes:

The government claimed that the changes to the previous "complex and unfair" duty system are possible due to the UK's departure from the EU.

Prime minister Rishi Sunak said:

"I want to support the drinks and hospitality industries that are helping to grow the economy, and the consumers who enjoy the end result.

"Not only will the changes mean that that the price of your pint in the pub is protected, but it will also benefit thousands of businesses across the country.

"We have taken advantage of Brexit to simplify the duty system, to reduce the price of a pint, and to back British pubs."

Chancellor Jeremy Hunt added:

"The changes we're making to the way we tax alcohol catapults us into the 21st century, reflecting the popularity of low alcohol drinks and boosting growth in the sector by supporting small producers financially."

New alcohol duties: The reaction of entrepreneurs

Emma Jones, founder of Enterprise Nation, said:

"While we welcome the extended Small Producer Relief and cut in duty for draught beer which will be helpful for micro businesses and independent hospitality firms, these inflationary tax increases have come at a time when the cost of living crisis, poor weather and interest rate rises have converged to hit small hospitality businesses in the pocket.

"At a time when they might expect to recoup some of the lost income over the first part of the year, they are now seeing their business squeezed further, as consumers cut spending."

Bryan Houde, Enterprise Nation member and founder of craft wines shop and bar Wine Monkey, said:

"The drinks distribution system means it's the end customers (retailers and consumers) who bear the brunt of any fluctuations in price. Since distributors generally hold their stock 'in bond', they don't pay the duty until the stock physically leaves the warehouse, which means all they have to do is increase the price for the products that retailers are already roped into buying, passing any and all increases onwards down the chain.

"With such changes, the costs should be evenly distributed and absorbed across the chain from the producer through to the importer, distributor, retailer and consumer.

"No matter how you swing it, the government is increasing taxes on consumer goods, which will do nothing to tackle the current economic crisis we're experiencing.

"I question the government referring to the "popularity of low-alcohol drinks”. While there is a trend amongst younger people to consume less alcohol, this isn't necessarily a trend for the majority of the UK population.

"I also question the "supporting small producers financially" part of the government's annoucement. I do not see how imposing the increase in the cost of goods helps producers, except perhaps British sparkling wine producers, many of whom also produce still wines above 11.5% and who are also affected by this change."

Crispin Slee, founder of Northampton-based street food events business Bite Street, said:

"This is unhelpful. It's been a difficult trading year so far. Margins are already squeezed by rising prices and this tax hike does nothing to calm inflation."