UK wine and spirit producers braced for new post-Brexit alcohol duty

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Fans of full-bodied red wines and boutique gins will have to shell out more from next week as post-Brexit alcohol duty rules come into force in the UK, while those who prefer beer risk ending up paying the same for a weaker lager in a sign of “drinkflation”.

First set out by Rishi Sunak in 2021, the new system aims to encourage consumers to cut back by taxing a drink according to its alcohol content rather than putting it in one of four categories: wine and made-wine, beer, spirits, and ciders.

At the time, the then-chancellor billed the overhaul as “the most radical simplification of alcohol duties for over 140 years”, enabled by Britain’s exit from the EU. In March, the government also announced a higher draught relief on beer bought in pubs as part of a “Brexit pubs guarantee”.

Carl Hanley, who runs the nearly 500-year-old Hand and Shears in the City of London, is among publicans who expect the duty — which will be linked to retail price inflation — to have little impact on customers’ habits. He said his regulars “don’t ask the price. They tap their cards and say ‘No worries’.”

However, producers and suppliers have warned that the rules will lead to a drop in sales volumes of certain wines and spirits, and a squeeze on craft distillers.

“There will undoubtedly be volume drops,” said Andrew Bewes, managing director of specialist wine distributor Hallgarten & Novum. “It’s more evident in retail — suddenly that £9.99 wine becomes £10.50 and the volume will drop massively.”

According to the Wine and Spirit Trade Association, which represents more than 300 companies, 80 per cent of the wine consumed in the UK is bought in supermarkets and smaller retailers. At present, the duty on a bottle of wine with an alcohol percentage by volume of 15 per cent or less is £2.23.

From August 1, thanks to an easement that will end in February 2025, still and sparkling wines with an ABV of between 11.5 per cent and 14.5 per cent will be taxed an extra 44p, the rate for a bottle with 12.5 per cent ABV.

Wines stronger than 14.5 per cent ABV will pay a sliding scale of duty: the levy on a bottle of port with 20 per cent ABV, for example, will jump from £2.98 now to £4.28. Still wines under 11.5 per cent ABV, which make up 12 per cent of total wine produced, will see duty reduce.

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A wine’s strength depends in part on the climate of the region where it is produced, making it difficult to lower alcohol content. Reducing the alcohol content in beer is, by contrast, relatively simple.

Many brewers have in recent months lowered the alcohol in their beers to avoid being hit by higher duty from August 1, while others have launched new low-alcohol products. Carlsberg has cut the ABV of its Danish Pilsner brand from 3.8 per cent to 3.4 per cent, while Greene King has trimmed the ABV of its Old Speckled Hen from 5 per cent to 4.8 per cent.

The practice has been dubbed drinkflation owing to similarities with “shrinkflation”, in which food packaging sizes are reduced but prices remain the same or rise.

“What we’ll see is consumers end up paying the same prices they have been for a product with less alcohol in it,” said Simon Hales, analyst at investment bank Citi. “Either way, the consumer ends up getting a rawer deal, with the exception of a small benefit for draught product in pubs.”

No- and low-alcohol drinks have boomed as younger consumers prioritise healthy living. In 2022, “no- and low-” sales in 10 global markets, including the UK, rose by 7 per cent year on year to more than $11bn, according to research group IWSR, with non-alcoholic products accounting for 70 per cent.

Adnams chief executive Andy Wood said the Suffolk-based brewer had launched Lighthouse, a 3.4 per cent ABV pale ale, which will be unaffected by the new rules because it falls into the lowest band for alcohol content.

“It’s good for us in that we’re not paying so much duty, but there are benefits in it for consumers too,” said Wood. He added that the company’s 0.5 ABV beer Ghost Ship was its second-best seller, and that older and younger consumers alike were cutting their alcohol intake. 

Craft brewers meanwhile will benefit from a 50 per cent duty reduction extended by ministers to smaller producers making drinks with less than 8.5 per cent ABV.

But Alan Powell, founder of the British Distillers Alliance, said it was “glaringly unfair” that the small producer relief did not cover full-strength products.

“It’s a very dogmatic way of looking at it because no one is going to be swilling a strong craft product,” he said, adding that some BDA members were opting to close rather than shoulder the extra costs linked to higher duty.

Braced for a hit to sales are Paul Sharrock and his wife Cheryl, who began distilling a small-batch gin in their garage in 2019. Their business was boosted by the at-home drinking boom sparked by pandemic-related restrictions in 2020, which allowed them to open a distillery and shop in Stockport.

After holding back price rises despite soaring input costs in 2021 for fear they would hurt his income, Sharrock this week lifted the cost of a bottle by £1, in line with the duty increase of 10 per cent.

“The more we looked at it, we saw we’d be hard pushed to sell gin at [a higher] price,” said Sharrock. He now plans to diversify the business away from gin sales by focusing on distillery tours.

“The thing that frustrates me is [the government] will spin it one way to the public — that they’re supporting people with the Brexit pub guarantee nonsense and small producers relief — but none of it applies to the spirits industry.”

The government said: “For the first time in over 140 years the UK’s alcohol duty system will start making sense as a drink’s tax will reflect the amount of alcohol in it, making everything easier to understand.”

It added that the changes would help “small craft spirit and wine producers innovate new lower-strength products”.