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How have UK alcohol taxes changed over time?

Figure 12 below shows how rates of alcohol duty have changed over the past 20 years. It shows that prior to 2008, beer and wine duties moved in step, and were raised at a faster rate than cider and spirits. Indeed, spirits duties were 5% lower in 2007 than 1995.

From 2008 to 2012, duty on all four products were increased at the same pace: this was the period of the ‘alcohol duty escalator’, which saw duties increased by 2% above the rate of inflation each year.

 


 

The duty escalator was introduced by then-Chancellor Alistair Darling in the 2008 Budget as a four-year measure to address the rising affordability of alcohol:[1]

“Mr Deputy Speaker, as incomes have risen, alcohol has become more affordable. In 1997, the average bottle of wine bought in a supermarket was £4.45 in today's prices. If you go into a supermarket today, the average bottle of wine will cost about £4.

“From midnight on Sunday, alcohol duty rates will increase by 6 per cent above the rate of inflation. Beer will rise by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle. Alcohol duties will increase by 2 per cent above the rate of inflation in each of the next four years.”

Darling’s 2010 Budget planned to extend the duty escalator until 2014. However, it was scrapped in 2013 for beer,[2] and 2014 for other drinks.[3] Since then a series of cuts and freezes have ensured that beer duty is 6% lower than in 2012, cider and spirits duty 3% higher and wine duty 10% higher.[4]

While the figures above may give the impression that alcohol duty has risen significantly, it is important to remember that these do not account for inflation. Figure 13 shows how the ‘real’ (i.e. inflation adjusted) value of alcohol duty has changed over time, demonstrating that the duty escalator reversed the erosion of the value of alcohol duties since the 1980s.[5] Beer duty peaked in 1985–6, and is today only 4% higher than in 1978–9. Wine and spirit duties have seen a long-term downward trend, with real wine duty 27% lower than in 1978–9, and spirits duty having halved in value.

 


 

Furthermore, this analysis does not account for income growth over the period, which has also limited the effect of alcohol duty by increasing the affordability of alcohol (see above).

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[1] HM Treasury (2008), ‘Chancellor of the Exchequer’s Budget statement’ <http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/bud_bud08_speech.htm>.

[2] BBC News (March 2013), ‘Budget 2013: Beer down 1p as planned duty rise axed’, BBC News <http://www.bbc.co.uk/news/business-21863051>

[3] BBC News (March 2014), 'Budget 2014: Beer duty cut by 1p’, BBC News <http://www.bbc.co.uk/news/business-26644768>

[4] Institute of Alcohol Studies (2016), ‘Budget 2016 analysis’ <http://www.ias.org.uk/uploads/pdf/IAS%20reports/sb10042016.pdf>

[5] Levell et al (2016)., op. cit.