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What determines the price of a drink?

Broadly, the price of an alcoholic drink (or indeed any product) consists of three elements:

  1. Costs (to the producer and retailer): these include labour, raw materials (e.g. grains and fruits), packaging, transport, rent, power, marketing
  2. Tax: both excise duty and value added tax (VAT)
  3. Profits: to the producer and retailer

The relative contribution of these different elements to the price of a drink varies significantly between different beverage types, brands and retailers. The rate of VAT is currently set at 20% of a product’s pre-tax price (which is equivalent to 17% of the post-tax retail price).[1]

The excise duty levied varies widely between different products, but on average accounts for around 25% of the final retail price.[2] Consequently, around 40% of the price of an average drink is tax.

In general, the more expensive a product is, the lower the proportion of its price that is tax. For example, an average pint of beer of 4.2% ABV[3] attracts 44p of duty. Its average retail price is £3.40 in the on-trade, and £1.22 in the off-trade.[4] Under these prices, 13% of the price of beer in the on-trade is duty, and 36% of the price of beer in the off-trade.

Next: How much do people pay for alcohol?


[1] Gov.uk (2016), VAT rates <https://www.gov.uk/vat-rates>

[2] This is calculated by dividing the £11bn raised in duty in 2014, by the total retail sales of £42bn in that year. See report Alcohol’s Impact on the Economy for more details <http://www.ias.org.uk/uploads/pdf/IAS%20reports/rp23022017.pdf>

[3] British Beer & Pub Association (2016), Statistical Handbook 2016, Table A1

[4] British Beer & Pub Association (2016), op. cit., Tables C10–11