You're here: Home / Blog / Why is the government subsidising cheap strong cider?

Why is the government subsidising cheap strong cider?

Technical issues around the design of tax systems can have dramatic real-world consequences, argues Policy Analyst Aveek Bhattacharya

29 November 2017 – If you’re not fussy about taste, and your only interest is getting the most alcohol for as little money as possible, you’ll most likely drink white cider. Typically sold in brightly coloured three litre plastic bottles and containing the alcoholic equivalent of 22.5 shots of vodka for as little as £3.59, such products only exist because of anomalies in a duty system Paul Johnson of the Institute for Fiscal Studies branded “crazy” last week. Ciders of 7.5% ABV are charged only 5.4p of tax per unit – less than any other alcoholic product.

Health and homelessness advocacy groups have been urging the Government to address this issue for years. Belatedly, the Chancellor signalled a small step in the right direction by announcing a new rate of tax on ciders between 6.9% and 7.5% ABV in last week’s Budget. Yet this is an extremely modest measure – if white ciders are reformulated to 6.8% ABV, as the Government intends, a three litre bottle will still contain 20.4 units of alcohol, taxed at 5.9p per unit. What’s more, the new rate will not come into force until February 2019. In the meantime, tax on cider, as with all other alcohol products, will be cut in real terms (accounting for inflation) after the Chancellor announced a duty freeze with a “Merry Christmas, Mr Deputy Speaker”.

 

 

Yet cider producers aren’t feeling the festive cheer, complaining they are being “unfairly penalised”. Most incredibly, Aston Manor, producers of the leading white cider brand Frosty Jack’s, framed the measure as an attack on ‘Just About Managing’ “lower per capita alcohol consumers”. This is far-fetched given the mounting evidence that dependent and harmful drinkers make up the vast majority of strong cider sales. A study of alcohol treatment services patients in Glasgow and Edinburgh showed that 25% drink white cider and of these 45% drink it exclusively. Frosty Jack’s has consistently been one of the leading brands consumed by young people in treatment for alcohol problems. 

It is quite something for cider producers to present themselves as victims, when they pay a third as much as tax as the brewers they compete with. Taxed at 5p per unit, strong ciders are at a competitive advantage relative not only to similar strength beers, which face 19p per unit, but also relative to medium strength cider, which is taxed at 8p per unit.

There is no rational basis for this favourable treatment. The IFS is mystified by it, observing that the Government has “failed to make the case for why British producers need specific government assistance and, if such a case does exist, it is highly unlikely that cuts in cider duties are the most appropriate response”.

Cider producers sometimes argue that their ‘complex business models’ justify support. Even if true, it is unclear why the Government should be subsidising cider – if cider is more expensive to make than other drinks, why should it not be more expensive for consumers to buy? Moreover, we only need to look across the Irish sea to see that a thriving cider industry can survive alongside higher tax rates. In the Republic of Ireland, cider taxes are in line with beer, and four times higher than in the UK. Under the circumstances, it is hard to see what the UK cider industry has to complain about.

This distortion of the market would be infuriating to economists, but of little interest to the rest of us, if it weren’t so intimately connected to the existence of harmful white ciders. What this shows is that apparently technical issues around the design of tax systems can have dramatic real-world consequences. The most straightforward way to address them would be to introduce a minimum unit price, as the Scottish Government has done. This would treble the price of white cider overnight and leave the price of cider in pubs unaffected. But for as long as that stays off the table, the Government cannot take meaningful action on the cheapest alcohol without reconsidering the privileged position of the cider industry.

Written by Aveek Bhattacharya, Policy Analyst at The Institute of Alcohol Studies.

All IAS Blogposts are published with the permission of the author. The views expressed are solely the author's own and do not necessarily represent the views of the Institute of Alcohol Studies.