Friday 28th November 2008

Alcohol duties raised but net tax decrease!

Increase in duties not enough to offset the cut in VAT.

In the 2008 Pre-Budget Report the government has pledged to raise the level of duty on all alcoholic products.

This change will come into place from 1 December 2008. With VAT to be cut from 17.5 % to 15%, Chancellor Alistair Darling said that duties would be increased “by an amount which should keep the overall cost to consumers the same this year.”

It was initially announced that the rise in duties would be in the order of 8% on all alcoholic products. However, the Chancellor later admitted that he had made a mistake in claiming that this rise in duty on sprits would leave the cost at the same level for the consumer. For this reason, a further order was tabled whereby the duty on spirits was to be raised by 4%.

The IAS has calculated that the tax changes to VAT and duty are not tax neutral. The overall level of taxation levied on alcoholic products will be mainly lower following the changes. To give some examples of the likely effects of the tax changes, the impact on selected drinks is as follows:

Product	Typical unit	Current price	Net decrease in tax
Beer (4.1% abv)	pint	£2.70	3p
Wine	75cl bottle	£5.50	0p
Cider	2 litre bottle	£2.50	1p
Whisky	70cl bottle	£15.00	8p

The Chancellor’s wider tax measures have been called the “most transparently redistributive budget statement of the past 30 years” by the Financial Times, which should help assuage concerns about the regressive nature of alcohol duty increases.

For more information on the pre-budget report, click here.