Read IAS’s full Budget Analysis here.
This year’s Budget increased alcohol duty in line with inflation. But in real terms, rates still remain far below 2012 levels, leaving society to pick up the tab.
So what was announced about alcohol? Three main things:
- All alcohol duty rates will increase by RPI (Retail Prices Index) inflation of 3.66%
- Small Producer Relief will be increased
- The National Licensing Policy Framework was published
Alcohol duty rates are supposed to keep track with inflation, so that they do not lose real-terms value (meaning the amount of tax keeps its true worth once rising prices are taken into account). However, following so many cuts and freezes by previous governments, duty rates remain far lower than they were in 2012/13. In real terms:
- Beer duty will be 32% lower
- Draught beer duty will be 42% lower
- Cider and spirits duty will be 26% lower
- Draught cider duty will be 36% lower
- Wine duty will be 19% lower
And if you look at how much each alcoholic product is being taxed per litre of pure alcohol (in real terms), not only can you see that consistent fall due to freezes and cuts, but the difference in each product is stark. This is particularly evident in cider, which is taxed much less than beer of equivalent strength – known as ‘cider exceptionalism’.
Alcohol duty rates per litre of pure alcohol – adjusted to 2012 prices
Industry exploits forecast inaccuracies
The Office for Budget Responsibility (OBR), which produces official forecasts of the Budget, has been heavily criticised by alcohol trade bodies, such as the Scotch Whisky Association (SWA) and the Wine and Spirit Trade Association (WSTA). Both claim that the OBR’s forecasts are ‘wrong’ as they underestimate how much increases to alcohol duty lead to a reduction in alcohol sales.
However, as has been widely reported on, there is far more expectation on the OBR’s forecasts being highly accurate than there is on other forecasting. As The Guardian has stated: “We can’t predict the weather next year, but apparently the public finances in 2029 can be judged with pinpoint accuracy.” The OBR has also highlighted this, writing that: “Point forecasts such as those that the OBR is required to produce are highly unlikely to ever be very accurate relative to measured outturns… the series of very large economic shocks experienced in recent years has made forecasting accurately a particular challenge… We are no better equipped to see into the future than other forecasters.”
Yet the WSTA has even gone so far as to call for the OBR’s modelling to be reviewed. And the SWA stated that: “Revenue from spirits has fallen since the previous 3.6% increase to spirits duty last year, reducing revenue by 7% compared to 2024/25, or £150m.” It’s worth focusing on just how wrong the SWA’s claim is.
Firstly, a 3.6% increase in duty is nothing like a 3.6% increase in retail price, because duty makes up a fraction of product price, e.g. 29% of a £1.50 can of 4.5% beer, or 20% of a £30 bottle of whisky. A 3.6% increase in duty only affects that small fraction of product price, and only if the alcohol producer fully passes it on to consumers.
Secondly, people would have to be massively more price-sensitive than any academic study has ever found for their claim to make any sense. The OBR states that spirits elasticity is –0.2, which means a 1% increase in retail price leads to a 0.2% fall in consumption. But, giving these trade bodies the benefit of the doubt and avoiding the OBR’s figures, let’s instead use this meta-analysis in Addiction, which estimates it at –0.8 (more price sensitive). That means that for a 10% increase in retail price, consumption falls by 8%. So for the SWA to be correct about the 7% fall in spirits revenue being because of a 3.6% increase in duty – and using the much more price sensitive figures – the retail price of spirits would have to increase by about 9%. Quite how a 3.6% increase in duty could do that is anyone’s guess. The alternative is that every academic study on the subject is wrong by massive orders of magnitude. Ironically, while criticising the OBR for apparent lack of precision, at the same time industry bodies make entirely false claims.
Unsurprisingly, the truth is quite the opposite of trade body claims. As Professor Colin Angus of the Sheffield Addictions Research Group has shown, the only time that Treasury revenue has steadily increased in real terms was during the alcohol duty escalator when duty was consistently increased above inflation.
One thing the industry is correct about though, is that alcohol duty revenue has been falling in recent years (since 2022), as you can see in Professor Angus’s chart above. In a study in Addiction, Professor Angus and Dr Jonas Schöley concluded that the cost of living crisis in 2022/23 is the reason why and that “there is no clear evidence of a longer-term impact of the [alcohol duty] reforms on duty receipts, rather than a continuation of pre-reform trends, contrary to claims made by the alcohol industry”.
The economic deception of trade bodies would almost be amusing if it wasn’t so damaging. Every year in the run up to the Budget, this deception bubbles to the surface of political debate in the House of Commons, Lords, and across the media, because of the well-resourced alcohol industry lobbying machine. For instance, this year one MP stated in the Commons that: “the increases [in duty] are driving down demand and, in turn, cutting revenue to the Treasury”. And another wrote letters to former OBR Chair Richard Hughes, arguing that their modelling doesn’t “accurately account for the decrease in sales volume caused by an increase in duty receipts”.
These political impacts pale into insignificance when you consider the real harm. Alcohol trade bodies are aggressively lobbying at the highest level of government for tax breaks for a multi-billion pound industry; a policy decision that in recent years has directly led to increases in hospital admissions, alcohol-related disease, and alcohol deaths across our country.
Duty rates should be based on the cost of harm
As IAS has called for at every Budget in recent years, alcohol duty rates should be based on the economic cost of alcohol harm to society. The Social Market Foundation has argued that the government or an independent body should calculate the cost of alcohol harm every 5 or 10 years, and set duty rates accordingly. This would have an additional benefit of incentivising producers to reduce the cost of harm from their products in the intervening years, to reduce their tax bill.
In IAS’s Budget Analysis 2025, using a study from the Institute for Fiscal Studies, we estimate how much off-trade duty would need to raise by to cover the cost of harm.
- Beer duty: 68% increase
- Cider duty: 227% increase
- Spirits duty: 68% increase
- Wine duty: 34% increase
These may seem ridiculously high, however, if duty were fully passed through to the retail cost, that would increase these example products by the following amounts:
- A 15-pack of 4.6% beer cans: from £14.59 to £19.51
- An 18-pack of 4.5% cider cans: from £13.99 to £22.54
- And a bottle of 12.5% wine: from £8.75 to £9.82
That would take these example beer and cider products to a price almost exactly the same as where Scotland has set its life-saving minimum unit pricing policy. So these aren’t unfathomably high numbers. And as publicans have previously said that cheap, supermarket alcohol is one of the biggest threats to their business, increasing off-trade duty to cover the cost of harm would have the triple impact of reducing deaths, improving our economy, and helping pubs.
If duty truly reflected the cost of alcohol harm, we’d see higher prices for stronger drinks and a healthier nation – until then, the industry keeps cashing in while we pay the price.
Written by Jem Roberts, Head of External Affairs, 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.