WSTA Budget 2017 Programme: Wine core narrative

The WSTA is calling on the Government to cut duty on wine by 2% in the 2017 budget and the follow are the key messages that we are looking to reinforce with MPs and Ministers. This briefing sets out these key messages and provides data to support its arguments.

  1. UK wine consumers and businesses are over taxed

The 38m wine consumers in the UK face some of the highest taxes in the world. They currently pay £4bn in wine duty in the UK, around £2.08 per bottle of still wine or £2.67 for a bottle of sparkling wine. This means that for the average bottle on supermarket shelves around 55% of the cost is taken up in duty and VAT.UK consumers to pay 68% of all wine duties collected by EU member states.

Overall duty on wine has increased by 56% between 2007and 2016. This was in part due to the Alcohol Duty Escalator which increased wine duty by 2% above inflation for 5 years between 2008 and 2013.Wine consumers and businesses have also been unfairly singled out for harsher treatment that any other product in recent years with wine being the only alcoholic product to receive duty rises in 2014 and 2016 and the only product not given a cut in 2015.

  1. Brexit has already impacted consumers and the industry

The devaluation of the pound following the UK’s vote to leave the European Union has had a direct impact on wine consumers and businesses in the UK. Wine imports to the UK in 2015 amounted to £3bn. A report by EY projects that the devaluation of sterling could reduce wine clearances by more than 60,000 hectolitres or increase the cost of importing wine by as much as £594m in in the twelve months following Brexit. This is the equivalent of a 15% rise in duty, resulting in a direct and present threat to businesses throughout the supply chain and a reduction in contributions to the Treasury.

Additionally, the impact of Brexit has led to an increase of inflation overall, expected to reach 3% over the next year. As duty increases in the 2017 Budget are pegged to RPI inflation this would lead to a 3% increase in wine duty as well. The additional duty bill this would generate for wine consumers and businesses would be £120m or 6p on a bottle of wine and 8p on a bottle of sparkling wine.

  1. A duty cut is popular, fair and beneficial to the Government

Given the pressures faced by wine consumers and businesses through high taxes and the impact of Brexit, the WSTA is calling on the Government to take action to support the industry by cutting alcohol duty by 2%. This would save businesses and consumers 10p per bottle of wine and 13p on a bottle of sparkling wine compared to an inflationary duty rise. It is publically a very popular policy, polling shows that 62% of British adults think that wine duty is too high and 60% thought the tax take per bottle of wine was actually lower than it really is.

EY have calculated that a 2% cut will increase economic activity in the wine and spirit industry by £2.9bn. The duty cut will mean that the pressure on wine prices will be reduced and consumers won’t face a double whammy of price rises at a time when inflation is already on the up. It would help to wipe out the damaging effects of the Alcohol Duty Escalator, bringing duty closer to the level it would have been had the Escalator not been in place. This would cut the cost of a bottle of wine helping to off-set some of the cost of the impact of Brexit and helping to ease price inflation for consumers.

Additionally, this will help the Exchequer too. EY also found that this increased activity will lead to increased revenues to the Exchequer of £368m. There is evidence that backs up the claim that reducing the UKs excessive wine taxation can lead to an increase in Treasury revenues. Following the freeze in wine duty in the 2015 budget, wine duty income actually increased over the following year by £136m (+3.6%) from April 2015 – March 2016.

Impact of a duty cut for wines and spirits

Economic modelling by EY shows that a 2% cut to wine and spirits duty would mean:

  • An increase overall economic activity in the wine and spirit sector by a projected £2.9bn (+6%) in 2017
  • An increase in overall revenues to the Treasury by a projected £368m (+2%) in 2017, including and extra £254m (+2%) in direct taxes (inc. duty and VAT) in 2017
  • An increase in industry contribution to the UK’s GDP by a projected £1.6bn (+6%) in 2017. This includes ‘direct’ effects (basically, economic output of the W&S sector) totalling a projected £720m in 2017 (+6%)
  • A 2% cut to duty, rather than an inflationary rise, would save the industry and consumers 10p on the average bottle of wine and 13p on the average bottle of sparkling wine

UK wine industry[1]

  • The UK wine industry employs some 172,000 people directly in the UK, and a further 105,000 people in the supply chain
  • The UK wine industry generates £19.9bn per annum in economic activity including sales of £6.7bn in shops and supermarkets and a further £4.2bn in pubs, bars and restaurants
  • An approximate 600m bottles of wine, one third of the UK market, are bottled in the UK
  • There are over 38m wine drinkers in the UK, making it the most popular alcoholic drink

Wine duty

  • Wine duty in the UK is the equivalent to £2.08 per 75cl bottle of wine, £2.67 on a bottle of sparkling wine[2]
  • Wine consumers paid nearly £4bn in duty in 2015/16 accounting for 37% of all alcohol duty income[3]
  • 55% of the average bottle of wine in shops and supermarkets is accounted for by tax[4];
  • Following the freeze in wine duty in the 2015 budget, wine duty income increased on the previous year by £136m (+3.6%)[5]
  • Wine consumers and businesses have been unfairly singled out for harsher treatment, being the only alcoholic product to receive duty rises in 2014 and 2016 and the only product not given a cut in 2015
  • The UK alcohol industry is one of the most heavily taxed in Europe, with the 3rd highest duty rate for wine.This means UK consumers pays 68.37% of all wine duties in the EU
  • UK consumers pay over €14.5bn in alcohol duty, which accounts for 40.6% of all alcohol duty paid by consumers across EU member states

Impact of Brexit

  • 99% of the 1.8 billion bottles of wine enjoyed by UK consumers is imported[6].
  • The UK is the second largest importer of wine by volume, after Germany, and, by value, after the USA[7]
  • One in every seven bottles of wine exported around the world ends up in the UK[8]
  • In 2015 the UK exported £440m worth of wine, 2% of all global wine exports by value. By contrast France exported £6bn worth (29%), Italy £4bn worth (19%) and Spain £2bn worth (9%).South Africa exported less than the UK by value, worth £436m in 2015[9]
  • Since June 23 when Britain voted to leave the EU, the pound is 16% down against the Euro, 26% on the US$ and 18% on the Aus$[10]
  • Wine imports to the UK in 2015 amounted to £3bn. A permanent 15% reduction in the value of sterling means that the cost of importing wine from the EU will go up by £225m per annum and from outside the EU by £188m per annum, £413m in total, which is the equivalent on a 10% increase in alcohol duty
  • Per bottle, the average extra cost as a result of Brexit is 29p on wine from the EU and 22p on wine from outside the EU
  • On average, for every bottle of wine imported to the UK it generates £2.98 in duty + VAT and a further added 82p[11] to the supply chain in economic activity
  • Brexit has led to an increase of inflation, expected to reach 3% over the next year. As duty increases are pegged to inflation this would lead to addition duty bill on the wine industry of £120m or 6p on a bottle of wine and spirits consumers and businesses an additional £60m or 34p on a litre of spirits.

Wine duty increases since 2007

The following table shows the accumulative wine duty increases since 2007. The Alcohol Duty Escalator was introduced in the Budget 2008 and was eventually scrapped for wine in the budget of 2014. However, since the escalator was introduced win duty has increased by 56%. Since 2010 the year the Coalition Government came to power, the increase has been 27%.

Date / Duty per htlr wine / Duty per bottle / Increase / Approximate cost to business/consumers
26/03/2007 / £177.99 / £1.33
17/03/2008 / £194.28 / £1.46 / 9.2% / £230m
01/12/2008 / £209.82 / £1.57 / 8.0% / £200m
23/04/2009 / £214.02 / £1.61 / 2.0% / £60m
29/03/2010 / £225.00 / £1.69 / 5.1% / £153m
28/03/2011 / £241.23 / £1.81 / 7.2% / £216m
26/03/2012 / £253.39 / £1.90 / 5.0% / £175m
20/03/2013 / £266.72 / £2.00 / 5.3% / £185.5m
20/03/2014 / £273.31 / £2.05 / 2.5% / £87.5m
23/03/2015 / £273.31 / £2.05 / 0.0% / £0
16/03/2016 / £277.84 / £2.08 / 1.7% / £66m
Rise 2007-16 / 56%
Rise 2010-16 / 27%

[1] Economic Impact Assessment, Ernst and Young February 2015

[2] HMRC Duty Rates, March 2016

[3] HMRC Alcohol Bulletin April 2016

[4] Off Trade Data, Analysis from WSTA using Nielsen Average Price data and HMRC duty rates at Budget 2016

[5] HMRC Alcohol Bulletin April 2016

[6] HMRC alcohol tax bulletin, July 2016

[7] International Trade centre accessed October 2016

[8] International Trade centre accessed October 2016

[9] International Trade centre accessed October 2016

[10] As of 17th January 2016

[11] As of 17th October