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UK Budget 2013: Five Reasons Why the Alcohol Duty Escalator Has Run Its Course

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1. It is all about money not changing people's behaviour
Between 2000 and 2008, the tax on a bottle of wine increased by 15%. In the four years from 2008, the year Alastair Darling introduced the duty escalator, it has increased by 46%. It doesn't take a genius to link the steep rise with the wider economic circumstances. Put simply, tax on alcohol is a cash cow for the government that is being used to try and plug a budget deficit rather than change the way people drink.

2. We are already drinking less than in the past
If you believed everything you read in the press, you'd get the impression that alcohol consumption in the UK is booming. It's not. Between 2004 and 2012 alcohol consumption fell 13% from 9.5 litres per head to 8.3 litres. The message that we all need to drink more sensibly is starting to get through. Continuing to punish responsible drinkers in the pocket won't do much to address the minority of real problem drinkers.

3. Education is the future
Contrary to many people's belief, the alcohol industry isn't solely motivated by selling more bottles. The truth is the margins in selling cheap wine are unsustainable. The average price paid for a bottle of wine in the UK is just £5.03 and over half of that goes straight to Number 11. Once transport costs and dry goods are factored in there is not much left. In fact, just 11p goes to pay for the actual liquid in the bottle.

We need to help drinkers understand that they should be drinking less but better wine. Less because of the obvious health benefits and better because the quality in the bottle rises very quickly. Simple maths dictates that having a flat rate of duty means that the more you spend, the lower the proportion that goes on tax and the higher the proportion that goes on the quality of the wine.

4. It is bad for business and jobs
The alcohol industry plays an important role in our economy. It directly supports over two million jobs in the UK and contributes £37.7bilion to the economy. Alcohol duty and VAT account for £16.3billion which goes straight to the Treasury; the equivalent of £316 per UK adult and double the entire overseas aid budget.

The industry also plays a major part in supporting hospitality. Pubs alone support around 600,000 jobs. The EU now allows governments to set differential rates of VAT for accommodation, food and alcohol in the hospitality sector, recognising the importance the sector plays in employment. When France dropped VAT on eating and drinking out from 19.6% to 5.5% 29,500 jobs were created in the first year. The coalition could do the same, stimulating growth and creating jobs. Instead they resort to the blunt instrument of ever-increasing taxes.

5. It is good for fraud and crime
One unseen consequence of continually rising alcohol taxation is to increase crime and fraud. Duty fraud, illegal smuggling, shoplifting and illicit alcohol production are all on the rise. An Institute for Economic Affairs report from October last year conservatively estimates that losses to the Treasury from alcohol fraud have increased to £1.2billion per year, up from £850million in 2008. Add in the costs of policing and prosecuting this activity, and the duty escalator makes even less financial sense.