2: Excise tax on Gin and Vodka

Background

The food and drink industry is the UK’s largest manufacturer and the spirits sector is the only one where exports exceed imports. The alcohol drinks industry is important economically, strategically and socially. There is concern, therefore, at the consequences of extra costs being imposed on the sector during the economic downturn.

Tax Escalator

The 2008 UK Budget introduced a Tax ‘Escalator’ on all alcohol which increased the Excise tax by 2% above the rate of inflation (RPI) for that year and the following four years. In March 2010, the escalator was extended to 2014-15. In his Budget statement of March 2012, the Chancellor confirmed that there would be no changes to the duty rates for alcohol set out by his predecessor; therefore rates would continue to rise by 2% above the rate of inflation.

The UK Excise Duty rate was therefore increased for Spirits and Spirits based Ready-to-drinks (RTDs) to £26.81 per lpa from 26 March 2012. This meant that if gin or vodka was purchased before that date, the excise on a 70 cl bottle was £6.70 and the VAT on the Excise was £1.34 making a total tax of £7.04 before producer, wholesaler and retailer costs and margins were added [plus VAT on those components].

Tax Burden

The average tax per bottle pro rated to 1 litre for all spirits is increased correspondingly and is now up approx.70% at 37.5%abv in the Off Trade. For the ‘Cheapest in Display’ products, tax can be over 85%. The average tax per bottle of spirits in the On-Trade is approx. 26%.