6: Spirits Ready-To-Drink beverages (RTDS)

The RTD category

includes the terms of Designer Drinks; Flavoured Alcoholic Beverages (FABs); Premium Packaged Spirits (PPS); Spirit Mixed Drinks (SMD); Premixes and Coolers

Background History

The tax rate that existed for RTDs up to the April 2002 UK Budget, was introduced by the then Government in 1988 "to encourage the development of the market for lower strength alcoholic drinks".

RTDs

Given the recent misleading market information in the press concerning RTDs, it is of note that in terms of pure alcohol (as compared with bulk volumes), RTDs account for less than 2% of alcohol consumed in the UK. In case there is a perception that action should be required concerning the drinking of RTDs in the 18-21 age group, it is of relevance that the largest category consumed by this age group is beer & lager, and RTDs account for only 8%. The 65% increase in Excise duties on this sector in the 2002 Budget did little to actually solve the problem of binge drinking, which was never the preserve of this one category. RTDs are not the major cause and all the tax increase has done is to cause consumers to switch to other products. This increase imposed by withdrawing the 'made-wine' concession, accelerated the reduction in growth in the RTD sector that had already started. This then turned into a reduction in actual sales by the autumn of that year. Government figures show a drop in spirits RTDs of 19% in the last twelve months and 24% in the year before that. One contributing factor has been the reduction in strength of a number of RTDs. RTDs are on average produced at a lower strength than directly competing bottled products but are significantly more expensive on a pro rata basis.
It is clear that this category has been badly affected by a number of factors, the most obvious one being higher prices for spirit-based RTDs resulting from the tax increase. This may be correlated with the growth of lager sales showing that the main effect has been to make consumers switch between these competing products - that is from UK produced RTDs to lager that is imported or produced in UK under licence. Of note, RTDs are overwhelmingly produced in the UK and are exported in large quantities - a tribute to British innovation - whereas many of the products to which consumers have switched are imported.

Discrimination

The present rate of tax on spirits-based RTDs is disproportionate and anti-competitive as it has created a new form of discrimination by affording a clear competitive advantage to directly comparable and competing wine, cider and beer products.