6: Cumulative burden of taxation, regulation and extra costs
Impact of added costs
The UK Government has shown leadership in seeking reduction of the burden of regulation and the cut in costs that may result. However, the competitive pressures and tight margins cannot be isolated from consideration of excise taxation as they result from an accumulation of costs, regulation and taxation that when taken together, impact on our industry. This is because compliance costs have to be borne somewhere. There are two possibilities. Either these costs have to be passed on to consumers and as a consequence prices rise, volumes will fall and revenue reduces. Or as happens particularly in the Off trade due to the price pressures, the costs are passed back to the producer. A second alternative is that production is moved overseas or retailers source from continental producers.
Rising production costs
Much press attention has rightly been given to the rise in food prices and how the long era of falling food prices have come to an end. The alcohol sector is no different. Since production costs can add up to some 88% of the factory gate price before Excise duty and VAT is added, the recent increases are likely to push up retail prices.
Price and availability and market price of Neutral Spirit.
This is related to World prices for cereals, sugar or molasses; pressures from competing markets for these raw materials; tightening of quality and traceability standards in the potable alcohol industry; and if traders look to import from alternative suppliers from third countries, the EU tariff on ethyl alcohol imported from third countries is also relevant
- Overall production costs have risen overall by a significant percentage in recent years.
- Besides the worries over higher energy prices, the sector has particular concerns over future prices of ethyl alcohol (also known as neutral alcohol). This is the core component of finished products, be they gin, vodka or pre-mixes, and can alone account for up to 38% of the production costs.
- These price increases and availability concerns will have a major impact on production costs for the foreseeable future
- Producers have to pass these cost increases on across the board in both the On- and Off-trade. As a result, retail prices may increase. Retail price increases will feed into the shopping basket.