Autumn Budget 2021: Rishi Sunak announces alcohol tax overhaul cutting costs of beer and sparkling wine

The Chancellor Rishi Sunak has announced a major overhaul of the alcohol tax system in his Autumn Budget speech.

Changes to alcohol duty were first mooted by the Sunday Times earlier in October, when the paper said Mr Sunak would seek to simplify the alcohol tax system in his Budget.

A review of the system was also a commitment in the Conservative Party’s manifesto for the 2019 general election.

Mr Sunak, who is teetotal, said the current 378-year-old system was “outdated, complex and full of historical anomalies”.

But what exactly are the changes the Chancellor has announced?

Here’s what you need to know.

How has Rishi Sunak changedalcohol taxes?

Under the existing alcohol taxation system, there are 15 different bands of taxes across four product types: beer, cider, wine and spirits.

Previously, independent think tank the Institute for Fiscal Studies (IFS) has described this system as a “mess” as it taxes the same amount of alcohol at different rates depending on the beverage.

For example, it charges different duties for beer and cider.

Beer carrying more than 7.5% alcohol by volume (ABV) is taxed at just under 25p per litre.

However, non-fizzy cider that contains the exact same amount of alcohol is taxed at 61p, while sparkling cider has a levy of £2.88 if it contains more than 5.5% ABV but less than 8.5% ABV.

From 2023, the system will directly correspond with the amount of alcohol in a drink.

These will be the tax bands across the major alcohol categories:

• 1.2 to 3.4% ABV
• 3.5 to 8.4% ABV
• 8.5 to 22% ABV
• Above 22% ABV

Planned hikes to alcohol duty would also be scrapped, with Mr Sunak claiming this would amount to a £3bn tax cut.

How will this change alcohol prices?

Rishi Sunak said consumers of some lower strength drinks, like rose, fruit ciders, liqueurs, and lower strength beers and wines, “will pay less”.

Higher strength drinks, such as some red wine and “white ciders”, will carry higher prices.

Prices of spirits will remain largely unchanged.

One of the main beneficiaries of the system’s simplification will be the sparkling wine industry.

Mr Sunak said the drinks were “no longer the preserve of wealthy elites” and their duties would be therefore be reduced to the same level as still wines - bringing to an end what the Chancellor described as an “irrational” 28% duty premium.

Under the existing system, the premiums for sparkling wines are currently £2.88 per litre if under 8.5% ABV or £3.81 if the ABV sits between 8.5% and 15%.

In practice the changes mean an £8.50 bottle of 11% ABV Canti Prosecco will see its tax reduced by 87p, while a bottle of UK producer Chapel Down’s 12% sparkling wine would see a 64p tax reduction.

Despite hopes that English sparkling wine would be given a tax advantage over its more famous cousins Champagne and Prosecco, the Chancellor did not announce such a move.

Having a pint in the pub will also go down in price as Rishi Sunak announced a new “draught relief” scheme.

Pints of popular beers like Guinness and Stella Artois will see a tax rate drop of 3p.

For prominent ciders like Magners and Strongbow, taxes will drop 2p at the pumps.

The scheme will particularly benefit UK real-ale brewers making weaker drinks as beers such as Adnam’s 3.4% Lighthouse are due to see a 25p deduction in pubs.

Not every drink was a winner from the announcement, however.

Red wine producers and drinkers are major losers as the changes will penalise wines with strong alcohol levels.

The duty change will result in a bottle of £7 Hardy’s VR merlot facing an increase of around 5%, with a tax hike of 35p.

Meanwhile, a 75cl bottle of Campo Viejo Rioja Gran Reserva will see a tax rise of roughly 47p, the Treasury said.

The tax increase gets bigger for fortified wines.

Port and madeira will be particularly hard hit, with typical bottles of 20% strength port likely to see tax increases of more than £1.

Scottish favourite Buckfast, which is roughly 8.5%, will face an 81p tax increase on an £8.50 bottle.

But the biggest percentage increases in tax will be seen in the price of “white cider”.

Budget documents showed that a 2.5-litre bottle of Frosty Jack’s, at around 7.5% ABV, will increase by 45p from £3.70 - roughly a 12% hike.

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