Chancellor of the Exchequer Jeremy Hunt delivered his first Spring Budget speech on Wednesday (15 March), making several key announcements about everything from childcare to energy bills.
One of his more eyecatching reveals was that a ‘draught relief’ scheme would be implemented from August 2023 - a measure that should keep the price of a pint in a pub down while a new alcohol duty system raises prices in supermarkets. Hunt described it as a “Brexit pubs guarantee" and added: “British ale may be warm, but the duty on a pint is frozen.”
The news has come almost 18 months after Rishi Sunak announced major reform of the complicated alcohol duty system while serving as Boris Johnson’s Chancellor. Although the alcohol industry has praised the new system for being simpler, it has expressed concern about the major increase in taxes that are set to come in from August.
It comes as pubs struggle to keep up with energy costs and the impact of the cost of living crisis on customer numbers. Pubs have been closing at a high rate since the Covid-19 pandemic, with the Spring Budget not addressing the underlying causes of the industry’s decline.
So, what did Jeremy Hunt say - and how is alcohol duty set to change this summer?
What is alcohol duty?
Alcohol duty is a tax paid on the alcohol we buy - whether that’s in a pub, supermarket or cornershop. It is paid by producers or importers, but tends to be passed onto consumers.
Under the current system, which has been criticised for years due to how complicated it is, the tax is based on the type of drink being bought with the duty within each category set by how much alcohol the product contains. It means similar products, like still cider and sparkling cider, have vastly different rates despite containing the same amount of alcohol.
It is a big earner for the Treasury, with the tax forecast by the Office for Budget Responsibility (OBR) to bring in £12.7 billion over the course of the 2022/23 tax year - roughly 1.3% of all tax receipts. This figure equates to around £450 per household.
How is alcohol duty changing?
In his 2021 Autumn Budget, the then-Chancellor (and teetotaller) Rishi Sunak announced he would be ripping up the 380-year-old alcohol duty system and replacing it with a simplified version.
The tax, which Sunak said was “outdated, complex and full of historical anomalies”, would have its 15 separate bands struck out and replaced with a sliding scale four-tier system based entirely on how much alcohol by volume (ABV) a drink has. The new bands are:
- 1.2 to 3.4% ABV
- 3.5 to 8.4% ABV
- 8.5 to 22% ABV
- Above 22% ABV
In essence, the changes mean people buying alcoholic drinks with a lower content will pay less, while those going for the stronger stuff will pay more. Drinks like prosecco, rose, fruit ciders, liqueurs, and lower strength beers will become cheaper, while ‘white ciders’ and some red wines would become more expensive. Spirits would see only a marginal change in price.
The plans were due to come into effect in February 2023 but they were pushed back in December 2022.
What did Jeremy Hunt say about alcohol duty?
Jeremy Hunt confirmed reports, first revealed by the Daily Telegraph, that the new alcohol duty system would come into effect from 1 August 2023. It will also be accompanied by an index-linked tax hike of 13.4% - the rate of inflation as measured by the RPI for January 2023.
It means that a bottle of wine could become around 44p more expensive from this summer, the biggest increase in more than 50 years, according to the Wine and Spirit Trade Association (WSTA). It added that around 90% of all wines would be hit by a tax increase.
Bottles of whisky will face an extra £1.29 in tax at the same time as canned gin and tonic would see a 5p drop. The WSTA had urged the Chancellor to delay the tax hike in light of the cost of living crisis or risk dealing a “crippling blow” to the alcohol industry.
According to the Scotch Whisky Association, the hike will mean the duty rate on spirits will increase to £31.64 per litre, which means the level of tax on a typical bottle of whisky will rise five percentage points to 75%. It described the changes as an “historic blow”.
What is draught relief?
The ‘rabbit out of the hat’ Jeremy Hunt revealed on alcohol duty was a new draught relief scheme he dubbed as the “Brexit pubs guarantee”.
From August, alongside the changes to how booze is taxed, pints served in pubs will have a more generous tax relief scheme that means the duty on them could be up to 11p lower than in supermarkets. This is because draught relief will go up from the existing 5% to 9.2%.
However, given the inflation-linked tax rise being applied to the alcohol duty system will also be kicking in, it seems beer will remain at a similar price to what it is now in hospitality venues - albeit after significant rises of late that have been brought in by some brewers.
The tax relief applies to anything sold in hospitality that comes from draught kegs containing at least 20 litres, so it will also apply to products like cider. However, spirits and wine will miss out on the relief.
The UK Spirit Alliance told the i newspaper that it was bad news for a category that makes up a third of the drinks sold in pubs. “This tax hike will come as a cruel blow to our struggling hospitality industry and is another unnecessary cost piled upon hard working drinkers across the UK,” it said.
The Campaign for Real Ale said the move was “welcome” but added concern about whether the industry would survive until August: “We must hope that as many pubs as possible will be able to keep their doors open until then.”