UK government introduces new tax system on alcoholic beverages

New government regulations have been introduced in the UK from August 1 which will see alcoholic beverages now taxed on strength.

These new regulations mean that many drinks, particularly fortified wines, will cost significantly more while lower-abv products will be cheaper. Draught beer will remain largely untouched under a government scheme to protect pubs.

Chancellor Jeremy Hunt postponed the tax hikes in February due to the cost of living crisis, but has followed through with the new system second time around.

"The changes we're making to the way we tax alcohol catapults us into the 21st century, reflecting the popularity of low-alcohol drinks and boosting growth in the sector by supporting small producers financially,” said Hunt.

According to the Wine and Spirits Trade Association, drinks below 3.5% abv will be taxed at a lower rate, but tax on drinks above 8.5% abv will stay the same, regardless of the product.

As a result, sparkling wine, which was previously taxed at a higher rate than still wine, will be 19p cheaper, for a standard-strength bottle, if retailers pass on the tax changes by lowering prices. Tax on a typical bottle of still wine at 12% abv will go up by almost 50p, while stronger wines at 15% will increase by around £1.

Port wine, which sits at around 20% abv, will likely suffer the most with prices expected to rise by around £1.50.

Miles Beale, chief executive of WSTA, said: “We are careering towards an extremely tough period for wine and spirit businesses with tax hikes and other costs, including a prolonged cost of living crisis for their consumers, persistently high inflation – especially for food and drink – and rocketing prices for glass, leaving little room for many businesses to turn a profit. Inevitably some won’t be able to stay afloat, with SMEs most at risk.

“Among all this pressure the government has chosen to impose more inflationary misery on consumers on 1 August, with the biggest single alcohol duty increase in almost 50 years.

“Ultimately, the government’s new duty regime discriminates against premium spirits and wine more than other products. Wine from hotter countries – like new trade deal partner Australia – will be penalised most of all, because the grapes grown in hotter climates naturally produce higher alcohol wines. And, at the same time, you cannot reduce alcohol in wine like you can for some other products. Making wine isn’t an industrial process; reducing wine’s alcoholic content is limited, changes the product and is costly to carry out. Nor can the alcohol in full strength spirits be reduced for products such as gin, vodka and whisky where a minimum strength prescribed by law.

“In the end the Sunak-Hunt changes to wine duty will reduce consumer choice and push up prices. For spirits you can expect at least a £1 increase on a bottle of gin or vodka and a leap of £1 per bottle of wine when duty is increased by 20% (+VAT).

“Wine and spirit businesses are looking to find ways to keep their products affordable, but there is no quick fix, and there are too many tax and costs increases and too few options – especially for wine and full strength premium spirits where reducing abv simply isn’t realistic.”