Taxing Times- A Quick Comment on the Budget

There was not too much in yesterdays UK budget to get spirits consumers and producers very excited. There is a 3.9% tax rise that will affect spirits producers and, as the trade bodies were quick to point out, this was pretty disappointing.

The Scotch Whisky Association (SWA) , with some hefty gin and vodka producers in their membership, pointed out that revenue from duty had risen when duty rates had been frozen or even cut.  The Wine and Spirit Trade Association (WSTA)  in their response pointed out that it was the first time in 25 years that inflation had been used to increase the duty rates across all alcoholic drinks.

Spirits consumers and producers have a number of reasons to be a bit aggreived about this.

Firstly the tax hike was made with a very quiet “No change to previous announcements..”- but it’s only by looking in the actual budget report-  on page 35  if you want to check it out, that the full extent of the rise was made clear.

Secondly, the rate of the increase has been taken from the Office of Budget Responsibilities (OBRs) forecast  for inflation on RPI. This measure is the higher of the two most used indices for inflation and includes mortgage interest payments whereas the CPI does not.  Currently RPI is at 2.6% versus a forecast rate of 3%. The forecast rate suggest 3.2% in September this year (add on the VAT and you get to the 3.9% increase overall). With growth forecasts also being uplifted this could make some sense but it is absolutely worth keeping an eye on to see if these are accurate.

Thirdly the Chancellor had choices here. While HMRC do lay out proposed income Phil Hammond had the opportunity to vary these sources, as has been the case with budget statements over the last 25 years he made the decision not to.

For lovers of craft spirits the concern may be that Phil Hammond has these increases in his spreadsheets for future budgets raising product prices and raising barriers to entry in this vibrant sector. Lets’s hope there can be some convincing arguments put to him before the Autumn Statement.

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