It's your Duty to do the Maths.
I might get it in the neck for this one, but I think the new duty system is only 50% really bad.
So,
There’s been loads of noise when discussing the new wine duty in the UK that has been bugging me. As much as I’m frustrated by further increases to our already costly wine duty taxes, the other argument is one I can’t get too grumpy about.
Firstly, there’s a bit of context for those that might not be quite as dialled into the UK’s wine duty regulations.
Up until last summer, wine from 8% to 15.5% abv had a single rate of duty. It’s been the same system for a long time. When I started in wine, it was just over £1.50 per bottle, and by 2023 it was £2.67 per bottle, excluding VAT. There was also a different, higher rate for sparkling wine, which sensibly has now been equalised. There has been yet another increase since 1st Feb, pushing many wines upward of £3 per bottle in duty, pre VAT.
Compared to the rest of Europe, the UK now pays one of the highest rates of duty per bottle, almost as much as Norway at €5.19 per bottle or Ireland at €3.19 per bottle. That compared to France at €0.03 per bottle or Spain where they don’t pay duty on wine. We’re already at a disadvantage.
Still, the previous Tory government decided to do this while also changing how duty was calculated on wine. Rather than a fixed amount per bottle, it was decided that the duty rate would be based on how much alcohol the wine has.1
The wine industry was immediately up in arms on both counts. Firstly, another increase, and secondly, the logistical hassle of having different duty rates based on the abv of the wine.
The latter is the thing I just can’t see the issue with.
Beer & Spirits Already Know the Issue
This kind of system isn’t new. Beer, cider, and spirits have been taxed by alcohol for years.
I spent many years working for a brewery, albeit in the wine team. However, new beer products always considered alcohol content and duty rate in the product cost.
Breweries have been factoring alcohol duty into pricing and production for ages, adjusting styles, pricing, and packaging accordingly.
Beers are (re)formulated for style and duty, and these duty rates affect retail price and positioning. It’s partly why those small-batch cans of hazy NEIPAs2 are more expensive than session beers. It’s not just cost-of-goods and marketing, it’s duty.
For a £4 retail price including VAT, a 500ml can of 3.4% session IPA is taxed differently from a 7.5% hazy NEIPA.
A 3.6% abv session IPA incurs just £0.39 in duty, making up 11.7% of the pre-VAT price.
A 7.5% abv hazy NEIPA incurs more than double. £0.82 in duty, accounting for 24.6% of the pre-VAT price.
Same deal with spirits. Ever wondered why cask strength 55% abv whisky is significantly more expensive than standard 42% abv whisky? It’s not just because it’s more concentrated or exclusive, it’s partly because it hasn’t been diluted, so it’s taxed at a higher rate.
For a 70cl bottle of whisky with an ex-duty cost of £17 and a 25% retailer margin;
42% abv incurs £9.63 duty = RRP £42.61
55% abv incurs £12.63 duty = RRP £47.41
That’s an extra £5 per bottle at retail, purely due to the higher abv.
Higher abv beers and spirits already cost more because of duty. Wine agencies, importers, and warehouses will have to adapt in the same way.
Operational Reality
There are systems in place to handle this for beer and spirits already, which can easily be applied to wine. Include the ABV on the incoming paperwork, calculate or manually input the duty. It’s going to be fixed for that SKU until you buy something else or the vintage changes.
For any retailer dealing with wine, beer and spirits, and looking after duty payments, there will be a relational ERP3 system, or a DOP4 platform that integrates a database for stock management where the duty rate for each wine is accounted for.
I’ve filled in countless New Product Forms to know that importers already keep databases for their products that include, grape variety, vintage, winemaking, bottle closure, bottle weight, vegan / veggie, abv, duty, commodity code, the name of the winemakers dog, long tasting note, short tasting note, all sorts. It’s data that is already being accounted for.
Producers already deal with half bottles, single serve bottles, magnums and such which have different duty implications. Don’t forget we had different duty rates for still or sparkling until last year.
The systems are already there, we got distracted by the huge increases for high abv wines.
Similarly, for any small retailer buying 100% of their stock duty paid, as most indies do, there is zero headache in calculating the duty. The wholesaler or distributor has done it for you, just like they always have done. Make a decision based on the duty-paid price; the RRP, your margin and quality thoughts and away you go.
One of the arguments from the WSTA
The WSTA has called for the easement to be made permanent.
It has argued that “the abv of a wine cannot be pre-determined, dictated or maintained at the same level year after year.”
“The same wine from the same vineyard can vary by c.2% each [year]”.
It can be pre-determined.
I can tell you for a fact that Italian producers are formulating Pinot Grigio for the UK market to be specifically labelled at 10.5% abv to benefit from the new duty rates5.
They did it in 2022 the second the proposal was announced.
Pinot Grigio is not the only example either. There are loads of wines that have had their abv ‘tweaked’ to benefit from the new duty rates. The Anti-Alcohol lobby group, the W.H.O will be very pleased.
An English Wine Producers Perspective
From the guidance issued by Wine GB last week, there was some thoroughly confusing information that said;
“The alcoholic strength or abv may be shown as whole, half or tenths of percentage units e.g. 12.3% actual alcohol can be displayed as 12% vol., 12.5% vol., or 12.3%”
“Allowable abv tolerances are not to be used to determine the declared actual alcohol content of wine for labelling purposes.”
“The actual alcoholic strength of the wine must be within 0.5 percent tolerance of the figure shown on the label unless otherwise defined by regulation.” (FSA Wine Standards Labelling Dec 2024)
This was included in a piece of guidance specifically on duty rates, and reads to like a producer could or should label precisely for tax purposes.
If a wine is 12.3% abv (their example), then any right-minded producer would label at 12%. Technically, they could label at 11.8% given the allowable tolerances.
I haven’t heard anything about duty rates being calculated to the nearest 0.1% yet, but that is by the by if we can do 0.5%, and a perfectly feasible as it’s already perfectly legal in the USA to do so too.
While 0.5% tolerance is convention, it’s no longer legally mandated in the UK. Given this, producers in the UK are not supposed to round down their abv for the purposes of determining alcohol duty.
It goes on to explain that the tolerances are intended for differences in analysis;
“The allowable tolerances consider differences in laboratory methods, equipment, different laboratories performing the tests or possible losses over time in bottle aged wine through closure egress.”
Even though it states the tolerance is not to be used to declare the actual, who’s honestly going to know?
This also contradicts the WSTAs assertions that abv can’t be mitigated year-on-year.
What We Should Have Argued For
The industry lobbied hard against both the increase and the complexity of the new calculations.
Yet, in my view, we wasted time over-discussing on the gritty calculations. The industry could have focussed much harder on just one of these issues, the lack of a singular focus on stopping the increase was a mistake.
Rather than arguing against the whole system, a better approach would have been making much more use of the OBR forecasts and analysis of the total duty receipts to the exchequer (See: Further Reading below).
We could have pushed for alignment of the 8.5% – 22% ABV band (£29.54) with the lower rate charged from 3.5% – 8.4% (£25.67) per litre of pure alcohol.
If duty had been harmonised (regardless of the easement) at £25.67 per litre of pure alcohol, a 14% wine would have only gone up by 3p. Instead, we have a system that now further penalises wines above 12%, while those below get an easier ride.
Honestly, I'm sure those complex calculations could have fallen in line with beer and spirits if we’d have pushed for a better harmonised rate. We didn’t need to create some of the highest duty rates for wine in Europe.
This would have been an opportunity to create a fair, consistent tax structure, but instead, we’ve got a system that distorts pricing and benefits wines at the lower end of the ABV scale.
I’d love to hear your thoughts on this one. It's been a ride, but I never felt the message was clear enough.
Further Reading:
While I’m clearly at odds on the WSTAs assertion that calculating the new rates is overly complex, their commentary on the negative impacts of increasing the duty has been good.
There has been lots of very good commentary from the WSTA on the impact of the higher rates, such as explaining that due to reformulation and moderation of consumption, net duty receipts paid to the government have actually fallen.
Hidden in the middle of this comms piece: WSTA Briefing: Alcohol Duty and Budget 2024 (Jan 2025), should have been the headline argument:
OBR Modelling underestimates changes in consumption and the price-sensitivity of consumers. In the OBR's accompanying Autumn Budget forecast, projected total alcohol duty receipts revenue by the end of the forecast period was £15.9 billion, compared to the Autumn Budget 2023 forecast's estimate of £17.1 billion by the end of the forecast period.
I just wish that should have been their main focus. They confused the twofold message by moaning about complexity, and the ‘easement’… instead they should have been solely focussed on the implications of the falling duty receipts.
Finally, they are the Wine & Spirits Trade Association and they can’t suggest the calculations for wine are unworkable, while they’re already the system for spirits. Their whole argument centres around the number of SKUs (100s of thousands!), and complexity. The complexity argument for Wine doesn’t work while the industry is already set up just fine for Spirits.
The IAS are a de-facto anti alcohol lobby, read this piece with a critical analysis perspective. You need to understand their angle, but at least it articulates their position in a fairly compelling way.
Making the wine duty ‘easement’ permanent would negate the public health objective of the duty reform - 8th July 2024 | By Jem Roberts
Some interesting analysis on the ‘Easement’
The wine industry is lobbying hard – or “hell-bent” as the Wine and Spirit Trade Association (WSTA) says, to retain a system where tax per unit of alcohol reduces as wine increases in strength.
This goes directly against the objective of the alcohol duty reforms introduced in August 2023, and appears to be an attempt to alarm and confuse its members, policymakers, and the public.
The current Labour government had better things to do than stop it going through, apparently. I’m cautious about laying the blame for the new rates on Labour, this is solidly a Tory policy, but one that Labour could have reversed.
New England IPA - Brewing An English Hopped New England IPA
I could also point out vocal critics of the new duty arrangement that are selling 10.5% Pinot Grigio too, if I felt that way inclined.
Hi Dan, good to read your thoughts. Here are a few of mine.
Both Cider and Wine used to be taxed by volume of product, not ABV. That changed with Sunak's duty reforms of 2023.
The trade did lobby for a fairer, and preferably single, tax rate across all alcohol but the government was hellbent on keeping the existing inequalities between cider, beer, wine and spirits. No point flogging that particular horse, however strong the argument remains.
The trade lobbied successfully for a provision for wine that took into account the changing ABVs from bottling to bottling and vintage to vintage, using the same 'tolerance' argument still provided for cider today. Cider can be labelled, and taxed, with a 1% ABV tolerance. That's about 20% if most cider ferments to around 5%. The provision for wine in effect allowed a tolerance for taxation purposes that made wine, like cider, able to fit the new tax-by-ABV policy. The tolerance was much less than cider's 20% (about 12% either side of 13%ABV) and offer course other legislation meant wine still had to be labelled to within 0.5%ABV.
That provision should have been the end of it but was made temporary by the last government, with precious little time to persuade the incoming government to make it permanent.
The argument about forecasting duty is another thorny one. The Office for Budget Responsibility produces forecasts that the government, post-Kwarteng, would be unwise to ignore. But those forecasts for duty receipts are extremely questionable, as they draw a straight line of annual growth till the end of this parliament, irrespective of the hugely increased tax rate on wine (which is the biggest net contributor of duty). You can't challenge the OBR's forecasts directly because their only client is the government. You can't challenge the government about using the OBR's forecasts because of the Truss/Kwarteng debacle.
As a SME I still have to engage with calculation of duty on a regular basis. Buying in Bond is one important way smaller businesses can remain competitive yet improve margin. I have wines at 48 different taxable ABVs between 8.5 and 22%. It does mean a lot more work and need for communication. The government says duty is going up by RPI inflation but some wines are seeing duty increases of 20%, on the back of 20% increase in 2023.
I can't see what we should have done differently than push hard for the easement to be made permanent, given the duty receipts and taxation rate arguments were already off the table.