It was billed by UK Chancellor Rishi Sunak as “the most radical simplification of alcohol duties for over 140 years,” enabled by Britain’s departure from the EU.
But for the wine industry the change to alcohol taxation, announced in last autumn’s Budget and due to come into effect in February 2023, looks like a nightmare in the making, compounding bureaucratic headaches that importers are already experiencing as a result of Brexit.
Under EU rules that still apply, wine and fortified wines are taxed under three bands, with another higher bracket for sparkling wine. Under Sunak’s proposals there will be 27 different rates for wines on a rising scale that moves with each half percentage point increase in alcohol volume.
Wine traders are calling it a “sunshine tax”, as the strength of wine, unlike with beer and spirits, is determined by climate. This means that stronger wines from hotter countries such as Australia will be penalized, while some lower alcohol wines from Germany, for example, will attract less tax.
The complexity of the changes, say people in the wine trade, will increase administration costs, drive prices up for consumers and reduce the range of wines available in the UK.
“The Tory party is meant to be on the side of reducing bureaucracy and increasing operational efficiency. This is going to the exact opposite, ”said Ed Baker, managing director of Kingsland Drinks, which imports wine and spirits in bulk and bottles them for supermarkets and other outlets outside Manchester.
The All-Party Parliamentary Group on wines and spirits has come to similar conclusions in a report produced in collaboration with the Wine and Spirits Trade Association due to be published next week. The report was intended to look at the impact of Covid-19 and Brexit on SMEs in the alcohol trade, but was adapted to take into account proposed changes to the duty regime.
“In response to the government’s proposals, UK wine and spirit SMEs have been unequivocal: the measures fail to meet its own objectives of being fairer and easier to implement,” the report says.
The WSTA estimates that the changes will bring an extra £ 250mn to the exchequer from wine, which became the most widely consumed alcoholic product in the UK during the pandemic. But the additional revenues to the exchequer will be offset by falls in duties on beer and cider.
The association says that 80 per cent of all wine consumed in the UK is above a threshold of 11.5 per cent alcohol content, where duty increases.
“There isn’t a lot the winemakers can do about it because you can’t control ABV [alcohol by volume] in an agricultural product. It is the sun that dictates how sweet the grape is and the sugar that dictates the ABV, ”said Lucy Panton, WSTA’s director of communications.
Wine importers say the new rules mean ABV will need to be constantly evaluated across thousands of labels, even across different vintages of the same wines, which can vary in strength from season to season. This will make pricing time-consuming, a moving target each year and will involve significant investment in personnel and IT.
“In this post-Brexit world where better regulation is a big sale, it would be hard to design a system any more complex,” said Steve Finlan, chief executive of the 170,000-member Wine Society, the world’s oldest wine club.
Importers of Australian wine are particularly incensed. Tim Curtis, corporate affairs director of Direct Wines, one of the largest online wine merchants, welcomed the elimination of a premium tax on sparkling wines, which will benefit English vineyards.
But he said for Australian producers the increases in duty massively outweigh any benefit from the free trade agreement signed with the UK in December 2021.
“93 per cent of our Australian wines would have a duty increase,” he said. “They save 9p a bottle because of the FTA. But on 15 per cent Shiraz from the Barossa valley you would pay 68p more in duty having saved that 9p. ”
Wine merchants fear there will be an increase in fraud as a result of the changes, with some producers mislabelling alcohol content to attract lower taxes, or even diluting their wine – a prospect that horrifies connoisseurs.
Daniel Lambert, a wine merchant based in Wales, described the new regime as “completely unworkable” and said the additional compliance costs of the new rules could see smaller, independent companies pushed out of the market.
“The niche importer who was shipping a pallet from here and a pallet from there and bringing interesting products – they won’t be able to cope,” he said.
The government closed formal consultations on the reforms at the end of January. It defends the changes, arguing that wine producers already have to report ABV for labeling purposes, and that the moveable rates are all within one band.
“We’re not creating 27 bands. For all wines with an ABV between 8.5 per cent and 22 per cent, there will be one band based on alcohol content, ”said the Treasury.
“Our reforms will replace outdated rules with a common sense approach that puts the taxation of stronger beers, wines and spirits on an equal footing, making lighter and sparkling wines more affordable for UK drinkers.
“This comes on top of freezes to alcohol duty at the last three budgets, saving consumers £ 5.7bn in total,” the Treasury said.