UK pre-budget report raises duty again

The UK news last night and this morning has been dominated by the Chancellor's pre-budget report to the House of Commons. In addition to a range of tax changes, all intended to get people lending and spending, he announced a rise in alcohol duty to off-set an across the board 2.5% cut in VAT (from 17.5%). Although the news coverage went into great detail about most of the changes, there was little explanation of the implications for the drinks industry. However, the WSTA (Wine and Spirit Trade Association) summarised the changes as follows. Not much Christmas cheer in Downing Street.

The rates of duty for alcohol will be increased by 8% at the same time as the reduction in VAT takes place. This will come into force on midnight 30 Nov 2008.

The increase in duty will be maintained when the VAT rate is returned to 17.5% in Jan 2010. The 2% above inflation duty escalator announced in the 2008 budget will still be applied in March 2009.

The Treasury have stated that the revenue raised from the increase in duty broadly equates to the revenue lost from a reduction of 2.5% in VAT. [How neat – JH]

The figures below give the Treasury assessment of the impact of the alcohol duty changes. This does not show the offsetting impact of the reduction in VAT, which will vary between products and depending on the point of sale.