The government believes that alcohol duties should be related to the alcoholic strength of drinks. This creates incentives within the alcohol duty system to encourage innovation by producers within the low strength alcohol market and create incentives for individuals to consume lower strength drinks. In line with this, the government has already stated it would support any future changes to EU rules to allow duty on wine to rise in line with alcoholic strength1 2.
EU law requires beer and spirit duties to be directly proportional to alcohol content. To encourage the production and consumption of lower strength alcohol beer, the government introduced an additional duty on high strength beer in 2011 and lowered the duty rate on low strength beer. Cider and wine duties, however, must be banded. This means that any drinks within a band pay the same duty regardless of their alcoholic strength. A pint of 1.3% alcohol by volume (abv) still cider currently pays the same amount of alcohol duty as a pint of 7.5% abv cider.
The government wishes to examine options to amend the structure of the alcohol duty system so that duty rates better correspond to alcoholic strength. That is why the government announced at Spring Budget 2017 that it would consult on:
- the introduction of a new band to target cheap, high strength ‘white’ ciders, below 7.5% abv
- the impacts of a new lower strength still wine band, to encourage the production and consumption of lower strength wines
Chapter 2 examines the case for a new still cider band targeting ‘white’ ciders, and chapter 3 aims to gather evidence on the impacts of a low strength wine band on innovation in lower strength wines and made-wines. A summary of the consultation questions is in chapter 4.
The consultation will run for a period of 12 weeks closing at 11.45pm on 12 June 2017. The government will announce its next steps once the consultation has closed and all responses have been received and considered. Please send responses to the consultation questions to firstname.lastname@example.org.
2. A new still cider and perry band below 7.5% abv
The government recognises that the majority of drinkers consume alcohol in a responsible manner. However, the government is also aware of the harms associated with problem consumption of alcohol. This remains a concern. The government is committed to reducing excessive alcohol consumption and tackling the related health harms.
The current still cider and perry bands are:
- above 1.2% but not above 7.5% abv, with a duty rate of £40.38 per hectolitre of product
- above 7.5% but less than 8.5% abv, with a duty rate of £61.04 per hectolitre of product
Public health groups argue the main still cider band – above 1.2% to 7.5% abv – is too wide as low-strength still ciders attract the same duty as 7.5% abv still ciders. Theoretically, this can create adverse incentives to produce drinks towards the top of the band. There is no additional duty cost from increasing alcohol content in a still cider up to 7.5% abv so the duty per unit of alcohol falls as the alcohol content rises in the band.
Higher strength ‘white’ ciders have been highlighted, by some, as a product that causes disproportionate levels of harm. These drinks have an alcohol strength around 7.5% abv, and are reportedly typically purchased as a cheap form of relatively high strength alcohol. A three litre bottle of a 7.5% abv ‘white’ cider contains 22.5 units of alcohol which is over 1.5 times the number of units the UK Chief Medical Officers have recommended for weekly consumption for those wishing to keep the health risks from drinking alcohol to a low level3. Public health groups report that these high strength products are closely associated with dependent, street and underage drinking primarily due to their low price. According to Thames Reach, super strength drinks have become one of the biggest causes of premature death of homeless people in the UK. The Alcohol Health Alliance cite research suggesting that 25% of alcohol treatment services patients in Glasgow and Edinburgh drink white cider, and 45% of white cider drinkers drink it exclusively4.
The government has already taken targeted action through the alcohol duty system to support public health. In 2010, minimum juice rules were introduced. This means that cider or perry must, for duty purposes, be made from at least 35% apple or pear juice or else it is taxed as a made-wine at a higher duty rate. The aim was to increase the cost of white cider by forcing producers to either:
- increase their juice content – which would increase production costs as fruit juice is typically the most expensive ingredient in cider
- to pay higher duty through reclassification as a made-wine
In 2014 the government also took action on very cheap alcohol by banning sales of alcohol in England and Wales which cost less than the value of the excise duty plus the VAT on the duty. This sets a minimum price below which alcoholic products cannot be sold. Although these targeted interventions impact upon the costs and pricing of alcohol products, the government is interested in whether further action can be taken to continue to tackle drinks associated with alcohol harms, to encourage innovation in lower strength ciders and to encourage the consumption of lower strength alcohol.
Some argue that the duty rates for cider are too low. A typical strength cider has a relatively lower duty rate compared to other alcoholic drinks of the same/similar alcoholic strength. This is because the cider industry is an important part of the rural economy. It uses almost half of the apples grown in the UK. Any change in the main rates of cider duties will impact on a wide range of cider makers including those making lower strength drinks. The government considers it is unfair to significantly increase the duty rates on all cider makers given the important role cider makers have in rural communities and the impact it would have on the many responsible drinkers of cider.
Alternatively, the government could lower the 7.5% abv threshold for the higher strength still cider band for ciders above 7.5% up to 8.5% abv. However, lowering the 7.5% abv threshold would widen the higher strength band, meaning that there would be a greater difference in alcoholic strength between the weakest and strongest drinks captured by the band.
As set out above, duty rates for still cider and perry are split into two bands: (1) the main still cider band above 1.2% up to 7.5% abv, and (2) the higher strength still cider band above 7.5% but less than 8.5% abv. Current rules allow reduced rates for still ciders below 8.5% abv. Therefore, the government could introduce a new duty band below 7.5% to split the main still cider band into two. The government is minded to introduce a new still cider and perry duty band to target high strength ‘white’ ciders, up to 7.5% abv. All products captured by this new band would pay a higher duty rate than their current rate. Those still ciders and perries in the lowest duty band would continue to pay the current duty rate.
Do you agree that there is a case for a new still cider and perry band below 7.5% abv?
The upper threshold for a new band would be 7.5% abv. The impact a new band could have may differ depending on where the lower threshold is set:
- a narrow duty band (above y% up to 7.5% abv) may encourage some producers to reformulate their products to reduce the alcohol content to y% abv or below. The reformulated drinks would continue to attract the same rate of duty as now in the lowest band (above 1.2% to y% abv). Firms will need to consider a variety of factors before changing their alcoholic strength, including any impacts it may have on a cider’s taste
- a wider band (x% to 7.5% abv, with x% lower than y%) may be more likely to result in price rises for ‘white’ ciders and other ciders and perries that are in the band. It may be more difficult for producers to reformulate their products without, for example, significant changes to a cider’s characteristics. Therefore, producers may choose to keep their alcoholic strength unchanged, pay the higher duty rate and pass this onto consumers through price rises
The government recognises that there may be conflicting views about the position of the lower threshold. Any information on how the ability to reduce the alcohol content of ciders varies by the size of the reduction required would be welcomed.
Where do you think the lower threshold should be set? Please provide evidence to support your answer. We would also welcome any evidence about reducing the alcohol content of ciders.
In volume terms, how does the still cider market breakdown by strength in 0.1% abv increments?
While a new duty band would target high strength ‘white’ ciders, all still ciders and perries within the band would be impacted. The government’s intention is to target ‘white’ ciders, and to avoid any impacts on traditional cider makers. We would welcome evidence on impacts upon the wider industry to enable the government to effectively target ‘white’ ciders.
We would welcome evidence on the impacts a new still cider and perry duty band could have. This includes, but is not limited to, the impacts on:
- public health
3. The impacts of a new still wine band between 5.5% and 8.5% abv
The duty on wine and made-wine, like cider, is currently banded. All wines and made-wines in a band pay the same duty. The government would support any future changes to EU rules to allow the duty on wine to rise in line with alcoholic strength. This could help encourage the production and consumption of lower strength wines. In the meantime, the government would welcome evidence on the impacts a new duty band for still wine and made-wine between 5.5% and 8.5% abv could have in encouraging innovation in the lower strength wine market and encouraging the consumption of lower strength wines.
The current still wine and made-wine bands are:
- above 1.2% but not above 4% abv, which pays a duty rate of £88.93 per hectolitre of product
- above 4% but not above 5.5% abv, which pays a duty rate of £122.30 per hectolitre of product
- above 5.5% but not above 15% abv, which pays a duty rate of £288.65 per hectolitre of product
- above 15% but not above 22% abv, which pays a duty rate of £384.82 per hectolitre of product
- above 22% abv, which pays a duty rate of £28.74 per litre of pure alcohol
EU law requires that there has to be a single band for wine between 8.5% and 15% abv. As the UK’s main still wine and made-wine band is currently 5.5% to 15% abv, it would be possible to split the main still wine and made-wine band into two. Under this scenario, there would be new duty bands for wines and made-wines between 5.5% and 8.5% abv with a lower duty rate than currently applied. The government has no current plans to change the duty rate on wines between 8.5% and 15% abv apart from those assumed in the public finances. This would mimic the duty structure for sparkling wine and made-wines, which has different rates depending on whether the sparkling wine is either above 5.5% up to 8.5% abv or between 8.5% and 15% abv.
Would a new band for still wine above 5.5% up to 8.5% abv encourage innovation in the lower strength wine market?
It is possible that changes to the structure of the alcohol duty system could encourage innovation in the low strength wine market. Nevertheless, the government appreciates that there may be other non-tax barriers to growth for the lower strength wine market, for example wider regulations or the attitude and tastes of consumers.
We would welcome evidence on non-tax barriers to the growth of the lower-strength wine market.
As set out above, any new duty band for low strength still wine and made-wine could have twin objectives, namely to encourage:
- consumers to buy lower alcohol wine. Our initial research shows some still wines and made-wines below 8.5% abv (e.g. rosé and fruit wines) can be found in a wide range of retailers
- producers to reformulate their drinks given the number of products just above 8.5% abv. Lowering alcohol content offers health benefits for drinkers
The government has limited evidence on whether a new duty band would help fulfil these objectives. For example, we have limited data on this area of the wine market. The government would welcome evidence on the proportion of total sales within the wine market accounted for by lower strength wines and how this market is expected to develop in the future. Also, we have limited evidence on reformulating wine and made-wine drinks.
We would welcome evidence on the current and future performance of the lower-strength wine and made-wine markets, including information on volumes sold.
We would also welcome evidence on the practicalities of reformulation for wine and made-wine producers.
The government is aware that a new band for still wine between 5.5% and 8.5% abv would impact upon a wide range of consumers and organisations.
The government would welcome evidence on the impacts of introducing a new band on:
- public health
Wine and made-wine are currently subject to the same duty rates, and historically always have been. If this continued, a new band would also be introduced for made-wine above 5.5% up to 8.5% abv. Made-wines are drinks like fruit wines, fruit ciders, some alcopops, mead and nettle beer.
If the government decides to introduce a new still wine band, should the new duty band also be applied to still made-wines?
What impacts would a new still made-wine band have?
The introduction of a new wine or made-wine band would lessen the duty impact if a producer of a 5.5% abv drink chooses to increase the alcohol content of their drink. This could create adverse incentives for some producers to increase their alcohol strength, contradicting the government’s aim to encourage innovation in lower-strength wines.
Do you think introducing a new still wine and made-wine band could create adverse incentives for producers to increase their alcohol strength of some of their drinks? If so, how large an effect would you expect this to be?
Are there any other factors that the government should consider in relation to a new duty band for wine and made-wine?
4. Summary of consultation questions
- Do you agree that there is a case for a new still cider and perry band below 7.5% abv?
- Where do you think the lower threshold should be set? Please provide evidence to support your answer. We would also welcome any evidence about reducing the alcohol content of ciders.
- In volume terms, how does the still cider market breakdown by strength in 0.1% abv increments?
- We would welcome evidence on the impacts a new still cider and perry band could have. This includes, but is not limited to, the impacts on: (1) businesses, (2) consumers, and on (3) public health.
- Would a new band for still wine above 5.5% up to 8.5% abv encourage innovation in the lower strength wine market?
- We would welcome evidence on non-tax barriers to the growth of the lower-strength wine market.
- We would welcome evidence on the current and future performance of the lower-strength wine and made-wine markets, including information on volumes sold.
- We would also welcome evidence on the practicalities of reformulation for wine and made-wine producers.
- The government would welcome evidence on the impacts of introducing a new band on: (1) businesses, (2) consumers, and (3) public health.
- If the government decides to introduce a new still wine band, should the new duty band also be applied to still made-wines?
- What impacts would a new still made-wine band have?
- Do you think introducing a new still wine and made-wine band could create adverse incentives for producers to increase their alcohol strength of some of their drinks? If so, how large an effect would you expect this to be?
- Are there any other factors that the government should consider in relation to a new duty band for wine and made-wine?
5. Consultation process
This consultation is being conducted in line with the tax consultation framework. There are 5 stages to tax policy development:
- Stage 1 – Setting out objectives and identifying options
- Stage 2 – Determining the best option and developing a framework for implementation including detailed policy design
- Stage 3 – Drafting legislation to effect the proposed change
- Stage 4 – Implementing and monitoring the change
- Stage 5 – Reviewing and evaluating the change
This consultation is taking place during stage 1 of the process. The purpose of the consultation is to seek views on the policy design and any suitable possible alternatives.
5.1 How to respond
A summary of the questions in this consultation is included at chapter 4.
Responses should be sent by email to email@example.com or by post to:
Alcohol structures consultation
VAT and excise team
1 Horse Guards Road
All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations.
When responding please say if you are a business, individual or representative body. In the case of representative bodies, please provide information on the number and nature of people you represent.
Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1988 (DPA) and the Environmental Information Regulations 2004.
If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory code of practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Treasury.
HM Treasury will process your personal data in accordance with the DPA and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.
5.3 Consultation principles
This consultation is being run in accordance with the government’s consultation principles.
If you have any comments or complaints about the consultation process, please contact:
HM Revenue & Customs
100 Parliament Street
Please do not send responses to the consultation to this address.
On 23 June 2016, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the government will continue to negotiate, implement and apply EU legislation. ↩
‘UK Chief Medical Officers’ alcohol guidelines review: summary of the proposed new guidelines’, Department of Health, January 2016. ↩