Who is likely to be affected
Businesses and individuals responsible for accounting for excise duty prior to consumption - for example manufacturers, importers and warehouse keepers - as well as retailers and consumers of alcohol.
General description of the measure
The public finances assume that all alcohol duties rise by retail price index (RPI) inflation each year. This measure changes the expected duty rates on some alcohol manufactured in, or imported into, the UK.
The government is committed to helping pubs, which are important community assets that encourage responsible alcohol consumption.
Background to the measure
At Budget 2016 the Chancellor of the Exchequer announced that the following duty rates will be frozen in cash terms this year:
- duty rates on beer
- duty rates on spirits and other drinks above 22% alcohol by volume (abv)
- duty rates on still cider and lower strength sparkling cider
The duty rates on wine and made-wine at or below 22% abv, and high strength sparkling cider above 5.5% abv will rise by RPI inflation from 21 March 2016.
The new alcohol duty rates will have effect from 21 March 2016.
Alcohol duty rates are set out in the Alcohol Liquor Duties Act 1979. The duty rate(s) for:
- spirits is set out in section 5
- beer are set out in section 36(1AA) and 37(4)V
- cider are set out in section 62(1A)
- wine and made-wine are set out in Schedule 1
Legislation will be introduced in Finance Bill 2016 to revise the alcohol duty rates. Section 62(1A)(a) and Schedule 1 of the Alcohol Liquor Duties Act 1979 will be amended to provide for the relevant alcohol duty rates. The revised rates are:
- duty on sparkling cider and perry exceeding 5.5% but less than 8.5% abv: £268.99 per hectolitre of product
- duty on wine and made-wine exceeding 1.2% but not exceeding 4% abv: £85.60 per hectolitre of product
- duty on wine and made-wine exceeding 4% but not exceeding 5.5% abv: £117.72 per hectolitre of product
- duty on still wine and made-wine exceeding 5.5% but not exceeding 15% abv: £277.84 per hectolitre of product
- duty on sparkling wine and made-wine exceeding 5.5% but less than 8.5% abv: £268.99 per hectolitre of product
- duty on sparkling wine and made-wine of at least 8.5% but not exceeding 15% abv: £355.87 per hectolitre of product
- duty on wine and made-wine exceeding 15% but not exceeding 22% abv: £370.41 per hectolitre of product
Summary of impacts
Exchequer impact (£m)
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These figures represent the combined Exchequer impact of all the alcohol duty changes at Budget 2016. The figures for these measures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2016.
If passed on to consumers, this measure is expected to have a very small positive impact on inflation.
A behavioural adjustment is made to take into account changes in the consumption of alcohol in response to a price change.
Impact on individuals, households and families
There will be a positive financial impact for individuals who consume some alcoholic drinks compared to the expected duty rate increases. At the current VAT rate, and assuming 100% pass through wherever alcohol is purchased, from 21 March 2016 the tax on a typical:
- pint of beer will be unchanged in cash terms and 10 pence lower than it otherwise would have been since ending the beer duty escalator in 2013
- litre of cider will be unchanged in cash terms and 4 pence lower than it otherwise would have been since ending the cider duty escalator in 2014
- bottle of Scotch whisky will be unchanged in cash terms and 87 pence lower than it otherwise would have been since ending the spirits duty escalator in 2014
- bottle of wine will be 4 pence higher in cash terms and 7 pence lower than it otherwise would have been since ending the wine duty escalator in 2014
The measure is not expected to impact on family formation, stability or breakdown.
Due to differences in alcohol consumption, any changes to alcohol duties will have an equalities impact that reflects consumption trends across the adult population.
Impact on business including civil society organisations
The changes in alcohol duty rates are intended to help pubs, which the government acknowledges are important community assets that encourage responsible alcohol consumption. This measure will also help other retailers of alcohol. Some alcohol manufacturers and importers will also benefit from lower duty rates than expected. The government expects that the benefit will be passed onto consumers.
This measure is expected to have a negligible impact on businesses. Those businesses affected by the duty rate change will incur a negligible one-off cost to update their systems. There are not expected to be any additional on-going costs. This measure is not expected to have any impact on civil society organisations.
Small and micro business assessment: This measure will benefit some small and micro businesses. Small brewers - those producing less than 60,000 hectolitres - pay reduced rates of general beer duty. Small cider makers – those producing less than 70 hectolitres - do not pay any cider duty.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
HMRC will incur a negligible one-off cost for changing alcohol duties.
Health impact assessment: Freezing the duty rates on beer, spirits and other drinks above 22% abv, and most ciders is likely to lead to a minor increase in overall alcohol consumption in the UK.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
If you have any questions about this change, please contact the Excise and Customs Helpline on Telephone: 03000 200 3700