A consultation on duty for cider under 7.5% ABV and still wine between 5.5% and 8.5% ABV has been launched by the treasury, as promised in the recent spring budget.
The consultation states the government believes alcohol duties should be related to the alcoholic strength of drinks and that the 'intention is to target ‘white’ ciders, and to avoid any impacts on traditional cider makers'. An end to white ciders has long been called for by public health groups and homeless charities citing the adverse impacts of such products on vulnerable groups.
Indeed the current alcohol tax system is regarded as rather peculiar; the Institute for Fiscal Studies (IFS) for instance has long been calling for changes that make more sense from a broader policy perspective, having recently produced a further report on optimal corrective taxes in the alcohol market. In a related blog post, the IFS describe the current system as 'a mess', highlighting the discrepancy in price per unit on a litre of 7.5% ABV beer (liable for 138p of tax) and a litre of 7.5% ABV cider (liable for only 39p of tax). Brexit may of course render many such specifics moot in the longer term, given that - theoretically at least - exist from the EU will remove the need to adhere to the EU's inconsistent taxation approaches across product types.
In the meantime, the consultation is underway, which states:
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.
However as with most areas of fiscal policy, predicting and attempting to account for potential consumer and business responses is an important matter. Those in the treasury will fear 'perverse incentives' as much as businesses may fear for the profitability of their products, whilst public health groups will want to be sure that the end result ultimately disincentivises white cider production or purchasing - or both. As such, the consultation specifically requests responses on how splitting the current tax band should be done, and the potential consequences of different approaches on the different stakeholder interests.
Incentivising lower strength wines?
Less expected was the inclusion of a possible new wine band in the consultation. Relatively little attention to the issue of wine strength has been seen in recent duty debates, albeit that wine consumption has risen dramatically since 1980, and is the most popular UK drink category. Average wine ABVs have also been on an upward trend, partly as a result of rising temperatures and production methods in the global wine market.
The consultation states:
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.
EU law however requires that there has to be a single band for wine between 8.5% and 15% ABV, but given the average strength of wine as around 13% ABV, it is unclear whether any significant proportion of typical wine drinkers would be interested in such a lower ABV product. On the other hand, the rise of more 'health conscious' consumers and drinkers actively trying to reduce their consumption may prove otherwise. A wider question though may be over the extent to which lower strength products can actually reduce population consumption, as raised by previous research suggesting such products may actually result in additional drinking occasions and questions over the former responsibility deal's impact.
The consultation will run for a period of 12 weeks closing at 11.45pm on 12 June 2017. Responses to the consultation questions should be sent to [email protected].
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