A new report has set out detailed proposals on how alcohol duty could be reformed after Brexit to deliver a 'fit-for purpose' duty system.
See here for the Social Market Foundation's (SMF) report 'Pour Decisions? The case for reforming alcohol duty' [pdf], and summaries from the SMF and the report's sponsors the Institute of Alcohol Studies (IAS).
The current duty system has been a long-running issue of contention in UK policy debates, and whilst the Treasury has the ability to adjust rates, duty systems vary significantly by product. For example, spirits and beer duty is based on alcohol content, whilst wine and cider duties are based on the final product volume, creating 'mixed incentives' in terms of product strength.
The report highlights a number of potential opportunities for reforming alcohol duty under a 're-nationalised' system post Brexit. These include the introduction of an alcohol duty escalator and the removal of taxation by product volume to level the playing field. Further, a pub relief scheme could be implemented such that the on-trade could be helped in order to close the gap between the off-trade where cheap, high volume sales have been attributed to harmful drinking and the decline of the pub trade.
Meanwhile, the Treasury has since came under fire for promoting the 'return of duty-free' under a no-deal Brexit. It said a bottle of wine bought on the way to the EU could be up to £2.23 cheaper under no-deal, provoking widespread criticism given the likely impact on health inequalities as well as the economic impact of no-deal on the economy. A Guardian article said the announcement was 'the latest attempt to win public support for Boris Johnson’s Brexit stance' and the cost of the policy could be £250 million. The Government said it would be launching a consultation on the duty system.
Battles over duty rates within the current system have been hard fought, with health groups keen to see tax levers better utilised, particularly in the absence of minimum pricing plans for England. The beer duty escalator was credited with halting to price gap between pubs and the off-trade from 2008-13, but in 2016 a landmark was hit when off-trade beer sales over took the on-trade for the first time, marking a significant long term shift towards home consumption.
Earlier this year as LSE blog argued there were still potential gains to both the economy and population health by increasing duty within the current system. It argued the potential 'double dividend' has been unrecognised due to 'recent government largesse is the belief that raising alcohol taxes is bad for the economy' yet analysis suggests the counter to be true. Recent budget decisions have largely gone against health calls, except for inflation level rises for wine, seemingly prompting a new industry supported campaign body 'Wine Drinkers UK'.
Responding to the SMF report, Katherine Severi, chief executive of the IAS said:
'This new report from SMF highlights the illogicality, loopholes and perverse incentives that pervade the way we tax alcohol. For too long, politicians have set alcohol duty with more concern for newspaper headlines than the health and welfare of the country. We therefore welcome SMF’s proposal that alcohol taxes should be set on the basis of a rigorous independent evidence review every 5-10 years.
'Post-Brexit, if the UK is no longer bound by EU Directives on alcohol taxation, the government should restructure the duty system to ensure that stronger products are taxed at a proportionately higher rate. At the same time, SMF demonstrate that Brexit should not be an excuse for inaction. Even under the current rules, the government can take a common sense approach to taxing alcohol by ending the favourable treatment of cider. This would save lives and protect some of the most vulnerable groups in society.'
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