How will the Alcohol Duty tax in August 2023 impact the Whisky Industry?
The latest Spring Budget from the UK Government featured a tax for alcohol products that will come into effect in August 2023.
It became a tradition for the Budget announcement to freeze alcohol duty, however, this changed in the Autumn Statement with the freeze extended to August 2023. The UK Government has now announced in the Spring Statement that the alcohol duty tax will be in place in August 2023, and it will affect the whisky industry in the UK.
The Scotch Whisky Association has been clear in their response to the Alcohol Duty tax. They claim that the UK government broke their pledge to “review alcohol duty to ensure our tax system is supporting Scottish whisky”, with a tax on whisky reaching historic highs.
What is included in the Alcohol Duty tax?
The Alcohol Duty tax will include the four main sections of alcoholic products as set out in the Alcoholic Liquor Duties Act (ALDA) 1979:
The only exception to the tax will be on draught products in on-trade venues, such as pubs. However, the same alcoholic beverage purchased at an off-trade venue, such as a supermarket, will pay more tax, therefore increasing in price.
The duty on alcohol products will also include those imported or produced in the UK. Currently, the increase will be 10.1% as it is calculated off the Retail Price Index (RPI).
According to the UK government the increases will show as follows:
- 5% ABV pint of draught cider will be 2 pence higher.
- 5% ABV 500ml bottle of non-draught cider will be 5 pence higher.
- 40% ABV 25ml serving of whisky will be 3 pence higher.
- 5.4% ABV 250ml can of spirits-based RTD will be 6 pence lower.
- 11% ABV 250ml glass of still wine will be 5 pence higher.
A relief on draught products is highly unlikely to affect the whisky industry as in 99% of cases whisky is sold from a bottle.
How will the Alcohol Duty tax damage the whisky industry?
The Alcohol Duty tax will be passed onto consumers at a time the UK is struggling with the cost of living crisis. It is believed that the tax will damage three sections of the whisky industry:
- New distilleries
Although whisky is considered a luxury product, 685,679 litres of whisky was sold in the UK in 2021. Many people enjoy their favourite dram at the end of a long week whilst drinking responsibly. All of which now will be subject to a higher tax, therefore a higher cost to the consumer.
Smaller producers of whisky look at the whisky industry as an excellent global opportunity. In 2022 whisky exports exceeded £6 billion, however, the first market they will target is the local UK market. Adding a further barrier to entry for new and exciting distilleries, like Young Spirits.
In addition to this, the hospitality industry will suffer. The hospitality industry has struggled since the COVID pandemic forced the closure of non-essential shops and services. So, those businesses may face a choice between increasing the prices of alcoholic beverages or accepting the cost on their already thin margins.
An additional tax on alcohol has the potential to damage both consumers and businesses nationwide.
Commenting on the Budget, Chief Executive of the SWA Mark Kent said:
“This is an historic blow to the Scotch Whisky industry. The largest tax increase for decades means that 75% of the average priced bottle of Scotch Whisky will be collected in tax, reducing already tight margins for an industry which employs tens of thousands of people and invests hundreds of millions annually across the UK.
“In addition, the Chancellor has chosen to further increase the competitive disadvantage faced by the industry in the UK by giving additional tax breaks which are not available to the vast majority of distillers. Spirits account for more than a third of hospitality sales, but the extension of ‘draught relief’ cuts out 99% of the spirits sector, alienating both producers and consumers who choose premium quality drinks.”
Read the full statement on the Scotch Whisky Association website.
Will it impact whisky investments?
It is yet to be seen whether it will significantly impact whisky investments. However, whisky is seeing unprecedented global growth and whisky producers see the UK, especially Scotland, as a good place to build infrastructure.
Some giants of the whisky industry are investing in Scottish whisky, including:
- Beam Suntory plans a £150 million storage facility
- Diageo plans to expand whisky warehousing facility in Kirkcaldy
- Guala Closures to build a ‘superfactory’ in Gartcosh
So, if you are concerned about whether or not your whisky investment is at risk with these new duties then rest assured that the biggest beverage companies in the world continue to invest in whisky.
UKV International AG is a broker of rare whisky, acquiring, storing and selling whisky for consumers and collectors.
If you would like to invest in cask whisky we also store and insure your whisky in UK government bonded warehouses.
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