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Alcohol Duty Review
| 16 June, 2023
On Friday (16th June) fortified wine businesses will be celebrating the 650th anniversary of the Anglo-Portuguese Treaty of 1373 – the oldest diplomatic alliance in the world still in force – but these celebrations will be short lived when alcohol duty rockets on August 1.This alliance was followed by the Methuen Treaty, boosting trade by giving preferential tax treatment for British textiles and Portuguese wines.
However, that trading bond is set to be severed by the Government’s new alcohol taxation system, which will see fortified wines worst hit. Port, at 20% ABV, will be subject to a whopping 44% duty increase – and most fortified wines will go up by around £1.50 a bottle (duty +VAT).
Unlike still wine, which is being given 18 months’ breathing space before being taxed according to its strength, the fortified wine sector will be impacted straight away.
These drastic increases overnight – the largest alcohol duty increases in almost 50 years – will be crippling to a sector steeped in British history.
There is a huge concern that these tax hikes will see some import businesses struggling to survive. Many of those under threat are family-owned, fortified wine specialists and SMEs which trade solely in fortified wine.
The total UK market for fortified wine is currently worth around £300m, of which Port sales represent in the region of £80m.
The duty hikes mean Port and Sherry traders and consumers will feel the full force of a £20 million increase, despite fortified wines being only 3% of the total wine trade value share of the UK market.
A bitter blow for a sector already suffering from damaging food and drink inflation. In 2022, the total fortified wine market decreased 10% in volume and 7.4% in value.
The fortified wine sector is bound by strict ABV classifications and cannot opt to produce lower-strength alternatives.
Miles Beale, Chief Executive of the Wine and Spirit Trade Association, said: “Port and Sherry producers and importers are incredibly concerned over these crippling and unnecessary tax hikes, which could see some SMEs go out of business.
We keep hearing Government claim their priority is to tackle inflation, but alcohol tax rises will only further fuel inflation. It will heap more misery on consumers. And it will damage British business, especially those in the hospitality supply chain, who are still trying to recover from the pandemic.
The punishing duty rises facing the fortified wine sector are totally unnecessary and could be avoided with a simple compromise solution – offering the same 18-month easement period given to still wine. We are asking Government to avoid new red tape and help businesses by taxing fortified wines between 15.5% and 20% at a midpoint of 17.5%.”
The WSTA argues that this solution is a fair compromise which ensures a manageable transition to the new duty system to avoid job losses and overnight price hikes.
Steve Moody, executive chairman of Fells, the largest distributor of port in the UK, said: “The Government is set to throw away some of the benefits of the longest alliance between two countries in history.
British port growers and shippers have been based in Porto and the Douro Valley literally for centuries. Hitting the port industry with red tape and a tax hike seems a strange way to celebrate 650 years of trade – especially from a government that professes a pro-growth agenda.
A shock price hike like this will drive a coach and horses through these fragile supply chains. At the very least, port and other fortified wines should receive the same easement period the Chancellor has given to other wines that are made from fresh grapes.”
Sir Graham Brady, Wine and Spirit APPG Chair, said: “The duty change is going to be a huge bureaucratic challenge for small and medium-sized businesses and will hit the fortified wine sector disproportionately hard. As we celebrate the anniversary of the Anglo-Portuguese Alliance, our oldest international treaty, I think the Government should reconsider this disproportionate measure and recognise the unfair burden being placed on fortified wine producers, importers and consumers.”