The rate of excise duty due on beer will be cut by the equivalent of 1p a pint for average strength beer and, following the scrapping of the ‘duty escalator’ for beer, beer duty will only increase in line with inflation from Budget 2014. Other alcohol products will see increases as expected under the escalator. This will add 2 pence to the price of a litre of cider, 10 pence to the price of a bottle of wine and 38 pence to the price of a bottle of spirits. All changes will take effect from 25 March 2013.
The escalator was introduced under Labour with effect from 2009, fixing yearly increases in alcohol duty rates on beer, wine and spirits by 2% above indexation in each subsequent year. However, citing a commitment to support pubs, the Government is reducing duty rates on beer by 6% for low strength beer (less than 2.8% alcohol by volume (abv)), 2% for the standard rate of beer duty (between 2.8 % and 7.5% abv) and 0.75% on high strength beer (above 7.5% abv).
Numerous campaigns and reports have linked the escalator to problems in the brewing sector and particularly the struggling pub industry. It has been widely reported that the escalator has seen a 42% increase in duty since its introduction. Therefore cutting beer duty, and scrapping the escalator for beer, are measures likely to be wholeheartedly supported by the pub sector. Its impact is likely to both encourage sales and reduce incentives to smuggle beer, so the impact on revenues may transpire to be negligible. A report by KPMG in the UK, procured by the British Beer and Pub Association (BBPA) in 2012, concluded that HM Revenue & Customs’ (HMRC’s) data was too weak to support HMRC’s calculation of the ‘tax gap’ caused by beer smuggling.