13 Unpalatable Truths about UK Wine Duty
March 24th 2011, by Gavin
Psst. Don’t mention the wine.
The Chancellor of the Exchequer, George Osborne, didn’t say the word once in his UK Budget speech yesterday, on 23rd March. He simply said that there would be no further increases to alcohol duty beyond the measures already in place.
The media relayed the apparent good news as ‘no increase in alcohol tax’ but a few tweets later and a quick glance at the HM Treasury budget statement (page 61) showed that wine has gone up 15p a bottle, from this Sunday. Even a 4p annual increase used to get mentioned in every Budget overview. Now, a 15p rise doesn’t even get a look in. So, forgive me, but this calls for a rant.
It is, of course, all the previous Government’s doing:
“The government will continue with the plans announced in the March 2010 Budget (i.e. Labour’s last) to increase the rates by 2 per cent above inflation each year to 2014-15.” Budget June 2010
So we now have a situation where none of the three major parties will criticize the policy towards alcohol duty.
Here are 13 unpalatable truths about UK duty on wine:
1. The UK now has the highest duty on wine in Europe.
2. Only four countries (UK, Ireland, Finland and Sweden) have duty of over 50p a bottle. In France, it’s 3p.
3. From April 2000, our first spring here, to March 2008, UK duty on wine went up by a total of 15%. In the last three years, duty has gone up a whopping 36%.
4. Duty will increase by 2% above inflation each year until 2015. It went up 7.2% in this budget from £1.69 to £1.81. It is misleading though to say that wine has gone up 12p + VAT to the consumer, because every retailer, merchant and restaurant treats duty as part of the cost, just like the wine. Duty is charged upfront by HMRC, when the wine is taken out of customs, so it’s a real cost. Every merchant I know, except of course those that are selling ‘In Bond’, takes the cost of wine, plus the cost of freight/distribution and the duty as the basis of the cost of the wine, before adding their gross margin to cover their costs and to make a profit.
5. UK duty, and VAT on the duty, is over £26 a case at £2.17 a bottle. It will be £30 a case in two years at the current rate of inflation. VAT, which also went up in January of course, is charged on duty and the wine, so there’s a double whammy. (Update: in fact, the double tax increase in Q1 means that a £5 bottle on 1st Jan is up 25p to £5.25, a £7.25 bottle is 30p up to £7.55 and there’s 36p more tax to add to a £10 bottle.)
6. On sparkling wine or Champagne, duty is more at over £33 a case and by 2014, it’s likely to be £41 a case. It’s worth noting that GB is the biggest export market for Champagne. £40 more for a case in the UK than in France? This rate also applies to the increasingly successful sparkling wines from England.
8. UK off-trade wine sales by value, 75cl: 32% under £4, 36% £4-£5 and just 32% over £5. Source: Nielsen. This tweet from the London Evening Standard’s wine critic, Andrew Neather @hernehillandy to fellow writer, Tim Atkin MW, says it all:
@Timatkin 12p/bottle hike – scandalous. Add in 5%+ inflation and we’re looking at even crappier wine for supermkts to hit lower price points.
9. £9 retail (from a shop or a merchant) is the starting price at which a bottle might cost the same as the tax – around £3.30, assuming no tricks to con the consumer. Shipping, warehousing, distribution, admin, operating margin and a slim profit fills the bit in the middle.
10. Spend £5 on a bottle retail, and the cost of the wine from source is under £1. Spend £10 and the cost price of the wine goes up fourfold, assuming similar shipping costs and % margin. Not that £10 for a four quid wine is a particularly good deal, in my opinion.
11. The trouble is, how do you know if a £10 wine in a supermarket isn’t being set up for a ’50% off’ deal, meaning it should really be £5 anyway? It’s standard practice now to ‘list’ a wine for £10 and then stick it on promotion at ’50% off’ – no surprise, given that the bulk wine that went into it costs a euro a litre. Anyone pay a tenner? You were done. Sorry.
12. Meanwhile, here’s a breakdown of a £20 bill for a bottle of wine in a restaurant, listed at £17.80: 12.5% service, 20% VAT, 69% restaurant gross margin, 27% wine merchant gross margin, 25p delivery, £1.81 duty, 39p freight and storage. Cost of the bottle, including wine and packaging, ex-cellars? 90p – half the cost of the duty. (So a high rate tax payer has to earn forty quid to pay for a bottle that the producer flogged for less than a pound.)
13. On the last point, I’ve assumed that the restaurant is buying, ahem, through a merchant, of course. Restaurants generally buy ‘DPD’ or ‘duty paid delivered’ prices, so they don’t normally see the true breakdown. The cost of duty, which is often higher than the wine, has a huge impact on the price of cheaper wines on the list. If that’s the case, as No 12 above, does the old adage of ‘always buy the house wine’ still hold true?
At least with our stuff, you know your money’s coming to the producer. And to George, obviously.
Update Spring 2012, including new graphs: UK duty on wine up 46% in 4 years