Recent figures reveal that last year’s rise in alcohol duty on spirits has cost the UK government an estimated £2.3 billion in interest payments. Additionally the hike is said to have lost the Treasury £132 million in lost revenue.
In August 2023, Chancellor Jeremy Hunt raised duty on spirits to 10.1%. This was the highest rise in alcohol tax in over 50 years. The increase also took the amount of tax paid on an average bottle of whisky to the highest of all G7 countries and the fourth highest rate in Europe.
Now analysis from the Scotch Whisky Association has stated that the increase in alcohol tax added 0.35 percentage points to inflation between 1st August 2023 and 30th June 2024. The consequence of this has been £2.3 billion paid by the government in additional interest payments.
His Majesty’s Revenue and Customs also found that revenue generated by alcohol tax fell dramatically by £132 million for the same period compared to figures from 2022/23. This has largely been attributed to a drop in spirits sales in both the on and off trade.
Mark Kent of the SWA noted how the group warned that the city rise would be inflationary. He said “the evidence a year on is very clear – the tax hike imposed [on the industry] has been calamitous, with a price tag of nearly £2.5 billion given the impact on government interest payments and lost tax revenue. Raising excise duty has significantly contributed to the fiscal gap which the chancellor is now trying to plug.”
Kent has now called upon the current Chancellor Rachel Reeves to support the Scotch industry and cut spirits in the forthcoming October budget.
He added: “The chancellor should use the October budget to support Scotch, support Scotland and reverse some of the damage caused to the UK economy. This means reducing the tax burden on spirits, which is one of the highest in the world, which will increase tax revenue.
“The new Labour government has promised to back Scotch producers to the hilt, and the first budget of the new Parliament is the first opportunity to make good on that commitment.”
Of course, Scotch whisky is not the only industry affected by the rise in duty. It has impacted the UK spirits industry as a whole. Trade bodies representing UK-based gin and whisky producers have said that the rise has been “disastrous”, noting how the it has effectively “sucked the life out of a boom industry”.
Liam Hirt from Bristol’s Circumstance Distillery explains how his company were unable to absorb the cost duty rise on account of other rising costs, such as energy and raw materials. As a result, he says, “sales have taken a sizeable hit as on trade and off trade have also seen costs rise and consumers squeezed.”
Neema Rai, a spokeswoman for the UK Spirits Alliance, has added her voice to calls for the current Chancellor to support the spirits industry with tax cuts, encouraging her to “be bold and back spirits.”
Speaking directly about the negative effects of the duty rise in the on-trade, she added that “Pubs are more than just pints, we need to be proud of our heritage and back our gins, whiskys, craft distillers and cocktail creators. Cutting alcohol duty in the Budget will ensure pubs can survive and help customers in a cost-of-living crisis.”
While the likes of the SWAT team might have the right to feel like these figures count as an ‘I told you so' win, they also acknowledge that the Treasury losing such vast sums of money is no good thing. As Mark Kent surmises, the money spent on inflation-related interest and the loss of income from reduced sales is ultimately “money that could and should have been available to support public services”.
The Scotch whisky industry generates an estimated £7 billion to the UK annually. This cannot be understated and it can be argued what’s good for the whisky business can be good for the wider UK population. Hopefully the current government take heed of the points raised by these industry bodies and take steps for support UK spirits producers in any future budget.