I recently had a meeting with the CEO of Majestic Wine, the UK’s largest specialist wine retailer, which has more than 200 stores across the UK, including one in my constituency.
The UK is a major global hub for wine and spirits – the world’s second largest importer of wine by volume and value and largest exporter of spirits. Supporting over 390,000 jobs, £69bn in economic activity and £8.6bn in excise duty revenue.
Like all businesses, those across the wine supply chain have had to confront tough trading conditions over recent years but a number of the challenges they face are unique to the wine and spirit trade and these have been brought to my attention by Majestic.
The challenges faced by Majestic and other similar businesses stem primarily from the new alcohol excise system introduced last year and in particular the impact of the historic duty increases and changes to the way wine duty is calculated.
The introduction of the new duty regime last August followed a review of the inherited EU duty rules. When the review was announced it was welcomed across the drinks industry who backed wholeheartedly the aims of the review: to make any new duty system fairer, simpler, less distortive and easier to administer.
Sadly, particularly for wine and spirit businesses, the new regime is not fairer and for wine businesses the new system is anything but simpler to administer. In fact, it is exactly the opposite.
The new system, levies excise duty on all alcoholic products according to strength but at different rates. This has reinforced pre-existing market distortions by continuing to tax wine and spirits more harshly than other categories of alcoholic drink.
In introducing the new system, the Government recognised the impact this would have on wine businesses and put in place a temporary easement mechanism which pegged the amount payable for wines in the range 11.5%-14.5% at the amount payable on a wine at 12.5% abv – currently £2.67 per bottle. Wines falling within this easement mechanism account for 85% of the wine on the UK market – that’s 1.1billion bottles out of 1.3 billion bottles.
The easement recognises that wine is different to other categories of alcoholic drink. Wine cannot be made to a pre-determined strength. Alcoholic strength of a wine is determined by climate (wines from warmer climates tend to be higher in alcohol than wines from cooler climates).
Wine is subject to strict production rules (unlike beer or cider) there is very little winemakers can do to lower the alcohol content. It is estimated that there are over 100,000 different wines on the UK market (compared with less than 1,000 ciders).
Different vintages can and do vary in strength – and so do some of the same wines in the same year. This is of course one of the great pleasures of wine, wines from around the world are unique while different vintages from the same vineyard can differ in strength and taste.
The easement is set to end on 1 February 2025 and wine businesses from the major multiple retailers to specialists like Majestic down to the thousands of independent merchants have all said that having to implement fully the strength-based system would impose significant costs running to many millions of pounds – both in the short term and once the necessary systems are established.
The differences between wine, spirits, beer and cider will remain if the easement ends and it will in practice mean that if the easement is abolished as planned, there will be 30 different payable amounts for wines in the 11.5% – 14.5% ABV range – ranging from £2.45 – £3.10 per bottle.
The abolition of the easement would introduce massive – and ongoing – red tape costs. Majestic Wine have informed me that they would struggle with the additional bureaucracy and cost, you can therefore imagine how difficult it would be for the thousands of smaller UK wine businesses.
I hope that Treasury ministers will consider these points and take up the offer I made on Majestic Wine’s behalf, at the recent Westminster Hall Debate I tabled on the issue, to visit their Headquarters in Watford to understand the full implications for wine businesses of ending the easement.
Government must act swiftly to ditch overly bureaucratic alcohol duty system set to come in next year, or risk damaging the world’s second biggest wine market
