Rachel Reeves considers raising alcohol duty in Budget

Rachel Reeves is considering increasing alcohol duties in next month’s Budget.

The Chancellor has not ruled out putting up tax on beer, wine and spirits as part of efforts to plug what Labour claims is a £22 billion hole in the public finances.

But the drinks industry has warned the move would be counter-productive, leading to lower revenues and having a “catastrophic” impact on pubs.

It comes amid fears the Government is considering more “sin taxes” on unhealthy products, including fast food, sugary treats, tobacco and vapes.

Pubs and drinks producers fear that Ms Reeves will use warnings about the dire state of the public finances to justify an increase in alcohol duties.

Figures released on Friday showed consumer confidence has slumped to levels seen at the start of the year, amid warnings her gloomy rhetoric is harming growth.

The Chancellor has repeatedly warned that she will have to make “difficult decisions” on tax when she delivers her first budget on Oct 30.

She has been presented with forecasts that show that, on paper, putting up alcohol duty would raise an extra £800 million next year.

But leading drinks industry figures have warned that in reality it would lead to lower sales, potentially costing hundreds of millions in lost receipts.

Official figures show the last time alcohol duties were put up, in 2023, tax takings plummeted by £1.3 billion as Britons baulked at the higher prices.

The loss in revenues was just £100 million less than Ms Reeves has said will be raised by scaling back the winter fuel allowance for pensioners.

Hospitality bosses and producers have warned another increase would have a similar effect, turning more drinkers away from pubs and restaurants.

Miles Beale, the chief executive of the Wine and Spirits Trade Association (WSTA), said businesses were still reeling from the last increase in duties.

He said: “Last year’s damaging reforms to the alcohol excise duty system, including the largest single duty hike in almost 50 years, have hit businesses, consumers and the Government purse.

“Prices have risen, sales are down and so is duty income by over £1.3 billion. Increasing duty – which is the Government’s inherited policy – will serve only to reduce income to the Government further at a time it can least afford it.”

The WSTA is urging the Chancellor to announce a two-year freeze in duties, which it said would “keep prices stable while optimising government income”.

Alcohol duty is levied on all drinks that are more than 1.2 per cent ABV strength, either at the point of production or when they are imported into the UK.

It automatically rises every year in line with the Retail Price Index (RPI) measure of inflation unless the Chancellor decides to freeze it.

RPI is set to be 2 per cent next year, which would theoretically raise just under an extra £200 million.

But forecasts produced by the Office for Budget Responsibility in March, which are the most recent publicly available, predict an additional £800 million.

Industry sources have said they point to a potential increase in duties of more than 6 per cent.

They warned the evidence from the last time duties were raised, under Rishi Sunak, was that another increase would actually cost money.

Receipts plunged

Alcohol duty was frozen for almost three years from autumn 2020 to August 2023. During that time, annual receipts rose slightly.

Jeremy Hunt, then chancellor, increased taxes on beer, cider, wine and spirits in line with inflation, meaning they went up 10 per cent. He also changed the way duty was calculated for wine, meaning it faced an overall 20 per cent increase.

Official figures show that from September 2023 to August 2024 alcohol duty raised £11.8 billion, down from £13.1 billion in the same period the year before.

The biggest drop was for spirits, which are the most expensive drink products, where receipts plunged £750 million, followed by a £320 million drop for beer.

Emma McClarkin, the chief executive of the British Beer and Pub Association (BBPA): “We know from experience that beer duty increases rarely raise expected revenues, especially when many consumers are facing the cost-of-living crisis and are increasingly sensitive to price.

“It’s imperative that the Government realises that any hike in beer duty won’t just turn away customers, it could have a catastrophic knock-on effect.

“Any fall in demand might reduce other taxes and employment opportunities. Only when they reduce the cost of business can pubs continue to be a vital asset to both the economy and communities.”

The BBPA is calling on the Government to cut beer duty this year to help save more pubs.

‘Raise taxes on unhealthy food’

At his final budget, Mr Hunt froze alcohol duty until next February, but it is set to go up again unless Ms Reeves steps in with another freeze.

This week, a report by the Institute for Public Policy Research urged the Chancellor to raise taxes on unhealthy food, gambling, alcohol and tobacco.

The think tank said that doing so could boost the economy by curbing the number of Britons being signed off work with long-term sickness.

Ms Reeves said during the election campaign that she wanted to “save the British pub because I know what an important institution they are in so many communities”.

A Treasury spokesman said: “The Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances inherited by the Government.

“Decisions on how to do that will be taken at the Budget, in the round.”