Finance Bill 2002: EXPLANATORY NOTE
CLAUSE 3: DUTY ON BEVERAGES MADE WITH SPIRITS TO BE AT SPIRITS RATE
SUMMARY
1. Clause 3 omits section 1(9) of the Alcohol Liquor Duties Act 1979 (ALDA 1979) with effect from 28 April 2002. Section 1(9), added to ALDA by the Finance Act 1988, specifies that drinks made with spirits which exceed 1.2 % but do not exceed 5.5 % alcohol by volume are deemed not to be spirits.
DETAILS OF THE CLAUSE
2. Subsection (1) omits section 1(9) to the Alcoholic Liquor Duties Act 1979.
3. Subsection (2) makes the change effective from 28th April 2002.
BACKGROUND
4. Hitherto, spirit-based coolers (or ?designer drinks?) - usually mixtures of spirit, fruit juice and water not exceeding 5.5 per cent alcohol by volume - have been treated as made-wine for duty purposes and, therefore, taxed at a much lower rate than other spirits drinks.
5. Consumption of spirit-based coolers has more than doubled between 1999 and 2001 and is continuing to grow at a rapid rate. However, over the same period the standard pub retain price rose significantly above the rate of inflation, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink, in both the on and off-trades.
6. The Chief Medical Officer's 2001 annual report warned of the dangers in this trend. The report highlighted a worrying increase in binge drinking and alcohol-related health problems among young people and said that ?recent years have, in particular, seen younger drinkers attracted to a new range of designer drinks with a relatively high alcohol content.?
7. In light of these factors, the Government believe it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks.
8. The estimated duty and VAT revenue gain in 2002/2003 from this change is £170m.
9. The change will take effect from 28 April 2002.