17 April 2002
ALCOHOL AND TOBACCO DUTIES
Duty on spirits will be frozen for the fifth successive year, and duty on beer produced by the smallest brewers will be cut in half, the Chancellor announced today. Duty on beer and wine will also be frozen, while tobacco duties will rise in line with inflation.
Spirits
Spirits duty will be frozen for the fifth Budget in succession - the longest period without an increase since the 1950s - to strengthen the international competitiveness and domestic base of the UK spirits industry. Without those freezes, a bottle of spirits would be 73 pence more expensive than it is today. The Government also decided against the introduction of tax stamps on bottles of spirits, which would have significantly increased industry costs, and instead announced plans to work with the spirits industry to tackle the problems of fraud.
Small breweries
A radical reform of beer duty will be introduced this June to support the nation's traditional small brewing industry, with reduced rates of duty worth more than £120,000 for breweries producing up to 3 million litres of beer per year, and a 50 per cent cut in duty for those producing up to half a million litres, equivalent to £40 off each barrel they produce. In total, 9 out of every 10 UK breweries will benefit from the scheme.
Other alcohol duties
Duties on wine and the beer produced by larger brewers will also be frozen for the second Budget in succession. Duty on spirits-based coolers - which has until now been set at a concessionary low rate - will be brought into line with spirits. Duty on cider will be cut by half a penny per pint in real terms.
Tobacco
Tobacco duties will rise in line with inflation to maintain the real cost of cigarettes and thereby support the Government's objectives to reduce smoking. Tax on a packet of 20 cigarettes will go up by 6 pence.
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DETAILS
Small breweries
1. Britain's several hundred small breweries make a valuable contribution to the nation's cultural heritage, particularly in rural communities, bringing both tradition and diversity to the UK beer market. The Government is keen to celebrate the talents and skills of the nation's small brewers, and help them compete effectively for their fair share of the beer market.
2. For more than 20 years, the nation's small brewing industry and real ale drinkers have been calling for the introduction of reduced rates of duty on the beer produced by small brewers, both to help them invest in the growth of their businesses, and to help them compete on price with larger brewers when selling their products to pubs and other retailers.
3. Following consultation over the past year, the Government has now decided to introduce a relief scheme for small brewers this June, in time for the start of the World Cup, following Royal Assent of the Finance Bill. Under this scheme:
- brewers producing up to half a million litres (around 3,000 barrels or 900,000 pints) per year will receive a 50 per cent cut in duty, equivalent to £40 off each barrel they produce; and
- brewers producing up to three million litres per year will receive progressive rates of relief worth over £120,000 to each brewer, equivalent to a 50 per cent cut on the first half million litres they produce.
4. 9 out of every 10 brewers in the UK will benefit, including all micro brewers and local brewers, the majority of which are based in rural areas. Some of the eligible brewers currently own their own village pubs, and many more are expected to use the savings from the scheme to buy one.
5. Similar duty relief schemes currently operate in seven other EU Member States with strong brewing heritages, including Germany and Belgium, but the UK scheme will be one of the best-targeted, simplest and most generous schemes anywhere in the EU - with the 50 per cent relief for the smallest brewers the maximum available under EC law.
6. More than a hundred Members of Parliament recently signed a motion calling for the introduction of a relief scheme, although - at £15 million - the cost of the Government's scheme is almost three times as generous as the one they had proposed. The scheme is also strongly supported by the Society of Independent Brewers, the Campaign for Real Ale, the Village Retail Services Association and the Council for the Protection of Rural England.
Alcohol
7. Since 1997, the Government has taken consistent steps to deliver a fairer balance in the burden of taxation falling on different alcoholic drinks and on different types of drink-producers. In addition to the introduction of the duty relief scheme for small brewers, Budget 2002 introduces a further package of measures to increase the fairness of the alcohol duty regime.
8. The duty on spirits has been frozen in order to strengthen both the international competitiveness and the domestic base of the UK spirits industry, a measure equivalent to a real-terms cut of 12 pence per bottle.
9. Duty on spirits is now 34 per cent lower in real-terms than it was 20 years ago, and thanks to the duty freezes in the last 5 Budgets, a bottle of spirits is now 73 pence less expensive than it would otherwise have been.
10. Duties on wine and beer produced by larger brewers will also be frozen for the second Budget in succession. Without those freezes, there would now be 6 pence more duty on a bottle of wine and a penny more duty on a pint of beer.
11. Duty on cider has also been cut by half a penny per pint to support this traditional and mainly rural-based industry, which now uses around half the UK's total production of apples.
12. In real-terms, the cuts in spirits, beer, wine and cider duties in the last two Budgets have saved the nation's drinkers around £200 million, and given a valuable boost to drinks producers, pubs and other retailers.
13. Spirits-based coolers (also known as designer drinks or alcopops) are currently taxed at the same concessionary rate which applies to low-alcohol wines. Consumption of coolers more than doubled between 1999 and 2001. Over that same period, despite the duty falling in real-terms, the average pub price of coolers rose significantly above the rate of inflation.
14. Tax as a proportion of retail price is now lower for coolers than for any other type of alcoholic drink, in both the on and off trades. Their share of the market is now as big as cider, and is continuing to grow at a rapid rate.
15. The Government no longer believes the concessionary duty treatment for coolers can be justified, particularly given the Chief Medical Officer's recently-stated concerns about the association of coolers with binge drinking among younger people. The duty on a standard 275ml bottle will therefore increase by around 11 pence, bringing their rate of duty into line with normal spirits.
Tobacco
16. Smoking is the single greatest cause of preventable illness and premature death in the UK, killing 120,000 people every year. Research has consistently shown that the demand for cigarettes is affected by their price, and that high tax levels can consequently play an important role in reducing overall tobacco consumption.
17. Maintaining the real price of cigarettes and tobacco therefore helps to encourage existing smokers to smoke less or quit, and to discourage children and young people from taking up the habit. The tax on tobacco is therefore increased in line with inflation from 6pm today by:
- 6 pence on a typical packet of 20 cigarettes;
- 2 pence on a pack of 5 small cigars;
- 5 pence on a 25 gram pack of hand-rolling tobacco; and
- 3 pence on a 25 gram pack of pipe tobacco.
Tackling Tobacco Smuggling
18. In addition to maintaining the real price of cigarettes through the duty system, the Government has sought to increase the average price for consumers by clamping down on the supply of cheap smuggled tobacco.
19. In the 2001 Pre-Budget Report, the Government announced the results from the first year of its Tackling Tobacco Smuggling strategy, indicating that Customs are on track to slow, stop and reverse the previously rapid growth in the market share of smuggled cigarettes. In 2000-2001, Customs:
- seized 2.8 billion cigarettes destined for the illicit market (almost a billion more than were seized in 1999-2000);
- introduced the first wave of X-ray scanners at the nation's ports, which - in their first six months - detected 80 million cigarettes;
- broke up 43 major organised crime gangs involved in large-scale smuggling and supply of cigarettes;
- cut the revenue losses from cross-Channel passenger smuggling by more than three-quarters; and
- hit their key target to hold the share of the UK market currently taken up by smuggled cigarettes to 21 per cent, compared to the 25 per cent share that was forecast if the strategy had not been introduced.
Tackling spirits fraud
20. In Tackling Indirect Tax Fraud, published alongside the November 2001 Pre-Budget Report, the Government announced its determination to apply the successful experience of its tobacco strategy to other areas of indirect tax fraud.
21. As part of this, the Government announced a number of further steps designed to strengthen its efforts to tackle large-scale spirits fraud, which involves the diversion of duty free spirits for sale on the domestic market.
22. Customs have already increased their efforts to tackle the diversion of spirits consignments by:
- improving the identification of fraudulent or forged documentation;
- deploying an additional 146 staff to controlling excise warehouses;
- expanding its specialist excise intelligence research capacity;
- introducing tough new sanctions for hauliers who allow their vehicles to be used for diversion fraud;
- reviewing existing warehouse approvals with a view to weeding out warehouses which have carried out or facilitated fraud; and
- agreeing with the National Lottery operator that retailers found selling illicit spirits will have their lottery terminals removed.
23. One further measure which had been recommended to the Government was to introduce a 'tax stamp' on bottles of spirits to make it easier to identify illicit, non duty-paid goods when they appeared in the normal retail market. The Pre-Budget Report announced that there would be consultation on the costs, benefits and practicalities of introducing a tax stamps system.
24. It was clear from this consultation process that the introduction of tax stamps would have a severe impact on the productivity and compliance costs of the spirits industry, which - if passed on in full - could have had a significant impact on retail prices for spirits.
25. The Government does not currently consider those costs proportionate to the benefits of tax stamps, particularly if alternative means of making progress to those objectives can be pursued.
26. Customs will therefore work together with the industry on a joint strategy to identify, trace and track illicit consignments of spirits, radically increasing their exchange of information and making fraud easier to detect through the development of product testing kits and enhanced bar code data.
27. Additional funding will also be made available to Customs this year, enabling them to step up the volume of intelligence-based checks on inward freight consignments of duty-suspended spirits (making full use of the national network of x-ray scanners), increase disruption of the criminal gangs engaged in spirits fraud, and strengthen their controls on UK excise warehouses.
NOTES FOR EDITORS
1. Small brewers whose annual production is between 5,000 and 30,000 hectolitres will pay a proportion of the standard duty rate, calculated as:
Annual production - 2500
Annual production
2. Annual production will be calculated according to production levels over the previous calendar year. Brewers will claim the relief on monthly returns.
3. 'Coolers' have previously been known as 'alcopops' and are often referred to as 'Ready-to-Drinks', 'Designer Drinks' or 'Pre-Mixed Drinks'. Well-known brands include Smirnoff Ice, Bacardi Breezer, Hooch, Metz, Archers Aqua, Red Square and WKD.
4. The 2001 Annual Report from the Chief Medical Officer highlighted a worrying increase in alcohol-related health problems and said that "recent years have, in particular, seen younger drinkers attracted to a new ranges of designer drinks with a relatively high alcohol content."
5. The duty on cigarettes has ad valorem (per cent of price) and specific (duty applied per quantity of product) elements. Raising the specific duty by approximately 2.2 per cent and maintaining the ad valorem duty at 22 per cent increases the total duty by about 1.9 per cent in line with inflation. The duties on all other tobacco products are wholly specific.
6. Revalorisation is an uprating in line with inflation applied to keep duties, benefits and allowances constant in real terms. Excise duties use the forecast RPI figure for the September following the Budget. Allowances against tax use historic RPI to the September preceding the Budget. In Budget 2002, the forecast RPI - based on Q3 2001 to Q3 2002 - used for excise duties is 1.91 per cent whereas the historic RPI to September 2001 is 1.69 per cent.
7. Further details of the Government's Budget proposals to tackle indirect tax fraud can be seen in press notice HMT2. Copies of Tackling Tobacco Smuggling and Tackling Indirect Tax Fraud are available from the HM Treasury and HM Customs and Excise websites (see below).
8. Details for businesses are published in Budget Notes. These are available from the Customs and Excise and HM Treasury Internet sites.
HM TREASURY PRESS OFFICE
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
HM CUSTOMS AND EXCISE PRESS OFFICE
Press enquiries: 020 7865 4775 / 5472
(out of hours:020 7620 1313)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to the Budget 2002 may also be found on the Internet at the following addresses:
Inland Revenue www.inlandrevenue.gov.uk
HM Customs and Excise www.hmce.gov.uk