Couple in 20s buying wine Getty 622924262

Source: Getty Images

Booze brands are likely to increase prices as the alcohol duty freeze ends

Brits face another household budget bashing this summer as the government remains set to lift its three-year alcohol duty freeze, releasing a 10.1% cost increase which producers will likely pass on to consumers or otherwise – for some – fail.

Duty rates were frozen in the government’s 2020 autumn budget during the pandemic and extended for a further six months in February to 1 August this year. This was to provide certainty to businesses dealing with pandemic fallout as well as cost of living strains.

The freeze’s end coincides with a “radical” new alcohol duty system to “simplify” the current structure and tax alcoholic products the stronger they get, and is the biggest single increase to alcohol duty in nearly 50 years.

Duty hikes were usual, but double-digit inflation during financially turbulent times was out of the ordinary, a Wine & Spirits Trade Association spokeswoman told The Grocer. “Wine and spirits businesses are doing their best to adapt, but there is no choice than to pass on these huge increases to consumers,” she said.

Some alcohol businesses are likely to fail due to tax rises

“The whole supply chain will be impacted and – frankly – some businesses are likely to fail as a result. SMEs will be particularly vulnerable, and I would also add hospitality businesses to this list.”

Supermarket alcohol buyers would seek to boost lower-abv entry-level products on shelves, particularly wines, or work with suppliers to engineer lower-abv products to limit the impact of tax hikes on customers, a source close to the category told The Grocer.

Some booze suppliers, such as Heineken, had already acted to mitigate current squeezes. The brewer reduced Foster’s abv earlier this year from 4% to 3.7%, equating to a 3p tax saving per can. When asked about plans to lessen the impact of the double-digit duty rise, Heineken did not comment.

Brewers have taken the tax hit so far

However, beer drinkers had been relatively sheltered from inflationary price hikes, claimed British Beer & Pub Association CEO Emma McClarkin, who said brewers had so far taken the hit.

“Brewers have faced mounting price increases across supply chains in the past few years, and as far as possible they have absorbed these costs themselves,” she said. “While the price of other consumer goods has risen on average by 24%, the average cost of beer has increased by 11%.”

Without a change to the economic climate or further government support, it was “impossible to see” how brewers could carry on as they are “to avoid customers paying over the odds for their beer”, McClarkin said.

Brighton Gin co-founder Kathy Caton condemned the government’s “crippling” move to proceed with the hike, which did not support ‘brand Britain’. She said: “This is incredibly unfair on consumers who should not be facing higher prices for their favourite products, especially while the cost of living and inflation crises put ever-increasing pressure on household budgets.”