George Osborne’s headline-grabbing cut on beer duty in this week’s Budget marks the first time in decades the duty rates on wine and beer have differed.

In real terms the British public will now see a 10p increase in the price of a bottle of wine and a 4p decrease in the cost of a pint of beer. The move has had some industry bodies crying foul: why cut the tax on beer and not wine and spirits?

Wine and Spirits Trade Association (WSTA) chief executive Miles Beale says: “It makes little sense to single out beer, particularly as there is a legal precedent to suggest the government is unable to do so.”

That precedent is a European Court ruling dating from the 1980s, which forbade discriminatory duty on wine over beer on the basis it broke the EC Treaty principle of free movement of goods. The 1983 case was originally brought by Italian wine producers.

“It makes little sense to single out beer, particularly as there is a legal precedent to suggest the government is unable to do so” - Miles Beale, WSTA

The UK has abided by this ruling ever since, keeping the same duty per unit of alcohol on beer as on wine – until now.

However, other European countries have tested this rule. The European Commission brought a case against Sweden in 2005 for taxing wine more heavily than beer. On this occasion, the European Court of Justice sided with the Swedes, ruling that their tax regime did not unfairly protect the domestic beer market at the expense of imported wines.

The difference in price between beer and wine “is virtually the same before taxation as after taxation”, the Court said, adding that “the difference in the tax treatment of those two products is not liable to influence consumer behaviour in the sector concerned”.

A similar case, brought against Belgium, was dismissed in 1987, on the grounds that a higher rate of VAT on wine was not having a “protective effect” and was not influencing consumer behaviour. Elsewhere, the 2012 Danish Finance Act increased beer duty by 25% and wine duty by 55%, while Ireland has also increased wine duty by more than beer.

Alan Powell, an independent excise consultant, points out that other European Union countries, such as the primarily beer-drinking Baltic states, also operate such tax policies on wine and beer. The 1983 ruling, in other words, is hard to uphold. “The UK Treasury must be pretty certain that it can [now] impose a discriminatory tax,” he says.

The timing of Osborne’s cut probably has more to do with successful lobbying by the beer industry, Powell says, and the government’s awareness that consumption of beer is going down overall: “It’s aware the market has changed. Wine is a much more popular product than it was 30 years ago. Beer has taken a hammering in pubs and they were sensitive to that.”

Consumer habits

For WSTA, it’s about consumer habits. “The question that would have to be proven is whether the changes in taxation are likely to impact consumption – hindering the imported products in favour of a home-grown product,” it says. The trade group also questions whether the Swedish case really sets a precedent for the UK, as the Swedish wine market is much smaller than the UK’s.

The WSTA says it’s not sure yet what action, if any, it will take over the chancellor’s decision. “It’s too soon to say what else we might do about it,” a spokeswoman said. “We have 340 members, and we’ll go out and speak to them before any decision is made.”

Simon Elsegood, a lawyer at Mills & Reeve, is doubtful about the chances of any legal challenge to the rise in wine duty and the cut in beer:  “If the wine industry is minded to take the issue to court, it will first need to persuade the Commission, and then the ECJ, that this change in the relative prices of wine and beer is a significant enough difference to sway consumer-buying decisions. In my view, that is going to be an uphill struggle.”

A Treasury official said that EU law requires duty on average-strength beer and wine to be broadly similar, and this remains the case in the UK - even after the Budget.