Irish finance minister Brian Lenihan has cut excise duty on alcohol and reduced the VAT rate in a bid to stem the cross-border shopper exodus that is estimated to have cost the Republic's exchequer €500m this year.

In this week's Budget Lenihan announced a 20% cut in excise duty, which he claimed would mean reductions of 12¢ (10p) on the price of a pint, 14¢ on a half glass of spirits and 60¢ on a standard bottle of wine.

"All these reductions are VAT-inclusive," he said, warning: "I expect everyone involved in the drinks industry to play their part in making the cost of alcohol more competitive. If I find these reductions have not been passed on to the consumer, I will reverse them."

As an additional measure to discourage cross-border shopping, Lenihan reduced the present VAT rate from 21.5% to 21%, effectively reversing the 0.5% increase he had imposed a year ago and which is regarded as having added to the outflow of shoppers.

Ironically, the minister's announcement came on the same day Alistair Darling confirmed the UK's rate of VAT will move from the current 15% back to 17.5% from next month, despite retailers campaigning for the reduced rate to stay.

Irish excise rates on beer, wine and spirits are among the highest in the EU and the minister's decision was broadly welcomed, with the Irish Business and Employers' Confederation claiming cross-border shopping has cost the country's retail sector 11,000 jobs so far this year.

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