In its juggling act to kickstart the economy, the government is cutting public expenditure… while increasing VAT… at the same time as keeping a lid on inflation. Just like that!
But this week the government stepped on its unicyle as it announced it would simultaneously be attempting to cut binge drinking with a ban on below-cost alcohol sales.
This will only add to the inflationary pressures the government wants to put a lid on: with the duty escalator meaning that duty will go up by 2% over and above the rate of inflation… which may itself be as high as 4% based on the latest alarming figures by the time it is introduced in March… and with the hike to 20% in the rate of VAT… it’s not impossible that alcohol prices may rise by as much as 6.5%… and that’s before we factor in further expected increases in commodity costs such as barley and hops that we report in this issue.
As to the government’s attempts to crack down on binge drinking, frankly, these are likely to be as wet and jelly-like in their effectiveness as David Cameron’s ‘big society’ attempts to solve our society’s other problems, with a definition of below-cost that, as Mintec’s Robert Miles explains (p19) is as about 30% of the true cost of a pint of beer.
In the meantime, Prime Minister, the supermarkets are already ahead of you. As soon as the government hinted at a possible ban on below-cost alcohol, the supermarkets had started to turn their attention elsewhere, recognising that, whether it was for CSR reasons and PR value (think Asda’s staples price war), or simply to make some decent money out of booze, the government’s threatened clampdown provided a tailor-made excuse.
Of course, it’s in the supermarkets’ power to absorb extra duty and VAT-based costs on alcohol just as it’s in its power to reject ingredients and distribution-based cost hikes. But I detect a change.