As retailers rush to adjust prices following the pre-Budget reduction in VAT, pub operators have reacted with dismay to a simultaneous duty hike on alcohol.
Duty on alcohol will rise by 8% from next week following the pre-Budget announcement made yesterday by chancellor Alastair Darling – offsetting the 2.5% reduction in VAT unveiled at the same time.
The Treasury said the move would favour the licensed trade, with drinks prices likely to rise in supermarkets and off-licenses but fall slightly in pubs, where VAT is charged at a higher rate.
The duty increase – which is permanent, unlike the cut in VAT – will add 3p to the price of a pint, 13p to a bottle of wine and 53p on a bottle of spirits. Meanwhile, the duty on a pack of 20 cigarettes will rise by 17p.
Industry figures said the move would put further pressure on companies' cash-flow as duty is payable immediately, while VAT is paid on a quarterly basis.
"It's truly staggering that struggling community pubs and brewers have been denied the tax benefit extended to the rest of the business sector through the VAT cut," said Mark Hastings of the British Beer & Pub Association.
"With pubs closing at record rates and beer sales at their lowest since the Depression, this sector needs a fiscal stimulus just as much as the rest of the economy."
In the meantime, retailers were describing the challenge of changing prices on thousands of product lines at the busiest time of the year as a logistical nightmare. But Marks & Spencer chief executive Sir Stuart Rose led the chorus of retailers promising to pass on the VAT savings to customers.