The UK wine industry is bracing for significant changes to its taxation structure, as the Conservative government plans to remove a simplified excise duty system for wines with alcohol by volume (ABV) levels between 11.5% and 14.5%. Currently, a single duty rate of £2.67 applies to all wines within this range. However, starting from February 1, 2025, the government intends to introduce a new system with up to 30 different duty rates, determined by the precise ABV of the wine.
This change could result in higher costs for consumers, with the duty on a bottle of wine at 14.5% ABV increasing from £2.67 to £3.09. Industry leaders, including the Wine and Spirit Trade Association (WSTA), are expressing concerns about the potential impact on both businesses and consumers.
Increased Costs for Wine Producers
Miles Beale, CEO of the WSTA, has been vocal in criticizing the decision, highlighting that the initial easing of duty regulations felt temporary and uncertain. “It felt very much like the previous Government had closed the door on us in relation to maintaining it permanently,” Beale said. He hopes the current government will recognize the potential financial and administrative burden the new system will place on the industry.
Beale argued that a simplified system benefits not only British businesses but also consumers and the Treasury. “Avoiding costly additional red tape will benefit not just British businesses and consumers but their own Treasury funds,” he explained. Should the government decide to maintain the current system, it would be a “major win for all concerned,” allowing for business growth and lower prices for consumers, ultimately increasing government revenue.
Following a Major Duty Increase in 2023
The upcoming changes will follow one of the largest single alcohol duty increases in nearly 50 years. In August 2023, wine duties rose by 20%, adding £0.44 to the price of a bottle of still wine with an average ABV of 12.5%. However, for sparkling wines at 12% ABV, duties were reduced by £0.19 under the new system.
The WSTA has reported that these changes have already had a negative impact on alcohol sales in the UK. According to data from HM Revenue & Customs (HMRC), there was a £1.3 billion drop in Treasury revenue between September 2022 and August 2023, a 10% decline year on year. This reduction in revenue nearly mirrors the savings generated by the government’s winter fuel allowance program.
Lower ABV Wines May Benefit, but Industry Faces Challenges
The new excise duty system is designed to benefit lower-strength alcoholic beverages. However, Nicola Bates, CEO of Wine GB, pointed out that this focus disproportionately affects the wine industry. Bates explained that the 8.5% ABV threshold for lower duty rates is difficult for wine producers to meet. “The OIV, of which the UK Government is a member, states that wine cannot be made under 8.5% ABV and be called wine,” she said. This regulatory constraint means that producers attempting to create wines below 8.5% ABV cannot legally market them as wine.
While some UK wine producers may see a silver lining, such as the opportunity to capitalize on the naturally lower alcohol content of British wines, many remain concerned about the broader impact on the industry. Wendy Outhwaite, co-founder of English sparkling wine producer Ambriel, noted that while no one welcomes additional taxes, lower alcohol wines produced in the UK could benefit from reduced duty rates. “A lower duty rate allows a lower price point that consumers would welcome,” Outhwaite said. “It is win-win: consumers buy lower alcohol wines, UK wine producers are not priced out of the market.”
Warnings from Wine Retailers
For retailers importing higher-strength wines, the upcoming changes are less favorable. Leading wine retailers, including Majestic, Laithwaites, and The Wine Society, have already begun warning customers of impending price hikes. In a statement sent to customers on October 4, Majestic Wine and Cambridge Wine Merchants emphasized that the new duty system will be more complex and costly for businesses.
The email noted, “At the time they launched the policy, the Treasury had a stated aim to create a duty system that would be simpler and fairer for wine businesses like ours to administer. Yet, as an industry, we firmly believe the system that is set to be introduced fails on both counts – it is more complex and will be much more costly.” The retailers also highlighted the significant financial investment required to adapt to the new system, estimating six-figure sums for development and ongoing annual costs.
Industry Advocates Call for a Freeze on Duty Rates
In response to these challenges, the WSTA has been campaigning for the government to make the current excise duty system permanent. However, so far, there has been no indication that the government plans to reverse its decision.
Beale warned that drinks producers should be concerned about the government’s reliance on outdated forecasting models, which fail to account for the impact of rising duty on consumer demand. “Following the double-digit increases in duty last year, demand has dropped significantly, as have alcohol duty receipts to the Treasury,” Beale said. He urged the government to reassess its forecasting and consider freezing alcohol duty rates to protect public spending.
Concerns Over Unfair Treatment of the Wine Industry
Many in the wine industry feel that they are being unfairly targeted by the government’s tax policies. Bates pointed out that the UK is one of the few wine-producing countries in Europe that imposes excise duty on domestically produced wines. She highlighted that many European nations, including France, levy little or no duty on domestic wines, making it difficult for UK wine producers to compete both locally and internationally.
Bates called on the government to level the playing field for English and Welsh wines. “We are calling on the Government to level the playing field so English and Welsh wine can fairly compete with other wines both domestically and internationally,” she said.
Further Duty Rises Possible
While there is no confirmation yet, there have been reports that Chancellor Rachel Reeves is considering additional duty increases in her upcoming budget. Beale urged those in the industry to voice their concerns by contacting their local MPs. He emphasized the potential damage that further duty hikes could inflict on businesses.
Bates echoed Beale’s concerns, adding that past duty increases have proven to be counterproductive for the Treasury. “We know that increasing duty costs have proved counterproductive to the Treasury,” Bates said. “We strongly urge the Chancellor to cut duty rates to stimulate sales, support producers’ investment, and to help grow domestic wine.”
As the UK wine industry awaits the government’s final decision, the prospect of further tax increases looms large, leaving many wine producers and retailers concerned about the future.
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