As the initial month of the Government’s recently implemented excise duty restructuring concludes, the question arises: can we draw immediate conclusions regarding the ramifications of the substantial 20% or more escalation in most wine duties? In essence, it remains premature to make definitive judgments.
Unlike certain sectors like fuel, wherein the effects of heightened oil prices promptly cascade down to consumers, the landscape of wine retailing presents a more intricate scenario.
As of the time of writing, select retailers and wholesalers have opted for a delayed transferal of duty hikes, while others have promptly executed such increases. Meanwhile, some might be diligently depleting their duty-paid inventory (from prior to 1 August), re-pricing only upon exhaustion. Yet, what remains transparent is that enterprises cannot viably absorb the most significant augmentation in wine duties witnessed in nearly half a century for an extended duration. Inevitably, the complete financial onus of this novel duty structure (comprising, for the majority of wines, a duty elevation of no less than 44 pence per bottle, accompanied by Value Added Tax – indeed, an imposition of taxation on taxation) must eventually be shouldered by aficionados of wine.
Amidst disregarding additional inflationary tensions within the supply chain, such as escalating glass Packaging Recovery Note (PRN) costs, our calculations indicate that once the entire financial repercussion is passed down to consumers, denizens of the United Kingdom devoted to wine should brace themselves for an excess expenditure of over £500 million annually, covering supplementary duty and VAT charges. Should these price hikes not sway consumer demand, this could lead to a significant financial boon for the Treasury.
However, this notion rests upon a significant condition, and one that the Treasury has not historically comprehensively accounted for in its projections. We have consistently contended that the Treasury’s modeling inadequately considers the ramifications of price fluctuations on demand. Wine, as a prominent contributor to the Exchequer’s revenue, demonstrates a higher degree of elasticity – indicating a more pronounced sensitivity of demand to price modifications – than what the Treasury has conventionally integrated into its forecasts.
This year presents an unprecedented occurrence. Tucked away within the documentation accompanying the Budget, the Government acknowledges, for the first time in my recollection, that the most substantial uncertainty enveloping future predictions of duty revenue pertains to the ‘behavioral response,’ colloquially referred to as consumer demand.
Thus, while it remains undoubtedly premature to gauge the true influence of the new duty structure, it is the sector’s responsibility to communicate the ongoing developments. In the impending months, the Wine and Spirit Trade Association (WSTA) will collaborate with its constituents to meticulously assess the influence of duty escalations on sales, subsequently channeling the findings of this analysis to the Government. In the Government’s own words: “Taxation need not be an arduous task.”
