Whisky and Alcohal Industry Face Unknown Tax Hike
In his Autumn Statement, Jeremy Hunt announced a duty freeze across all four alcohol categories. Whisky and alcohol taxation may be taking a reset on their implementation process. The Chancellor announced the delay to the planned increase in alcohol duties, which will take place on August 1, 2024, instead of the planned February 1, 2024.
One of the more peculiar aspects of tax rate indexation is alcohol duties. For starters, they still use the discredited retail price index, despite the fact that it lost its National Statistics status over a decade ago. It might seem cynical to say that the Government uses the CPI for setting alcohol (and tobacco) duty rates. At the same time, uprating items that cost them money or benefits.
The Paradox of Whisky Tax Increase
Another strange aspect of indexation is that it’s based on the OBR’s forecast for growth in RPI in quarter 2 (April to June) relative to its value a year earlier. This means we won’t know exactly how much tax will rise in August. Drinks companies are sure that there is a tax hike coming but have no idea how much it will be.
A 2023 increase, for example, would have used the OBR’s November 2022 forecast of 12.7% RPI inflation for Q2 of 2023. However, by the time it was implemented (1 August), the OBR’s latest forecast had dropped to 10.1%.
It’s fair to say HMRC would have received the outturn RPI in mid-July by then, but that would prove to be a relatively quick turnaround for them. We expect the same for a bottle of whisky based on Q2 RPI we won’t know until March.
With the current duty rate of £31.64 per liter on spirits, 73% of the average price of a bottle of Scotch whisky, which is £15.63, taxes through duty and VAT – a tax burden of £11.40. A taxation freeze has granted the industry needed air, even if it is just 8 months.