Trade fears massive hike in drinks tax

The drinks industry is bracing itself for a significant duty increase in next year's Budget as the government comes under huge pressure to deal with a perceived pandemic of problem drinking.

With the cost of raw materials also spiralling, many believe retailers will have no choice but to pass on large price increases across a wide range of products.

Although the Treasury is understood to be nervous of above-inflation duty increases, the Department of Health is thought to favour tax rises as a method of controlling consumption. Critics point out the UK already has some of the highest duty levels in Europe, and punitive increases will simply encourage illegal sales. Wine & Spirit Trade Association chairman Christopher Carson described the scenario as "a very real threat".

He added: "The chances are we're likely to see quite a big tax increase. In recent years we've had 3p or 4p on wine. There's speculation it could be anything between 10p and 15p a bottle, and 20p should not be ruled out. I have even heard people talk in terms of 30 per cent.

"The WSTA Budget submission in January will be highlighting the fact that raw materials are moving up - not just grapes, but grain and all sorts.

"Climate change has meant shortages of most agricultural products and, coupled with the rising price of oil, freight and glass, one way or another we will see - regardless of taxation - price changes working their way through to the high street by spring of next year. It's not unrealistic to think that wine would be going up by between 20p and 50p a bottle regardless of tax.

"If you put a big tax on top, it would be fair to say it would be killing the goose that laid the golden egg. It just opens the doors to cross-border trading again. You get white van business and if that starts happening you lose control over the way alcohol is sold. Who's going to do Challenge 21 in the white vans?"

Jonathan Neame, chief executive of Kent brewery Shepherd Neame, was one of several key brewing industry figures who visited Westminster this week to back the British Beer & Pub Association's call for a duty freeze to boost ailing sales. He warned that any tax hike would be a "smugglers' charter".

Paul Hegarty, head of communications at Coors, called for cider duty to be brought into line with beer taxes - such a move would raise £277 million in additional revenue annually, he said. "We would like cider and beer to be taxed on a level playing field because they are similar long alcoholic drinks."

Hegarty also warned that tax hikes are not an effective way of controlling alcohol consumption. "While beer duty has gone up by 27 per cent over the past 10 years, supermarkets' prices for beer are as low now as they were 10 years ago, " he said.

The National Association of Cidermakers met Treasury officials this week to ask them to keep taxes on cider stable. Chair Fenella Tyler said it was thanks to duty policies that the cider market was able to emerge from a decade of flat and declining sales.