Greg Sherwood MW: What impact the new UK alcohol duty rates?

What a year 2024 was! Quite evidently, no two people, no two wine merchants, and certainly no two businesses experienced the exact same pressures. But what everyone can agree on is that the period from the end of 2023 throughout the whole of 2024 was an incredibly difficult time for the whole wine trade, not only here in the UK, but right across the European continent. What most merchants also agree upon is that they are going to try and approach 2025 with positivity and energy, verve and vigour, undoubtedly hoping for the best but possibly making contingencies for any possible worst-case scenarios.

After a Christmas break with plenty of fine food and wine consumed, it’s hard to approach the new year with anything but positivity, though that is made incredibly difficult by the ongoing political circus that seems to unwind further day by day here in London, not to mention the looming disaster that is the new alcohol duty increases that will take effect on wines and spirits from 1 February. That challenge alone has kept the admin staff of most wine businesses very busy over the Christmas and new year period, as price lists nationally are adjusted to represent the incredibly fragmented, multi-tiered madness of the new UK duty tariffs.

Regarding alcohol duty on non-draught products, this will increase in-line with the 2nd quarter 2025 forecasted RPI (retail price index) inflation rate of 3.65%. On 1 August 2023, a new alcohol duty legislation went live, marking the first increase in Alcohol duty in the UK since February 2019. The aim of this new legislation is to introduce standardised alcohol duty bands across all types of alcoholic products, (beer, spirits, cider, still and sparkling wines, as well as other fermented beverages), with all tax rates calculated based on the litres of pure alcohol in the product, applied from 0.1% upwards.

This change reduced the number of tax bands on non-draught products from 15 to eight, which should make it simpler on paper, but in practice it has made the calculation and provision for duty far more complex. Within each tax band, the associated duty rate is used to calculate different tax charges for each 0.1% ABV increment on the label, which means that a 75cl bottle of wine with an ABV of 11% will incur a different duty tax to one with an ABV. of 11.1%.

Recognising that these changes would have a significant impact on the wine industry, the then Conservative government put in place a transitional period, termed a ‘temporary easement’, which meant that all still and sparkling wines between 11.5% and 14.5% ABV. should use an ‘assumed’ strength of 12.5% ABV when calculating duty to reduce confusion. However, it was confirmed on 30 October last year by the new Labour government, that the easement will cease on 31 January.

From the first of February, the single amount of duty paid on wines between 11.5-14.5% ABV – £2.67 per 75cl bottle – will be replaced with 30 different payable amounts according to the strength of the wine now declared at 0.1% volume increments. The duty rates set on 1 August 2023 will also increase in line with forecasted RPI inflation, which is currently estimated at 3.65%.

Simply put, alcohol duty in the UK will be going up yet again, with still and sparkling wines increasing by an average £0.15 pence per bottle (the equivalent of R3.46). The tables below provide snapshots of the impact on wines considering both the RPI increase and the end of the duty easement. This duty increase takes effect in line with when the wine and spirits industry usually release their new annual price lists for the year ahead. So, what are merchants’ options ahead of the first of February?

Despite much cross-party lobbying, the wine trade was disappointed that the new Labour government’s budget has not been as helpful as they had hoped towards the hospitality industry, and in particular, the UK wines and spirits sector. Ending the temporary easement of the duty legislation, together with the rise in overall duty in line with forecast RPI inflation, will bring undue complexity and costs to all distributors, retailers, restauranteurs and operators, and will ultimately negatively impact the end-consumer with inflated prices at a time when all consumers are continuing to tighten their belts and reduce spending.

NEW UK WINE DUTY

Undoubtedly, South African producers will have had multiple emails fired across their desks over the past two to three months by their UK importers, warning of the doom and gloom these changes are going to inflict. More significantly, with most of South Africa’s wine exports, whether shipped in bulk or in bottle, registering over 13.5% to14% ABV nowadays, UK consumers and followers of the delicious wines of the Cape winelands can expect to see sizable increases in retail pricing as the new duty rates start to bite in February.

On the bright side, premium wines are always impacted far less seriously as a cost percentage than entry level supermarket wines, so perhaps this is a sobering time for some of South Africa’s bulk producers to reassess their long-term business strategies in the UK as well as across the EU and USA. Can they find more quality and added value impact?

As someone who hates to dwell on the negative, I certainly envisaged lighting up the pages of Winemag in early 2025 with much more positivity and excitement, however, that ambition might have to wait until we’ve bedded in all the new tax changes in the UK and have had a fair chance to assess the longer term impact on all importers, especially those from South Africa.

• Greg Sherwood was born in Pretoria, South Africa, and as the son of a career diplomat, spent his first 21 years traveling the globe with his parents. With a Business Management and Marketing degree from Webster University, St. Louis, Missouri, USA, Sherwood began his working career as a commodity trader. In 2000, he decided to make more of a long-held interest in wine taking a position at Handford Wines in South Kensington, London, working his way up to the position of Senior Wine Buyer over 22 years. Sherwood currently consults to a number of top fine wine merchants in London while always keeping one eye firmly on the South African wine industry. He qualified as the 303rd Master of Wine in 2007.