The Chancellor’s March Budget will be scrutinised by everybody. Finding the balance between financial support to survive the COVID-19 crisis and the country’s longer term economic recovery is going to be difficult.

Before anything is finalised – it is still 2 months away – The Scotch Whisky Association has asked the Chancellor to include a reduction of excise duty on all spirits.

What is excise duty?

An ‘excise’ or ‘excise tax’ is a duty payable on individual items, rather than a business or an individual taxpayer. It’s chargeable at the point of manufacture, not the point of sale – making it different to customs and VAT taxes. Specifically, excise duties’ are:

  • A higher proportion of the eventual retail price of the product
  • Charged ‘per unit’, like number of units of alcohol per bottle
  • Only payable on a small range of products that are considered to cause harm to the individual or environment

In the UK, excise duty is charged on alcohol, gambling, tobacco and fuel. They are all things that can either cause ‘moral’ or physical harm to the individual purchaser, or damage to the environment.

It’s considered an ‘indirect tax’. This means that we as consumers don’t directly pay it to the government. The manufacturer or seller of the product is responsible for paying it to HMRC. But, of course, the cost of excise duty is factored into the price.

How much is the excise duty on whisky?

HMRC define the excise duty on whisky, and all spirits, as “£28.74 per litre of alcohol in the spirits at a temperature of 20 celsius”. What does that actually mean?

As part of their analysis, the Scotch Whisky Association (SWA) summarised the situation in two ways. Firstly, that for every £4 you spend on a bottle of whisky, £3 of that is straight to HMRC. 70% tax per bottle.

And the second way compares the excise on whisky and spirits, with other types of alcohol.Because this excise duty is worked out per unit of alcohol, “…Scotch Whisky – and other spirits – are taxed 16% more than wine (12% abv), 51% more than beer (5% abv) and 256% more than cider (5% abv).”

What are the SWA asking the Chancellor to do?

At this point, the SWA are asking the Chancellor to reduce excise duty on spirits by 5%, taking the total tax on a bottle down from 70% to 68%.

The Centre for Economic and Business Research (Cebr) calculates this will generate an extra £748m in VAT and duty over three years for the Treasury.

The SWA also point to the industry’s £450m losses over the last 15 months, directly due to punitive tariffs imposed by the USA. A trade dispute over government subsidies to aerospace between EU and US aircraft manufacturers has had a dreadful impact on the whisky industry. And that’s as well as the knock-on effects of a crippled hospitality industry due to COVID-19 restrictions.

Chief Executive of the Scotch Whisky Association, Karen Betts, said: ” The last year has been very challenging for the Scotch Whisky industry, with the combined impact of Covid-19 and US tariffs.  Scotch Whisky producers, large and small, are facing considerable losses and, as a result, we are urging the Chancellor to cut spirits duty in the Budget.

“A cut in duty will also help the hospitality sector, with pubs, bars and restaurants across the UK crying out for continued support.

“The industry is not going cap in hand to the Chancellor – but in order that we can be a partner in recovery the Chancellor must use the tax system to help grow the economy. A cut in spirits duty will deliver additional revenue for the government as well as supporting our industry as we absorb millions of pounds of losses as a result of UK government subsidies to aerospace, which sparked the trade dispute that has seen 25% tariffs on exports of Scotch Whisky to the United States.

“With £450 million in losses to date, and counting, jobs and businesses are now at risk, in Scotland and throughout our UK supply chain. The industry needs a package of support from the UK government while distillers continue to face crippling tariffs, and the Chancellor can start by cutting duty in the budget.”

Are the government likely to take this idea on board?

It seems like it’s the least they can do. Both specifically for a beleaguered spirits industry and to boost the eventual recovery of our pubs, restaurants and entertainment sector – when it becomes safe.

In October 2020, HMRC set up an ‘Alcohol Duty Review: Call for evidence’. This means that they asked industry experts how they can improve and simplify the current alcohol excise duty requirements. It states that they are reviewing:

  • “the method of alcohol taxation should be standardised
  • the duty categories should be changed or unified
  • products should be consistently distinguished by their strength
  • distinctions should be made based on the place of retail
  • small producer reliefs should be extended or standardised
  • duties could be uprated for inflation in a more consistent manner
  • a single process for approvals, declarations and payments should be introduced
  • more could be done to tackle avoidance and evasion of duty”

The consultation period is over, but it shows that the government are already considering the possibility of change to taxation and duty on alcohol.

There are so many unpleasant options available, like raising income tax, VAT, National Insurance Contributions, Capital Gains Tax and Corporation Tax, or creating a new Wealth Tax. And any cuts to any services are going to be met with real opposition.

Let’s face it, it could be an easy PR win. In the last 100 years, there have only been four cuts to duty on spirits. Maybe Chancellor Sunak will give us number five.