10% duty hike on cider
Alistair Darling has raised duty on cider by a whopping 10% above inflation, claiming the drink had been "undertaxed" in the past.
The move, unveiled in the 2010 Budget, will add 5p to a litre of still cider and 9p to a 75cl bottle of sparkling cider from Sunday.
This is despite a Facebook campaign called "Leave our Cider Alone" with 300 followers. Cider companies can expect no respite as further changes in September will redefine cider to ensure that stronger ciders are "taxed more appropriately".
For the rest of the sector, the chancellor went ahead with the tax escalator, which automatically increases tax on alcohol by 2% above inflation.
With inflation running at 3%, the 2% escalator – introduced in the 2008 Budget to appease the health lobby – will now see tax on drinks rise by 5%. The rise will add 10p to a 75cl bottle of wine; 12p to a 75cl bottle of sparkling wine 36p to a 70cl bottle of spirits; and 2p on a pint of beer.
Duty on tobacco will only increase by 1% above inflation.
The alcohol escalator has been heavily criticised by drinks companies and trade bodies.
A spokesman for the Scotch Whisky Association says: "It is depressing the market and it's not good for a product which is one of the country's leading exports."
Tax receipts from alcohol rose to £14.7 billion last year, from about £10.4 billion in the tax year ending in 1998, after Labour returned to office.
But pubs are also closing at a record pace as publicans struggle to cope with lower consumer spending and the discounts offered on wine and beer by supermarkets.
This is also having a knock-on effect for the Treasury. Last year saw the revenue the government received from spirits drop by £30 million, official figures show. The duty and VAT paid on beer fell by £31 million last year, as the number of pints of lager sold each day fell to 12.4 million from 13.2 million.
Representatives from the drinks industry have called for the tax escalator to be postponed and are understood to have held meetings with shadow ministers in recent weeks, in the hope that a Conservative government would be more sympathetic.
The head of Diageo's UK business, Simon Litherland, says the present tax level has cost the drinks industry 30,000 jobs.
The British Beer and Pub Association says 4,000 pubs have closed in the last two years while UK brewers were making a profit of just 1p a pint - contributing to 41 major brewery closures since 1997.
Continued increases have seen beer duty soar by an unprecedented 25% in the last two years.
"With nearly six pubs a day still closing, what community pubs and pub goers needed today was a lifeline, not a death knell, " said Mike Benner, chief executive of the Campaign for Real Ale.
The 130m-gallon-a-year UK cider industry was not impressed. Henry Chevallier, chair of the National Association of Cider Makers, says: "This dramatic increase [in duty] could well reverse the growth we have generated in recent years. What makes this so serious is that cider makers have invested millions to plant thousands of acres of new orchards in the last decade."
However, the chancellor has also been under pressure to hammer the drinks industry much harder after a series of recommendations by MPs on the health select committee last year.
A report demanded that "unlike in recent years, duty increases should predominantly be on stronger alcoholic drinks, notably on spirits".
MPs have also called for a return to the level in 1983 when the duty on a litre of pure alcohol was 11% of the average male weekly manual wage, compared with 5% in 2002. Such a move would send Britain to the top of the European league table for spirits tax.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).