The impact of the alcohol duty increase on the UK spirits industry

July 24, 2023

alcohol duty increase

How will the duty increase impact the UK spirits industry?

Q&A: Alcohol duty increase 2023

Alcohol duty reforms come into place this August, pushing up prices of spirits and creating a fresh set of changes and challenges for UK drinks brands and manufacturers.

What are the alcohol duty changes 2023?

The alcohol duty changes 2023 see a new, simplified system introduced to manage taxation of drinks. This shifts to taxing drinks based on alcohol by volume (ABV) content. Duties will be levied on products according to six bands, each based on the alcoholic content of a drink, rather than the previous 15 bands, based on drink type*.

When does the alcohol duty increase 2023 come in?

The UK’s new duty rates on alcohol come into effect on August 1, 2023. At the same time the blanket freeze on alcohol duty, which has been in place since the 2020 Autumn Budget, will also end meaning levies will rise in line with inflation. For spirits and other drinks types, the changes and new bands take effect immediately, but there will be some transitional arrangements for certain wine products.

What are the new duty rates on alcohol?

Under the reforms, alcohol duty rates will be calculated based on the units of pure alcohol in a drink. The levies are also rising in line with inflation, which now stands at 10.1%.

The new duty rates on alcohol will now range from £9.27 per litre of alcohol in the product for products with less than 3.5% ABV, up to £31.64 per litre of alcohol in the product for products exceeding 22% ABV.

In practice, this means the prices of spirits such as gin, vodka or whisky will rise, while lower ABV products such as RTDs are likely to drop in price. For example, a typical 37.5% bottled spirit will go up by 76p, but a 5% ABV can of RTD would drop by anywhere from 5p to 14p, according to the Wine & Spirits Trade Association (WSTA)**.

Why is the alcohol duty being changed?

The reforms are being introduced to modernise the system and simplify associated admin for businesses, the government has said. It is also intended to encourage healthier choices for consumers, by encouraging drinkers to choose cheaper, therefore lower ABV, drinks.

What will be the impact of the duty increase on the UK spirits industry?

The alcohol duty increase is expected to add to ongoing challenges facing the UK spirits industry by:

  • Slowing consumer spending – Increasing prices for consumers will limit how often and how much people spend on discretionary products, particularly in the face of the ongoing cost-of-living crisis.
  • Creating administration costs – Getting to grips with the new duty rates, including updating processes and records or training staff, will create additional, albeit short-term, admin costs for drinks manufacturers and brands. These are expected to hit smaller producers, already struggling with rising energy and raw material costs, hardest.
  • Risking on-trade closures – Rising prices for spirits will add extra pressure to the already struggling on-trade, where inflation is running faster than for off-trade, as consumers will spend less in pubs, bars and restaurants. Increasing numbers of pubs are already closing in the face of rising energy, food and drink costs, adding to the many premises forced to close following the pandemic.

Will there be opportunities for the UK spirits industry from the alcohol duty changes?

In spite of the challenges, yes. We know the industry is innovative and responsive to changing trends and market challenges, so it’s anticipated that the alcohol duty changes will also encourage new opportunities within the spirits industry, including:

  • Diversification – Diversifying with lower ABV ready-to-drink (RTD) or no- or low-alcohol (NoLo) options can create appealing but affordable alternatives to standard spirits, with lower ABVs allowing for lower price points. As an example, Lot 42 released non-alcoholic and lower-than-standard ABV RTDs in late 2022, highlighting the health credentials and low-calorie counts to demonstrate how a drink’s quality needn’t be compromised to deliver affordability***.
  • Modification – Adapting pack sizes or modifying recipes, without compromising on quality or commerciality, can create better value for consumers. For example, smaller bottle sizes will help to keep spirits affordable as a ‘little luxury’.
  • Premiumisation – Highlighting high-quality or unusual ingredients will help to justify price rises to consumers. This is particularly beneficial where ingredients and flavours are unique or premium, and for NoLo creations it will further justify the price points which are often cited as making alcohol-free alternatives offputting. As an example, Citizen Spritz’s highlights how its NoLo drinks are “crafted with over 40 natural ingredients” to deliver “intense”, “sweet and sharp” flavours***.

Which drinks categories will be impacted?

The new duty rates on alcohol will affect all drinks categories, including spirits, still and sparkling wines, ports and sherry, and beers and ciders, each in varying degrees, depending on their alcohol content.

While the changes to alcohol duty will create fresh challenges for the UK’s spirits industry, there are also some realistic opportunities for drinks brands and manufacturers to pursue.

Simpson’s Beverages develop flavours for RTD cocktails and compounds for non-alcoholic spirits. Get in touch to discuss how we can support you to enhance and diversify your drinks.

*Society for Independent Brewers 

**Drinks Retailing News:  

***Mintel White Spirits & RTDs UK, 2023

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