The UK’s autumn budget has been met with ‘fury’ from members of the drinks industry, as it was announced that duty on alcohol is to increase in line with inflation from February 2025.
Alcohol duty was frozen by the former chancellor Jeremy Hunt in his autumn statement last year, and was further extended in the spring budget. However, the Labour chancellor Rachel Reeves confirmed that in line with the Retail Price Index (RPI), taxes would increase for alcohol in the new year, with the exception of alcohol sold on draught in on-trade venues, on account of nearly two-thirds of alcoholic drinks purchased in pubs being served on draught.
The drinks trade has reacted to the tax hike, with many expressing feelings of ‘fury’ and ‘betrayal’ at the government’s decision not to extend the freeze on alcohol duty for the coming year.
No lessons learned
Stephen Russell, co-founder of Kent-based Copper Rivet Distillery and spokesperson for the UK Spirits Alliance (UKSA), which represents more than 280 distilleries and micro-businesses across the UK, said that lessons had “not been learnt” from the previous government, and that commitments to the sector “have been broken”.
“The chancellor’s increase in excise duty on spirits is a kick in the teeth to distillers, landlords and working people who will feel this in their pockets. Pubs are more than pints – a third of all alcoholic drinks sold across hospitality are spirits. Today’s decision won’t stop thousands more pubs and distillers closing down,” he said.
“We need action, not gimmicks, and we need a government to stop discriminating against the iconic British spirits industry. The last government hiked spirits duty by 10.1% and lost over £300m and counting in Treasury revenues. This decision will increase those losses in future and will cost jobs, reduce investment and damage growth.”
The Scotch Whisky Association (SWA) chief executive Mark Kent added: “This duty increase on Scotch whisky is a hammer blow, runs counter to the prime minister’s commitment to ‘back Scotch producers to the hilt’, and increases the tax discrimination of Scotland’s national drink.
“On the back of the 10.1% duty increase last year, which led to a reduction in revenue for HM Treasury, this tax hike serves no economic purpose. It will damage the Scotch whisky industry, the Scottish economy, and undermines Labour’s commitment to promote ‘Brand Scotland’. [Reeves] has also increased the tax discrimination of spirits in the Treasury’s warped duty system, and with 70% of UK spirits produced in Scotland, that will do further damage to a key Scottish sector.
“The disastrous 10.1% duty hike last year has now been compounded. This further tax rise means the lessons have not been learned, and the Chancellor has chosen continuity with her predecessor, not change.
“We urge all MPs who support Scotch whisky to vote against this duty hike and tax discrimination of Scotland’s national drink.”
A ‘bitter taste’ for drinkers
The government’s decision to raise spirits duty will take the minimum tax burden on a bottle of Scotch whisky above £12 (US$15.56) for the first time.
The UK tax burden on Scotch was already the highest out of any country in the G7.
Nuno Teles, managing director of Diageo GB, said: “On the campaign trail, Keir Starmer pledged to ‘back the Scotch whisky industry to the hilt’. Instead, the government has broken this promise and slammed even more duty on spirits. This betrayal will leave a bitter taste for drinkers and pubs while jeopardising jobs and investment across Scotland.”
Aaron Damiano Sparkes, founder and CEO at Whisky 1901, added: “The current system discriminates between alcohol beverage categories, with consumers who drink draught beverages experiencing a tax cut, where other alcohol beverages receive a significant tax duty increase.
“Scotch is already the highest-taxed alcoholic product in the UK. This contradicts the UK Government’s pledge to support Scottish whisky – an industry that contributes £7.1 billion in exports to the UK economy and supports more than 66,000 jobs across the UK. Scottish distilleries are popular tourist attractions and generate crucial income for other businesses in their local communities.
“The tax hike doesn’t just affect distilleries, the hospitality sector and consumers, it also impacts the growing cask investment market – those wishing to explore and invest in alternative assets.
“Due to the increased duty, it costs more to produce the alcohol and more to purchase the whisky whether bottled or barrelled. While this increase in cask value may come as positive news for those who have already invested in casks, new investors will now pay more for the same barrel.”
Simon Shelbourn, chief financial officer for employee-owned Kingsland Drinks noted: “Further taxing non-draft alcohol hurts everyone; whilst the government is working hard to plug the hole in the country’s finances, the consumer is being further penalised despite already bearing the weight of the cost-of-living crisis, and much of the drinks industry will once again have to prove its resilience despite being positioned to drive economic growth.
“The move is damaging to the industry and a setback to firms across the board who have worked tirelessly in recent years to withstand relentless taxation in the toughest of trading conditions.”
A ‘bewildering’ decision
The Wine and Spirit Trade Association (WSTA) said it has long argued that raising taxes is counterproductive and doesn’t guarantee revenue increases – proven by the latest HMRC data which show alcohol duty receipts were down almost £500 million in the first six months of the financial year.
The trade association has now warned that hiking duty will not help businesses to invest and grow, but will result in price rises for consumers and, crucially, it will not help the Treasury to ‘claw back’ much needed funds to ‘plug the black hole’ in the public finances.
Miles Beale, WSTA chief executive, said it was “bewildering that Labour has chosen to support a Rishi Sunak-inspired tax complication”, adding that “the chancellor’s decision to increase alcohol duty by RPI is a real kick in the teeth for both businesses and consumers. We simply cannot understand why government has said they are trying to protect income and in the next breath raising alcohol duty in a move that is totally counterproductive.
“We are bitterly disappointed that Labour, despite their manifesto pledge to prioritise growth, has chosen not to listen to business – especially SMEs, which will be hit hardest of all.”
He continued: “Raising alcohol duty and ending the wine easement will not bring in more revenue for the chancellor, but it will mean businesses will now be obliged to tussle with more costly and complicated red tape. This will increase costs and push up prices for consumers and make economic growth unlikely or unachievable.”
Mark Riley, WSTA chair and managing director at Edrington UK, added: “Last year’s record-breaking duty increases resulted in an immediate and negative impact on wine and spirit sales volumes. Unfortunately, businesses are still reeling from the damaging duty hikes and the chancellor’s decision to increase them again is only going to inflict more misery on British businesses, and will mean further price rises for consumers and reduced excise duty receipts. It’s a disappointing outcome all round.”
Hospitality at ‘breaking point’
In addition to the rise in alcohol duty, the chancellor also confirmed the government would increase the National Insurance (NI) contributions from employers by 1.2%, taking it to to 15% from April 2025.
She said: “Working people will not see higher taxes in their payslips as a result of the choices that I am making today. That is a promise made and a promise fulfilled.”
She also announced a reduction of the secondary threshold – the level at which employers start paying NI – on each employee’s salary from £9,100 to £5,000, claiming the move would raise £25bn per year.
Reeves also increased the minimum wage by 6.7% to £12.21 per hour, worth up to £1,400 a year for a full-time worker. She also announced a move toward a single adult rate, with age boundaries phased out over time, beginning with an increase from £8.60 to £10 an hour for 18 to 20-year-olds.
Following a leak of the minimum wage plans prior to the budget, Michael Kill, CEO of the Night Time Industries Association (NTIA), said: “Minimum wage hikes may seem like a win for workers, but for small nightlife and hospitality businesses already stretched thin, it’s at breaking point. These increases must be balanced and affordable for businesses, or we risk being counterproductive, cutting shifts and jobs as companies streamline just to survive.”
A ‘tsunami of employment costs’ coming
Kate Nicholls, chief executive of UKHospitality, said: “This budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
“In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NI contributions and wages will make it harder for businesses to support employment and invest in their businesses.”
The chancellor also extended the previous government’s business rates relief, which was due to expire in April 2025, by providing a 40% relief on business rates for hospitality businesses in 2025/26, up to a cap of £110,000 per business.
Nicholls noted that “avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40% is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.
“All of this means that 2025 will be painful for hospitality, with an increased annual tax bill of £3 billion (US$3.89bn) for the sector.
“However, there are reasons for longer-term positivity. I am pleased that the Chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality. Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.
“We need to see the detail and the government must work with the sector in the design and delivery of this significant change to get it right.”
A ’slow and painful death’ for small businesses
Meanwhile, Lyle Bignon, Night Time Economy (NTE) ambassador for Birmingham (NTIA) called the budget “an act of wilful vandalism as far as the UK’s fifth-biggest industry, the Night Time Economy, is concerned.
“Rather than delivering the change, renewal, and investment promised, Rachel Reeves has instead directly snubbed small and medium-sized businesses working in culture, hospitality, and the NTE across the country.
“As we saw from [prime minister] Kier Starmer’s speech in Birmingham earlier this week, today’s announcement and the Cabinet’s failure to engage with the NTE in any meaningful way to date, we can only assume that the government is intentionally ignoring our plight.”
On the extension of the previous government’s business rates relief, Bignon said “a 40% business rate relief from 75% is tokenistic at best, and offensive at worst.”
He added: “We do, of course, welcome more support for workers via the increase of the national minimum wage, reforms to the Carer’s Allowance, and basic pension changes. This suggests the potential for more disposable income across the country. However, without any significant interventions or significant investment to offset the 15% hike in employers NI contributions and other financial squeezes, today’s budget essentially condemns our SMEs to a slow and painful death.”
An ‘opportunity’ for the Scottish government
Meanwhile in Scotland, the executive director of UKHospitality Scotland, Leon Thompson, said: This is an extremely tough budget for our businesses, with employer NI contribution increases set to significantly impact their finances, alongside higher than expected rises in the National Living Wage and National Minimum Wage.
“To support our businesses, it is imperative that the Scottish government pass on, at least, the 40% business rate relief announced by the chancellor for hospitality in England.
“The lack of support in the last two years has left Scottish hospitality businesses in a precarious situation. Our businesses have been forced to trade at a considerable disadvantage to their counterparts in England and Wales. It’s time for the Scottish government to use the money it will receive from rates relief in England to support Scottish hospitality.
“There is also an opportunity for the Scottish government to show leadership by delivering on its commitment, made at the last Scottish budget, to reform business rates for hospitality.
“Reducing the poundage our businesses pay from 2025 is a quick first solution to repairing a taxation system that penalises hospitality and holds back investment and economic growth.
“UKHospitality Scotland will continue to make this case to the finance secretary, ahead of the Scottish budget in December.”
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Author: Georgie Collins
