The UK wine industry got another kick in the teeth yesterday in George Osborne’s first budget.
The Chancellor of the Exchequer pushed ahead with the previous government’s policy of automatically increasing tax on alcohol by 2% above inflation. That means excise duty on wine, as well as beers and spirits, saw a 7.2% rise or 15p per 75cl bottle of wine.
According to the UK’s Wine and Spirit Trade Association that means in just three years the UK tax on wine has increased by around a third, and represents 56% of the cost of an ‘average-priced bottle of wine’, which is around £4.32
The UK looks an increasingly unappealing market for wine importers. Yes, it might still be a prestigious market to be in but its pull is waning.
In a market dominated by supermarket chains, producers are expected to continue absorbing price increases and fund deep discounting, particularly with a lingering recession. But with the continued rises in taxes on alcohol, this absorption cannot go on. The increases need to be passed on to the consumer or producers will go out of business.
But if you pass the price increases on, then you risk delisting. South African wine and spirits producer KWV recently announced earnings were down a whopping 79% in the first half of its financial year largely due to increasing its prices in the UK leading to delisting.
Constellation has already pulled the plug on the UK while Gallo has cut its number of lines in the UK and consequently seen a 26% fall in sales. It has also reduced its promotional activity because its marketing spend is being used to pay duty.
Yes, the UK is heavily in debt and needs to raise revenue. Yes, there is a binge drinking culture. But continuing to raise taxes penalises the majority and will see many companies go out of business or relocate to other markets. More people on jobseeker’s allowance and fewer businesses generating wealth cannot be good for the country’s coffers.
