Could Osborne's beer duty cut be illegal?

pint of beer

There are plenty of winners and losers from this week's Budget statement. However, while everyone argues about the implications of tax changes and whether the housing market is really set for recovery, we can all agree one one thing: everyone has to be pleased with a 1p cut in the duty on a pint of beer.

Actually not everyone.... wine and spirits producers are livid, and are even claiming that the move could break the law.

Why do it?

George Osborne's treatment of alcohol in the Budget was clearly the result of a couple of compromises.

There was some pressure to keep alcohol duty on the escalator - which sees prices increase by at least inflation plus 2% in every Budget. David Cameron has been such an outspoken critic of discounted bargain booze in supermarkets that it made no sense to freeze the duty.

It means that the price of a bottle of wine will go up by 10p on Sunday, while the price of a bottle of spirits will increase by 53p. According to the Wine and Spirit Trade Association, this means that since the escalator was introduced in 2008 it has put 67p on a bottle of wine and £2.38 on a 70cl bottle of vodka.

However, at the same time, pubs and brewers argued that pub closures are destroying the hearts of towns and villages across the UK, and something needed to be done. Pulling beer off the escalator, and cutting duty by a penny was Osborne's way of doing that - and garnering some enthusiasm from the voting public at the same time.


The problem is that treating different types of alcohol differently is being seen as unfair. Wine and Spirit Trade Association Chief Executive Miles Beale said: "This is bad news for the UK wine and spirits sector, with year on year duty increases hitting consumers and businesses hard."

He added: "If this was designed as a measure to support pubs it seems misplaced: over 41% of drinks sold in pubs are wine and spirits, contributing £9.4 billion per year. The Chancellor's decision ignores the growing value of the English wine industry and the UK spirits industry, which accounts for 18% of all jobs in the EU spirits industry."

Gavin Hewitt, chief executive of the Scotch Whisky Association, added: "This is an unfair and incomprehensible attack on the Scotch Whisky industry in its domestic market, where it is a vital part of the Scottish and UK economy and where it supports many other businesses. It penalises responsible drinkers who like a dram rather than a pint. There is no justification for spirits being taxed more heavily than beer."


More to the point, Beale said the move may well be illegal. He said: "It makes little sense to single out beer, particularly as there is a legal precedent to suggest that the Government is unable to do so."

The legal precedent he is referring to is a decision made by the European Court of Justice in 1983, which said that the duty regime in the UK at the time discriminated against wine. The court ruled that because wine and beer were competing products they ought to be taxed at the same rate. Beale has said he is exploring the issue further.

The Treasury may take some comfort from the fact that the European Court ruled in 2008 that Sweden was not breaking the law by treating wine and beer differently. It said that the difference in the duty on the products was not enough to influence consumer buying behaviour.
There's definitely an argument that 1p off a pint of beer is not going to make any hardened wine drinker put down the bottle and order a pint. However, it begs the question as to whether this will still be the case a few years down the line if inflation pushes the price of wine even higher and the Treasury chooses to leave beer alone.
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