Australian drinks exporters to the UK have been dealt a further blow following the British government's decision not to cut wine and spirits duties.
The drinks industry had been campaigning for a 2% cut to wine and spirits duties to ease the burden on producers in the wake of Brexit. The government rejected the request and has instead decided to lift a freeze on beer and spirits duties that was imposed in 2015. From March 13, 2017, duty on beer, cider, wine and spirits will increase by RPI inflation, which is currently 3.9%.
The UK is currently Australia's third biggest export market for wine, at $361million. Wine companies have already been reeling from decreased margins due to Brexit fallout.
John Haddock, chief executive of CHAMP, the major shareholder in Accolade Wines, told the Australian Financial Review this week that the company had been affected by uncertainty in the UK economy. Accolade derives 55% of its sales in the UK, but the Brexit vote and the resulting fall in value of the British pound was a factor behind the company's decision to postpone its IPO.
"There's no doubt that the United Kingdom is a changing landscape and we are adjusting to that," he said. "The fall in the pound makes it much harder for exporters selling into the UK, who must sacrifice margins to stay competitive on the shelves of supermarket retailers."
Last month, Australian Vintage reported that unfavourable exchange rates had cost it $10.5million in the last six months. Chief Executive Neil McGuigan noted: "Like every other Australian wine business that exports to the UK, the unfavourable movement in the pound has negatively impacted profit."
Spirits industry fury
The Wine and Spirit Trade Association has condemned the Government's decision, saying the costs of importing wine has already increased 15% following Brexit and the devaluation of the UK pound.
Meanwhile, the spirits industry was already burdened with one of the highest duty rates in Europe.
Currently, the average duty paid on an bottle of still wine in the UK is £2.08, with 55% of the price of every bottle sold going on duty and VAT, while the level of tax on whisky is 79%.
Miles Beale, chief executive of the WSTA, said: “It is disappointing that the Chancellor ... has increased what were already excessive and unfairly high rates of duty for the UK’s wine and spirit consumers and businesses.
“Between Brexit’s impact on the pound and rising inflation the wine and spirit businesses face a tough trading landscape. This is a missed opportunity to back British business and help out struggling consumers. The added uncertainty of another Budget in six months’ time is unwelcome and will further undermine business – and consumer – confidence.”
“A nearly 4% duty rise and a 79% tax burden on a bottle of whisky is a major blow, reversing recent progress,” said Julie Hesketh-Laird, SWA acting chief executive. "Looking to the autumn Budget, we will be arguing strongly that it is time for a new approach to excise duty outside the constraints of EU excise law. The system is in need of a fundamental review and reform to make it fair and competitive.”
Meanwhile Charles Ireland, managing director of Diageo Great Britain, told the drinks business the rise to alcohol duties was “bad for the economy, bad for business and bad for the British public”.
“Tax on Scotch Whisky is now so high – nearly 80% of the price of an average bottle will go straight to the Government. We believe this duty rate increase will reduce total tax revenue. We are calling on the Government to reverse this punitive tax hike and fundamentally overhaul what is clearly a flawed excise duty system.”
Breakdown on duty by category:
Duty on a 750ml bottle of wine increases by 8p to £2.16
Duty on a 750ml bottle of sparkling increases by 10p to £2.77
Duty on a 750ml bottle of fortified wine increases by 11p to £2.89
Duty on a 70cl bottle of vodka at 37.5% increases by 28p to £7.54
Duty on a litre bottle of vodka at 37.5% increases by 40p to £10.78
Duty on a 70cl bottle of gin at 40% increases by 30p to £8.05
Duty on a litre bottle of gin at 40% increases by 43p to £11.50
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