The Great Duty Debate Part 2 - or 'How much difference is that 2% cut really going to make?'
So, the big news this month is that the Chancellor has cut Duty on spirits by a whopping 2%. Well whoop de doo. Don’t get me wrong, this is definitely a step in the right direction but how much difference is it really going to make?
Assuming that this Duty cut actually gets passed on to the end consumer (which I very much doubt), that equates to a saving of a grand total of 20 pence, including VAT, on every bottle of spirits you buy. For sake of argument, let’s say you buy a bottle of whisky a week. In just over a year, 58 weeks to be precise, you’ll have saved enough money to buy yourself a bottle of Tesco Value blended whisky. Won’t that be a treat?
Seriously though, if saving 20p on a bottle of spirits really makes a difference to your life then you really shouldn't be buying it in the first place!
It wasn't just spirit duty that was cut either, beer duty was also cut by a penny a pint. So if you buy 300 pints, you effectively get one free. I don’t really know how much a pint costs these days, it may not be £3, but you get the idea.
But maybe I’m looking at this the wrong way. Maybe it’s more about the wider political and economic implications rather than how it affects the end consumer - a tacit agreement by the government that alcohol duty is, in fact, too high? Or a cynical plot to win over voters with a crowd pleasing tax cut in a General Election year? I know which one I’m going for! The SWA is certainly hailing it as a historic move though and a ‘significant boost to a home-grown industry’. When you consider that there have only ever been five spirits duty cuts since the landmark 1823 Excise Act then this duty cut, small as it is, certainly does seem to take on a bit more importance.
It’s when you look at alcohol duty overall though, and not just spirits duty, that you realise just how highly taxed spirits are compared to other alcoholic drinks. I hadn't realised quite how much of a difference there was until I looked it up on the HMRC website. And it’s not just the levels of duty that are different either, it’s also the way the duty is calculated. For example; spirits and beer are taxed according to alcohol strength (litres of pure alcohol) whereas cider and wine are both taxed by volume of product (albeit with lower or higher duty rates for very low or very high alcohol examples of these). The end result is wildly different duty receipts depending on what you are buying. I’ve done another infographic (starting to like these things) to show just how much disparity there is!
For those of you that like concrete figures, the Duty per litre on the examples I have used is;
Spirits at 40%vol £11.06
Beer at 4% vol £0.73
Cider at 5% vol £0.39
Wine at 14% vol £2.73
For the purposes of comparison, if everything was taxed the same as spirits, the figures would be;
Spirits at 40%vol £11.06
Beer at 4% vol £1.10
Cider at 5% vol £1.38
Wine at 14% vol £3.87
Bit of a difference, isn't it? I think it’s time for a radical overhaul of the duty system. I tend to agree with the SWA that the fairest way of doing things is to have one duty rate based on the litres of pure alcohol in the product. After all, alcohol is alcohol, right? Especially in these days of responsible drinking and recommended units. Why should one unit of alcohol consumed as whisky be treated any differently from one of beer or cider or wine? You could always have reduced duty rates for small scale producers (as they already do for beer) to help small or new producers, who don’t have the same economies of scale for their raw materials or production costs, compete on a more level playing field than the big boys. Surely this would do more to stimulate the economy and support home grown industry than a token 2% duty cut, welcome as it is?
It’s a general election year again so that means lots of politicians trying to convince us to vote for them by using catchy soundbites to either a) blow their own trumpet or b) slag of the opposition. One that I have seen quite a lot recently is that 80% of the price of a bottle of whisky is tax. Now, that is some statement! Guaranteed to cause indignation in even the most moderate whisky drinker and, in the wake of the referendum, generate quite a lot of publicity since it affects one of Scotland’s most iconic products.
Now, I don't particularly want to get into a political discussion about the excise rate on spirits, but it did get me thinking. My first thought was, ‘what a load of b*llocks!’. I happen to know that duty on a bottle of whisky is about £8 (depending on the alcohol strength, but more on that later) and when was the last time you were able to buy a bottle of whisky for a tenner?! Or would want to for that matter?!
My second thought was, oh my god, maybe most people in the UK do drink £10 a bottle blend and I’ve turned into such a whisky snob that I just don’t realise it? A quick peruse of the shelves in my local supermarket and browse online though reassures me that that is not the case. Most well-known branded blends appear to be around the £17 - £18 per bottle mark, while the cheapest ‘value’ whisky I could find was £11.50. And that’s where it gets frightening. Why? I hear you ask. Well, for ease of maths, we’ll round the £11.50 up to £12. That £12 includes VAT, so take off £2 for VAT, and we’re left with £9.50. Now take off duty, which on a 70cl bottle at 40% is £7.90 and that leaves us with a grand total of £2.10. Two pound 10p which needs to cover the retailer’s margin, the producer’s margin, the cost of the bottle, label, capsule, outer case, bottling, transport, storage, and…am I forgetting something? Oh yeah, the whisky itself! Now do you see why it is frightening?
Now, contrary to what some politicians and lobbyists would have you believe, Excise Duty in the UK is calculated on the alcohol content of the product, not the value, so if you spend a bit more on per bottle then things get a lot less scary and a lot more encouraging as a much higher proportion of your hard earned cash is actually going towards the whisky itself for your liquid enjoyment rather than to the taxman. If you spend £36 quid for example, then you have a massive £22.10 left once duty and vat have been taken out the equation.
Not having anything better to do on a rainy Thursday afternoon, I did some sums and created this handy infographic (since they seem to be all the rage these days) to illustrate my point. For comparison purposes all costs are based on a 70cl bottle at 40% vol.
The main thing to take away from this? You are perfectly justified in spending more on whisky! The more expensive it is, the higher proportion of your cash you are spending on the actual whisky. I imagine there comes a point though when the tax is pretty negligible so don't go giving yourself carte blanche to spend thousands of pounds per bottle of whisky just on my say so!
The other thing to take away is that while total tax (duty & VAT) does indeed make up over 80% of the cost of the cheapest bottle on the market, it is very misleading to imply that this is the case across the board. It's not. But then, 'The tax you pay on a bottle of whisky depends on the alcohol strength and the price of the bottle and can vary from around 82.5% per bottle to about 20%' isn't quite as catchy a soundbite is it?
Some actual facts, rather than my opinions/conclusions follow. You may or may not wish to read them.
The duty rate on spirits in the UK is currently £28.22 per litre of pure alcohol. For a 70cl bottle, this equates to £7.90 at 40%vol, £9.08 at 46% vol or £11.26 at 57% vol. If you wish to work out how much duty is in your bottle, the calculation is £28.22 x volume of bottle in litres x alcohol percentage expressed as a decimal.
This duty rate applies to all spirits, not just Scotch Whisky. Whether you are drinking Scotch Whisky, English Gin, French Cognac, Russian Vodka or Mexican Tequila, they are all taxed at the same rate. No one spirit is being unfairly targeted.
UK VAT is currently 20%. To calculate the price before VAT you divide by 6.
Whisky Impressions is run by Kate Watt. Previously at Springbank and then Glenfarclas, I now design some whisky related stuff and write about it, and anything else that takes my fancy, on this blog.