The Wine and Spirit Trade Association Budget Submission 2016 Supporting a Great British industry
Foreword The Wine and Spirit Trade Association (WSTA) speaks for the wine and spirits industry in the UK, representing over 300 companies producing, distributing and retailing wine and spirits. The industry s contribution to economic activity is often underestimated. Through distilleries, vineyards, bottling plants, logistic companies, wholesalers, distributers and retailers it supports nearly 600,000 jobs in the UK, contributes 45bn in economic activity and pays over 15.5bn in tax. We also take a lead on ensuring alcohol is distributed and sold responsibly. Yet the industry has faced difficult trading conditions over the past few years, seeing sales and revenues decline, which has impacted on its ability to create jobs and to invest. This was exacerbated by the significant increases in alcohol duty under the unpopular Alcohol Duty Escalator. The WSTA therefore warmly welcomed the Government s recognition that duty rates in the UK were unfair by scrapping the Alcohol Duty Escalator in 2014 and going further by cutting spirits duty and freezing wine duty in 2015. This has already started to have an impact on the trade by helping to rebuild confidence, however more needs to be done to help restore the health of the industry. Our ask of the Chancellor in the 2016 Budget is therefore very simple. To build on the decisions at the last two budgets, and to move away from some of the highest excise duty rates in the EU. We are calling on the Government to cut excise duty on all alcoholic products by a modest 2%. Evidence shows that these cuts are not only popular, but have led to greater revenue for the Exchequer, more jobs, greater investment by the industry and a better deal for consumers. I hope you strongly consider this request for further support for the trade and trust that this submission provides compelling evidence for greater government support for a quintessentially British industry. Miles Beale Chief Executive The Wine and Spirit Trade Association Registered number: 410660 England Limited by Guarantee
The impact of duty rates In both 2014 and 2015, the WSTA commissioned independent economic analysis by Ernst & Young (EY). It showed a cut in alcohol duty could actually lead to increased Treasury revenue. There is already evidence that, just 9 months after the Government cut spirits duty and froze wine duty, this analysis was correct; increasing revenue to the Exchequer, encouraging industry investment, creating jobs and rewarding consumers. Greater revenues for the Exchequer Alcohol revenue increased by nearly 200m in the 9 months April to December 2015 compared to the same period the year before. Spirits revenue in this period is up 4%, or 96m, compared to a decline in revenue of 11m or 1% in 2013 to 2014. Wine revenue has also increased in this period by 4%, or 114m. This is compared to an increase of just 59m when alcohol duty was increased by inflation (2.45%) in 2014. At this rate wine duties are on course to reach 4bn in a one year period for the first time. Increased industry investment By reducing some of the duty burden on the industry, the Government has helped restore some of the confidence needed for firms to invest in the UK. Examples of this increased investment include Taittinger announcing in December that it is to become the first Champagne producer to invest in the English Sparkling Wine industry in Kent, and Accolade Wines opening a new line at Accolade Park in Bristol, significantly increasing its bottling capacity. A better deal for consumers The 2008 Alcohol Duty Escalator dramatically increased costs on drinkers; 55% of a bottle of wine and 74% of a bottle of spirits in shops is taken up in tax. Average wine and spirit prices increased by around 5% per year to 2014, most of which was made up of duty. However, since the Government froze wine and cut spirits duty rates, price increases have slowed significantly, showing that the benefits of the duty cuts are being passed on to consumers. page 3
Alcohol taxation in the UK While measures in the last two Budgets have been welcome, the legacy of year-onyear inflation busting rises means that the UK alcohol industry is still one of the most heavily taxed in the world. Wine Duty on a bottle of wine is 2.05, meaning that 55% of the average priced bottle is accounted for by duty and VAT. Furthermore, duty on sparkling wine, which makes up two thirds of all English wine production, is 28% higher than still wine at 2.63 per bottle. Wine duty has increased by 54% since 2008, the equivalent of an additional 72p per bottle. 55% tax Duty on an average priced 75cl bottle of wine = 2.05 + 90p VAT Wine consumers paid 3.8bn in duty + 1.8bn VAT in 2014/15 Spirits Duty on a 70cl bottle of spirits at 37.5% abv is 7.26, meaning that 74% of the average priced bottle is accounted for by duty and VAT. Spirits duty has increased by 41% since 2008, the equivalent of an additional 2.13p per bottle for consumers. 74% tax Duty on an average priced 70cl bottle of spirit at 37.5% ABV = 7.26 + 2.69 VAT Spirits consumers paid 3bn in duty + 1.6bn VAT in 2014/15 The Wine and Spirit Trade Association Registered number: 410660 England Limited by Guarantee
Alcohol taxation in the UK Significant and growing contribution to the Exchequer Consumers in the UK pay over 10.5bn in alcohol duties, two thirds of which is on wine and spirits at 6.8bn. Alcohol consumers also pay a further 7.4bn in VAT taking the total to 17.9bn, more than one and a half times the UK s overseas aid budget. How the UK compares: The UK collects Wine: 67% Spirits: 25% of all EU alcohol duties Others 3.7bn 35% UK consumers pay the Chancellor Spirits 3bn 29% Wine 3.8bn 36% Total duty paid: 10.5bn 38.22% = 12.5 billion of all EU alcohol duty collected by member states. This is more than consumers pay in Germany, France, Spain, Poland and Italy combined Wine UK wine duty is the 2nd highest in the EU 15 EU states have a 0% duty rate to support their wine industries Spirits UK spirits duty is the 4th highest in the EU page 5
The UK wine story English and Welsh wine: an industry with potential Over 100 vineyards open to tourists A 2% duty cut would save the industry c. 2.9m by 2020. That is the equivalent of: 105 new jobs +12% of land under vine +16% in production The industry expects to double production to 12m bottles by 2020 Wine is the UK s most popular drink, with the equivalent of 30m people, including a majority of people in all age groups, genders and regions, saying they drink wine nowadays. Globally, the UK is the 6th largest wine market, the leading experts in wine, with more Masters of Wine than any other country, and is home to the world s largest industry training provider (Wine and Spirits Education Trust). The UK wine industry: Employs 170,000 people directly and a further 100,000 people in the supply chain including agricultural, technical and seasonal jobs. Generates 17.3bn in economic activity including sales worth 6.6bn for shops and supermarkets and 4bn for pubs, bars and restaurants. Contributes over 8.7bn to the Exchequer including 3.8bn in alcohol duty, 1.8bn in VAT and a further 3bn in corporation and employment taxes, more than any other alcoholic product. However, trading conditions for UK wine businesses remain tough and following the introduction of the Alcohol Duty Escalator wine clearances have fallen by over 12%. With only a freeze... UK production and bottling New bottling plants operating in the UK are bottling an estimated 600m bottles, nearly one third of all wine consumed in Britain. This creates jobs and dramatically cuts carbon emissions as a result of bulk shipment from the country of origin. + 114m to the Treasury +4% revenues The Wine and Spirit Trade Association Registered number: 410660 England Limited by Guarantee
The UK spirits story 51% of UK adults drink spirits nowadays equivalent to 26 milllion people The UK spirits industry is a home grown success story, producing some of the world s most iconic brands and exporting them all over the world. The UK spirits industry: Employs 186,000 people directly with a further 110,000 in the supply chain including in distilleries, bottling plants, logistics, marketing and hospitality, where there is a high number of 18-24 year olds employed. Generates 28.2bn of economic activity including sales worth 4bn to shops and supermarkets and 5.6bn to pubs, bars and restaurants. Contributes over 6.9bn to the Exchequer including 3bn in alcohol duty, 1.6bn in VAT and a further 2.4bn in corporation and employment taxes. However, trading conditions for the UK spirits industry remain tough. Following the introduction of the Alcohol Duty Escalator the spirits market has declined by 10.6%. The Government s decision to freeze duty in 2014 and cut by 2% in 2015 has begun to turn the tide for wine and spirits, however more still needs to be done to help the industry to be more competitive. 296k work in spirits Since last year s 2% duty cut... +10% growth in gin in 2014 or 979m 1.6bn gin and tonics sold globally in 2014 + 96m to the Treasury +4% revenues page 7
Wine and spirits exports The WSTA believes that there are further measures the Government can take to help the industry grow: encouraging investment, supporting economic growth and creating jobs. This includes promoting UK exports of our world class English and Welsh wine and British spirits wherever it can and through all its agencies to help the industry reach its full export potential. Currently 1.1bn litres of spirits are exported to foreign markets, including 140m bottles of British Gin, a 37% increase in 5 years. The WSTA believe that access to new markets and the promotion of quality British products can see this rise continue. In order to promote British spirits, the WSTA has held British Gin export promotion events around the world and is committed to working with Defra, through UKTI and the Government to support the promotion of British spirits abroad. We hope to see the Government do even more to support these initiatives in 2016, including under the Britain is GREAT Campaign. Support for small businesses The wine and spirit industry supports a significant number of small and medium enterprises across the UK both in the supply chain and in production. Examples include: Boom in small spirits producers: Between 2010 and 2014 a total of 73 new spirit distilleries opened in the UK - with 56 set up in the past two years. The number of UK gin brands has also doubled since 2010 from 31 to 73. 37% growth in UK gin exports since 2011, which is worth 1.76bn to the UK economy English and Welsh wine: There are now over 2000ha of vines planted across the 470 vineyards in the UK and the industry produced 6.3m bottles in 2014. Significant and increasing investment in the industry means that this is set to double to around 12m bottles by 2020. 1 in 5 bottles of English and Welsh wine were exported in 2014 The Wine and Spirit Trade Association Registered number: 410660 England Limited by Guarantee
Pubs and the on trade Pubs are an important part of the social fabric of local communities and a significant employer in the UK. The wine and spirit industry is vital to the health of the UK s 80,000 pubs, contributing 35% of the value of what is sold some 5.6bn in 2015. Support for the UK wine and spirit industry is therefore also support for the British pub industry. In the wider on trade, the wine and spirits industry is worth nearly 10bn and the changing nature of demand means that in new openings of pubs, bars and restaurants the proportion of sales that are wines and spirits is as high as 51% compared to 37% in those venues closing down. Restaurants and related food services are also vital to the sector, accounting for nearly 30% of value sales in 2013, the largest share in the market. Hospitality The WSTA and British Institute of Innkeeping (BII) have commissioned a report from EY into the economic impact of the UK hospitality sector. The report highlights the industry s contribution to UK GDP, economic growth and jobs. Particularly it highlights the importance of wine and spirits to this industry. Key findings include: Wine and spirits alone are worth 10bn to the hospitality industry 38.9bn contribution to the Exchequer 53.7bn contribution to UK GDP +3.1% growth until 2020 46% of the hospitality workforce are under 30 32.5% are under 25 2.6m people are employed in hospitality, making it the UK s 4th largest employer page 9
A socially responsible industry In addition to supporting sustainable economic growth and providing employment in the UK, the wine and spirit industry takes very seriously its role in producing, distributing and retailing alcohol responsibly. Preserving the environment The wine and spirit industry has paid 180m to cover its recycling obligations through Packaging Recovery Notes, some of which has been reinvested in waste infrastructure. In addition to bottling nearly one third of all wine consumed in the UK and implementing measures to reduce water consumption, producers have also managed to reduce the weight of bottles, saving the equivalent of 1,600 tonnes of glass and 1,140 tonnes of CO 2 each year. Promoting moderate, responsible consumption On behalf of its members, the WSTA has played a key role in delivering the Responsibility Deal pledges on removing 1bn units from the UK market and ensuring that 80% of labels had unit information, Chief Medical Officer Guidelines and a warning about drinking while pregnant by 2015. 89% 2 2 1 have heard of alcohol units (79% in 1997) 43% of 18-24 years olds drank in the last week, down from 60% in 2005-17% +18% 64% of 11-15 year olds have never drunk alcohol, up from 46% in 2006 Reduction in overall alcohol consumption between 2004-2014 -18.4% RASG Retail of Alcohol Standards Group Reducing alcohol related harm The WSTA continues to manage the Retail of Alcohol Standards Group and supports its two key schemes Challenge 25 and Community Alcohol Partnerships (CAP). We continue to work closely with the Home Office on its Local Alcohol Action Areas project across England and Wales, and with the Scottish, Northern Irish and Welsh Governments to tackle alcohol related harm. The Wine and Spirit Trade Association Registered number: 410660 England Limited by Guarantee
Protecting consumers Alcohol fraud in the UK damages legitimate businesses, brand reputation and deprives the Treasury of duty income. Illicit products also adversely affect consumers and in some cases can cause significant harm. It is estimated that alcohol related fraud costs the Treasury 1.3bn in lost revenue a year. A reduction in duty, bringing the UK closer to average EU rates, would reduce the incentive for illicit trade of alcohol. The Government estimates that 340m in wine duty and 260m in spirits duty is lost through alcohol fraud. This is enough money to build a hospital the size of Birmingham s Queen Elizabeth Hospital every single year. The WSTA has been helping its members tackle alcohol related fraud and works on a range of projects with the Police, HMRC and others on cases relating to duty and VAT avoidance, counterfeiting, wine investment fraud, company hijack and overseas fraud. It does this by: Supporting its members tackling alcohol related fraud by setting up a dedicated website Investing in Fine Wines, providing advice to those considering investing in wine. Setting up a fraud prevention unit with help from Operation Sterling seeking to support the quick reporting of incidents of alcohol fraud raised by WSTA members. Supporting the Government s Industry Fraud Taskforce which looks at all aspects of duty fraud. Working closely with the Intellectual Property Office, particularly in relation to Operation Opson, seeking to identify incidents of counterfeit alcohol being sold. Working closely with HMRC to give the Alcohol Wholesaler Registration Scheme the best possible start and assisting with software testing. 2016 page 11
References British Beer and Pub Association, Statistical Handbook 2015 Campden BRI, Audit of compliance of alcoholic beverage labels available from the off-trade with the Public Health Responsibility Deal Labelling Pledge, October 2014 CGA Strategy, WSTA Market Reports 2010 2015 CGA Strategy, Outlet data, 2016 Community Alcohol Partnerships Department of Environment, Food and Rural Affairs, Holiday Gin-spiration, November 2015 Department of Health, Responsibility Deal: Monitoring the number of units of alcohol sold Second interim report, 2013 data, December 2014 Economic Impact Assessment, Ernst and Young, February 2014 & 2015 English Wine Producers European Commission, Directorate-General, Taxation and Customs Union, excise duty tables, 2015 Health and Social Care Information Centre, Drinking Smoking and Drug Use among young people, 2014 HMRC Distillery Registrations, August 2015 HMRC Duty Rates, Alcohol Bulletin, 2007 2014 Institute of Masters of Wine IWSR consumption data, September 2015 Nielsen, WSTA Market Reports 2010 2015 Office of National Statistics, Consumer Price Inflation Reference Tables, December 2015 Office of National Statistics, Population Data, 2014 Office of National Statistics, Drinking Patterns Among Adults, December 2015 Spirits Europe, Summary of Tax Rates of Alcoholic Beverages in Europe, October 2015 Wine and Spirit Education Trust YouGov, Consumer Polling, WSTA Market Report, January 2016 www.wsta.co.uk info@wsta.co.uk @wstauk +44 (0)20 7089 3877 Registered Number: 410660 England Limited by Guarantee VAT Number: GB 243 8260 60