This report explores the case for reforming alcohol duty in the United Kingdom, and the principles which should underpin a new, improved alcohol duty regime. This includes consideration of alcohol duty reforms that could be implemented following Brexit.
To better focus alcohol taxation on where health and other social harms are greatest, this report sets out five recommendations for a revised alcohol duty system:
- Introducing a duty strength escalator, to focus alcohol duty on the higher strength products disproportionately consumed by heavy drinkers, and create stronger incentives to produce lower strength products.There is at least tentative evidence that alcohol producers respond to duty changes, by reformulating products. Carlsberg reduced the strength of its low strength lager, Skol, from 3% to 2.8% ABV, in response to the introduction of a new lower-rate duty band for low strength beers. AB InBev has also reduced the strength of more mainstream brands of beer – including Stella Artois, Budweiser and Becks – as a means of reducing costs associated with alcohol duty.
- Levelling the playing field across same-strength products. Products of the same strength should face the same rate of duty and duty should be a function of the pure alcohol content of drinks, rather than the volume of the final product. This would help simplify the alcohol duty system.
- Allowing pubs to claim back a proportion of alcohol duty through a new “Pub Relief”. This would focus alcohol duty on the off-trade, which is particularly reliant on sales to hazardous and harmful drinkers.Conceivably, this could work in a similar way to Alcoholic Ingredients Relief, which already exists. With Alcohol Ingredients Relief, businesses can claim relief on alcohol excise duty when they use alcohol as an ingredient in drinks less than 1.2% ABV, chocolates, vinegar and other foods for human consumption (below a certain alcohol content).
- Explicitly linking alcohol duty to the social costs of alcohol, rather than treating it as a cash cow. At the very least, alcohol duty should cover the health, crime and welfare costs to government and wider society (the “externalities” associated with alcohol consumption).Paternalistic arguments, which consider the ability of individuals to make “bad” and regrettable lifestyle choices (such as those that undermine their job prospects), could justify a higher tax take.Alcohol duty should not be treated as a cash cow for government. The UK public finances are already overly reliant on niche taxes, rather than broad taxes such as income tax and VAT. Reliance on niche taxes makes the public finances inherently more volatile and at risk from factors such as changing consumer preferences. Linking alcohol duty to social harms, rather than as a general tool for revenue raising, could help to improve dialogue between drinks manufacturers, government and health experts.
- Regularising the uprating of alcohol duty, with inflation or earnings uprating being the “norm”. This would help depoliticise the setting of alcohol duty.While we believe inflation or earnings should be the “status quo” form of uprating duty, this should be complemented with review periods, held perhaps on a five or 10 yearly basis. The purpose of the review period would be to explore the latest evidence base on alcohol-related costs to society, and ensure that alcohol duty tax take is broadly in line with these costs – as we proposed in Recommendation 4 above. This review should be informed by expert insights from government, the healthcare sector, academics, charities and industry, taking into account the latest evidence and structural trends. As we discussed in this report, some of the evidence base, for example on the health impacts of mild-to-moderate drinking, remain debatable; conceivably estimates of the social cost of alcohol could change significantly as our knowledge-base improves.The review period would provide further incentives for drinks manufacturers to reduce alcohol-related harms – for example by withdrawing “worst offender” products from the market (such as high strength, low quality, low cost drinks) and advertising the risks of excessive consumption of alcoholic products. Manufacturers would be incentivised to do this in order to reduce structural duty increases following the review period.