How the UK pays 67% of all wine duty in the EU

We welcome the ’Drop the Duty’ campaign ahead of the 2015 Budget on 18 March. Tax on wine in the UK has gone up by 57% since 2008 but what makes wine duty so unfair is the amount you pay in Britain compared to the continent. Drop doesn’t mean ditch, in this instance, just ’reduce by 2% please, George’.

004632_euro_duty_per_bottle-002

Source: ec.europa.eu, with current exchange rates. Malta has €1.77 wine duty.

With Britain having the second highest duty rate in Europe it’s little wonder, when you look at my duty map, that Britain pays two thirds of all wine duties levied across Europe, according to the The Wine and Spirit Trade Association, or WSTA. After all, there are 60 million people in the UK, compared to less than 24 million in Ireland, Sweden, Finland and Denmark combined.

A small but significant step

The WSTA is pressing for a small reduction of 2% off the fixed duty on wine, which is currently £2.05 plus VAT for still wine and £2.63 plus VAT for sparkling. The campaign invites consumers and the trade to write to their MP with an automatically generated letter, and signing up is easy.

I’ve met Miles Beale, CEO of the WSTA, and he’s a fine fellow. Not surprisingly, we agree with each other wholeheartedly on all this.

“It is clear that the average UK consumer is getting a very rough deal, compared with consumers in the rest of the EU”, Miles says. “Even after the Government’s welcome abolition of the alcohol duty escalator in the 2014 Budget, the current rate of duty being paid by UK consumers remains extremely high.”

004648_BudgetGraph-002The duty escalator was introduced in 2008 by Labour and increased the duty on alcohol by 2% above inflation. This carried on under the Coalition.

I hope that Miles is successful in his quest for this small but politically significant cut. In the 2014 Budget, the Chancellor removed the alcohol duty escalator, cut beer duty by 2% for the second consecutive year and froze spirits and cider duty – but increased wine duty by the rate of inflation (2.5%). It’s high time wine drinkers got a look in.

They don’t make wine in Brussels

Looking at the map above, by the way, you’d be forgiven for thinking that a sort of north-south divide means that wine isn’t taxed for political reasons in the larger wine producing countries (other than for VAT). That’s true, although it’s worth noting that Belgium, which isn’t known for its extensive vineyards, charges just 40p a bottle, compared to the £2.46 Brits pay across the Channel. Both these figures, like those on the map, include the VAT on the duty – it’s a double whammy – but not the VAT on the wine. Every EU country charges VAT on wine, which is fair enough. (Food from shops, by comparison, is zero rated.)

Duty as part of the cost

The real killer for the wine trade and for consumers is that UK duty is part of the upfront cost of the wine, and is charged by HMRC as soon as the wine is taken from an HMRC-controlled or Bonded warehouse to deliver to a restaurant, to someone’s home, or to put on a shelf. It’s not like VAT, which a merchant pays after they’ve been paid.

Duty is part of the cost and a margin is usually applied, quite rightly, to that cost by a retailer or merchant.

(An exception to this rule is if you buy fine wine ’En Primeur’ or ’In Bond’. In these cases, duty is not considered as part of the cost but charged separately on delivery.)

How duty costs more than the wine

Here are examples of two wines that retail in the UK for £5 and £8 respectively. The first would typically be in a supermarket, the second from a supermarket or independent retailer buying direct from a winery in volume. Home delivery costs have not been included in the prices.

004640_bottle6Wine for £5, retail

Take a (cheap) bottle costing £1.05 at source, including 55p bottling and packaging. Add 13p bulk shipping by container, 10p distribution, then add £2.05 UK duty. Sub total £3.33. Add 83p retail margin (20%). Add VAT at 20%. Price on the shelf: £5.

Note that 58% is duty and VAT (£2.89), just 10% is the wine in the bottle, and that the average price paid for a bottle of wine in the UK is around £5.50.

Wine for £8, retail

£2.60 cost of the bottle, including 60p bottling. Add 35p shipping and warehousing, £2.05 duty, £1.66 retail margin (25%) and 20% VAT.

You get much more wine for your money but the £2 worth of liquid in the bottle still costs less than the UK duty.

There are a number of sources for all this, including the comments and follow up from my blog post last year. Victoria Moore also highlighted the cost and tax of £5 and £8 wine in her piece in the Telegraph a few months ago.

 

Likewise, here are two examples of wine sold in in a restaurant or pub.

Restaurant/pub house wine at £17

£1.20 cost of the bottle, including 55p bottling and packaging. Add 20p volume shipping, 15p distribution, then £2.05 duty. Sub total £3.60. Add 65p wine supplier margin (15%), so the wholesale price to the restaurant (known as DPD or duty paid delivered, ex VAT) is £4.25. Multiply by 4 to give the restaurant or pub 70% margin and VAT at 20%. Price on the wine list, £17.

The duty alone is more than triple the cost price of the wine in the bottle.

Restaurant/pub wine for £26

£2.60 cost of the bottle, including 60p bottling (like the £8 bottle above). Add 35p shipping and warehousing, 20p distribution, £2.05 duty, then £1.30 for 20% wine supplier margin. Wholesale price, ex VAT: £6.50. Multiply by 4 to give the restaurant 70% margin and 20% VAT, for a list price of £26. Again, the duty costs more than the wine in the bottle.

(Many restaurants reduce the margin % on more expensive wines, but at this price point 70% margin is about the norm. It is no secret that this is how they have to make their money.)

 

What all this information shows is that for the vast majority of bottles of wine bought by UK consumers, the amount paid in duty is greater than the value of the liquid in the bottle.

And that, when you look at what our friends in the EU pay, is just wrong.

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