At the beginning of July, the UK government ran an advertising campaign to remind its citizens that, on the first of August 2022, a new set of excise duty rates will be introduced, supposedly in an attempt to ‘simplify’ the tax regime on alcohol. The ‘simplification’ involves a sliding scale based on alcoholic strength rather than the existing system that levies £2.23 ($2.92) on all still wines and £2.86 ($3.50) on sparkling.
Higher prices for most wines
- Up to 10%
So, for wines with an unusually low ABV, the duty rate will drop by between £0.41 ($0.54) – for an 8.5% wine – to £0.09p ($0.12) for one at 10%.
- Between 10.5 and 15%
For anything above that strength, which means most wine consumed in the UK, it will rise incrementally, from £0.01 for a 10.5% wine to £0.88 ($1.15) for one at 15%.
- Fortified wines
Stronger wines and fortifieds will attract even more penalties, with the rate rising from its current £2.98 ($3.91) for a 20% ABV port to a new rate of £4.70 ($6.15).
- Champagne and sparkling wine
Duty on Champagne and sparkling wine, representing one in eight bottles cleared by UK customs last year, will drop from £2.86 ($3.76) to £2.67 ($3.50) which, as British-born Bordeaux-producer and frequent social media commentator, Gavin Quinney points out, will be good news for cheap Prosecco and Cava but, as he also says, a reduction of £0.19 is unlikely to make much difference to the appeal of English sparkling wines that generally retail at least 100 times this figure.
Further changes in 2025
If all of this were not already sufficiently confusing, there will be a further change on February 1, 2025. The duty on wines at 11.5 and 12% will then go down again – by £0.21 ($0.27) and £0.10 ($0.11) respectively, while ones at 12.5% will remain unchanged – at £2.67 ($3.50) and those at 13-14.5 (the most common strengths for classic, higher-quality dry wines) will go up again, with a 14% wine now attracting duty of £3.10 (4.06) - a full £0.87 (1.14) more than its pre July 31st 2022 rate. These duty hikes are made even worse by the fact that they are all subject to 20% VAT sales tax.
The decision to make these changes was made after considerable consultation with the UK trade, the results of which were ignored.
In a bottle retailing at £6.50 ($8.51), it would be £0.40 ($0.52), i.e. 6%, rising to £7 ($9.16) – just over a third – in a bottle costing £20 ($26.18).
For anyone ordering wine in a British restaurant, the figures are even more painful. The £22 ($28.80) price of a bottle there would only include around 2% of wine, while the figure for a £33 ($43.20) bottle is still under 5%.
Difficult implementation
The chaos likely to ensue if or when the UK authorities attempt to verify the declared ABV on each vintage and each shipment of tens of thousands of different wines is easy to imagine.
The only likely winners from the new system, apart from companies already specialising in lower-alcohol wines and ones ready to create semi-sweet sub-10% wines, will be UK bottlers dealing in large volumes and the manufacturers of spinning cones and GoLo machines that will be used to reduce the ABV of wines where this is legal.
Up to 70% tax per bottle
A week after the government reminder-campaign, Quinney sent an unusually lengthy and fact-packed edition of the newsletters he regularly emails to UK customers of his and his wife Angela’s Chateau Bauduc estate. In it, he described in detail how the new duty rates – and another set to be introduced in February 2025, will affect the UK wine market.
Quinney, who has kindly allowed us to quote from his newsletter here, calculates that a full 70% of a £5 ($6.55) bottle will now be tax, a percentage that only drops to 50% when the bottle retails at £8 (10.47). These figures need to be taken in the context of a UK wine market where the average retail price is still under £6.70 ($8.77).
Even more striking is Quinney’s calculation of how little part the ex-cellar cost of an 11.5-14.5% wine plays in a range of August 2023-February 2025 price points.
Markups may vary
Of course, restaurant markups vary and, as Quinney acknowledges, no set of assumptions can be applied to every bottle in the UK retail market either.
A big producer bulk-shipping to the UK might, for example, spend less than the £0.95 ($1.24) Quinney has estimated for bottling and packaging, logistics and shipping. A discounter, buying directly from the producer might take a lower margin than Quinney’s 25%.
On the other hand, a wine retailing at £10 ($13.09) in an independent retailer might very likely have been been bought from an importer or agent. Their margin would need to be taken into account, as well as the retailer’s own margin that might well be higher than the 30% Quinney has allowed.
Grim outlook for specialist wine retailers
However one looks at them, Quinney’s figures paint a grim picture for would-be exporters to the UK. Britain has over 4,000 fewer specialist high street retail shops than it had in the 1980s and 1990s when there were big chains like Peter Dominic, Victoria Wine, Threshers, Bottoms Up, Wine Rack, Unwins, Majestic, Oddbins, Fullers, Saccone & Speed on whose shelves Cru Classé Bordeaux could be found alongside the Liebfraumilch. These have almost all disappeared. Today, there are around 1,000 specialist wine retailers.
Oddbins is a shadow of its former size; only Majestic survives as a major chain. Between them, they have 246 stores. At its peak, Oddbins alone had almost 300, offering an award-winning range with which supermarkets like Sainsbury and Tesco had to compete. Today, these companies buy far less adventurously than in the past, relying much more heavily on big suppliers and private labels.
Quinney believes that “It’s hard to see how independent wine shops can sell a wine for £8 ($10.47) now” but if Nielsen 2022 statistics stating that only 4% of wine retails in Britain at over £10 ($13.09) are correct, how will some of these businesses survive? And every one that disappears will make life more difficult for smaller exporters to the UK.
If one combines Quinney’s estimate and a generous reading of the Nielsen figure, 95% of wine sold in the UK will have left the producer at under $2.09 per 75cl (excluding packaging).
In 2021, Britain consumed 1.4bn litres, so the remaining 5% still represents 70m bottles: a considerable market. But not quite so large when divided among all the world’s multitude of producers with more than moderate ambitions – a description that is surely appropriate for those wanting to sell wine for more than $2.80 per litre.
Higher prices, yet lower revenues for the Government?
Rishi Sunak, Britain’s Prime Minister since October 2022, devised the new duty scheme when he was finance minister, so it is clearly a policy to which he is very much attached, despite very plausible suggestions – from Quinney and others – that it will generate less revenue than its predecessor.
Time will tell whether these predictions are correct, but in any case, Britons are being asked to pay more tax on wine at a time when food inflation is still roaring (at 18% in May 2023) and over 2m citizens will soon be paying mortgage bills that have more than doubled.
These issues will not, of course, concern Britain’s ultra-rich who have helped to support the vibrancy of the fine wine market. But even some of these are finding the UK less attractive than it was. According to analysis by Henley and Partners reported by The Telegraph, between 2017 and the end of 2022, some 12,000 individuals with assets and cash of over $1m have quit the UK. As the – government-supporting – newspaper continued “Other countries are competing to snap up wealthy and talented individuals who feel neglected by Britain.”
The same words could be increasingly used about wine producers across the globe who would once have included exporting to the UK among their highest ambitions.
