TAX NEWS - June 2010

UK Tax: Rise in duties on alcohol and tobacco

The beer and pub industry breathed a sigh of relief after George Osborne announced in his emergency Budget that there would be no new rise in duties on alcohol and tobacco.

The industry, having been hit with successive rises in recent years, had feared that the Treasury would look to increase alcohol tax by another 5 percentage points.

Cider makers, in particular, have plenty to cheer. Along with the duty freeze, the chancellor confirmed Tory plans to reverse the previous Labour government's decision to increase cider duty by 10 per cent above inflation.

But while the pub and drinks industries were spared from any further duty increases, they will still be hit by the rise in value-added tax, which is set to increase from 17.5 per cent to 20 per cent next January.

The move, which the industry experts predict will add 6p to a pint, will come on top of the tax escalator put in place by the previous government.

Under Budget rules drawn up in 2008, alcohol duty is to rise each year by 2 per cent above inflation, starting in 2009. The escalator regime was due to end in 2012, but in March the former chancellor Alistair Darling said this would continue for the following two years.

Mr Osborne said on Tuesday the duty escalator on alcohol would remain for time being, although the government would review taxes on products that most account for binge drinking again in the autumn.

The British Beer and Pub Association, which claims that beer tax had risen since 2008 by 26 per cent, said the tax freeze was a welcome relief for the country's struggling pubs.

"We applaud the government's decision to freeze beer tax and deliver on its promise made in the coalition agreement to not penalise pubs, responsible drinkers and important local industries," said Brigid Simmonds, chief executive of the BBPA.

"A beer tax freeze will also help the beer and pub sector's ability to play its part in contributing to much needed economic growth and generating valuable private sector jobs.

"The VAT rise is a price to pay for tackling the deficit and bringing Britain's balance sheet back in order. This tax increase is not welcome, but is understandable and applies to everybody. We hope this will be short-term pain for long-term gain."

However, other industry bodies believe the government did not go far enough to help the ailing pub industry.

Camra, the Campaign for Real Ale, said the VAT increase in January would force the rate of pub closure to increase above the current rate of 39 a week.

"In the new year, many pub goers will be hit with a VAT increase that will push up the combined taxation on a pint of beer to over a pound," said Mike Benner, Camra's chief executive.

"This historically sad moment for the nation's 15m pub goers is compounded by the knowledge that this increase will cause yet more well-run community pubs to shut their doors unless the government acts."


Smokers of longer brands hit

Bohemian types who enjoy a long cigarette could find themselves paying more for their smokes after a technical change to the tax on such products, writes Jim Pickard.

Any cigarette longer than 8cm will be liable for extra duty on each additional 3cm – "or part thereof". That means a 12cm cigarette would be taxed as three units.

The measurement excludes filters, which means that king-size cigarettes may not fall foul of the new levy, despite typically being 8.4cm long.

However, some super-length brands such as Virginia Slims are likely to be caught by the policy.

The price of a packet of standard cigarettes rose in the March Budget by 15p.