Gin lovers could soon be disappointed, as a triple threat of duty increases, tax hikes, and escalating business expenses could soon force distilleries to close.
On 1 February, a 3.65% rise in excise duty, announced in last year’s budget, takes effect. This follows a 10.1% increase imposed by the previous government in 2023.
The UK Spirits Alliance has penned a letter to the Chancellor, warning that the latest tax hike could signal the end of a golden era where the sector thrived, consumers rekindled their love for quality British spirits, and pubs and bars welcomed new beverages and patrons.
Kathy Caton MBE, Founder & MD of Brighton Gin, expressed her disappointment: “Brilliant British entrepreneurs who, through guts and graft, have created businesses producing world-beating products that consumers love are being seriously let down by this government, and the ones before it. “
She added: “Instead of celebrating a British business success story, successive Chancellors have chipped away at the spirits sector and the 1 February tax increase could be the final nail in the coffin for many.”
“For many distillers and their staff, this additional burden could spell the end, leading to the closure of fantastic local and community businesses that have provided employment – and ironically resulting in lower contributions to the Treasury,” warned Jordan Morris, Founder of Oxford-based Abingdon Distillery.
He questioned: “How are we supposed to grow our production capacity and staff numbers if our margins are being eroded?”
He continued: “Our sugar cost went up 13% last year for our rum production. Grain for our whisky used prior to the invasion of Ukraine was £490 a tonne. It’s currently £925 a tonne.Energy costs to run the stills are at an all-time high. Water companies are increasing their prices by 35% over the next 4 years. We’re taking the hit from literally every angle” Following the duty increase set for 2023, a survey revealed that 70% of UK distilleries fear for their ability to invest in their business.
A more recent poll conducted ahead of the 2024 hike showed that one in four pubs have a distiller supplier that has gone out of business. The letter also highlighted that spirits drinkers are being priced out of pubs and bars, while lager drinkers are subsidised.
The rise in duty means that UK spirits tax remains higher than the UK average across EU member states, highest in the G7 and the highest in Europe. This is hitting consumers’ pockets hard.
While overall inflation is decreasing, the most recent data shows that inflation in spirits has increased (from 1.7% to 2.4%).
Pre-budget polling from Survation revealed that 61% of people who dine and drink out are cutting back on these activities due to cost concerns. Consumers feel all beverages are overpriced in their area, with cocktails being deemed the most expensive by 65% of respondents, while beer was considered the least expensive by 52%.
The UK Spirits Alliance (UKSA) has also warned that the end of the golden era of spirits could spell trouble for pubs. Spirits account for a third of all alcohol sales in hospitality venues and generate significant revenue for the sector.
Polling found that 66% of pub owners believe spirits yield a higher profit margin per serving than beer. A survey conducted last year indicated that around 16% of pubs doubt they will still be open in a year’s time.
Both the current and previous governments have either frozen or reduced duty on draft beer (‘a penny off a pint’). However, 88% of bar owners and publicans claim this measure will have no effect as they struggle to keep their establishments open amidst rising taxes and living costs for their patrons.
A whopping 77% of pub managers believe an increase in spirits duty will negatively impact customer numbers.
