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April 17 2002

CLICK HERE FOR BUDGET 2006-2007

 

(See the full text of the Chancellor's speech here!)

ALCOHOL AND TOBACCO DUTIES

Duty on spirits will be frozen for the fifth successive year, and
duty on beer produced by the smallest brewers will be cut in half,
the Chancellor announced today. Duty on beer and wine will also be
frozen, while tobacco duties will rise in line with inflation.

Spirits

Spirits duty will be frozen for the fifth Budget in succession - the
longest period without an increase since the 1950s - to strengthen
the international competitiveness and domestic base of the UK spirits
industry. Without those freezes, a bottle of spirits would be 73
pence more expensive than it is today. The Government also decided
against the introduction of tax stamps on bottles of spirits, which
would have significantly increased industry costs, and instead
announced plans to work with the spirits industry to tackle the
problems of fraud.

Small breweries

A radical reform of beer duty will be introduced this June to support
the nation's traditional small brewing industry, with reduced rates
of duty worth more than #120,000 for breweries producing up to 3
million litres of beer per year, and a 50 per cent cut in duty for
those producing up to half a million litres, equivalent to #40 off
each barrel they produce. In total, 9 out of every 10 UK breweries
will benefit from the scheme.

Other alcohol duties

Duties on wine and the beer produced by larger brewers will also be
frozen for the second Budget in succession. Duty on spirits-based
coolers - which has until now been set at a concessionary low rate -
will be brought into line with spirits. Duty on cider will be cut by
half a penny per pint in real terms.

Tobacco

Tobacco duties will rise in line with inflation to maintain the real
cost of cigarettes and thereby support the Government's objectives to
reduce smoking. Tax on a packet of 20 cigarettes will go up by 6
pence.

DETAILS

Small breweries

1. Britain's several hundred small breweries make a valuable
contribution to the nation's cultural heritage, particularly in rural
communities, bringing both tradition and diversity to the UK beer
market. The Government is keen to celebrate the talents and skills of
the nation's small brewers, and help them compete effectively for
their fair share of the beer market.

2. For more than 20 years, the nation's small brewing industry and
real ale drinkers have been calling for the introduction of reduced
rates of duty on the beer produced by small brewers, both to help
them invest in the growth of their businesses, and to help them
compete on price with larger brewers when selling their products to
pubs and other retailers.

3. Following consultation over the past year, the Government has now
decided to introduce a relief scheme for small brewers this June, in
time for the start of the World Cup, following Royal Assent of the
Finance Bill. Under this scheme:

- brewers producing up to half a million litres (around 3,000 barrels
or 900,000 pints) per year will receive a 50 per cent cut in duty,
equivalent to #40 off each barrel they produce; and

- brewers producing up to three million litres per year will receive
progressive rates of relief worth over #120,000 to each brewer,
equivalent to a 50 per cent cut on the first half million litres
they produce.

4. 9 out of every 10 brewers in the UK will benefit, including all
micro brewers and local brewers, the majority of which are based in
rural areas. Some of the eligible brewers currently own their own
village pubs, and many more are expected to use the savings from the
scheme to buy one.

5. Similar duty relief schemes currently operate in seven other EU
Member States with strong brewing heritages, including Germany and
Belgium, but the UK scheme will be one of the best-targeted, simplest
and most generous schemes anywhere in the EU - with the 50 per cent
relief for the smallest brewers the maximum available under EC law.

6. More than a hundred Members of Parliament recently signed a
motion calling for the introduction of a relief scheme, although - at
#15 million - the cost of the Government's scheme is almost three
times as generous as the one they had proposed. The scheme is also
strongly supported by the Society of Independent Brewers, the
Campaign for Real Ale, the Village Retail Services Association and
the Council for the Protection of Rural England. Alcohol

7. Since 1997, the Government has taken consistent steps to deliver
a fairer balance in the burden of taxation falling on different
alcoholic drinks and on different types of drink-producers. In
addition to the introduction of the duty relief scheme for small
brewers, Budget 2002 introduces a further package of measures to
increase the fairness of the alcohol duty regime.

8. The duty on spirits has been frozen in order to strengthen both
the international competitiveness and the domestic base of the UK
spirits industry, a measure equivalent to a real-terms cut of 12
pence per bottle.

9. Duty on spirits is now 34 per cent lower in real-terms than it
was 20 years ago, and thanks to the duty freezes in the last 5
Budgets, a bottle of spirits is now 73 pence less expensive than it
would otherwise have been.

10. Duties on wine and beer produced by larger brewers will also be
frozen for the second Budget in succession. Without those freezes,
there would now be 6 pence more duty on a bottle of wine and a penny
more duty on a pint of beer.

11. Duty on cider has also been cut by half a penny per pint to
support this traditional and mainly rural-based industry, which now
uses around half the UK's total production of apples.

12. In real-terms, the cuts in spirits, beer, wine and cider duties
in the last two Budgets have saved the nation's drinkers around #200
million, and given a valuable boost to drinks producers, pubs and
other retailers.

13. Spirits-based coolers (also known as designer drinks or alcopops)
are currently taxed at the same concessionary rate which applies to
low-alcohol wines. Consumption of coolers more than doubled between
1999 and 2001. Over that same period, despite the duty falling in
real-terms, the average pub price of coolers rose by around 60 pence
per bottle.

14. Tax as a proportion of retail price is now lower for coolers than
for any other type of alcoholic drink, in both the on and off trades.
Their share of the market is now as big as cider, and is continuing
to grow at a rapid rate.

15. The Government no longer believes the concessionary duty
treatment for coolers can be justified, particularly given the Chief
Medical Officer's recently- stated concerns about the association of
coolers with binge drinking among younger people. The duty on a
standard 275ml bottle will therefore increase by around 11 pence,
bringing their rate of duty into line with normal spirits. Tobacco

16. Smoking is the single greatest cause of preventable illness and
premature death in the UK, killing 120,000 people every year.
Research has consistently shown that the demand for cigarettes is
affected by their price, and that high tax levels can consequently
play an important role in reducing overall tobacco consumption.

17. Maintaining the real price of cigarettes and tobacco therefore
helps to encourage existing smokers to smoke less or quit, and to
discourage children and young people from taking up the habit. The
tax on tobacco is therefore increased in line with inflation from 6pm
today by:

- 6 pence on a typical packet of 20 cigarettes;

- 2 pence on a pack of 5 small cigars;

- 5 pence on a 25 gram pack of hand-rolling tobacco; and

- 3 pence on a 25 gram pack of pipe tobacco.

Tackling Tobacco Smuggling

18. In addition to maintaining the real price of cigarettes through
the duty system, the Government has sought to increase the average
price for consumers by clamping down on the supply of cheap smuggled
tobacco.

19. In the 2001 Pre-Budget Report, the Government announced the
results from the first year of its Tackling Tobacco Smuggling
strategy, indicating that Customs are on track to slow, stop and
reverse the previously rapid growth in the market share of smuggled
cigarettes. In 2000-2001, Customs:

- seized 2.8 billion cigarettes destined for the illicit market
(almost a billion more than were seized in 1999-2000);

- introduced the first wave of X-ray scanners at the nation's ports,
which - in their first six months - detected 80 million cigarettes;

- broke up 43 major organised crime gangs involved in large-scale
smuggling and supply of cigarettes;

- cut the revenue losses from cross-Channel passenger smuggling by
more than three-quarters; and

- hit their key target to hold the share of the UK market currently
taken up by smuggled cigarettes to 21 per cent, compared to the 25
per cent share that was forecast if the strategy had not been
introduced.

Tackling spirits fraud

20. In Tackling Indirect Tax Fraud, published alongside the November
2001 Pre-Budget Report, the Government announced its determination to
apply the successful experience of its tobacco strategy to other
areas of indirect tax fraud.

21. As part of this, the Government announced a number of further
steps designed to strengthen its efforts to tackle large-scale
spirits fraud, which involves the diversion of duty free spirits for
sale on the domestic market.

22. Customs have already increased their efforts to tackle the
diversion of spirits consignments by:

- improving the identification of fraudulent or forged documentation;

- deploying an additional 146 staff to controlling excise warehouses;

- expanding its specialist excise intelligence research capacity;

- introducing tough new sanctions for hauliers who allow their
vehicles to be used for diversion fraud;

- reviewing existing warehouse approvals with a view to weeding out
warehouses which have carried out or facilitated fraud; and

- agreeing with the National Lottery operator that retailers found
selling illicit spirits will have their lottery terminals removed.

23. One further measure which had been recommended to the Government
was to introduce a 'tax stamp' on bottles of spirits to make it
easier to identify illicit, non duty-paid goods when they appeared in
the normal retail market. The Pre-Budget Report announced that there
would be consultation on the costs, benefits and practicalities of
introducing a tax stamps system.

24. It was clear from this consultation process that the introduction
of tax stamps would have a severe impact on the productivity and
compliance costs of the spirits industry, which - if passed on in
full - could have had a significant impact on retail prices for
spirits.

25. The Government does not currently consider those costs
proportionate to the benefits of tax stamps, particularly if
alternative means of making progress to those objectives can be
pursued.

26. Customs will therefore work together with the industry on a joint
strategy to identify, trace and track illicit consignments of
spirits, radically increasing their exchange of information and
making fraud easier to detect through the development of product
testing kits and enhanced bar code data.

27. Additional funding will also be made available to Customs this
year, enabling them to step up the volume of intelligence-based
checks on inward freight consignments of duty-suspended spirits
(making full use of the national network of x-ray scanners), increase
disruption of the criminal gangs engaged in spirits fraud, and
strengthen their controls on UK excise warehouses.

NOTES

1. Small brewers whose annual production is between 5,000 and 30,000
hectolitres will pay a proportion of the standard duty rate,
calculated as:

Annual production minus 2500 divided by Annual production

2. Annual production will be calculated according to production
levels over the previous calendar year. Brewers will claim the
relief on monthly returns.

3. 'Coolers' have previously been known as 'alcopops' and are often
referred to as 'Ready-to-Drinks', 'Designer Drinks' or 'Pre-Mixed
Drinks'. Well-known brands include Smirnoff Ice, Bacardi Breezer,
Hooch, Metz, Archers Aqua, Red Square and WKD.

4. The 2001 Annual Report from the Chief Medical Officer highlighted
a worrying increase in alcohol-related health problems and said that
"recent years have, in particular, seen younger drinkers attracted to
a new ranges of designer drinks with a relatively high alcohol
content."

5. The duty on cigarettes has ad valorem (per cent of price) and
specific (duty applied per quantity of product) elements. Raising the
specific duty by approximately 2.2 per cent and maintaining the ad
valorem duty at 22 per cent increases the total duty by about 1.9 per
cent in line with inflation. The duties on all other tobacco products
are wholly specific.

6. Revalorisation is an uprating in line with inflation applied to
keep duties, benefits and allowances constant in real terms. Excise
duties use the forecast RPI figure for the September following the
Budget. Allowances against tax use historic RPI to the September
preceding the Budget. In Budget 2002, the forecast RPI - based on Q3
2001 to Q3 2002 - used for excise duties is 1.91 per cent whereas the
historic RPI to September 2001 is 1.69 per cent.

7. Further details of the Government's Budget proposals to tackle
indirect tax fraud can be seen in press notice HMT2. Copies of
Tackling Tobacco Smuggling and Tackling Indirect Tax Fraud are
available from the HM Treasury and HM Customs and Excise websites
(addresses below).

8. Details for businesses are published in Budget Notes. These are
available from the Customs and Excise and HM Treasury Internet sites.


HM TREASURY PRESS OFFICE

Non-media enquiries: 020 7270 4558


GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to the
Budget 2002 may be found on the Internet at the following addresses:

HM Treasury www.hm-treasury.gov.uk

Inland Revenue www.inlandrevenue.gov.uk

HM Customs and Excise www.hmce.gov.uk





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last modified: April 17, 2002