April 17 2002
the full text of the Chancellor's speech here!)
ALCOHOL AND TOBACCO DUTIES
Duty on spirits will be frozen for the fifth successive year,
duty on beer produced by the smallest brewers will be cut in
the Chancellor announced today. Duty on beer and wine will also
frozen, while tobacco duties will rise in line with inflation.
Spirits duty will be frozen for the fifth Budget in succession
longest period without an increase since the 1950s - to strengthen
the international competitiveness and domestic base of the UK
industry. Without those freezes, a bottle of spirits would be
pence more expensive than it is today. The Government also decided
against the introduction of tax stamps on bottles of spirits,
would have significantly increased industry costs, and instead
announced plans to work with the spirits industry to tackle
problems of fraud.
A radical reform of beer duty will be introduced this June to
the nation's traditional small brewing industry, with reduced
of duty worth more than #120,000 for breweries producing up
million litres of beer per year, and a 50 per cent cut in duty
those producing up to half a million litres, equivalent to #40
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
frozen for the second Budget in succession. Duty on spirits-based
coolers - which has until now been set at a concessionary low
will be brought into line with spirits. Duty on cider will be
half a penny per pint in real terms.
Tobacco duties will rise in line with inflation to maintain
cost of cigarettes and thereby support the Government's objectives
reduce smoking. Tax on a packet of 20 cigarettes will go up
1. Britain's several hundred small breweries make a valuable
contribution to the nation's cultural heritage, particularly
communities, bringing both tradition and diversity to the UK
market. The Government is keen to celebrate the talents and
the nation's small brewers, and help them compete effectively
their fair share of the beer market.
2. For more than 20 years, the nation's small brewing industry
real ale drinkers have been calling for the introduction of
rates of duty on the beer produced by small brewers, both to
them invest in the growth of their businesses, and to help them
compete on price with larger brewers when selling their products
pubs and other retailers.
3. Following consultation over the past year, the Government
decided to introduce a relief scheme for small brewers this
time for the start of the World Cup, following Royal Assent
Finance Bill. Under this scheme:
- brewers producing up to half a million litres (around 3,000
or 900,000 pints) per year will receive a 50 per cent cut in
equivalent to #40 off each barrel they produce; and
- brewers producing up to three million litres per year will
progressive rates of relief worth over #120,000 to each brewer,
equivalent to a 50 per cent cut on the first half million litres
4. 9 out of every 10 brewers in the UK will benefit, including
micro brewers and local brewers, the majority of which are based
rural areas. Some of the eligible brewers currently own their
village pubs, and many more are expected to use the savings
scheme to buy one.
5. Similar duty relief schemes currently operate in seven other
Member States with strong brewing heritages, including Germany
Belgium, but the UK scheme will be one of the best-targeted,
and most generous schemes anywhere in the EU - with the 50 per
relief for the smallest brewers the maximum available under
6. More than a hundred Members of Parliament recently signed
motion calling for the introduction of a relief scheme, although
#15 million - the cost of the Government's scheme is almost
times as generous as the one they had proposed. The scheme is
strongly supported by the Society of Independent Brewers, the
Campaign for Real Ale, the Village Retail Services Association
the Council for the Protection of Rural England. Alcohol
7. Since 1997, the Government has taken consistent steps to
a fairer balance in the burden of taxation falling on different
alcoholic drinks and on different types of drink-producers.
addition to the introduction of the duty relief scheme for small
brewers, Budget 2002 introduces a further package of measures
increase the fairness of the alcohol duty regime.
8. The duty on spirits has been frozen in order to strengthen
the international competitiveness and the domestic base of the
spirits industry, a measure equivalent to a real-terms cut of
pence per bottle.
9. Duty on spirits is now 34 per cent lower in real-terms than
was 20 years ago, and thanks to the duty freezes in the last
Budgets, a bottle of spirits is now 73 pence less expensive
would otherwise have been.
10. Duties on wine and beer produced by larger brewers will
frozen for the second Budget in succession. Without those freezes,
there would now be 6 pence more duty on a bottle of wine and
more duty on a pint of beer.
11. Duty on cider has also been cut by half a penny per pint
support this traditional and mainly rural-based industry, which
uses around half the UK's total production of apples.
12. In real-terms, the cuts in spirits, beer, wine and cider
in the last two Budgets have saved the nation's drinkers around
million, and given a valuable boost to drinks producers, pubs
13. Spirits-based coolers (also known as designer drinks or
are currently taxed at the same concessionary rate which applies
low-alcohol wines. Consumption of coolers more than doubled
1999 and 2001. Over that same period, despite the duty falling
real-terms, the average pub price of coolers rose by around
14. Tax as a proportion of retail price is now lower for coolers
for any other type of alcoholic drink, in both the on and off
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
Medical Officer's recently- stated concerns about the association
coolers with binge drinking among younger people. The duty on
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
premature death in the UK, killing 120,000 people every year.
Research has consistently shown that the demand for cigarettes
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
discourage children and young people from taking up the habit.
tax on tobacco is therefore increased in line with inflation
- 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
the duty system, the Government has sought to increase the average
price for consumers by clamping down on the supply of cheap
19. In the 2001 Pre-Budget Report, the Government announced
results from the first year of its Tackling Tobacco Smuggling
strategy, indicating that Customs are on track to slow, stop
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
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
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
per cent share that was forecast if the strategy had not been
Tackling spirits fraud
20. In Tackling Indirect Tax Fraud, published alongside the
2001 Pre-Budget Report, the Government announced its determination
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
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
warehouses which have carried out or facilitated fraud; and
- agreeing with the National Lottery operator that retailers
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
easier to identify illicit, non duty-paid goods when they appeared
the normal retail market. The Pre-Budget Report announced that
would be consultation on the costs, benefits and practicalities
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
compliance costs of the spirits industry, which - if passed
full - could have had a significant impact on retail prices
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
26. Customs will therefore work together with the industry on
strategy to identify, trace and track illicit consignments of
spirits, radically increasing their exchange of information
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
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),
disruption of the criminal gangs engaged in spirits fraud, and
strengthen their controls on UK excise warehouses.
1. Small brewers whose annual production is between 5,000
hectolitres will pay a proportion of the standard duty rate,
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
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
"recent years have, in particular, seen younger drinkers attracted
a new ranges of designer drinks with a relatively high alcohol
5. The duty on cigarettes has ad valorem (per cent of price)
specific (duty applied per quantity of product) elements. Raising
specific duty by approximately 2.2 per cent and maintaining
valorem duty at 22 per cent increases the total duty by about
cent in line with inflation. The duties on all other tobacco
are wholly specific.
6. Revalorisation is an uprating in line with inflation applied
keep duties, benefits and allowances constant in real terms.
duties use the forecast RPI figure for the September following
Budget. Allowances against tax use historic RPI to the September
preceding the Budget. In Budget 2002, the forecast RPI - based
2001 to Q3 2002 - used for excise duties is 1.91 per cent whereas
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
Tackling Tobacco Smuggling and Tackling Indirect Tax Fraud are
available from the HM Treasury and HM Customs and Excise websites
8. Details for businesses are published in Budget Notes. These
available from the Customs and Excise and HM Treasury Internet
HM TREASURY PRESS OFFICE
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Further information and all published documents relating to
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