— The current alcohol duty system is wildly inconsistent and keeps pubs stuck in the last century, finds new research by the Adam Smith Institute.

— The ASI proposes a flat duty of 20p per unit, vastly simplifying the current system and slashing rates for wine and mixed drinks by up to 50%.

— This would cut taxes paid by pubs on a double gin and tonic from 68p to 28p and halve those they pay on wine.

— As the budget looms closer, its predicted tax rises threaten to destroy pubs around the country: this paper argues for a more sensible approach.

— The current system treats different types of alcohol differently for no rational reason: sparkling cider is taxed more than still, and the duty charged on wine can depend on the weather of the vintage year.

— The proposal would enable pubs to pay less tax on the products customers want more of, boosting consumption by 2%.

— James May, pub owner and former Top Gear presenter, said: “Alcohol duty is completely baffling. This paper proposes a straightforward revision of alcohol duty that would treat all drinkers fairly and give pubs a little boost without treating them like some sort of wounded sacred cow.”

Read the full report here: https://www.adamsmith.org/research/our-bounden-duty

The current alcohol duty system is nonsensical and places an unnecessary burden on both pubs and consumers, finds new research by the Adam Smith Institute released today. The report, with a foreword by James May, finds that alcohol duty in its current form is counterproductive and could be the nail in the coffin for British pubs and bars.

The main purpose of alcohol duty, besides making money for the state, is to discourage harmful drinking and recoup the costs this has on society – the increase in crime, burden on the NHS, and so on. However, most people are moderate drinkers, having a pint or two as a way to see friends, relax, and support their local. It is these drinkers – and their local pubs – that are bearing the cost of the tax. Alcohol duty discourages moderate drinking without meaningfully changing the behaviour of alcoholics, the paper finds.

This means much more than an expensive pint: it damages the hospitality industry, which employs 3.6 million people and is already threatened by rising costs. Pubs are closing at the rate of one a day, and the upcoming budget threatens to ignore their troubles while piling on more taxes in other areas.

What’s more, the current alcohol duty system is nonsensical. Despite being enacted in 2023 to replace an even more absurd regime, it still treats different types of alcohol differently for no good reason.

For example, sparkling cider is taxed more per unit than still cider; a pint of light draught beer is taxed at 17p but a double gin and tonic with the same amount of alcohol is charged 68p.

The difference in wine duty is even more absurd. A 14.5% ABV Rioja faces a £3.32 duty while an 11.5% ABV Riesling just £2.64. There is no evidence that drinking 14.5% red wine leads to more hazardous drinking than a lighter white wine: the difference is largely driven by preference of white over red, but red wine drinkers pay more tax.

This is hitting pubs more and more as preferences change: beer consumption has decreased in the past 60 years while wine rose by over 1,000%, and young people increasingly turn to cocktails and mixed drinks rather than beer or cider. If pubs are to survive, they must be able to adapt to these changes: the eyewatering alcohol duties for these drinks makes that prohibitively expensive.

Other aspects of the current tax are also damaging the industry: Small Producer Relief for breweries discourages many businesses from growing.

Alcohol is alcohol: it should all be taxed the same, and it should all be taxed less. The ASI proposes a flat 20p per unit alcohol duty and a further 6p relief for alcohol drunk in pubs. This would be a reduction for all drinks except for sub-3.5% ABV beer (a small proportion of all pints drunk) and sub-8.5% cider.

The change would cut taxes on a glass of wine in a pub by over 50%; a double gin and tonic would see its tax burden slashed from 68p to 28p, while a 6% ABV beer by a major producer would be charged 28% less tax in pubs.

The paper also argues for removing small producer relief, which punishes success and discourages the growth of British companies. It also proposes treating all wine between 11% and 14% ABV the same, using a three-year market average to determine the exact rate.

The cost to the state would be £3.4 billion assuming no behavioural change and less if consumption increases, which is likely. This could be recouped by narrowing VAT exemptions or reducing public spending. The plan would increase consumption by 2%, giving a much-needed boost to the nation’s bars and pubs and reducing prices for British drinkers.

James May, pub owner and former Top Gear presenter, said:

“I have been accused of ‘condoning alcohol consumption’, but this is untrue. I recommend it wholeheartedly. Alcohol has many benefits, from a social lubricant to helping awkward people reproduce, and, as this paper makes clear, it is completely harmless to the vast majority of people. Relax. Have a drink.

I sell my gin in my pub, so there is a pleasing circularity to all this. Something I have observed through these endeavours is that alcohol duty is completely baffling; a conflation of various rules, some dating back many years, combined with an unspoken implication that we should be punished for having a crafty one. It’s as untidy as an olive bowl repurposed as an ashtray.

This paper proposes a straightforward revision of alcohol duty that would treat all drinkers fairly and give pubs a little boost without treating them like some sort of wounded sacred cow.”

Daevid Warren, General Manager of Treasury Wine Estates Europe, the company behind brands including 19 Crimes and Penfolds, said:

“We welcome the Adam Smith Institute's contribution to the discussion on alcohol duty reform, particularly its call for a fairer and simpler tax system for wine.

Wine is an important part of British food and drink culture, yet the current tax system treats it differently to beer and cider. Unlike other alcohol categories, winemakers have limited ability to adjust alcohol strength without compromising the character and quality of their wines.

We support a fairer approach to taxation that gives consumers more choice and could make enjoying a glass of wine more affordable.”

Viggo Terling, report author and Chief of Staff at the Adam Smith Institute, said:

“As a non-drinker, I have no vested interest in a cheaper pint. But Britain’s alcohol duty system is needlessly complicated, inefficient and distortionary. Last year, duty rates rose, yet both the tax base and receipts fell.

A unit of alcohol is the same whether it comes in lager, Rioja or gin, yet the 2023 reforms left a patchwork of rates and reliefs with no consistent principle.

Ordinary drinkers should not be punished for the harmful behaviour of a minority. Our proposed 20p base rate per unit offers a simpler, fairer starting point.”

ENDS

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