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The Grapevine

The WSTA's views, distilled.

WSTA welcomes Budget freeze

Last month's Budget brought a welcome surprise for our industry with a freeze on all alcohol products. With a tight financial settlement, worse than expected fiscal forecasts and built in RPI rises the prospect of a bit rise was looming large over the industry just 8 months after the last rise in March. However, in a welcome change in policy as a result of our efforts, the Government froze all duty “recognising the pressure on household budgets. And backing our Great British pubs”.

This was particularly welcomed by the wine industry as comparatively this is the best outcome since 2002 and it avoided being left out as it was when duty was frozen in 2013 and 2015 and cut in 2014. But it was also welcome for spirits which have received a freeze or better for only the fourth time in ten years. It was also very welcome as we move into the Christmas trading period. Inevitably though, the devil is in the detail and the small print in the Red Book provides caveats. Some are small, some potentially problematic and these are discussed below. 

But first the good news: Philip Hammond announced that all alcohol duties will be frozen, meaning there will be no change in any duty rates, breaking with government policy of an annual rise indexed to projected RPI inflation. With the new implementation date (see below) as a result of moving the Budget from March to November, this means that all current duty levels implemented in March 2017 will remain for a further 14 months at least, meaning a full 22 months without changes prices at least. As a result of WSTA campaigning, the industry has saved an estimated £247m in new tax liabilities in 2018. This is compared to what would have happen if the Government increased duty by RPI which stood at 3.8% on Budget day based on the OBR’s new RPI inflation rate (this is higher than the 3.4% that the OBR projected in March).

What this means in real terms we can look at in a few ways. Compared to a rise being passed on in its entirety, consumers have saved an extra 8p a bottle in extra duty on still wine, 11p on sparkling wine and 31p on a bottle of spirit at 40% ABV. Overall, wine consumers are expected to save £125m in extra duty while spirit consumers save an extra £122m that could have been added to their tax bill in 2018. The value of this to Pubs for example is around £637 in additional wine and spirit duties in 2018 per pub. Or from a producer side, a wine importer releasing 1m bottles for sale in 2018 has been saved £87,140 in additional duty payments whilst a distiller producing 100,00 bottles has been saved £30,299.

A rise of this kind would therefore have been particularly unwelcome at Christmas. However, this brings me on to the next piece of good news, which is the implementation date. The move to November from March for the main financial statement meant that the usual implementation date – Midnight on the Sunday after the Budget – would have fallen just before the industry’s busiest trading period, Christmas. It is good news indeed that the Treasury listened to our concerns and delayed future rises until after Christmas and New year. The Treasury forecasts that any future increases in duty will now take effect from the 1st February.

The Chancellor also announced a new band for high strength ciders between 6.9% and 7.5% ABV to be implemented in 2019 ‘to allow producers time to reformulate and lower their ABV. The reason set out in the Red Book is to tackle issues of harmful drinking at low cost, in particular white ciders. However, the Chancellor was silent on the issue of a new lower abv band for still wine between 5.5-8.5% and we have since received confirmation that this policy has now been dropped.

There was a final point, buried deep in the budget book that simply stated the Government was going to review the practice of wine dilution in relation to duty. We are endeavouring to attain further details about this review and ensure that our members have the opportunity to feed into this.

We have learnt much during this campaign, notably what a clear, concise and targeted campaign can achieve with support from our members. We are very thankful to all the WSTA members that signed joint letters, wrote directly to local MPs and hosted events, and we look forward to working with them during next year’s campaign effort.

The WSTA Budget Report can be found here , the Red Book here and full duty rates here.

 

 

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Quick guide to the November Budget

In March, Carlo and I fielded quite a few questions after the Budget from both members and the media on duty rises. There were some assumptions that led to a bit of confusion around what the Chancellor meant by ‘I can also confirm that I will make no changes to previously planned upratings of duties on alcohol’, which sadly, isn’t as favourable as it sounds. Though it may not make for easy reading, I present to you here a quick stop guide on what to expect and to look out for in next month’s Budget speech.

 

He said no change, that’s good right? 

No. This is taken from the Government’s policy paper on Alcohol duty, released in March this year:

The public finances assume that all alcohol duty rates rise by RPI each year. This measure aims to support the public finances by implementing the expected indexation of alcohol duty rates for the fiscal year 2017 to 2018.

In other words, unless the Chancellor explicitly says so, we can expect an inflationary rise based on RPI, set to be above 3% every year up until 2022. Further to this, OBR projections model future duty intake based on inflationary rises to the end of this parliament in 2022. This is how Philip Hammond got away with saying ‘no changes’; it’s already set in policy yet it sounds like nothing is changing, when in fact the duty rate is increasing in line with policy. Sneaky.

So unless you hear the words ‘freeze’ or ‘cut’, assume an inflationary rise and we will confirm in our Budget Report which will be sent out shortly after the Chancellor’s speech ends.

You can read more here.

 

You have been saying that current government policy is another rise of 3.4% RPI. Is that still the case?

 

Yes and no. The OBR’s March 2017 Economic and Fiscal Outlook publication projects 2018’s RPI rate at 3.4% and that is what we have been working with when doing our sums, presumably the Treasury has too. But the OBR will release a new Economic and Fiscal Outlook publication to accompany the Budget speech on 22nd next month. They may well have revised their projections from the March version, which means we can’t be sure that 3.4% is accurate, but it is unlikely to be below 3% given that inflation is on the rise. But for the purposes of campaigning, we have been using March’s RPI numbers.

 

That’s very unhelpful. So we can’t plan ahead for November’s price changes because the 3.4% rate might change?

 

I’m afraid so. Going by previous Budgets any new rate will be implemented the Monday after the Budget, so the usual quick turnaround is still possible. However, we have also been in contact with the Treasury to discuss implementation dates, stating that if a duty rise was to occur, it would be extremely unhelpful to the entire industry to have to go through the burdens of administration to change prices accordingly just before Christmas. Industry will need time to implement these, not to take staff away from trading during the busiest time of the year. That would be Grinch-like. If the worst was to happen and we have to deal with any kind of rise, no earlier than 1st January earliest seems only fair in terms of a potential implementation date.

 

Is there anything we can do in between now and the Budget?

 

Lots. On Wednesday 11th October, Miles sent out a call to action to our membership outlining what will happen if we as an industry don’t mobilise ourselves, but to recap:

1. Write to your MP – We have pulled together a draft template letter to your MP which highlights the impact of duty increases and asks them to lobby the Chancellor. You should send this to your local MP, make sure you receive a response and keep us informed. This is available here

2. Sign a letter – We need WSTA members of all sizes and types to lend their names to joint letters we will be coordinating to the Chancellor and other Cabinet members. All you have to do is to let us know that you are happy to sign a joint letter on duty and we will share the draft text with you.

3. Let us know the impact on your business – We are always looking for examples about the impact of duty increases on businesses, so that we can develop impactful case studies. For example duty bill as % of your turnover; no. of employees; block on export ambitions and so on. Let us know if you are happy to help with this type of information.

 

Carlo and I will also send out more bespoke materials soon, including tweetable infographics, letter templates to write to your MP based on the part of the industry in which you operate and regional stats, showing the economic activity and employment the wine and spirit industry accounts for in your area.

 

If you have any questions or want to contribute a case study please contact [email protected] 

 

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David Richardson to talk about regulations on shipping in bulk at the International Bulk Wine and Spirits Show

I’m delighted to have been asked to present a session at the International Bulk Wine & Spirits (IBWS) Show, taking place in London on February 26-27, 2018

International Bulk Wine and Spirits Show is presented by Beverage Trade Network, the leading online platform dedicated to connecting the global beverage industry. Beverage Trade Network (BTN) successfully connects wineries, breweries, distilleries and brand owners with international importers, distributors, brokers and beverage industry professionals on a daily basis. Strong partnerships with international and US organizations have helped BTN establish IBWSS as a premiere sales and marketing event committed to connecting the private label and bulk beverage industry.

I’ll be talking about “Regulatory issues specific to bulk products compared to cased goods”

The principal reason for shipping in bulk is the ability to save on transport costs and thereby maintain or increase price competitiveness.  The transport method needs to ensure that the integrity of the product is maintained during the transport process.

As well as ensuring accuracy (are you sure that’s chardonnay in that 22,000 litre tank?) bottlers also need to pay attention to rules on blending and other operations, such as rendering a product sparkling.

The use of a bottling facility may also lead to different decisions in complying with excise duty requirements. 

The rules on geographic protection (PDO and PGI for wines, GI for spirits) may prevent or impose specific requirements on bottling. 

Whilst product labels for bulk and cased goods both need to comply with the destination market’s rules, there may be different challenges in designing and applying the labels, for example in ensuring conformance of batch and lot numbers to maintain an accurate audit trail.

The regulatory environment is also affected by the political context.  Brexit is a prime example of an event that will have a major impact on importers and exporters and where the WSTA is well placed to interpret and influence.

 

Full details of the show can be found at http://ibwsshowuk.com/ and I look forward to seeing you there.

#BulkWine #Spirits #IBWSS #London

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The changing world has its price - Q2 2017 Market Report

The UK alcohol industry has always managed to weather political storms. Currency fluctuations and duty increases are part and parcel of most business models in an industry that is so trade-orientated. However, Brexit is the x factor we currently face; an unprecedented geopolitical event that, for better or worse, will affect the wine industry for years to come. In particular, the devaluation of the pound after the referendum meant that import costs increased which in turn meant that prices rose. We are beginning to see evidence of this.

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Taittinger – We Dig it!

A historic event took place last week in the world of English wine. Taittinger became the first Champagne House to plant vines in UK soil and as you would expect, the launch was carried out in style.

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