WSTA challenges OBR over “unrealistic” wine consumption forecasts
The forecasts published as part of the Government’s Budget in March project that wine consumption in the UK is due to grow strongly by 16% in the next five years. The figures are relied on by Government Minster’s when they determine how much to increase alcohol duty in the Autumn Statement or Budget in March.
However, the trade association is challenging those assumptions as unrealistic and potentially misleading. Total combined sales of still and sparkling wine have remained broadly flat, declining by around 2% over the past 10 years, yet despite this the OBR are projecting strong growth in wine consumption of 3% a year for every year until 2021.
Additionally, in a response to Parliamentary Questions from Tim Loughton MP, the Government recently confirmed that these projections do not take into account the impact of the devaluation of the pound or projected rise in inflation following the Brexit vote.
The Wine and Spirit Trade Association has calculated that the pound’s devaluation could hit the industry and its consumers with a minimum of £413m worth of extra import costs and, because the Government peg wine duty increases to inflation, a further £120m in additional duties should inflation reach 3%.
The WSTA is arguing that the combined impact of these costs and the evidence from the industry on consumption levels demand a revision in the forecasts.
This comes at a time when Ernst & Young, leading financial experts, have announced that we should expect ‘cautious revisions’ from OBR on the Autumn Statement day. The uncertainty surrounding the nature of the UK’s departure from the UK means that OBR are likely to downgrade their forecast for GDP growth for 2017 to between 1.25% - 1.5% - down from 2.2% predicted in March.
Miles Beale, Chief Executive of the WSTA said:
“The OBR’s projections simply do not reflect the reality that wine businesses across the UK are facing. The industry has faced tough trading conditions for over a decade and the impact of the devaluation of the pound, the potential for higher inflation and more duty rises is set to make it even more challenging.”
Ministers should be getting as accurate as possible information about the impact duty rises may have on UK wine businesses and their 30m wine consumers, but we don’t feel that this is the case with the existing forecasts.
Given they will directly inform Minister’s decisions on duty changes, we are urging the Office of Budget Responsibility to take the time to review the wine consumption forecasts as part of the Autumn Statement and understand the pressure that the industry is facing at this time.”
Facts about wine duty
- The wine industry pays over £4bn in alcohol duty and has seen rats increase by over 50% since 2007.
- The wine industry has continued to be singled out for harsher duty treatment that other alcohol products in successive budgets, including being the only category to receive a duty rise in the 2016 budget.
- Wine duty in the UK is the equivalent to £2.08 per 75cl bottle of wine, £2.67 on a bottle of sparkling wine.
- This works out that 55% of the average bottle of wine sold in shops and supermarkets goes straight from the consumer into the taxman’s pocket.
- Following the freeze in wine duty in the 2015 budget, wine duty income increased on the previous year by £139m (+3.6%) from April 2015 – March 2016 inclusive.
- The UK imports around 1.8bn bottles of wine each year and import costs are around £3bn. As a result of the vote to leave the European Union, there has been a sustained fall in the pound resulting in increased import costs of approximately15%.
- If this is passed on to the consumer the average bottle of wine coming from the EU would go up 29p. The OBR calculations were made prior to the Sterling crash and were not taken into account.
- Current government policy dictates that alcohol duty increases are pegged to inflation which means that if inflation increases by 3% a bottle of wine is in line for a second blow with an extra 6p added if wine duty goes up.