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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.

LET INDUSTRY LEAD

The Wine and Spirit Trade Association is calling for Brexit Ministers to let industry lead negotiations to ensure the best possible free trade agreements with the EU and beyond. 

The full WSTA Brexit policy paper can be found here http://bit.ly/WSTABrexit

Up till now Ministers have remained tight lipped over plans for the industry as they devise Britain’s exit from the EU.

 At a meeting with the Secretary for State for Defra, Andrea Leadsom MP, on Wednesday (Nov 30th) Chief Executive Miles Beale presented the WSTA’s Brexit Policy Paper which shows the wine and spirit industry is united, has clear objectives and is uniquely well placed to advise government.

 This included a call for British gin to be given protected status in recognition of its quality and global appeal.

 Gin is the second largest traded UK spirit after whisky with three out of every four bottles of gin imported round the world coming from the UK.

 The meeting was also used to stress the importance of the UK wine industry to the British economy, worth £2.8bn in imported goods and £440m in exports.

 The UK is the largest per capita importer of wine in the world, with France being the UK’s largest wine trading partner by value, worth £1bn in trade in 2015. 

 We import more Champagne into the UK than any other country making us a crucial trading partner for the French.

 While government ponder the detail and politics for the road ahead, the wine and spirit trade is getting down to business.

Because the UK is the world’s leading wine importer and home to the biggest European spirits exporters the WSTA is effectively on both sides of the negotiating table.

 This puts the WSTA in prime position to pave the way for government to seal a good deal with major trading partners in the EU and, eventually, with Third countries too. 

 The WSTA is calling for government to begin by focusing on sector specific industry trade.

 The industry’s detailed Brexit Policy Paper focuses on industry concerns and what needs to be done to keep the UK at the heart of the world’s wine and spirit trade.

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The UK spirit trade boasts £28.2bn generated in economic activity and more jobs than any other EU county. And we are the world’s biggest wine trading nation generating a further £17.3bn per annum.

 Meaning the wine and spirit sectors combined are worth over £45bn and support nearly 600,000 jobs directly and indirectly in the UK. 

The WSTA Brexit policy paper - ‘The road ahead for the wine and spirit industry’ – has been drawn up to establish how best to meet and exploit the challenges of leaving the EU.

Some of the asks include:

  • Minimal disruption to existing flows of trade in wines and spirits and exploit Brexit opportunities for enhancing international trade.
  • Government must ensure tariff and quota free access to the EU market.
  • Work with trading partners to develop model agreements with EU and third countries ahead of Article 50.
  • The UK should immediately join the World Wine Trade Group.
  • Keep EU definitions for most spirit drinks and most of the current production rules for wine.
  • Use the Great Repeal Bill to remove restrictions whilst maintaining the integrity of categories and brands.
  • Establish a UK system for existing protected designations of origin (PDO’s) and revise current protection for English wine and sparkling wine as well as a new protection for British gin.
  • Ensure that UK vine growing and wine making continue to be classified as agriculture and allow unrestricted planting of new vineyards.
  • And for any future controls on the movement of people to ensure continued access to a skilled workforce: winemakers, pickers and the hospitality sector.

The WSTA has also set out their top ten target Third country trading partners to help government to secure tariff and quota free access.

 Since voting out of the EU the WSTA team have been out Australia, New Zealand and North America to discuss with international partners how best to exploit Brexit.

 But as important is the need to keep trade flowing with our European partners which is why discussions have already taken place in meetings with trade partners in Brussels and Strasbourg.

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Miles Beale, Chief Executive of the Wine and Spirit Trade Association said:

“For a genuinely global industry like wine and spirits, Brexit will bring both challenges and opportunities.

We understand why government want to keep their Brexit cards close to their chest, but as an industry we hold some very valuable cards and can help Ministers to come up trumps on trade. So we are asking we are asking government to let industry lead.

A lot of work is going on behind the scenes to ensure that industry is on the front foot to help government to prepare the best possible case for uninterrupted trade with the EU, and the best possible platform for bilateral trade deals with priority countries.

We have the expertise within the WSTA and our membership to pave the way for a smooth Brexit for our world-leading industry. The size and the contribution made by the wine and spirit industry to the UK economy should not be ignored; and its influence with key trading partners should not be underestimated.”

ENDS

Notes to editors:

The full WSTA Brexit policy paper can be found here http://bit.ly/WSTABrexit

The WSTA is the UK organisation for the wine and spirit industry, representing over 300 companies producing, importing, transporting and selling wine and spirits. The WSTA works with its members to promote responsible production, marketing and sale of alcohol

For more information please contact Lucy Panton:

Tel: +44 (0) 207 0893875

Mobile: + 44 (0) 7776422656

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