An increase in alcohol duty added to inflation in August, undercutting Chancellor of the Exchequer Jeremy Hunt’s vow that he would do “everything we can” to get the cost of living under control.
(Bloomberg) — An increase in alcohol duty added to inflation in August, undercutting Chancellor of the Exchequer Jeremy Hunt’s vow that he would do “everything we can” to get the cost of living under control.
In his budget in March, Hunt announced an increase in the duty rates on all UK alcoholic products in line with the Retail Price Index from August. He also shook up the way the duty is charged, putting the focus on the strength of the alcohol rather than the type.
The result was that alcohol prices in the CPIH measure of inflation jumped 3% last month compared with 0.8% a year earlier. It left prices of spirits, wine and beer collectively over 9% higher than a year earlier.
The 0.37 percentage point contribution from alcohol and tobacco to the annual rate of CPIH inflation was the largest since the start of that data series in 2006, the Office for National Statistics said.
Forecasters had expected alcohol duties, along with the cost of motor fuel, to break the downward trend in inflation since early 2023. Luckily for Hunt, large downward contributions from food and hotels meant the headline rate of inflation slowed to 6.7% from 6.8% a month earlier.
Read more: UK’s Unexpected Drop in Inflation Opens Prospect of Rates Pause
“Alcohol was less of a boost to headline than we had expected, suggesting that the pass-through of the new duty regime was not 100%,” said Bruna Skarica, UK economist at Morgan Stanley.
Hunt’s decision to raise alcohol duty in the budget broke a freeze in the tax which had been in place since the autumn of 2020.
His “Brexit pubs guarantee” to ensure pubs pay less duty than supermarkets met with criticism from pub landlords, brewers and distillers. The Wine and Spirit Trade Association called it the “biggest single duty hike since 1975.”
The average bottle of wine shot up fastest in Yorkshire, according to the ONS, by 28%. In London, the average bottle of wine increased by 17.8%. When the duty was announced, forecasters predicted the average bottle of 12.5% ABV still white wine would increase by 44p a bottle, or 20%.
Read more:
- What the New UK Alcohol Duties Mean for Your £10 Bottle of Wine
- More Than Two Pubs Are Closing Every Day in England and Wales
- Pub Closures: What’s Really Killing So Many Historic UK Bars
–With assistance from Eamon Akil Farhat.
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