Wine Duty

Tuesday 5th March 2024 Westminster Hall

16:00

[Gordon Henderson (in the Chair)]

I shall call Will Quince to move the motion, and I will then call the Minister to respond. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.

[Will Quince (Colchester) (Con)]

I beg to move,

That this House has considered wine duty.

It is a pleasure to serve under your chairmanship, Mr Henderson. I am pleased to have secured this important debate the day before my right hon. Friend the Chancellor of the Exchequer delivers the Budget statement to the House. I am grateful to the Minister for responding. I know he will take very seriously the points I will make further to our correspondence on this issue. I would also like to thank the unusually great number of right hon. and hon. Members present for supporting this 30-minute Westminster Hall debate. I hope the Minister has noticed the strength of feeling on this important subject.

I applied for this debate as a result of meeting the chief executive officer of Majestic Wine, which is the UK’s largest specialist wine retailer, with more than 200 stores across the UK, including a large store in my constituency. They raised a number of concerns relating to wine duty that I felt were important for the House to hear and reflect on. The UK is a major global hub for wine and spirits. It is the world’s second largest importer of wine by volume and value, and the largest exporter of spirits. It supports over 390,000 jobs, £69 billion in economy activity and £8.6 billion in excise duty revenue.

Like all businesses, those across the wine supply chain have had to confront some tough trading conditions over recent years, but a number of the challenges they face are unique to the wine and spirit trade, and these were brought to my attention by Majestic. The challenges faced by Majestic and other similar businesses stem primarily from the new alcohol excise system, which was introduced last year. In particular I am referring to the impact of the historic duty increases and the changes to the way wine duty is calculated. The introduction of the new duty regime last August followed a review of the inherited EU duty rules. When the review was announced, it was welcomed across the drinks industry, which backed wholeheartedly the aims of the review, which were to make the new duty system fairer, simpler, less distortive and easier to administer.

Sadly, particularly for wine and spirit businesses, the new regime is not fairer. In fact, in many ways it has reinforced the existing market distortions. For wine businesses, the new system is anything but simpler to administer—in fact, it is exactly the opposite. The new system that was introduced on 1 August 2023 levies excise duty on all alcoholic products according to strength, but at different rates. This reinforces pre-existing market distortions by continuing to tax wine and spirits more harshly than other categories of alcoholic drink.

When introducing the new system, the Government recognised the impact it would have on wine businesses and rightly put in place a temporary easement mechanism that pegged the amount payable for wines in the range of 11.5% to 14.5% at the amount payable on a wine of 12.5% alcohol by volume. That amount is currently £2.67 per bottle. Wines falling within this easement mechanism account for 85% of the wine sold in the UK market. That is 1.1 million out of 1.3 million bottles sold. This easement is set to end on 1 February 2025.

[Stephen McPartland (Stevenage) (Con)]

I am grateful to my hon. Friend for securing this important debate. I represent the Wine Society, which is headquartered in Stevenage and is a large organisation struggling under this pressure. It will cost it £300,000 to £400,000 to upgrade its systems. It is being asked to price wine before the level of alcohol is known, as wine is an agricultural product, and it is having to re-evaluate the range of wines it is able to output, which is having a knock-on effect on the supply chain. Does my hon. Friend agree that this seems to be a difficult case of unintended consequences, and if the easement he refers to were to be made permanent rather than temporary, it could solve the problem?

[Will Quince]

I thank my right hon. Friend for his intervention. He is right to champion the cause of the Wine Society, which is based in his constituency. There is both a significant cost implication and an administrative burden for such organisations, so the impact of these changes should not be understated.

The easement that is set to end on 1 February 2025 will affect wine businesses ranging from major retailers such as the big supermarkets to specialist retailers such as Majestic. However, as my right hon. Friend has just alluded to, there are also thousands of independent wine merchants who have all said that having to implement fully the strength-based system would impose significant costs, running to many millions of pounds, both in the short term and once the necessary systems are established.

[Priti Patel (Witham) (Con)]

I thank my hon. Friend for giving way and for his great speech. We are constituency neighbours and he knows that it is not just wine merchants that will be affected but thousands of wine businesses across the UK. We have a strong and flourishing wine sector, but this regime has failed to meet one of the original key objectives that the Treasury sought to establish, which was to make the system easier to administer. Instead, unit labelling and ABV is putting a burden on producers and merchants, which means that they face pricing and cost implications. Does my hon. Friend agree that this is increasing red tape at a time when the Government should be doing much more to reduce it and ease the costs and the burdens of regulation for businesses?

[Will Quince]

My right hon. Friend and constituency neighbour is absolutely right to raise that issue, and she has long championed cutting the red tape and bureaucracy that British businesses face. As my right hon. Friend the Member for Stevenage (Stephen McPartland) said, this unintended consequence means that business faces not just extra cost but the significant administrative burden that comes with cost and time. My right hon. Friend the Member for Witham (Priti Patel) is right to point out that the new system is not simpler or fairer and that it has a huge cost implication.

[Jim Shannon (Strangford) (DUP)]

First, I commend the hon. Gentleman for securing this debate. James Nicholson Wine in Crossgar, which is in my constituency, is one of those excellent wine businesses that draws lots of people, not just because of the quality and wide variety of its wines but because it has also become a bit of a tourist attraction. It does lots of things. When it comes to the retention of jobs, does the hon. Gentleman share my concern that the Government’s proposed changes will undoubtedly—though I hope not—have an impact on job creation and job retention?

[Will Quince]

The hon. Gentleman is right to intervene on that point, because job creation and retention, including in his constituency, is important, as is our flourishing tourism sector. The growth in wine production across our country is something that we should celebrate; we should be proud of that and support it.

This debate is timely because we have some time on our hands. Obviously, the sooner we give notice to industry that the easement can continue, the lower the cost and administrative burden borne by industry. We have until 1 February 2025 to address this issue. I will have an ask for the Minister in a few moments, which I hope the hon. Gentleman will agree with.

I will just touch on one other element first, which is why wine is different. The easement recognises that wine is different from other categories of alcoholic drink. Wine cannot be made to a predetermined strength; the alcoholic strength of wine is determined by climate. I know that I do not need to teach anyone in this Chamber to suck eggs, but wine from warmer climates tends to be higher in alcohol than wine from cooler climates. Wine is not like beer or cider. And wine is subject to strict production rules, so in that respect it is also unlike beer and cider. As a consequence, there is very little that wine makers can do to lower the alcohol content.

It is estimated that there are over 100,000 different wines on the UK market. By comparison, there are less than 1,000 different ciders. Different vintages of wine can vary in strength, as is the case with some wines from the same year. Of course, that is one of the great pleasures of wine; wines from around the world are unique, while different vintages from the same vineyard can differ in strength and taste.

Taxing alcohol by strength, with lower rates for lower-strength products, might seem simpler on paper, but it takes absolutely no account of how different alcoholic products are consumed, including in what quantities and whether the product is diluted. This new system is much more complicated to administer for wine businesses and it penalises wine from warmer climates.

The differences between wine, spirits, beer and cider will remain if the easement ends. In practice, if the easement is abolished as planned, there will be 30 different payable amounts for wine in the 11.5% to 14.5% ABV range.

[Julian Sturdy (York Outer) (Con)]

My hon. Friend is making an important argument. I met with Liquid Indulgence, a small wine supplier in my constituency that supplies commercial businesses around York, as well as selling direct to customers. The point my hon. Friend is making is exactly what that small business said to me about the impact this change would have on that business and whether it could continue. It will surely have a massive impact on small wine suppliers across the country, and will potentially have a negative impact on what those businesses can bring in in tax, compared with what the Government are trying to achieve.

[Will Quince]

My hon. Friend is right to raise that point on behalf of the small wine supplier he represents in York. Of course, this change will have a massive impact. When Majestic originally brought this matter to my attention, it did so not just on its own behalf, but on behalf of the thousands of wine organisations and companies across the country, ranging from one-person bands through to small and medium-sized enterprises, all of which will bear the administrative burden of this cost.

I want to reiterate one point. If this easement ends—I hope it is “if”, as I very much hope the Minister listens and it will not end—there will be 30 different payable amounts for wine across the 11.5% to 14.5% ABV range. Prices will range from £2.45 to £3.10 per bottle. The practical arrangements that would need to be made as a result of this change are countless, including the reality that two wines from the same independent vineyard in France, say, would have to be labelled differently.

[Mrs Flick Drummond (Meon Valley) (Con)]

Other right hon. and hon. Members have mentioned wine merchants, but what we have so far not discussed are the wine growers in the UK. I had better declare an interest, being the chair of all-party parliamentary group for wine of Great Britain. Wine production is one of the fastest growing agriculture sectors, employing about 2,300 people, with a predicted 50% growth in jobs by 2025. Last year, 2023, was an absolutely vintage year, with an estimated 25 million bottles. This easement affects not just wine merchants, but a very important and fast-growing agriculture sector.

[Will Quince]

My hon. Friend is absolutely right. It is not just about wine merchants, of course; it is also about the growers. It is a boom industry in this country, and not just for tourism, as the hon. Member for Strangford (Jim Shannon) said, but because English wine, and wine from across our four nations, is being consumed far more frequently than ever before. It is something that we should encourage as a country. I know the Chancellor is keen, in particular, to encourage sparkling wine.

I want to reiterate a point made by my hon. Friend the Member for York Outer (Julian Sturdy) and my right hon. Friend the Member for Witham (Priti Patel). I am sorry to labour this point, but it is important. The abolition of the easement would introduce massive ongoing red tape costs that concern supermarkets and large retailers, which, of course, we are concerned about. However, what I am more concerned about, as my right hon. and hon. Friends have eloquently pointed out, is the disproportionate costs for smaller wine businesses in constituencies across this country.

As I have said, wine has far more stock keeping units, or SKUs, than other alcohol categories. It is estimated that there are in excess of 100,000 wine SKUs on the UK market. A specialist SME wine retailer, for example, will carry more than 2,000 SKUs at any one time, while larger wine retailers may carry up to 10,000 SKUs. If the easement ends, the duty will have to be calculated individually for each SKU; this will have to be done on an annual basis, as alcoholic strength can vary between vintages.

[Mr Laurence Robertson (Tewkesbury) (Con)]

My hon. Friend is making a very good case. I speak on behalf of Direct Wines, which is based in my constituency. It has pointed out that now is not the time to remove the easement because the hospitality industry is still struggling to recover from the pandemic. Just over the weekend, we read that a number of pubs are closing regularly. Now is surely not the time to bring about more cost pressures to the industry.

[Will Quince]

My hon. Friend makes a valid point about time. Arguably—I agree with my right hon. Friend the Member for Witham on this—there is no time to impose additional red tape and bureaucracy on SMEs across this country. My hon. Friend the Member for Tewkesbury (Mr Robertson) is right, however, and as I said at the outset, businesses are coming out of what has been a difficult economic situation. We need to support them as much as we can. As a constituency MP, it sets off alarm bells when I hear that a large organisation such as Majestic—in fact, the largest in the UK—informs me that it will struggle with the additional bureaucracy and cost. We can therefore only imagine how difficult it will be for the tens of thousands of smaller UK wine businesses in constituencies across our country.

As I said at the outset, the UK is the world’s second largest importer of wine by volume and by value. In 2022, we imported the equivalent of more than 1.7 billion bottles of still and sparkling wine. I know that the Minister—a good man and a great Minister, whom I respect hugely—recognises the economically significant contribution that the wine industry makes to the United Kingdom. I invite him to commit today to visiting the Majestic Wine headquarters in Watford before the Easter recess, because I think that will allow him to understand—as I have by meeting people from Majestic—the full implications for wine businesses of ending the easement.

For all the reasons that I, and right hon. and hon. Members have set out, I genuinely believe that there is still time to do the right thing. The more notice that we give business, the better. I hope that the easement will continue—but I hope that that decision can be made soon—that we will do the right thing and that we will make the easement permanent. It is a simple fix, which would benefit business and consumers, and make very little difference, if any, to Treasury receipts.

16:16

[The Exchequer Secretary to the Treasury (Gareth Davies)]

It is a great pleasure to see you in the Chair, as always, Mr Henderson.

I congratulate my good friend, my hon. Friend the Member for Colchester (Will Quince), on securing the debate and on the attendance that he has achieved. I recognise the strength of feeling on this across the House and in particular in this Chamber today. I completely share his support for our broader alcohol sector. Not only is it a significant contributor to our gross national product, but I would suggest that it pays a little towards our gross national happiness. It is part of our heritage. From Shakespeare’s plays to our modern British sparkling wines, we have long recognised how life’s triumphs and trials—weddings, wet weather and the working day—can be soothed or celebrated with a glass of our favourite tipple. I recognise that.

In the past few weeks alone, therefore, I have for example met the head of the all-party parliamentary group on wine and spirits, my right hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady), and the highly active Wine and Spirit Trade Association to discuss how this remarkable industry’s potential can be truly uncorked. My officials have engaged with businesses and representatives of the UK industry up and down this country as part of budgetary processes that one might expect, from the more well-aged players such as Majestic Wine to the younger vintages such as Ambriel Sparkling.

On behalf of the Government, I am proud to represent our alcohol duty reform package and to present it to the House. We have introduced the biggest reform of alcohol duties for more than 140 years. We introduced a new, simplified alcohol duty system based on the common-sense principle of taxing alcohol by strength to modernise the existing duties, to support businesses and to meet our public health objectives. This is the first time that public health objectives have been inserted into the alcohol duty system.

That reflects four key principles, which it might be helpful for me to set out: the duty system should be fair to the producers that make and grow the drinks we enjoy; it should recognise the importance of jobs, and of pubs and their role in our national life; it should tackle the problem of harmful high-strength products being sold too cheaply; and it should support innovation and modern drinking trends, in particular today’s trend of moving towards lower-alcohol products. Our reforms do just that.

As part of the changes, which came into effect in August last year, we have supported our wine sector. Let me set out how we have done so. First, we removed the sparkling wine premium. My hon. Friend the Member for Meon Valley (Mrs Drummond) rightly spoke about our domestic growers, a really important part of our wine industry. I recently met the chief executive officer of WineGB. I can tell her that we have removed the English sparkling wine premium. Since 1 August 2023, sparkling wines attract less duty than they did under the previous duty system. That is one of the points that I want to make today.

In such a reform some duty has gone up for some sectors in the alcohol industry and some has gone down. For our domestic growers of English sparkling wine it has gone down significantly, even with the retail price index increase that we saw last year. That is the right thing to do for our domestic growers. It will ensure consistency in our system and build success for British wines, which my hon. Friend and I want to see.

Secondly, as has been extensively discussed today—I will come on to this in more detail and address some of the points that have been made—we introduced a wine easement for 18 months until February 2025. As a result, all wine between 11.5% and 14.5% alcohol by volume will be subject to duty as if it were 12.5% ABV. That means we have effectively given the wine industry time to adapt to the new system and allow wine producers to adapt their systems. I recognise completely that a shake-up of a system that has existed for more than 140 years will raise some eyebrows and cause change for a number of businesses, but we should be confident that the bureaucratic burden under the new system is manageable.

Every other product is already subject to duty based on our strength-based system. We have included, as my hon. Friend the Member for Colchester rightly pointed out, the weather impact of wine, and included cider, which is also subject to seasonal variability challenges. We are mindful of unintended consequences, as several right hon. and hon. Members have outlined, but to make the wine easement permanent, as my right hon. Friend the Member for Stevenage (Stephen McPartland) has called for, would go against the principle of the alcohol reform to move to a strength-based system that brings in the public health element. As I have already said, although the impact on wine is clearly being felt, we have provided an easement over a period of time that was decided in consultation with the wine industry in four rounds of consultation before the reform comes into being.

I can commit to my hon. Friend the Member for Colchester that we will monitor the reforms and their impact. We have outlined that three years after they come into effect, which is enough time for us to be able to assess them, we will conduct an impact assessment, which will allow His Majesty’s Revenue and Customs to gather the relevant information to understand any long-term impacts in the alcohol market. That commitment complements the broader fiscal approach, because at the last autumn statement we announced tax cuts that supported the alcohol and hospitality industry.

We froze alcohol duty for six months until 1 August 2024. We also announced a package of business rate changes and tax cuts worth £4.3 billion over the next five years. My hon. Friend the Member for Tewkesbury (Mr Robertson) was right to highlight the difficult time that our hospitality industry has gone through in recent times. That is why we extended the retail, hospitality and leisure relief scheme—a 75% relief—up to a cash amount of £110,000 per business between 2024 and 2025. In addition to the work being led by my colleagues at the Department for Environment, Food and Rural Affairs on their package of wine reforms, which will increase flexibility and innovation, the Government have announced a freeze to the small business multiplier for the fourth consecutive year, for 2024-25, protecting over 1 million ratepayers from a multiplier increase. That builds on the unprecedented support that we should never forget we offered the industry during the pandemic—some £16 billion of business rate support. We have also held the tax rate steady over the last three years, which has protected businesses from inflationary pressures at a cost of £14.5 billion to the Exchequer.

This Government have never given the sector reason to doubt our commitment to it, because it has received many cuts or freezes to duty over the last decade. I can tell my hon. Friend the Member for Colchester that the wine industry has benefited from cuts or freezes to wine duty at five of the last 11 fiscal events. Compared with 2015, wine duty is some 12% lower in real terms. That is something we can all raise a glass to.

Finally, I will address the comments by my right hon. Friend the Member for Witham (Priti Patel), who, rightly, has consistently raised the issue of red tape for businesses in the House. She specifically mentioned labelling. Overall, these reforms to our alcohol system simplify our tax duty. That is a Brexit freedom. Under the last slight change to our alcohol duty system in 1996, we had to take duty from the European Union, which was incredibly complicated, completely inconsistent, and did not include any provision for public health. Our easement gives businesses time to adapt to the new system and put in place measures to be able to administer it. Wine can still be labelled to 0.5% ABV. DEFRA has introduced guidance and an option to label to 0.1%, but I want to be really clear that that is optional.

I thank my hon. Friend the Member for Colchester for raising this important sector and this important issue. It is right that the Government’s fiscal approach continues to be scrutinised in this way. I am confident that this policy is the right one, not just for the wine industry, but for the whole of the United Kingdom.

Question put and agreed to.