Tax by tax, spend by spend

Alcohol duties

This Forecast in-depth page has been updated with information available at the time of the March 2023 Economic and fiscal outlook.

Alcohol duties are levied on purchases of beer, cider or perry, wine or ‘made-wine’ and spirits. Made-wine is any alcoholic drink made by fermentation that is not beer, cider, perry, spirits or wine – mead, for example.

In 2023-24, we estimate that alcohol duties will raise to £13.1 billion. This represents 1.2 per cent of all receipts and is equivalent to around £465 per household and 0.5 per cent of national income.

From August 2023, the taxation of alcohol will shift to a system in which duty is paid by reference to the product’s final alcohol by volume (ABV), harmonizing the tax rates for different types of beverages and reducing the number of rates. The new system will also introduce a new draught relief which will allow for a reduced duty rate for qualifying draught products. The new rates for each type of product are outlined below:

  • The rate on all alcoholic products less than 3.5 per cent ABV is £9.27 per litre of alcohol in the product. The reduced rate is £8.42 per litre of alcohol in the product.
  • The rate on beer (with a strength between 3.5 and 8.5 per cent ABV) is £21.01 per litre of alcohol in the product. The reduced rate is £19.08 per litre of alcohol in the product.
  • The rate on still cider (with a strength between 3.5 and 8.5 per cent ABV) is £9.67 per litre of alcohol in the product. The reduced rate is £8.78 per litre of alcohol in the product.
  • The rate on sparkling cider (with a strength between 3.5 and 5.5 per cent ABV) is £9.67 per litre of alcohol in the product. The reduced rate is £8.78 per litre of alcohol in the product.
  • The rate on sparkling cider (with a strength between 5.5 and 8.5 per cent ABV) is £24.77 per litre of alcohol in the product. The reduced rate is £19.08 per litre of alcohol in the product.
  • The rate on spirits, wines and other fermented products (with a strength between 3.5 and 8.5 per cent ABV) is £24.77 per litre of alcohol in the product. The reduced rate is £19.08 per litre of alcohol in the product.
  • The rate on all alcoholic products (with a strength between 8.5 and 22 per cent ABV) is £28.50 per litre of alcohol in product.
  • The rate on all alcoholic products (with a strength exceeding 22 per cent ABV) is £31.64 per litre of alcohol in the product.
  • The rate on wine (with a strength between 11.5 and 14.5 per cent ABV) will be treated as if it is 12.5 per cent ABV for the purposes of calculating the charge to alcohol duty from 1 August 2023 until 1 February 2025.

VAT is applied after alcohol duty, so, for example, the price of a one litre bottle of spirits (with a strength of 40 per cent) currently reflects the pre-tax price plus £11.50 of duty plus 20 per cent VAT on both the pre-tax price and the duty.

  Forecast methodology

Forecast process

The OBR commissions forecasts of alcohol duties from HM Revenue and Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then use models to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks (EFOs).

Forecasting models

Alcohol duty receipts are estimated by multiplying taxable alcohol consumption – known as ‘alcohol clearances’ – by the corresponding duty rate.

Beer, wine, spirits and cider clearances are modelled separately using econometric equations that are driven by our forecast real household consumption, an underlying trend and an own-price elasticity for real price changes.

The Government sets out policy assumptions for the uprating of alcohol duties each year. Where specific policies have not been set, alcohol duty rates are set to rise in line with RPI inflation in each year.

Main forecast determinants

The main determinants of our alcohol duty forecast are those related to the tax base and those that are used by the Government in setting the parameters of the tax system.

  1. Inflation (RPI)
  2. Real household consumption

Main forecast judgements

The main judgements in our alcohol duties forecasts include:

  1. In-year estimate – our estimate for alcohol duty receipts in the current year is determined by year-to-date performance of receipts and indications from HMRC’s internal receipts monitoring. The in-year estimate determines the base year from which we use our model to forecast receipts growth.
  2. The underlying trend in different types of alcohol consumption – trends in alcohol consumption have demographic and behavioural drivers. The extent to which the downward trend in cider clearances, and upward trends in spirit and wine clearances, will continue is a source of uncertainty in our forecast.

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  Previous forecasts

Alcohol duty receipts have come in weaker than many of our forecasts, in part reflecting trends in the duty rate. That in turn has reflected both policy decisions to freeze or cut beer duty rates and the period of lower than expected RPI inflation that followed the 2014 fall in oil prices.

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  Policy measures

Since our first forecast in June 2010, governments have announced 24 policy measures affecting our forecast for alcohol duties. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook. These policy costings include:

  • Beer duty – at Budget 2013, 2014 and 2015, the beer duty rate was cut (by 1 penny per pint). At Budget 2016, Autumn Budget 2017, Budget 2018, Budget 2020, Spring Budget 2021 and Autumn Budget 2021 the beer duty rate was frozen.
  • Spirits duty – at Budget 2014, Budget 2016, Autumn Budget 2017, Budget 2018, Budget 2020, Spring Budget 2021 and Autumn Budget 2021 spirits duty was frozen. At Budget 2015, spirits duty was cut by 2 per cent.
  • Cider duty – at Budget 2015, cider duty was cut by 2 per cent. Cider duty was frozen at Budget 2014, Budget 2016, Autumn Budget 2017, Budget 2018, Budget 2020, Spring Budget 2021 and Autumn Budget 2021.
  • Wine duty was frozen at Budget 2015, Autumn Budget 2017, Budget 2020, Spring Budget 2021 and Autumn Budget 2021.

At Autumn Budget 2021 the Government announced a reform of alcohol duties which shifts the taxation of alcohol to a system in which duty is paid by reference to the product’s final alcohol by volume (ABV) from February 2023. It also harmonises tax rates for different types of beverages, reducing the number of main rates from 15 to six. This measure increases the duty charged on high-strength wine and cider, but lowers the duty for lower-strength alcohol products, with an additional benefit to draught products in the on-site trade. At Autumn Statement 2022 the start date for this measure was pushed back to August 2023, which was confirmed in Spring Budget 2023.

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