Price of rich red wine to soar as UK abandons duty freeze

Prices for some of Britain’s favourite rich red wines are set to soar, growers and importers have warned, after ministers reversed plans to freeze duty rates ahead of an alcohol duty overhaul that will penalise stronger drinks.

The UK Treasury last month announced in its “mini” Budget a revamp of duty rules that will increase the payments due on most wines, including almost all reds, from August 2023.

New chancellor Jeremy Hunt subsequently scrapped a separate temporary freeze that would have protected duty on all types of alcohol from inflation-linked rises. Hunt’s change aims to save the public purse £600mn a year.

The scrapped freeze means that duty on wine will increase in February in line with inflation and again in August, with the earlier increase feeding through to bigger rises that growers had expected in August.

Hal Wilson, co-founder of Cambridge Wine Merchants in the UK, said: “We will see massive [price] increases on naturally made wines that are 14.5 per cent, 15 per cent. These come from Spain, Portugal, Australia, South Africa, Chile, North America, France.”

Wilson said the additional costs, in addition to Brexit-related paperwork, would deter some growers from selling into the UK market. “It’s a great market, and big, and people want to be in the market but we’re hearing from the Australians that there is a limit to how much money they’re prepared to lose.”

The changes will tip the typical price of a bottle of red wine produced in Australia over the £10 mark, a key level in the “price sensitive” UK market, said Richie Vandenberg, chief executive of South Australia’s Limestone Coast Winery. He said higher duty rates come at a time of “extraordinary input pressure and inflation” for growers.

The new pricing could unintentionally drive consumers toward lower quality wines or “ready-to-drink” wine-based products and away from “the big rich red wines which people love in the UK”, he said. “Ultimately the people that will pay for it are the punters.”

Australia’s wine growers had hoped that a new free trade agreement with the UK signed last year would help fill an export void left by China’s imposition of punitive tariffs in 2020. Limestone Coast, a bulk supplier that operates The Hidden Sea brand, is one of the country’s largest exporters and had hoped the trade deal would reduce the cost of its wine for British consumers while improving margins for growers.

Wine producers and trade groups have warned the UK government that the potential £26mn benefit for Australia’s wine growers from the agreement will be wiped out by an additional £70mn in costs related to the tax changes.

The duty overhaul to take effect in August 2023 will charge higher rates on drinks with a higher proportion of alcohol by volume, with lower rates for less alcoholic beverages, a system backed by health campaigners.

A bottle of wine at 14.5 per cent alcohol by volume is set to incur 58p more duty by February 2025, according to data from the UK’s Wine and Spirit Trade Association (WSTA), before adding the extra administrative costs of handling the different tax bands and broader inflation, which includes a steep rise in prices for glass bottles.

A temporary rate will apply to wines between 11.5 per cent and 14.5 per cent for the first 18 months after that, before the full new duty scheme, with 27 bands for wine, takes effect.

Port will also rise steeply in price, said Steve Moody, managing director of Fells wine distributors, with a duty rise of more than £1 a bottle from next August. “We could lose 10 per cent, maybe 15 per cent, of the volume from the category overnight,” he said.

Tony Battaglene, chief executive of trade body Australian Grape and Wine, said it was “disappointing” that the UK had persevered with the changes to duties, especially as it is the largest export market for Australian wine by volume.

Miles Beale, chief executive of the WSTA, said the increased tariffs would “make the UK a much less attractive destination for most [overseas] wines”, adding that “wine is the only [alcoholic] product that can’t dictate its strength. Its ABV [alcohol by volume] is all down to the sun.”