Fiscal Policy and Tax, UK Budget

Day-after reaction #2: Details of the freeze in alcohol duties – including whisky

The Chancellor also announced a delay to the planned increase in alcohol duties, from the planned 1 February to 1 August. This was a replica of what happened in 2023, which was also announced at the last Autumn Statement.

There are many a quirk of tax rate indexation, but alcohol duties are one for the more peculiar. For one, it still uses the widely-discredited retail price index (RPI), despite it having been stripped of its National Statistics status over 10 years ago for overstating true inflation. Of course, more cynical people than us might argue that is precisely why the Government still uses it for setting alcohol (and tobacco) duty rates, while uprating items that cost them money like benefits by CPI.

The other quirk of indexation is that it uses the OBR’s forecast for growth in RPI in quarter 2 (April to June) relative to its value a year earlier. It’s unclear why this is the case – more likely than not a historical accident. But it does mean we won’t actually know exactly how much tax on alcohol products will go up by in August just yet.

As an example, take 2023’s increase. If it had gone ahead on 1 February, it would have used the OBR’s November 2022 forecast for Q2 RPI inflation of 12.7%. But by the time the increase came to pass (1 August), the OBR’s latest forecast for that quarter was 10.1%, published in March 2023.

Of course by then Q2 had finished, and outturn RPI would have been released in mid-July – although to be fair it would have been a relatively quick turnaround for HMRC.

We expect the same will happen this year. The chart below plots the expected path of duty (and tax on that duty) for an illustrative bottle of whisky at 40% ABV on the basis of the current forecast for Q2 RPI, but we won’t know the updated one until March.

Chart: Subsequent policies on duty on an illustrative bottle of whisky


João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.