>>the budget is very troubling for the trade - Quentin Rappoport, director of the Wine and Spirit Association
At first glance the 2004 Budget may seem fairly innocuous but, on closer inspection, it is very troubling for the trade. The introduction of strip stamps for spirits is one of the biggest regulatory burdens and is a devastating blow, especially as countless other countries have tried such systems and rapidly found them unworkable.
It is particularly galling that the industry had, some years ago, been successful in convincing government that the cost benefit of a strip stamp regime to combat fraud imposed a disproportionate bureaucratic burden on industry. But the idea was resurrected out of the blue in the Pre-Budget Report last December. We were given just a few weeks to come up with alternatives and, when we put together a comprehensive set of more effective, cheaper and faster-acting measures, the government didn’t listen. It seems the so-called consultation period was little more than going through the motions, which doesn’t bode well for the Chancellor’s stated intention to undertake “detailed implementation discussions” with the trade.
So, what are the consequences of this ill-thought out piece of legislation? First, it will not actually solve the problem - there is plenty of evidence that criminal gangs are already equipped to produce counterfeits (as happened in other countries).
Second, we estimate that compliance costs will be in the region of £23m for up-front capital investment, with annual costs of about £54m. The £3m set aside by the Chancellor to help with compliance is laughable in this context. As is usually the case, smaller companies will suffer most - ironic when it is the larger companies whose high-profile consumer brands are most easily traded in the black economy.
Thirdly, there are many alternatives the government has not properly considered. We have been working with Customs for some months to encourage greater co-operation and understanding between officers and the trade, with some excellent results. In addition, our proposed alternative measures included: better information sharing to identify anomalies; the introduction of registration systems for owners of goods - transport companies, retailers and suchlike; the placement of Customs officers in high risk warehouses; extended use of barcoding and a tightening up of the ‘paper chain’.
While strip stamps will take more than a year to implement, and involve endless
bureaucracy and high costs, the industry alternatives could, in many cases, be up and running quicker, easier and cheaper, and - we believe - be significantly more effective.
But strip stamps were not the only change affecting the alcoholic drinks trade. The impact of excise duty rises for beer and still wine is not lessened by the fact that we were expecting the announcement. In the case of wine we predict the market will take a significant hit, based on the experience of the past year. As in 2003, this year’s increase is in line with inflation. Despite this, wine sales growth was cut by three-quarters last year, whereas spirits and sparkling wine sales were healthy due to the duty freeze. We expect this trend to continue.
The other important aspect of duty increases is price points. Last year many retailers increased prices initially to incorporate the duty rise. But when consumers were disgruntled to see their favourite tipple priced at, say, £5.03 rather than £4.99, some reacted by cutting prices back, forcing the trade to absorb the 4p. With margins already slim and EDLP the norm in much of the grocery sector, it is unfortunate that this consumer tax is not always being passed on to shoppers. It is now more important than ever that we stand united, or divided we’ll fall.
The one good part of the Budget was the freeze on sparkling wine duty again. The government seems to have taken our point that a surcharge is nonsense now that sparkling is no more of a luxury than other wines. The gap has narrowed to 42p. We would like to see it eliminated.
At first glance the 2004 Budget may seem fairly innocuous but, on closer inspection, it is very troubling for the trade. The introduction of strip stamps for spirits is one of the biggest regulatory burdens and is a devastating blow, especially as countless other countries have tried such systems and rapidly found them unworkable.
It is particularly galling that the industry had, some years ago, been successful in convincing government that the cost benefit of a strip stamp regime to combat fraud imposed a disproportionate bureaucratic burden on industry. But the idea was resurrected out of the blue in the Pre-Budget Report last December. We were given just a few weeks to come up with alternatives and, when we put together a comprehensive set of more effective, cheaper and faster-acting measures, the government didn’t listen. It seems the so-called consultation period was little more than going through the motions, which doesn’t bode well for the Chancellor’s stated intention to undertake “detailed implementation discussions” with the trade.
So, what are the consequences of this ill-thought out piece of legislation? First, it will not actually solve the problem - there is plenty of evidence that criminal gangs are already equipped to produce counterfeits (as happened in other countries).
Second, we estimate that compliance costs will be in the region of £23m for up-front capital investment, with annual costs of about £54m. The £3m set aside by the Chancellor to help with compliance is laughable in this context. As is usually the case, smaller companies will suffer most - ironic when it is the larger companies whose high-profile consumer brands are most easily traded in the black economy.
Thirdly, there are many alternatives the government has not properly considered. We have been working with Customs for some months to encourage greater co-operation and understanding between officers and the trade, with some excellent results. In addition, our proposed alternative measures included: better information sharing to identify anomalies; the introduction of registration systems for owners of goods - transport companies, retailers and suchlike; the placement of Customs officers in high risk warehouses; extended use of barcoding and a tightening up of the ‘paper chain’.
While strip stamps will take more than a year to implement, and involve endless
bureaucracy and high costs, the industry alternatives could, in many cases, be up and running quicker, easier and cheaper, and - we believe - be significantly more effective.
But strip stamps were not the only change affecting the alcoholic drinks trade. The impact of excise duty rises for beer and still wine is not lessened by the fact that we were expecting the announcement. In the case of wine we predict the market will take a significant hit, based on the experience of the past year. As in 2003, this year’s increase is in line with inflation. Despite this, wine sales growth was cut by three-quarters last year, whereas spirits and sparkling wine sales were healthy due to the duty freeze. We expect this trend to continue.
The other important aspect of duty increases is price points. Last year many retailers increased prices initially to incorporate the duty rise. But when consumers were disgruntled to see their favourite tipple priced at, say, £5.03 rather than £4.99, some reacted by cutting prices back, forcing the trade to absorb the 4p. With margins already slim and EDLP the norm in much of the grocery sector, it is unfortunate that this consumer tax is not always being passed on to shoppers. It is now more important than ever that we stand united, or divided we’ll fall.
The one good part of the Budget was the freeze on sparkling wine duty again. The government seems to have taken our point that a surcharge is nonsense now that sparkling is no more of a luxury than other wines. The gap has narrowed to 42p. We would like to see it eliminated.
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