Alcohol duty hike blamed for tax-revenue shortfall, HMRC data show

Tax receipts from alcohol duty are on track to come in about £900 million below forecast this year, according to provisional figures from HM Revenue & Customs. The data covering the period since April show overall receipts from alcohol duty down 4.3% compared with a year earlier. Within the category, receipts from wine are down about 6%, while those from spirits and beer are down roughly 5% and 2.5%, respectively. Receipts from cider rose about 10%, but analysts say the increase is not large enough to alter the broader downward trend. The Wine and Spirit Trade Association (WSTA) noted that if the current pace continues through the rest of the financial year, alcohol tax receipts would total about £12.1 billion, which would be £900 million less than the Office for Budget Responsibility forecast in March.

Ms Reeves was told that, rather than bringing in more cash, her raising of levies had actually produced a loss of more than £220 million over the first five months of the current financial year. Reform UK's deputy leader Richard Tice said the data illustrate the so-called Laffer curve in action, arguing that raising taxes too much can reduce receipts. Tory MP Neil Shastri-Hurst described it as another example of Labour’s tax hikes backfiring, calling the alcohol-duty hike a policy intended to raise revenue that ended up squeezing pubs, producers and the Treasury.

At the start of February this year, alcohol taxes increased by 3.6% in line with the inflation measured by the Retail Price Index, and a new system of taxing wine by strength rather than volume was introduced. Under the change, the duty on a bottle of gin rose by 32p, while a bottle of wine at 14.5% ABV saw duty rise by 54p. In April, the industry also faced a fresh cost burden from the Extended Producer Responsibility (EPR) scheme, which adds roughly 18p to a bottle of spirits and about 12p to a bottle of wine, as part of waste packaging recycling rules.

Miles Beale, chief executive of the Wine and Spirit Trade Association, said the latest receipts show the government’s plan to boost Treasury coffers through alcohol taxes has been a crushing disaster for an industry already facing a multi-year decline in alcohol sales since the 2023 hikes. Beale said, if the current trend persists, receipts would remain well below March forecasts, and called for a freeze on excise duty for wines and spirits at the November Budget as a way to break the cycle of tax hikes fueling inflation and dampening consumer demand. The Scotch Whisky Association, the UK Spirits Alliance, the Welsh Whisky Association, the English Whisky Guild and Drinks Ireland were among groups pressing Reeves to pause the tax rises.

The open letter from industry bodies argued that the current tax regime was unfair and has placed a mounting strain on members after a cumulative 14% increase in the past two years. A Treasury spokesperson defended the government’s approach, highlighting measures designed to support the sector: no export duty, lower licensing fees, reduced tariffs, and a cap on corporation tax. The spokesperson also cited the India trade deal, which slashed whisky and gin tariffs from up to 150% to 40% and, the Treasury said, boosted whisky exports by about £1 billion. Officials said these steps help safeguard public finances to ensure continued support for the NHS and other public services.

Looking ahead, the Chancellor is said to be accounting for the possibility that as much as £30 billion of extra tax revenue may be needed at the November Budget to plug a hole in the public finances. Analysts will be watching closely whether the alcohol-tax approach remains part of the broader fiscal calculus, and whether policymakers respond with targeted relief or a broader freeze to support households amid inflationary pressures while seeking to protect government income.