Pubs warn of a ‘final blow’ as Reeves plans a £400m tax increase targeting alcohol consumers

Significant Tax Increase Looms for Pubs

In the upcoming financial year, the government expects to collect £12.3 billion in alcohol duties, providing a substantial boost to Rachel Reeves’s Treasury.

Next month, pubs are bracing for a new financial hit as Rachel Reeves introduces a £400 million annual tax increase on beer, spirits, and wine.

Alcohol duty will climb by 3.66% in early February, adding about 2p to the cost of a pint at the pub. While this may seem minor, it comes on top of a series of previous tax hikes and coincides with an expected rise in business rates this spring. Allen Simpson, CEO of UKHospitality, warned, “For some pubs, this could be the final blow.”

This latest duty hike is particularly controversial because it is calculated using the outdated Retail Price Index (RPI), a measure of inflation that the government itself admits is flawed and no longer recognized as an official statistic.

By relying on RPI rather than the official Consumer Price Index (CPI), the increase in alcohol duty is about 50% higher than it would have been otherwise.

According to the Office for Budget Responsibility, the Exchequer is projected to receive £400 million more from alcohol duty in the coming year compared to the current period.

Industry groups have cautioned that these tax increases will inevitably lead to higher drink prices. Emma McClarkin, chief executive of the British Beer and Pub Association (BBPA), stated, “Pubs are already struggling with high rates and taxes, and they simply cannot absorb additional costs.”

She added, “No one wants to make a visit to the pub more expensive, but further increases could force up the price of a pint.”

Mounting Financial Pressures

Pubs are still feeling the effects of last year’s rise in employer National Insurance contributions and consecutive increases in the minimum wage. Another wage hike is set for April.

Additionally, pubs are facing a sharp jump in business rates—a form of property tax—starting in April, although government officials have pledged some relief.

The removal of Covid-related tax relief and a reassessment of property values have led to some pubs seeing their business rates double.

Clive Watson, chairman of Inda Pubs, described the current tax and regulatory environment as “strangling” the industry.

He emphasized, “We urgently need comprehensive reform of business rates. The uncertainty about future government actions is hindering investment, innovation, and growth in our sector.”

Staffing and Service Challenges

Watson also pointed out that, due to rising employment taxes and above-inflation increases in the living wage, pub operators are forced to cut staff hours, which negatively impacts service quality and employee development.

“After more than 35 years in the industry, I can say that the level of government intervention we’re experiencing is suffocating our sector,” he said.

Government Response and Further Measures

Following a campaign by The Telegraph to protect British pubs, ministers are reportedly reconsidering their approach to business rates, though the specifics of any relief remain unclear.

At the same time, the government is preparing to implement tougher drink-driving regulations in England and Wales.

Industry leaders argue that pubs are at a disadvantage compared to supermarkets, which can offer alcohol at lower prices due to a lighter tax burden. Supermarkets have captured a significant share of alcohol sales as a result.

Simpson from UKHospitality noted that pubs are subject to a wide range of taxes, including business rates, National Insurance, minimum wage requirements, and even tourism taxes for those with accommodation. “When you add increased alcohol duty on top, it becomes impossible for pubs to achieve sustainable growth,” he said.

On average, British drinkers pay about 54p in duty for every pint served in a pub, making it the third-highest alcohol tax rate in Europe, surpassed only by Finland and Ireland, according to the BBPA.

McClarkin stressed, “To secure the future of our brewers and pubs, the government must collaborate with us to deliver meaningful long-term reform of business rates, reduce beer duty, and address soaring employment costs.”

Falling Sales Despite Higher Taxes

Despite the expected increase in revenue from alcohol duty, the Office for Budget Responsibility predicts a decline in alcohol sales volumes, which dropped by an estimated 6% this year and are forecast to fall further next year.

A Treasury spokesperson commented, “Our adjustments to alcohol duty aim to balance the needs of producers, pubs, and the hospitality sector with the necessity of funding essential public services and addressing the harms caused by alcohol.”

“We have also acted to cap business rates increases at 15% or less and are supporting pubs and other businesses with a £4.3 billion aid package.”