There’s no doubt that Osborne’s much anticipated cut of the beer duty escalator is a step in the right direction, but interesting questions were raised in Parliament this week about its legality.
The 1p cut on the average pint was celebrated by brewers but criticised by wine, cider and spirit producers who feel hard done by with higher duty rates.
EU law provides that a state cannot discriminate against another state’s products, and seeing as duty on wine, cider and spirits weren’t slashed, there’s a clear gap with beer. The UK doesn’t produce much wine, for example, so countries elsewhere in the Europe may feel a bigger burn than they would with beer excise. So, tax should be similar across the various alcohol types to avoid potential trouble with the EU courts.
‘Complies with European Law’
Labour MP for Middlesbrough South and East Cleveland, Tom Blenkinsop asked George Osborne in a written question in Parliament “what assessment he has made of the extent to which his decision to cut duty for beer, but not other alcoholic beverages, complies with European law”. Concerns were raised over whether lawyers had a close enough look at the reform and mulled over the it’s possible legal repercussions.
Treasury minster Sajid Javid explained why the move complies with EU rules, saying that rates have to be “broadly similar”, rather than the same.
“EU law requires duty on average strength beer and wine to be broadly similar, which following the Budget, remains the case across the UK,” he said.
He continued to say that the duty difference can be justified by the soaring strength percentages in wine.
“The average strength of wine has been increasing in recent years and per unit of alcohol the duty on wine has increased by less than the duty on beer.”
‘Unfavourable legal precedent’
For now, we’ll have to take the Government’s word for it and hope no legal action will be afoot in the future. There’s no longer a tax parity across alcoholic beverages and some industry leaders continue to be baffled. Wine and Spirits Trade Association (WST) chief executive Miles Beale says:
“It makes little sense to single out beer, particularly as there is a legal precedent to suggest the government is unable to do so.”
This precedent is a 1983 case in the European Court back when Italian wine producers brought action against the UK for charging discriminatory duty on wine over beer. The Court ruled it breached principles in the EC treaty, leading to the UK Government being charged. This is the first time the UK have broken the duty parity since.
However, according to a top lawyer, George Osborne shouldn’t have to be panic as any legal challenge to the change would be an “uphill struggle” for wine producers.
Simon Elsegood, of Mills & Reeve, said: “If the wine industry is minded to take the issue to court, it will first need to persuade the Commission and then the ECJ, that this change in the relative prices of wine and beer is a significant enough difference to sway consumer-buying decisions. In my view, that is going to be an uphill struggle”
Anyhow, as the UK get away with the legally dubious change, other EU members have been following suit. Francois Holland in France has moved to increase beer tax by 160 per cent to help recoup the state’s budget deficit. Legal precedent may have been a bane for the Budget, but it may be setting a precedent of its own.