A version of this article first appeared in Hampshire View, August 2012.
Why are we paying £7-£8 for a half-decent bottle of wine now, whereas a few years ago we could get something pretty drinkable at around £6?
Well, a big chunk of the price of an average bottle of wine is tax. The UK has the second highest excise duty rate on wine in the European Union, after Finland, and taxes on wine (and other alcoholic drinks) have been increasing above the rate of inflation.
Since 2008 the government has increased excise tax on wine by 2% above inflation, every year. In the March 2008 budget, for example, duty increased by 9%. This ‘2% escalator’ was due to end in 2013, but was extended until 2015.
Excise tax on wine has increased 43% in four years. VAT is added on top of this
Then, in November 2008, a further 8 per cent duty increase was introduced for wine (4 per cent for spirits). This was supposed to offset the loss to the exchequer caused by the temporary reduction in VAT from 17.5 per cent to 15 per cent. However, the extra excise duty remained in place when VAT returned to 17.5 per cent in January 2010.
Before the March 2008 budget and the introduction of the escalator, wine excise duty was £1.33 a bottle. Now wine excise duty is £1.90 a bottle. This is a 43% increase in excise tax in four years. VAT is payable on top of the excise duty, and of course this increased to 20% in January 2011.
In addition, during this time exchange rates have fallen out of sterling’s favour. In 2008, £1 bought €1.50, now it buys around €1.20. In 2008, £1 bought nearly US$2, now it buys nearer US$1.50. So wine that’s imported from Europe and the USA is considerably more expensive. And it’s the same story from favourite country of origin Australia. In 2008 £1 bought AUD$2.70, now it buys AUD$1.55. Broadly two-thirds of the wine consumed at home is bought in these three currencies.
Now add in the fuel increases over the past few years, and a picture builds of external costs being loaded onto the base cost of the liquid, i.e. the wine itself. In 2008 a litre of unleaded petrol reached a peak of £1.20. So far in 2012, unleaded petrol peaked at £1.43/litre.
At the beginning of 2008, the average price of a bottle of wine was £4. Now it is £4.87. Excise tax and VAT on £4.87 is £2.71, or 56% of the cost of the bottle. Unfortunately, in order to meet price points, it is quite likely to be the quality of the liquid inside the bottle that gets squeezed.
But duty and transport costs are the same for cheap or expensive wine. In a £5 bottle of wine, once importer and retailer margins have also been accounted for, the cost of the actual wine is probably less than 15p. But in an £8 bottle of wine, there may be more than £1.50 worth of wine. Strikes me as a no-brainer.
Try these for size:
M&S: white – Palataia Pinot grigio 2011, £7.99, Germany
Wine Society: red – Weinert Carrascal 2007, £7.50, Argentina
Waitrose: red – Domaine des Trois Pierres 2011, Costieres de Nimes, Rhône £7.29, France
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