Yesterday, the Chancellor announced that duty on a bottle of still wine will increase by three pence. Once VAT has been factored in, that effectively increases the retail price of wine by four pence a bottle.

The UK wine trade has become well accustomed to this sort of rise. Duty has been steadily rising for many years despite the protestations of industry bodies. At £2.08 per 75 cl, the UK duty rate is far, far higher than in most of the rest of Europe. However, now that the decision to increase has been taken, such objections are moot. The question now is how we should handle the increased cost. 

For wines retailing above £10 per bottle, that four pence can be absorbed. It will mean losing profit margin, but as a proportion of the costs involved it can be achieved reasonably comfortably, if begrudgingly. At below £10, it's a different story.

The average price for a bottle of wine in the UK is still under six quid. At that level, every penny makes a difference. What should happen is that cost increases are passed on to the consumer, to ensure that various parts of the supply chain don't have to cut profitability on what is already perilously low margin business. Far too often, that never takes place.

The dynamic of UK wine retail means that big supermarkets feel they have the power to force their suppliers to take the hit of a duty increase. That gets passed down the chain and very often ends up hitting the winemaker hardest, ultimately resulting in decreasing quality. That's bad for everyone.

Even if they wanted to increase prices, no single retailer would want to do so without being certain that their competitors would do likewise, but because agreeing price rises between them would be collusion, the result is that prices stay low.

Photo credit: HM Treasury

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