Whisky makers to be hit hardest under government's VAT plans

Published on Tuesday 13 January 2009 22:02

WHISKY prices will rise again when VAT returns to 17.5 per cent next January, a government minister revealed last night.

The duty on a bottle of whisky increased by 4 per cent in November to neutralise the effect of the cut in VAT to 15 per cent.

At the time, Alistair Darling, the Chancellor, said he wanted the net effect of the changes to be neutral to avoid encouraging drinking.

It was widely assumed that when VAT is restored to 17.5 per cent next year, the duty on spirits and beer would be lowered to keep prices constant.

But last night Angela Eagle, a Treasury minister, said there would be no reduction in alcohol duty in order to bolster government coffers in the wake of its spending on emergency assistance to banks and firms hit by the credit crunch.

She said MPs "can't assume that, when VAT rates go up, excise duty will come down".

She added: "At the moment, our intention is the excess duties will remain where they are and contribute to the fiscal consolidation that has to happen."

The 4 per cent rise was originally imposed at 8 per cent, but was halved in response to an outcry from opposition politicians and the whisky industry.

It followed a 9 per cent rise in the Budget, which will be followed by four more annual rises of 2 per cent a year above inflation. Alistair Carmichael, the Liberal Democrats' Scottish spokesman, accused the government of treating the whisky industry like a "cash cow", and warned of damage to "some of the most economically fragile communities throughout the Highlands and Islands".

He said: " Anything which impacts on the sales and level of output at the retail end is going to have a disproportionate effect on the manufacturing base." Angus Robertson, the SNP's Westminster group leader, said Jim Murphy, the Scottish Secretary, had "dropped the ball" in failing to prevent the bungled rise in whisky duty in November. "In a hare-brained scheme, the UK government planned the biggest tax increase on one of our key industries in nearly 40 years," he said.