Taxpayer picks up cheap booze bill

Published on Saturday 21 November 2009 22:11

TAXPAYERS are subsidising festive cut-price alcohol promotions in supermarkets as a result of a VAT loophole that undermines government attempts to reduce excessive drinking.

Supermarket chains buy beer and spirits such as gin, vodka and whisky in bulk, paying the cost price plus value added tax imposed by the Treasury.

But Scotland on Sunday can reveal that when the stores offer the drinks as loss-leading marketing promotions at reduced prices, the current Treasury rules allow them to reclaim the VAT.

As a result, the taxpayer is effectively subsidising retail giants, allowing them to offer the cheap drink deals that lure shoppers into their stores.

The deals also cut across the Scottish Government's campaign to increase the price of drink to help tackle Scotland's alcohol abuse problem.

Furious anti-alcohol campaigners and the beleaguered licensed trade are now demanding that the loophole be closed to curtail excessive alcohol consumption.

In addition to the VAT refund they receive from the Treasury, supermarket chains are frequently paid "placement" fees by drinks companies to support advertising and promotions of their products – effectively making up the losses that allow the retailers to reclaim the VAT in the first places.

VAT, currently at 15 per cent, is paid by the supermarkets on their purchases of alcohol but cannot be reclaimed when the alcohol is sold on at a profit.

When the booze is sold below cost, however, supermarkets claim the drinks sales are marketing expenses and can reclaim millions of pounds.

According to one expert, one example would be if a supermarket bought 1,000 cases of vodka for 120,000 – 10 a bottle – plus VAT of 18,000, the total will be 138,000. If the supermarket then sells them for 9 a bottle, this can be considered a loss-leading marketing promotion. The VAT can then be reclaimed. This allows supermarkets, the expert said, to sell drink extremely cheaply.

In the run-up to Christmas, some supermarkets are selling beer at just over 20p per can and bottles of spirits for less than 10.

Health campaigners said the loophole should be closed.

Alcohol Focus Scotland chief executive Jack Law said: "We know that cheap alcohol contributes in quite a significant degree to the problems we have in Scotland.

"So, it defies belief that a company would not only continue to sell alcohol cheaply, but also take money back from the taxpayer in the form of reclaimed VAT.

"This reinforces the need to establish a minimum price for alcohol as the Scottish government is proposing because it looks like any other measure would be subverted by business practices such as these."

The Scottish Licensed Trade Association, which is also lobbying for the loophole to be closed, says it is furious at the unfair advantage given to supermarkets at a time when pubs are closing down almost daily depriving communities of a valuable resource.

Colin Wilkinson, secretary of the SLTA, said: "We have come to the stage where supermarkets would possibly be happy to give alcohol away because they know they can make more money on their other products and are just using it to get people through the door.

"The supermarkets admitted this practice in a parliamentary hearing and they said they will keep on doing it. And the government is actually sponsoring this.

"We have raised this with the Treasury but we never heard back."

Wilkinson added that while the practice is legal, he questions its morality. He said: "There is a reason why alcohol is a licensed product. It's not like selling bread or butter.

"Quite frankly, the pubs are tired of being blamed for alcohol misuse. When you consider that the vast majority of alcohol is now sold through the off-sales, and the vast majority of that is through the supermarkets, it is about time the government focused on them rather than the pub trade."

He added: "We are pursuing this with the Scottish parliament to introduce minimum pricing, and the health authorities support that. If they don't tackle it, the supermarkets will continue that practice."

Jonathan Mail, head of policy at the Campaign for Real Ale, (Camra), said: "The use of alcohol as a loss leader is encouraging a shift in alcohol consumption away from well-run community pubs, which government should protect."

Tax clawback

How store promotions work:

&#149 A store chain buys 1,000 12-bottle cases of a spirit such as gin, vodka or blended whisky for 10 a bottle – a total cost of 120,000. VAT at 15% is imposed on the purchase by the Treasury, bringing the total to 138,000.

&#149 The store then offers the drinks for sale at 9 a bottle. As this is deemed a loss-leading marketing promotion, the company can then reclaim the full 18,000 of VAT back from the government.

&#149 The store is now down 12 a case on the original purchase price, so the promotion has cost them 12,000. But the suppliers are frequently then charged a "placement fee" to have their goods prominently displayed.

&#149 If the spirits company pays the store 20,000 for placement, the store has got its dramatic loss leader pulling in the punters and it still makes a profit of 8,000.