Saturday’s Times included an interesting article by Jane MacQuitty discussing the current pressures on wine prices: the strength of the euro, drought in Australia and, of course, next month’s budget.
Britain has one of the highest levels of tax on wine in Europe and since you are likely to hear a lot about duty and the price of wine over the coming months it’s worth explaining how the different charges work.
Firstly, excise duty is currently £1.33 per bottle (or £1.71 for sparkling wine). On wines from outside the EU, a further tariff (the Common Customs Tariff) is also payable, which varies between 7p and 10p depending on alcoholic strength (17p for sparkling wine). As retailers, we pay these charges at a flat rate for every bottle we buy, meaning they form a far more significant part of the cost price of cheaper bottles than more expensive bottles.
The next significant tax element is VAT, which works out at about 15% of the retail price. We price wines based on their cost to us, and so effectively VAT is charged on the duty as well!
The effect of this tax regime is that the more you pay for a wine, proportionally less goes to the tax man. When you pay £2.99 for a wine (from Europe), 45p is VAT and £1.33 is duty, a total of £1.78 in taxes – very nearly 60% of the total. Trade up to a £3.99 wine and the taxes total £1.92, or 48% of the total. At £4.99 you’re paying 41% in taxes, at £9.99 it’s 28% and if you splash out on a £19.99 wine “only” 22% is tax.
I’ll hold up my hands here, you’d expect a wine retailer to suggest you pay more for your wine! But remember, the less that goes on tax, the more goes in to the production of the wine itself – very very roughly, the actual cost of the wine in a £3.49 bottle is half that of a £4.99 bottle. Spending just 50p or £1 more can make a significant difference to the quality of the wine you get.