The Budget and you: Excise Duties: 21p more to light up but spirits tax frozen

THE price of a packet of 20 cigarettes will pass pounds 3.50 for the first time after the Government kept its pledge to increase tobacco duty at five per cent above the rate of inflation. The hike in excise duty from 1 December is equivalent to 21p on a packet of cigarettes. Smokers face a 9p rise in the price of a pack of five small cigars and a 12p increase in a 25g pouch of pipe tobacco.

The Government stunned the beer industry by announcing a 1p-per-pint rise in excise duty from 1 January. The move to increase duty in line with inflation comes despite pleas by brewing and pub groups to slash duties to curb the explosion of illegal imports from the Continent. The Government is planning a crackdown on smuggling - which is estimated to cost the Treasury more than pounds 1bn a year in lost tax revenue - rather than introducing a cut in duty. But the Chancellor did not give any firm details on how he plans to stop smugglers importing billions of pounds worth of contraband into the UK from the Continent where lower excise duty means beer and cigarettes are much cheaper.

The price of a litre of cider will rise 1p, as will alcopops, while fortified wine will go up by 5p a bottle from 1 January. Duty on wine will also rise by 4p a bottle on the same date, but there was better news for the Scotch whisky industry, with duty on spirits frozen.

The tobacco industry was resigned to the prospect of a sharp rise in duty after the Chancellor announced plans to do this in the last Budget and increased the price of packet of 20 cigarettes by 19p last December.

But the industry breathed a sigh of relief when it was announced that the increase would not be introduced until the end of the year.

However Paul Mason, of the Tobacco Alliance, representing independent retailers, said deferring the rise to December added to the burden for small retailers as they would be forced to compete against large chains able to stockpile cigarettes now to be sold off more cheaply when the rise came in.

The anti-smoking lobby group Ash said the Government's decision to increase duty would save more than 2,000 lives and reduce cigarette consumption by around 2 billion a year. "The Chancellor has shown the Government's colours on smoking by giving people serious financial reasons to quit. This is the biggest increase ever and it must be obvious by now that smoking is a mug's game," said Clive Bates, Director of Ash.

Tobacco groups welcomed the initiative to crack down on bootleggers, but denounced the rise in duty, claiming it would fuel illegal imports.

A spokesman for the Tobacco Manufacturers Association claimed the move could increase consumption of cigarettes among the young who buy cheap packets from undiscriminating suppliers. "We estimate that more than a million smokers are already buying black-market cigarettes and tobacco," said David Swan, the association's chief executive.

Gallaher, the UK's biggest tobacco group which sells Benson & Hedges and Silk Cut, said: "Once again smokers have been singled out for harsh treatment. This is the green light for bootleggers."

The drinks industry reacted with horror to the rise in duty on beer and wine. Dr Barry Sutton, chairman of the Wines and Spirits Association said: "We are calling this the Chancellor's crime-boosting budget. Increasing tax on wine will further encourage organised crime without any real benefit for UK taxpayer."

John McGrath, chief executive of Diageo, the world's largest drinks group said: "We are pleased that the Chancellor has at least recognised the need to reduce the level of tax discrimination against spirits with the duty freeze.

However, the Budget increase on beer is a detrimental one for the beer and pub sector and will only serve to increase cross-border smuggling."

The Brewers and Licensed Retailers Association also condemned the move. "This is bad news for thousands of pubs and good news for the beer-smuggler. A rise in beer duty will cost jobs, close businesses reduce consumer choice and sends a clear signal to criminals that crime really pays."

Camra, the beer consumers lobby group, believes that the rise in duty will mean a 2p rise in prices over the bar when brewers' profits margins are taken into account.

"French brewers and Calais beer warehouses will be celebrating in style this evening while British publicans and beer lovers pick up the tab. This offers no support for the British beer drinkers or 900,000 jobs supported by brewing industry," said a spokesman.

However, the news of an increase in beer duty pleased Alcohol Concern. "On health grounds any cut in duty would be damaging," said a spokesman.

"And before brewers and pubs expect the Chancellor to begin to bail them out, we think they should take heed and trim their own margins. The bulk of disparity in prices between the UK and France does not come from excise duties."

The Scotch Whisky Association urged the Chancellor to continue the process of reducing discrimination against spirits in future Budgets. "The Government has recognised that the higher taxes levied on spirits than on other alcoholic drinks does not pass its own test of fairness.

"We are delighted the Chancellor has taken steps to tackle this discrimination," said Hugh Morison, the association's director-general.

The Government's initiative to curb bootlegging is a response to the massive expansion in illegal imports over the last few years.

Official figures suggest that tobacco smuggling is costing the Treasury pounds 690m a year, but the Tobacco Manufacturers Association claim the true figure is as high as pounds 2bn. Drinks smuggling is also costing the economy more than pounds 500m a year according to the Wine and Spirits Association.

If the Government crackdown fails to work, experts believe that one in every five pints consumed in Britain could have been bought in France by the year 2006.

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