Spirits drinkers will get the bill for bottle-stamping to halt smuggling

The drinks industry yesterday attacked Gordon Brown's decision to press ahead and stamp spirits bottles, claiming his attempts to soften the blow by freezing spirits duty would do little to offset the estimated £54m annual burden.

Although the Chancellor promised to "help the trade financially with cash flow costs, defer payment for tax stamps" and make £3m available to assist firms with capital investment, industry executives said the introduction of strip stamps was a "devastating blow". Edwin Atkinson, chief executive of the Gin and Vodka Association, warned that a bottle of spirits could rise by 43p a litre to cover the extra costs, which will be borne by the industry.

Mr Brown's resolve to press ahead with the unpopular scheme - aimed at stemming the £600m revenue hole caused by spirits smuggling - overshadowed his decision to freeze duty on cider and sparking wine and his "sin tax" increases. Duty on beer and wine is to rise in line with inflation, adding 1p to a pint of lager or bitter and 4p to a bottle of wine from Monday. Tax on cigarettes also rose in line with inflation, with immediate effect, increasing the average cost of a packet of 20 cigarettes by 9p to £4.74p.

Gavin Hewitt, the chief executive of the Scotch Whisky Association, said: "Tax stamps will impose financial pain on legitimate businesses, particularly smaller enterprises, but will not defeat the fraudster." He added: "The [spirits] freeze will do little to help distillers, particularly smaller producers, facing the heavy costs that will result from tax stamps."

An industry working group, formed after the Chancellor revealed his plans to stamp spirits bottles in his pre-Budget report, found that introducing strip stamps would cost £23m to set up and £54m a year in compliance costs. It proposed 17 alternatives to strip stamping - but Mr Brown dismissed them all.

Bill Oddy, who stands to be among the worst hit as boss of the Drinks Company, which has sales of £3m a year, said: "For small importers like me this is a nightmare. Our costs will rocket and the Chancellor's offer of £3m in aid to small firms with capital investment is totally out of proportion to the impact strip stamps will have."

The Government plans to introduce strip stamping from 2006, with the aim of reducing fraud by at least £160m that year. The Chancellor's decision to freeze duty on sparkling wine makes it just 42p more expensive than a bottle of still wine - a discrepancy that has existed since the Government introduced the "bubble tax" during the Napoleonic Wars to help pay for the Navy.

Quentin Rappoport, the director of the Wine and Spirit Association, was dismayed by the inflationary rise on a bottle of wine, noting that a similar increase last year had slashed the sector's sales growth by three-quarters. "Even more shoppers will go abroad to buy cheaper," he added.

The 9p rise on a packet of cigarettes was attacked by the anti-smoking group ASH for not going far enough, and by tobacco companies for exacerbating the difference between the cost of cigarettes here and on the Continent. It is the third consecutive year that the Government has kept the duty rise on tobacco pegged to inflation, which Tim Lord, who heads the Tobacco Manufacturers' Association, said had helped customs to stop the level of smuggling increasing.

Elsewhere, there was more good news for micro-breweries when the Chancellor pledged to extend the tax relief scheme introduced in 2002. He said all breweries producing between 30,000 and 60,000 hectolitres per year would be able to double production and still claim tax relief.