The Budget: Drinkers aren't complaining, and smokers won't choke on 6p a packet

Alcohol and Tobacco

There was a pleasant surprise for smokers and drinkers with duty on cigarettes pegged to the level of inflation and a freeze on duty on beer, wine and spirits. It was the fourth year in a row that spirits duty has been frozen but beer and wine taxes were both increased last year.

There was a pleasant surprise for smokers and drinkers with duty on cigarettes pegged to the level of inflation and a freeze on duty on beer, wine and spirits. It was the fourth year in a row that spirits duty has been frozen but beer and wine taxes were both increased last year.

Smokers were the biggest winners yesterday with the price of a packet of 20 cigarettes rising by 6p, in line with inflation.

This marks an abrupt change from previous Labour policy of increasing tobacco duty by 5 per cent above the rate of inflation as part of its anti-smoking policy.

Though the move was welcomed by the tobacco industry, it was criticised by anti-smoking campaigners as "shameless electioneering".

Ash, the anti-smoking lobby group, said: "It was playing to the gallery. It was predictable, unfortunate and we hope that by the time of the next Budget the Government will return to raising tax above the rate of inflation."

Tobacco companies welcomed the lower tax rise, despite their calls for cuts in tobacco duty to stem the flood of illegal imports, which cost the Treasury £2.5bn in lost taxes in 1999.

Gallaher, which makes the Benson & Hedges and Silk Cut brands, said: "We called for a freeze. We are disappointed that there is any increase, but give a cautious welcome to the Chancellor moving away from excessive above-inflation duty increases."

Gallaher also called for a fundamental review of tobacco taxation to address the smuggling problem.

Brewers welcomed the freeze on beer duty. The Brewers' and Licensed Retailers' Association said: "There is a huge sigh of relief from the brewing and pubs sector. It is a sign that the Government is starting to listen to the economic and social impact of high beer taxes."

But the association, which had been pushing for a 2p cut in duty, pointed out that tax still accounts for a third of the price of a pint. It also warned that the duty freeze would do nothing stop the cross-channel "booze run", where a million pints of beer a week are coming into Britain via the Dover-Calais route alone.

There was better news for Britain's 400 smaller brewers, with the Government saying it would look at introducing lower beer duties for smaller operators. European countries such as Belgium, Holland, Germany and Denmark all have progressive tax regimes for smaller producers.

The Wine and Spirit Association (WSA) welcomed the freeze in duty on wines and spirits, but pointed out that the rest of Europe was reducing rates. Duty in the UK stands at £1.16 for a bottle of wine, compared with 2p on a bottle in France.

"We hope that this is the first step towards bringing duty closer to French levels," the association said. "This cannot happen soon enough for many small businesses which are swimming against the tide of cross-border shopping."

The WSE said that one in seven bottles of wine drunk in the UK is bought legitimately overseas, without taking illegal trade into account.

The Scotch Whisky Association said it was "bitterly disappointed" by the failure to tackle tax discrimination against spirits. The association said British consumers will pay around 8p more tax on a pub measure of whisky than they do on a pub measure of wine. "This historic tax anomaly puts Scotch at a competitive disadvantage," it said.

However the Government said duty on spirits is now 36 per cent lower in real terms than it was 20 years ago. The estimated revenue cost of the alcohol package is £90m against an indexed base in 2001-02, the Government added.

New plans will also be put in place to tackle a tax avoidance practice where cider is diluted to decrease its strength and increase its volume, thereby reducing the duty liability.

Other tobacco increases will see 2p more tax on a pack of five small cigars and 5p on a 25g pack of hand-rolling tobacco.