While the distillers were delighted with the 26p cut in duty on a bottle of spirits, the rest of the drinks industry were less pleased. Clarke froze duties on beer and wine – though, taking inflation into account, this represents a fall in real terms of 2.5 per cent.
But the loudest cries have come from the manufacturers of alcopops, which have seen the preferential tax rates on the products erased. Analyst Mark Puleikis of Merrill Lynch says the increased duty could wipe 2m to 3m off Bass’ annual profit of 25m on its Hooper’s Hooch brand. He says it makes more sense for the brewer to increase the price rather than absorb the tax rise into its profits.
Merrydown, maker of Two Dogs, explains the disappointment: “The cooler duty rate was introduced in 1988 to encourage innovation in the drinks industry. It is disappointing to penalise the innovation after only a year.”
Karen Williams, head of public affairs at the anti-smoking group ASH, describes the 15p tax increase on 20 cigarettes as “a great day for public health. We estimate 2,700 lives will be saved in the long term by these tax rises – but there’s no reason for complacency. We still want a comprehensive ban on the advertising and promotion of tobacco”.
But Clive Turner, executive director for industry affairs at the Tobacco Manufacturers Association, condemns the move on the grounds that smokers already contribute 18,000 per minute (9.5bn per year) to the Treasury. Colin Stockall, media services manager at Gallaher, says: “We’re very disap- pointed. Any increase in tax is bad news for smokers.”
The travel industry roundly condemned the Chancellor’s move to double airport passenger duties from 5 to 10 for passengers on European flights, and from 10 to 20 on other flights.
Martin Brackenbury, chairman of the Federation of Tour Operators, says the increase will mean tour operators will reduce holiday capacity by 1 million holidays in 1998, in a bid to counter the expected fall in demand. He says the effects of the tax cost tour operators 100m last year and played a key role in the losses the major holiday companies suffered this year.
“The increase in this already unpopular tax will be most unwelcome to the British public,” says president of travel agencies trade body ABTA Colin Trigger. “It will hit the UK economy because foreign visitors will see Britain as more expensive.”
Petrol retailers say they are unhappy with the 3p increase in petrol and diesel prices, especially in view of this year’s record crude prices. “This now means the percentage of tax on petrol has increased from 76 per cent to over 80 per cent,” says a Shell spokeswoman.
An Esso spokeswoman says the Chancellor has made clear his feelings towards motorists by this action, and that along with Shell, it supports initiatives to make motorists aware of how much tax they pay on petrol. She says price increases will not affect Esso’s Pricewatch scheme.
The perennial barometer of the consumer economy has seen signs of revitalisation in recent months, with a 13 per cent increase in October sales. Apart from the tax increases on petrol, the car industry broadly welcomed the Budget, although increased car road tax also adds to the cost of motoring.
“We predict a one to two per cent growth in the car market next year,” says a Vauxhall spokesman. “And there is nothing in the budget that contradicts that view.”
Vauxhall predicts the broad effect of the budget on the car industry will be positive.
The Association of British Insurers lobbied hard for a cut in the insurance tax premium and will be disappointed that the Chancellor increased it from 2.5 to four per cent, thus hitting general, motor and contents insurance.
Companies such as Prudential share the Association’s concern. “We hope it doesn’t put people off taking out household insurance,” says a spokesman.
However, he points out that the increase remains lower than the level of tax on general insurance in other European countries.