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Last Updated: Friday, 7 March 2008, 15:36 GMT
Cigarettes, alcohol and the Budget
By Orla Ryan
Business reporter, BBC News

Smirnoff
Smirnoff Ice and a shot of taxes

As Chancellor Alistair Darling prepares to balance the UK's books, attention has turned to the other darling of Budget Day - sin taxes.

The Conservatives have called for higher taxes on alcopops amid growing concern about drunken behaviour.

Are we taxed too heavily on cigarettes and alcohol or not enough?

And do we pay more for our sins than our European neighbours?

ALCOHOL

The chancellor is tipped to sip water on Budget Day, an unusually thirsty day that has seen previous chancellors drink whisky or down gin.

Those in the UK who do take to booze on Budget Day can do so safe in the knowledge that they pay some of the highest taxes in Europe for their tipple, according to the Wine and Spirit Trade Association.

Alistair Darling
The Chancellor is likely to sip water on Budget Day

Britain, it argues, has the second-highest levels of tax on wine in the European Union, the third-highest level on spirits and the highest level of tax on beer.

Duty on a bottle of wine in the UK is 1.33 - against 1.12 in 1998 - compared with two pence in France, zero in Spain, Italy and Germany and 1.21 in Sweden.

Taxes may be comparatively high, but in real terms - accounting for inflation - all alcohol duties have fallen since 1997, said the Institute for Fiscal Studies' economist Stuart Adam.

The tax rate on spirits had been frozen in nominal terms since 1997 and fallen substantially in real terms, he said.

Beer taxes - frozen in the 2001 and 2002 budgets - have gone up broadly in line with inflation since then.

alcopops taxes

Tax accounted for 38% of a pint of beer in 1983 and now accounts for 28% of the price.

"The tax on beer is the smallest percentage of the price of a pint that it has been since at least 1979, and possibly quite a bit earlier," said Mr Adam.

The British Beer and Pub Association points to the 8.9% rise in duties - which reflect inflation - over three years and says higher duties would pressure an industry already suffering from falling pub sales.

Rising disposable income and deep discounting by supermarkets makes the fact that UK excise duties are relatively higher than elsewhere in Europe irrelevant, argue campaigners.

"Alcohol is now more affordable than in 1980," said Alcohol Concern spokesman Frank Soodeen.

CIGARETTES

Those who part with a fistful of coins for a packet of cigarettes can do so safe in the knowledge that 77% of that is headed to the Exchequer.

UK tax rates are among the highest in Europe, with Latvia, France and Hungary boasting the highest, with an 80% tax take.

Tax as a percentage of cigarette price is roughly the same as it was in 1997, said the IFS' Stuart Adam. But even though the UK's taxes are high, the rate of increase has fallen. Since 2000, duties on cigarettes have risen in line with inflation. Before that, they were subject to an escalator.

CIGARETTE TAXES IN THE EU
Ireland - 78%
UK - 77%
France - 80%
Estonia - 67%
Latvia - 83%
Greece - 73%
Czech Republic - 78%
Hungary - 80%
Source: Tobacco Manufacturers' Association

Smoking campaign group Ash wants a price escalator of 3% above inflation to be introduced.

It argues the prices paid by smokers should rise ahead of inflation to stop tobacco becoming more affordable.

"Cigarettes have continued to become more affordable year on year," said Ash's spokeswoman Amanda Sandford.

Higher taxes may not necessarily encourage smokers to kick the habit, as anxious smokers go in search of cheaper cigarettes overseas, argues the Tobacco Manufacturers' Association.



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