Albert Camus famously said in Caligula that “it is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without”. That came to mind this week when I read a press release from John Colley, the CEO of Majestic Wine, about the likely impact of a new alcohol excise duty system due to be introduced in February 2025.
The basic idea is that the higher the alcohol content, the higher the levy. At present all wines in the 11.5%-14.5% ABV range incur a single charge of £2.67. As of February next year, there will be a separate charge for every 0.1% of ABV in this range. In other words, there will be 30 different duty rates. A 14.5% bottle will incur a levy of £3.09, an extra 53p per bottle marking a 20% jump compared with a 12% bottle.
Kafkaesque complication
The previous government, which launched this jaw-droppingly complicated scheme, claimed to be trying to simplify the wine duty system and make it fairer. Not for the first time, however, purportedly well-intentioned meddling has only made things more complicated. The cost of the administration involved for Majestic will run into six figures and may prove prohibitive for smaller retailers. In any case, they are likely to be passed on to the customer. This absurd faff also implies more hassle for small vineyards exporting to the UK, and may well prompt them to seek out markets with less onerous red tape.
This is just the latest example of the law of unintended consequences, which has been highlighted again and again in recent weeks. Some Budgets fall apart soon after they are delivered; this month’s may be the only one in history to have failed before it has even occurred.
Having made a big fuss about skewing the taxes towards the rich, the government is finding that this isn’t quite as easy as it sounds. The plans to subject non-doms’ earnings outside the UK to inheritance tax and equalise capital gains (CGT) and income tax have triggered fears of an exodus of private-equity investors, entrepreneurs and wealthy foreigners – and are likely to cost us money. The UK is on track to lose 9,500 millionaires this year, more than double last year’s figure, according to Henley & Partners, which advises the wealthy on moving countries. The Treasury estimates that raising CGT by ten percentage points would actually cost the taxman £2bn a year.
It also thinks that losing the carried interest loophole alone may cost £350m a year after five years as people refrain from investing and move away. It doesn’t take much to undermine revenue given the contribution high earners make to the coffers (the top 1% account for 28% of income tax receipts, for instance). No wonder that in recent days we have started hearing that the government could water some measures down.
In a world of mobile capital, and in the absence of international efforts to standardise minimum taxes in various areas (something the G20 and OECD have begun to work on), raising the burden of taxation while other countries aren’t is unwise. That is why only three countries in Europe now levy a wealth tax on individuals, compared with 12 in 1990 (see city view). When it comes to tax competitiveness, Britain is already 30th out of 38 OECD countries, according to a ranking compiled by Tax Foundation, a US think tank. How low can we go?
Andrew Van Sickle editor@moneyweek.com
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