Considered to be England’s national drink, it’s unsurprising that the UK is the world’s largest exporter of gin. According to the Wine & Spirit Trade Association (WSTA), in 2022 UK gin sales were worth some £950m (on and off-trade). However, despite this achievement, high taxes are causing a strain on the category as it calls on the government to freeze duty and, as the Spirits Alliance 2023 State of Spirits Report says, “allow the [spirits] industry to develop and adapt to changing markets, support the economy, and export more products across the world”.
The report also reveals: “The level of tax on a bottle of spirits is 70%. UK spirits duty is currently 77% higher than the EU average and is higher in the UK than any other alcohol category.” With other European countries not seeing as high a tax on their national drinks, the report also notes that “with distillers creating highly skilled jobs and supply chains that run to all corners of the UK, the government should embrace this national success story and continue to give this growth industry the confidence and support it needs to continue to invest for the future”.
This strain is highlighted in IWSR Drinks Market Analysis data which found that, looking at H1 comparisons: “The total gin and genever market in the UK declined 16% in H1 2022 vs H1 2021. H1 2022 is down 13% compared with H1 2019 and all price bands were down in H1 2022 versus H1 2021.” However, the “super-premium-and-above, and the value segment were up in H1 2022 versus H1 2019”. As the pandemic encouraged flavour innovation and further growth, “signs of a gin peak had been evident since before the pandemic, but gin was well-suited to the lockdown conditions of 2020”, says the IWSR.
In the current climate, says the IWSR: “Gin volumes are forecast to decline between 2022 and 2026 at a volume compound annual growth rate (CAGR) of -4%. Value is also set to decline, but at a slower CAGR of -3%. The super-premium-and-above segment of the market is forecast to grow between 2022 and 2026 with a CAGR of between 2% and 3% for both volume and value.”
So while the value and volume peaks of the gin category may be in the past, there is growth at the market’s top end.
The problem
As spirits distillers expect their energy costs to rise, it comes at a time when “the government has excluded spirits producers from the Energy Bill Relief scheme when other alcohol categories were included, despite the energy-intensive nature of distilling”, according to the Spirits Alliance report. Calling for the chancellor not to place an “additional burden on distillers by hiking excise duty, especially with a new alcohol duty system due to be implemented on 1 August”, the report adds that “creating greater divergences between alcohol categories or changing duty rates would be a backward step and jeopardise the continued success of our growth industries”. It continues: “The performance of UK spirits has been underpinned by the investment and innovation of the industry, which constantly adapts to consumer behaviour. This investment ecosystem is rooted in the stable duty system of recent years.”
Additionally, the Gin Guild, which operates to promote and protect gin in the UK and globally, bringing together distillers and industry leaders, adds: “While not a lobbying organisation, we are incredibly disappointed in the rise, hoping that the government would conduct a full and fair review on their plans for spirits duty. This has not happened and will make already small margins for UK producers even smaller, creating additional challenges for our industry in an already difficult market.”
Simon Stannard, director of policy at the WSTA, adds that the increase in duty which the government plans to introduce on 1 August will see: “UK spirits duty increase to almost double the average rate in the EU and will see the average-priced bottle of gin on the UK market increase by almost £1. At a time when the government claims that tackling inflation is a priority and businesses are having to compete with a number of inflationary pressures, it is completely counterintuitive to be adding to those pressures by increasing duty.”
Scotland in particular is seeing this inflationary pressure as the Scottish National Party has been accused of abandoning Scotland's gin producers due to its proposals to allow less tax for whisky distilleries, compared to other spirit categories.
The proposals would see more than 90 distilleries across Scotland facing higher tax rates, with spirit duty hiked up by 10.1%, which chancellor Jeremy Hunt announced last month. An amendment to the finance bill has been proposed by the SNP, which would cancel the planned rise in spirits duty but only for Scotch, leaving other drinks producers at a disadvantage. There are also concerns that the proposed amendment would be illegal under World Trade Organisation rules, which bans the favouring of one product sub-category.
Scottish Lib Dem MP Alistair Carmichael, who represents Orkney & Shetland, has urged the SNP to support his amendment to revert the planned duty hike for all spirit producers, as he told the Scottish Daily Express: “We all know that the SNP have romantic attachments to what they think defines being Scottish. Of course a glass of gin doesn’t look quite as traditional as a box of shortbread or a dram of whisky but it still deserves our support.”
With many producers also making spirits in other categories, the proposal would still affect many Scotch distilleries, Carmichael continued: “SNP’s proposed ‘fix’ on spirits duty is utterly myopic. Trying to save taxes for whisky alone leaves other distillers in every corner of Scotland out in the cold. Perhaps the SNP have forgotten how many spirits producers produce more than one product – or that Scotland serves around 70% of UK gin.
“You would think with over 70 gin distillers working in SNP seats they would deserve a little more care and interest from their representatives, but for whatever reason they are not getting it. Even Scotch whisky distillers do not want this distorted policy from the SNP. Many of them produce gin and other spirits as well and would lose out, to say nothing of the risk that breaching international rules would see to their export trade.”
High spirits
Despite the difficulties, producers remain optimistic. Ally Martin, global brand ambassador for Hendrick’s, says: “It is what it is. The only certainty in this life is change, death and taxes. The UK remains an important market for gin and is still in growth and expected to remain so over the next five years. Our limited releases from the Cabinet of Curiosities are helping to drive growth and bring new consumers into the category, and sate their thirst for something new and unusual from brands they trust.
“The UK is certainly one of the most mature gin markets,” Martin adds, as the brand is seeing “incredible” growth rates and future potential in markets such as the US and India where “gin has long had a presence but has not been the traditional spirit of choice – this is changing which is exciting to see.”
Additionally to the US and India, “Mexico continues to be a very exciting market for us”, Martin notes, as “there is a love there for white spirits through tequila and mezcal, increased experimentation with botanicals and they’re hungry to learn more and play with gin. Markets like Colombia and the Philippines are also important ones to watch”.
Santa Ana gin, distilled in the Charente region of France, is another brand that has high spirits as it says: “From our perspective the UK is a small market compared to our other European markets, so it won’t affect our business. However, it also wouldn’t put us off entering the UK as Santa Ana sits in the super-premium segment, which allows us to manage the higher levels of duty.”
