Can the UK spirits industry survive another duty hike?
Why does this matter?
UK duty hikes are forcing craft spirits producers to pause investment, close facilities, and pivot strategies toward premiumization, DTC channels, and exports—critical market dynamics for BevTech founders navigating regulatory pressures and margin compression.
Highlights
The UK’s alcohol duty increases have caused producers to shut facilities, while sales have suffered a steady decline for two years. As the market weathers a turbulent period, where do opportunities remain? *This feature was first published in the February issue of The Spirits Business magazine. In what the industry branded a “hammer blow” in the 2025 autumn Budget, UK chancellor Rachel Reeves confirmed alcohol duty would again rise in line with the retail price index (RPI) from 1 February, ignoring industry pleas for a multi-year freeze. The decision, which follows a record-breaking 10.1% duty hike in August 2023, reflects a bitterly familiar pattern for the UK drinks industry, adding another burden to a sector already under intense strain. With RPI at around 3.66%, from 1 February, duty on a 37.5% ABV bottle of gin will rise by 38p. With previous duty rises, new waste packaging taxes, and VAT, prices will have risen by almost £1 a bottle in a year, according to the Wine and Spirit Trade Association (WSTA). The UK government argues the measures balance the industry’s contribution to the economy with “reducing alcohol harm”, and was supported by a Small Producer Relief discount, giving lower duty rates for small producers. But this only applies to products below 8.5% ABV, excluding spirits makers completely. The WSTA’s chief executive, Miles Beale, calls it a “disappointing and shortsighted decision” that would “perpetuate the economy’s doom loop”, fuelling inflation and penalising responsible drinkers. “Last year was extremely challenging, and businesses have suffered as a direct result of unnecessary burdensome red tape and punishingly high taxes,” he says. “There have been consolidations and closures, which are likely to continue, especially if this government persists in pursuing its current collection of tax and cost-raising policies and fresh red tape.” Duty increases Despite a series of hikes, alcohol duty receipts are forecast to be £700 million (US$958m) lower than last year and £1.1 billion lower than the Office for Budget Responsibility (OBR) had forecast in March 2025, with alcohol sales in steady decline since 2023. “Recent history has shown duty increases fail to raise duty income for the Exchequer and, if the government wants to boost those receipts, it needs to help businesses invest and grow,” adds Beale. For producers, further duty hikes increase prices or reduce margins, says Stephen Russell, co-founder of Kent’s Copper Rivet Distillery, and spokesperson for the UK Spirits Alliance. “Either way, investment decisions will be paused.” In early 2025, Diageo closed Chase Distillery in Herefordshire, moving production to its Cameronbridge facility in Scotland to ‘future-proof’ the brand, while Scottish gin and whisky maker Isle of Harris Distillery cut jobs and production in 2025, citing “challenging headwinds”. Russell adds: “I am concerned for the spirits category at large. We’ve already seen from the results of large, publicly listed players that the environment is very difficult. To see multinationals with seemingly unlimited marketing budgets experience reduction in sales volumes is a major concern.” The challenge is even more acute for smaller distillers, whose revenue cycle is long. “We are already seeing quiet consolidation, asset sales and some distilleries pausing production because cash flow has become unforgiving,” explains Dan Szor, founder and executive chairman of Cotswolds Distillery. “Even inflation-linked duty rises compound year after year. For small distillers, they land immediately while our revenues – especially from whisky – are years away. That inevitably makes us more cautious about investment, hiring and long-term stock-building, even when demand fundamentals remain strong.” What can producers do to boost margins? “Very selective price increases, genuine premiumisation based on quality and transparency, and tighter control over where and how we sell,” suggests Szor. “We’re also focusing hard on operational efficiency and higher-margin channels, like direct-to-consumer and export, because volume alone no longer guarantees sustainability.” These pressures are mirrored in the on-trade, where a revaluation of business rates is set to come into effect from April 2026, alongside the end of a 40% business rate relief introduced during the Covid-19 pandemic. That’s in addition to rising supplier and employment costs, via National Insurance hikes introduced in 2024, which trade body UKHospitality says has already contributed to the loss of at least 200,000 hospitality jobs. It estimates that the new business rates regime could increase an average pub’s bills by 76% by 2028 and force hundreds out of business. Pubs and live music venues have been given a 15% business rates relief for 2026/27 and a two-year bill freeze, but it has not been extended to wider on-trade venues. Kate Nicholls, chair of UKHospitality, warns: “Hospitality businesses are facing price pressures at every turn in 2026 and our sector’s cost burden is growing at an unsustainable rate.” She is urging suppliers to show restraint with price hikes. “In particular, staggering increases to business rates will affect the entire hospitality sector and without a hospitality-wide solution, we will see significant business closures.” According to Nielsen (NIQ) data cited in the WSTA’s recent Market Report, off-trade spirits sales dropped 4% by volume and 2% by value in the year to 6 September 2025 – the biggest decline of any alcohol subcategory. In the on-trade, spirits sales fell 2% by value and 7% by volume in the same period, says NIQ. Price increases Some of this decline is being driven by a “heightened awareness” of price increases and more cautious spending, making it harder to pass on supplier costs, says Natalie Tennent, managing director of The Whisky Exchange, which also supplies the on-trade through its wholesale arm, The Whisky Exchange Trade. “People are looking for value as costs increase,” she says. “Rises in duty will be a contributing factor to this, but it is also a wider trend. We’re seeing customers becoming increasingly savvy in their shopping choices. For more consumers, that can be in terms of monetary value, but also added value from service. Experience is increasingly driving our customers’ decisions.” Moderation is also reshaping consumer spending. While spirits are in decline, no/low sales grew by 42% in value and 36% by volume in the on-trade, and by 10% in both value and volume in the off-trade in the 12 months to 6 September 2025 (NIQ). With legislation increasingly weighted more favourably towards lower-ABV beverages, it’s becoming harder for traditional spirits to stay competitive. In a recent webinar hosted by Nielsen, analysts noted: “No/low is gaining a proportion of what liquor is losing. It’s no longer a question of whether moderation is happening, but where spend is going as shoppers buy alcohol less frequently, narrow their repertoires and increasingly substitute with no/low alternatives.” The government might say this is proof that its aim of reducing alcohol harm is working. But where does that leave responsible spirits producers? “Spirits absolutely belong in a moderation-led future – measured serves and ‘less but better’ consumption fit that narrative well,” says Szor. “The problem is that current policy favours low-ABV products while offering no meaningful relief for full-strength craft spirits, which risks penalising quality producers rather than encouraging responsible choice.” For Beale, penalising responsible drinkers with higher prices is ineffective at tackling alcohol harm. “The majority of people in the UK drink responsibly, and the failure of the MUP [minimum unit price] experiment in Scotland shows that targeted – rather than population-wide – measures, and more education about drinking is a more effective way to combat harmful drinking.” Tax burdens are also making the UK an increasingly challenging market for importers. France’s Renais Gin imports into the UK, but rising duty costs are forcing it to reassess its approach. “Spirits are already disproportionately taxed compared with other alcohol categories, and further rises risk eroding margins in a market where every other cost has been climbing,” says co-founder Alex Watson. “It’s a sustained squeeze from all sides that the industry can no longer take. Capital that would otherwise go into UK production, brand building, or hiring has to be weighed against an unpredictable fiscal environment, and that uncertainty dampens confidence.” Carefully considered price increases are one lever, as is diversifying into more favourable markets “where duty is more predictable”. Watson adds: “The UK has world-class distilling talent, strong global brand equity and robust export demand. However, if spirits continue to be treated primarily as a tax lever rather than a growth industry, innovation and investment will simply happen elsewhere.” Could export markets offer a silver lining to UK spirits producers? The UK progressed a number of free trade agreements in 2025 with India, the EU and the US. Last year, it finalised a deal with South Korea that will boost access to the market for Scotch. Asia Pacific was the most valuable Scotch whisky export region in 2024, with exports totalling £1.57bn – a 12.4% decrease on 2023, but a 26.9% rise on 2019. While exports are duty and VAT free, the overall picture remains one of suppression, says Russell, with success abroad dependent on prosperity at home. “While export sales appear attractive, they are expensive to build. If you weaken domestic sales and profitability, you will hurt the prospects internationally.” In the UK, more granular measures are needed. Aside from a U-turn on duty increases, a “genuine” small distiller relief would be a good start, says Szor, one that applies to full-strength products. “That would unlock reinvestment, protect regional manufacturing, support exports and ensure the UK doesn’t lose innovative producers just as the category is coming of age,” he says. Furthermore, currently a unit of alcohol is taxed at a higher rate for a spirit, compared with beer or wine, an approach that Russell calls “intellectual insanity. It’s logically indefensible from an economic perspective. If you must tax alcohol, you must tax all alcohol on an equal basis.” There isn’t one quick fix that can “lift the alcohol trade out of the current economic gloom”, adds Beale. The government needs to recognise the damage of its high-tax approach to spirits and support growth and investment if it wants to avoid driving more businesses to close, he urges. But like everything at Westminster, progress is slow. For now, the best the spirits industry can hope for is to buckle down and weather the storm. Alcohol duty is set to rise in the UK again this April. How are you strategising/ adjusting in the UK to remain competitive? Vedran Milosevic – global managing director, Cygnet Gin “The April duty rise is clearly challenging for the industry, but Cygnet has always sat in the luxury space, competing on quality, craftsmanship, and experience rather than price. Our gins are created to be enjoyed neat, delivering a complete drinking experience without the need for multiple mixers, making the value equation clear, even as costs increase. With [alcohol-free] Infinity now in our portfolio, we’re offering genuine choice. As duty makes alcoholic spirits more expensive, having an exceptional 0%-ABV option means we can serve customers in all their occasions – whether that’s Cygnet 22 for a special celebration or Infinity for midweek. We’re strengthening our partnerships with M&S, and expanding into luxury on-trade venues where people appreciate paying for quality. The duty rise will push some consumers towards low-and-no options, and we’re excited to be there with something truly special.”
The Spirits Business
