Wine riots and the tax on happiness
By the time you’re reading this Gordon Brown will have increased the Excise on wine by a few pence. So what? No big deal; hardly cause for a riot. Now take a look at the simplified economics of two bottles of wine – one selling for a tenner, the other for a fiver:
Retail price |
£4.99 |
£9.99 |
|
minus VAT |
£0.74 |
£ 1.49 |
Tax #1: 17.5% of the selling price |
minus Excise |
£1.34 |
£ 1.34 |
Tax #2: a flat £1.33 irrespective of the price |
minus Importer & Retailer margins |
£2.00 |
£ 4.00 |
Simplified, but about 40% of the price |
minus Transport & Packaging |
£0.70 |
£ 0.70 |
Flat cost of bottle, cork, label, box and transport |
Equals value of wine in the bottle |
£0.21 |
£ 2.46 |
This is what is left to pay for the quality of the wine |
Does it come as a bit of a surprise to realise £2.08 of your £4.99 bottle of wine (or 41%) goes to our dear Gordon in tax?
Does it come as a bit of a surprise to realise that a £4.99 bottle really contains just 21p of wine?
If every year Gordon adds another few pence to Excise here’s what really happens:
- The retail price remains the same – we consumers don’t like paying more and market research indicates that if a price moved from £4.99 to £5.02 we would buy a lot less.
- The importer and retailer do not reduce their margin (their costs have risen); the 4p must be absorbed by the last in the chain – the grape farmer.
- The grape farmer has a family to feed. He can reduce the quality by increasing his volume (by encouraging his vines to produce more grapes with fertilizers and not thinning out the poor quality ones). Note: if previously he was receiving 25p for his grapes and now he is receiving 21p he actually needs to produce about 20% more grapes to make as much to feed his family.
- Or, if he is a French grape farmer, he can riot. The French government placates the rioting grape farmer with an EU subsidy. And no prizes for guessing who ends up paying for that subsidy.
How does Gordon justify this? Ah well wine contains evil alcohol you see, so this tax is used to pay for helping alcoholics and for drink-driving campaigns. Oh really? So Gordon spends the billions of pounds every year raised by Excise on these wine-driven evils? No. And if the good versus evil health argument were being applied, what about all the evidence that wine in moderation is actually good for us? Gordon should probably be subsidising wine not taxing it.
No, Gordon increases the Excise every year by a few pennies because he knows we won’t riot. He can tax us more; the consumer price stays the same; and the French riot. Voila!
Rob Malcolm
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