The British Distillers Alliance (BDA) celebrates the Budget policy decision to abolish the spirits duty stamps scheme, which has been in place since 2006, which requires bottles of alcoholic drinks containers larger than 34cl with an ABV of more than 30% to have a duty stamp if they are intended for consumption in the UK market.

Please note: although the UK government has announced its intention to end the scheme, as of March 2024 it has not yet ended. The final end date for the scheme has not yet been set. Until it is ended, the Scheme’s requirements are mandated by law, and it remains in force, along with its associated sanctions for non-compliance. Individual businesses are therefore required to continue to fully follow its requirements.

Alan Powell, founder and co-ordinator of the BDA said “The announcement is excellent news for the entire spirits sector and follows our intense campaigning for this measure.  In large part, our members were concerned by the lack of clarity in law about duty-stamped empty bottles being re-filled.  Members have been stymied by the opacity of law and severe risk for breach of the regulations”.

Powell adds “The duty stamps regime introduced in 2006 was purportedly to tackle spirits duty fraud but was always controversial since there was no fraud of any significance.  In our campaign started in 2019, we put it to HMRC and ministers that in the early part of this century senior civil servants had totally miscalculated spirits duty losses due to fraud by £600 million per annum.  Even after recognition that the spirits tax lost after 1998 was negligible, HMRC ploughed on with measures that placed immense and pointless burdens upon the legitimate trade.”

Pal Gleed Director General The Gin Guild said:

“I’d like to thank Alan for his tireless campaigning on behalf of distillers on this thorny issue – this marks one of the few positives for the distilling industry in recent times”

This was echoed by Andrew Nelstrop, CEO of the English Whisky company said “Alan Powell’s work on behalf of BDA members and the industry at large is relentless in the mission to tidy up and modernise the HMRC rules; this latest announcement from HMRC shows all that hard work can pay off.”

Kathy Caton MBE, managing director of Brighton Gin said, “We are delighted that Alan Powell’s ceaseless campaigning has again borne fruit – as a small producer doing every element of production by hand, the abolition of the duty stamp scheme will improve our productivity and simplify our operations.”

Andrew Parson of the Sky Wave Distilling Company adds

“We are delighted that common sense finally prevails.  This totally unnecessary scheme, fabricated by HMRC, adds nothing but cost and complicity to an already besieged industry.  Its abolition is entirely appropriate.”

Zane Chiswell-Rivas, founder of Essex Spirits Company sums upIt’s a double win for both SME producers and also sustainability in general. At a difficult financial time, the duty stamp regime was creating huge confusion for producers and even worse, hampering innovation within packaging and sustainability.”

Explanatory notes:

  1. Budget March 2024 Policy briefing paragraph 6.3: “Alcohol Duty Stamps Scheme – The government will close the Alcohol Duty Stamps Scheme following a review by HMRC. The government will publish legislation later in the year for an orderly wind-down of the Scheme.”
  2. The spirits duty scheme mooted in 2001 has always been controversial. It followed a few years after HMCE (as was) had closed their own fraud entrapment of “letting loads run” centred at London City Bond operated between 1994 – 1998 which led to spirits duty losses claimed to be in the region of £500 million per year; Alan Powell’s estimate from empirical data is just under £500 million in total.
  3. It appears new civil servants in HMCE after the year 2000 had not understood the cause of the fraud nor that it had been stopped dead by HMCE in early 1998. In the belief there was still rampant fraud (of now £600 million per year) HMCE proposed to the Chancellor that such a fraud could be tackled by the use of duty stamps.  This was set in train.  By the time HMCE knew they had erred, they did not abort the legislation but doubled down on the phantom duty losses.
  4. The industry had misgivings, especially the Scotch Whisky Association. For example, it is reported in the Treasury select committee of 17 November 2004 questioning of (then) HMCE senior staff, Mr John McFall MP putting to HMCE

In their memorandum the Scotch Whisky Association say that there is an urgent need for a reality check to be introduced to Customs’ methodology and estimates of fraud.  You are well aware that the National Audit Office concluded that your estimate for spirits fraud of £600m should be presented as a range between £330m and £1,080m. They also concluded that the Scotch Whisky Association estimate should be presented as a range between £10m and £260m statistically.

  1. Indeed, the true figure of losses passed to Alan Powell by colleagues then still working in HMCE was of a mere £15 million (close to the SWA £10 million lower end estimate), but the machinery was in motion and the truth was suppressed.
  2. The official spirits revenue receipts shows the increase in receipts from a low in 1997 of £1556 million (worst period of the LCB fraud) recover to exceed slightly where they were before the fraud in 1999 (£1975), to rise to £1919 million in 2001-2002 and then surges again in 2002-2003 to £2,273 million, probably as part of the incremental increases in revenue but also because what were spirits-based RTDs at the “cooler” wine rates became taxed as spirits. Thereafter, and despite the duty rate itself not changing at this time, the revenue receipt by 2005-6 was £2309 million.
  3. The duty stamps scheme was made effective 22 February 2006. If there had been significant fraud, one might expect there to be a visible, positive effect. Instead, the revenue receipts for 2005-6 of £2309 million reduce to £2,256 million for 2006-7.  The next two years’ receipts are £2374 million and £2358 million (2008-2009).  This is barely more than the revenue per year that was receipted roughly four years before the duty stamps scheme. The revenue receipts from 2009 then increase roughly in line with duty increases for spirits. In terms of the rationale for duty stamps, it would appear that either there was no material fraud in spirits, or the duty stamps scheme has had no discernible effect on the underlying fraud.  The former is the truth.
  4. HMRC’s team tasked with devising the duty stamps scheme did not believe such a scheme was necessary when the facts were scrutinised. Pressed by very senior officials come up with “something”, the scheme that was cobbled together was not believed to be necessary, was defective anyway and ultimately not signed off by the team leader as being in accordance with the Civil Service Code of Conduct.
  5. Alcohol duty fraud since 1998 has largely been “inward diversion fraud” of popular British beer brands and spirits cannot realistically be subject to such smuggling by fraudsters.
  6. Since 2019 Alan Powell has been campaigning for recognition of the truth of alcohol duty fraud after HMRC in court had again made allegations that the spirits duty fraud had not ceased and had not been contrived (ie whitewash of the London City Bond debacle) to retain unnecessary powers.
  7. After Alan Powell’s mounting pressure and “speaking truth to power” (literally in face-to-face meetings), HMRC “consulted” the industry on the future of duty stamps December 2022.
  8. The Budget Policy of abolition of the scheme is welcome at long last.