Alcohol & Tobacco: VAT savings offset

Those hoping the Government's decision to slash VAT rates would make it cheaper to fill up the tank, or binge on booze and cigarettes, were left disappointed yesterday.

Alistair Darling said that the reduction of VAT "lowers the amount of tax paid on tobacco, alcohol and petrol. In addition, petrol prices have come down by 7p a litre last month alone".

Rather than letting consumers enjoy the resulting savings, he added: "I will offset the VAT reduction by increasing all these duties by an amount which should keep the overall cost to consumers the same this year".

Daniel Lyons, indirect tax partner at Deloitte, said: "It seems like the Government is taxing the so-called 'bad goods'. This has been government policy for years and years. They clearly didn't want those goods to enjoy a windfall from yesterday's reduction in VAT."

The measure prompted fury from members of the UK's pub lobby, who announced their "dismay and disbelief" at the rise in duty. The British Beer and Pub Association (BBPA) said the move would put pressure on community pubs.

Mark Hastings, BBPA's director of communications, said: "It's truly staggering that struggling community pubs and brewers have been denied the tax benefit extended to the rest of the business sector through the VAT cut.

"With pubs closing at record rates and beer sales at their lowest since the Great Depression, this sector needs a fiscal stimulus just as much as the rest of the economy."