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Are declining alcohol duty receipts a wake-up call?

Andrew Thurston · Posted on: March 30th 2026 · read

As UK government data reveals a significant shortfall in alcohol duty receipts for the current financial year, the debate regarding imbalances between on-trade and supermarkets is hotting up.

Supermarkets are arguably better positioned to amortise a duty increase across their broader business model. Conversely, the on-trade has been hit particularly hard by labour-intensive cost pressures such as national living wage increases and employee National Insurance changes. Revaluation increases in business rates further strain the sector, with UK Hospitality estimating the average pub could pay circa £12,900 more over three years, and even with discounts, many face net increases. The removal of COVID-era reliefs has compounded the burden, while energy costs are rising from an already high base, affecting heating, lighting, and the cost of goods and services.

Additional pressures come from global instability, which has increased transport and fuel costs, impacting food and ancillary supplies.

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These higher input costs drive up menu prices and reduce margins on non-alcohol revenue streams that pubs increasingly rely on, making the amortisation of increased duty costs even more challenging.

Supermarkets retain an advantage, as alcohol is purchased alongside routine grocery shopping, though this alone does not explain the reduction in alcohol duty receipts. While raising duty in line with inflation affects both sectors, the defining difference is the ability to absorb the rise.

The decline in alcohol duty revenue is likely to be more nuanced than simple duty increases. The cost-of-living crisis is arguably a major driver: during financial stress, households cut back on non-essential consumption first. People drink less frequently and in smaller quantities when disposable income is reduced, prioritising essentials over discretionary items, often using health and moderation as justification. This makes raising drink prices both difficult and potentially counterproductive, further enhancing the supermarkets’ relative advantage.

Lifestyle changes may also play a part. The long-standing ban on most alcohol consumption for drivers has led to at least one person in every drinking group consuming non-alcoholic beverages. Initially deemed a sacrifice, the trend has almost certainly normalised over the decades leading, arguably, to an increasing number of on-trade drinkers consuming low or no alcohol drinks. According to the Morning Advertiser, low and no beer sales have grown circa 36.9% in value, directly impacting any duty based on alcoholic content.

There is also evidence of long-term structural effects. Young adults defined as millennials and Gen-Zs may reduce long-term drinking habits, with lower discretionary income leading to a permanent reduction in alcohol spend for some cohorts. This is almost certainly accelerating the trend towards moderation and low-alcohol drinks (with lower duty potential) already present for health reasons.

The leading question is what the UK government can do about the situation.

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Hospitality

There has been no VAT reduction for hospitality where it remains at 20%. Business rates relief has been reduced from up to 75% for the pandemic to circa 40% (capped at £110,000 per business). The Retail, Hospitality and Leisure (RHL) relief scheme itself was only valid until 31st March 2026. From April 2026 to March 2027, eligible pubs and live music venues in England will gain 15% off their business rates bills, to soften the reduction in RHL relief, but the extra relief does not compare favourably with the overall relief reduction.

Hospitality is being disproportionately harmed by tax increases and dis-advantaged by tax incentives. Anything impacting prices will naturally lead to today’s price-sensitive consumers visiting pubs less often. This will almost certainly fuel the decline in alcohol duty receipts and on-trade revenues, not least because many pub visitors will have been doing so for supplementary, as well as alcohol-related, services such as meals.

Policies that support the on-trade, such as VAT reductions and targeted reliefs, are capable of boosting consumption in this sector, increasing the total duty collected rather than promoting trade-offs between the on-trade and supermarkets.

The government could also strengthen enforcement against bootleg and untaxed alcohol, in particular smuggling from low-duty jurisdictions, as well as educating consumers on the risks associated with untaxed alcoholic products.

Although the increased duty on alcohol sales is arguably not the dominant factor in declining alcohol tax receipts, we may yet see even that being reduced strategically through alcoholic drinks producers reducing alcoholic content levels by volume (ABV). There is potentially a related health advantage in doing so which may appeal to many millennials and Gen-Zs.

Put simply, the on-trade is not necessarily suffering because of one policy such as that relating to alcohol duty. It is struggling due to a perfect storm of multiple cost increases that have compounded at the same time, whilst consumers are also cutting back. The government has options and the time to exercise them is now. Perhaps we should all raise a glass to that notion…