Rachel Reeves is believed to be pondering raising alcohol duties in next month’s Budget in a move the hospitality industry has warned could have a “devastating” impact on pubs.

The Chancellor has not ruled out the idea of taxes on beer, wine, and spirits as part of Labour’s efforts to plug what they claim is a £22 billion gap in public finances.

Pubs and drinks producers are concerned that Ms Reeves may use warnings about the state of public finances to justify an increase in alcohol duties.

Recent figures showed that consumer confidence has fallen to levels last seen at the start of 2024, with critics warning that her cautious rhetoric is stifling growth.

The Chancellor has repeatedly stated she is facing “tough decisions” on taxation when she delivers her first Budget on October 30.

Rachel Reeves pledged to protect British pubs during the election campaign (Image: Teeside Live)

Forecasts have suggested raising alcohol duties could theoretically bring in an additional £800 million next year.

However, industry leaders claim that, in reality, it would mean lower sales, potentially costing the Treasury hundreds of millions in lost revenue.

Official figures show that the last time alcohol duties were raised in 2023, tax receipts fell by £1.3 billion, as Britons reacted to higher prices.

This fall in revenue was only £100 million less than what Ms Reeves hopes to raise by scaling back the winter fuel allowance for pensioners.

Rachel Reeves has been warned tax hikes could have a ‘devastating’ impact (Image: Getty)

Hospitality bosses and drinks producers warn that another duty increase could have a similar effect, further driving customers away from pubs and restaurants.

Miles Beale, chief executive of the Wine and Spirits Trade Association (WSTA), said businesses are still suffering from the previous duty hike.

He told the Daily Telegraph: “Last year’s damaging reforms to the alcohol excise duty system, including the largest single duty hike in nearly 50 years, have hit businesses, consumers, and the Government’s revenue.

“Prices have increased, sales are down, and duty income has fallen by over £1.3 billion. Increasing duty further would only reduce Government income at a time when it can least afford it.”

Rachel Reeves is preparing for next month’s Budget (Image: Getty)

The WSTA wants Ms Reeves to introduce a two-year freeze on alcohol duties to keep prices stable.

Alcohol duty is applied to all drinks with an alcohol content of more than 1.2 percent ABV, either at the point of production or when imported into the UK.

By default, it rises annually in line with the Retail Price Index (RPI) unless the Chancellor opts for a freeze. With RPI expected to be two percent next year, this could theoretically generate an additional £200 million.

The Office for Budget Responsibility has predicted that a larger increase, potentially over six percent, could raise £800 million.

Emma McClarkin, chief executive of the British Beer and Pub Association (BBPA), warned: “We know from experience that raising beer duty rarely delivers the expected revenue, especially when consumers are facing the cost-of-living crisis and are highly sensitive to price hikes.

“Any duty increase could drive customers away and cause a devastating knock-on effect, reducing other tax revenues and harming employment in the sector.”

During the general election campaign, Ms Reeves said she was committed to “saving the British pub,” acknowledging their importance to many communities.

A Treasury spokesperson said: “We do not comment on speculation about tax changes outside of fiscal events.”