Brown's beer: How you can stop the Beer Duty Escalator from crippling Britain's pubs

It’s budget time and the beer and pub industry are scared – 95p of every pint of beer bought already goes to the government. With beer duty in line for another rise, the price elasticity of beer is about to snap, writes Pete Brown

As well as this column, I write a couple of others each month for the beer industry trade press, and I also have a go about what’s on my mind over on my personal blog. Usually I try to vary the subject matter between each one so those brave souls who read everything don’t feel short-changed. 

It’s not difficult to come up with different subjects for each, given the wide variety of stuff happening on Planet Beer. 

But this month, I’m making an exception.

Early March is a dark time in the beer and pub world. Everybody gets in a bad mood. At industry conferences, the trade press magazines, brewers and pub landlords all have a dark cloud over them.

This is obviously less than ideal – we want brewers to be cheery souls, and we go to the pub to have a laugh. 

If the people who are the source of our tipsy happiness aren’t happy, then none of us are happy. 

“This is the time of year when the government (or rather, successive governments) decide to give a little extra wiggle to the knife they’ve been sticking into the beer and pub world’s back”

For that reason, if I said you could put a smile on the face of your favourite brewer or pub guv’nor, and it would take you less than two minutes to do, and it wouldn’t cost you anything, I’m sure you’d be more than happy to oblige. Well read on – your chance to make a brewer smile is only about 500 words and one mouse click away.

The reason everyone is so miserable this month is that it’s the time each year when the government (or rather, successive governments) decide to give a little extra wiggle to the knife they’ve been sticking into the beer and pub world’s back. And each time they do it, it hurts a little bit more, and the point of that knife worms a little nearer the heart.

In 2008, Alistair Darling introduced a ‘Beer Duty Escalator’ to the annual budget. 

Under this simple formula, duty on beer would go up by the rate of inflation plus an additional two per cent each year. 

Darling intended to keep the escalator in place until 2012. 

But when they came to power, the Conservatives thought this was such a good financial idea of Labour’s that they immediately extended it until 2014. 

Meanwhile, inflation had been steadily creeping up. Darling probably didn’t anticipate this when he came up with his formula, but it means that this year’s duty rise will probably be in the region of seven per cent. And if he follows last year’s form, George Osborne will attempt to hide this increase – last year he announced ‘no new taxes’ on beer, knowing full well that the existing tax escalator was punishing enough, while deliberately deceiving the national media into believing the tax on beer hadn’t increased.

“While the UK accounts for 13 % of all the beer drunk in Europe, we pay 40% of all tax on beer in Europe”

Even without this month’s rise, the tax burden on beer has increased by over 35 per cent since 2008. 

95p of every pint of beer you buy goes straight to the government. 

Beer tax in Britain was already the second highest in Europe, behind only Finland, and we’re closing the gap. While the UK accounts for 13 per cent of all the beer drunk in Europe, we pay 40 per cent of all tax on beer in Europe.

And the problem is, whatever your point of view on the reasons for raising taxes, the sums just don’t add up. 

Initially there was a vague murmur that duty hikes would help solve Britain’s fictitious ‘binge drinking epidemic’, but this has fallen down on two counts. 

Firstly, wines and spirits face the same tax rate as beer, and because the spirits lobby is cosy with the government, there was a 10-year freeze on spirits duty before this escalator kicked in, while tax on beer continued to rise. 

Now, if you work it out on a pure alcohol basis, nasty, high strength ‘white cider’ and vodka – the drinks binge drinkers actually drink – are much cheaper to get slaughtered on than beer.

The second reason the health argument doesn’t work is that supermarkets are more able to absorb duty increases than pubs, because they use booze as a loss leader to get people into the store, then make up their money by getting you to buy expensive salad leaves. 

Beer is front and central to what pubs and brewers do so they can’t really use it as a loss leader. So the gap between on-trade and off-trade booze prices grows ever wider. 

A growing body of research evidence now proves that most binge drinking is done outside the pub, with people pre-loading before they go out. 

When even Alcohol Concern are saying that the supervised environment of well-run community pubs are part of the solution to binge drinking, not the problem, it’s clear that any measure that encourages people to drink away from the pub – such as the Duty Escalator – is only making the nation’s drink problem worse.

“The price elasticity of beer is about to snap. Beer duty has gone up by 35%, beer volumes have fallen by 25%. Spirits and strong cider volumes have increased. That extra 35% tax burden has yielded only an additional 7% income to the treasury”

Then there’s the revenue raising argument.

This is the real reason the Duty Escalator is in place. The country is massively in hock, and even ministers sympathetic to the plight of beer shake their heads and say, “We see your point, but we need the money.”

Fine. But evidence suggests the price elasticity of beer is about to snap. Over the same period that beer duty has gone up by 35 per cent, beer volumes have fallen by 25 per cent. (While spirits and strong cider volumes have increased). This means that that extra 35 per cent tax burden has yielded only an additional seven per cent income to the treasury.  

And if we add in the 7,800 pubs that have closed since the Escalator was introduced, with the loss of an estimated 78,000 jobs, it seems pretty clear that from a purely economic point of view, the Duty Escalator no longer makes any sense.

The problem is, politicians don’t like to be seen to make U-turns, and only do so in the face of extreme public pressure, when they can portray it as having ‘listened’ to the people. If only there was a way of communicating mass disapproval of the Beer Duty Escalator, there are those in the Treasury who would consider using it as an excuse to drop this nonsensical measure.

That’s why there’s an e-petition here where, if we can get 100,000 signatures, we can have the issue debated in parliament.

If you agree with anything I’ve said in this column, please go and sign it. 

It takes no effort. 

No excuses. If you don’t, you can hardly complaining when your local boozer closes and the one in town starts charging you five quid a pint.

Pete Brown is one of the UK’s leading beer writers, working across business and consumer press. He’s the author of several best-selling books and blogs at petebrown.blogspot.com. He was recently named joint-37th most influential person in the British pub industry – a claim he strenuously denies.

 

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