Overflow worries brewers

7 Feb 2020

Conservative MP Mike Wood secured a Westminster Hall debate on taxation on beer and pubs that was held this week (5), enabling MPs to raise concerns over levels of beer duty (too high), small brewers relief (review needed) and the impact of business rates (pub-specific relief welcomed).

Wood said that some 80 per cent of the beer brewed in the UK is consumed in this country. The industry supports almost 900,000 jobs here.

The small brewers relief scheme introduced by previous Labour Government has done a fantastic job in increasing the number of small brewers, he said, but we now need to look at the disincentives the existing thresholds create. He would like to see the results of a Treasury review of this relief soon. Later he praised the assets of community value system for safeguarding many pubs. The recently announced extension of the pub-specific relief, which knocks £1,000 off the bills of pubs with rateable values of less than £100,000, will help a ‘huge’ number of pubs, he claimed.

Labour’s Lilian Greenwood intervened to cite the managing director of Nottingham Brewery, Phil Darby, who says he is worried that if action is not taken on beer duty and small brewers relief, the price of a couple of pints in a pub will simply not be able to compete with the price in supermarkets for much longer. Bill Esterson, also Labour, said there is a strong case for pressure to be put on the Treasury to change the taper in the current relief.

Wood complained that business rates were designed in the 19th century and do not suit the needs and features of a 21st-century economy, particularly one where so much retail is increasingly moving out of town or onto the internet – leaving community pubs at an unfair disadvantage. Facebook pays just over 1.5 per cent of its UK turnover in tax while pubs typically pay about a third, he said. That averages to some £142,000 a year a pub to the Exchequer.

Taking action to limit beer duty increases sends a positive signal: “A cut or freeze in beer duty will appear on the Treasury’s books as a cost, but evidence suggests that keeping costs down for brewers and consumers leads to increased revenue,” he said. Lib Dem Alistair Carmichael intervened to say the coalition Government cut the duty rate on spirits by 2p; at the time, that was expected to reduce revenue; in fact, revenue increased fairly significantly as a result.

Wood called for a wider review, first to look at the operation of small breweries relief and whether it acts as a disincentive to growth and expansion, and, secondly, to look at how beer duty can better support community pubs, rather than the “stack ’em high, sell ’em cheap” produce in some off-licences and supermarkets.

Other Conservative contributions:

Giles Watling talked about the centrality of pubs to local communities, especially rural villages. Citing a village he knew near Stratford-upon-Avon he said that when the pub closed ‘the heart had been torn out of the community’; people no longer talk to each other, so people do not trust each other. That is why he supported not just a cut in taxes ‘but a differential cut, to support our rural pubs, which are the centres of communities right across the country.’

Danny Kruger said there is a clear problem with the cliff edge and a need to smooth the withdrawal of the small brewers’ relief and any loss to the Exchequer that would follow from increasing the tax relief for brewers would be more than made up for in the growth in receipts as the industry grows.

Anthony Mangnall complained that people in the UK pay almost 40 per cent of all the beer duty in the EU, while consuming only 12 per cent of the beer. Local pubs cannot afford to offer the same prices as supermarket chains, people drink excessively at home, he claimed.

Steve Double wonders why we tax pubs so much if we recognise that pubs are so good for and important to our communities, when we should tax cigarettes higher.

Jonathan Gullis said we need to establish a long-term, sustainable model for business rates, reduce beer duty and, on small brewers relief, increasing the threshold for the volume of beer produced per annum will relieve all brewers of some extra cost, while removing a barrier to growth, investment and the creation of employment opportunities.

Labour contributions

Siobhain McDonagh claimed the small breweries relief, while vital, currently stifles growth and profitability for small brewers, discouraging exports and mergers. This is because there is a 5,000 hectolitres ‘cliff edge’ whereby if production goes above that level, the brewer pays excise duty not just on the additional amount produced over the threshold, but on the whole production. A brewer would need to reach levels of around 20,000 hectolitres to offset the additional tax by the economies of scale. Urgency is paramount, she said. Small brewers had warned her in advance of the debate that a further period of consultation would simply lead to even more unintended consequences.

Grahame Morris criticised the large pub companies and the unfair rents and terms that they offer their tenants. Toby Perkins said we must not overlook the role that taxation plays in damping down investment in the production of goods that can be exported around the world. Stephanie Peacock said for every £3 made in a pub, £1 is sent to the Treasury, ‘so surely we need to reconsider beer tax’.

Other contributions

Lib Dem Daisy Cooper used a case study of a pub called The Boot - the war of the roses started on its doorstep. The pub’s rateable value has gone up by 281 per cent from £27,000 to £76,000. The Boot now has to sell an extra 22,000 pints a year just to cover the increase in business rates. It is simply not possible, she said.

Dave Doogan (SNP) said we need to take a collective look at the burden of rates, VAT and duty on pubs. Only Ireland and Finland ahead of the UK, in the European context, for beer duty, he claimed.

Stephen Flynn, a new member of the SNP’s Treasury team, said Scotland has the most competitive business rates in the entire Isles, with more than 100,000 businesses, many of them local pubs, in receipt of the small business bonus. He said the elephant in the room is the fact that great swathes of our hospitality sector rely primarily on the work of EU nationals.

Ministerial response

Exchequer Secretary to the Treasury Simon Clarke closed the debate by defending the Government’s record, saying the employment allowance changes have reduced national insurance contributions by up to £3,000 for over one million employers. The Government have cut corporation tax and frozen or cut beer duty in six of the last seven budgets and given repeated support to pubs through the business rates system. All pubs will continue to benefit from wider reforms to business rates, most notably the switch from RPI indexation to CPI indexation, which took place in April 2018, he said, adding that change alone is saving business rate payers over £6 billion over the next five years.

In relation to the cliff edge after the production of 5,000 hectolitres, the minister said Treasury policy was to avoid precipitate cliff edges that distort behaviour. He could not pre-announce any of the findings of the Government’s review but ‘we will issue clarity to the sector in the next few weeks’. The Government is committed to review the structures of our alcohol duties now that we are free to determine our own priorities outside the European Union, he added.

The full session is here.

By Hamant Verma