Tax Minister open to raising the duty-free ABV rate

Conservative MP Giles Watling said he had written twice to the Chancellor to call for differentiation between the duty rates for on-trade sales of beer in pubs and the rates for off-trade sales because ‘we must do more to protect our pubs’. If the beer duty freeze was enough in itself then 11,000 pubs would not have closed in the last decade. He said previous across-the-board cuts in beer duty have helped supermarkets to continue to undermine on-trade sales, while failing to slow the rate of pub closures.  The beer and pub industries contribute £23 billion to GDP every year and support more than 900,000 jobs. Crucially, 44 per cent of those jobs are held by 16 to 24-year-olds, he added.

Even after the Government’s reductions, the UK still have one of the highest rates of beer duty in Europe and pay 40 per cent of all beer duty in the EU while consuming only 12 per cent of the beer, said Watling. Figures from the British Beer and Pub Association show that since 2000, on-trade consumption has fallen by a massive 47.2 per cent, but off-trade consumption has risen by 29.3 per cent.

Under EU law, duty is levied on production, not on the place of consumption. There must be a technological mechanism that we can use to track the destination of beer products when they leave the producer, and then add the tax accordingly, said Watling. Such an approach would mean cutting the on-trade duty rate, before adding a stipend for beer products destined for the off-trade marketplace. It would also mean that the cut for on-trade sales would offset the increase in off-trade duty, he claimed. Any such adjustment should be narrowed to large retailers only, he added.

Another Conservative, Andrew Griffiths, pointed out that the Government have delivered not just a duty freeze for pubs, but three duty cuts followed by a number of duty freezes. It is important to recognise that publicans are required to keep their house in order and for this to be represented in the taxation regime, he said. He talked about the extra cost of delivering cask ale or draught ale. He said: “I am absolutely sure that doing something about business rates will help our high streets [and pubs].” The Government introduced a lower rate of duty on beer less than 2.8 per cent ABV and he suggested that, when free of EU restrictions, this should be pushed up to three per cent or 3.5 per cent.

The Financial Secretary to the Treasury, Jesse Norman, responded that the number of brewers has this year risen dramatically to more than 2,200. The rise of craft beer has seen breweries grow and flourish in every part of this country, including microbreweries, and exports have reached more than £500 million a year. In 2013 the Government took the decision to end the beer duty escalator, he explained. Since then, they have cut or frozen beer duty several times, including at the last Budget, with the effect that a typical pint of beer is 14p cheaper than it would otherwise be. He also pointed to the small brewers’ relief.  The Exchequer has forgone more than £5.2 billion in revenue due to cuts and freezes to all alcohol duties since 2013. He added that there may be scope to contemplate an uplift in relation to the higher level of lower-strength beer, saying ‘it would be interesting to discuss that further’.

The Tax Minister went on to worry that any change to beer duty will be subject to legal challenge for breaching state aid or competition rules. ‘and we may wish to remain aligned with the EU even post Brexit, from a competition or state aid perspective, in part to prevent mercantilism from breaking out between EU businesses and our own’. He explained that HMRC taxes beer at the point at which it moves into general distribution, rather than monitoring the wider beer supply chain. The concern is obviously about the potential to repackage beer that had the lower rate of duty paid on it and then to sell it and trouser the difference, he said.

The full 25 June 2019 debate can be read here.

By Hamant Verma