In the line of duty

Jackie Annett investigates how Gordon Brown's 14p cut in duty for small brewers, announced in the Budget, will affect the trade

As far as Budgets go, Chancellor Gordon Brown's latest one has become something of a talking point within the trade.

Anger, joy and lots of very confused pub-goers - Mr Brown's announcement has caused a whole range of reactions and emotions and as the dust settles it is becoming apparent that he is a very smooth talker indeed.

Labour is famed for its so-called "spin doctors" and it seems that Mr Brown's decision to cut beer duty for small brewers did not escape their attention.

The wording of the statement is significant.

What he said was that beer duty for small brewers would be cut by the equivalent of 14p a pint "in time for the World Cup".

This is all true - but some might argue it is also misleading. To the average pub-goer it sounds great - 14p a pint off beers brewed by small brewers. Or is it all beers? Or is it only real ales? Or is it only in village pubs?

And this is where the confusion comes in.

The man on the street is now primed to expect some sort of reduction on his pint - and some customers have even started asking for money off.

In fact, many microbrewers need that duty cut just to compete. A large number have closed in recent years and more closures have been predicted unless some sort of concession was made by the government.

So this tax cut was to level the playing field within the brewing industry.

It will mean that the small brewers are not hit quite so hard by heavy production and transport costs, for example, that a larger operation is able to offset.

These small operations have also suffered badly from consolidation within both the pub and brewing market.

This has led to the growth in the UK of the brewing giants, Interbrew and Coors for example, who can brew in huge quantities and supply at much more competitive prices than small firms.

Alongside them, the giant pubcos like Enterprise and Punch now buy in bulk for estates of thousands of pubs and so demand discounts from brewers that the small operations simply can't meet.

So the need for a tax cut for these small players is clear - but that cost won't necessarily be passed on to the consumer. So it is the licensee who comes out looking like the bad guy.

It is also rather less than the sliding scale system of duty that had been envisioned by the trade. The hope had been for a system where the microbrewers pay a much lower duty rate but then duty increases according to the size of the brewer up to a maximum full payment by the big players.

But Gordon Brown has decreed that there should be a very definite cut-off point.

That is, if a brewer produces one barrel more than the 352 weekly maximum it immediately loses the tax benefit.

It is clear, then, why many of the medium sized brewers are angry at the announcement - they do not qualify for the cut and will now face tougher competition from the small guys while still fighting against discounting by the giant brewers.

So a move that initially sounds like good news for both the trade and the consumer could end in victory for a minority of the UK's smallest brewers but at the expense of pub-goers and many of the larger players.

The case for:​

The Chancellor's decision to cut duty for small breweries did raise a smile in some circles - and many micro brewers have welcomed the move with open arms.

The Society of Independent Brewers (SIBA), which has put a lot of work into lobbying the government to make the tax system fairer, was particularly pleased with the news.

SIBA believes the old system meant small brewers were disappearing at the rate of two or three every week.

Now instead of living on the breadline, they should be able to compete on a level playing field with the bigger players as well as gaining better access to the market. This should also result in there being a wider choice of beers on the bar.

"Small brewers have had a difficult time over the last few years," chief executive Nick Stafford told thePublican.com. "But now this will allow us to make further investment into our businesses and it will be a lifeline for many small brewers."

Ingrid Brooker of the Harviestaun Brewery said: "We're very pleased. It will help us to expand our brewery and produce more beer than we do at the moment and it should stop a lot of small brewers from going under."

Dave Roberts of the Pilgrim Brewery said: "I've been involved in campaigning for a duty cut for 12 years, so I'm particularly pleased with this decision. It brings the UK in-line with other European countries and makes it a fairer market. It will definitely benefit the brewing industry."

Consumer group the Campaign for Real Ale also welcomed the news. Spokesman Mike Benner said: "This will help even out the playing field for Britain's 350 small brewing companies which will promote competition and increase consumer choice."

The case against:​

Medium-sized brewers are likely to feel the pinch more than most under the new system.

Many were quick to hit out at the Budget announcement.Thames Valley brewer Brakspear described it as the "worst possible news" for small independent brewers.

Fellow independent Hook Norton Brewery held similar views. In a statement it warned that it was "unacceptable that a piece of legislation designed to help smaller brewers is going to have the opposite effect".

In fact, the tax cut only applies to brewers producing less than 352 barrels a week, which, according to the Independent Family Brewers of Britain (IFBB), equates to only one per cent of the market. Stuart Neame, vice chairman of Kent brewer Shepherd Neame and the IFBB, said: "We estimate that the duty cut will affect only one pint in every 100 consumed in the nation's pubs."

This figure would surely surprise many pub-goers who believe there will be plenty of cheap beer on offer in time for this year's World Cup. And although SIBA members were celebrating the cut, they also acknowledged that the way it was announced was likely to mislead.

The problem was compounded when most of the national media took the Chancellors' words as gospel, telling their readers that all real ale would now be cheaper.

"The Chancellor gave out the wrong message to the public and the media picked up on it," Nick Stafford from SIBA said. "It is not up to us to reduce the price of beer, it's up to the pubs. Eventually we may be able to offer pubs a cheaper price for the beer but it is then up to them to pass the saving onto the consumer."

Pub-goers' viewpoint​

thePublican.com asked pub-goers in Croydon what they understood by the Chancellor's announcement - and discovered there was some confusion.

"I don't think he meant a 14p reduction on the price of a pint, but a duty cut for small brewers. But it did make me think we would see some kind of reduction in price, maybe 4p or something." Anonymous​

"He meant an undefined local brewery with a small amount of trade would have a 14p tax cut to allow them to do more trade. But I don't think we will see any of this money whatsoever." Malcolm Cooke​

"Small breweries will be given the chance to expand after the cut, over the last eight years a lot have been going under." Sean Whelan​

"Customers will get 14p off the price of some beers, maybe bitter." Anonymous​

"It means 14p less tax for the small breweries." Nicola Carey​

"All the people who drink bitter will benefit but those who drink lager and stuff won't." Anonymous​

"It doesn't mean any cut in price for us." Jayne Williams​