The drinks doctor: Duty calls for microbrewers

Every so often the drinks industry is faced with a tough problem. Who're you gonna call? The Publican's Drinks Doctor! He will endeavour to get to the bottom of these tough issues and come up with some workable solutions.

"To encourage one group of small businesses, the nation's small breweries, I have decided that the duty paid on their own beer will be halved. This is a cut equal to 14p off each pint, to be implemented for small breweries by this summer - in time for the World Cup."Gordon Brown - Budget statement, April 17, 2002​

The ailment​

A call came into the drinks surgery about Progressive Beer Duty (PBD) two weeks ago. "Take a look at it," I was advised. "There's a lot going on." So The Publican took the lead and opened up the public debate on PBD, not quite suspecting what it had hit on.

That same week the first of the twice-annual meetings of the Independent Family Brewers of Britain was taking place. It was totally dominated by debates over PBD.

The day before, Stephen Oliver, the managing director of The Union Pub Company, had made a keynote speech to the Society of Independent Brewers (SIBA) conference focusing entirely on problems surrounding PBD.

Then it was discovered that a group of brewers, including Adnams, Fuller's and Charles Wells, had been lobbying the Treasury on the subject.

When Gordon Brown announced the launch of PBD nearly four years ago, he can't have imagined the furore it would eventually create. So just what the hell is going on?

PBD was introduced in the 2002 Budget with the aim of making life easier for Britain's microbrewers who, let's face it, did not have easy routes to market. Initially any brewer producing under 30,000 hectolitres a year qualified for PBD and in 2004 this limit was raised to 60,000.

This has encouraged a plethora of "start-up" breweries eager to take advantage of the Chancellor's generosity. Last year alone, 80 new microbreweries opened across the UK. However, many regional brewers in the UK believe PBD is totally undermining the cask ale category.

The regional brewers' complaints​

• Microbrewers are almost getting paid to brew beer​

Thanks to PBD, some start-up brewers are guaranteed to make good money on brewing beer, regardless of quality or investment. For the first 5,000 hectolitres microbrewers get around £40 a barrel discount.

The micros argue it is more expensive for them to produce beer as bigger brewers can buy raw materials and sell the product in bulk - a significant advantage. However, the regionals insist the level of duty relief more than offsets this problem. PBD, they argue, can put as much as £130,000 into the back pocket of a microbrewer.

PBD relief stifles growth​

For those brewers who fall just under the 60,000 hectolitre mark, there is no motivation to grow their business. Such are the financial rewards that come with PBD that it stops them taking risks. There is guaranteed return for staying where they are.

This must be galling for someone like Rupert Thompson, chief executive of Refresh UK. In 2002 Brakspear publicly declared it was to stop brewing. Mr Thompson said he would rescue the brands and brew them at Refresh's Wychwood brewery in Oxfordshire.

At great financial risk he did this, receiving much criticism from certain quarters of trade as well. In doing this he increased the overall production level of the brewery from under the 60,000 hectolitre limit to 10,000 hectolitres over it, thus losing any PBD relief. For this he should be applauded. Will any other brewers invest in cask beer for the sake of losing their PBD status?

The "hobby brewer"​

The regionals' argument does not lie with all microbrewers. They have quite clearly stated they like the richness and diversity that micros bring to the market. Their real anger lies with start-up brewers who enter the market purely to exploit the financial opportunity that exists, people who have no real interest in brewing and growing the cask ale category.

There are stories of a multi-millionaire businessman milking all the tax breaks he can from his little brewery on his farm in Oxfordshire and of a microbrewer near the Hook Norton brewery who was given a £200,000 grant by the Department of Environmental, Food and Rural Affairs to set up his operation. Are these people really in it out of a passion for cask beer?

As Simon Loftus, chairman of Adnams, puts it: "There are terrific micros out there that simply don't need PBD but there are others who are so pathetically incompetent. They come into this industry knowing nothing about brewing and the industry. They only come in because of the benefits they can see from duty relief."

The micros are not growing the cask category, they are just stealing market share​

The regionals are adamant some micros are stealing market share through a massive series of discounts. And in doing so they are not growing the category they are simply undermining it.

According to British Beer & Pub Association statistics, the microbrewers' share of the cask ale market has risen from 9.8 per cent in 2000 to 16.2 per cent in 2004. But in that same period British cask ale production fell from 3.4 million barrels to 2.8 million barrels. The market is shrinking and more of it is being gobbled up by micros, whose brands are not extending the choice of cask beer on bar tops but simply substituting other brands.

The microbrewer view​

• Keith Bott - Titanic Brewery, Stoke-on-Trent and chairman of the Society of Independent Brewers​
  "When we are accused of mass undercutting of the market, I have to say this is not coming through in SIBA's industry report. We need to ensure the benefits of PBD are spent on the right things - but we believe that in the bulk of cases it is. We want to see an increased choice for people so they can buy local - people don't just want to see a few mass-marketed brands.

"Three years ago Francis Patton (the customer services director at Punch Taverns) challenged us to prove that consumers really wanted our products. We think that we have - and PBD has helped us do that. But at the same time I am not saying that everything is rosy in the garden, and there are things that I would agree with many of the regional and family brewers about."

David Edwards - Peakstones Rock Brewery, Staffordshire​

"I started brewing in May 2005 and I have benefited from the lower beer duty rate. I certainly have not used the lower rate to undercut prices. On the contrary, I am only just able to be competitive with the likes of Fuller's and Adnams, who seem to offer huge discounts and incentives that I can't match.

"The rise in the consumption of cask beer is being driven by the microbreweries. Ask the Campaign for Real Ale. I only brew on a part-time basis, and I can assure you that any financial help from the government is much appreciated. I take great care in the quality of my beer and I would be quite happy to stand it up against regional brewers' beers any time."

An independent view - what PBD is doing to pubs​Roy Silsby, cask beer manager, Waverley TBS​

"Many micros have taken advantage of the PBD windfall in what I consider to be the right way, by investing in their brewing equipment, brands, marketing or by expanding their delivery capabilities. But unfortunately a large number of microbrewers decided to go crazy on price, causing great upheaval in the marketplace and devaluing cask beer as a product to the point where many publicans now see it as low-end product that can, and therefore should only,