The duty regime is stacked against beer innovation
The event kicked off with a scene-setting panel discussion featuring senior leaders from four of the country’s biggest brewers: Heineken, Carlsberg, Molson Coors, Marston’s and St Austell. I asked them to outline those things that are most affecting their ability to innovate.
To a man (and yes, they were all men on the panel — criticisms noted), the panellists all cited the current tax regime — and particularly the alcohol duty escalator — as a major hindrance to innovation.
It discourages investment both from an internal and external viewpoint. For a multinational brewer choosing how to allocate its resources for new product development, Britain must look like a pretty unwelcoming environment in comparison to more business-friendly regimes. And for a domestic brewer trying to attract equity partners, it’s hard to promise meaningful returns when the Government takes 10 times more money in duty than you are able to pay in shareholder dividends.
I’ve spoken before about the risks of unintended consequences from well-meaning legislation, particularly in relation to the forthcoming pubco statutory regulation. But I’m not even sure we can call the duty escalator well-meaning. I prefer to think of it as a cynical raid on an easy target.
(Incidentally, I attempted a Twitter exchange with former deputy prime minister Lord Prescott at the weekend after noticing that he’d tweeted: “Cheap booze in supermarkets encourages people to stay away from pubs.” I responded: “Does Labour regret introducing the beer duty escalator?” He didn’t reply — he must have been playing croquet, driving one of his two Jags or dictating a note to his... well, let’s leave it there.)
The unintended consequences in this instance include brewers developing strategies to cope with the regulatory environment rather than to meet consumer demand. The tax break provided for sub-2.8% ABV beer is not to be sniffed at — and it has led to the creation of some genuinely innovative products, such as Carling Zest and Foster’s Radler — but it is an artificial ceiling. And it fails to address the wider inequalities faced by beer against other drinks categories such as wine, spirits and, lest we forget, coffee.
I hesitate to offer the Government another easy target — especially when some pubs are starting to make good money on coffee — but, other than a 7.5% import duty on beans and 20% VAT on drink-in or takeaway sales, coffee escapes the sort of taxes levied on beer, despite the fact that it can command some eye-watering retail price points and deliver 90%-plus GP.
I know all brewers will be with me (and I hope most licensees) when I suggest that we’d be quite happy to swap the beer duty escalator for a coffee duty escalator — if it helps the Treasury to balance the books. Then we can get on with creating and selling great beer, and revive this British manufacturing success story.
