Beer duty change proposals spark fears of price hikes and brewery closures

By James Beeson contact

- Last updated on GMT

Threat: small brewers have warned that duty reforms could push up prices and cause brewery closures
Threat: small brewers have warned that duty reforms could push up prices and cause brewery closures
UK craft brewers have expressed their fears that proposed changes to a tax relief system designed to help smaller producers could, actually, lead to brewery closures and increased beer prices.

Backers of the reforms, however, argue that changes are necessary to reduce market distortion, encourage breweries to grow in size, and sustain the cask-ale market.

The proposals relate to the Small Breweries' Relief (SBR) scheme, introduced in 2002 to help breweries producing under 60,000 hectolitres (around 10m pints) per year establish themselves and compete with larger producers.

The current system allows breweries to pay reduced duty rates on a sliding scale, with those producing under 5,000hl (880,000 pints) annually receiving a 50% discount.

However, the changes – proposed by a coalition of around 60 brewers - would see the 50% discount restricted to those producing less than 1,000hl a year, and the upper limit at which brewers receive relief raised to 200,000hl.

50%

The level of duty discount currently received by brewers producing less than 5,000hl annually

'Vindictive and unneccsary'

The changes would see breweries such as Adnams, Everards and Wye Valley (previously outside the upper limits) receive duty relief, while smaller breweries producing between 1,000-5,000hl a year would face a reduction in the level of relief they receive as a result.

Steve Dunkley, founder of Manchester’s Beer Nouveau brewery, has written an analysis​ of how the proposals would impact the brewing industry, and warned that the end result could mean higher prices and reduced choice for consumers.

“If these proposals go through, the choice of beer available to drinkers will be drastically reduced and the bigger breweries will become more powerful,” Dunkley wrote. “Larger breweries will benefit financially, and either keep that money as extra profits for their shareholders, or use it to reduce the price of their beers to further undercut medium to smaller breweries.

“The smaller micros will be hit hard by these proposals. Their costs will go up, the breweries above them will be pushing down, and their margins would be cut even further to try to stay competitive.”

Robin Wright, of Kent-based microbrewery Pig & Porter, echoed Dunkley’s view, and suggested the coalition was an attempt by well-established brewers to target “the little guys”, to whom they have lost market share. 

“Individually we don't have much of an impact on established larger breweries but collectively we are clearly now viewed as a problem,” he said. “The giants of the brewing world are pretty much untouchable if you are a medium-sized brewery, but the little guys can be targeted, and this is what is going on now.

“Despite often having their own estate of tied pubs, not to mention economies of scale and extremely well-established brands with a loyal following, these breweries are clearly unhappy at losing a small amount of market share.”

Wright suggested that the reduction in duty relief would equate to around £15 more duty per cask for a brewery of Pig & Porter’s size (a claim refuted by supporters of the reforms), and predicted this could lead to a price increase of around 70p per pint if passed onto the consumer.

“If these reforms go through there is no question that we will struggle,” he added. “For someone like us it would make cask pretty much pointless. I don't think our customers would accept a £15-plus price increase.”

“There are plenty of reasons for wanting to reform duty, but I just think the completely unnecessary part of it is the reduction in the threshold from 5,000hl to 1,000hl. It seems really vindictive and unnecessary.”

70p

The extra cost per pint to consumers buying beer from breweries producing between 1,000-5,000hl, according to Pig & Porter

SIBA speaks out against proposals

The Society of Independent Brewers (SIBA), which represents around 850 independent breweries in the UK, has also spoken out against the proposed reforms. In a statement to SIBA members, seen by The Morning Advertiser​, chief executive Mike Benner said that the organisation was opposed to any reduction in SBR for small brewers producing up to 5,000hl a year.

“This week there has been heightened discussion on social media on the future of Small Breweries’ Relief,” Benner said “There seems to be widespread confusion and it’s time to set the record straight.

“SIBA members should rest assured that SIBA’s policy is clear; we are opposed to any reduction in SBR for small brewers. This has been our policy position for many years. SBR was built on the blood sweat and tears of hard-working SIBA pioneers who lobbied over a decade or more to secure SBR in 2002.”

Nonetheless, the SIBA chief executive acknowledged that falling wholesale prices of cask beer remained an area of great concern, and said that the organisation remained in favour of reform of the current system in order to convince the Government to continue to invest in British brewing.

“Let’s be clear; SIBA wants reform of SBR,” Benner said. “We want to achieve that through collaboration towards unity of position so that we can convince Government that continued investment in UK independent brewing makes sense and will help deliver their targets on job creation and growth. 

“SIBA’s position is simple. We absolutely support the retention of SBR at the current level up to 5,000hl while seeking reform of the discount curve above, which at present makes growth beyond 5000hl very painful.

“Easing the pain of growth above 5,000hl for bigger brewers should not be at the expense of smaller brewers. The cost to the Treasury of improving support for independent brewing in this way need not be high; it would be a tweak to improve a winning formula without reducing relief to any brewer.”

200,000hl 

The new upper limit for duty relief proposed by The Small Brewers Duty Reform Coalition 

Coalition outlines its position

The Small Brewers Duty Reform Coalition, however, believes the changes are needed to provide incentives for breweries to continue to grow.

In a statement to The Morning Advertiser​, a spokesperson for the coalition insisted reforms to SBR were not “pulling up the ladder” but instead “creating a level playing field for a wider spectrum of smaller brewers”.

“While SBR has undoubtedly changed the UK beer market, it has also acted as a disincentive to growth and resulted in serious market distortions for those brewing volumes outside of the scope of the subsidy,” the spokesperson said. “SBR is sometimes referred to as progressive beer duty, but this is really a misnomer because once a certain level is reached it is anything but ‘progressive’.

“For brewers brewing under 5,000hl of beer per year, the Government provides a 50% discount on beer tax. For brewers going past that level, there is a particularly perilous ‘cliff edge.’ Once you brew your first pint past 5,000hl you effectively lose your whole 50% discount on every beer thereafter, even if this volume is exported.”

The spokesperson stated the 50% discount offered to breweries producing under 5,000hl was “an enormous disincentive for growth” and argued that the market distortion caused by SBR was particularly unfair in the cask-ale market, where wholesale prices have “barely moved for a decade”.

“To be clear, the coalition is not calling for the elimination of tax relief for small brewers; far from it,” the statement concludes. “The coalition has put together a package of proposals that will ensure the vast majority of small brewers are better off and will allow the creation of something much closer to a level playing field.

“It is in the interests of everybody brewing in the UK that making and selling beer is as sustainable as possible so that we can maintain an innovative, vibrant and lively brewing scene.”

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