Opinion

What trends will emerge from alcohol duty changes?

Consultation closing: Barry Watts of SIBA looks at the largest change to the alcohol tax system for generations
Consultation closing: Barry Watts of SIBA looks at the largest change to the alcohol tax system for generations

Related tags Beer Spirits Cask ale Craft beer Cider Low to no

They often say that only a fool would try to make predictions, especially about the future.

And in the current tumultuous climate we face in the hospitality sector, it is as difficult to see where we will be next week as it is next year.

What we do know though, is that the planned alcohol duty system changes next summer will have far-reaching implications for what we drink at the bar and the future of the brewing and pub sector.

Is there anyone who doubts that taxation policy is dull? It’s complex, dreary and almost inevitably too high. But it creates a signal that can incentivise innovation and, on occasion, give birth to new industries – but equally get it wrong and it can stifle whole sectors.

The Government is driving the largest changes to the alcohol tax system for generations and closing today (Friday 18 November) is the consultation on the latest twist in its developments. It contains a number of tax changes that have the potential to drive growth in certain drinks products and make others too costly to be profitable.

First of all, we’re likely to see brewpubs popping up across the country, as a little noticed change means the so called ‘farmgate’ exemption for cider – where very small producers pay no duty at all – is being applied to breweries for the first time. This will mean that microbrewers producing around 19,000 pints (equivalent to 5 hectolitres of pure alcohol in the new regime) won’t have to pay any beer duty, although they will have to be registered by HMRC.

Rude health

Cider comes out of the review in particularly rude health with Small Breweries’ Relief - the tax relief scheme that is hands down responsible for the craft beer revolution –  being applied to other products including cider below 8.5% ABV under Small Producer Relief.

Not only does cider retain the farmgate exemption meaning that 60% of cidermakers continue to pay no duty at all, but they benefit from a significantly lower rate of duty, about 46% of that of beer. This means we’re likely to see cider from small producers competing against beer on the bar, and as this also applies to other products, we might even see more draught mead.

The changes should also be good news for our community pubs, with the new draught duty relief giving a 5% reduction in duty for beer in casks and kegs of at least 20 litres, encouraging people to swap their sofa for a bar stool. Equally though we could see cider and the growing ready to drink market gain from these changes and put more drinks on draught. Espresso Martini on draught anyone?

It’s hoped that in the future we can convince the Government to go further and increase this rate to 20% or more to give a further boost to our pubs and breweries.

One potential victim of the changes could be takeaway beer in reusable ‘growlers’ or disposable containers. To prevent large retailers such as supermarkets cashing in on the draught relief, the Treasury has proposed effectively banning takeaway beer from pubs and bottle shops. Only those registered with HMRC would be allowed to “repackage” beer from kegs and casks unless it’s for immediate consumption. SIBA and others have been working closely with the Treasury to come up with a solution to this issue, but for now takeaway beer is set to be effectively banned.

Another interesting change is the Government’s move to encourage the creation of lower alcohol products by cutting tax on anything below 3.4%. This incentive means it’s very likely beer currently brewed around the 3.5% to 3.7% mark will drop to below 3.4% to benefit from the change – so expect plenty more ’light lagers’ to be hitting the market in coming years.

Some will be walloped

At the other end of the strength spectrum, it’s the imperial stouts and strong double IPAs that are going to be walloped with big tax rises – with anything above 8.5% ABV suddenly becoming eye-wateringly expensive.

There’s now a “sweet spot” between 7.5% and 8.5% at the higher end that will help some double IPAs, but the stronger Belgian or other European styles above 8.5% will be disincentivised with any small producer relief being completely removed at this level. The issue here is that it will be craft breweries rather than global brewers that will really feel the pinch.

Another issue, which we’ll file under unforeseen circumstances for now, is that while the proposals’ overall aim is to encourage diversity, there’s a quirk of the system that could damage those businesses making multiple products. This includes those breweries doing some whisky or gin under their brand, and cidermakers who make fruit-ciders (technically categorised as 'made wine’).

Under the changes, all alcohol being produced will count towards total production to determine the level of relief they receive under Small Producer Relief, including products (such as spirits) that are not a part of the relief scheme. This means that, overnight, some small brewers will pay significantly higher duty on their beer than they would have done otherwise. Again, we’ve been pushing for a change so that only products up to 8.5% ABV should count for determining the relief – anything outside this ABV range is outside the scheme and should be counted as such.

These and many more changes will sweep through the industry in the next few years. However, the crucial part of these predictions is they rely on all of the changes getting through parliament, and in the current political climate no one can even begin to predict that.

Barry Watts is head of policy and public affairs at the Society of Independent Brewers (SIBA)

Related topics Beer

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