Customers being ‘gradually priced out’ ahead of duty increase

During the Autumn Budget on Wednesday 28 October, Chancellor John Healey announced alcohol duty would increase in line with inflation from February 2027.

The Chancellor also introduced £10m of annual relief for more than 2,000 small British alcohol producers.

While the direct impact of the increase on an individual pint appears relatively modest, operators have warned the uptick comes at a time when businesses are already struggling to absorb rising operating costs.

Multiple operator Tim Skinner, who runs four pubs including the Devonshire Arms in London’s Marylebone and the King’s Head in Guildford, said the duty increase would inevitably feed into beer prices but was only a small part of the wider problem.

He told The Morning Advertiser (The MA): “We’ve already absorbed significant increases in wages, employer national insurance, energy, rent and supplies. There is very little room left to absorb more.

“The duty increase itself amounts to only a few pence per pint. The real pressure comes from the increasing cost of producing, distributing and serving that pint.”

At the Devonshire Arms, draught beers currently range from £6.20 to £8.20, averaging around £7.40.

Skinner anticipated prices would need to increase by at least 20p to 30p per pint, potentially taking the average to between £7.60 and £7.70.

Though he stressed this was before the full extent of supplier increases was known.

“These aren’t increases designed to improve profitability. They’re increases needed just to maintain the position we’re already in,” Skinner added.

The average price of a pint of draught lager has already increased by 20p over the past year, rising from £4.55 to £4.75, according to Office for National Statistics (ONS) data, representing a 4.4% year-on-year increase.

JW Lees managing director William Lees-Jones described the decision to increase duty in line with the Retail Prices Index (RPI) as “unfair”.

“This will result in prices going up by more than double the Government’s inflation target,” he continued. “It seems crazy that RPI is still being used as a measure – Consumer Price Index (CPI) would be fairer.”

Lees-Jones estimated a pint of JW Lees Bitter would need to increase by 21p, from £4.55 to £4.76, to maintain margins.

He added soaring energy costs and malt contracts for 2027 were also contributing to the pressure on prices.

“No-one likes to put prices up with cost-of-living-crisis, but it is inevitable”, the managing director said.

Butcombe Group chief operating officer Jayson Perfect told The MA the duty increase would affect the bottom line for both pubs and breweries.

He said: “As a brewer, it adds pressure at both ends of the business. The tax cost of producing beer rises, while our pub and free-trade customers remain highly sensitive to price because their own operating costs are increasing.”

While Perfect welcomed the annual relief for smaller producers, he added independent regional brewers “cannot pass every increase” through without risking volume, particularly as consumers continue to monitor discretionary spending.

The COO said Butcombe would absorb costs wherever possible, but expected the combined pressures to be reflected in prices across its estate next year.

Perfect estimated overall drinks prices would rise by approximately 3% to 4%.

“We will take a measured approach, reviewing every product and every pub individually rather than applying a blunt increase across the estate,” he continued.

He warned repeated increases in duty, rates, energy and supplier costs would reduce the amount businesses could reinvest in their pubs and breweries.

“For pubs, that could mean less capital available for refurbishments, maintenance and team development, as well as further pressure on already marginal sites. For brewers, it risks lower production volumes, continued consolidation and reduced choice for customers,” he said.

Perfect said he would have preferred the Government to freeze draught beer duty, despite welcoming additional business rates support announced in the Budget.

Greedy Gordons director Richard Gordon added it was “misleading” to suggest a duty increase of a couple of pence simply meant adding 2p to the price at the bar.

“By the time brewery and supplier price increases reach us, with VAT on top, the impact could be 10p or more on a pint,” he continued.

Gordon said a pint currently costs an average of £6.25 across the group’s three pubs, but the inflation-linked duty increase and other cost pressures meant the business was considering raising prices by around 50p in the coming months, taking the average to £6.75.

He feared even those increases would not be enough to protect the business from further rises after February’s duty increase took effect.

“I see further increases as inevitable. Everyone along the chain faces rising energy, ingredient, transport and employment costs. Those costs eventually reach the consumer,” Gordon said.

“We have not set a February price, but I fear the combined increases will be greater than anything I have had to contemplate in my time as a publican. That is deeply worrying, because there is a limit to what customers can afford, however much they want to support their local.”

Skinner shared similar concerns about the longer-term consequences for the sector.

He said: “We’re gradually pricing customers out of the very places we’re trying to protect.

“Every increase makes a visit to the pub a little less affordable. Customers visit less frequently, volumes fall and the fixed costs of running the pub remain. It becomes a vicious circle.”

Gordon said the wider tax burden facing hospitality was “simply not sustainable alongside rising operating costs”, calling for VAT reform and a fairer business rates system.

He added: “Pubs bring people together, support local suppliers and give back to their communities. How many more must we lose before that value is reflected in the way we are taxed?”