Comment - Beer - Boiling Frogs & Beer Duty
Tomorrow is Budget day here in the UK. Like most years, the days before the annual shake-up of the country's finances this week has seen the beer duty escalator return front of mind. Larry Nelson takes a look at what might happen to the controversial legislation tomorrow.
Are you familiar with the knowledge of how to boil a frog alive? The idea is that, if a frog is placed in a pan of cold water that is very slowly heated, it won’t notice the difference and be cooked. If the heat rises too quickly, the frog will act to preserve itself and jump out of the pan.
This unlikely happenstance came to mind last week, when I bought a steak pasty from my local bakery and was charged an extra 20% for the pleasure of it being served hot, a princely GBP2.64 (US$4) rather than the previously reasonable GBP2.20.
For those with short-term memories in working order, you’ll recall last March that, in an effort to clarify the applicability of value-added tax (VAT) in the UK, Chancellor George Osborne added sales tax to all hot baked goods other than bread. Et, voila – my tasty treat now costs an extra GBP0.44.
It’s a big leap in one go, and it’s certainly been noticed by the state of my sagging financial fortunes.
I’m not alone in my unhappiness with this tax grab. At the time, the British newspapers roundly castigated the Government for being out of touch with the common man.
All of which brings us to beer duty. In the run-up to the budget announcement tomorrow, (20 March), the country's beer industry is again hopeful – strike that, ‘desperate’ – for an end to the beer duty escalator, the Government’s annual '2% above the inflation rate' duty increase, which was introduced in March 2008 by the then-Labour Government.
This policy has resulted in beer duty in the UK increasing by 42% over the last five years. It’s a policy that implicitly has the support of all three mainstream parties, with the governing Conservative-Liberal Democrat coalition adopting what Labour had brought forth with barely a murmur of dissent.
There has been a consistent outcry over this policy, especially every Spring in the run-up to the next Budget announcement. Normally, this dismay has been vocalised by the British Beer and Pub Association, the industry’s trade body. Each Spring, hope in the industry has risen that we might have seen the last of the duty escalator – and with each Budget pronouncement, these faint hopes have been dashed.
After years of ineffectual opposition, over the past few months this constant incremental rise in taxation has been met by a more concerted and broader-based vocal opposition. The most populist of these has been an e-petition calling for an end to the duty escalator, one initiated by Wychwood Brewery and subsequently supported by the Campaign for Real Ale and other industry bodies. This attracted more than the 100,000 signatures necessary to trigger a Parliamentary debate on the escalator, which resulted in MPs voting in November to have the Treasury review the policy.
There’s also been a broadening of support for repeal beyond the drinks industry itself – lobbying body the TaxPayers’ Alliance lumbered onto the bandwagon, urging its members to register their opposition to the tax at www.mashbeertax.org - the frog that has been the British drinker is now truly hopping mad.
Let's leave that aside for a moment.
There’s also growing evidence that the policy is no longer financially credible. Last week, a letter in The Times, signed by 39 brewing and pub industry senior executives, used Government data to argue that duty increases are now resulting in revenue declines.
So, again, there is reason to believe that the escalator will be abandoned this Spring.
Scrapping the escalator would be a populist gesture, a bit of low-hanging fruit goodwill for a Government dropping in popularity at a rate not endured by anyone save unfortunate players in games of Snakes & adders. In the context of other tax-related issues, it is also not hugely expensive - if at all - if the industry’s calculations are indeed correct.
And yet, if all this comes to pass, if duty is frozen, can outright victory be claimedutright? The damage to the industry has been done -especially to British pubs, which have been closing at an alarming rate over the last few years - and is likely to be permanent. Stabilising beer duty might save a handful of outlets; scrapping duty increases won’t result in pubs closed being reopened.
For the health of the British pub trade it can be argued that the real villain is the gulf between on-trade and off-trade prices, with a pint in a pub easily costing three times more than the equivalent measure in a supermarket. The Government’s interest in minimum pricing, at either GBP0.45 or GBP0.50 per unit of alcohol, with an accompanying ban on below-cost pricing, would have to some small extent closed this gap. It should be noted, however, that minimum pricing has been sold by the Government as a health measure, to counteract alcohol abuse.
This makes last week’s climbdown on minimum pricing by the Prime Minister an astonishing development. David Cameron says he’s still concerned with alcohol abuse, yet has gone quiet on minimum pricing amidst reports of dissent within his cabinet over the policy.
Put cynically, the thought is that, while a percentage of people go to the pub on a regular basis, everyone shops for groceries and for beer, cider, wines and spirits. Such a broad-based measure would have potentially cost everyone more, the vast majority of responsible drinkers as well as those who do abuse alcohol, and politically would have been hugely unpopular.
Come 20 March, the best guess is that, with the broad-based hue and cry, the escalator will be scrapped. But, I wouldn’t bet on an outright duty freeze. The sense is that the brewing industry has been an easy target over the years – centuries, really – for any government in need of revenue.
Given all that has transpired over the past five years, the industry has already been boiled alive.
Sectors: Beer & cider
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