James Wilmore

Comment - UK Budget: Has George Osborne Avoided a Hangover?

By | 21 March 2013

The Chancellors move on beer duty yesterday has divided the UK drinks industry

The Chancellor's move on beer duty yesterday has divided the UK drinks industry

George Osborne must think he can walk into any pub in the UK today and be treated to a free pint. 

After his shock Budget decision to scrap the duty escalator on beer and cut beer tax by a further GBP0.01 per pint yesterday, the Chancellor of the Exchequer is a popular man among brewers and many publicans. 

But does a nasty hangover lurk for Osborne over this populist move? Or, has he got it right? 

Predictably, the rest of the UK drinks industry is decidedly miffed by this special treatment for beer. “We are hugely surprised,” Miles Beale, chief executive of the Wine and Spirit Trade Association (WSTA) told me. The Scotch Whisky Association, meanwhile, branded the move an “unfair and incomprehensible blow” to its industry. 

Part of the WSTA's shock is due to a European legal case, dating back to 1983, which says beer and wine have to be treated equally in a country's tax regime, as they are competing products. 

Beale said he has not seen any evidence to suggest this situation has changed. He admits the British Beer & Pub Association has run a “good campaign” to get the escalator cancelled. But, the WSTA chief says he fully expected wine and spirits to be included in any plans to abandon the measure.

The Treasury, however, appears to have second-guessed this uproar.

The department ackowledges that EU law means duty on average-strength beer and wine have to be broadly similar. But, Treasury sources point to the fact that, even after the Budget changes hit, beer and wine duties will remain “broadly similar”.

“The ratio of duty on average strength beer to duty on average strength wine will be the same as it was in 2007," the source said. The Treasury also points to similar changes to the duty regimes in Denmark, Ireland and France, all of which have passed through without legal challenge.

Meanwhile, the WSTA claims the bid to help pubs is “misplaced”. Does it have a case here?

As Osborne himself pointed out yesterday, the UK has lost around 10,000 pubs in the last ten years. Declining beer sales are no doubt a factor in this.

But, the UK on-trade is an evolving space. For some time now, pub companies have been talking up the importance of the 'three Fs' – females, food and family-friendly. Spirits and wine certainly have a role to play in the first two of these. Indeed, according to the WSTA, around 41% of pub sales now come from wine and spirits. The message is: the modern pub is not all about beer. 

Critics have branded the beer duty cut a “publicity stunt”. It may well be. But, what's not to say that some drinkers won't be tempted back to the pub by the prospect of a slightly cheaper pint? And, off the back of that, wine and spirits would get a boost as well? 

By George, he might have just got it ... right. 

Expert analysis

Beer in the United Kingdom

In 2011 beer sales remained weak due to the ongoing and growing consumer concern about government spending cuts on jobs and incomes, which continues to constrain consumer spending. Total volume sales of beer declined by 5%, a more dramatic decline compared to the previous year and slightly sharper than the review period total volume CAGR. This was due to ongoing beer tax increases in March, with beer seeing excise duty increased two percentage points above the level of inflation at 5%. This tax...

Sectors: Beer & cider, Legislation, Spirits, Wine

Companies: WSTA, Scotch Whisky Association

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