Comment - Beer - What do Brewers need from Government in the UK?

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Following the Conservative Party's victory in the UK's General Election earlier this year, Larry Nelson has penned an open letter, on behalf of the brewer's operating in the country, to the Prime Minister.

The UK General Election in May saw the Conservatives secure an outright majority

The UK General Election in May saw the Conservatives secure an outright majority

Dear Dave

Congratulations on a stunningly successful election result. An outright majority! Could we not all experience in life at least once the vindication that we were right in our beliefs and that all around us, the doubters and the dissenters, were so wrong in their assessments?

The success or failure of your premiership will undoubtedly be defined by historians in the decades to come by the resolution of three complexities – Scotland’s role in the UK, the resulting structure of this fine nation, and whether the country will or will not remain part of the European Union post a 2017 referendum.

Before being caught up in these seismic questions, a quick consideration of the brewing industry and what the future holds for us over the next five years would be worthwhile.

Your promise to not increase income taxes or national insurance contributions during the next Parliament, while at the same time targeting a return to budgetary surpluses and a reduction of the national debt, does not bode well for us. Unless the economy continues to boom and growth can carry the freight, this self-imposed inability to raise individual direct taxes suggests indirect taxes will have to be increased, specifically alcohol duties. We are, I must admit, nervous about our immediate future.

You’ve thrilled the industry in recent years, implementing not once, not twice but for three consecutive Budgets a GBP0.01-per-pint decrease in beer duty. We’ve been exceedingly grateful for such generosity, not just for this but more so for the scrapping of the hated beer duty escalator, which guaranteed annual, above-inflation rate increases on beer duty and was truly damaging our ability to compete.

We’ve drawn your attention to the happy consequences of such cuts – increases in job creation and investments, as well as a decrease in the rate of pub closures. If we were being completely candid, we might admit to over-egging the outcomes a bit for such marginal changes on the overall tax bill, one that remains far too high for the British brewing industry. Take this enthusiasm, please, as a sign of our relief that the torment of taxation has at least momentarily abated and that more of the same would be very welcome.

The country's brewing industry, the production side of the equation, is in remarkably robust health if judged by the recent surge in entrants starting up operations. Between 2011 and 2014, more than 700 new breweries have come to life, broadly spread across the country and doubling the UK’s total number of breweries.

The root cause is apparent, dating back to 2002 when then Chancellor Gordon Brown introduced Progressive Beer Duty (PBD), halving the rate for breweries producing less than 5,000 hectolitres annually. Since then, after years of swingeing duty rate increases, the real value of that 50% discount has increased considerably. It has made it possible for brewers - both with and without ambition - to stay in the market. It’s distorting the market by damaging the competitiveness of brewers just above the PBD threshold. And, in more than anecdotal instances, it is encouraging brewers to reduce production to take full advantage of the 50% duty relief.

The problems posed here are easily rectified, potentially at no great cost to the Treasury’s total tax take. The PBD cut-off should be advanced to the ceiling allowed under European Union regulations, 200,000 hectolitres, in so doing encompassing brewers struggling with tax-advantaged rivals. Before you press the button on the anticipated round of duty increases, we’d like to re-emphasise the growing importance of the craft brewing industry to the economy. We are broad based. We’re creating jobs, across the country and in places that other industries find hard to reach.

What we’d like in terms of business planning is cost certainty. The penny-a-pint reductions have been useful, yet the way they were introduced, without advance warning, maximised political gain at the expense of economic benefit.

Regarding the aforementioned ‘lock’ on personal income tax and national insurance premiums, in the cause of ensuring economic stability, it’d be a bold, brilliant move to propose a similar, five-year duty freeze. Beer duty is at a level now that further increases adding to the tax take or dampening alcohol abuse start to be marginal at best. (That is, unless you’d like to revisit the proposal for minimum pricing on alcohol?) The income lost on potential duty increases will be offset by gains in employment, employer contributions to national insurance, and additional taxes on profits. And, the opportunity to plan for the future knowing the constant shifting sands of taxation are to be held constant would be a blessing.

Beyond contributions to local economies, with the large number of new entrants and resultant increase in competition, especially for a place in the country’s pubs, more brewers are turning to exports as a way to gain new business. This is great news for UK plc. Yet there’s an irony here: Shipping costs are no obstacle thanks to lower taxation rates elsewhere. Margins that are achieved are often better than those possible in our tax-burdened home market.

And then, there’s the recent introduction of an increase in duty for higher strength beers, an additional 25% for those in excess of 7.5% abv. I’m mystified by this. If it is intended to reduce abuse of alcohol, with higher-strength beers generally served in no greater than 50cl containers, this seems a nonsense when you can buy a 75cl bottle of wine at 13% to 14% abv for around the GBP5 mark.

This leads to the perception that your government suffers a bias against beer and those who enjoy said product, based on class distinction. You may deny this vociferously, but I am reminded of your now ex-party chairman Grant Shapps’ infamous Tweet following the last penny-a-pint rollback, along with a reduction on bingo tax, as "helping hardworking people do more of the things that they enjoy". Not you – them. Talk about a political own goal!

Here’s the thing: Brewers, while not nearly as politically-active in the UK as their brethren in the US (witness New Belgium’s recent creation of a Political Action Committee in the country) are starting to consider the possibilities. The Society of Independent Brewers, having just passed the 800-member threshold, encouraged its members this year to ensure that winning Parliamentarians - of all political persuasions - had beers on hand from their local brewer with which to celebrate.

This may be just a start. And, one wonders, five years from now, if a politically-savvy recruiter might look the way of his or her local craft brewer. Generally, these entrepreneurs have brewing as their second careers, have good relations with their local communities, and are ebullient, intelligent company. It’s easy to imagine many as highly suitable candidates for a Parliamentary seat.

In the meantime, there is work to be done. The brewing industry may not be immediately high on your list of concerns needing attention but, increasingly, it is the little engine with burgeoning potential, in terms of job creation, export development and community leadership. This is an opportunity that is not to be ignored, and needs but a little consistency on your part to ensure its prospects.

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