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Do beer duty cuts really help pubs?

On 15/02/16 by Andy Tighe (Policy Director)

With our campaign for another cut in beer duty now in full swing, it is great to be getting so much support across the trade, especially from pubs, which are receiving around 100,000 of our campaign posters and beer mats.

However, amidst all this support, we still see comments suggesting that ‘token’ one penny duty cuts don’t really help pubs; that brewers are putting up prices anyway, that it is supermarkets which benefit most – and the Government should focus on other tax reductions that would help pubs, such as business rates.

In total, 3.7 billion pints were sold in pubs and the wider on-trade, last year. That’s a lot of pennies - £37 million worth, in fact. If you add this up over the last three years and consider the increases that had been planned, that is a 10 pence per pint difference, or a £370 million per annum saving. We estimate that the effect on the price of a pint is around double this, when it comes to prices over the bar.

These are big numbers that have supported very significant additional investment in pubs since 2013, generating even greater returns. The Centre for Economic and Business Research (CEBR) estimates that 1,000 more pubs would have closed without this change in beer duty policy.

Of course, other costs in the industry can create inflationary pressures. However, Office of National Statistics inflation data shows that ex-factory gate prices for beer have fallen since Budget 2013 and price increases in pubs have been at their lowest since the 1980s, at just over 1% last year. This clearly demonstrates that the benefits of duty cuts are being passed on.

Supermarkets undoubtedly benefit from lower beer duty rates, but as we have seen over the last decade or so, pricing in supermarkets bears little correlation to beer duty changes. Between 2002 and 2013, beer duty went up 64%. Over this time, beer prices in pubs went up 48%, but prices in supermarkets went up just 8%.

After the beer duty cuts in 2013 and 2014, prices in supermarkets remained almost flat, but since June 2014, prices have fallen again, due to very aggressive pricing across all food and drink products as established supermarkets have responded to the growing threat from the discounters.

The key point is that if you are running a wet-led pub, with half of turnover coming from beer sales, a duty cut is more important to you than to a supermarket, where beer is just a small percentage of your total sales.

Of course, action on business rates and other taxes is also vital to reduce the huge overall tax burden pubs still face, and which accounts for almost £1 in every three spent in the pub. However these are also taxes borne by most other sectors and hence come with a much bigger price tag for the Treasury and are thus longer term objectives.

On a final note and perhaps most importantly of all, polling continues to show pub goers and the public in general are hugely supportive of lower beer taxes to keep a visit to the pub affordable and ultimately it is their view that matters most.


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