Reference

Beer and the Budget
15.01.2008

Britain’s brewing industry is facing an unprecedented set of challenges – yet is burdened with an unfair tax regime. Reforming the way beer is taxed needs a fundamental change of approach which puts an end to the unfavourable treatment of beer compared with other drinks.

The Chancellor's decision is bad for beer, bad for the public and bad for the Treasury.

Higher taxes on beer are bad for everyone

UK brewers are now facing the toughest times in their history. A combination of short term shocks and long term trends are making it very tough for the brewers of Britain’s national drink. Rising energy and malt costs are hurting profit margin. Beer sales for pubs are now at their lowest since the Great Depression of the 1930s.

Research now shows that beer duty increases do not raise projected revenues, opening up a £70-100 million black hole in Treasury finances. Higher taxes mean less money for the Treasury than thought, while sales of beer are hit hard. In his first Budget, the Chancellor should take the opportunity to address this issue – and stand up for British beer.

Unlike wine, brewing is a homegrown industry, employing 20,000 people with an annual turnover of £19 billion. Britain’s pubs employ 600,000 people. Current tax policy is encouraging the move to stronger, and often foreign produced, drinks such as wine - and from pubs to supermarkets.

An industry under pressure:

• The market is down 21% since its peak in 1979. This equates to a fall of 9 million barrels per year .or 7 million pints per day.
• Tax amounts to 73 pence a pint while the total profits of Britain’s four biggest brewers fell by 50% last year – to just 0.7 pence per pint.
• 36 British breweries have closed in recent years, with the loss of around 2,000 jobs – without duty reform more closures can be expected.
• A further 44,000 beer supply chain jobs were lost between 2000 and 2005; all due to falling beer sales.
• UK on-trade sales fell by 6.0% in the year ending November 2007. In November alone sales fell by 9.7% following 8% declines in September and October confirming industry fears regarding the impact of the smoking ban during the winter months.
• Duty increases reinforce the trend for drinking at home. Pubs cannot absorb cost increases like the big supermarkets leading them to close at a rate of more than six every week since 2000. The closure rate is accelerating and unless circumstances change a further 2000 may close over the next two years.
• Rapidly escalating energy costs are driving up the direct costs of beer production and distribution. But they are equally driving up costs to those who supply brewers, with inevitable inflationary consequences.
• The shortage of malting barley due to a poor harvest and growing bio-fuel demand have seen prices increase way above inflation – with malting barley prices having risen 66% in 2007 - as have other input cost such as packaging are also rising, driven by rising global energy costs.

Facts on tax:

• In the UK, beer is already the most expensive form of alcohol that money can buy.
• When he raises taxes on beer, Alastair Darling does not get the money he expects.
• Price elasticity of demand – a key measure of how price affects sales – is minus 1.5. This is three times higher than the Treasury estimates. Therefore each tax increase has a bigger effect on sales than the Treasury expects.
• Further tax rises will yield little extra money – yet hit the industry hard.

Beer – Britain’s national champion:

• Beer is a homegrown product - 90% of beer drunk in the UK is made in the UK. In contrast, nearly all wine is imported, yet gets better tax treatment from the Treasury.
• The brewing and pub industry contributes over £28 billion to the UK economy – and Britain’s world renowned beers are a leading export industry for UK plc.
• Britain’s pubs are a much loved part of the national culture – and beer is their primary source of revenue. Pubs employ over 600,000 people.
• The accelerating trend away from the controlled environment of the on-trade to the off-trade increases the likelihood of alcohol abuse.