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Beer tax black hole shows increasing tax rates a futile policy

14/02/08


The Government’s tax take from beer is falling, despite increases in tax rates, according to new figures released today by the British Beer & Pub Association (BBPA).


In a letter to all MPs, the BBPA is highlighting the fact that the policy of consistently increasing taxes on beer is self-defeating as it is eroding Treasury revenues. It argues that further tax increases will only make the situation worse and proposes a tax freeze.


The Government is now losing tax revenues from beer. Over the last two tax years – 2005/6 and 2006/7 - the revenue collected from beer has fallen. The total fall now amounts to £29 million. In the current tax year, returns on beer duty are on track to be down a further £17 million – a loss heading for £46 million over three years.


Revenue has fallen despite the fact that the Government increased the tax rate on beer in each of the last three years, by a total of 8.9 per cent.


With the Chancellor’s first Budget now a month away, the British Beer & Pub Association’s letter to MPs highlights the budget ‘black hole’ at the centre of Government’s strategy for taxing the nation’s favourite drink. The BBPA says that a duty freeze on beer is the only way to protect both government finances and a brewing industry which is under severe pressure this year.


If the Chancellor raises beer duty in his first Budget, he will not bring in the money he expects, says the BBPA. In the last two financial years, beer duty revenues have undershot Treasury forecasts by £160 million and £130 million respectively. This is because the Treasury’s planning models are out of tune with the real beer economy and do not recognise the reality that beer duty is already at its revenue-maximising level.


BBPA Director of Communications, Mark Hastings, comments:


“The black hole created by the policy of increasing beer taxes means the Treasury now has to review its addiction to beer tax hikes.”


“It is clear that increasing the tax rate on beer does not automatically return more revenue for the Treasury. With one of the highest rates of tax in the world, beer duty has now reached a point where there is no more money to be made by raising the tax level.


“With so much pressure on Government finances, raising duty makes no sense, as it not only punishes an industry under severe pressure, but it leaves the Government with less money for our schools and hospitals.


“Britain’s brewers are currently experiencing the ‘perfect storm’ of sinking sales and spiralling costs. Beer sales in pubs - including lager - are now at their lowest level since the Great Depression of the 1930s. Today’s pubs are selling 14 million fewer pints a day than they did when sales were at their peak almost 20 years ago in 1979. Overall sales in pubs, supermarkets and off-licences are down seven million pints a day over the same period.


“At the same time, the rising costs faced by other sectors and households are also hitting brewers hard – barley, energy, fuel, metals and glass prices are all soaring. The pressures are intense. Since 1997, 36 breweries have shut down and more than 2,000 jobs have been lost. In the last seven years alone, six pubs a week have closed. Since May last year, 470 pubs have closed.


“Britain’s brewers and pubs are a unique national asset and are in desperate need of a period of stability. That is why we are asking the Chancellor for a freeze in beer duty in his Budget on March 12th.”


Notes to editors:

  1. Total beer duty revenues (£ million)

2004/5 3,101


2005/6 3.076 (down £25 million)


2006/7 3,072 (down £4 million)


2007/8 (forecast) 3,055 (down £17 million)

  1.     For further information and to view a copy of the BBPA’s Budget submission to the Treasury visit www.beerandpub.com and click the link on the home page. 
    
  2.     The British Beer and Pub Association is the UK’s leading organisation representing the brewing and pub sector.  Its members account for 98% of the beer brewed in the UK and own nearly two thirds of Britain’s 58,000 pubs.