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Wednesday, 19 January 2011

Britain's beer tax problem

Don't have time to really write much about this today but I received an interesting press release from the British Beer and Pub Association (BBPA) this morning.

As the budget approaches, the beer industry is bracing itself for yet another duty increase.  Duty on beer increased by 26% between 2009 and 2010, and is due to carry on increasing.  The Tories have committed themselves to sticking with Alastair Darling's policy of increasing duty on beer by 2% more than the rate of inflation.  Which means that this year, just a couple of months after a 2.5% VAT increase, we look set for an increase of 5.7%.

Beer volumes are already in steep decline.  The plight of pubs is exacerbated because supermarkets continue to absorb the increases and keep prices low - because they can afford to lose money on beer to get people into the store - while pubs can't afford to.

Analysts PriceWaterhouse Coopers have predicted that this relentless duty increases will actually result in the government receiving lower tax revenue overall, as the benefit for a higher tax per pint is more than outweighed by the resultant fall in demand the price rise creates.

And yet, incredibly, there are some ill-advised, hostile or just plain ignorant people out there who believe that, in the face of a watered down announcement about minimum pricing, tax on beer is too low.

If you hear anyone spouting such garbage, feel free to share with them a few stats the BBPA pulled together:

UK taxes (duty plus VAT) on beer already massively outstrip rates in any of our neighbouring countries. UK tax rates are EIGHT times higher than in France, TEN times higher than in Spain and ELEVEN times higher than in Germany.

The BBPA analysis also reveals the astonishing figure that Britain’s beer drinkers are paying FORTY per cent of the entire beer duty bill in the European Union – despite Britain’s small, 12 per cent share of the total population.  UK beer drinkers are paying £3.1 billion out of an EU total of £7.7 billion in beer duty revenues.

In addition, some countries, such as Italy, Portugal, and Spain, have lower tax rates of tax for pubs, bars and restaurants - to help their hospitality industries and the hundreds of thousands of jobs that depend on them.

BBPA Chief Executive Brigid Simmonds, comments:

“When it comes to alcohol taxation, we need a debate based on facts, not myths. Our alcohol taxes are among the highest in the developed world, and for beer we have had huge, 26 per cent duty increases in the past two years. What we really need is a freeze in beer duty in the Budget.

“Our already high taxes show that duty-plus-VAT cannot be used as a proxy for a minimum price for alcohol. This would have a particularly devastating effect on pubs. When it comes to tacking alcohol misuse, what we need most is improved alcohol education and awareness, and tougher, targeted enforcement of the huge range of existing laws. Pubs need lower taxes - and less red tape.”


The Beer Nut said...

All I can say is best of luck trying to inject any kind of rationality into this argument. I doubt there's much that can be done to shift the UK away from being a high beer-tax culture -- it's one of those delightful local quirks that prevents the EU from turning into an homogenous superstate.

But... would it be possible to move this whole debate away from the supermarkets? Surely any pub that regards itself as in competition with the supermarket is on to a loser from the word go, regardless of the tax rates.

Cooking Lager said...

When you look at the business model for most pubs, you are looking at GP's of 50%. A 5p tax hike becomes a 10p price hike in the pub. Go on, what other businesses operate this sting?

The most successful expanding pub chain is the one that operates with lower GP levels. Supermarkets operate on the lowest margins of the retail sector. Hence their move beyond groceries into other higher margin sectors.

A minimum price benefits Tesco. Tax benefits the public purse. The pub industry are shooting themselves in the foot asking for a minimum price. Any government of any colour will go with a tax hike when being told booze is too cheap.

The best thing pubs can now do is drop GP levels, and stop telling the government booze is too cheap.

Curmudgeon said...

Just a thought, but pubs would benefit vis-à-vis the off-trade if the tax was shifted from VAT to duty. A pint of beer in Tesco has exactly the same duty as one in the pub, but only pays about a third as much VAT.

Anonymous said...

The figures from the BBPA seem to suggest that German Duty+VAT comes in at 5.4 pence per pint - so is beer exempt from VAT over there? Even at 2 pounds a pint, 20% VAT would make it 40p at least?

Ghost Drinker said...

There never going to stop increasing taxes on beer, because we love it! and they know we love it and will buy it whatever the cost. We may buy less of it, but we will still buy it. And as prices increase and consumption decreases the government will collect less in taxes, and will think - 'were not making as much here as we were last week - lets increase taxes again a bit more to get more green'

Lew Bryson said...

And as tax rates go does smuggling, hijacking, counterfeiting. High taxes are a subsidy to these crimes. And they may seem like the good guys...but they don't give a ripe rat's ass about the quality of the stuff they're smuggling. It's just booze to them.

Barm said...

Why doesn't Simmonds say "Pubs need to get rid of grasping pubcos forcing them to buy their beer at twice the market rate" ? Oh, wait...

Top Beer Brands said...

This is a definite problem. Wouldn't want pubs to die out just because they can't keep up.

Anonymous said...

Increasing duty rates aren't always passed on by the brewery especially the PBD increament that takes place each January. It's always seemed very difficult to penalize our customers for a successful year.

Breweries that have witnessed extreme growth, that has passed them through PBD threshold over the last year will have had an astronomical hike in duty in January. Thornbridge have had to raise their prices this month by over £50.00 per barrel to maintain their margins.

The future of PBD, which has greatly aided the growth of micro's is also in doubt.

Barm said...

Anonymous, VAT on beer in Germany is 19%. Although the CSU has suggested lowering it to 7% in line with other basic foodstuffs.

Heather & David said...

> [supermarkets] can afford to lose money on beer

This is often trotted out but I read it's a myth - supermarkets seldom (if ever) sell beer at a loss. Can anyone substantiate this, either way?

Anonymous said...

Barm, so those figures are pretty much made up then?

Barm said...

I think they are "imaginatively calculated" to give the biggest possible difference, rather than just made up.

Curmudgeon said...

Re supermarkets engaging in below-cost selling, see this blog post from Chris Snowdon. He quotes Richard Dodd of the British Retail Consortium as saying:

"if you just stop and think about it for a minute, no business could survive - let alone thrive - if it was routinely selling large amounts of product at less than it was actually paying for it."

I'd be amazed if more than 1% of the total volume of beer sold by supermarkets was sold at less than the invoice price.