Is draught relief the beer industry’s silver bullet?

Is draught relief the beer industry’s silver bullet?

It’s almost March, which brings with it a new budget from HM Treasury, how exciting. The incumbent (but likely not for much longer) chancellor of the exchequer, Jeremy Hunt, will once again open his worn, red briefcase, and decide upon whom he will bestow joy, and to whom he will deliver misery.

As is tradition, industry lobbyists have whipped themselves up into a frenzy to fight for better trading conditions within the sectors they represent. Several hospitality bodies, including the British Beer and Pub Association (BBPA), British Institute of Innkeepers (BII) and the appropriately named UK Hospitality, are campaigning for a deduction in VAT paid at the point of sale within hospitality retailers. The campaign is backed by several key figures, including Manchester’s night-time economy advisor, Sacha Lord.

Hospitality, which includes (but is not limited to) pubs, bars, restaurants, movie theatres and bingo halls, is now the fifth largest economy within the UK, worth a staggering £71.3bn in 2023, and presently employing more than 3m people. Lobbyists are asking for a 50 per cent reduction in VAT, reducing it from 20 per cent to 10. On the surface, this feels like a sensible ask. VAT is a consumer paid tax, and surely the most sensible way to encourage them to spend their money in hospitality venues is to reduce the price paid at the point of sale.

There are several caveats, however. First, is that the cost of trading – from rent to business rates and energy bills, to the cost of goods purchased for sale – has, due to rampant inflation, already far exceeded what a reduction in VAT would compensate for. Add in the fact that the minimum wage is due to increase in April, which will affect the majority of the aforementioned 3m people, and it looks far more likely that operators will use any reduction as an opportunity to claw back margin, and not pass any savings on to paying customers. While this might not benefit consumers, it could slow the dramatic rate of closures the sector is currently witnessing. According to data firm CGA, around 800 UK hospitality businesses closed their doors for the last time during the last three months of 2023. A trend that has continued into the beginning of this year, and one that hospitality bodies desperately need to reverse to save vital jobs and income.

Relating to beer and pubs, another key point is that any reduction in VAT would not affect alcohol, so were the aforementioned lobbyists to succeed in convincing the Treasury to lower VAT, it would leave thousands of wet-led pubs in the same situation they’re already in: up the creek without a paddle.

But there is a lobbying campaign focused on reducing (or at least, softening) the cost of producing draught beer. A joint initiative by the Society for Independent Brewers (SIBA) and CAMRA itself is asking for an increase to the new draught relief that was introduced in August 2023, when the UK’s brand-new alcohol duty system came into operation. Under the current system, draught relief gives a 9.2 per cent discount on duty paid for any product packaged in 20-litre containers or above. Campaigners are now asking for this to be increased to 20 per cent.

Despite often being advertised by the government as a consumer-tax (think of those annual headlines in the red-tops that declare the Treasury has saved you a whopping 1p per pint) alcohol duty is only paid by the producer. There is plenty of reasoning that could suggest that lowering alcohol duty could potentially lower the price of alcoholic products as it impacts the start of the supply chain. However, what it doesn’t account for is how the aforementioned rampant inflation would likely nullify any real benefit almost immediately. Brewers have reported to me that the cost of malted barley has increased by more than 50 per cent, cardboard by more than 300 per cent, and there have been similarly excessive increases to other costs, such as business rates and utilities.

CAMRA’s, and in particular SIBA’s, interest in the campaign is to ease the burden of costs on small producers, which makes sense. However, I fear it may not be the silver bullet the organisations hope for, as it directly plays into the hands of their largest competitors. Whereas small to midsize brewers might be able to save tens or perhaps even hundreds of thousands of pounds (equivalent to the wage bills of a handful of staff), the British brewing industry’s biggest players, including Heineken, Molson Coors and Carlsberg Marston’s would be able to claw back millions. Due to the economies of scale at their disposal, I fear any increase to draught relief would further tip the scales in the favour of the beer industry’s largest operators, making it more difficult for small breweries to trade solvently.

Since the new duty legislation was introduced, which also included a reduction on duty paid for beers produced at 3.4 per cent ABV or below, the Treasury has reported a £98m loss in revenue. As a result, despite such well-considered lobbying from all of the above parties, I find it unlikely that the current government would risk further short-term reductions to HMT’s income. Surely, any future lobbying should be focused on increasing individuals’ disposable income, as cash back in working people’s pockets would likely encourage further spending within hospitality venues.

For any real, impactful change that may benefit the small to midsize operators within both the UK brewing and hospitality industries, however, what we really need is a change in government. Thankfully, it looks like we might not have to wait all that long before that happens.

Whats' Brewing Archive
view archive
What's On
view events