Beer duty increase branded 'a tragedy'

UK Chancellor Gordon Brown has incurred the wrath of the British brewing trade with the announcement of a 1p per pint increase in beer duty. He also increased the duty on wine by 4p per bottle, although spirits taxes were once again frozen.

The beer trade in the UK has repeatedly called for a reduction in duty levels, arguing that the high taxes have simply encouraged people to buy less beer or, more worryingly, go abroad to buy it.

This latter phenomenon has in particular impacted sales at Shepherd Neame​, Britain's oldest brewer, which is based in Kent. With 'booze cruises' departing regularly from the Kentish port of Dover, and a hop across the Channel being almost as easy for some Kent residents as a trip to their local supermarket, Neame has seen a sharp decline in sales in its local market.

The brewery's managing director, Jonathan Neame, said that the latest increase in beer duties was a "tragedy"​. He said: "It will make little if any difference to duty revenues, which have risen just as fast in the recent duty freeze as they did when duty rates were increased. It will reduce the Chancellor's other revenues like employment taxes, which will fall as more pubs lay off staff or close. In short, this unwarranted increase will leave less money for schools and hospitals, not more."​

Neame continued: "Higher duty hits taxpayers, pubs, pub customers and staff, and the local communities pubs serve. The only winners will be the smugglers, and the French Treasury who already collect duty and VAT on the million pints brought in from Calais every day. It is a duty hike too far, a duty hike which makes no economic sense."​

But Kent-based Shepherd Neame will not be the only brewer and pub operator to be hit by the increase, according to the British Institute of Innkeeping (BII​).

The BII has campaigned strongly over the last decade for a cut in duty to bring Britain further into line with the rest of Europe, and a recent BII report showed that the duty differential is fuelling a massive illegal trade in bootlegged alcohol and could be costing the Treasury over £1 billion a year in lost revenue.

Figures put forward by the trade, and based on the government's own financial models, show that a cut in duty of only a few pence would have slashed profits for smugglers and saved the Treasury money in the long-term by increasing legitimate trade and easing social problems, the BII said.

John McNamara, chief executive of the professional body for the licensed trade, said: "We are extremely concerned and disappointed at the Chancellor's decision and we will be liaising with other trade bodies and our members in order to step up the fight for a duty cut. This increase will hit our members hard and could well lead to an increase in prices for customers - something the trade had hoped to avoid."​

But while brewers and the licensed trade were angered by the increase - especially at a time when Brown was able to earmark £3 billion for the war in Iraq and yet felt obliged to increase taxes to pay for services in the UK - spirit producers were pleased at the sixth successive freeze in duties.

"Another major step on the road towards a fair tax system for alcoholic drinks,"​ was the Scotch whisky industry's reaction to the freeze, especially as the increase in beer and wine duties means that the differential between spirit duties and other alcoholic drinks has been reduced once again.

Hugh Morison, chief executive of the Scotch Whisky Association​, said: "The Chancellor's recognition of historically 'higher taxes on the alcohol content of spirits' compared with other drinks, and his decision to narrow the duty gap, is good news for the industry and represents further progress towards the industry's goal of a modern tax system for alcoholic drinks."​

He continued: "Tonight, distillers will be raising a collective toast to the Chancellor for a move that will boost a major Scottish and UK industry."​

Despite the SWA's upbeat response, British consumers will have little to cheer about, since they will now pay more for beer and wine and already pay high prices for spirits. Some pubs and other operators may decide to swallow the price increase to maintain custom, but that hardly improves the lot of the already beleaguered on-trade.

With consumers still waiting for the promised liberalisation of pub opening hours, many may be beginning to think that the current UK government is determined to curb their pleasures in life.

But if the liberalisation of trading does finally arrive (which may be next year), then perhaps the lot of drinkers will improve. With the likely increase in volumes sold once pubs can stay open 24 hours a day if they want, the government could finally reduce duty rates without losing its valuable cash cow. A pipe dream, perhaps, but the best that drinkers have to hope for for now.