The Small Brewers Duty Reform Coalition — a group of more than 60 breweries of various sizes — has welcomed a statement by the Society of Independent Brewers (SIBA) offering proposals for reform of small breweries’ relief (SBR).
The coalition notes that SIBA has adopted a number of proposals it developed last autumn, although it has omitted others that the group considers essential to ensure SBR works fairly for brewers of all sizes.
A coalition spokesperson said: “Without resolution of those issues, we do not believe there will be sufficient industry consensus to push reform through, and so we are repeating our original call for a Treasury review.”
The coalition’s full response to SIBA’s proposals is as follows.
‘Fundamental problem of market distortion
“There are a range of strong opinions about the future of SBR within the industry, and indeed a variety of different views within SIBA’s own membership.
“SIBA recognises that it is a ‘broad church’. The SIBA conference in the spring highlighted the different views — some small brewers would now like SBR restricted to only the smallest of brewers, whilst other SIBA members believe this would further damage normal market competition, and the key issue is to address the market distortion around 5,000 hectolitres to spread the benefit more equitably to allow growth.
“Our coalition has a range of different views, too, and it includes many SIBA members. Some of our members see the market as so difficult now that any short-term relief will be welcome. Others are concerned that with cask ale currently declining at over 10% per annum, the solution to SBR needs to be balanced, long term and ensure a sustainable small brewing sector. Those members believe that the SIBA proposals do not address the fundamental problem of market distortion in the small brewing sector and would strongly oppose any change that risks worsening the current situation.
“The industry was encouraged by HM Treasury and MPs to try to find a consensus position. However, SIBA made it clear that they could not compromise and all the parties to the discussion agreed at that time that this made consensus impossible.
“The coalition now accepts that there are certain fundamentally important issues within SIBA’s latest proposals [with] which we will not all be able to agree. We do need to see a solution to the anomaly that every time there is a duty increase the duty differential between small brewers and larger brewers increases, and so their relative competitive position improves. This is widely recognised as a flaw in the system which has led to an increase in the differential by 60% (£15 / hectolitre) since 2002. All industry bodies are calling for a cut in beer duty and there should be commercial alignment so all brewers benefit if it is achieved.
“The second issue is that, at present, the system competitively disadvantages brewers below 1,000 hl (half of all small brewers in the UK) just as much as those above 5,000 hl. A brewer who is five times as large is bound to be significantly more efficient, but gets exactly the same duty rebate as his much smaller competitor… it is just as unfair and anti-competitive as a brewer who is twice as large getting less than half the rebate.
“We believe there should be genuinely progressive duty from the point where a microbrewer starts to move to small brewer status… we suggested a start figure of 1,000hl because that is the point at which they start to compete in the wholesale sector where differential pricing becomes most important. That represents 175,000 pints and a turnover of around twice the VAT threshold. We have made it absolutely clear that we are open to discuss a different threshold, but cannot accept that a business with a turnover of approaching £1m is still ‘micro’.
“In the absence of the broad consensus the Treasury has requested, we believe that a Treasury Call for Evidence remains the only way of resolving the differing views. It allows all parties to make a submission. Without consensus or a Treasury Review we do not believe the Treasury procedures will allow them to impose a solution, so there will be no change, which would be deeply frustrating for all of us.
Alternative views
“We expect our members will express a number of different views over the course of the debate leading up to the Budget. The coalition coalesced around a balance of measures to improve SBR, but remain open as to the exact form of any amended scheme. We have made our own proposals in order to move the debate on, but accept that there is room for alternative views.
“At present, therefore, we reiterate our original call that we wish to have a Treasury-led review of SBR, not a solution demanded by one specific interest group. This is SIBA’s second set of proposals for the reform of SBR and we hope that a point is reached where their own members can debate these proposals openly and express their views before the Treasury announces a Call for Evidence. We would ask SIBA to now support a compromise approach, and remain very willing to continue discussions to achieve that.
“Where we agree with SIBA is on the key principles for SBR reform and that the cost of reform is small in comparison to the long-term benefit to the economy. We also agree on the need to bring down the overall rate of beer tax. The high duty rate in the UK is at the heart of the problem — over three times higher than the EU average, ten times higher than Germany, and higher than all other production costs combined for most brewers. This is why the 50% discount rate is so distortive between those that have it and those that do not.”
• A fuller statement will appear shortly on the coalition website www.reformsbr.com together with
comments on the details of SIBA’s proposal and its analysis of the CEBR report.
