The government has announced a technical consultation of small brewers’ relief. Here, Arran Brewery’s head brewer, Craig Laurie, offers his thoughts on the proposals.
Well, 2020 certainly was… something, wasn’t it? Hopefully you all stayed safe and managed to pull a fun festive period out of the bag at the last hour — with or without delicious Arran beer, of course. I’d like to start 2021 on a positive note, but unfortunately dark clouds are already on the horizon for small breweries in the UK.
Last year was a devastating year for the licensed trade on the whole — pubs and bars were badly hit by the lockdown restrictions which had a knock-on effect to the breweries who supply them.
Losing your route to market is debilitating for most businesses, beer or not. We’re entering 2021 with a fresh round of lockdowns, so it stands to reason that it will be a long while before the cask beer market comes back to pre-pandemic levels (if it ever does). Which, unfortunately, leads us to the tricky question of beer duty.
(Note: from this point onwards, I’ll be getting into the subject of tax and production costs, which isn’t exactly a thrill ride at the best of times. I’ll also be covering it at a level that scarcely does it justice. The best write-ups on this subject are found here and here — massive thanks to Steve at Beer Nouveau for doing the hard work.)
If you’re a CAMRA member, you’ll probably be aware that the UK has one of the highest rates of beer duty (tax) in Europe — three times higher than the EU average, 11 times higher than Germany or Spain. In consumer terms, every time you buy a pint of Arran Blonde, you’re paying 54p in tax in the UK, vs 18p on the same pint in Italy, or 5p in Germany. One of the biggest expenses in running a brewery is the tax component — we pay a monthly bill straight to HMRC based on how much beer we sold, and at what strength it was packaged at.
A small mercy of the UK Revenue & Customs system is something called small brewers’ duty relief (SBR). SBR was introduced in 2002 after decades of lobbying by the Society of Independent Brewers (SIBA) and it led directly to the vibrant brewing scene within the UK as it now stands.
SBR gives breweries a 50% relief on beer duty, provided they’re producing less than 5,000 hectorlitres per year — ie microbreweries. This relief makes competition possible — microbreweries simply don’t have the economy of scale on their side to allow them to compete with large established regional breweries on equal terms, but with a 50% reduction in the tax rate on beer, it at least makes competition possible.
Above the 5,000hl mark, the relief tapers off as your annual production increases, up to the level of 60,000hl, when all relief ceases, and you pay the full rate of duty. The idea, again, is that the level of relief decreases as your brewery’s economy of scale increases.
In practice, however, this has led to the 5,000hl mark being seen as something of a cliff edge for successful breweries. Without very careful planning and management, you can see your raw production costs (your monthly tax bill) increasing dramatically. The argument, essentially, is that you’re punished for being too successful.
The call for reform
Enter the Small Brewers Duty Reform Coalition (SBDRC). It argues that the current system of tapered relief unfairly affects small to medium-sized breweries, and would be better served by the following:
- Lowering the level at which brewers can receive the maximum 50% relief to 1,000hl
- Raising the upper level for relief to 200,000hl
- Excluding export sales from breweries’ volume until combined domestic and export production exceed 200,000hl
On one hand, yes — this stops the cliff edge effect above the 5,000hl mark. But in practice, this represents a potential death blow to all small and medium-sized breweries in the UK, organised by a coalition of large regional breweries. What these ‘reforms’ would do is substantially increase the production costs of all breweries that are supplying beer outside of a small local market, but who don’t have the economy of scale to compete.
For perspective, here at Arran, our average annual output is 2,500hl, which currently entitles us to a 50% reduction in our duty rate, and allows us to employ a small team of six-full time staff. With these reforms, our duty rate would increase instantly, to the same rate as if we were producing 9,000hl in the current system, but without the profitability we would have at that level. More tax on lower profits.
By contrast, if we were producing 20,000hl per year, the reforms would lower our duty rate to that of a brewery producing 15,000hl in the current system. Lower tax on higher profits. Can you see why these reforms are favoured by large regional breweries? They stand to gain significant financial advantage, while simultaneously kneecapping the ability of small competitors to compete with them.
There’s still time to have a say
It’s not a given that the reforms will be made into law, but it looks very, very likely — large regional breweries tend to be generous political donors, and the SBDRC is composed almost entirely of large regional breweries. Hopefully, more focus on the impact these reforms would have on your favourite breweries (most of us are screaming bloody murder about it!) will make it more unlikely to pass.
I’m all in favour of a reform to the beer duty system — it’s hard to argue that the brewing industry in 2021 is the same as it was in 2002 when the reforms were first introduced. But I can’t support reforms that will force us to either increase our prices, reduce our workforce, or cheapen our beer. And neither should you.