Much has been said about beer duty and the way it increases annually. I’ve read various blogs which have been written to encourage people to sign an e-petition. With 100,000 supporters the current law will be discussed and “could be debated in the House of Commons”.
What I haven’t really seen is a very basic analysis of how the duty works. So, get your calculators out, it’s time for Customs and Excise 101.
A couple of assumptions to start with. Our imaginary brewery produces a 6% ABV beer (anything 7.5% and above will be subject to an additional high strength duty). The brewery has a 10bbl system, brewing twice a day, producing an annual output of 1,000,000 litres of sellable product thus making it a “small brewery” entitled to a reduced rate of duty. We will ignore all other forms of tax such as VAT and employer’s NI for the sake of this analysis.
Duty is currently £19.51 per hectolitre of 1% ABV beer. Each 6% brew produces 1,636 litres of 6% beer (2,880 pints). So total duty payable per brew is 19.51 x 75% (reduction for small brewery) x 6 x 1,636 / 100 = £1,436.33. This amounts to 49.9p per pint. Quite a large amount clearly but then governments tend to like to tax things that people like consuming but aren’t very good for us. It’s hardly that surprising.
The issue that has the beer community up in arms is that the duty escalates annually at 2% above inflation. The most recent increase was 5% (inflation being 3%), which effectively added 2.2p per pint of micro-brewed beer (assuming all the duty rise is passed on to the consumer). I’m not sure where the 5p-10p per pint from CAMRA came from. Using their example of a 5% beer, the duty would have gone up from 41.6p to 43.7p per pint for a small brewery or 55.5p to 58.2p per pint for a big one. Campaigning = good, rhetoric based on made up numbers = not good.
As things stand, the escalation clause will remain in place until 2014/15. If it stays beyond that and assuming the government achieves its long term target for inflation of 2%, in ten years time our duty example above will increase to 73.8p per pint. If the pint in the example costs £3.50 today it will cost £4.27 in 10 years time. The mathematicians amongst you will note that the duty, as a percentage of the retail price per pint, increases from 14.3% to 17.3%. Not that huge really is it?! Over 20 years, it’s up to 21%.
So what’s the conclusion? Clearly, not content with the 20% it makes on VAT on beer, the government plans to make even more money on an ever increasing duty. Things that are bad for us are fair game when it comes to taxation, that’s just a fact we have to accept in the UK. But, as we have seen, the figures are not quite as dramatic as is perhaps perceived. The impact such rises will have on the industry is yet to be quantified.
The petition now has 53,121, just over half of the way to get a few important heads turned. If you would like to sign it, the link is below.
Whilst I believe the escalation issue isn’t quite the issue it’s made out to be, I do believe that duty on beer is too high and could potentially harm an otherwise flourishing micro-brewing industry. I am keen that the issue is debated further and have therefore signed the petition.
Perhaps CAMRA’s figure was the extra cost the consumer would have to pay, rather than the extra cost in duty for the brewer? A 2-4p per pint increase from a supplier would lead to a 5 to 10p per pint increase in a pub.
Possibly although that seem’s rather counterintuitive. If that’s the case, somewhere along the supply chain, someone is picking up additional profit.
I think they included VAT by mistake personally.
I guess that depends numbers again. It is quite possible the government is just receiving more VAT?
Not sure I follow. If the trade cost goes up by 2p, then retail cost should logically go up by 2.4p I suppose (to allow for the additional 20% VAT). But the retailer wouldn’t add more on top surely?
However, if CAMRA have said 1/3 of a pint is government levies then increased that figure by 5% then they would get to 5p-10p.
I wrote to What’s Brewing on this very point – see the latest issue. Their 5-10p figure took into account that publicans have other costs which also increase, and lump it all together in one increase per year. Perfectly reasonable for retailers to do that, but not good to include other costs in a campaign against the duty / escalator. There is also an argument from retailers I wanted to de-bunk – that they “have to” make a 50% margin on everything, so if duty goes to 5p they have to increase prices by 10p, which is nonsense – 6p would be sufficient to cover VAT and maintain CASH margin.
That’s very interesting Ian. Is your letter online or do I need to get a “real” copy of the mag?
I think it’s poor using the Incorrect figures not because it’s over egging the issue but because it shows laziness for not checking basic facts.
Interested to hear more on the 50% margin point. I’ve never encountered it before. Presumably you mean a 5p cost would be passed on as a 7.5p RRP rise?
Thanks for reading.
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