Last month I wrote this piece on the beer duty escalator. My conclusion was that the escalation of the duty alone wasn’t quite the significant issue it was made out to be by the epetition. More so, total duty (including VAT) makes up far too high a percentage of the price of a pint and needs to be reconsidered if the UK brewing industry is to continue to flourish.
The epetition has reached just over 60,000 signatures, still not even two thirds of the way to the vaguely magic number of 100,000, the point at which some MPs get together and decide whether they should care or not. However, it seems some MPs have taken the issue to heart already and called an adjournment debate, an out-of-hours Commons discussion which requires no conclusions to be drawn. Forty MPs stayed after midnight last night to debate the subject, more than an average afternoon session. Although it’s not exactly clear whether they’d all come straight from the bar after last orders or not.
Some of you may know Chloe Smith, the Economic Secretary to the Treasury, apparently appointed to her position as youngest government minister because David Cameron thought she was a qualified accountant (she isn’t). Chloe was chewed up and spat out by Jeremy “Big Dog” Paxman on Newsnight last week for universally failing to answer any questions on why the treasury has u-turned on planned petrol duty rises (video is here if you can bear it).
Chloe, presumably wishing to reassert a bit of authority against a more forgiving audience, had a few things to say about the beer duty debate.
The duty increases that we are talking about…form a vital part of the Government’s plan to tackle the debt left by the previous Government.
It would be worse for everybody if we did not tackle that debt. When I say “everybody”, I mean beer drinkers, cider drinkers, spirit drinkers, wine drinkers, brewers, publicans and, of course, all those who never touch a drop. The high interest rates that would result if we abandoned our credible plan to tackle the deficit would not help anybody.
She also described drinking at home as “free loading”, whilst noting that putting a halt on the “Inflation + 2%” duty rises would cost the Treasury £105m in lost tax revenue up to 2014/15. To put that figure into perspective, it’s estimated that the petrol u-turn will cost £550m (previously estimated as £1.5bn). Then we have the u-turns on pasty, static caravan and charity tax which add up to a further loss of £70m. It immediately becomes clear why Paxman describes Osborne’s Budget as an “Omnishambles”.
The problem for us is that beer is simply too far down the list of “things not to piss people off about”. An easily justifiable target, perhaps, because we all know we drink too much. Or do we?
What really riles me is the “free loading” comment. Presumably what Chloe is saying is that by paying less for an off-trade pint, drinkers are contributing less to the brewing industry. But what I imagine she is really concerned about is that VAT on a £1 can of beer is only a third of what it would be on a £3 pint. The beer duty calculator is irrelevant because duty is set as a proportion of the quantity brewed and alcoholic content of the beer, not its retail price.
The treasury’s argument for cutting the 50% tax rate was the polar opposite. The government’s sums suggested that charging this higher tax rate was driving down output and pushing entrepreneurs away from the UK to the extent that tax revenues were likely to remain the same or even fall. The fact that high earners were given the opportunity to take exceptional income before the tax was introduced then defer future bonuses and dividends until after it was abolished was never mentioned.
Applying a similar yet vastly more justifiable argument to beer duty would surely lead to the conclusion that high beer tax leads to public house avoidance. The more you pay for a beer, the more you pay to the coffers, the more likely you are to stay at home.
Much like the government aims to strangle the economy out of recession; it believes that choking the brewing industry will lead to growth and prosperity. It simply won’t work.