Tuesday, 30 November 2010

Taking it higher


When I sold our pub and set up Hardknott as a stand alone brewery I thought about what sort of brewery I would like it to be. I knew that the local market for standard cask beer was saturated and gaining the necessary market share for me to make a viable business was almost totally impossible. I had also gained a passion for stronger esoteric beers that could be packaged and distributed further afield in bottles. We've had reasonable success in this area, so much so that when I recently mentioned my session cask output to another brewer he was surprised I produced any at all.

We're doing OK and there is the possibility that sometime next year we will pull a profit, or at least break even. However, it is still somewhat knife-edge and costs are a continual concern. The reader might then understand why, based on the above, upon learning of the Governments latest Review of alcohol taxation, I was somewhat angry. Overnight the costs of operating, for a core part of my business, are threatened with large increases; there is to be an additional tax on all beer above 7.5% ABV. As a small brewer I would be lumbered with exactly the same amount of tax as big producers, effectively reducing the benefits that I had partly based my whole business plan upon.

Currently there is a reasonably fair beer duty system. Above 1.2% ABV beer is taxed based purely on the amount of alcohol it contains. This is 17.32p per unit of alcohol, or 10ml of pure alcohol. A 4.2% pint of beer will have had 41p of duty paid on it. A 330ml bottle of 7.2% beer will have 41p of duty to pay too. A 500ml can of Carlsburg Special Brew at 9% will attract a duty of a whopping 78p!1 It's difficult to see how it can be argued that Special Brew isn't already taxed to the hilt.

By contrast a pint of 2.7% beer attracts duty payment of only 27p. This is already a small value compared to the total price of a typical pint of beer. Although I don't want to deny any reduction in beer duty it seems that this one has been engineered to benefit the mass producers as none of the new tax systems will have the current small producers discount applied2. You'll be OK if you continue to produce 4% session beer, but if you are part of the growing section of progressive brewers, or the distributors and retailers of such products, watch your back.

I'd like to look at the drivers for this new beer taxation system. It is based on the premise that despite a reduced overall alcohol consumption the amount of alcohol related crime, health harm and social harm continues to rise.

Very specifically "super strength" lagers are singled out as one of the main offenders. It's drunk by tramps and vagrants and the thought process is that if it is taxed more these people will simply stop drinking it. I think that all it will do is move alcoholics onto some other form of cheap alcohol such as industrial vodka. It's not treating the cause of alcoholism, therefore will not stop it. Increasing the price of strong alcohol as a way of reducing alcohol harm caused by homelessness is just as barmy as suggesting that increasing the price of street heroin will reduce heroin addiction. It won't, the victims who find themselves in such desperate situations will simply move onto other drugs or commit more crimes, or possibly both.

Meanwhile my business, which includes a very small but growing wholesale business in stronger imported beers3, is threatened with a significant increase in tax burden. I feel this is simply unfair and I'm very, very angry about it. On top of alcohol escalator and VAT rises this is going to hit our niche very hard indeed.

Just to make me even more suspicious that our small sector of esoteric beers have been threatened by the larger beer industry, that includes regional as well as national producers, there is this in the report:
4.15 Beers over 7.5% abv represent less than 2 per cent of total production of small breweries. Small breweries have an incentive to produce stronger beers because the absolute value of the relief increases with the strength of the beer produced.
This is nonsense. The absolute value of everything goes up when a brewery makes strong beer. Generally the cost per unit of pure alcohol stays fairly constant so a beer twice the strength costs twice as much to make. The saving that small brewery discount gives me is currently a proportion of the overall cost. This cost is due to go up.

But much, much more importantly my production of beers above 7.5% is much more than 2%4 of my overall production. Indeed, as a proportion of the amount of beer duty I pay it is probably around 30% of my total beer duty. I have not been properly represented in the consultations surrounding this review.

Just as a new wave of progressive beer is starting to emerge and a new wave of bars showcasing these new beers it seems that the industry and lobbying groups have let this innovation down and frankly for dubious reasons.

An additional kick for me, just when I was feeling down:
4.12 The Government intends to introduce a new reduced rate of duty for beers at or below 2.8% abv to encourage the production and consumption of lower strength products. This reduced rate will be introduced alongside the new tax on high-strength beers in a broadly revenue neutral way.
So this means that the low ABV reduction in tax must be overall neutral, so us craft beer producers are paying for a reduction in tax on low ABV beers, and we all know who asked for that.

This is a direct attack on the growing, if very small, esoteric craft beer market. I believe that BBPA, CAMRA, SIBA and BII will have very little interest in this, but if you enjoy stronger beers, and I know it's not for everyone, or sell stronger beers, or make stronger beers, your prices are going to go up.

The report looks at cider and sprits and talks about leaving them alone as small producers and responsible drinkers would be affected. Indeed, I keep finding sections, like in the wine section, where producers have bucked against fiddling with duty based on strength due to the difficulties of making a product that had a demand for it. For this reason wine duty is left alone - this is despite that fact that wine is just as likely to be used as a product for what is considered harmful drinking.

I'd like to do something about this, but I really don't know what. As far as I can tell the rates and method of these new systems are yet to be finalised. With everyone and their Granny trying to take on Government right now I don't know if our voices will be heard, but if you care about craft beer, please, can we do something?

Grateful thanks to Jeff Pickthall for pointing out silly typos. Now corrected.

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1I don't like using exclamation marks, they are an overused form of punctuation that often trys to tell the reader they should be surprised. This one deserved it I feel.

2The details of how these schemes will be implemented are still unclear. We don't know if it will be an added, or discounted, amount per volume of pure alcohol, or an amount per total volume. It seems to hint that the lower rate will be a new scale paid instead of the current duty and will not attract small producers discount. The higher rate will be on top of existing duty.

3All imported beers attract HMRC duty and tax rates at full value.

4I make Æther Blæc 8.0%, Granite 10.4% and my new baby, which you lucky people can look forward to, Queboid 8.0% which is a Belgian style double IPA. Due to be released in bottle very soon.

12 comments:

Brother Logic said...

Just out of interest then Dave, I would pay £4.50 for a bottle of Granite from MBT. With the incoming tax hikes, what would be the new cost?

HardKnott Dave said...

Brother, this is the problem, we don't know. However, think of it this way; if it is to be an amount significant to Special Brew drinkers it isn't going to be insignificant to Granite drinkers.

Ed said...

You not in SIBA Dave? They've been doing all they can about beer tax.

HardKnott Dave said...

Ed, I've looked a SIBA and tried to find a good reason to join, but they seem to have fallen away from being the micro-brewer's friend and moving more into family brewer friendly territory.

The tax on high ABV beer only goes to confirm this further - they don't like the new-wave esoteric beer scene.

At least that is the way it seems to be to me.

Ok, there is the compelling argument that I can't change that from outside, and this plays on my mind from time to time. Maybe one day someone will persuade me differently.

Ed said...

Well it's not pricey, you get access to the direct delivery scheme (last month we got £1700 from it) and I've been to two very interesting technical days thanks to Siba. My impression after having been to one regional meeting is that it's run by microbrewers. The only person from a regional there was from a company only allowed associate membership.

Barm said...

My meagre grasp of history suggests that the best possible time to take on the government is when everyone and their granny are also taking on the government.

Eddie86 said...

Possibly showing my ignorance here, but why is it that wine, cider and spirits are treated differently from beer? And are there lessons we can learn from this? We seem to have so many bodies talking for us and yet all of them have missed the mark on this - in a big way

HardKnott Dave said...

Eddie, no ignorance on your part. Clearly the Government have decided not to significantly change duty. CAMRA lobbied for a reduction in duty at low ABV - for what real reason I have no idea. It turns out to be a massive home-goal. More later......

RedNev said...

I don't agree at all it was a disastrous own goal by CAMRA, if you're referring to the increase in duty on higher strength beers. I'm certain the government would have done that anyway - no matter what CAMRA said - as part of its attack on binge drinking. As usual, politicians couldn't care less about the unintended negative consequences of their decisions relating to beer. They still have subsidised food and drink in the Houses of Parliament (the subsidy was reduced, not removed, by the coalition), so it's no skin off their noses.

Cooking Lager said...

Interesting

as per your numbers, carling are paying 41p a pint duty, and soon 8p VAT (at 20% next month), making a duty + VAT pint of 49p a pint

The cheapest I can find this beer for is 40p a can (£10 for 24 440ml), or 56p a pint.

Here's hoping minimum pricing cuts that 7p off the price!

Velky Al said...

I have to admit that in reading all the posts that have been doing the rounds this past week, one thing has struck me about many comments. A lot of people seem to be equating boozy beers with good beer as if all beers between 2.8% and 7.5% are boring or not worth drinking (please note the "seem to be", it could just be my reading of things).

However, I look at the lowering of tax on beers under 2.8% as an opportunity for a resurrection of the 60/- Scottish style ales. I realise that I am only a home brewer, but the 60/- I made last night was very well received by various people, including the few pro-brewers who tried it, as something you could drink volumes of quite happily.

If the Government's aim of promoting lower strength beer is a success, I would suggest that however gets a head start of the 60/- stuff will do well.

Leigh said...

As usual, Dave, you put the situtation into stark relief 'from the other side. And I'll continue to buy your wares.