Friday 18 December 2009

Beer Duty - is it evil?

I've been thinking, it happens from time to time. I do try and avoid the activity as much as possible as sometimes ideas occur as a result. Ideas can get me into all sorts of bother. Writing this blog started as the result of an idea. This blog takes up far too much of my time and thinking often causes new blog posts to be thought up, so, when the New Year comes around I'm going to make a concerted effort to go easy on thinking. It won't work, but I can give it a whirl. Perhaps if I drink more beer I'll kill more brain cells and thinking will become more painful, there, that was an idea.

On this particular occasion I started thinking about beer duty. My thought process resulted in me wondering if beer duty really was the big evil it's made out to be. My conclusion, put very simply, is that it is not as big a problem as people think, at least not to the pub at any rate. I think I understand this quite well as I brew beer and pay HMRC an amount that is proportional to the volume of pure alcohol that my little yeast cells make. I also know how much VAT we pay in total to the very same people. I also know the amount of income tax and national insurance payments we make as a result of being nice enough to pay people in exchange for an honest days work. Trust me, the beer duty is very small for a brew pub.

If I sell a pint of beer at 4% ABV 22p of that is a direct result of beer duty. For a big nasty brewery that makes millions of barrels of the stuff a year this amount is 44p. These values take into account the fact that VAT is a tax on this tax.

If we assume a pint of beer is £2.50, which is about what I've been charging this year, less than 10% is attributable to beer duty. The figure would be 20% if the beer is from a big McNasty brewery. Interestingly, for a pint tin of beer at the same strength costing a quid in the supermarket, nearly 50% of the price you pay is duty. Big slabs of beer will have possibly 80% of the purchase price paid as duty. I think beer duty benefits the pub. Supermarket prices will be far more sensitive to duty rises than pubs.

All spirits and spirit based RTDs attract a higher rate of tax at 27p per unit including VAT. Wine at 13% ABV attracts about the same as macro brewed beer which is 19.4p per unit. Micro brewed beer attracts 9.7p duty per unit. In actual fact most drinks attract a higher rate of duty per unit than beer. Almost no alcoholic beverage attracts less duty than micro brewery beer except cider in the range of about 3.8% to 5.5% and the very specific still cider and perry at the strengths 5.5% to 8.5%.

So, with the exception of particular strengths of cider, alcohol duty is less unkind to beer than other drinks. I would worry that if we complain too much about beer duty the government might say that it would be best if all alcohol was taxed at the same rate as whisky. That would be a bit of a bummer for beer.

A pub has quite a lot of high cost overheads: Cost of staff, electricity, heating, insurance and mortgage or rent are probably the big ones. Stress and wasted resources caused by stupid government legislation and my requirement to be compliant with a whole load of rubbish is what really effects us. Perhaps this is why most people in the industry really aren't bothered about beer duty. I'm going to stop thinking that beer duty is bad in the New Year. There, I can stop thinking about something.


Curmudgeon said...

I think maybe you are taking a more sympathetic view of this subject as you are a small microbrewer with a low rate of duty.

The fact remains that beer in general is subject to a rate of duty far higher than most of our European neighbours and the pub trade suffers as a result.

And Darling has just imposed a stealth increase - beer duty was increased when VAT was cut last December, but it isn't being cut again.

Sat In A Pub said...

I find myself in agreement with Mr C. As he points out, it's expensive when compared to Europe and no one has come up with a convincing reason for why this should be the case.

And, as we know, most of the beer drunk in Britain isn't produced by brewpubs. So, the average drinker gets stung at big nasty brewers rate.

I'm afraid the answer to your question is a simple one: yes.

Unknown said...

Well of course you guys have a point: this is just the way I see it. Beer tax from my perspective is not the thing that affects my business in a big way. People who hurt shout about the things that hurt them the most.

I'm not sure that beer duty is quite as stealthy as some taxes. The chancellor has put up the rate employers NI contributions. Pubs are a service industry and as such are very labour intensive. The biggest single cost associated with the price of a pint in a pub are staff. Employers NI contributions are a tax on employment. VAT is also a significant tax on any service industry. I pay out far more VAT than beer duty and would still do so even if I paid beer duty at the big brewery rate.

Beer duty is not a percentage rate, it is a fixed amount per litre of pure alcohol produced. OK, the government put that rate up and it is a little cheeky to set ahead of time an escalator, but it's a tax that has been around for many years and not changed that much in real terms over time.

The reasons for us having a different rate of duty to France, for instance, is an interesting one, but I'd rather we had a less stealthy tax like beer duty than the completely underhand employers NI. If we reduce beer duty the government would only come up with a new stealth tax to balance the books.

The beer and pub industry has a lot of things bothering it at the moment. People running pubs and brewing beer are not shouting much about beer duty. Everybody has their perspectives on issues.

Drinkers know about beer duty and so see it as something to attack. Some landlords also like to use it as an excuse as to why the beer costs so much. I can't blame them, it is difficult to explain to a punter the very many costs associated with the pub industry. But yet again I stress that beer duty is not the thing that puts up the price of beer. Indeed I can probably buy beer cheaper from a regional brewer who is paying full rate than I can from a micro-brewer paying half the rate.

But, beer duty is a symptom of the bad press that beer and alcohol in general gets in the press. Taxes can be raised easily on anything that is seen as bad. We won't reduce beer duty unless we can somehow improve it's perception by the general public. That is the thing I am going to think about much harder over the next year.

Key to my argument though is that beer duty hits the low cost mass produced beers in the supermarket much more than pub sold beer. I would rather have slightly inflated beer duty than minimum pricing, and that would be the alternative.

Brian, follower of Deornoth said...

Thank you, Dave, for that interesting commentary. Myself, I would have thought beer duty was more damaging to your business than you think it, but I defer to your experience.

Having said that, I still consider beer duty to be an evil, for the same reasons I consider wine duty an evil and cider duty to be evil. The reason is that it embodies the notion that certain recreations are acceptable to the state and others are not. That I am entitled to spend my money (that is, MY MONEY) on things that the Government thinks proper, and that if I don't, the State is entitled to steal as much as they feel proper of the cash involved.

StringersBeer said...

Brian will, of course, refuse to avail himself of any of the valuable services offered by the state, because of his philosophical objections to the way they're funded.

The theory goes that excise duties are the way they are because they're tools of social / market control. The "negative externalities" (e.g. healthcare costs) believed to be associated with alcohol consumption are held to be offset somewhat by revenue from duty. Also, demand is thought to restrained by the higher prices resulting from the duty being passed on.

So I guess that Brian makes a fair point, in a way. Beer duty is evil, if you truly believe that the "Welfare State" is evil. Or more generally, if you believe that in a liberal democracy, government agencies have no business attempting to correct market failures. Otherwise, not.

Brian, follower of Deornoth said...

Poppycock, StringersBeer

There are plenty of ways in which the necessary revenue could be raised without discriminating between different recreational activities. It is quite in order for taxation to reflect externalities involved in a particular activity (Pigouvian taxes) in which case the tax on beer would be rather lower and the tax on Football and Athletics rather higher.

The current levels of taxation on beer are intended as a deterrent, and this argument is quite independent of the argument against the grotesque rapacity of the public sector in general.

StringersBeer said...

Brian. If you accept the logic of "Pigouvian" taxes, you'll have to grant a democratic "state" the right to discriminate "between different recreational activities" by way of excise duties.

Otherwise, which is it that you have a problem with? The social/market control thing or the democracy thing?

I'm (of course) in favour of progressive beer duty - it goes some way to recognise the more positive externalities associated with the small brewery when compared with the hyperbevco .

Brian, follower of Deornoth said...

"If you accept the logic of "Pigouvian" taxes, you'll have to grant a democratic "state" the right to discriminate "between different recreational activities" by way of excise duties."

I would have to accept the taxation of things according to the external costs they impose, which in the case of beer is considerably less than the tax currently levied. And it is precisely because this is a democratic country that I don't have to accept it.

StringersBeer said...

Brian. Numbers? Or just a gut feeling?

Curmudgeon said...

There is maybe an argument to be made that the effect of beer duty on the pub trade is exaggerated. As prices are generally much higher in pubs than the off-trade, by definition, beer duty is a smaller proportion of the price to the customer. I get the impression much of the pub trade is wedded to the concept of percentage gross margin as the key to profitability, whereas Wetherspoons have recognised that an absolute return view can yield dividends.