The taxing duty of adding value

It was the budget on Wednesday. Oh, you know. Beer duty went up by quite a lot. You know that too I guess. You may also know that there is an extra tax on high ABV beers above 7.5%. But, according to you, that's OK because the duty on low ABV beer, below 2.8%, has been halved. Unfortunately, what you haven't realised, is that this will only be useful to brewers who produce over 5000hl per year; People like Molson Coors, InBev, Fullers, Marstons and BrewDog. You see, they will get the same discount on beer duty we do for beers under 2.8%, but as we already get that discount the revenue is not prepared to give us anymore. This is effectively the start of a reversal of progressive beer duty. To pay for this extra perk, which will only be applicable to things like supermarket own brand beers and C2, those of us who make quality beers, some of which are over the 7.5% threshold, will most certainly lose out. No microbrewer who is brewing below 5000hl will benefit. NOT A SINGLE ONE.

Some time ago I wrote that I didn't think beer duty was a significant problem to the pub industry. At the time I was running a pub with high overheads and brewing my own beer. Evaluating things across the board, at that time, my perspective was that beer duty was only a relatively small cost of serving beer in a pub. Indeed, as a proportion of the overall taxation I was paying, beer duty was relatively small. Pubs pay a significant amount of VAT for instance. Staff PAYE and NI contributions is significant. On top of that there are taxes like employers NI contributions, a hidden tax on employing people, and these are shockingly high.

The overall picture of alcohol taxation, as shown in the above chart, is certainly very complex. The vast majority of beer is still taxed lower than wine, whisky, alcopops and the margin between them does not appear to have significantly changed. What has changed is that major brewers have now been given an incentive to make more lower ABV beer and quality high ABV beer is being treated as a high quality, high value commodity, a bit like wine and whisky.

"Things as certain as death and taxes, can be more firmly believed" - Daniel Defoe, The Political History of the Devil, 1726

I don't like taxation. I do like some of the benefits it brings. I quite like the fact that the NHS saved my life at least once. I like the fact that they fixed my broken leg and both my hernias have been repaired without any need for me to have medical insurance or dip into savings I haven't got.

I like the fact that my children are receiving a good education, the police, ambulances and fire brigade respond quickly when called, and yes, I've had reason to call all of them.

I do worry that we send too many people through higher education only to have to invent bureaucracy so we can find suitable pen pushing jobs that the country really doesn't need. I think more people should be prepared to get their hands dirty, rather than pretending that an economy can somehow exist purely on a population of graduates and no migrant workers. And there, that betrays an opinion in me that feels that although taxation is necessary in a civilised society, I do wonder if generally it is a little high right now, and high because the populous has an unrealistic utopia in mind. I do think the tax burden is too high in this country and on the day there are marchers in London I wonder how those who condemn beer duty can then take part in such marches. I support the government's cost-cutting, it's the only way we will see taxation reduced. The only alternative is to support increases in taxation.

Still, we elected the government, this one and the last, and we must all accept the policies, spending decisions and taxation regimes imposed. I do think that they are influenced by overall public opinion, even if you and I feel that they don't match our ideals, but then they never will, because like all of us, our ideas are quite rightly different. Most of all I am grateful I can help vote out the buggers in charge, many people in the world can't.

It was recently pointed out to me that going to the pub is a luxury, drinking beer is a luxury. I remember my mother telling me so many years ago. VAT and duty are applied to things the government think are luxuries. Duty is applied specifically to things that are bad for us or society. Unfortunately, public opinion would agree that the government is generally right on these points. Most of the public would agree that alcohol is bad for us and moreover bad for society. The fact that you and I don't see it that way is unlikely to change public opinion.

Conversely, VAT is not charged on things that are good for us or are essential for us to live. Bread, potatoes, safety equipment, books, cakes, cheese, meat and vegetables are exempt from VAT. Biscuits, ready meals, fast-food, fizzy drinks, TVs, DVDs, computers, motor cars all attract VAT because you do not need them to live. Fuel for cars, alcohol and tobacco attract extra duty because they are bad for us, society or the environment and arguably if you spend lots on these products you have more money than sense. All of this counteracts the common accusation of purchase taxation and duty being regressive.

There is significantly less money coming from tobacco, and as a result of healthier society more people are living longer, costing social services, hospitals and care homes more. Perhaps this is the real reason alcohol duty is on the increase. I don't really buy the whole "alcohol is costing the NHS millions" argument - we are all getting healthier and living longer, the tax burden of that is immense.

Some years ago a very knowledgeable publican and successful business man pointed out, by way of up-selling I suspect, that buying a slightly more expensive bottle of wine was gaining significantly better quality.

"This basic wine has a lot of duty on it" he explained "This slightly more expensive wine has exactly the same amount of duty on it, the extra all goes into quality"

I suspect this is what James Watt is eluding at in comments to the MA, not too eloquently I'm afraid, in his usual out spoken style. He does it rather better on the BrewDog blog. However, if you consider for a moment that underneath this there is a valid point, quality beer is a quality product. Drinking beer in a pub, bar or restaurant is a luxury. Consider the total percentage tax (VAT plus duty) on a pint in a pub, which is about 32%¹, and compared that to a pint tin in a supermarket where VAT plus duty is 59%².

As the price you pay for your beer goes up a greater proportion of the price goes to the upkeep of the pub, better ingredients in the beer and investment in the brewery. In the supermarket cheap slabs of beer are almost entirely revenue for the tax man. Conversely, higher cost craft³ brewed beer represents significantly better value than macro-brewed beer.

I'm still outraged that beer duty has increased 43% since I started brewing in 2005. I'm extremely outraged by the fact that I will have to pay 50% more duty on my beers above 7.5%, beers that were a significant part of my business plan. I'm also outrages that the low ABV duty relief will do me no go whatsoever, but others are claiming it a success. However, there is an argument that the quality end of the market should be less financially sensitive to the extra tax burden, compared to bigger brewers.

SIBA sent out a circular very shortly after the budget was announced. There is a key issue surrounding the use of progressive beer duty for discounting beer from small producers. PBD is not supposed to allow small producers of beer to undercut the big boys, but there is an element of this going on.

"While no changes were made in the Budget to Small Brewers Relief (Progressive Beer Duty) it is incumbent on all brewers to realize that the relief is intended for investment in jobs and capital in the industry and to relieve the dis-economies of scale of the smaller brewers. Duty increases should be applied in full to prevent any accusations that small brewers are using the relief to discount prices."

That plays to the argument that small brewers should be concentrating on quality and investment, not fighting a pointless battle of price cutting. I know every drinker wants their beer to be reasonably priced, there is nothing wrong with that, but there are sectors of the market where price is driving down quality, and that is not what I want good beer to be about.

I believe that is what BrewDog are also trying to say, even if they are trying to simply get free publicity out of saying it.

Right, best go and adjust my price-list then.

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¹Assuming 4% beer sold at £2.70 a pint.

²Assuming 4% beer sold at £1.00 a pint.

³Yes, I know the jury is out on what defines "craft" and I get the issues with this, but for me craft beer is any beer that is brewed with a mind to quality rather than price. It's a sliding scale of course and I do not draw a solid line.

Hardknott tapping it out.

A year and a half ago I was shown, along with other members of the British Guild of Beer Writers, a room off Sheffield Station. It was a bit of mess to be honest; dusty, full of scaffolding and generally giving the impression of a building site.

Nearly exactly a year ago Sheffield Tap opened it's doors to the public, a world beer freehouse and the brainchild of James Hawksworth. After having significant problems restoring the building to it's early 20th centuary glory, the ceiling itself cost £27,000. Thankfully he had the guts to trust his judgement and agreed to fund the restoration, else we would be without this great place.

Not being particularly superstitious I should not let myself find significance with the fact that we have been running Hardknott as a stand alone brewery for just about the same time. Never the less, striving to be different is something I've always cherished and in this I can find synergy with Sheffield Tap.

Last Tuesday night we ran a meet the brewer night in this rather excellent platform refreshment room. On the bar was Light Cascade, Atomic Narcissus, Cool Fusion and Infra Red on cask and project Queboid on prototype keg. This is an unfiltered, isinglass free keg beer and as such a little on the hazy side, which was a worry to me. I worry about filtering changing the flavour of beer and isinglass is of course a concern for people regarding the fact that it is made from fish. It seemed to go down well despite its murky appearance.

More importantly this was the first time we had our new release Æther Blæc 2010¹ and Granite 2010. There are two versions of Æther Blæc determined by the containers they were matured in. For various reasons I'm not commenting on the exact containers but despite them both being from exactly the same gyle, the only differences being the maturation, there is very distinct differences. Details are in small print on the bottle so to find out you'll just have to buy one of each.

All in all it was a fantastic evening and I'd like to extend a very grateful thanks to Jamie and all his staff for their hospitality.

If you would like to buy my new release beers in bottle you can do so via myBreweryTap.com

We will be distributing to as many good beer shops in the next few weeks, please let us know if there is a shop near you that you'd like to see stock my beers.

And now, some pictures.

These pictures were all taken by Ben Steel and can be found on facebook.

And because he is upset that he hasn't got a picture of himself with the lovely Rosie, here is one Ann took.

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¹I define the vintage of my limited edition beers based on the year in which they are originally brewed. Both of these have been maturing for around 3-4 months and were originally brewed last autumn.

Hardknott at Sheffield Tap

Just incase you don't follow me on Twitter, or have somehow missed it, tonight we will be in Sheffield Tap. We will be launching our Granite barley wine, which we brewed in 2010, and also two different brand new versions of Æther Blæc. Ask me nicely and you'll get a free taster. We will also be trialing a keg beer alongside a full range of cask beers, including our very tasty Infra Red.

We hope to see you all there.

A look to the future

On Thursday I helped to organise a beer dinner at The Masons Arms. It was great fun and I hope at least a few of the people present were as impressed as I was at the quality of the beer and food presented.

It was the inaugural event of a loose organisation of people we are calling the Cumbrian Beer Appreciation Group. It includes, amongst others, myself, the great beer critic; Jeff Pickthall, the ever increasing light in support of great beer in Cumbria; Neil Bowness and one of the key management of aforementioned pub; Alex Routledge.

We currently have no formal structure, no constitution and no membership criteria. Indeed, if you like beer and live in Cumbria, or like Cumbrian beer, or visit Cumbria and drink beer, or perhaps just observe beery goings on in Cumbria then perhaps you have a right to be involved, if you want.

We stand for beer appreciation in Cumbria. Any beer really. We try not to have preconceived ideas about beer, other than we know what we like. Neither is there any real reason to be geographically constrained, other than for reasons that all the current "members" are Cumbrian residents. We like cask, keg, bottle conditioned, chill filtered and canned beer alike. We have even talked about doing a serious mainstream beer review video. We consider a well executed version of a traditional brown bitter to be just as worthy as a modern pale mild, a mainstream interpretation of classic IPA to be just as notable as a 9% hopbomb and indeed, for my own sake must admit that nitrokeg stout is a sound fall-back where that couple of pints are required in unwind mode should beer esoteria be unavailable.

I know that scorn has been poured on the concept of beer and food matching in some quarters. Perhaps it's my upbringing, but I feel that there is much milage in matching beer and food. Don't get me wrong, in my youth I have consumed my fair share of economy foods, and still do when quick calorific intake is required. From an early age I was taught the value of quality, even though we could rarely afford it. Quality events with my relatives, work colleagues, business associates and friends have often involved good food and perhaps wine of some sort of superior value. I never could get the hang of wine connoisseurship but I am certainly influenced by the fact that many good people I know have it mastered and are often revered by their peers for their knowledge, even if I suspect there is an element of male bovine excreta present.

Because I believe that beer deserves an element of progressive appreciation I have willingly, and I believe successfully, been involved in this sterling effort to bring a little bit of this to the Cumbrian beer world. It is just one of the many things that is bringing me great joy and hope about the 21st century beer world.

I notice that The Pub Curmudgeon has started a poll on his blog asking what decade the reader would most like to drink in. I voted unashamedly for 2011, mainly because 2021 and 2031 were not made available. I can't remember drinking in 1971, but in 1981 the beer wasn't that good and it's been progressively improving since. Yes, perhaps some things have got worse, less pubs for instance, but I'm not convinced that many of the losses will be greatly missed. Mudgie recounts his view of the way things were, just to give us a reminder. He asserts that the future is gloomy. Although I like Mudgie's approach generally, I do feel that today is a good time to drink beer and it's getting better, there is plenty to look forward to.

The opportunity to present beer in the way we did on Thursday is a great leap forward. We've been asked to do the same thing again in a few weeks at a different venue and so we hope the momentum will continue.

The evening itself was attended by a good mix of people. Some were confirmed beer enthusiasts like me, people who were looking for real beer inspiration. Others were interested industry people from Cumbria, brewers, licensees and the like. The rest were ordinary punters with no great beer aspirations, but looking for a good night of food and drink.

I found it interesting that some thought the early beers a little uninspiring, but conversely, the latter beers to others far too overwhelming. Overall, we believe we got the balance right and I hope that the Crafterati present understood that the exceptional balanced subtlety of the craft brewed pilsner and pale ales went extremely well with the soup and fish courses. Equally, to match beer with a rich chocolate desert or strongly flavoured cheese requires robust beer that would normally fail to find any appeal in a normal drinking session. If we sent one person away with a greater enthusiasm for progressive beer then I'd consider that a success.

This sort of dinner is a specialist event. Most beer drinkers will be unimpressed with the idea of sitting down in a posh joint and pontificating about flavour descriptors of the beer and food in question. I think it can only be good that there is a progression towards respectability for what I believe to be our core alcoholic beverage of the UK. Long may it continue to gain pace, as this is part, if only a small part, of what some are calling a beer revolution.

I'm raising a glass to the great future of beer.

In defence of the Crafterati

I generally agree with the comments made recently by Pete Brown and a related subject by Zak Avery regarding divisions in the beer world. This is all followed up by Tandleman who very nicely points out that we should all be able to comment where we like whilst still calling for a united front for British beer. Within these pieces there are links to other very salient observations by other bloggers. I do get all of this; there is a danger of us being far too negative rather than maintaining general positiveness about beer. There is indeed much to celebrate about beer in the UK, it's very diverse with a fantastic mix of progressive and traditional.

However, this also leads me to wonder. In the cities there are some great places to get great beer. There are specialist beer bars springing up all over the place and they all seem to be doing very well indeed. For this "craft beer revolution" to work it does need a cosmopolitan environment. Here in Cumbria there might well be some things to celebrate, but for the growing number of beer Crafterati within the county, it can be frustratingly difficult to improve enthusiasm for craft beer, whatever your definition of craft might be.

I can see the folly of criticising what people choose to drink, but equally there are areas of the country where the beer world view is still very narrow. I cannot get to most of the pubs that serve the beers I enjoy without driving, or getting Ann to drive. Most of my beer sales are a significant distance from where I have chosen to set up my brewery.

Imagine you can't get any beer that you really enjoy. Imagine you live in a county where everything is terribly parochial. Imagine you very rarely get anything other than boring brown beer, or even perhaps pale beer, but barely with much hop character to write about. Imagine that you are the sort of person who realises that drinking 6 pints of session ale does nothing for you other than damaging liver cells and putting a little more unwanted fat around your waist.

Imagine you are a brewer who is operating from that county and finds that most of your market is, in fact, outside the county because people inside don't really like the beers you make, despite them being awarded beer of the festival at least three times.

We know that there are people who like my beer. We also know that there are people who don't. Sometimes, when we follow up a sale to a pub, in the hope of repeat custom, the reply is an honest "my customers didn't really like it". Of course, I worry that it might have been a fault with that particular cask, and sometimes that might be so, in which case we try our best to address that situation. However, it is clear that certain outlets find that our approach to beer does not match the very stale traditional outlook which prevails.

When I send my beer to more progressive beer outlets I worry that it isn't progressive enough. I worry that I need to pack more flavour into the beer and ensure I can impress the Crafterati.

I know fine well that a massive 8% hop bomb is never going to be mainstream, and nor should it be. I know that imperial wood aged stouts are specialist beers of which most drinkers will be rightly sceptical.

I must hereby state my absolute right to slag off attitudes and choices of beer that prevent me from enjoying my own beer world, either from a brewer's or a drinker's perspective. By proxy of course this has to extend to supporting the right of people to deride chemical fizzy beer, even though I have now come to realise the error of that course of action.

It is interesting that Pete Brown's muse was triggered by Cookie's point that the wine world never slags off poor wine. Excuse me, after only the briefest of looks I found quite a few wine blogs where there are similar topics to be found. OK, wine buffs might be a bit more subtle about how they deride lower quality, or the use of such things as sulphites, for instance. We could discuss the fact that wine writers appear to be more erudite if you like, that would be more appropriate, but of course that would sit very uncomfortably with most beer enthusiasts.

Wine critic, art critic, music critic? Just the same as the beer critic surely? We can't all just write about that last great beer we tried in that new beer bar can we? If all beer writing is just about awesome beer we like we'll get criticised for not talking about the issues.

I can't help feeling that we are going around in ever decreasing circles.

The price of a pint (of strong beer)

“How much a pint?” He was middle aged, respectable and probably had a good job. Dressed smart casual he gave the impression he had a nice house and a nice car. “£3.40 a pint? That’s ridiculous!” I suspect he probably does some sort of engineering job. You know, he might well have earned his current position where he sits in his office looking over technical specifications and project timescales because he has worked up from the bottom and gaining his experience the hard way. He could probably still swing a hammer if he had to. Probably well paid but still has his feet firmly in that opinion that beer should not lose sight of its roots. It is the drink of the working classes, drunk in pints and should be priced by the pint.

In the same pub the big brand lager and a well known, and if I were honest, not too bad a representation of a stout, were about the same price as his 6% beer. Bearing in mind the mainstream beers were around 4% ABV I was failing to understand why the gentleman was complaining about the price of the 6% plus craft brewed beer he had ordered.

Very roughly, the cost of making a beer is proportional to the ABV. A stronger beer needs more malt, more hops and the beer duty, for the time being, is very proportional. Actually, from a brewing perspective, I think there is need for even more hops in a balanced strong beer; not only is a stronger hop character needed but the utilization of hops decreases with greater gravities in the copper. Mash efficiencies for that matter drop off as the OG increases.

It is true that there are some base costs that stay the same; Energy perhaps and other key overheads. However, typically a stronger beer needs more time in maturation, wherever that might be. Stronger beer ties up crucial brewery equipment for longer reducing the throughput of the brewery. There is good demand for some of my stronger beers but the time in tank holds up my bread and butter brewing schedule. Strong beer has to pay its share of the overheads to be commercially viable. Time IS money and all that.

“But the pub probably pays less than half the pump price for the beer” I had been trying to communicate to the irate drinker, who in return was trying to defend his right for cheap beer, irrespective of strength. “They can afford to sell me it a bit cheaper than that”.

Well, no. I don’t think that pubs can. Many do because licensees find that they get objections from the likes of our friend here. Pubs that heed the desires of the bargain booze drinkers often get into trouble because they find their overall profitability is cut. The reason is very simple.

Strong beer gets people drunk quicker. No shit Sherlock. Either that or they drink less. I’d like to think that most responsible craft beer drinkers will pace themselves. Perhaps even choose a half. Indeed, I think that beers over 6% are much better presented in an oversized curve bottomed tulip anyway. The standard nonic or straight tapered glass fails to show these beers at their best.

So, let’s assume the licensee is being good to us. Lets suppose he simply puts a straight cash markup on the pint at, say, £1 a pint. Having been a licensee I can categorically state that this is a very charitable mark-up for the pub to be charging on a typical 4% beer. Less and the pub will go out of business. I could expand on this point, but please, for the purpose of this piece, trust me on this one. Remember, this represents the low end budget style pub, the type most reasonable people wouldn’t enjoy anyway. This is the type of pub where they avoid high overheads by cutting back on cleaning staff, avoiding decorating and doing minimum maintenance.

At this cash markup, our 4% beer might be costing the pub £0.90¹ per pint to buy in, excluding VAT. That’s £1.90 per pint to the punter, excluding VAT. That is £2.30 a pint including VAT and once we round the price to get rid of ghastly copper coins out of the change. Cheap? yeah, but I did say this is in a slum of a pub.

Our 6% beer probably costs the pub £1.22 a pint. £2.22 before we put on the VAT making the retail price £2.65. Remember, this is where the pub is only making the same gross profit amount per pint as they are from a weaker beer. And remember we are still in our bargain basement slum pub.

Lets rework that for a more realistic pub, one that spends a bit more on keeping the décor nice. One where they pay a little more in staff wages to make sure the toilets are clean. The ones where they will call out a plumber if need be to make sure all the toilets flush. The ones that have paid to replace those really crap seats with something a bit more comfortable. Where you might pay £2.60 a pint for session beer.

On a cash markup the 6% beer would retail at £3.05 and an 8% beer, for example, would retail at £3.40. What astounds me is that there are pubs that actually make less mark-up on strong beers and recently I noted my Queboid, 8%, was priced at only £3.00 a pint when 4% beers were around £2.60 a pint.

I would like to think that most readers would think these prices are at best very reasonable. I would also like to think that some enlightened readers will realize the flaw in this pricing structure. Remember, each pint of the beers is contributing exactly the same to the financial viability of the property.

Every bum on every seat of a pub is valuable. Every customer is an asset to a business. Well, until they get so drunk that they piss everyone off. Equally, the establishments that are the more financially healthy are the ones that are busy and maximize the revenue from every bum that sits on the seats and every pair of feet that crosses the threshold.

I was recently told a story by a very experienced world beer bar manager. A customer, it seemed, had been drinking a fairly strong fruit beer all afternoon. This particular customer was negotiating an open stairway, probably with some difficulty, when the aforementioned fruit beer felt it time to make a bid for freedom. Bright red beer made the return journey up oesophagus and then proceeded to cascade through the open stairway onto a nice couple who had only just entered the building for a quiet evening’s drink.

The bar manager felt the only reasonable course of action was to organise a taxi for the unfortunate innocent bystanders, give them a free bottle of something very expensive and apologise with as much humbleness and grovelling as could be mustered by a busy barkeeper. I failed to find out what happened to the drunk, but one can only hope it hurt.

Although the above example is an extreme case of what can go wrong when people drink too much, it has to be said that drunk people are a problem to the very businesses that create them. We all think we are charming when we are actually drunk. The better of us realise the next day that we weren’t, but at the time we fail to acknowledge that to the bar staff, and often other customers, we can be a liability.

In conclusion, drinkers who drink stronger beer probably drink less and so on my cash mark-up model explained above spend less money or alternatively they spend the same amount of money but are more trouble.

But of course, you’re charming when you are out drinking, aren’t you?

For the reason I have given here, I would not expect a 6% beer to retail in any reasonable pub for less than £3.60 a pint. I would not expect an 8% beer to retail for less than £4.20 a pint.

I like strong beer. I like it too much. I like it so much that it gets me into trouble. The last time it got me into trouble I blamed Kwak, and some other Belgian thing that might have been Kasteel Rouge Kriek, I think. Well, it was a Kriek anyway. Apparently, I failed to drink Jaipur and White Shield in the following pub due to my by then intoxicated nature.

I like strong beer but fail to find it often enough. Licensees don’t really like to stock it. Why should they? It doesn’t gain them the same GP per footfall. But I’d be prepared to pay a little more than the standard considered price to ensure I could get it.

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As a side note; strong cask beer also sells slower. Although it also keeps a little better and I've know good cellar men to keep 8% beer in good condition for up to 3 weeks, it is not unusual for greater quantities of stronger beers to be thrown away, further reducing profitability of strong beers.

¹All the supply prices used for this illustration are based on Hardknott list prices. Obviously different breweries have different prices and nearly all breweries offer various discounts depending on distance, order volume, overall volume and other delivery variables.

Proud of Beer

We recently joined SIBA.

I'm sure I could find a reason to make some publicity out of how I felt I had to and it's just a business choice. Some folks might. Actually, it was a combined effort of a lot of people who convinced me it was the right thing to do. I'm glad we did join.

And today, well, good job well done. We're proud of beer at Hardknott. We're proud to now be part of an organisation that is doing something.

And I'm proud of that top bloke Pete Brown and all the cast of the film.

Proud of British Beer from Society of Independent Brewers on Vimeo.

OK, yeah, perhaps you could critique it's style. But really, is there anything out there that does anything like as good a job? Could you make a film that goes anywhere near it? If so, why haven't you done it?