UK: Pending tax reform causing dispute in normally convivial brewing world

Trouble is brewing in the normally convivial world of beer making, with an unseemly fracas developing over pending reform of the tax breaks that have fuelled the huge growth in the number of small brewers in the UK, The Guardian reported on March 16.

Anyone enjoying the wide array of lagers, ales, stouts and porters at this weekend’s bustling BeerX exhibition in Liverpool, organised by trade body the Society of Independent Brewers (SIBA), could raise a glass to Gordon Brown.

As chancellor, in 2002, he implemented small brewers’ relief (SBR), offering them a discount on beer duty, at a stroke slashing one of their largest costs.

SBR was a catalyst of the UK’s “craft beer revolution”, during which the number of small brewers expanded from about 400 to 1,800 or more today.

SIBA estimates that UK drinkers can choose from between 10,000 and 15,000 different beers.

That is before you take into account one-off special occasion beers or collaborations between brewers, a common occurrence in an industry that has garnered a reputation for a friendly spirit.

But that camaraderie is at risk due to a schism caused by upcoming reform of SBR. The Treasury, which gathers £8 blnn a year in beer duty, is calling for the industry’s views, with the window for submissions closing this weekend and a decision due with the budget in the autumn.

Under SBR anyone brewing up to 5,000 hectolitres a year – about 880,000 pints – pays just half of ordinary beer duty rates. Above 5,000 hl, the discount falls away rapidly, although relief still applies up to 60,000 hl.

SIBA is asking for SBR to be tweaked, to exclude beer destined for export from the production figures used to calculate duty, and to remove disincentives for brewers to merge.

It would also like to see the upper threshold raised, so that anyone brewing up to 200,000 hl would also benefit.

Phil Douglas, head brewer at Black Sheep Brewery in Masham, North Yorkshire, agrees. The brewery gets no tax breaks, because it produces 93,000 hl a year.

He said: “We are classed, in duty terms, like Heineken or [Budweiser owner] AB InBev. We pay £7 mln a year in beer duty out of an £18 mln turnover.

“It has resulted in one or two brewers cutting back production to get underneath the threshold. That has cost jobs, the opposite of what the scheme is meant to do.”

SIBA’s decision to stop short of backing a more far-reaching overhaul of SBR has led to a coalition of around 70 firms – the Small Brewers Duty Reform Coalition (SBDRC) – forming a splinter group.

Their argument is that the scheme incentivises breweries to curtail their growth to retain a cost advantage over those who do expand.

The split, says one brewery chief, is so acrimonious that he fears going on the record with his dissent. “There will be a huge amount of unpleasant invective and attempts to damage my business,” he said. “This does not normally happen in the beer industry. This is different.”

His view is that some small brewers on the 50% duty discount are being kept afloat artificially, using the subsidy not to invest in growth but to undercut medium-sized competitors on price.

The SBDRC wants the relief available to those below the 5,000 hl mark to taper off slightly as brewers’ production volume approaches the threshold. This would, they say, be fairer overall to those looking to grow and employ more people.

Brigid Simmonds, the chief executive of the British Beer and Pubs Association, said some family brewers were selling up rather than trying to compete with smaller competitors enjoying an SBR advantage, in an apparent nod to the recent sale of London Pride maker Fuller’s to Asahi for £250 mln.

Mike Benner, the chief executive of SIBA, does not agree. “The majority of small brewers use the relief to invest in their business to grow and pay down debt,” he said. “If it changes you’re going to see some casualties. All we’re trying to achieve is what consumers are calling for, which is high quality, more local and independent small-scale brewers.”

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