UK: High excises hurting UK’s craft beer sector

The UK has one of the most exciting craft brewing scenes in the world, but thanks to one of the highest beer excise taxes in the world, craft brewers are being held back and the English pub, an icon of the culture, is dying at an alarming rate, Munchies reported on June 8.

Britain’s Campaign for Real Ale (CAMRA), a consumer advocacy group, reports the number of breweries in the UK hit an all-time high last year, at 1,424. More than 200 breweries opened last year. With a population of 64 million, that means the UK has far more breweries per capita than the United States, the birthplace of the craft beer revolution that is spreading all over the world. There are more than 4,200 craft breweries in the USA, where the population is 301 million.

America’s craft brewing industry is thriving, with the leading breweries making millions of hectolitres of beer annually. Craft breweries in America have been very positive forces in communities across the nation. Many states and cities are actively courting craft brewers because they have been engines of economic development.

But the craft beer segment in the UK is tiny, thanks to a tax system that punishes any brewer making more than 5,000 hectolitres of beer annually. British brewers pay nearly an English pound ($1.41 US) for every litre of 5-percent alcohol beer they sell. Brewers making fewer than 5,000 hectolitres pay half that. Beyond 5,000 litres of production, the tax rises, topping off at an English pound for every litre over 60,000 hectolitres. The tax rises precipitously with each additional 1 percent of alcohol.

That means it is tough for a small UK brewer to justify growing beyond 5,000 hectolitres.

Logan Plant, founder of Beavertown Brewery in London, is making the painful transition from the 5,000-hectoliter shelter. “Our tax now equates to a quarter of our gross turnover per month and it’s only going to grow,” he said. “The rate increases constantly until you hit 60,000 hectolitres.” He said many brewers make lower-alcohol beers to keep taxes down. Some focus on exports rather than trying to build their domestic sales.

“We don’t take it into account because we love to brew higher-gravity brews as a preference in style and taste, but of course the duty payable on a 10-percent triple IPA is huge!”

In the United States, brewers making fewer than 60,000 barrels annually pay $7 per barrel, or about 6 cents a litre. Over 60,000, the tax goes to about 15 cents a litre. If you brew more than 2 million barrels, you pay 15 cents a litre on all production.

So in the US, the tax on a pint of craft beer is 3 cents; in the UK, it is 70 cents.

Beer consumption in the UK has declined precipitously in the last few decades, from 70 million hectolitres to 44 million. In 2003, the average adult drank 218 pints annually; by 2011, consumption was 152 pints, according to a report in the Daily Telegraph. The Telegraph said beer-drinking in pubs has declined even more rapidly than home consumption.

So if the British government needs the revenue from the beer tax, it should recognize that the high tax rate is driving down consumption, and therefore tax revenue.

In 1905, there were about 100,000 pubs in the UK. By 1935, the number was 77,500. By 2014, there were 48,000 pubs, according to the Lost Pubs Project. The Campaign for Real Ale says 31 pubs are closing every week. Many are being converted to supermarkets or convenience stores. The planning rules for such establishments are far less onerous than for pubs.

The Society of Independent Brewers (SIBA), a trade association representing small brewers in the UK, recently released a report that runs counter to these gloomy statistics. The “Insight Report” surveyed 900 UK beer drinkers in 2016 and found that nine in ten felt that English pubs did not provide enough information about the styles of beer they were selling. One in three said they would visit pubs and restaurants more if they were stocking British craft brewed beers. The report also found that British women were drinking more beer.

UK craft brewers rely on their own pubs for cash flow, and craft beer pubs are thriving. “Our pub epitomizes everything we are,” said Plant of Beavertown. “Our soul and ethos shine through. The care, consideration and diligence to excellent product and service are killer…Our knowledge of our products, be it BBQ or the beers, is key to our customer experience.”

The pubs that are closing are owned by the big pub companies (known as “pubcos”) which have contacts with large brewers. Plant says the pubcos are “monsters, simply landlords with a bricks-and-mortar portfolio. For too long they have not cared about the public and what it wants or deserves…I know a friend who runs a pub in the Midlands where I grew up. He wanted to bring in [craft] beers from outside the pubco’s portfolio and stimulate the drinkers, but the pubco said if he did they would double his rent!…This is why pubs are closing because the big boys don’t care. They’d rather run them down and sell the bricks.”

SIBA has lobbied Parliament to reduce beer taxes but has often been at odds with the other big beer advocacy group, the Campaign for Real Ale. CAMRA traditionally has limited its advocacy to brewers and pubs producing and selling real ale—the traditional British “bitter” ale that is conditioned in casks instead of big tanks. Cask ale is pumped into the drinker’s glass by a gravity pump. Tank-conditioned beers are packaged in kegs and pumped out by CO2. This has driven a wedge between real ale producers and craft brewers.

Even if SIBA and CAMRA come together on a legislative program to reduce beer taxes, it likely will take years, perhaps decades, to get anything enacted. In the meantime, more and more pubs will close and that quaint little corner of British culture, a key attraction for many beer-loving tourists, may fade away.

09 June, 2016