Friday, 10 March 2017

Back on the escalator

In one of his budgets, maybe in 2012 or 2013, George Osborne mentioned in passing that “there would be no changes to previously announced alcohol duties”, which many media outlets wrongly reported as meaning that they would be frozen, whereas in fact the dreaded duty escalator remained in operation.

This week, Philip Hammond pulled the same stunt, which led to widespread confusion as to what the duty implications actually were. One well-known brewer, who will not be named, even said on Twitter that they didn’t think there had been any changes. The situation was so bad that the British Beer and Pub Association felt compelled to issue a statement clarifying the position.

Even the official government announcement was distinctly disingenuous, saying “This measure increases the duty rates on alcohol manufactured in, or imported into, the UK by reference to the retail prices index (RPI).” Anyone reading this would assume that duties had been increased in line with RPI, but in fact the term “by reference to” meant that the dreaded duty escalator had returned, with rates going up by RPI plus 2%.

This means that the main rate of beer duty has increased from £18.37 per hectolitre per % of alcohol to £19.08, a rise of 3.86%. A pint of 4% beer will now incur duty plus VAT on duty of 52p, a rise of 2p over the previous level. Inevitably, once pubs have applied standard mark-ups, this will translate into 5p at the bar, and often 10p given the way many prices are now rounded up.

It’s easy to dismiss such rises are trivial and say people will take them in their stride. But every price increase is a step too far for someone who is already at the limits of their budget. And, over time, successive above-inflation increases in duty will make alcoholic drinks significantly more expensive in real terms and reduce the demand for them. Although obviously it wasn’t the sole factor, it is noticeable how the rate of decline in the pub trade in the three years since the escalator was shelved in 2014 has been considerably less than in the preceding years.

It would have been understandable, if regrettable, if the government had returned to raising duties each year in line with inflation. But it has been made clear that the duty escalator was never scrapped, merely suspended, and is now back with a vengeance.

Sadly, all the hard work that CAMRA and drinks trade bodies devoted to campaigning against it and pointing out its negative effect on one of Britain’s biggest business sectors has been thrown back in their faces. The process is going to have to be restarted, and this time it must be made clear that the objective is to drive a stake through the escalator’s heart, not just to put it into suspended animation.

6 comments:

  1. I would question why the publican needs to apply the standard mark up to the duty increase.

    By and large the brewers increase their prices in January (http://www.morningadvertiser.co.uk/Drinks/Beer/Carlsberg-and-Heineken-unveil-price-increases)

    Heineken said 6p a pint average so let's call that 8p inc VAT.

    The publican, traditionally, will take the brewer's wholesale price rise as the opportunity to introduce his annual retail rise.

    He will consider the increases in his other costs - rent, wages, utilities, rates and so on - and incorporate those costs into his retail price. A rule of thumb is that the retail price will increase by about twice the wholesale.

    So let's say that he puts up his Heineken by 20p, and again traditionally this is blamed on the brewer for convenience.

    When duty increases a couple of months later there are no other additional costs to account for - only the 2p.

    So why add 5p or 10p? Other than the obvious, and understandable opportunity to squeeze a little extra profit.

    (There are always exceptions to the rule of course; some will have held prices in January to see what the budget brings and will now adjust their retail prices accordingly.)

    But perhaps the easier argument about mark up is to ask ourselves what happened when duty decreased in previous years - did the retail price decrease by twice the duty change?!

    ReplyDelete
    Replies
    1. but the price of a pint in a pub will always be impacted by more than the simple changes on beer duty, the outcome was always that the cost of a pint just rose less steeply when duty was cut, its not that it ever could hold or even decrease. simple ingredients force beer price rises, a bad barley harvest, or the shortage of exotic hops is no doubt pushing some brewers to distraction, whilst others may even be considering alternatives like hop resins to keep costs down.

      I was reading Wetherspoons half year results today and they mentioned the cost rise in electricity taxes will cost them £4million this year, yet you dont even really think about pubs needing to pay tax on electricity. Equally theyve always highlighted the costs of supporting the increases to minimum/living wage and obviously business rates is a big news story at the moment.

      I think whilst other forms of taxation increase are increasingly seen as off limits by governments making wild election pledges, things like beer duty will always be a soft target.

      Delete
    2. Maybe the big boys raise their prices in January but plenty of smaller brewers pin these things to Budgets or the turn of the financial year. For one thing, new hop contracts may not be fixed until into the new year, brew plans may not be finalised, and rises to fixed costs can cascade gradually, so the sums for a price rise may take some time to do.

      And no, of course duty decreases weren't followed by price decreases, but that's because all the other costs still continued to rise.

      Delete
  2. And of course another caning for us smokers.

    ReplyDelete
    Replies
    1. You've never been off the escalator, of course :-(

      Delete
    2. Surely you don't buy giggies from retail shops. Much of the tobacco which I see being smoked is brought into the country from Europe. Which is why very high rates have tax have always been counter productive.

      Delete

Comments, especially on older posts, may be subject to prior approval. Bear with me – I may be in the pub.

Please be polite and remember to play the ball, not the man.

Any obvious trolling, offensive or blatantly off-topic comments will be deleted.

See this post for some thoughts on my approach to blog comments. The comment facility is not provided as a platform for personal attacks on the blog author.