SL-025 No Relief for Small Brewers

Welcome to the Sightlines podcast. I’m Jonny Garrett.

On July 21, barely three weeks after the U.K.’s hospitality industry and pubs came out of lockdown, the government announced it would be raising the amount of alcohol tax paid by small breweries. The backlash was immediate and furious, but it wasn’t only against the government. The anger was also aimed at a group of larger breweries that had campaigned for the tax rise.

Let that sink in for a moment: A group of businesses successfully campaigned for higher taxes within their own industry, specifically for up-and-coming competitors. To work out how it came to this, we need to take a step back.

It starts with a bill known as Small Brewers Relief (SBR), which was put into law in 2002. The bill gives all U.K. breweries smaller than 5,000 hectoliters (about 4,300 U.S. barrels) of annual production a 50% reduction in their alcohol tax. Beyond that volume, as the brewery grows, that reduction tapers off to zero.

Almost since the bill’s inception, some owners of breweries above the 5,000hl threshold have claimed the system gives small brewers an unfair pricing advantage. Meanwhile, those below see SBR as a lifeline without which new breweries would be unable to survive and grow.

After around five years of campaigning for reform and a two-year research project by the U.K. Treasury, the larger breweries—under an alliance called the Small Brewers Duty Reform Coalition—have won. The new rules mean small breweries will pay more tax starting at 2,100hl, which would immediately increase alcohol duty payments for around 150 existing businesses—by as much as £50,000 ($67,500) a year.

The Coalition believes the move will increase the price they can charge wholesalers for their beer, but they also say that it will encourage more growth among small breweries. They reason that starting the tax taper at a lower threshold—at 2,100hl—will remove what campaigners call the “cliff-edge” at 5,000hl, when duty payments suddenly start to escalate and making profit becomes significantly tougher.

Those small breweries, however, believe lowering the threshold will just limit their growth earlier, and see the move as a land grab by powerful brewing companies worried about the growth of craft beer beneath them.

In the wake of the news, several industry commentators called for drinkers to boycott the companies leading the charge for reform, including national brands like Timothy Taylor’s Brewery, Harvey’s Brewery, Wye Valley Brewery, and Hogs Back Brewery.

Beer can be political, and Small Brewers Relief has brought divisions within the industry into sharp focus, asking fundamental questions of who needs and deserves financial support in these difficult times: the historical, traditional breweries, or the new startups? How much should the state prop up private businesses? Is growth always the goal? And how sustainable is pricing in the industry, particularly around cask beer?

In this episode, we’ll talk to brewery owners on both sides of the argument, and will get the views of the economist who cowrote the academic paper that helped Small Brewers Relief come into being in the first place. You’ll hear how both sides have valid points to make—and that neither Small Brewers Relief nor any reforms of it have much hope of solving the industry’s underlying problems.

This is the Sightlines podcast. Listen in.