UK government to change duty rules for craft breweries

The UK’s beer industry has been divided over a government proposal to change the way it charges smaller breweries for the beer they produce.

The reform has divided brewers in the UK.

The UK government has lowered the threshold for breweries to stop receiving some tax breaks on the beer they produce.

This announcement comes as part of a wider bid to help small businesses which includes a shake-up of business rates, asking hospitality businesses for evidence and a pledge to reform the UK’s alcohol duty rates, which are some of the highest in Europe. You can read more about the proposals here.

Small Breweries’ Relief was introduced in 2002, and was meant to help newer breweries become profitable and compete with big players like Heineken or AB InBev. The relief gives any brewer producing less than 5,000 hectolitres (about 880,000 pints) annually a 50% discount on beer duty. Once a brewer starts making more than 5,000hl, the relief rate is lowered on a sliding scale.

Critics of the scheme claim it discourages smaller brewers from expanding, as they have to pay a substantially higher rate of duty once they go over the threshold.

Now, the government is lowering the threshold from 5,000hl to 2,100hl, adding it is intended to “support growth, boost productivity, and remove ‘cliff edges”.

A group of mid-sized breweries have been lobbying for the changes for a number of years, which also originally included raising the upper level of relief to 200,000hl.

Support in the mid-range

The tax reform came into effect after a number of smaller, but more established breweries, in the UK lobbied the government, under the name the Small Brewers Duty Reform Coalition.

According to Matt Jackson of Lancaster Brewery, the coalition has been campaigning for changes to the tax rules for 15 years.

“Hopefully we can now unify as an industry to move on together and have fewer restraints to growth,” he said.

Mark Gordon, founder of South London’s Wimbledon Brewery, said the review is “very welcome news for all breweries like our own that have strong growth ambitions. It will undoubtedly lead to an increase in investment in the sector.”

Simon Theakston, executive director of T&R Theakston said the reform will “encourage breweries of all sizes to grow, which is also excellent news for the future sustainability of the overall UK beer industry.”

Sales of cask ale, which traditional brewers tend to specialise in, have been in decline for some years. Tim Dewey, the chief executive of West Yorkshire-based Timothy Taylor’s Brewery, hoped the reform will encourage consumers to buy more cask beer.

“Despite a challenging economic environment, the government has recognised the genuine concerns our industry has with the distortions and disincentives within the Small Brewer’s Relief scheme and has acted to address these,” he said.

“There are some very positive steps in the right direction here for all of us who want a great future for cask ale.”

Jonathan Price of Exmoor Ales, which is known for its traditional bottled ales, said that revising the duty curve and correcting the unintended consequences of the SBR regime is “fundamental to the survival and future development of the British brewing industry.

“Now sensible consolidation and growth can happen.”

Trouble for startups

As it stands, the changes mean that very small commercial breweries, which often operate on tight margins and rely heavily on SME tax benefits, would have to pay more duty on the beer they make. More details on the tax reform will be revealed in autumn this year, according to the Treasury.

James Calder, the chief executive of the Society of Independent Brewers (SIBA), said without more information about the duty reform, “we are unable to evaluate accurately who will win and who will lose, and by how much.”

According to SIBA’s research, 83% of SIBA members say SBR is ‘extremely important’ to their business.

“There are around 150 breweries in the UK who, pre-Covid, sat between 2,100hl and 5,000hl of production volume, who will, under the proposals announced today, see the beer duty they pay go up,” Calder said.

While the reform is designed to encourage craft brewers to scale up their business, it could have the opposite affect on those producing very small batches.

Andy Parker, who runs the popular Berkshire-based Elusive Brewing, told the drinks business it doesn’t seem “viable” to expand.

“It won’t necessarily hurt us as it is, we’re producing way below even 2,000hl, but it does make us look at the viability of growing.”

“Breweries in that kind of 4,000-5,000hl bracket will be most hit by that immediate change,” he added.

With more details expected to be announced in the autumn, Calder said it is “vital” that the countries’ craft brewers mobilise and start lobbying MPs themselves to make sure they are well represented.

Paul Jones, the owner of cult favourite Cloudwater in Manchester, said his brewery wouldn’t have been able to start selling beer nationwide and export to Europe if he’d had to pay more tax in the early stages.

“The UK already imposes one of the highest tax rates on beer in the world,” he said. “Frankly if we had to spend more money on duty up to this point, I cannot see how we would have been able to afford to grow the way that we have grown.”

There are also fears that jobs could be lost due to higher overheads in an already beleaguered craft brewing industry. James Beeson, a freelance beer writer and social media consultant, was recently made redundant from a job at a craft brewery in south London as they couldn’t afford to keep some staff on amid the coronavirus fallout.

Beeson said the change to the tax rule will “lead to job losses at the smaller end of the beer and brewing industry, and less choice on the taps for British beer drinkers.”

“The proposals, which also originally included raising the upper level of relief to 200,000hl and combining merged breweries volume relief, will lead to larger breweries buying up smaller ones, and using the duty relief to undercut the remaining small producers in the marketplace.”

Update: A Treasury spokesperson told The Guardian that “hundreds of breweries” were involved in the initial consultation process, and that small businesses will be able to gradually expand their business, as opposed to taking a leap to produce on a much larger scale to compensate for the relief’s withdrawal.

“We invest over £65m per year in craft brewing through small brewers relief. We’ve consulted with hundreds of breweries who have told us that the relief was being withdrawn too quickly, and therefore preventing their businesses from growing,” they said.

“To support these small breweries, our proposals will mean that they’ll still benefit from the relief as they gradually expand their businesses, rather than having an all or nothing approach where it’s rapidly withdrawn above a certain level.”