Brewers warn Alcohol Duty increase “will come back to bite” the sector

Independent brewers across the UK have been left reeling by the introduction of new Alcohol Duty changes, with suppliers warning about a devastating impact on breweries and pubs already worried about raising prices for customers.

From August, producers will now pay an estimated 10.1% more tax on packaged (sold in bottles and cans) beer. According to the British Beer & Pub Association (BBPA), that means tax will now make up around 30% of the cost of a 500ml bottle.

Hiked energy bills, staffing woes, and supplier price rises have already been making a misery for the pub sector.

With products facing a significant markup, hospitality experts are now warning that UK pubs and bars will have to decide whether to raise prices and risk consumer misery, or sabotage already paperthin profit margins.

“Costs will go up”

The new rates form part of a major overhaul to the way alcohol is taxed in the UK. Rather than varying by category for wine or spirits, rates will be decided by a product’s strength, or alcohol by volume (ABV), as part of plans to incentivise production of low-strength alcoholic drinks.

Products with an ABV of less than 3.5% will now be taxed on a lower duty, up from 2.8% in the previous system. Taxes on draught pints will apparently be unaffected.

Conversely, wines with a 12% ABV are predicted to rise by 44p per bottle, and spirits by around 76p per bottle.

In a government press release, Prime Minister Rishi Sunak said of the changes: “I want to support the drinks and hospitality industries that are helping to grow the economy, and the consumers who enjoy the end result.

“Not only will today’s changes mean that the price of a pint in the pub is protected, but it will also benefit thousands of businesses across the country.”

The government’s press office might be one beer short of a six pack, however. While ‘promoting’ the new Alcohol Duty changes with an ill-advised visit to the Great British Beer Festival in central London, teetotal Sunak was heckled by an angry pub owner.

Brewer-turned-pub owner, Rudi Keyser, shouted: “Prime minister, oh the irony that you’re raising alcohol duty on the day that you’re pulling a pint.”

Brewers in low spirits

Whitehall may insist that the new Alcohol Duty is a positive for beer businesses. But industry leaders have cautioned that the changes could have an adverse effect on producers, causing cash flow issues that could trickle down the supply chain.

Commenting on the announcement, Emma McClarkin, CEO of the BBPA, said: “Brewers don’t just supply draught products. They package beer in bottles and cans for enjoyment in pubs and at home as well.

“The 10.1% duty increase will have a huge impact, and overall will likely lead to costs going up across the whole category.”

Jesse Wilson is founder of Jubel Beer, a producer of peach-infused lager. While the government has stressed there would be no duty increase for a 4% ABV draught beer, this pledge does nothing to help brands like Jubel.

Like many beer businesses, Jubel’s produce is packaged and sold by retailers and in pubs across the country.

“We’re a 4% ABV lager which is a very sociable ABV level, but we’re being penalised with a 10.1% increase in duty on packaged beers,” says Wilson. “The changes have been framed positively, but in our opinion they’re anything but.”

Jesse Wilson, founder and CEO at Jubel Beer

Specifically, Wilson rubbishes the government’s Draught Relief, a lower rate of duty which it says will apply to alcoholic products under 8.5% ABV and brewed in a 20 litre keg.

He says this container size is rare in the industry, with small brands typically using 30 litre kegs, and large businesses favouring 50 litre kegs.

Swapping to smaller keg sizes is not the answer, Wilson adds. To do so “would have a negative impact environmentally and financially,” he discloses. “You still require the same time and effort to get your beer from A to B, but you just have less beer in each vessel which is much less efficient on all fronts.”

To offset the increase, the government has introduced Small Producer Relief as a supplementary support measure. Eligible firms will pay a lower rate of Alcohol Duty on any product with an alcohol by volume (ABV) of less than 8.5%.

However, firms will only qualify for reduced rates if they produce less than 4,500 hectolitres per year, essentially discouraging fast-growth brewers like Jubel from scaling operations.

Sobering thoughts

The government’s shake-up of alcohol duty levied on alcoholic drinks is aimed at lowering the price of weaker drinks, and encouraging the production of low-alcohol products.

Emerging low/no alcohol brands, such as Welsh brewer Drop Bear Beer Co. have been part of the charge. Offering alcohol-free (and hangover-free) drinks, they are a direct response to growing consumer demand for healthier, boozeless drinking options.

While the government measures might provide a welcome tax break for low-alcohol brewers, they’re unlikely to convince others to start brewing lower strength products. Instead, Wilson predicts, it is more likely to invite brands to cut corners during production.

“Consumers ultimately vote with their taste buds,” he says. “It is harder to brew to the same quality when dropping the alcohol level, so if some brands start diluting their quality as well as their ABV, I think this will come back to bite.”

So will Jubel alter its entire production and branding to go teetotal? Pull the other tap.

“The changes only have a negative impact on us, but we won’t alter our strategy or focus. We’ll continue brewing delicious fruit lagers,” Wilson vows. “The low-alcohol industry grew by 10% last year, while we grew 120%. We’re happy sticking to our positioning and strategy.”

A bitter pint

Despite Wilson’s optimism, the rise in alcohol duty is one challenge that the UK’s breweries and pubs could have done without.

For those who are in it, the government appears to be shaking the hospitality sector like it’s a homebrew beer can, testing how much pressure firms can take. Hopefully, SMEs will outlast the turmoil without revenues going flat.

Drinks boss Emma McClarkin urged the government to guarantee there will be no further increases to duty in the coming months, to give producers, as well as pub and bar owners, a chance to adjust to the new rates and reevaluate cash flow.

“There is only so long our brewers and the pubs they supply can continue to shield customers from these rising costs, so that a pint at the local remains affordable for everyone,” she warned.

Having to raise prices to combat supply chain inflation? Find out how to calculate your cost of goods sold to track the impact on your overall financial health.