Tax hike 'will cause brewery closures'

Brewery closures will escalate if the annual tax hike on beer continues.

That is the stark message from the British Beer & Pub Association (BBPA), which called for a beer-duty freeze in its submission for next month's budget.

The BBPA says UK brewers "are facing the toughest operating conditions in recent history, with falling volumes, rising input costs and sharply declining profit margins".

The group pointed to a 50% fall in profit of the UK's four largest brewers in 2005 - combined profit for the four firms that year was £116m.

"This leaves almost no scope for innovation or long-term investment and clearly demonstrates the huge sig-

nificance of a 1p duty increase. Brewery closures and redundancies have escalated - with more expected."

BBPA flags up a recent Deutsche Bank report showing that profits available from brewing fell by more than 25% between 2000 and 2005 to about £11 per barrel.

The BBPA points out that 35 breweries have closed since 1997. In this period, beer duty increased by 23% and consumption fell by 7%.

Beer duty is "close to the revenue maximising level", BBPA said, and "further duty increases are likely to generate little or no additional revenue". BBPA said excise revenues from beer duty between April and September 2006 were down 0.1% from the same period a year earlier.

The submission says the smoking ban will "have a further significant negative impact on beer sales", pointing to a 7% decline in Ireland.

The BBPA said duty hikes have accelerated the shift to the off-trade, and 80% of pubs are small businesses that "cannot compete with supermarkets and absorb duty increases". BBPA added that current excise policy encourages the move from beer to other drinks.

And a Europe-wide malt shortage, leading to malt prices increasing by 50%,

has also cut into brewers' profits.