Opinion: Time for change of tax

'It's time for change' was one of the recurring themes played by our political leaders during the recent general election campaign. It's a message that certainly applies to government policy on one of our industry's key issues - beer tax.

That's why, as organisations representing Britain's small, medium and large brewers, pub-owning companies and more than 110,000 beer consumers, we have come together to urge a change in government tax policy on our national drink - beer.

Brewing is one of Britain's iconic industries. Through its strong links with farming, pubs, communities, tourism and local suppliers, it plays a huge role in generating local jobs and government revenue, and supporting the wider UK economy:

• Beer sales generate 400,000 jobs in the UK, more than three-quarters of which are in pubs and clubs and almost 20,000 in the farming and agriculture sector.

• Sixty per cent of drinks sales in community pubs are beer.

• The beer and pub sector as a whole generates £28bn of economic activity and directly or indirectly supports close to one million jobs.

• Beer sales generate more than £7bn in tax revenues.

Not only is beer our national drink, but enjoying beer fits well with today's drive for a healthy lifestyle. With an average alcohol strength of four per cent, beer should be promoted as the drink of choice for socialising and conviviality. Pubs, of course, are at the very heart of communities and a key element of hospitality and tourism in the UK, and should be championed as the home of responsible social drinking.

However, the industry has been under sustained pressure for some time, with annual beer sales plummeting to lower than during the Great Depression of the 1930s, 4,000 pub closures in the last two years alone and more than 40,000 jobs lost. More than 30 pubs are still closing every week and in the first four months of 2010 beer sales in pubs were down a further 10 per cent.

Brewing industry profits equate to 1p per pint, (one per cent operating margin) compared with 66p in total tax revenue from beer sales. This is not sustainable.

Successive Budgets have hit beer with above-inflation tax increases. In the past two years beer tax has increased by 26 per cent - a £761m tax rise.

It's time for a change. We recognise the current enormous strains on the public finances will require sacrifices to be made to put UK plc's balance sheet back in order.

We want to play a full part in that vital work. But in order to do so, we need a sustainable fiscal and economic environment for beer and pubs.

At a time when we need to be maximising private sector entrepreneurship and growth and securing government revenues, current policies that are reducing the tax take from beer, closing pubs and breweries and putting people out of work in our sector are in nobody's interest.

So, in the forthcoming Budget, we would like to see the following priorities addressed: a freeze in beer duty for a sustained period, a fairer tax system that recognises beer's status as a lower-strength, British-produced drink and, if VAT is increased, a compensatory cut in beer tax as a targeted measure to help community pubs.

Our industry makes a huge contribution to public services via tax - £3.2bn is paid in excise duty each year. In addition £4bn of tax revenue comes directly through sales of beer of in the UK. However, as noted by PriceWaterhouseCoopers in 2009, "the current duty rate is almost at the revenue-maximising level and any further significant increase will result in a reduction in the tax revenues obtained by the government from the brewing industry".

This situation is highlighted by the graph (opposite page), which needs no further explanation.

Last year, Oxford Economics calculated that if the beer duty escalator were suspended and beer duty frozen at current levels, this would save 7,500 jobs in the next 12 months alone and increase net revenue from beer sales by £37m in 2010/11.

Why is this? Approaching 90 per cent of beer sold in the UK is produced in the UK and more than half is sold through the labour-intensive and high-value-added pub trade, and the wider hospitality sector. Hence the huge numbers of jobs created in towns and villages throughout the country.

While the beer market has been in decline, other drink categories have been in growth. Yet excise duty policy has continued to disadvantage beer compared with other drinks since 1997.

The way in which beer is disadvantaged compared with spirits under the current tax system has been highlighted in separate studies by PriceWaterhouseCoopers and Oxford Economics. Both studies calculated that the cost of producing alcohol in the form of beer was three to four times higher than producing spirits and that this difference was significantly greater than the higher rate of duty charged on spirits.

If drinks were competing solely on the basis of alcohol content, then beer would not be produced. As a relatively low-alcohol drink, beer has higher production, distribution and retailing costs per unit of alcohol than the majority of other alcoholic drinks, as well as technical services costs associated with draught sales.

Nearly all countries around the world apply a higher rate of tax for spirits than for beer and other fermented drinks. However, in the UK the ratio of beer duty to spirits duty has significantly reduced over the past two decades, from greater than 1:2 to 1:1.4. European law means wine and cider are both taxed per hectolitre of product, rather than by alcohol content like beer and spirits.

The result of both the relative tax treatment of beer over successive years and the structures of the current tax system have resulted in the following tax ratios for drinks in the UK.

We believe it is now time for the UK to move towards a more balanced system of taxation between different drinks, more in line with the Irish system.

It's time for change. There are clear technical and structural reasons for change, in order to correct distortions that have crept into the tax system over the years.

There are positive social and societal reasons for change - to recognise beer's value as a low-strength drink and the role of pubs as centres for community life and cohesion.

And there are reasons for change centred on pride and passion. Brewing is a national economic champion, beer is our national drink and pubs a national icon around the world. It's time for our politicians to show their support. Our campaign is galvanising large and increasing numbers of people to back beer and back pubs. Join us.