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Wednesday, March 23, 2011

Will a Massive Beer Tax Crush British Pub Culture?

I have recently been thinking a lot about the causes and conditions that create beer styles. Ingredient availability and type was obviously the most important historically. But other factors exert a surprising effect, like wars, economic changes, and laws. That last one is especially relevant in the current age, when globalization has reduced the influence of the others. Take for example the news in today's paper, that on Monday, Britain is set to raise the tax on beer by another 7%.
"Later today, the Chancellor George Osborne, is set to announce the new Budget and along with that will be an increase in beer tax of around 7%. The beer duty escalator, set in place by the previous government, is set to lead to an increase of the Retail Price Index (RPI) percentage plus two per cent."
This is just the most recent in what is a shockingly precipitous rise in beer taxes:
"The recent VAT increase, 6p per pint, has followed a 26% increase in beer duty since 2008. With the current high rate of inflation the sector is facing a further 7.1% beer tax increase this month. This would result in beer duty having increased by 35% in three years."

And: "The Campaign for Real Ale (Camra) attacked the Chancellor's decision to impose a "damaging" 7.2% increase in beer duty, saying that the average duty and VAT on a pub pint will now exceed £1."

The effects, of course, are catastrophic. In an effort to save money, people are staying home and drinking packaged beer, leading to a failure rate of British pubs in the thousands (currently, 25 close every week). Failing pubs means job losses--ten thousand alone are the predicted result of this latest tax hike.

Bizarrely, it will almost certainly result in lower tax revenues as well, as drinkers consume less. And herein lies the effect of law on beer. For centuries, pubs have played a major role in the life of British communities. Britons have exchanged their passions over the course of time--porter to Burton ale to mild, bitter, and finally lager--but they've never abandoned the way they drink beer. It's not an exaggeration to say that the vibrancy of British beer depends on the primacy of the local pub. Remove it and beware the effect on beer and brewing.

If you look carefully at the dense batting of clouds mounding in the skies, however, you will see one tiny shimmer of silver:

"However the Government does deserve credit for the 50% reduced rate for beers below 2.8% abv. It will act as a spur to innovation in what is a vital UK industry, and over time, should help nudge consumers towards lower-strength drinks.

This is useful because the only breweries producing beer that weak will be local. It further demonstrates the power of law to shape styles. Will we henceforth have a beer called a mild mild? (By offering a boon only to beer barely stronger than Fanta, it also reveals the anti-alcohol agenda embroidered into this whole debate.)

We do not have a surfeit of locations with rich beer culture on the planet. It pains me to see one of the best deliberately trying to abandon a proud national heritage.


  1. "This is useful because the only breweries producing beer that weak will be local."

    Not true. Most of the beers I've seen in this category are canned supermarket own-brand ales (like the one here). I can't see a rush of small breweries making this sort of beer.

  2. You have confused me (a sadly easy task). London's Meantime brews Basics Bitter, yes? Would we not consider that local? Walk me out of the weeds on this one.

  3. Harvey's of Lewes, a local brewer by anyone's standards, has a new 2.7% beer, but it's the only one I've seen. I haven't tried it but if anyone can make a decent beer at that strength Harvey's can.

    But the fiddling with duty rates at the extremes is a side issue. Beer over 7.5% makes up under 2% of the UK beer market. Beer under 2.8% is even less. It's the tax on ordiinary strength beer that is doing the damage. A third of what British drinkers pay for a pint is tax. That's the problem.

  4. You know what happened the last time the British excessively raised taxes on a beverage? 'merica, that's what.

  5. "Bizarrely, [raising the tax on beer] will almost certainly result in lower tax revenues...And herein lies the effect of [tax] law on beer."

    At the risk of injecting politics into this, that is usually what happens when the tax base contracts (either as a direct or indirect consequence of tax legislation).

    In this particular instance, if the intended consequence is / was social engineering (e.g., fewer British drinking in pubs), I think it has been / will be a rousing success. On the other hand, if the goal was to actually increase revenue for the government...

  6. Elijah, I think you're wrong there. If beer taxes had such a profound effect on consumption, we'd expect low-beer-tax states (like Oregon) to have higher per capita consumption than high tax states. But there's no correlation.

    Where it changes is when you pass a certain threshold (and surely economists know that threshold)--which is where Britain is.

  7. I don't know who brews Sainsbury's Basics Bitter, but once you're contracting for a national supermarket it's hard to describe the end product as any way "local".

  8. I'm not sure which point you're disagreeing with- that narrowing the base often results in decreased tax collections, or that measuring the success of this particular tax increase depends on what the British Government was really trying to accomplish.

    To your point about "thresholds," I don't agree that just because we have relatively low beer taxes here in Oregon that we should expect to see significantly increased consumption. Even if beer were a dollar a pint, I wouldn't drink much more. I still have a wife, kids to raise, a job to go to, my health to think about, etc. However, if pints were suddenly $10 each, you'd better believe I'd drink fewer. More succinctly, my base demand for a particular good (here beer) doesn't really change in relation to price, but my rate of consumption falls as the price of the good rises.

  9. Beer Nut, I will plead distance. I know next to nothing about the British retail market, so I'll keep my mouth shut.

    Elijah, I was thinking about the relationship to the effect taxes exert on consumption--the point that it's counterintuitive to raise taxes and lose tax revenue. Up to a certain point, there's no real relationship. Oregon is a low-tax state with moderate consumption. There are lots of states with variable taxes and consumption patterns all over the place--I haven't run the numbers, but I'd be shocked if there was more than a very mild correlation. Which means that raising taxes would result in a pretty consistent gain in revenue.

    There's a threshold, though, where taxes DO affect consumption. We've long passed the point with tobacco, and Britain has passed it with beer.

  10. If you read through this Pam Erickson (former head of the OLCC) discusses UK and their issues. They have deregulated their alcohol marketplace and are attempting to lower the resulting rise in consumption by raising taxes.

  11. There's a very good take on the whole issue, and where micros fit in, from Hardknott Dave here.

  12. Jim and Beer Nut: thanks. Those are both interesting reads. The plot continues to thicken...