The REAL impact of beer duty

Drinking too much alcohol can not only damage your health, but can also be costly for society. For example, a person who abuses alcohol over many years is more likely than the general population to suffer from various diseases which will need to be treated on the NHS. This places a burden on public services and has to be paid for by taxpayers.

As such, the government levies taxes on alcohol in order to offset the damage caused by excessive consumption, and also to discourage excessive consumption.

In three recent research notes, the TaxPayers’ Alliance have examined the impact of beer duty on consumers, the impact on jobs, and the impact on investment. Our findings were alarming.

For consumers, beer duty has a very negative impact on household budgets- especially on those on modest incomes. For example, beer duty means that a pint of beer is 52 pence more expensive. The average household spends one per cent of their disposable income on alcohol duty, which is equivalent to £263 each year. Despite the rich consuming more alcohol than the lowest earners, alcohol duties and VAT levied on the duty accounts for 2 per cent of the disposable income of the bottom quintile, but only 0.8 per cent of the income of the top quintile.

However, the official statistics may not reveal the whole picture. Brewer & O’Dea found that approximately 50 per cent of all recorded alcohol sales show up in expenditure surveys. Furthermore, average figures mask the fact that many people do not consume alcohol.

Research by Snowdon has attempted to calculate the true impact on the poorest households of taxes on alcohol. He found that: ‘The average drinker in the low quintile, if self-reporting was correct, would spend an average of 2.5 per cent of their income on alcohol taxes, rising to 3.7 per cent if drinkers underestimate by 50 per cent.’

It is therefore clear that beer duty is having a negative impact on the finances of households in the UK, this is especially true for those on low incomes. Many households are struggling with the cost of living, beer duty exacerbates the problem even further by adding extra pressure to the budgets of hard working families.

Beer duty also has a devastating impact on employment opportunities. The research reveals that the beer industry provides nearly 900,000 jobs across the UK. Many of these jobs are in areas where unemployment is relatively high. Many of these jobs are part time which offers flexibility to those who need it such as women with children, or those re-entering the world of work after a prolonged period of illness. Not only this, but a significant proportion of the jobs are undertaken by young people. This is incredibly important as it gives young people vital skills and experience which they will need for the rest of their lives. The importance of the beer industry is underscored further by the fact that young people are far more likely to be unemployed than older people in the UK and across Europe.

Given that beer accounts for 70 per cent of drink sales in pubs, we would expect any change in beer duty to impact the profitability of pubs. For example, if beer duty increased, then we would expect to see sales of beer decrease, whereas if beer duty decreased, then we could reasonably expect the converse to be true.

An analysis of the data reveals that this is precisely what happened. For example, under the period of the beer duty escalator of 2008-2013, beer duty rose by 42 per cent. During this period 7,000 pubs closed and 58,000 people lost their jobs.

Thankfully, the beer duty escalator was jettisoned. Analysis conducted by Oxford Economics revealed that scrapping the beer duty resulted in there being 21,000 more jobs than if the beer duty escalator had continued.

Beer duty is still incredibly high in the UK. For example, it is 14 times higher than in Germany. Moreover, people in the UK pay 40 per cent of the beer taxes in the EU, but only drink 12 per cent of the beer.

Scrapping the beer duty escalator resulted in 21,000 new jobs being created. Therefore, the evidence would appear to strongly suggest that a further cut to beer duty would create thousands of more jobs, and scrapping the duty altogether would create even more. This increase in employment would result in HM Treasury receiving an increase in receipts through income tax and national insurance contributions which would more than offset the amount lost by the reduction or abolition of beer duty.

Beer duty also has a negative impact on investment. For example, in 2016 the beer industry  is estimated to have spent approximately £1.96 billion on net capital investment. This represents an increase of £800 million compared to 2013. Moreover, breweries alone are estimated to have spent £325 million in net capital investment. This is significantly higher than during the beer duty escalator period. The escalator increased beer duty automatically by two per cent above inflation each year for five years until 2013. Furthermore, pubs are estimated to have spent £1.47 billion in net capital expenditure, with London and the South East contributing the greatest share. This represents a significant increase from the previous year and could, according to Oxford Economics, be due to increasing confidence in the pub sector.

Beer duty clearly has an adverse effect on investment. This is highlighted by the opinions of many breweries quoted in our third report. For example, Spitting Feathers Brewery stated:

“Last year’s cut in the misguided, counterproductive beer taxation was most welcome and won’t be forgotten quickly. It was also a crucial factor in our decision to purchase a site for our second pub. This is now open, employing lots of people, contributing to its community and paying taxes. This year’s cut will help to secure the future of our now nearly 50 employees and is hopefully an indicator of a business-friendly government to come.”

It is therefore clear that beer duty has a negative impact on investment. Increasing beer duty leads to a decrease in investment whereas cutting beer duty results in a dramatic increase in investment.

The government imposes beer duty in an attempt to protect individuals and society. However, it actually ends up placing extra pressure on the finances on some of the poorest people in society, destroys jobs, and dramatically decreases investment.

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