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Beer Duty Rates

Volume 662: debated on Tuesday 25 June 2019

[Mr Philip Hollobone in the Chair]

We now move on to an important debate about differential rates of beer duty. Because of the suspension of the earlier debate for 15 minutes, this debate can run until 4.45 pm. I call Giles Watling to move the motion.

I beg to move,

That this House has considered differential rates of beer duty.

It is an honour to serve under your chairmanship, Mr Hollobone. I am extremely grateful for the opportunity to raise, again, the importance of beer duty, and pleased to represent all the constituents who have contacted me to ask that we cut beer duty. It is a campaign I am delighted to support. Although I am certainly a keen supporter, I do not believe that an across-the-board cut in beer duty is the best option, as I shall argue in this speech. That is where a differential rate of beer duty is to be much desired. Simply put, it would differentiate between the duty rates for on-trade sales of beer in pubs and the rates for off-trade sales. I am keen for that proposal to be implemented, so I have written to the Chancellor to seek his support—as the Minister will know, having responded to my letter of 23 April. That was my second letter to the Treasury on the intriguing proposal, in which I carefully responded to the points that the Minister had raised in his reply to my first letter in November 2018.

I point out that my hon. Friend wrote to my predecessor, and it was my predecessor, my right hon. Friend the Member for Central Devon (Mel Stride), who responded to him, rather than the present incumbent of this illustrious slot.

I thank the Minister for pointing that out. I am well aware that it was his predecessor; it was the Minister incumbent at the time.

I sent a long and detailed reply to the letter, but the response was almost word for word the same as the first. Four words at the start of one sentence had been removed, and one word and one number—the date—had been changed. I am sure that that was just an oversight in the machinery of the Government; I hope it is not an indication of how much the Treasury wants to debate the matter. We must do more to protect our pubs.

The Minister will tell me that the Government have supported pubs in many ways, notably through the beer duty freeze, which means that beer duty is 18% lower than it was in 2012—hurrah! No doubt that is an impressive achievement, but if we have done so much, why have 11,000 pubs closed in the last decade and why does one pub still close every 12 hours?

My hon. Friend is making a passionate speech. The Government have delivered not just a duty freeze for our pubs, but three duty cuts followed by a number of duty freezes. The Government have taken positive action to support our pubs.

I celebrate that positive action; it is great that the duty is 18% lower than in 2012.

The Alcohol Health Alliance concludes that previous across-the-board cuts in beer duty have helped supermarkets to continue to undermine on-trade sales, while failing to slow the rate of pub closures. Despite the Government’s valiant efforts, therefore, the important contributions that our pubs make to the economy and to community life by providing a place to socialise and encouraging responsible drinking remain at risk.

Most concerningly, analysis shows that it is small independent pubs that are disappearing as the big pub chains consolidate their businesses around larger bars, usually in town centres. Eventually, that will allow those big pub chains to monopolise the on-trade marketplace. That will give them a stranglehold over pricing and is unlikely to result in a cheaper pint for the consumer.

Moreover, the closure of any pub, especially a small community asset, endangers work on loneliness and social cohesion. Researchers have found that people who have a local pub are happier, have more friends and feel more engaged with their local communities, but closures are depriving some people of those benefits. That can be particularly acute in rural areas. The pub is a famous and traditional part of the British way of life. It is an essential part of the community. It deals with loneliness and is a form of social care. The traditional landlord knows his clientele. He knows who needs help, who is in trouble and what resources are available, and he is a friendly ear.

As a touring actor many years ago, I stayed in a small village on the outskirts of Stratford-upon-Avon that had a pub, a church and a community centre, and a pub landlord, a vicar and a policeman. Twenty years later, I went back and those three pillars of the community had gone, along with the pub. It was a sad reflection of that wonderful little community that I knew so well, where people talked over the garden fence, talked to one another in the pub, looked after each other and looked out for one another. Instead, the people of that little local community had disappeared into their silos. They went to the local town to work as commuters and came back to their houses to drink cheap supermarket booze in front of their widescreen televisions. The community had broken down. The loss of that community is a great shame, and I want to prevent that from happening elsewhere. We must do all we can to prevent the closure of any pub.

I worked in the pub trade for 10 years. One of my first and most enjoyable jobs was working at the Windmill Tavern and the Gates Bar in my constituency. That was a long time ago, but those pubs survive. Sadly, I know a lot of landlords who knew then, and know now, that business rates and the price of a pint are far too high. We are losing places to socialise and we are losing communities. Communities need pubs, so I strongly support the hon. Gentleman.

I ran a pub with my wife—the Kings Head on Kings Head Hill, Chingford—in one of those moments when my acting career was not going too well.

Pubs are also positive for our high streets. They attract visitors, so closures are counterproductive to the Government’s efforts to revitalise our urban centres. Let us not forget the general economic impact of the beer and pub industries, which contribute £23 billion to GDP every year and support more than 900,000 jobs. Crucially, 44% of those jobs are held by 16 to 24-year-olds.

All that is at risk, however, because of beer duty rates. Even after the Government’s reductions, we still have one of the highest rates in Europe and pay 40% of all beer duty in the EU while consuming only 12% of the beer—despite my best efforts. That has contributed to the fact that, according to the Campaign for Real Ale, 56% of drinkers believe that the price of a pint of beer in a pub has become unaffordable.

Drinkaware notes the shifting preference of the consumer, who now purchases alcohol in the off-trade marketplace to consume at home, as per my example of the little village near Stratford-upon-Avon. When people can buy a pint of beer for less than £1 in some supermarkets, it is hardly surprising that many choose that option, especially when pubs simply cannot get near those rock-bottom prices. I believe that the average pint of beer is between £3.50 and £4, which is three or four times the amount.

The data supports that shifting preference and demonstrates that while high rates of beer duty have been pricing people out of drinking in pubs, off-trade sales have been thriving. Figures from the British Beer and Pub Association show that since 2000, on-trade consumption has fallen by a massive 47.2%, but off-trade consumption has risen by 29.3%. That is clearly inequitable and stems from the disparity in cost between the two. The Government’s across-the-board beer duty reductions have not addressed that disparity, given that they also benefit off-trade sales. Because pub closures largely derive from the surge in the sale of cheap alcohol, the disparity needs to be addressed.

An underlying potential public health concern could result from inaction, because people who drink at home without a responsible landlord to keep an eye on them are at risk of alcohol abuse. Today, the number of hospital admissions related to alcohol remains high at one million annually, and that places a strain on our precious resources. Most worryingly, the number of admissions has risen as a pint has become more expensive. Even if there is not a direct correlation, 73% of publicans think that increasing the price of off-trade alcohol is crucial to tackling alcohol problems.

We can do that with a differential rate of beer duty that skews the odds back in our pubs’ favour by cutting the on-trade beer duty rate to benefit those sales over off-trade sales. The Exchequer Secretary to the Treasury said recently:

“I can see the strong argument for that, but it is unfortunately not possible under EU law. Duty is levied on production, not on the place of consumption. However, we might be able to turn to that should we have sufficient flexibility.”—[Official Report, 28 March 2019; Vol. 657, c. 635.]

We are shortly going to get that flexibility, and there must be a technological mechanism that we can use to track the destination of beer products when they leave the producer, and then add the tax accordingly. Such an approach would mean cutting the on-trade duty rate, before adding a stipend for beer products destined for the off-trade marketplace. It would also mean that the cut for on-trade sales would offset the increase in off-trade duty. I accept that such a change could impact all off-trade retailers, and therefore any such adjustment should be narrowed to large retailers only. For large retailers, sales of beer form only part of their turnover, whereas for small off-trade retailers, alcohol sales can be everything. That important point must be considered during any discussion of the proposal so that we do not damage our very valuable small businesses.

We must differentiate and cut beer duty for on-trade sales, because doing so will truly benefit our pubs. However, although I might be considered an expert on beer, I am not an expert on tax law. I hope that we can have a pledge from the Minister today that the Treasury will investigate this matter, so we can see whether such differential rates could hypothetically be used to support our pubs when we leave the EU. Moreover, when we investigate, we must find a way to ensure that producers pass on savings to the consumer. Many in the industry allege that previous savings have been retained by brewers, and that undermines efforts to save our pubs.

If I have convinced the Minister that there is still a strong argument for differential rates of beer duty—I am sure I have—I hope that one day he will join me for a drink in my local in Frinton to celebrate the introduction of this important change.

Order. Does the hon. Member for Burton have the permission both of the mover of the motion and of the Minister to contribute to the debate?

Yes, I do. Thank you, Mr Hollobone, for allowing me to take part in this debate at the very last minute. I wholeheartedly congratulate my hon. Friend the Member for Clacton (Giles Watling) on his tour de force in defence of the great British beer industry and on the importance of the British pint. I only wish there were more Members of Parliament who spoke with such passion about what is a great British industry. Although the Americans or the Germans or the Belgians might claim it, I have no doubt that we produce the best beer in the world here in Britain and we should support the industry.

I will reiterate a few of the points that my hon. Friend made so well. First, there are the costs incurred in the on-trade and the off-trade. It is more cost-effective and cost-efficient to sell trays of lager or six-packs of beer from a supermarket, for them to go down the aisle, be beeped through by the assistant in the supermarket of one’s choice and for someone to take them home. There is clearly a much higher cost involved in delivering a wonderful pint of British cask ale. For a start, there is a great deal more work in keeping it, and there is the customer service that is needed in its delivery. There is a lot more science and work in delivering great customer service and a great pint of beer than one may imagine, and that costs the publican. It also, of course, provides excellent jobs, with good training, in the pub industry, which we should support and encourage.

My hon. Friend will appreciate that there is a great artisan skill in looking after beers, such as knowing how to tap and spile, when to leave the beer waiting, and serving it when it is just right.

My father said that there was no such thing as bad beer. My hon. Friend is articulating that there is—there is a skill; it is a profession. One of the things we have lost over many years is the landlord as a profession, but with the rise of cask ale, it is beginning to come back. The landlord was well respected in our communities. He was a pillar of the community. He knew his job and he knew his cellar. The more we can support the great British pub, the more those skills can be retained and will flourish.

Secondly, on public safety, we all suffer on our high streets occasionally from what we call preloading or binge drinking, particularly among younger people who might buy some alcohol from the supermarket, or who may get it from their parents or whatever, who then go and drink in the park or in the town centre. There is a cost involved for the police and the wider community in managing that, but there is no cost to the supermarket. However, publicans are required to keep their house in order. They are required to have door staff who treat people with respect and with care, and who make sure that the licensed premises is safe and that people who turn up who may have had too much to drink are refused so that everybody else in the establishment is kept safe. None of those costs are on a supermarket, but they are on the British landlord. It is important to recognise that and to represent it in the taxation regime.

There is also the extra cost of delivering cask ale or draught ale. This may be one way in which the Minister can think about being creative when he looks at a replacement for EU duty on alcohol as we come out of the European Union. The duty is on production and it may be difficult to differentiate the duty on a bottle of beer sold from a supermarket and the beer sold in a pub, but we could differentiate a bottle of beer sold in a supermarket and a pint of draught ale, because it is in a different container and is served in a different way. That may be one clever way—I know the Minister is extremely clever—in which he can crack this nut of supporting our pubs, which offer an asset to the community, keep us safe and are the great introduction to responsible drinking. I am sure hon. Members remember when someone went down to the pub where the landlord would keep an eye on them; he knows the family; if someone gets into trouble, he says, “You’ve had a few too many—go home.” We risk losing that if we lose the great British pub.

I am a non-alcoholic. I do not drink. I have done the pub trade for 10 years and I have never drank. I enjoy the social side of going to a pub and meeting people. Where publicans are really struggling now is with business rates. Pubs are community hubs, and we really need to look at business rates.

I could not agree with the hon. Gentleman more. As the ex-chairman of the all-party parliamentary beer group, I decided to challenge myself to have 12 months off alcohol. That runs out in July. I have been alcohol-free for 12 months, but that does not mean that I do not continue to support the British brewing industry and the British pub. It is absolutely at the centre of our community. The hon. Gentleman is exactly right.

The hon. Gentleman mentioned business rates and it is absolutely right that pubs are treated in a unique way on business rates. I use an old phrase: we have an analogue taxation system in a digital world. I am not saying that Amazon will be delivering my pint of cask ale to me via Amazon Prime, but businesses more generally, particularly small businesses, are having to compete with sales on the internet and the brave new world of retailing. I am absolutely sure that doing something about business rates will help our high streets.

I have one other matter to take up with the Minister, which I hope he will find interesting. One of the objectives behind all Government policy is responsible drinking. We want people to enjoy a pint of great British beer, but we want them to do it responsibly. A great thing we have seen because of responsible actions by brewers is a reduction in the alcohol by volume in drinks, and in beer in particular. Beer is a particularly good way for us to take units out of consumption, because of its high volume and relatively low strength.

The Government introduced a lower rate of duty on beer less than 2.8% ABV. Brewers have done a really good job and have tried to embrace that, but it is difficult for a brewer to produce a tasty beer at less than 2.8%. It is the alcohol that gives it the bite, but it is also the alcohol that helps to preserve it and keep it drinkable in the pipes for longer. With the best of intentions, landlords wanted to provide a lower-alcohol beer on cask, but they could not because it was not economically viable because the beer went off. It was 2.8% because of the EU directive, which prevented us from doing anything else. As we Brexit and come out of the European Union, we have the opportunity of a differential rate—maybe 3% or 3.5%—at which brewers could produce a great, tasty beer while taking units out of consumption. For those of us who enjoy a pint, but not a stronger pint, all those things would work well together.

I thank you very much for allowing me to take part in the debate, Mr Hollobone. In conclusion, I am absolutely heartened to hear that we have such beer champions. As the MP representing the heart of British brewing—Burton upon Trent, with its history and future in brewing—I hope the Minister will think about using Brexit to deliver cheaper beer for Britons across the country as we leave the European Union.

It is a great pleasure to serve under your chairmanship, Mr Hollobone. This is an important topic, as hon. Members from across the House have rightly said, which commands widespread interest across not merely the House but the country. In that context, if I may make a small but telling party political point, I wish that the Opposition had been able to field a spokesman to express their view on the matter.

On a point of order, Mr Hollobone. Does that also apply when a debate has been extended beyond half an hour to 45 minutes, as in this case?

That is correct. The Minister is enjoying the benefit of 15 minutes injury time owing to the previous debate not having completed its full passage.

I am grateful to the previous speakers for giving me that opportunity. I intend to take full advantage of it. I stand corrected on the point about the Opposition, for which I am grateful.

I thank my hon. Friend the Member for Clacton (Giles Watling) not merely for his ingenuity and brilliance in securing the debate and raising this topic, but for the vigour and energy that he has shown in pressing this issue over the several years he has been in the House. In doing so, although he may not realise it, he takes up a beacon that was held for many years in this House by my great friend, my hon. Friend the Member for Burton (Andrew Griffiths), who I am delighted had the chance to speak. I have no doubt that, in due course, the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) will himself carry that beacon, or if not, will play an important role in making this argument, because it is an important one to advance. I thank all Members who have spoken for their contributions.

As my hon. Friend the Member for Clacton rightly said, and as colleagues from across the House know, beer and breweries are an important part of our national life, and the same is of course true for that essential accompaniment, the great British pub. As a Herefordshire man, I ought to point out that pubs do not merely serve beer. In my constituency we have Bulmers, while in Herefordshire we have Westons, Tom Oliver and Denis Gwatkin; we have a host of fantastic cider producers. Tragically, they are not the subject of this discussion; our attention must focus exclusively on beer and the beer duty. However, they contribute to the important presence of pubs in our national life.

Might it not be worth consulting and finding out whether some sort of reduction in cider duty might also help to preserve the pub in the future?

That will certainly be of great interest to my constituents, both as consumers and producers. As my hon. Friend knows, there has been a tremendous reinvigoration of the brewing industry over the last nine years. The number of brewers has this year risen dramatically to more than 2,200. The rise of craft beer has seen breweries grow and flourish in every part of this country, including microbreweries, and exports have reached more than £500 million a year.

Again, it would be wrong of me not to mention a personal interest in this context. Certainly, my county of Herefordshire is as amply endowed with fabulous breweries and pubs as any part of the country. It would be wrong not to mention Wye Valley Brewery, Golden Valley Brewery and Hereford Brewery—I have pulled a pint of its Hereford Best in the Strangers Bar. Notable pubs in Hereford are the Barrels, where I held an informal surgery last Friday afternoon for a considerable period; the Volunteer Inn, known as the Volly; the Lichfield Vaults, known as the Lich; the Grapes; and the Britannia. However, I also pay attention to the specialists that have come into the market in my constituency over the last few years, which picks out this wider process of economic and social change, including Beer in Hand and the Hereford Beer House—part of a panoply of pubs across the entire county, including the King’s Head Hotel, the Man of Ross, the Mill Race in Ross and many other fine houses.

It would also be wrong of me not to touch on the excellent work in the community of the local Campaign for Real Ale team, with my support, in saving, for the second time, the Broadleys pub in south Hereford from being turned into a Co-op. It sheds a very bad light on the Co-op, which is in many ways a fine institution that I otherwise rather admire, even if I did have the crystal Methodist in front of me at one point when I was on the Treasury Committee, if hon. Members remember him. It should not sponsor the closure of pubs in order to open new Co-ops merely a few hundred yards away from ones that already exist. I single it out personally, not as a matter of Government policy, for its misbehaviour in that regard.

I agree with my hon. Friend, because I have seen that in action. Does he agree that one great way to support the great British pub is by doing something on beer duty? Seven out of 10 alcoholic drinks purchased in a pub are beer, so if we want to help pubs, doing something specifically on beer is the way to do it.

I will come on to a point my hon. Friend raised, and with great eloquence, on the vigorous role that the Government have taken in cutting beer duty and supporting the industry. However, I point out that this great change over the last few years has not been the result merely of enlightened tax policy but of an outbreak of entrepreneurialism and energy in the sector as a whole. It is important to realise that the Government cannot reverse the laws of economic gravity or changing tastes and habits, but they can help at the margin, and have tried to.

As my hon. Friend will know, in 2013 the Government took the decision to end the beer duty escalator. Since then, they have cut or frozen beer duty several times, including at the last Budget, with the effect that a typical pint of beer is 14p cheaper than it would otherwise be. The Government will of course continue to look for ways to support the brewing industry, and I absolutely look forward to further engagement with my hon. Friends and Members from across the House.

However, it is important to try to strike a responsible and sustainable balance with wider public spending commitments. It is worth noting that the Exchequer has forgone more than £5.2 billion in revenue due to cuts and freezes to all alcohol duties since 2013. That is £5 billion that has to be made up by taxpayers by other means if we are to be able to spend as we would wish on our public services. [Interruption.] Hon. Members who have recently arrived for the next debate will not be aware that we have a few more minutes, because of the kind courtesy of the Chair, and can run the debate until 4.45 pm.

My hon. Friend the Member for Clacton is absolutely right to emphasise the social importance of pubs, which are central places in the community. They are mixing places and meeting places for people from every walk of life. My hon. Friend the Member for Burton also made the point that pubs are a place of supervised, safe drinking, where publicans—male or female—know their customers, pulling pints and pulling people together in a social environment. That of course raises the stakes from a Government standpoint.

When considering whether to introduce differential beer duty, we and Governments before us have had to acknowledge that the UK is currently bound by EU laws that harmonise excise duties applicable to alcohol products. We can only introduce reliefs or different rates of duty for beer that are compatible with the EU directive on alcohol excise duty structures. My hon. Friend the Member for Burton made the point that, once the UK has left the EU, the Government and Parliament will no longer be bound by this directive, so there should be much greater opportunity to explore creative proposals to redress that balance. But until then, there are limits laid down in statute as to what can be introduced. However, even within that context—this point has been touched on—we have been able to make progress and exploit some existing differentials, which have benefited pubs and breweries. Those include the small brewers relief, which allows the smallest breweries to receive up to 50% off their duty bill in the start-up and growth phase. As hon. Members will know, the Treasury announced a review of that relief in the Budget. My officials are now working to take the results of the survey further to address the issues raised, and the Government hope to make further announcements in due course.

Of course, as I have said, we also recognise the importance of responsible drinking. That is why there are already differential rates of duty on lower-strength and alcohol-free beers. On beers of less than 1.2% ABV, no duty is paid at all, and on beers between 1.2% and 2.8%, the reduced rate is less than half the standard beer duty rate. My hon. Friend the Member for Burton is absolutely right. It is hard to produce a beer of, I would say, less than 2.3% that maintains its taste, but at between 2.3% and 2.8%, one can have a delicious pint and benefit from the duty differential. Conversely, higher-strength beers over 7.5% ABV pay a higher duty rate of roughly 30% more, in part to send a fiscal signal about the importance of responsible drinking.

The Minister is absolutely right in what he says about lower-strength beers and the potential that that has, but may I share with him what brewers across the country have said to me? If they got the opportunity, through the duty regime, to promote beers at 3% or up to 3.5%, they would do that wholeheartedly. That would not only create a new category, but help to take alcohol units out and therefore help responsible drinking at the same time.

I am grateful for that intervention. There may be scope to contemplate an uplift in relation to the higher level of lower-strength beer. It would be interesting to discuss that further.

Let me turn to some of the points that my hon. Friend the Member for Clacton raised. I intervened only to provide the point of information to him, because of course I did not see the correspondence that he had received and therefore could not respond to it in those terms. I apologise if he was disappointed by the response that was given. It is always the Treasury’s policy to try to give informative and full as well as, of course, accurate responses.

Let me pick up a couple of the points that were raised in my hon. Friend’s speech and that reiterate some of the wider issues. Of course, there are public health outcomes that need to be met. The closure of pubs potentially affects some of those, particularly in a world that has seen, in this country at least, something of an epidemic of loneliness, so my hon. Friend was absolutely right to pick up on that. He is also right to say that there is evidence that responsible drinking and better public health outcomes can be due to differential rates of duty. I understand that point. It is important, though, to remind ourselves of the practical difficulties that need to be overcome. It is not merely the EU law issue. It is also important that whatever the regimen may be, it is not subject to legal challenge for breaching state aid or competition rules. And we may wish to remain aligned with the EU even post Brexit, from a competition or state aid perspective, in part to prevent mercantilism from breaking out between EU businesses and our own.

Of course, there is an issue about enforcement. Her Majesty’s Revenue and Customs taxes beer at the point at which it moves into general distribution, rather than monitoring the wider beer supply chain. The concern is obviously about the potential to repackage beer that had the lower rate of duty paid on it and then to sell it and trouser the difference.

I absolutely understand the point that the Minister makes about the grey market and the potential for fraud; the all-party parliamentary beer group did an investigation into that. I therefore point him back to my previous remarks on draught beer. It is very easy to understand draught beer. It cannot be repackaged; it cannot be put in a different container; it is draught beer. We could have a differential on draught beer that I think would solve my hon. Friend’s problem.

I am delighted to have taken that final point of information. It may be the case that when we come to reconsider it, the draught beer distinction that my hon. Friend draws gives us a workable legal and practical basis on which to proceed. My point is a much simpler one: it is important to bear in mind the potential grey market impacts, as well as the competition, state aid and legal points that I raised earlier. Having said that, I am enormously grateful to my hon. Friend the Member for Clacton for initiating the debate and for making a case of great passion and urgency with his usual oratorical flourish. Even if I cannot join him in his own Kings Head where he was a publican, I very much hope to be able to join him in the future at some point.

Question put and agreed to.


That this House has considered differential rates of beer duty.