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A Small Brewer Responds to the Government view on SBR

Some 24,000 people this morning received an email from the Government responding to the petition to Reverse the change to Small Brewers Relief. This is my response to theirs:

"The Government is reforming SBR to address issues raised by brewers. Over 80% of brewers are unaffected by these changes and many will benefit. We will consult further this Autumn."

Let’s start off by being completely clear; the benefit that will be received by some is being paid for by the 20% of brewers who will be adversely affected.

The Government meanwhile stands to lose nothing in the short-term and reserves the right to continue to increase beer duty each year, whilst converting Small Brewers Relief from a percentage to a cash figure; I’m pretty sure that’s likely to mean that as duty increases, the level of SBR will not keep pace and all brewers will pay more tax as a result.

"The Government has been reviewing Small Brewers Relief (SBR) for the last two years in response to feedback from brewers that it was not working as intended. The changes recently announced will ensure that the scheme remains fit for purpose in the long run. The scheme will remain one of the most financially generous in Europe, and over 80% of brewers will be unaffected as they produce less than 370,000 pints a year (2,100 hectolitres)."

“in response to feedback from brewers that it was not working as intended” It is well known that the feedback that the Government has listened to came from an undisclosed number of brewers who came together as the Small Brewers Duty Reform Coalition (SBRDRC). It’s frustrating that the Government failed to listen to the far greater majority-voice of the industry represented by the Society of Independent Brewers (SIBA).

I’m quite sure that the Small Brewers Relief will remain one of the most financially generous in Europe – but then it has to be, as the UK currently pays the second highest level of Beer Duty in Europe. And that’s after SBR has been taken into account.

Oh, and the 80% of brewers 'unaffected' as they produce less than 2,100hl? Well, they certainly are affected, in that they’re increasingly unlikely to increase in scale under these new rules. How can they? The ‘cliff edge’ hasn’t been removed – it’s been moved. Moved to a point where a brewery still hasn’t got to a size where it benefits from the economies of scale enjoyed by larger brewers. So, pretty difficult to see how this will help future growth.

"Small Brewers Relief (SBR) was introduced in 2002 and provides small independent breweries with a discount off their beer duty bills. Currently, brewers receive 50% off until they reach 880,000 pints (5,000 hectolitres) annual production, when a formula tapers the relief down to 0% at 10.5 million pints (60,000 hectolitres). This taper reduces rapidly, meaning a brewer at 1.3 million pints (7,500 hectolitres) receives only 33% off.

For many years, brewers have highlighted that flaws in the scheme’s design cause unintended consequences such as making it hard to grow beyond the 880,000 pints level. The Treasury therefore announced at the 2018 Budget it would review the relief."

I completely agree that the scheme was flawed; but the curve simply needed to be smoothed (as was proposed by SIBA) to make sure that there were no barriers to future growth for larger brewers.

As part of this review, we have received and considered responses from over 300 breweries who get SBR. There were a range of views about the right way forward for SBR, and no industry consensus."

That’s not true; there were two views – that of the Small Brewers Duty Reform Coalition (an unknown number of unnamed brewers) and that of SIBA, who represent 750 brewing members of many different sizes. SIBA’s proposal was a consensus from the largest brewer specific trade organisation for the industry and would have left no brewer adversely affected by the change and would have benefited larger scale brewers. Now wouldn’t that have been a fair approach?

"In July, we announced that in response to this evidence, we would reform the scheme by abolishing the current scheme taper and replacing it with a more generous one that would start at 370,000 pints (2,100 hectolitres). We also announced we would convert the scheme to a cash basis, to be reviewed annually, and will consult on the potential for a grace period for breweries that merge."

So, generous for some but not for all.

And that conversion to a cash basis means that SBR won’t keep pace with increases to beer duty, meaning we’ll all end up paying more tax over the coming years.

"As with any such relief, there has to be a point at which the full relief ends and brewers start to transition to the main duty rate. This was a source of great interest during the first stage of the review and we wanted to give clarity on this before moving on to consult on other details.

Having reviewed all the evidence, particularly on industry production costs, we consider that starting the taper at 370,000 pints strikes the right balance between guaranteeing the great majority of the smallest breweries the full value of the relief, while providing those who want to expand and grow a gentler transition to the main duty rate. The Treasury considers that a brewery producing more than 1,000 pints a day is starting to transition from being a microbrewery. The industry has also changed significantly since the relief was introduced in 2002. However, we would like to emphasise that the taper beyond the 370,000 pints point will not be the same as at present and will be more gradual."

That’s an interesting statement; production over 1,000 pints a day is starting to transition from being a microbrewery.

The real issue here is not where the transition from small to large begins, but moreover the size at which economies of scale are enjoyed. Evidence gathered by SIBA from a cost bench-marking survey clearly demonstrated the inefficiency of small brewers. Common sense tells you that it will cost less to produce 60 brewers barrels of beer than it will to produce 10 brewers barrels. Utility costs are lower, labour as a percentage of beer produced is lower and grain costs are definitely lower, to name but a few areas of efficiency enjoyed by larger brewers. Show me the evidence that the benefits begin at 1,000 pints a day – I’d love to know where I’m missing out!

"While we empathise with brewers facing difficult trading conditions in the wake of COVID-19, the Government has acted to support the brewing sector through its unprecedented coronavirus response. Final changes will not take place until 1 January 2022 at the earliest, to ensure those small brewers who are affected have time to adapt."

The Government says it empathises with brewers facing difficult trading conditions. But empathy and action are very different things.

I feel strongly that the brewing industry as a whole (both small and large) has been left largely unsupported, in spite of the devastating impact of its largest and most direct route to market being closed for 4 months.

I’m sure we all applaud the Coronavirus Job Retention Scheme, but few brewers have benefited from rates relief or grants to help them through. I should also point out that the brewing industry has also stepped in to support hospitality get back on its feet by replacing millions of pints of out of date beer!

"We will be consulting in the Autumn on further technical aspects of reforming the relief including the shape of the new taper. We would encourage all brewers who receive SBR and other interested groups to respond to that consultation."

Don’t worry, I’m sure we’ll respond to the consultation.

I’m also sure I’m not the only brewer who feels this decision has been misjudged and poorly informed.

Most brewers agree that reform was needed. Very few believe that the reform should be to the cost of small breweries.

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