UK BUDGET: Mixed reaction from the drinks trade
and the ongoing threat of tax stamps designed to cut down on duty
evasion, both announced by Chancellor Gordon Brown yesterday, will
simply increase the cost burden on the UK trade and lead to a
further rise in counterfeiting and illegal imports, writes Chris
Jones
The second successive increase in beer duty was greeted with dismay by the UK brewing industry, which has long argued that the high duty differential between Britain and many of its Continental neighbours is fuelling the growth in illegal alcohol trade. The duty increase will mean a retail rise of 1p per pint.
The British Institute of Innkeeping, which represents the licensed retail trade, was one of numerous organisations which criticised Brown for the further increase in beer duty, especially in light of the government's tough new stance on the anti-social effects of excessive alcohol consumption.
"The BII has campaigned strongly over the last decade for a cut in duty to bring Britain further into line with the rest of Europe," the organisation said in a statement. "Our research has shown that the duty differential is fuelling a massive illegal trade in bootlegged alcohol and could be costing the Treasury over £1 billion a year in lost revenue, as well as encouraging anti-social behaviour and illegal sales to children as young as eight.
"In light of recommendations in the government's recently released National Alcohol Strategy to help curb binge drinking, the BII is extremely disappointed that the Chancellor has not chosen to tackle this illegal trade by cutting duty rates. This rise effectively offers an immediate increase in profits for organised gangs of smugglers and will only exacerbate problems of underage and binge drinking caused by this unregulated trade."
For Interbrew UK, the British arm of the Belgian brewing giant and owner of brands such as Boddingtons and Tennent's, the duty hike is a further barrier to the much-needed recovery in the UK brewing industry.
"This rise in duty will do nothing to address the pressures from other drinks categories. However, we are not complacent," said Steve Cahillane, regional president for the UK and Ireland. "In the last year, there have been a number of steps by the beer industry to address the decline of beer, mainly through a focus on beer image and quality, but the duty level on beer remains a hurdle.
"Given that there was also a 1p duty increase on a pint of beer last year and that duty is considerably lower in other European countries, it would have been more appropriate for the Government to support the brewing industry in the UK and freeze duty this year."
CAMRA, the Campaign for Real Ale both praised and criticised the Chancellor for his Budget measures. "It's a mixed Budget for beer drinkers. The penny tax increase is a blow which will hit pubs, but the increase in the threshold on small breweries' relief is good news for most independent brewers and consumer choice," said Mike Benner, head of campaigns and communications at the organisation.
"A penny may not sound like much, but the tax rise follows recent wholesale beer price rises by some brewers. Some pubs will now be charging as much as 12 pence a pint more than they were only a month ago. At a time when beer consumption is falling and pub-going is in decline this is a disappointing outcome for consumers and hard-working licensees," Benner continued.
On the other hand, the increase in tax relief for breweries making up to 30,000 hectolitres a year - a measure first introduced in 2002 - was welcomed as giving a major boost to smaller companies already struggling to compete with the likes of Interbrew. "The move will enable brewers to invest in their businesses, making them more competitive and increasing their access to market," Benner said, adding that CAMRA was asking the Chancellor to extend small breweries' relief to the EU permitted maximum of 200,000 hectolitres, a move which would stimulate the beer market further.
Tax stamp threat remains
But if the hike in beer duty was a cause for concern, the threat of introducing tax stamps in order to curb duty evasion was viewed with even greater dismay by drinks producers and retailers alike. Although the new system was not definitively introduced in the Budget, the Chancellor said that it was necessary to clamp down on the millions of pounds lost through bootlegging and counterfeit production.
Spirit manufacturers welcomed the fact that excise rates were frozen in this year's Budget - although they still remain very high compared to much of the rest of Europe - but industry experts stressed that a reduction in the rate would be a much more effective way of combating fraud.
Edwin Atkinson, the director general of the UK's Gin and Vodka Association (GVA), said that the principal concern related to the likely cost of introducing a system of tax stamps. "We wait to see what new proposals are being proposed by the Chancellor to alleviate the huge compliance costs that legitimate industry will have to withstand. The industry retains its long standing position that the Strip Stamp measure must be proportionate and should not add costs to the legitimate industry without providing proven benefit by hitting the illegitimate.
"All our companies will be hit by this proposal, and we have already made the government aware that the offsets proposed so far will not alleviate many of the costs - especially those incurred by small producers and importers."
The retail trade will also be badly hit by any such system. David Southwell of the British Retail Consortium told FoodandDrinkEurope.com that the tax stamps would inevitably increase costs to the entire drinks chain - with manufacturers passing on their charges to the retail trade, whose already tight margins would be further eroded as a result.
"The Chancellor is penalising legal retail outlets with this measure designed to hit fraudsters. We don't see this as a practical solution, and the Chancellor is living in cloud cuckoo land if he believes that the highly organised counterfeiters will not be able to reproduce the stamps as well as the products in the bottle," Southwell said.
"Strip stamps are simply a reaction to the symptom of the problem, not tackling the cause - the excessively high duty rates imposed on drinks in Britain. The problem is, the Treasury has become so dependent on the revenue from excise duty that it would take a very brave Chancellor to make wholesale changes - certainly a braver Chancellor than the one we currently have."
The high duty rate was undermining the whole industry. "Nearly a fifth of all trade in alcoholic drinks in the UK is illegal, because alcohol is so much cheaper elsewhere in the EU. If UK duties dropped, there would be less incentive to commit fraud. People prefer to shop at legitimate traders, but the ultimate factor in choosing where to shop is price. As long as legitimate product prices remain much higher, the illicit trade will continue to boom."
As for the likely impact on the retail trade, Southwell said that it would be the smaller, specialist drinks retailers who would suffer the most, as they already faced the tightest margins. Prices had to remain low to stay competitive, he said, especially with the multiple grocers unlikely to pass on the increase as they are able to swallow the increased costs more effectively, and this meant tough times ahead for off licences and other specialist outlets.
