Beer Duty Rates

(Limited Text - Ministerial Extracts only)

Tuesday 25th June 2019 Westminster Hall

[Giles Watling (Clacton) (Con)]

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.

[The Financial Secretary to the Treasury (Jesse Norman)]

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.

[Giles Watling]

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?

--- Later in debate ---

[The Financial Secretary to the Treasury (Jesse Norman)]

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.

[Mr Philip Hollobone (in the Chair)]

Order. The Opposition are not required to field a spokesman for a half-hour Westminster Hall debate.

[Jesse Norman]

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?

[Mr Philip Hollobone (in the Chair)]

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.

--- Later in debate ---

[Jesse Norman]

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.

[Giles Watling]

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?

[Jesse Norman]

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.

[Andrew Griffiths]

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.

[Jesse Norman]

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.

[Andrew Griffiths]

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.

[Jesse Norman]

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.

[Andrew Griffiths]

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.

[Jesse Norman]

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.

Resolved,

That this House has considered differential rates of beer duty.