Independent Brewers: Small Brewers Relief
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The Exchequer Secretary to the Treasury (Alan Mak)
I begin by congratulating the hon. Member for Midlothian (Owen Thompson) on securing the debate and commending him for his ongoing advocacy on behalf of the brewers and distillers from his constituency. I join him in congratulating the organisers of the 20th anniversary celebration he mentioned. As he said, he has some notable examples of beer and gin producers in Midlothian. I understand that brewing in Scotland dates back to the neolithic period—truly some very small brewers indeed.
As the Member for Havant, I too am proud of the brewing heritage in my constituency. In fact, the combination of a thriving local malt trade and fine spring water meant that beer was a mainstay of Havant’s local economy for centuries. Although it is many years since the final kegs rolled out of our last active brewery, that legacy is still visible in some of our town’s buildings.
Let me also thank the other hon. Members who have taken the time to contribute to this debate, and who represent all four nations of the United Kingdom, which reflects the appeal and significance of our first-rate alcohol industry. I particularly recognise the contribution of my predecessor, my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones), who played a key role in initiating the review.
Before I address the various points raised today, I will briefly explain the wider reforms, the rationale for them and why they are important. The key point is that the Government are making changes to outdated alcohol tax laws—laws that are arbitrary and inconsistent. Crucially, the result of these reforms will be a system that is much fairer, simpler and more aligned with public health goals than the system we inherited from our membership of the European Union. EU law contains many inconsistencies and barriers to simplification, including, for instance, preventing member states from taxing all types of drink in proportion to their alcohol content.
In contrast, the Government’s proposed reforms, as set out in last year’s autumn Budget, radically simplify the system and tax all products in proportion to their alcohol content, which ensures that higher-strength products pay proportionately more duty. We are also introducing new reliefs to support pubs and help small producers to expand and thrive. The Government remain committed to delivering alcohol duty reform. We are considering the feedback that we have received and we will respond in the coming months.
Put simply, the reform of alcohol tax laws is long overdue. These laws have barely changed since the 1990s, partly because the incoherent and prohibitive EU rules that we experienced in the past have hindered that much-needed change. In the current system, for instance, a high-strength white cider pays less duty per unit than a low-strength beer. Sparkling wine—a sector in which the UK is starting to lead the world—pays much more duty per unit than still wine, even when it contains substantially less alcohol. Fortified wines, which are made with the addition of spirits, pay less duty than a liqueur made with spirits, even if they are the same strength.
The plain fact is that we inherited 15 rates from the EU across five different products with three different methods of taxation. As such, the current system is complex and archaic. In fact, the Institute of Economic Affairs think-tank has said that it “defies common sense”. For their part, producers, importers and exporters in this country have called the system “distorted” and
“perversely incentivised to produce stronger drinks”.
They have welcomed the opportunity for reform.
Now that we have left the EU, we have an opportunity to create alcohol laws that are more rational, and that support the many and varied producers and traders in this country. At the autumn Budget last year, the then Chancellor laid out the significant benefits we planned to introduce with our reforms, which include a radically simplified system that slashes the number of bands from 15 to six and taxes all products in proportion to their alcohol content; taxing all products in the same way, which is a rational policy that was banned by EU law; ending the premium rates on sparkling wine and equalising them with still wine, and substantially reducing duty on rosé; introducing new rates for low-strength drinks below 3.5%, which will encourage innovation and reflect consumer preferences for low or no alcohol drink alternatives; and cutting duty on a 3.4% beer by 25p a pint.
We are also modernising the taxation of cider, targeting unhealthy and problematic white ciders while cutting the duty for lower ABV, craft and sparkling ciders; freezing duty rates for the third Budget running, saving consumers £3 billion over the coming years; and, of particular interest to Members tonight, we have introduced small producer relief, supporting the many small artisan alcohol producers who continue to create world-beating products in this country.
The hon. Member for Midlothian asked about the possible behaviour and role of global producers and the cost of reducing the rate for beer below 3.5% ABV. The Government’s intention is to encourage reformulation and innovation in lower-strength products, including by larger brewers, and this proposal received broad support from the sector during the call for evidence. The costs of these alcohol duty reforms were published at autumn Budget 2021, and they took account of the impacts of reformulation between bands. A tax information and impact note will be published alongside the draft legislation in the usual way.
The hon. Gentleman mentioned that, since 2002, small brewers relief has provided reduced rates of beer duty for small producers. The rapid and successful growth in the sector since that relief was introduced has undoubtedly contributed to the diversity and quality of beers on the market. This is good for producers and good for consumers. However, we must also recognise that responses to the technical consultation the Government ran on SBR pointed to flaws in the system. Some called it “too generous”, going beyond the relative cost disadvantage experienced by small producers. Others called it “distortive” and “flawed”. Alongside our other generational reforms, we have the opportunity to improve on the positives of SBR and extend those benefits to other industries.
While no final decisions have been taken, the new relief we announced at the Budget includes expanding the relief across all categories, allowing small producers to diversify their product range to other products below 8.5% ABV, while still benefiting from reduced rates; introducing a more progressive taper, removing the cliff edges from the previous scheme, which the hon. Gentleman mentioned; expanding the scheme to products below 2.9%, encouraging innovation in the growing low or no alcohol market and in turn helping consumers make healthier choices while still supporting our outstanding alcohol industry; and, let us not forget, introducing draught relief, a move that directly supports the great British pub with reduced duty rates on draught beer and cider so that consumers can enjoy the fantastic products made by our small producers in their favourite local.
The hon. Gentleman mentioned, and the point was reinforced by my hon. Friend the Member for Aberconwy (Robin Millar), the issue of container size, and the fact that small independent brewers and community pubs often use 20 and 30-litre containers for their beer. I want to assure them both and the wider alcohol community that, while I cannot make any announcements tonight, we have listened and we understand their point.
The hon. Member for Midlothian also raised the issue of help for the sector as it recovers from covid-19. While the final design of the alcohol duty reforms will be confirmed shortly, I want to reassure him that the Government recognise the pressures facing the sector. I remind him that the Government have already introduced a range of measures that continue to provide significant support for businesses, including cutting business rates by 50% for eligible retail, hospitality and leisure businesses in this financial year. He asked about support for energy costs, and as he will have heard from the Prime Minister this afternoon, announcements will be made this week and in the coming weeks, so I reassure him that he can look out for those.
The hon. Gentleman also asked whether the full SBR rate will be maintained at the new lower rate, whether total production across all alcoholic products will be used to calculate the SPR and whether the SPR will be launched at the same time as the other alcohol duty changes. I reassure him that the Government recognise the success that SBR has brought to the industry, and we look forward to seeing the benefits shared with other sectors. While I cannot make any announcements tonight, I hope he understands that the Government are carefully considering the feedback stakeholders shared with us through the consultation and we will publish our response shortly.
The benefits I outlined earlier would not have been available to this country before we left the EU. The reality is that we have a once-in-a-generation opportunity to improve an outdated system, providing new incentives for producers to grow and innovate and a major boost for pubs. Our reforms are more rational, fairer, better aligned to public health goals and more in tune with consumer preferences, and they support the Great British pub and the small producers delivering fantastic world-class products.
Let me again thank the hon. Member for Midlothian and all hon. Members across the House who have contributed to this evening’s debate. I also wish to assure them that we will soon confirm the details of these wider reforms and publish the draft legislation, alongside the Government’s response to the consultation.
If, indeed, we have been brewing alcohol on these islands for thousands of years I see no reason why we should not continue, with even greater success, for thousands more. Given a chance, I am sure those neolithic producers of beer would have enjoyed the benefits afforded by small brewers relief, and they would almost certainly have welcomed the opportunity to expand their operation with the reformed small producer relief.
Question put and agreed to.