Small Breweries Relief

Grahame Morris Excerpts

Monday 9th November 2020 Commons Chamber

[Grahame Morris (Easington) (Lab)]

I congratulate and thank the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts). With a name like “Morris”, I should really be able to speak Welsh, and I am fifth generation Welsh. We are discussing a really important subject and I am pleased to have the opportunity to make a few brief points in this debate which, unexpectedly, is a little longer than originally planned.

It is tempting to lapse into puns and humour, but this is a serious business. As you know, Mr Deputy Speaker, I love beer, me—I love Indian pale ale, I love the ruby reds, I love a craft lager. I love all beers. Tonight we are talking not about the mass production of the big six brewers; we are talking about small breweries of which there are 90 in Wales, and 2,500 across the country, including Castle Eden Brewery—I must mention my one brewery, or they would never forgive me, and it produces what is probably among the finest beer in the world.

[John Healey (Wentworth and Dearne) (Lab)]

What’s it called?

[Grahame Morris]

Castle Eden ale. I highly recommend it.

As the right hon. Lady indicated, we are talking about the important issue of whether the Government, intentionally or unintentionally, are introducing anti-competitive practices. It has been suggested, perhaps not without foundation, that the large breweries have the ear of Ministers. Let us be in no doubt: the abolition of small breweries relief will be the death knell for many small brewers across the country, including in Wales and the whole United Kingdom.

As has rightly been pointed out, the introduction of small breweries relief led to a renaissance in British brewing. Those reforms should go towards strengthening the small, independent and craft brewers that we are so proud of, and that tourists and indigenous people on these islands love in equal measure. I hope that the Government will not make any changes to breweries that produce below 5,000 hectolitres, as to do so would threaten our craft beer industry, and local jobs in constituencies such as mine. Even worse, consumers such as me would ultimately lose out, with less variety and choice of beer. We should celebrate the diversity of brewers and different beers and tastes, and we should not do anything that will jeopardise that.

I worry that the decision to convert small breweries relief from a percentage to a cash basis threatens the long-term value of that rate, if it does not keep pace with the main rate. We get lost in numbers. What does 5,000 hectolitres mean? That is 3,000 old brewers barrels. My brewery, Castle Eden Brewery, produces just over 3,000 barrels, or 5,000 hectolitres. Compare that not with one of the big six or big four that produce millions of hectolitres, but with Camerons Brewery in Hartlepool, which is a producer of fine beer and produces 1 million hectolitres. It is impossible for a small brewery to compete with the economies of scale that a large brewery can bring to bear. Unless careful thought is given to it, the taper above 5,000 hectolitres will effectively bring an end to this prized and valued sector.

I promised to be brief, so I have just a couple of questions for the Minister, having listened to several debates and questions on the issue. Does she accept that cutting the threshold will lead to small breweries paying more duty? Does she understand that that will result in some small breweries closing? We must remember that the premise of the relief was that it would be revenue-neutral. How will she judge the success of the policy: by the number of UK small breweries, by the number of people employed by the industry, or by the reduction in market share of the big four that dominate? I would very much like to know what the Treasury’s objections are and how it will measure success.

--- Later in debate ---

[Kemi Badenoch]

That point would be valid if it were proved that every single business was going to be negatively affected. If hon. Members let me get to the point, they will see that that is not actually the case. My officials could probably give me enough material to talk about this issue alone for an hour. However, I will summarise and make the key points. All the evidence points to the fact that small breweries relief does not match industry production costs. Economies of scale in brewing are rather gradual and do not match the all-or-nothing approach adopted by the current scheme. In fact, some of the evidence suggests that there is a growth trap, whereby brewers in a certain range enjoy lower production costs than brewers many times their size as a result of small breweries relief. This is not healthy for any industry.

The amount spent on the scheme has grown rapidly, from £15 million in 2002 to over £65 million in 2019, despite the fact that beer volumes were down over 30% during this period. We owe it to taxpayers to make sure that these growing sums are being used in the most effective way.

[Grahame Morris]

I am sure that the Minister is responding in earnest based on her officials’ advice, but as someone who has taken a bit of time to meet small breweries and their organisations, I know that it is impossible for a small brewery to compete with the larger breweries. I am not just talking about the big four or the big six, but even the larger regional breweries. The economies of scale mean that it is impossible. Without small breweries relief, we will lose the diversity and choice that we all value so much, including Members across the Chamber on the Government Benches. Will she please look again at that advice, because the information that we are getting shows that this change is going to have a devastating effect on small brewers?

[Kemi Badenoch]

I am a constituency MP as well as a Minister. This is not just officials’ advice. I spoke to many industry stakeholders and pubs on the day of the announcement, and there are breweries in all Members’ constituencies that will benefit from this change. If we had done the opposite, those breweries would have written to Members and I would be standing here making exactly the same sorts of protestations about why we had made a different decision. There are no easy answers here. There is no solution that will make everyone happy. We all have constituents on each side of the fence. If the hon. Gentleman would like, we can give him the details of breweries in his constituency that have benefited from this decision.

Let me return to the announcement in July of the review’s first outcomes. First, we said that we would change the scheme’s taper so that relief was withdrawn more gradually over a wider range of production. In particular, the taper would start at 2,100 hectolitres— just over 1,000 pints a day—to match more closely the empirical evidence relating to production costs. Secondly, we said would look at whether there should be transitional relief for breweries that merge. Thirdly, we said that we would convert the relief to a cash basis, as Members have mentioned, so that it would index with the nature of industry costs, rather than changes to the headline beer duty rate. I will return to the cash business point shortly.

I am aware that the July announcement has been the source of a great deal of discussion in the industry, the trade press and all our inboxes. I reassure hon. Members that the Treasury is not abolishing the relief. Some will know that, but not everyone realises that the reverse is true. We will continue to use small breweries relief to channel tens of millions of pounds into craft brewing.

Not every criticism of our policy has been accurate—indeed, there has been a degree of hyperbole from brewers who perceive that they will be commercially disadvantaged. Let us address some of the criticisms of the policy head on. First, there is the idea that no brewers support these reforms. On the contrary, as I mentioned, many, such as Lancaster Brewery, Hogs Back and Theakston, have welcomed them. Those are not gigantic multinationals but local and regional champions of craft beer and real ale.

Secondly, there is the allegation that the change is being made at the behest of a small number of brewers to drive competitors out of business. Nothing could be further from the truth. In fact, during our review we engaged with over 300 brewers of many different sizes to understand the impact on every aspect of the industry. We have no intention of favouring one group over another. It is quite sad that the hon. Member for Easington (Grahame Morris) and others have insinuated that. We have no intention of doing that.

[Grahame Morris]

It is important that we realise the distinction. Some of the breweries the Minister quoted are relatively large regional breweries. I am a great admirer of Theakston—its product is fantastic—but it may produce a million hectolitres. I do not know what the figure it is—perhaps she does—but Camerons Brewery in Hartlepool, which she has probably never heard of, produces a million hectolitres. I am not surprised that she is hearing that message from the big six and the large regional brewers, but that is at odds with the interests of the 2,500 small brewers we are arguing for today.

[Kemi Badenoch]

I am afraid that the hon. Gentleman is still incorrect. I will come to the percentage of brewers that are actually affected in a moment, but nothing could be further from the truth than to say this is being done to help large brewers. It is not.

Thirdly, there is the criticism that the change will lead to the collapse of the small brewing sector. Simple arithmetic shows that critique does not stack up. In 2019, about 80% of brewers produced less than 2,100 hectolitres, so 80% of brewers are not affected. Meanwhile, less than 8% of brewers produce between 2,100 and 5,000 hecto- litres—the 1,000 pints a day point going forward. Modest tax changes affecting a narrow slice of brewers will not spell the end of craft beer.

Hon. Members have made the point about taxing small brewers in the middle of a pandemic. We realise that, but this long-standing issue in the industry well predates covid-19. As I said, the first review was announced in 2018, and brewers were engaged on the topic well before that. The debate has to be settled. We have been clear that reforms will not come into effect until 2022 at the earliest, to give brewers time to adapt.

[Kemi Badenoch]

I thank my hon. Friend for those excellent points. Having done this job himself, he knows the issues at stake.

I will continue to address points raised by hon. Members. I said that 80% of the total brewing population is not affected, because those producing 2,100 hectolitres—1,000 pints a day—will not face any tax changes at all. It was also proposed that we should smooth the taper above 5,000 hectolitres. That would give the large brewers a big advantage at a significant cost to the Exchequer. We do not think we should give small breweries relief to brewers producing tens of millions of pints.

[Grahame Morris]

rose—

[Kemi Badenoch]

I will no longer give way to the hon. Gentleman. I have answered the question of who this should benefit.

On why we are converting to a cash basis, brewers provided feedback that the relief was not tracking their true production costs and was increasing in value in real terms. We also know that the amount spent on the scheme has increased significantly. The right hon. Member for Dwyfor Meirionnydd spoke about 2002. It was £15 million then; it was £65 million in 2019, even while brewing volumes have declined. A cash basis conversion allows us to review annually the value of the relief, meaning that we can track it in line with changes to industry costs.