Independent Brewers: Small Brewers Relief

Jim Shannon Excerpts

Tuesday 6th September 2022 Commons Chamber

[Owen Thompson]

The hon. Lady makes an excellent point. I will speak later about some of the issues that businesses currently face with regard to energy costs.

[Jim Shannon (Strangford) (DUP)]

In my constituency, as in the hon. Lady’s, we have breweries. I am reminded of Bullhouse Brewery in Greengraves Road in Newtonards, a local family business. It produces an incredible product that sells well, but it is a small brewery. It really is in that category. Without the assistance of small brewers relief, there is no guarantee that our independent brewers would be able to survive. Does the hon. Gentleman agree that to ensure that our local brewers are able to reman comfortably on their feet, there must be greater relief on their beer duty to ensure that they are not penalised by crippling tax in years to come? The very fact of what local brewers do means that they are intensive users of electricity so the costs for them are multiplied to a place where they may not be able to survive.

[Owen Thompson]

I agree with the hon. Gentleman. Many small family brewers are so much a part of their local communities. It is not just about the business, it is what they do for their local communities.

Each proposal that the Government have brought forward so far has been a step up from the last, but has missed the mark in crucial ways. So let us look at the most recent reform package that the Treasury has put on the table—what it gets right, which it does, and where we still have some way to go. I welcome last year’s announcement that the 50% rate would be reduced to 2,500 hectolitres. This came off the back of a great deal of lobbying from campaign groups and Members across the House, and demonstrates the cross-party willpower to get this right for our brewers. That is not to mention a public petition of more than 50,000 signatures. But issues remain.

Brewers cannot wait any longer for another half-right, half-wrong proposal. This time, the Treasury must listen to brewers’ calls, act decisively, and implement that decision. No more leaving brewers in the lurch. They have a right to know the final details of what the Government are planning and when it will be introduced so that they can be prepared for the changes. So, having spoken to SIBA and to local brewers in Midlothian, I am asking the Treasury to address the following problems in its most recent proposals with transparency and urgency. I and many small brewers have serious concerns about the ways in which these reforms could turn small brewers relief into big global brewers relief. Time and again, the current proposals open the door to benefiting the big players, and it is almost starting to look as if that is a feature, not a bug. For one, the Treasury needs to scrap its plan to set the start and end point of relief depending on the UK’s average alcohol by volume. This nationwide average is heavily skewed towards global brewers, and it needs to be the average of small brewers instead. Then we have the fact that the reduced rate of SBR will be widened from 2.8% to 3.4% ABV, at £8.42 instead of £19.08.

SIBA has told me that it is concerned that this allows large brewers to undercut smaller ones—they could easily cash in on the benefits by altering their recipes to a lower ABV. Not only would that cost the Treasury an estimated £200 million a year in lost revenue, but it would fundamentally go against the spirit of SBR. On top of that, we have the Treasury’s decision to maintain the Farmgate exemption, which exempts 80% of cider makers from paying any duty. Small cider producers absolutely deserve parity of support, but there is no getting round the fact that the cider sector has a very different landscape. Global producers account for 87% of the cider sold in pubs, so it is global producers again that disproportionally benefit from the Farmgate exemption.

According to SIBA, taxing cider at the same rate as beer could raise £360 million a year for the Treasury, so why is it not happening? Are the Government scared of upsetting big business yet again? Using SBR reform as a means of opening the door to advantaging global brewers just does not make sense, yet it seems to be the direction of the Treasury. At best, this is an honest oversight. At worst, it is as if the Treasury is trying to stick to these plans no matter what. I think that questions need to be asked about what communications and hospitality the Treasury might have received from some of these large global brewing companies. I urge the Minister to ensure that that is not the case and that small brewers relief is genuinely to support small brewers and not be that in name only.

Aspects of the latest proposals for SBR reform also undo some of SBR’s spirit of innovation and growth. When calculating a producer’s average ABV, the proposed new small producer relief will include everything the producer makes—beer or otherwise. I am sure that it has not escaped the notice of the Minister or others in the Chamber that many small brewers are branching out and not simply making beer but also spirits such as gin or whisky, and this innovation should be welcomed. However, under the current plans, producing spirits will send a brewer’s average ABV skyrocketing. Small producer relief will act as a roadblock to innovation. Instead, the average ABV calculations should only include products of up to 8.5%—the same amount that actually qualifies for relief.

The Treasury also needs to urgently clarify some issues around its simplification of ABV bands surrounding SBR. It is welcome that SBR will now apply to beer below 2.8%. That can only encourage a trend of lower alcohol beer to aid in healthier drinking habits. However, will this affect brewers that currently receive up to 50% relief on beer between 2.9% and 3.4%. There is zero clarity on this and brewers need an answer. I urge the Minister to address this in his response.

Furthermore, under the current proposals, the Treasury is planning to introduce a reduced rate of about 5% for draught products below 8.5% ABV in large containers of at least 40 litres. This is a positive step forward, but why stop there? The Minister will be aware of SIBA’s “make it 20” campaign. Small brewers and community pubs often use 20 or 30 litre containers to keep the beer fresh. Even some of the larger pub chains are using that size of containers because of the freshness of the product. Will the Minister commit to expanding the reduced rate to include containers of that size? Go on, prove that the Treasury does actually care about the wee guys after all. Crucially, the Minister needs to guarantee that this is full SBR, by ensuring that relief fully applies in cash terms to the lower rate, main, higher and the draught products rate so that small brewers can continue to compete.

On top of this, the way in which the small producer relief is calculated is a completely untested system. Rather than using a simple percentage, brewers will have to consider different cash reliefs at different alcohol bands, based on hectolitres of pure alcohol. It is unnecessarily complex and could act as a cash cap, once again discouraging brewers from innovating.

Brewers do not just need solutions to those issues; they need them to happen now. Frustratingly, however, delay and confusion have been the name of the game so far. First, brewers were promised an announcement on the final details of SBR reform before the summer, but it would appear that the Government have been a bit too busy over the summer to have got around to it, so it never happened. I hope the Minister will take today as an opportunity to give a long-awaited update and maybe even a date of publication for it. Secondly, SBR reform has been rolled into the wider alcohol duty review. Small brewers simply cannot wait for that review’s findings, so I hope the Minister will listen to calls for the reform to be progressed on its original timetable for February 2023.

This is not good enough. The urgency of supporting the brewing sector is possibly more serious now than ever before. Under this Government, the mass closure of pubs and breweries is more likely than it has ever been. The industry is facing a multi-faceted crisis of covid recovery, energy price hikes, Brexit and climate issues.

The brewing industry was one of the pandemic’s worst-hit sectors, with pub closures locking it out of 80% of its sales. Production fell by 40% in 2020 and remained 16% below 2019 levels in 2021. On average, each small brewer came out of the pandemic with £30,000 of debt. The Scottish Government’s brewers support fund provided millions of pounds of direct support for the sector, but there was no equivalent from the Westminster Government, whose wider package of hospitality support failed to include hundreds of brewers. As a result, the UK lost 160 active brewers during the pandemic and has lost between 40 and 60 more this year.

Yet there is a growing consensus in the sector that the current crisis is far more worrying than even at the height of the pandemic. Skyrocketing energy bills are putting brewers’ futures at risk. One Midlothian brewer told me that their electricity bill was currently triple what it had been a year ago, at an unimaginable £90,000 a year. They estimated that by next year it would reach £180,000. Another local brewer is paying £21,600 more on energy this year than it did last year, almost enough to hire yet another a new employee.

The energy crisis also has indirect effects on the supply chain, as the energy cost of producing certain materials skyrockets. For example, I have been told that the price of buying cans to put beer in has risen from 9p to 14p, leading to massive increases in costs.

Then we have Brexit, which has created not only product movement issues, but a change of attitudes among buyers on the continent. At a time when the cost of living crisis could mean people spending less money in pubs, the last thing brewers need is a complicated export processing system, but that is exactly what Brexit has given them. A brewery in Kent that was chosen by the Department for International Trade as a Brexit export champion recently revealed that it only has one EU customer left. When EU buyers look at the paperwork needed to trade with UK brewers, it seems the conclusion they come to is, “Why bother?”.

The climate crisis is also wreaking havoc on the industry. With the recent high temperatures and drought, hop harvests in Europe are expected to be down 20% to 40% on last year, which means higher prices yet again in the coming months. As if that picture was not worrying enough, there is yet another shortage of CO₂, a key part of the brewing process, again partly due to energy prices.

There are glimmers of hope that I have seen when speaking to local businesses throughout the summer. Many are responding to energy prices and CO₂ shortages by installing green technology to help with renewable energy generation, storage, electrolysis and CO₂ recovery. The Government might not be engaging with long-term planning to adapt to this crisis, but local businesses in Midlothian certainly are. They are turning up the dial on the green revolution in the place that matters most: their own back yards.

However, that kind of long-term investment is exactly that—long term. The up-front costs can be prohibitive for many, while Government funds such as the industrial energy transformation fund are again aimed at larger businesses. Distilleries benefited from £11 million to help them to go green, so I would be grateful if the Minister would consider further steps to help small and medium-sized enterprises such as small brewers to cover the up-front costs of some of those innovations.

I am here because of Midlothian, to fight the corner of its residents and businesses. That is why I have been talking to local businesses over the summer to understand the issues they are facing in the midst of this crisis, and it is why I am standing here today to communicate those messages to the Government. That is how the system is meant to work. It would be a huge failure of the system if the Treasury were to shrug its shoulders and plough on with these poorly thought-out plans regardless.

Midlothian is blessed with many independent brewers, which are a huge asset to the local economy, the community and its culture, but the Treasury’s current proposals for SBR reform seem to put global producers first. They undermine the incentive to grow and do not go nearly far enough to support these valued businesses through the energy crisis, which is existential for many. The back and forth of four years of fiddling with SBR reform simply has to end. We need the Government to act today to give brewers clarity on what reform will look like, to address the concerns about SBR reform benefiting global companies and discouraging innovation, and to deliver urgent support for energy bills and switching to green energy production. That way, I hope that we can continue to raise a glass to our independent brewers for years to come, because they give so much to all our communities.

[Robin Millar (Aberconwy) (Con)]

I congratulate the hon. Member for Midlothian (Owen Thompson) on securing the debate on this important issue. I know that brewing generally is of great interest to many colleagues.

My constituency of Aberconwy is home to some of the finest—I might say the finest—local food and drink producers anywhere in the UK. I am proud to support that industry and sector in my constituency. I welcome the bold reforms to alcohol duty, and the support for pubs and brewers, in the last Budget. I am also proud to SIBA, the Society of Independent Brewers, in its “Make it 20” campaign, which seeks to apply a 5% reduction in beer duty to 20 and 30-litre kegs. I will briefly outline why the campaign is important to small breweries by using the example of the Wild Horse Brewing Co in Llandudno.

The company is in my constituency and sells more than 70% of its annual production in 20 and 30-litre kegs. As it has grown, it has made a significant investment in 600 30-litre kegs. Most of its beer is sold to small independent bars, pubs and restaurants, which rely on smaller containers in order to offer variety and keep the beer fresh. Given that most of the brewery’s beer is sold in 20 and 30-litre kegs, it will not benefit from the 5% reduction in beer duty, and because none of its beers is under 3.5%, it will not benefit from the widening of the lower duty bracket. This is a business that, with support from the UK Government, has overcome the challenges of the pandemic, and has invested in its future and in the town of Llandudno in my constituency. Over the last 18 months, Dave Faragher, the managing director and founder, has increased his team from seven to 10 employees, two of whom originally started with the UK Government’s kickstart scheme.

Breweries and pubs are businesses that are vital to jobs and communities throughout the UK, especially in constituencies such as mine. Llandudno is known as the queen of resorts and is one of the largest resort areas in Wales. It is important that such businesses are supported and their contribution to the economy recognised, yet there can be no doubt that these same breweries and pubs have faced unprecedented challenges over the last three years. The sector bore the brunt of the economic consequences of the lockdowns and the trading restrictions of the pandemic. It now faces the challenge of rising costs of ingredients and energy—issues of huge concern for such an energy-intensive industry.

Just this weekend, small breweries learned of a threefold increase in CO₂ prices and a likely supply crunch at the end of September. Production of CO₂ in Billingham—one of the largest producers, which is responsible for about 60% of UK production—will end and Ensus will stop its production for three weeks. As we know, CO₂ is vital not just for breweries, but for the entire food and agricultural sector, which falls within the purview of the Department for Environment, Food and Rural Affairs. I therefore must take this opportunity to call on DEFRA to take urgent action, as happened last year—it has shown itself able and willing to do so—to secure CO₂ production and supplies, and to reduce costs.

[Jim Shannon]

The crucial factor is that either the small brewers relief scheme is enabled to help small businesses, or there will be closures and job losses, with no money from those wages going into the economy. The Government and the Minister need to enable the small brewers relief scheme in a way that helps those businesses now, as energy rises. It is a straightforward decision—one way or the other.

[Robin Millar]

I thank the hon. Gentleman for his intervention. I think it is fair to say that businesses, and I count breweries among them, are not looking for charity. They recognise that the Government are not here to give recompense for loss of profits and the like. They are looking for the help they need to get through these tough times.

I am deeply sympathetic to businesses that are facing challenges and working to overcome them, day in, day out. I believe that most are not looking for charity or a hand-out. They just want help to get through another set of challenges. I urge the Government to review the arbitrary nature of small brewers relief and to make 20-litre and 30-litre kegs eligible for the 5% reduction in duty. Small brewers and hard-working small businesses at the heart of our communities, such as the Wild Horse brewery in Llandudno, deserve that consideration.