This note looks at the way beer and other alcoholic drinks are taxed, the Labour Government's introduction of a 'duty escalator' on alcoholic drinks in 2008, and the concerns in the pub trade at the impact of this policy. It goes on to discuss the current Government's review of alcohol taxation in 2010, and its decision in Budget 2013 to cancel the duty escalator for beer alone.Jump to full report >>
In its first Budget in June 2010, the Coalition Government launched a review of the taxing and pricing of alcohol “to ensure it tackles binge drinking without unfairly penalising responsible drinkers, pubs and important local industries.” Following this, in November 2010 the then Economic Secretary to the Treasury, Justine Greening, announced proposals to make two changes to the taxation of beer: an additional tax on high strength beers and a reduced rate of duty on low strength beers.
In its 2008 Budget the Labour Government had increased the rates of duty on alcoholic drinks by 6% in real terms, and proposed that rates would rise each year by 2% above the rate of inflation for another four years. A commitment to raise duty rates by a specified percentage each year is called a duty ‘escalator’, and despite concerns from the pub trade, in his March 2010 Budget the then Chancellor Alistair Darling proposed that the escalator would remain in place at least until 2014/15. Receipts from excise duties on alcohol are projected to rise from £9.5 billion in 2010/11 to £10.6 billion in 2014/15.
When the current Government published its review of alcohol taxation, it stated it would abide by this plan to raise duty rates, though it noted there was little consensus on the right level of tax as “the debate about the absolute level of alcohol duty rates is often polarised.” However, many commentators have attributed the difficulties faced in the pub trade to the impact of the duty escalator on the price of beer. In his Budget speech on 20 March 2013 the Chancellor, George Osborne, announced that while the escalator would apply to other drink categories, it would be withdrawn from beer duty – and the duty rate would be cut by 1p per pint. This is estimated to cost £170m in 2013/14, rising to £215m in 2014/15.
In March 2012 the Government announced proposals to discourage the sale of cheap alcohol by setting a minimum unit price – rather than, as it had initially planned, a ban on its sale at a price below the rate of excise duty and VAT. A consultation exercise was launched in November 2012, and the 2013 Budget report confirms that the Government will respond to this consultation “shortly”. This issue is discussed in a second Library note (SN5021).
Many commentators have argued that a second factor that has encouraged the decline in the number of pubs in recent years is the approach taken by pub companies – pubcos – to their tenants. Following several attempts to improve pubco-tenant relations through voluntary arrangements, the Government launched a consultation in April 2013 on the establishment of a statutory code of practice to be enforced by an independent Adjudicator. The consultation closed in June and the Government published the responses it had had in December 2013, but to date it is still in the process of analysing this feedback. A third Library note discusses this related issue (SN6740).
Commons Briefing papers SN01373
Author: Antony Seely