There is no subject in the world of beer right now that creates more heat and less light than the issue of reforming Small Brewers’ Relief, with vitriolic attacks, calls for boycotts of old-established family brewers and accusations of attempted bullying after the Treasury responded to calls for reform of the system with a proposed cut to the “cap” below which small brewers get a duty rebate.
Much of the outrage seems to come from exaggerated claims of how many and how much brewers will be adversely affected by the proposed reforms, and allegations that the changes will mean large brewers gaining at the expense of small brewers, though the group that led the call for a change in SBR, the Small Brewers Duty Reform Coalition, includes a fair number of brewers making less than 5,000 hectolitres a year among its 60-plus members.
SBR, which gives a 50 per cent cut in the duty payable on beer to the smallest end of the brewing industry, was brought in by Gordon Brown back in 2002 to try to make up for the fact that little brewers could not get the economies of scale that the bigger brewers could achieve. The idea was to tilt the playing field to enable the smallest firms to compete more easily.
However, there have been complaints since at least 2013 that the system distorts the market unfairly, and that the savings for small brewers go into the pockets of the pubcos, via cut-price beer, rather than into investment in those brewers’ businesses
The news that the Treasury was proposing to cut the ceiling for full SBR from the current 5,000 hectolitres a year to 2,100 hectolitres, after a submission to its inquiry into the workings of the scheme from the Small Brewers Duty Reform Coalition, which includes brewers such as Hogs Back, Timothy Taylor, Adnams, Exmoor, Otter, Wimbledon Sambrooks, Lancaster and Harvey’s, was met with howls of outrage.
SIBA, the Society of Independent Brewers, which claims to represent the “non-corporate” end of the British brewing industry (though only around a third of British brewers are SIBA members), called the proposal a “reverse Robin Hood” in favour of “larger, more profitable breweries”, taking from the poor to give to the rich. Others claimed that this was “the big guys squashing the good guys,” though how, for example, Hogs Back, at 15,000hl a year, is one of the “big guys” is hard to see. Some declared that the change would “increase tax rates for hundreds of small breweries” – a claim that is demonstrably untrue. However, such statements appear to be part of the spin that has been put on the proposals, spin that has been described as “deeply misleading” and “manufactured outrage”, and which in a very few fortunately rare instances was actively malicious and close to attempted bullying.
What you won’t have read, alas, are the following facts:
● The vast majority of registered brewers in the UK, 85 per cent, will not be affected by the proposed changes, because they are either below the 2,100hl threshold, or they are above 5,000hl.
● The Treasury made it clear that after a year spent looking at SBR, the evidence from its own data, and the data that was submitted by the trade bodies and the 300 brewers that sent in statements to the inquiry, was categoric: the 5,000hl cap was at the wrong place, and was unfair.
● SIBA’s own data apparently showed that the economies of scale cut in at around 2,000hl: this was not a figure the Treasury pulled out of its elbow when setting a new cap. The Duty Reform Coalition says its figures show economies of scale start even lower than that, at 1,000hl.
● SIBA claims that “more than 150” breweries will be affected – that figure represents just one in 16 of the 2,400 registered breweries in the UK, and is, in any case disputed: one estimate from a supporter of the reforms is that, after the drop in production caused by the current Covid-19 crisis, the figure is more like 100 breweries who would be moved off getting full SBR. Others have tried to claim that “hundreds” and even “20 per cent” of breweries will be adversely affected by the proposed chances. This is not true.
● The amount of extra tax that the average small brewer affected by the proposed change to SBR would have to pay on a 4 per cent abv beer would be equal to around 1p to 1½p a pint, with a maximum of 3½p a pint, if the Small Brewers Duty Reform Coalition proposals had been accepted. The Treasury has not yet consulted on the taper, the rate at which the duty rebate drops off as production rises, but it is difficult to square what is known so far with claims by SIBA’s chief executive, James Calder, that the proposals will be “devastating”.
Critics of the SBR system say it distorts the market by artificially keeping the wholesale price of cask ale too low, and gives subsidies to those who do not actually need them. Rupert Thompson, owner and managing director of Hogs Back Brewery, told me: “Cask ale prices at the bar have continued to rise – but wholesale prices haven’t.
“The SBR system, in part the system itself and in part the consequence, which was the expansion from 400 brewers in the UK to two and a half thousand registered brewers, of which I would say probably 1,800 are competing in the wholesale market, combined with the scale of subsidy, has distorted the market – and it has meant that in particular cask ale has become chronically unprofitable. Many people can’t make any money in it, and that’s not good for the sector, and it’s not good for the consumer, because long-term you just will not have a sector if no manufacturer can make money in it. We need to return to a place where most brewers can achieve fair and sustainable prices for cask ales.
“In the UK market, where you had a kind of healthy triangle at one time of a few large brewers at the top, a larger number of smaller regional brewers and then a large number of very small and microbrewers, below 2,000 hectolitres, you’re now getting an absolutely skewed market where there are hundreds of brewers below a thousand hectolitres and very, very few in the middle – the squeezed middle has disappeared. I find it really extraordinary that all the names like Bateman’s, Hall & Woodhouse, McMullen’s, Hydes, Everards, Brakspear, Thwaites, Caledonian and now Fuller’s, they’ve all had to downsize or exit, and nobody’s shouted out and said ‘This isn’t right,’ especially not Camra. Those breweries, champions of traditional real ale, have been largely thrown to the dogs.
“Hogs Back was set up in 1992 and fought hard to establish itself in a market where there was no SBR, and had achieved a good position by 2002 and was making reasonable profits. Over subsequent years those profits started to evaporate, because the effect of SBR was that it essentially stopped any growth in wholesale prices, because pub companies and individual pubs could simply turn around and say, ‘Look, if you won’t supply me at this price there’s half a dozen other brewers down the road that will.’
“The ironic fact is that now, 18 years on, we are selling our cask ale at the same price, on a like-for-like basis, as we were when SBR was introduced. And that’s despite the fact that there has been inflation in labour, raw materials, rates, rents, all the other things. So there has been a massive squeeze on margins, which means basically it’s very, very difficult to invest in cask ale once you get to a certain size, because you’re not making enough return to reinvest. I really think bodies like Camra and SIBA need to focus much more on the big issues – the long-term sustainability of cask ale and lobbying to reduce the very high overall beer duty rates in the UK – than to put all their focus into trying to reverse a modest, fairer and long overdue reform of SBR.
“I personally believe we will see about 300 brewers either close or exit the wholesale market over the next 18 months, primarily because of the long-term decline of cask ale, and the more immediate problems caused by Covid-19. This will not be anything to do with SBR reform, which isn’t due to be introduced until January 2022.”