Manufactured outrage and the missing facts in the Small Brewers’ Relief debate

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.

Rupert Thompson: “Camra and SIBA need to concentrate more on the big issues”

“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.”

12 thoughts on “Manufactured outrage and the missing facts in the Small Brewers’ Relief debate

  1. It’s an age-old problem of intervention in markets. No intervention and monopolists will wipe out the smaller businesses. But interventions often bring unintended consequences as with SBR. It is a given that regulation has to be re-evaluated and amended rather than being set in aspic. I wonder how many now think the break-up of of the Big Six brewers some years ago was, in retrospect, a great success. The businesses saw the answer which was to convert from vertical integration to horizontal integration leaving us with pub companies that often don’t give two hoots what is sold through their taps.

    You are right – a reasoned debate is necessary and we need to listen to the likes of Hogs Back who are at the sharp end. Whatever the outcome, it will need to be monitored and perhaps adapted again after a few years

    Just for the record – I am an active supporter of our two local micro-breweries (Donkeystone and Millstone) and haven’t been commissioned to write this comment.

    1. Peter,
      Yes, I am afraid this is a classic example of lack of inadequate Industry consultation before introduction in 2002 and the unintended consequences that result. It was a good policy but just set at the wrong levels and never reviewed – Government should have reviewed after 5 years, in 2007, at which it could have been tweaked without causing any problems. There was an attempt to find an Industry consensus on a sensible and modest reform at that time but blocked by SIBA… and so 13 years on, we now have a system that is causing much more damaging distortion.

  2. Martin, this article has made me reappraise my assessment of changes to SBR so thankyou for producing it. Mind you yet again the root cause of the problem really lies in the break up of the tied system and the creation of pubco’s causing more problems than it left behind.

  3. I know it all started as a duty on malt and hops, but we know in reality alcohol taxes are taxes on consumption with the not entirely implicit goal of modifying consumer behaviour. As taxes on consumption, they should be taxed at the final point of sale to the consumer and collected, like VAT/sales taxes, by pubs and offlicences etc who sell direct to the public.

  4. Martyn – I’m sorry to say that your facts are based on what you have heard, rad or been told. An example being in your 4th paragraph that SBR distorts the price that Pubco’s pay. Small brewers are lucky to get on the bar when most of the trade is controlled by international and large regionals and its these that ‘control’ the pricing with net deals, free stock, sky and barrelage rebates etc. The current truth is that most brewers at less than 5000 h/l are struggling to make a profit and that any change to the current situation without better access to the market WOULD damage their businesses and transfer monies to larger brewers so yes it is daylight robery. My experience – just 35 years in the Brewing industry a Finance Director for a large regional brewer and now MD of a small brewery.

    1. “your facts are based on what you have heard, read or been told” – well, obviously. What else can they be based on?

      “most of the trade is controlled by international and large regionals and it’s these that ‘control’ the pricing” – it’s not the supplier that controls the pricing, it’s the retailer: retailers are always saying that they can get their beer cheaper elsewhere. And it’s small brewers who indulge in suicidal pricing, at, eg, £45 a firkin.

      “most brewers at less than 5000 h/l are struggling to make a profit” – so should they be in business? If your business model means that you only survive with a 50 per cent tax break, and even then you struggle, I suggest those people should consider another business entirely.

      “any change to the current situation without better access to the market WOULD damage their businesses and transfer monies to larger brewers” If the current subsidies are unfair to the medium-sized brewers, which is the argument that they put forward, then the purpose of reform is precisely that, to transfer money that – according to the reformers – the small brewers aren’t entitled to over to those who are currently losing out.

      My experience: 30 years as a business journalist reporting on and analysing the brewing, pub and hospitality trades, holder of an MBA and author of The Business Guide to Cask Ale.

  5. It would be unusual for economies of scale to work step-wise so that you achieve economies of scale producing at 2,000 hl but not when you hit 10,000 or 100,000 hl. In fact, as long as there’s no mechanism to prevent it, economies of scale will continue to be gained as long as a brewery can keep growing, which is why we’ve had a massive wave of consolidation over the last 20 years (similar in its way to what happened in the 60s and 70s). It’s the mega brewers and supermarkets, I’d guess, rather than SBR, that really hit the mid-sized breweries.

  6. The reason that Governments across Europe and even in North America subsidise smaller start-up breweries was that they are the part of the sector that create the most jobs proportionately, carry the strongest local loyalties with knock-on effects in local economies, and are least likely to pay their (much lower) taxes abroad.

    The reason that this subsidy takes the form of Duty relief in the UK is that our total tax take from beer duty is the highest in the developed world by a country mile, equal broadly to a few smaller nations in per capita terms but three times higher than the nearest nation of similar size (France).

    The various policy preferences held by stakeholders in regard to tapering the subsidy about 5,000 hL per annum are fairly similar. It is only in the 2,100-5,000 hL per annum range that there is significant disagreement.

    By strange coincidence this production range includes most of the strongest younger companies. It is difficult to see why Government would choose to hit them hardest, particularly in the run-up to Brexit, as these are the companies most likely to produce beers that will be of interest to export markets. In that context, seeing smaller heritage breweries and better-established 20th Century start-up breweries calling for that group to take the only hit from these changes looks bad.

    A cynic might even suggest they took the opportunity to disadvantage their rivals for the tiny proportion of the UK beer market that is open to smaller producers, in preference to siding with them to question why the larger, duller producers are able to control the vast bulk of the UK markets through buddy-up deals with equally unimaginative PubCos.

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