Brewers droop as Government gives them another hammering

It’s always been quite a challenge to feel sorry for the brewers of Britain – that motley collection of bucolic businessmen that has exercised disproportionate political power historically through the production and means of distribution of a product so instilled in British culture that it might be considered a consumer essential, rather than a leisure item.

But an unremarked debate in the House of Commons last week does suggest that British brewers have taken an undue battering at the hands of successive governments. It was Lord Young who, as Secretary of State for trade and industry in the Eighties, put the boot in to what many considered a vertically-integrated monopoly in the form of tied houses. Ill-conceived regulation led to beer orders that either closed pubs or imposed draconian leases on landlords and a spate of enforced consolidation and disposals in the on-trade.

Latterly, the Tories recanted somewhat, and, in a fit of contrition under John Major, froze beer excise duties. This was largely in response to the anticipated effects of the abolition of European frontier controls in 1993, which led to the cross-Channel bonanza of cheap booze imports. What hadn’t been anticipated was the commensurate explosion in smuggling and fraud. I was told by the chief of a major superstore chain last week that HM Customs & Excise estimates that as much as 70 per cent of duty-paid beer bought in France is smuggled illegally into Britain – they estimate the volume by counting the number of white vans coming off the ferries. About 600 per van per trip is the profit margin.

Not only that, but the wholesale export industry in Britain is subject to a good deal of fleecing. In 1994, the customs people reckon that less than half the beer brewed and packaged for export in Britain actually arrived in France, the balance being sold cheap on the black market within this country, further eroding domestic margins. This has echoes of the development of “parallelling”, where product destined for a foreign excise regime is illegally sold by wholesalers and retailers in the domestic market, undermining the manufacturer by making it effectively compete against itself.

Then, last year, along came what looked like a political saviour in the guise of New Labour. In the salad days of May, when Labour was green of manifesto, this was Tony Blair in trade magazine The Licensee: “Labour accepts that there is a problem and that the Government should act urgently to strengthen customs and excise, tackle the illicit sale of contraband, stand up for UK consumers, jobs and businesses when rates of duty are considered by the European Council and initiate an urgent independent and comprehensive study, analysing the extent and effects of both smuggling and illegal cross-Channel shopping and setting up policy for the future.”

I quote that in its entirety, because when politicians get long-winded without pausing for breath it’s time to start counting the spoons. One year into this new Government and what do we have? A lp increase on the price of a pint of beer by way of Treasury excise in the Budget. Not much, you might reasonably say, but a further encouragement to the fraudsters and smugglers – hardly an act designed to “strengthen customs and excise”.

So to last week’s debate of the Finance Bill in the House of Commons. David Heathcoat-Amory, a rare surviving member of the endangered Tory species, took on the formidable Dawn Primarolo, financial secretary to the Treasury. In the spirit of Nolan and limpid transparency, Heathcoat-Amory declared an interest: he is a member of the Parliamentary Beer Club. He went on to develop an elegant exposition of the competitive dangers to our indigenous brewing industry of cross-border shopping and the growing threat of smuggling and fraud, both of which will be encouraged by an increase in beer excise duty, before the debate meandered off into areas that included the colour and length of Nicholas Soames’ socks.

One of the more interesting – and easily overlooked – aspects of this debate was a report from Oxford Economic Forecasting, which demonstrates that the Treasury is going to lose far more in encouraged smuggling from a duty increase than it gains from from the rise in domestic revenues. It should immediately be added – in the spirit of Heathcoat-Amory’s declaration of self-interest – that this report was commissioned by the Brewers & Licensed Retailers Association. The Financial Secretary to the Treasury would want us to know that.

But, whatever the vested interests here, there are some ineluctable facts. The Treasury is already losing revenues to beer imports – one estimate has it that the current excise inconsistency between Britain and France loses 500m in Treasury receipts as a result of legal and illegal imports. That may or may not be accurate, but it cannot be argued that there is a six-to-one tax differential between the UK and France. It stands to reason that to increase duty in the UK is for the Treasury to shoot itself in the foot – it simply shrinks the market from which it seeks to raise the revenue.

So, for once, poor Bass. Poor Guinness. Poor Young’s – and the rest. Not only did the Tories call time on the domestic industry, but New Labour was waiting outside to beat it up.

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