The UK’s beer tax system sits within the EU excise framework. Although this might seem less relevant following the referendum, the bearing of the EU framework on the rates applied in the UK is very limited already. This is explained in the Beer Means Business book whose relevant chapter is quoted in full here.
In the EU, applying excise on beer is a must, and there is a minimum level required. The EU, however, does allow member states to introduce reduced rates of excise for small independent breweries, provided it is not less than half of the standard rate.
In the UK, the progressive beer duty was introduced in 2002, and this is considered to have been the ignition of new wave brewing in the UK. It was implemented ten years after it had become an option through the adoption of the directive of the EU excise framework for alcohol in 1992. The production limit to benefit from the UK excise concession is significantly lower than the 200,000hl/annum limit in the directive, and the UK limit also seems low compared to other EU member states. However, as opposed to the practices of these member states, the UK maintains a gradual increase of excise rate and not a tiered system.
This concession and its limits have been criticised, in particular for the arbitrary nature of its cut-off limits. The theoretical difference between the lowest level of excise provided for small brewers at maximum 5,000hl/annum production and those for mass-produced beer of more than 60,000hl/annum production is approximately 5p/%/pint. This difference significantly diminishes with the production level, e.g. at an annual 30,000hl production it is only 1p/%/pint. (Calculations are based on excise rates as of 1 January 2016.)
In the UK, the approach to connecting the excise rate so closely to actual production incentivises brewers of less than 5,000hl annual production to remain small, but on the plus side, above this level the excise increase is gradual and less likely to hinder scaling than a tiered system.
The introduction of the progressive beer duty system is believed to have made small brewers more competitive vis-à-vis those players on the market who enjoy economies of greater scale, and most small brewers would find this crucial for their business. It is interesting to note, though, that the take-off of new wave brews is not strictly dated back to the introduction of this system. And Italy, where a similar new wave of brewing has taken place, does not have the system for small brewery excise concessions in place at all.
In addition to those who criticise the arbitrary limits and do not benefit from the scheme, even those who do benefit express concerns related to the system in the UK, as is summarised in the Local Beer Report 2013 by SIBA:
“In spite of their overwhelming support for Small Breweries’ Relief, even a majority of the brewers who completed the survey … agree with the suggestion that duty relief has encouraged the growth of too many breweries. Competition is increasingly fierce.”
The excise system as it is in the UK is an instrument to collect government revenues and a means to support smaller brewing businesses. Excise on alcoholic beverages in general is:
- An indirect tool to regulate market sizes and can affect single categories
- Often used as an influencer of international trading in these products, e.g. by making one mainly imported category less price competitive
- An influencer of cross border trade. Differences in excise rates, and thus prices, between neighbouring countries instigate smuggling
- Not solely a financial instrument. Excise is much emphasised in public health, in particular in relation to affordability and thus overall consumption.