Last week, the government announced a new proposal to reduce the threshold at which the Small Brewers Duty Relief (SBR) starts to taper, from 5,000hl down to 2,100hl. Jacopo Mazzeo takes a look at what consequences this might have on Britain's small breweries
Last week, the treasury outlined a new proposal to reduce the threshold at which the SBR Relief starts to taper and small brewers can access a 50% duty discount, from 5,000hl down to 2,100h.
The SBR, originally introduced in 2002 as a tool to help small businesses take off and develop competitiveness, is widely regarded as being responsible for the exciting vibrancy of today’s British beer industry.
In its current state, small brewers benefit from a 50% discount on duties if their output is below 5,000hl, after which point a duty ‘cliff edge’ inhibits growth – its critics claim. Smaller, tapered discounts are then offered to medium-sized breweries beyond the 5,000hl threshold up to a maximum output of 60,000hl (more details on how reliefs are calculated can be found on the government’s website).
With the new proposal, the 50% relief threshold would be lowered to 2,100hl/year... As a result of these changes, breweries whose output sit between 2,100hl and 5,000hl would be affected by a duty rise
With the new proposal, the 50% relief threshold would be lowered to 2,100hl/year, after which point a smoother tapering system would come into play. As a result of these changes, breweries whose output sit between 2,100hl and 5,000hl would experience a duty rise, the amount of which will be more clearly defined by the treasury in the autumn.
The Society of Independent Brewers (SIBA), which has been instrumental for the introduction of the SBR in the first place, has also been playing a role in campaigning for its amendment. In response to the treasury’s proposal however, the trade association claimed that they do ‘not believe there exists an economic, political or moral rationale for withdrawing any relief to any brewer below 5,000hl and we will continue to defend SBR at current levels below 5,000hl… no brewer should lose any duty relief as the result of any reform… Small Breweries’ Relief at current levels is essential to the future.’
The risk, says SIBA, is that the removal of the relief for some of the brewers operating at below 5,000hl ‘would result in the closure of many brewing businesses across the UK’.
A smoother cliff edge
The new proposal comes as a result of years of lobbying, undertaken by a group of mid-sized breweries known as the Small Brewers Duty Reform Coalition (SBDRC).
The lobby, which includes the likes of Hogs Back, Harvey’s, and Timothy Taylor’s, has been arguing that the SBR, in its current form, inhibits growth: ‘Once 5,000hl was crossed that seemed to penalise successful brewers (brewers were stopping at 5,000hl to avoid the cliff edge),’ explains Timothy Taylor’s chief exec Tim Dewey, who supports the proposal.
A support that is being firmly criticised by several smaller independent British brewers. They see the proposed changes as a serious threat to the viability of their businesses, at a time when the sector has already been hit hard by coronavirus-related financial losses and uncertainties. ‘It’s the equivalent of people on six-figure salaries campaigning for, and getting, a reduction in the income tax personal allowance,’ says Patrick Jones, director of Edinburgh’s Pilot Brewery.
It’s the equivalent of people on six-figure salaries campaigning for, and getting, a reduction in the income tax personal allowance
With an annual output of about 3,500hl, Jones’ business would be directly impacted by the changes. ‘We don’t know the details yet, so we can’t quantify the impact, but it isn’t going to be good,’ he fears. ‘Further pressure on already low margins is at best going to make life difficult and at worst is an existential threat.’
As a result of the proposal, a sizable voice of the UK beer community is now calling for boycotts of the reform’s supporting breweries. And while SBDRC leader Hogs Back denounces some criticism as a ‘campaign of intimidation’, a number of businesses associated with the SBDRC have promptly distanced themselves from the proposal.
‘Black Sheep’s position with SBR has always been that no small brewer should pay more duty as a result of reform,’ says Black Sheep chairman Andy Slee, while Oakham Ales state: ‘We certainly do not agree with the reduction of the small brewers threshold – this is an unwarranted, punitive and unnecessary step.’ West Berkshire Brewery even claim they requested to have their names removed from the SBDRC coalition for good.
Trapped in the middle
After a successful crowdfunding campaign last year, Anspach & Hobday's co-founder Jack Hobday fears that the proposed SBR reform could seriously undermine his plans to increase production.
You might risk to bring your plans forward and find yourself in a place where you don’t have the economy of scale to support your growth and therefore you start making considerable losses because you’re just not competitive
‘We're currently at 2,000hl and last year we were at 1,600hl. I would expect we will be able to come close to 5,000hl by this time next year,’ he explains. ‘We are trying to approach 5,000hl in our current site and we might achieve that to coincide with when these new measures will come through.’
Should that happen, Hobday believes that his brewery would lose jobs and enter a ‘stagnation’ period. ‘I’ve drafted a petition where I say that while we respect that some brewers might want to look at how the tapering works, this shouldn’t come at the expense of the smaller breweries,’ Hobday says. ‘You might risk to bring your plans forward and find yourself in a place where you don’t have the economy of scale to support your growth and therefore you start making considerable losses because you’re just not competitive,’ he explained.
A distressing scenario for a sector that’s already fighting the consequences of the pandemic. And with the Treasury aiming to make a final decision no earlier than autumn, uncertainties are an added, unwelcome challenge.
‘Our real fightback is trying to raise the issue across the political spectrum by asking people to read about it and contact their MP,’ explains Pilot’s Jones.
‘I’d love to say I expect the government to see sense and reverse the decision, but we shall see...’
We have contacted a leading SBDRC member to comment on the changes but they decided not to talk at this point in time. We are going to keep a close eye on the developments and plan to publish more information on the issue closer to the Autumn consultations.