Taxation: Beer and Pubs — [Albert Owen in the Chair]

I beg to move,

That this House 
has considered taxation of the beer and pubs sector.

It is a pleasure to serve under your chairmanship, Mr Owen, for what I think is the first time and particularly for this important debate on taxation of the beer and pubs sector. It takes place just three weeks before crucial decisions are made in next month’s Budget. It was pointed out to me this morning that seven years ago an Adjournment debate on this subject was initiated by my constituency neighbour, my right hon. Friend Gavin Williamson. I only hope that my hon. Friend the Exchequer Secretary to the Treasury is as keen to please the Government Chief Whip as I clearly am in repeating his initiative today.

This debate is taking place on Halloween, and pubs up and down the country are decorated with a wide range of ghouls, monsters, skeletons and witches. However, the scariest prospect for our pubs and brewers is surely that they could face a second duty rise this year after next month’s Budget and enormous rises in business rate bills over this revaluation period. I hope to set out, in the short time available to me, why the Minister should avoid that course of action.

In the UK, 30 million adults drink beer each year and 15 million of us visit the pub each week. Representing the Black country, the spiritual home of British brewing, and as chairman of the all-party parliamentary beer group, the largest Back-Bench group in the House, I know how important this issue is for so many of our constituents.

If the midlands is the engine of the British economy, beer is surely the fuel that helps to power that engine, and like all fuel, it needs to be well looked after. My Dudley South constituency is home to four brewers—Bathams, Black Country Ales, Ma Pardoes and the Pig Iron brewery—and no fewer than 75 pubs. The beer and pub sector is vital to our country. Nearly 1 million people across the UK rely on the industry for work. About 46% of them are young people under the age of 25, and just over half are women.

Photo of Chris Green Chris Green 

(Bolton West)

Does my hon. Friend agree that having a healthy pub environment will do two things, namely promote healthy drinking and help to revitalise our high streets?

 

Mike Wood: Absolutely, and I will come on to the specific role of pubs later. Supporting the pub trade has a more direct economic role in helping further to reduce youth unemployment and the number of young people not in education, employment or training.

 

Gloria De Piero ​Shadow Minister (Justice)

I thank the hon. Gentleman for securing this important debate. May I place on the record my praise for the many microbreweries that have opened in Ashfield? They have totally transformed the high streets in my constituency. Does he agree that the tax break introduced for smaller breweries by the last Labour Government should remain intact to ensure that they continue to prosper?

 

Mike Wood: Partly because of the small breweries’ relief scheme, we now have a greater variety and, I would argue, greater quality of beer than we have had in the past. It is important that smaller brewers enjoy support that reflects the higher marginal cost of brewing on that scale. However, we also need to look at whether the relief scheme as currently framed is preventing brewers from expanding, or even causing some to scale down.

 

Jim Cunningham Coventry South

In the last Parliament, there was a Bill on this subject; I think that a Liberal Democrat introduced it. Certainly the landlords of Coventry’s pubs are voicing a lot of concern about this matter. There is a big effect on pubs—many are now closing—but also a big effect on high streets. Coventry has universities, and sometimes the students have jobs in the pubs, so they subsidise their—

 

Albert Owen Ynys Môn

Order. I call Mike Wood.

 

Mike Wood: Mr Cunningham of course makes an important and valid point in talking about the role not only of students but of young people more widely in employment, because the pub sector can generate an extremely fulfilling and constructive career for many that goes much wider than the stereotypical picture of students working in a pub until they are in full-time work.

 

Graham Stringer Blackley and Broughton

Will the hon. Gentleman give way?​

 

 

Mike Wood: I must continue because a lot of colleagues are waiting to get in.

The beer industry is a true success story for home-grown British manufacturing. A staggering 82% of all beer consumed in this country is made in the UK. The UK now has more than 2,000 breweries, producing 25 million barrels of beer a year. With 923 million pints exported to 110 different countries, beer is the third largest food and drink export sector in the UK and it is worth £550 million to the UK economy. In my constituency alone, the sector accounts for 1,156 jobs, of which 313 are held by under-25s. It also contributes more than £37 million to our local economy.

 

Helen Whately Faversham and Mid Kent

I congratulate my hon. Friend on securing the debate. Shepherd Neame, the pub and brewing company, is the largest employer in my constituency, so let me support the case he is making. Given the importance of these companies as employers, and the role of pubs in our villages, we must have a tax regime that supports this part of the economy.

 

 

Mike Wood: I thank my hon. Friend, who represents our oldest brewery. It is important that we support established breweries as well as more recent entries into the market. The beer and pub sector adds more than £23 billion to the UK economy, and I know that the Minister will be very grateful for the £13 billion of taxes that it contributes to the Treasury.

There has been a suggestion that duty changes have little or no impact on beer sales in pubs. That is simply not true and is not consistent with the available evidence. The last Labour Government introduced the hated beer duty escalator in 2008. It was hated because the escalator saw beer duty increase by a staggering 42%, hitting beer sales, making pints less affordable and closing pubs at a faster rate than ever. Beer sales have been falling for many years. However, we saw that trend accelerate sharply under the escalator. In the six years before the duty escalator, on-trade beer sales fell by about 3% a year. During the escalator years, on-trade sales fell by more than a quarter, which was about 5.4% a year on average. Almost 7,000 pubs called time for good, and more than 58,000 beer-dependent jobs were lost. However, although beer duty increased by 42%, beer duty revenues rose by only 12%. It was a very expensive failure of a policy and one that I hope the Labour party has put firmly in the past.

Beer duty is now 20% lower than it would have been with tax rises previously planned under the escalator. In the years between 2013 and 2016, when duty was cut or frozen, the annual decline in on-trade beer sales was not 5.4%, but 2%, which year on year makes a significant difference to the number of jobs and the size of the industry. However, the return to a retail prices index-linked rise in this March’s Budget was disappointing. Announcing a second duty rise in the same calendar year would in effect take us back to the days of the beer duty escalator through the back door.

As the price difference between sales in pubs and supermarkets has widened, consumers have become increasingly price sensitive, especially pub-goers. A respected consultancy, Oxford Economics, which has consistently and accurately forecast the impact of duty changes in recent years, calculates that even a freeze in beer duty in next month’s Budget, rather than the planned increase, would boost pub sales by about 33 million pints per year against the current baseline and that that would mean more than 2,000 additional jobs.

The Exchequer Secretary will remember the front-page headlines praising the previous Chancellor for cutting beer duty. I cannot promise the Exchequer Secretary the front page of the Evening Standard—maybe he knows a man who can—but I have no doubt that if the current Chancellor freezes beer duty, the whole Treasury team would be carried shoulder high across Whitehall.

The financial benefits of the beer and brewing industry are clear, but just as great is the social impact of pubs and the detrimental effect that pub closures have on the fabric of our society, because pubs are a great addition to the social make-up of our country, at the heart of our local communities. They offer a safe environment in which drinking can be supervised and highly regulated, which is in stark contrast to much street drinking.

 

Damien Moore Southport

Does my hon. Friend agree that at a time when we are becoming more digitised and people are spending more time alone, the social interaction that pubs create is really important, particularly when loneliness is a major problem, not just for older people, but for younger people as well?

 

Mike Wood: My hon. Friend goes right to the heart of this issue. Friends are made and communities come together in pubs. Research at Oxford University by Professor Robin Dunbar concluded that pubs play exactly that kind of vital role in tackling social isolation and contributing to wellbeing. People with a local are likely to be better off financially, physically and socially. They are likely to have a wider circle of friends. In a week when researchers have shown again the clear link between strength of social networks and resilience to conditions such as dementia, the social value to which my hon. Friend refers could not be more important.

People who drink in moderation in a pub are more likely to be healthier and register higher levels of happiness than people who do not drink at all. They are also likely to be better fed, with almost 1 billion pub meals sold annually.

We should not forget that pubs play a key role in tourism, being one of the attractions that tourists most want to visit when they are in the UK. Last year there were 600 million day visits to pubs by tourists, and more than half of all holiday visits to Britain included at least one visit to a pub.

 

Giles Watling ​Clacton

Does my hon. Friend agree that it is a terrible shame that we lost some 10,000 pubs between 2003 and 2013, ripping the hearts out of many of our villages and communities? Does he also agree that pubs represent part of our British way of life that other people come here to see?

 

Mike Wood: Absolutely. That is as true in our towns as it is in our villages. About 80% of pubs are community or rural pubs. They bring not just jobs, but a community focus, often in areas of the country where other traditional providers of jobs and community coming-togetherness might have been lost.

 

Graham Stringer Blackley and Broughton

The hon. Gentleman makes a profound point about the importance of pubs to rural villages, but does he agree that pubs in inner-city areas are just as important to the local community? There has been a migration of licences from inner-city areas into city centres, which has denuded our inner cities of many of the benefits of public houses.

 

Mike Wood: The hon. Gentleman is absolutely right. It is particularly troubling that those pubs that close in our towns and city centres are often housed in large buildings that are very difficult to fill and that remain as decaying monuments to the changing nature of consumer behaviour.

 

Stephanie Peacock Barnsley East

Pubs and breweries in Barnsley East contribute more than £12 million to the local economy, but on the particular issue of pub closures, does the hon. Gentleman agree that we need to consider updating the compulsory purchase powers and the planning system, which would give more powers to local communities?

 

 

Mike Wood: I think that is exactly what the Government have done over the past 12 months in changing the rules on permitted development in particular. Obviously, now we have to go through planning processes before pubs can be converted.

The licensees and customers at many of our pubs contribute in both a financial and practical manner to their communities, by funding and running sporting and other activities, such as football, darts, dominoes and cribbage, but also through community activities, a large number of which are run through our pubs. Of course, because pub customers are extremely generous people, initiatives such as PubAid are able to generate about £100 million each and every year for good causes in communities in all of our constituencies.

For all these pubs to flourish and remain at the beating heart of their communities, they need a transfusion of investment and custom that will come with a freeze in beer duty and a reduction in their business rate burden. I have set out why our beer and pub industry is so important economically and socially, but it faces the twin threats that I referred to earlier: the increases in business rates and in beer duty. The three duty cuts, last year’s freeze and the ending of the escalator secured about 20,000 jobs, boosted confidence in our brewing and pub businesses and meant that more beer was sold than would otherwise have been the case, boosting the Treasury’s total tax take, if we include both direct and indirect taxation. On business rates, the Chancellor has already recognised the pain caused to pubs by the disproportionate burden caused by valuation based on turnover; about half of that turnover may be beer duty and VAT that the pub is collecting on behalf of the Government.

The £1,000 pub relief announced in the March Budget is extremely welcome, particularly for smaller and medium-sized pubs. However, it is particularly important that that relief is now expanded and extended, because our pub sector pays nearly 3% of all business rates despite making up just under 0.5% of business turnover. It is hugely, disproportionately overtaxed through business rates.

 

Ruth Smeeth Stoke-on-Trent North

Does the hon. Gentleman agree that it is ludicrous that pubs in Stoke-on-Trent pay more in business rates—in fact, more in total—to the Exchequer than Amazon does in its entirety? Stoke is paying more than Amazon.

 

 

Mike Wood: I could not agree more. The revaluation of business rates was often seen as an issue that affected only businesses in London or the south-east. As for everyone else, it was thought that some gained and some lost out, but that is completely untrue when it comes to pubs, which have experienced huge increases in every part of the country. The 27 pubs run by Black Country Ales across the west midlands and neighbouring counties will have experienced an increase in their rateable value of, on average, 40% by the time the transitional period is over.

 

Anne Marie Morris Newton Abbot

My hon. Friend makes a very good point. A pub in my constituency has seen its rates go up 83%. Does he agree that it is completely inappropriate for pubs to be measured by turnover? They get measured on their actual turnover, not the perceived turnover for the square footage, so there is no fair comparison with the way in which rates are levied and measured in other industries in our country.

 

 

Mike Wood: That is right. As well as a large part of that turnover being just business tax, it is a huge disincentive to invest in and improve the property.

We supported the Chancellor when he suggested he would look at business rates in the light of the increase in online businesses and the harm that could cause our beloved high streets. The message that has come from Members on both sides of the House is that the sooner that can be done, the better. We want to ensure that our community pubs, high street pubs and village pubs are properly considered when any new system is put together, so that we can all get together to protect the great British pub.

I applaud the Government’s work in reducing the deficit, and the measures that the Exchequer Secretary and his colleagues are taking to reinvigorate the economy, but I ask him to urge the Chancellor to go further. Hard-pressed UK beer drinkers still pay 40% of all Europe’s beer duty, despite drinking only 12% of the beer consumed in Europe. Some colleagues may think that means we need to drink more beer to keep up, but let us just focus on the duty. As a Yorkshire MP, the Exchequer Secretary will know that the Black Sheep brewery employs more than 100 people in the Yorkshire dales, but he might not know that it pays more in beer duty each year than it does on the combined costs of employing those 100 staff, buying all the raw materials to produce its beer and then distributing it around the country. Beer duty that is more than four and a half times as high as eBay’s UK corporation tax liability seems an undue burden.

 

Julie Cooper Shadow Minister (Health) (Community Health)

Does the hon. Gentleman agree that it is unfair that in this country, compared with other EU nations, we drink 12% of all the beer consumed in the EU, but pay 40% of the duty across it?

 

 

Mike Wood: As I have indicated, I think that situation is not sustainable in even the medium term, and certainly not in the long term.

Britain’s growing ranks of brewers have much more growth potential, which would mean more investment and more jobs to underpin the economy. The Treasury needs to look at whether the way in which beer duty is structured is appropriate for the 21st century. In particular, there is a growing consensus in the industry that the small breweries’ relief scheme, which has done so much to allow new breweries and microbreweries to become established, is now preventing breweries from growing, and in some cases means that they are downsizing to receive the lower duty rates. I know that the Exchequer Secretary has already received representations on that issue.

To look further ahead, as we leave the European Union in 2019 there are also opportunities to consider whether it is appropriate that beer sold in pubs is taxed at the same duty rate as beer sold in supermarkets or other off-sales, and the role that a differential tax rate could play in supporting our pubs, helping keep more of them open, and the social benefits that come with that. The Treasury should also look at supporting reduced-strength beers by expanding the current bracket to cover beers between 1.2% and 3.5%, instead of just up to 2.8% as at present. I have written to the Exchequer Secretary on this subject. Britain has a strong tradition of brewing 3% to 3.5% beers, and if we can incentivise the industry to develop, produce and market beers at that end of the market, there will be an advantage to the industry and to our health. However, while all those areas for reform are important, none of them should distract us from the immediate need to freeze beer duty and tackle business rates in the Budget in three weeks’ time.

If the Exchequer Secretary is not already persuaded by the economic case against a further rise in beer duty, the social case for helping pubs and reducing their business rates, or the political case for doing something that is genuinely popular across the country, he might want to reflect on the personal-political benefits of backing beer. I have already mentioned that a previous proponent of this cause is now the Government Chief Whip. However, it might be even more pertinent for me to point out to the Exchequer Secretary that the three previous holders of his post who presided over recent cuts to beer duty—my right hon. Friends the Members for Bromsgrove (Sajid Javid), for Witham (Priti Patel) and for Loughborough (Nicky Morgan)—all went on to reach the giddy heights of Cabinet office. As a canny Yorkshireman, the Exchequer Secretary may want to reflect on the fact that cutting beer tax is clearly not a bad career move. In all seriousness, I ask him to do the right thing for the longer term: encourage the Chancellor to freeze beer duty in his autumn Budget, act on the disproportionate burden of business rates on pubs around the country, and invest in and support these great sectors, which do so much economically and socially in every part of Britain.