Britain's pubs, which have faced numerous challenges, are set to receive a much-needed boost this summer. The U.K. government has announced plans to utilize the tax benefits granted by Brexit to reduce tariffs on beer served directly from the bar.
On Tuesday, the government revealed what it hailed as the most significant alteration to the alcohol duty system in 140 years. Starting from August 1st, a new taxation method based on the strength of drinks will be implemented, with additional support provided to smaller brewers.
The objective behind this change is to promote healthier drinking habits. Taxes will increase on stronger wines and spirits, while they will decrease for lower alcohol beverages such as certain beers and sparkling wines.
Since the onset of the pandemic in 2020, alcohol duties have remained frozen. As a result of the new regime, overall duty will rise.
However, this development holds particular significance for the 38,000 pubs and bars across Britain. A pint of beer with a moderate alcohol content will be four pence cheaper compared to its shop-bought equivalent. This discount aims to "level the playing field" between pubs and supermarkets, allowing these establishments to prosper and remain integral to communities throughout the U.K., as stated by the government.
The government attributes these three changes in alcohol duty solely to the U.K.'s departure from the EU. According to them, the previous duty system was both convoluted and inequitable. Now that the U.K. has the freedom to shape its excise policy according to its specific requirements, the government has initiated sensible reforms to support broader tax and public health objectives within the country.
Under European Union regulations, countries must adhere to minimum excise duty rates for alcohol, tobacco, and energy products.
Leveling the Playing Field for Pubs: A Positive Move Amidst Adversity
The pub sector has endured a series of setbacks in recent years, including COVID shutdowns, escalating municipal taxes, soaring energy costs, and challenges in staffing due to Brexit and the cost of living crisis. As a result, many pub owners have seen their business suffer, with patrons opting to purchase their drinks from supermarkets.
In light of these difficulties, the pledge to 'level the playing field' with supermarkets will undoubtedly be welcomed by the pub industry. Emma McClarkin, the chief executive of the British Beer & Pub Association, expressed a positive sentiment regarding this development. However, she pointed out that despite this move, taxes on pubs remain unchanged, leaving no room for any benefits to be passed on to consumers.
The impact of these challenges on the pub industry is evident, with the U.K. losing over 50 pubs each month at the beginning of 2023, according to Altus Group, a commercial real estate intelligence firm.
Tim Martin, the founder and chairman of JD Wetherspoons, a prominent pub chain in the U.K., highlighted the significant tax disparity between pubs and supermarkets earlier this year. Martin emphasized that while supermarkets pay zero VAT on food sales, pubs and restaurants must pay a 20% tax. This uneven tax treatment allows supermarkets to offer beer at subsidized prices, posing a substantial threat to the hospitality industry.
In response to these developments, JD Wetherspoon's shares experienced a slight decline of 0.7% in early trade. Meanwhile, Tesco and Sainsbury's, two of the U.K.'s leading supermarkets, displayed mixed performances.
Despite the obstacles faced by pubs in recent years, the commitment to create a level playing field offers hope for a more balanced future in the industry.
