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  • Writer's pictureChris

Change to small breweries’ relief is bad news for fledgling brewers - UPDATE 28/08/2020

Small breweries are finding 2020 to be even more arduous after it was announced that the government is to make changes to the small breweries’ relief, reducing the threshold from which it starts to taper from 5,000hl (about 880,000 pints) of annual production to 2,100hl (369,000 pints) by 2022.

What is Small Breweries’ Relief

Small breweries’ relief was introduced in 2002 as a means to help new breweries become more profitable and allow them to compete with the bigger breweries. The relief gave any brewer producing less than 5,000hl annually a 50% discount on beer duty. As soon as the brewer started making more than 5,000hl, the relief rate was then lowered.

Therefore, for many smaller breweries, the new reduction in the relief threshold will come as a huge blow as they will be seeing a significant increase in their tax bills.

Double duty

Currently there are over 150 breweries in the UK who sit between 2,100hl and 5,000hl of production volume, who will under the proposals see the beer duty they pay double.

The tax reform came into effect after a number of smaller, but more established breweries, in the UK lobbied the government calling themselves the Small Brewers Duty Reform Coalition (SBDRC). They argued that that the existing system acts as a disincentive for growing breweries to increase production above 5,000hl in order to retain greater tax relief than their slightly larger counterparts.

What’s being said

The Society of Independent Brewers (SIBA) added that it was “hugely disappointed” by the change. “This position is now more important than ever, given the UK’s small independent brewers have not received the same level of support as the wider hospitality sector during the Covid-19 lockdown.”

Many small brewers aired their frustration on social media with North Brewing Co tweeting: “Changing the SBDR will have a devastating impact on the craft beer industry. And could not have come at a worse moment for small independent brewers. We would not have grown without duty relief in our early years. Businesses will fold, jobs will be lost.”

Derby Brewing Company issued a statement saying: “[We] are deeply concerned by the announcement that it will reduce the threshold at which Small Brewers Duty Relief starts to taper from 5000hl of annual production to 2100hl.

This represents a huge threat to the livelihoods of many small brewers, who are already facing existential threats posed by Covid-19. As well as a threat to beer quality and choice for beer lovers everywhere! In the current climate this could make many brewers unviable, potentially increasing the price by pint by up to 70p. This move will cause irreparable damage to the beer industry, and destroy the livelihoods of so many who have worked so hard to improve the fortunes of British Beer.”

Mark Tranter, the founder of Burning Sky Brewery in East Sussex said: “All we know is that we’re going to pay more”

A Treasury spokesperson said: “We invest over £65m per year in craft brewing through small brewers relief. We’ve consulted with hundreds of breweries who have told us that the relief was being withdrawn too quickly, and therefore preventing their businesses from growing.

“To support these small breweries, our proposals will mean that they’ll still benefit from the relief as they gradually expand their businesses, rather than having an all or nothing approach where it’s rapidly withdrawn above a certain level.”

Many breweries are appealing for those in the brewing community to write to their local MP to try to overturn the decision.

We signed a petition to reverse the change to small brewers relief fund and on the 28th of August we received a response.

Government responded:

The Government is reforming SBR to address issues raised by brewers. Over 80% of brewers are unaffected by these changes and many will benefit. We will consult further this Autumn.

The Government has been reviewing Small Brewers Relief (SBR) for the last two years in response to feedback from brewers that it was not working as intended. The changes recently announced will ensure that the scheme remains fit for purpose in the long run. The scheme will remain one of the most financially generous in Europe, and over 80% of brewers will be unaffected as they produce less than 370,000 pints a year (2,100 hectolitres).

Small Brewers Relief (SBR) was introduced in 2002 and provides small independent breweries with a discount off their beer duty bills. Currently, brewers receive 50% off until they reach 880,000 pints (5,000 hectolitres) annual production, when a formula tapers the relief down to 0% at 10.5 million pints (60,000 hectolitres). This taper reduces rapidly, meaning a brewer at 1.3 million pints (7,500 hectolitres) receives only 33% off.

For many years, brewers have highlighted that flaws in the scheme’s design cause unintended consequences such as making it hard to grow beyond the 880,000 pints level. The Treasury therefore announced at the 2018 Budget it would review the relief. As part of this review, we have received and considered responses from over 300 breweries who get SBR. There were a range of views about the right way forward for SBR, and no industry consensus.

In July, we announced that in response to this evidence, we would reform the scheme by abolishing the current scheme taper and replacing it with a more generous one that would start at 370,000 pints (2,100 hectolitres). We also announced we would convert the scheme to a cash basis, to be reviewed annually, and will consult on the potential for a grace period for breweries that merge.

As with any such relief, there has to be a point at which the full relief ends and brewers start to transition to the main duty rate. This was a source of great interest during the first stage of the review and we wanted to give clarity on this before moving on to consult on other details.

Having reviewed all the evidence, particularly on industry production costs, we consider that starting the taper at 370,000 pints strikes the right balance between guaranteeing the great majority of the smallest breweries the full value of the relief, while providing those who want to expand and grow a gentler transition to the main duty rate. The Treasury considers that a brewery producing more than 1,000 pints a day is starting to transition from being a microbrewery. The industry has also changed significantly since the relief was introduced in 2002. However, we would like to emphasise that the taper beyond the 370,000 pints point will not be the same as at present and will be more gradual.

While we empathise with brewers facing difficult trading conditions in the wake of COVID-19, the Government has acted to support the brewing sector through its unprecedented coronavirus response. Final changes will not take place until 1 January 2022 at the earliest, to ensure those small brewers who are affected have time to adapt. We will be consulting in the Autumn on further technical aspects of reforming the relief including the shape of the new taper. We would encourage all brewers who receive SBR and other interested groups to respond to that consultation. HM Treasury



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