House of Commons

Session 2003 - 04 Publications on the internet Delegated Legislation Committee Debates

Beer from small Breweries (Extension of Reduced Rates of Excise Duty) Order 2004

Third Standing Committee on Delegated Legislation Wednesday 26 May 2004 [Mr. David Amess in the Chair] Beer from Small Breweries (Extension of Reduced Rates of Excise Duty) Order 2004

2.30 pm The Economic Secretary to the Treasury (John Healey): I beg to move, That the Committee has considered the Beer from Small Breweries (Extension of Reduced Rates of Excise Duty) Order 2004 (S.I., 2004, No. 1296). Welcome to the Committee, Mr. Amess; I look forward to your chairmanship of our deliberations. I also welcome the hon. Member for Hertford and Stortford (Mr. Prisk), who leads for the principal Opposition party. At the moment, he and I are seeing rather a lot of each other—rather more than he cares for, I dare say—in the Standing Committee considering the Finance Bill. I know that the hon. Member for Hereford (Mr. Keetch), the Liberal Democrat spokesman, is unwell and cannot attend the Committee this afternoon. Having seen him two hours ago, I can confirm that his absence has nothing to do with his having had too much ale produced by small breweries over lunch. The order extends what is generally agreed to be a successful small breweries relief scheme. From 1 June this year, it doubles the volume of beer production that determines whether breweries are eligible to draw on the scheme. It may help members of the Committee if I briefly outline how the scheme operates and how the order will extend it. The scheme provides reduced rates of duty—duty relief—for beer brewed by independent brewers that produce 30,000 hectolitres or less a year. To put that into perspective, 30,000 hectolitres is just over 18,300 barrels. The scheme includes conditions for eligibility relating to the production of beer under licence and to connected breweries; essentially, those are anti-avoidance elements of the scheme. Breweries producing up to 5,000 hectolitres pay half the standard rate of duty. Those with annual production of between 5,000 and 30,000 hectolitres pay a reduced rate that is calculated on a tapered basis, using a formula set out in the previous order. The effect of the formula is to provide duty relief equivalent to 50 per cent. on the first 5,000 hectolitres of production. At present, those producing more than 30,000 hectolitres get no relief and pay beer duty at the standard rate. The current scheme was introduced in the United Kingdom on 1 June 2002. We introduced it in recognition of, first, the poor profitability of many small brewers relative to larger ones, which often enjoy economies of scale of production; secondly, the difficulties that small brewers face in bringing their goods to market when competing with larger breweries, which can often offer bigger discounts to Column Number: 4 wholesalers; and, thirdly, the value of maintaining diversity in the brewing industry to preserve consumer choice. The scheme is aimed at helping the very smallest brewers to survive and grow. It is based on a European Union directive that allows reduced rates of duty of no more than 50 per cent. less than the standard rate to be applied to breweries producing up to 200,000 hectolitres a year. Having introduced the scheme, it was important to assess its impact and effectiveness. Last autumn, we examined its success in meeting the principal objective of helping small breweries to compete better with their larger competitors. We asked producers, those involved in the supply chain and consumers to gives us their views on the scheme; this we termed ''the call for evidence''. The industry responded very well and provided us with a lot of information that allowed us to judge that the scheme needed to be reformed and extending, hence the order. The call for evidence made it clear that small breweries regarded the scheme as well targeted and successful in a surprisingly wide range of ways. One brewer said, '''Relief' is a good word to use to describe the duty reduction. It was certainly a relief here''. Ten breweries said that they would simply not have survived without the relief scheme, and a further three said that they had entered the market purely because the relief had become available. All the small breweries told us how they had used the duty savings to invest in different aspects of their business: many bought new equipment, some took on extra staff, some replaced vehicles, some have improved the marketing of their products and increased staff benefits, such as wages and training, and others have either offered discounts or frozen prices in order to compete more effectively. Mr. Adrian Flook (Taunton) (Con): I signed the early-day motion that preceded the Chancellor's announcement of the scheme in the Budget. The right hon. Gentleman gave the impression that there would be a cut in beer prices at the bar, whereas the Economic Secretary has rightly said that the relief has enabled small breweries, such as Cottleigh and Exmoor Ales in Wiveliscombe in my constituency, to invest in new equipment and transport methods. We will discuss whether the relief should be extended to breweries producing up to 60,000 hectolitres a year. I hope that the extension of the scheme will not be spun so that it leads some people to conclude that there will be cheaper beer at the bar. Would the Economic Secretary care to comment on that? John Healey: I am pleased to hear that there are two breweries in the hon. Gentleman's constituency that have benefited from the measure. His support for the concept reflects the original all-party welcome for it, and I hope that the Committee will welcome its extension. It is not fair to say that the description of the measure constituted spin. Some people might have made a crude calculation of its possible effect on the price per pint, and some small breweries have indeed frozen or reduced their prices, because the relief has enabled them to compete with the larger breweries for Column Number: 5 access to markets. A few have even invested in their own pubs in order to guarantee an outlet that they did not have before. Although the evidence clearly showed that the first year of operation of the scheme was a success, trade associations and some individual brewers said that it could be improved by removing what they regarded, and which we recognised, as a disincentive for growth caused by the sudden removal of duty relief when production reached the prescribed ceiling of 30,000 hectolitres a year. The Budget change deals with those concerns by extending the relief scheme on a tapered basis to breweries producing up to 60,000 hectolitres a year—in effect, doubling the volume of beer production that is eligible for some measure of duty relief. Under the order, we propose that from 1 June this year, breweries producing more than 30,000 hectolitres a year will use the new formula set out in the order to calculate the reduced rate of duty applicable. The formula is designed gradually to withdraw the relief as annual production increases, so that by the time production reaches 60,000 hectolitres a year, the brewery is paying the full standard rate. The order will have the dual effect of continuing to concentrate the greatest amount of relief on the smallest breweries while ensuring that there is no artificial ceiling for growth at the upper production threshold. Keith Bott, chairman of the Society of Independent Brewers, whom I met during consultations about whether and how to change the scheme, said of the scheme's extension: ''This is fantastic news for Britain's independent brewers. This relief has been of tremendous benefit to small brewers and allowed essential investment in this important sector. Now brewers who were previously excluded have begun to see the advantages and an important glass ceiling to growth has been removed.'' The small breweries relief scheme, which benefits nine in 10 breweries, costs £15 million a year; its extension will cost an additional £1 million per year. The extension introduced by the order will enhance what has been, by all measures, a successful duty relief scheme that was introduced two years ago. The scheme offers valuable help to our smallest breweries, which play an important part in our economy. In many instances—particularly in the rural economy—they are an important part of our heritage and make an important contribution to the leisure time that many of us enjoy in country pubs. 2.40 pm Mr. Mark Prisk (Hertford and Stortford) (Con): It is a delight to have you to guide us as Chairman, Mr. Amess. Some may be concerned that all of us who enjoy a small beer, whether or not it is from a small brewery, have a declarable interest, but as a former Cornish rugby player, I do not discriminate based on the size of the brewery, as long as the pint is the same. Without wanting the Committee to collapse into congratulatory back-slapping, which we would be disciplined not to do under your guidance, Mr. Amess, I welcome the Economic Secretary. It is always a pleasure to debate with him, although it is perhaps becoming an over-familiar exercise, given that we are Column Number: 6 midway through the journey of the large tanker that is the Finance Bill. I know that he will provide authoritative answers to the questions that I and others have. We generally welcome the principle that underlies the scheme, but my hon. Friend the Member for Taunton (Mr. Flook) is right to say that the measure predominantly helps the industry rather than leads to a reduction in the price of beer at the pumps. Small and micro-breweries produce wonderful beer —I was going to say product, but that makes it sound rather academic—and they maintain the important tradition of manufacturing real ale in this country. In Hertford, McMullens has a wonderful long-standing tradition as a family business, and the Prince of Wales pub in the village of Green Tye produces a marvellous ale, which I recommend Committee members to try if they ever find themselves in my constituency. Since I do not wish to stretch that invitation—or your patience, Mr. Amess, although I know it is only a short distance from your constituency—too far, I shall proceed to the details of the order. The order extends the application of the relief to production between 30,000 and 60,000 hectolitres a year on a tapered basis. I am very grateful to the Economic Secretary for telling us what a hectolitre is in English; as a member of a generation who respond more instantly to imperial measures, I now understand what it means. The extension follows a useful and thorough consultation by the Government. I, too, have taken the opportunity to consult the industry about the measure, especially members of the British Beer and Pub Association, which has conducted a survey. Sad to say, I was not able to consult them on their wares, but that is another matter. It is clear that the industry generally welcomes the extension order. Reading the summary that Customs and Excise has provided, one acknowledges that the degree of welcome reflects the degree of benefit that the breweries have received. However, it is fair to say that there are dissenting voices. I shall briefly highlight one of which hon. Members will have heard—Adnams, an important brewery based in Southwold in eastern England. In the Customs and Excise document, that brewery says: ''This system not only caps the ambition of smaller breweries (a bizarre distortion of the market) but also squeezes companies like ourselves still further—between the massive scale advantages of the national brewers and a preferential duty structure which provides competitive advantage to the micro-brewers.'' Adnams is not alone. In the same document, the Highgate brewery in Walsall is quoted saying: ''What has happened is akin to trying to make a soccer team from the National Conference League as attractive to the customer as a Premiership or 1st Division club, whilst offering no help to those clubs trying to survive in the 2nd or 3rd Divisions.'' It is fair to say that the industry has reasonable concerns and that the measure is not universally accepted. I have two questions on which I hope the Economic Secretary can provide some assurances. First, why was a production threshold of 60,000 hectolitres chosen, rather than one of 50,000, 70,000 or 80,000 hectolitres? The British Beer and Pub Association survey of the effect of the scheme on Column Number: 7 middle-sized breweries, which was published last year, showed that 19 of the association's 22 member companies produced far more than 80,000 hectolitres a year and that the adverse impact that they suffer will not be ameliorated by raising the limit from 30,000 to 60,000 hectolitres. Indeed, half the association's member companies of that type have lost sales. It seems that the problem has not been resolved. I hope that the Economic Secretary tell us on what evidence the choice of a 60,000-hectolitres threshold was based, and which representative bodies recommended that figure. Secondly, the scheme's present production threshold is 30,000 hectolitres, and under the changed regime there will be a taper of relief on production between 30,000 and 60,000 hectolitres, but the evidence produced in response to the Government's consultation suggests that the proposed taper could actually reduce any incentive to increase production to between 30,000 and 60,000 hectolitres. Will the Economic Secretary tell us what assessment Customs and Excise made of the taper's effect on production between 30,000 and 60,000 hectolitres? To give some numbers, the saving at 30,000 hectolitres is about £132,000, but it is only £52.88 at 60,000 hectolitres. Clearly, the relief tapers off very sharply indeed, and the chances of a brewery that has reached production of 50,000 hectolitres gaining any real benefit from making an application for relief will diminish significantly. In effect, most small breweries would see only a small change from 30,000 to, say, 45,000 hectolitres. One has to ask why the scheme was set as it was, particularly given the fact that the EU directive that enables reduced rates of duty to be charged allows for relief on production up to 200,000 hectolitres. I would appreciate it if the Economic Secretary commented on the evidence that was used to determine the operation of the taper and the assessment that has been made of its impact on production. Although the Opposition and the Government do not differ on the general potential benefit of the measure, there are perfectly reasonable questions to ask about the practicalities, as illustrated by the two specific questions that I have raised. I look forward to the Economic Secretary's providing us with some assurance on both. 2.49 pm

©Parliamentary copyright 2004	Prepared 26 May 2004