THE GIST
In his first budget as the U.K’s Chancellor of the Exchequer, Rishi Sunak has made huge and surprising tax cuts for the brewing industry.
The first budget speech of a new government, which sets out plans for how the government will raise and spend money for the entire term, is often seen as a way for politicians to ingratiate themselves with the public and businesses. With the real-time threat of COVID-19 (coronavirus) impacting retail and hospitality businesses, Sunak kept the tradition alive by abolishing business rates for retail and leisure businesses with a rateable value of less than £51,000 this year.
Business rates are taxes calculated through a combination of a commercial site’s annual market rent, size, and type of usage. It’s long been a sore point for the alcohol industry, with U.K. pubs paying 2.8% of the total amount of business rates every year, despite only accounting for 0.5% of the turnover produced by those businesses.
Combined with a small £3,000 grant for businesses that fall beneath the business rates tax threshold, the move could save more than £10,000 for over half of pubs and bottle shops. The average rateable value of a UK pub in 2017 was £36,882, and the average tax payment around £15,000.
WHY IT MATTERS
The business rate’s abolition was greeted with shock, and then relief, by the industry, which has already been hit by concerns related to the spread of coronavirus as well as legacy issues from Brexit negotiations, such as the poor performance of the pound. International data and insight consultancy CGA recently reported a drop of 4.2% in sales in managed pubs, and 3.3% across all pubs, bars, and restaurants. Alex Greig, founder and owner of the Fuggles Beer Cafes in Royal Tunbridge Wells and Tonbridge, says Sunak’s tax giveaway will help undo such damage, even going as far to say that it was “exactly the kind of news” the beer industry needed. His businesses will save “well over” £10,000 per year, which will be reinvested into his company, he says.
“It will go a huge way to helping independents not only survive, but to invest further in what we do with more [brewing equipment] and better training for our teams,” he says.
The announcement also abolishes business rates for breweries with a rateable value under £51,000 for one year, lowering their tax liabilities for any taprooms or pubs they own, and even their production sites if they serve beer on site and persuade their local council to include them in the definition of leisure or retail. Many breweries are already shifting focus to their direct sales businesses to take advantage of the much better margin, but the drop in bottom-line costs is meant to mean more investment and potentially more profit.
North Brewing Co. runs a brewery and seven pubs in and around Leeds, so in theory its savings could reach £50,000. Founder Christian Townsley isn’t so sure, though. While five of his sites will get the relief, he says his two city-center sites are over the rateable threshold but will be hit hardest by people staying away due to COVID-19.
“North Bar in Leeds is way over that threshold but only has a capacity of about 100 people,” he says. “I think it’s a bit of an empty gesture when you look into it.”
Townsley says the fact that Sunak also extended statutory sick pay—paid to employees by the government itself—is a more useful measure. He’d already promised to pay his staff whether they were able to work or not, so the government has taken some of that pressure off.
Another news story bound to get headlines is the freeze across the board on alcohol duty. Sunak was expected to increase beer duty by 1p per pint to fund tax cuts elsewhere. Instead he froze it, along with the duty on spirits, wine, and cider. The decision was welcomed by the British Beer and Pub Association, although they were campaigning for an outright cut, which they estimated would save around £100 million. Still, chief executive Emma McClarkin says the freeze will save pub goers around £80 million and secure 2,000 jobs in the industry, compared to a 1p rise.
It wasn’t all good news for small businesses, though. Sunak also announced that the National Living Wage—previously known as the minimum wage—is set to rise to £10.50 over the next four years, which will put pressure on some small businesses’ cash flow. This could have been a major burden, but the combination of cuts will give small brewers and new openings more breathing room for now, and could help reverse last year’s decline in the number of breweries—the first one in nearly 20 years.
Words by Jonny Garrett