Wednesday, 23 February 2011
2.8% - the financial case
You'll recognise that first bit, it's 17 pounds and 32 great british pennies. The second bit (/hl%) is per hectolitre percent. That is, for every 100 litres at 1% abv, £17.32 is payable to the HMR&C (along with a further 20% in vat).
The duty payable on a hectolitre of 2.8% beer is therefore £48.496 (2.8 x 17.32).
There are almost precisely 176 pints in 100 litres, and so the duty, per pint, is 28 pence (48.496/176).
The on-trade works on a gross profit margin (%), typically around 50 to 60%. We'll take the lower end, because it's a nice easy number and we won't get accused of bigging it up. That means a publican doubles the price he pays before selling it to you (that might sound a lot, but it's his gross profit - he pays his rent, bills and wages out of that and is lucky to end up with 10%).
So, if the Chancellor decides to reduce the duty on beers not stronger than 2.8% to zero, we might expect a pint over the bar to be 56 pence cheaper as a result. Actually, taking vat into account we can add a further 11 pence saving to our pint, bringing the grand total to 67 pence.
If we say the average price of a low abv pint is £2.20 over the bar, under the bright new coalition future you may be paying as little as £1.53 (2.20-0.67).
Is that enough to tempt you?
It's a bit more complicated for us small brewers I'm afraid - directive 92/83/EEC, which allows for this reduced rate, appears to contain an anomaly that the UK treasury has interpreted as 'this does not apply to small brewers'. Fear not though, I'm going to the treas' next week and will seek clarification.