Wednesday, 23 February 2011

2.8% - the financial case

The current UK duty rate is £17.32/hl%

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.


Anonymous said...

Love the photo - reminds me of Ozymandias:

...whose frown and wrinkled lip, and sneer of cold command......

P. Schelley

jo said...

I think you should warn people before you use a photo of Osborne. I wasn't prepared for that first thing in the morning.

Eddie said...

My favourite poem that is, anon.

Sorry Jo, but it is a splendid composition? Weren't you at college with him?

jo said...

Ahem. I think you'll find he was actually at college with your other half.

Eddie said...

Jo - you differentiate? The rest of us call it Oxbridge.

Rob Sterowski said...

The problem is that 2.8% is not really what anyone wants to brew or drink. Bump it up to 3.2% and you might be getting somewhere – at that gravity there are beers that actually exist and could benefit from a tax regime that privileges them.

Eddie said...

Barm - this is currently within an EU directive and 2.8% is the current maximum. However, there is a strong lobby to get that limit raised to 3.1% or so. (Higher than that and you run the risk of some major brands, like GK IPA, reducing their abvs to take advantage, thereby reducing the treasury take significantly).

Whilst there might not be any 2.8% brands out there, the move is designed to encourage the establishment of such brands. We'll see.