Shake-up in U.K. alcohol tax designed to support pubs but also encourage healthier drinking

By Jamie Chisholm

Britain's beleaguered pubs are getting a summertime boost after the U.K. government said it would use tax freedoms afforded by Brexit to reduce the relative tariffs on beer poured from the bar.

In what the government claimed on Tuesday was the biggest change in the alcohol duty system in 140 years, starting from August 1st a new system of taxing drinks by their strength would be introduced and smaller brewers would get support.

The move to apply duties relative to alcoholic content is designed to encourage healthier drinking and would see taxes rise on stronger wines and spirits but will fall on lower alcohol drinks, like some beers and sparkling wine.

Alcohol duties have been frozen since the pandemic in 2020, and the upshot of the new regime is that duty will increase overall.

But crucially for Britain's 38,000 pubs and bars a middling-strength pint of beer will be 4 pence cheaper than the equivalent from a shop, a discount "designed to help pubs compete on a level playing field with supermarkets, so they can continue to thrive at the heart of communities across the U.K.," the government said.

The three alcohol duty changes that have taken effect today are only possible thanks to the UK's departure from the EU, said the government. "The previous duty system was complex and unfair but now that the U.K. is free to set excise policy to suit its needs, the government has brought about common-sense reforms in order to support wider U.K. tax and public health objectives."

Under European Union rules, countries have to apply minimum rates of excise duty to alcohol, tobacco and energy products.

The pledge to 'level the playing field' with supermarkets will be welcomed by many in the pub sector, which has ben hurt in recent years by COVID shutdowns, higher municipal taxes, surging energy costs, difficulty hiring staff after Brexit saw many European Union workers return home, and as the cost of living crisis encouraged drinkers to buy their booze from shops.

The chief executive of the British Beer & Pub Association, Emma McClarkin, told Sky News the move was positive, but that on net the taxes on pubs are not going down. "There is nothing there to pass onto the consumer," she said.

At the start of 2023, the U.K. was losing more than 50 pubs a month, according to commercial real estate intelligence firm Altus Group, as such pressures proved too great.

Tim Martin, founder and chairman of JD Wetherspoons, one of the U.K.'s biggest pub chains with more than 850 sites, earlier this year said: " "[T]he biggest threat to the hospitality industry is the vast disparity in tax treatment between pubs and restaurants and supermarkets. Supermarkets pay zero VAT in respect of food sales, whereas pubs and restaurants pay 20%. This tax benefit allows supermarkets to subsidise the selling price of beer."

In early trade, JD Wetherspoon UK:JDW shares slipped 0.7%. Two of the U.K.'s top supermarkets, Tesco and Sainsbury , were mixed.

-Jamie Chisholm

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08-01-23 0320ET

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