Scrapping the beer duty escalator is good news for Shropshire’s economy

Among the tangle of announcements in Wednesday’s Budget was a statement to cheer the heart of real ale drinkers everywhere. As the Chancellor announced it:

“We will now scrap the beer duty escalator altogether. And instead of the 3p rise in beer duty tax planned for this year I am cancelling it altogether. That’s the freeze people have been campaigning for. But I’m going to go one step further and I am going to cut beer duty by 1p. We’re taking a penny off a pint. The cut will take effect this Sunday night and I expect it to be passed on in full to customers.”

George Osborne is of course entirely naïve in believing that a one penny cut in the price of a £3 pint will be passed on to the customers. How do you make a 1p cut to a commodity priced in 10p units? But expecting that level of reality from a Chancellor of Exchequer these days is perhaps far too much.

Beer is so important here in Shropshire. Around 4,800 are employed in our 651 pubs, and many more in our 18 breweries. They underpin much of the tourist industry – not only by serving food and drink, but by providing a place where tourists can meet local people. Tourists chip in around £50 million a month to our local economy, supporting nearly 16,000 jobs. This is no small beer in a county with a population smaller than that of Southampton.

Church Inn, Ludlow
The Church Inn, Ludlow

We were in danger of pricing beer out of the pockets of both locals and tourists by the stupid beer escalator.

The Labour government of old was unduly fond of such price and tax escalators, which generally take the form of retail price index plus a bit more. I have always regarded this as a rather odd fiscal mechanism because it simply creates a circularity that feeds itself. Costs go up, the RPI duly rises, and costs go up again as a result.

It beats me why the coalition has decided to maintain this blunt policy (it applies to trains and water, for example). Fiscal escalators might be acceptable in times of plenty, but as the economy bounces in and out of recession the circularity begins to consume itself. If prices are raised when money and credit is scarce, people buy less. Businesses are undermined by struggling sales and rising costs. Tax revenues fall and welfare payments rise. People buy less, and the circularity spirals downwards.

This brings us back to beer. The escalator adds 2% plus inflation to beer duty. There has been a 42% increase in duty in just four years and tax is now around one-third of the price of pint. The result is that beer sales are falling and pubs are closing.

Now the beer escalator has been abolished. This will not save all our pubs – but it will give them a fighting chance. And that one penny a pint cut in duty will be added to the margins of the beer trade, strengthening its balance sheets.

We’ll still be ripped off in some pubs. But if we chose a good local, selling great local food and fantastic Shropshire beer, we’ll not go far wrong.

Now George Osborne and Danny Alexander. You have got beer duty right at last. Is there any chance of you fixing the economy so that we can celebrate with a pint or two?

#Cheers

This text is partly based on my earlier article on Lib Dem Voice calling for the beer duty escalator to be scrapped.

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Last blog: Shropshire Council’s Sunday parking charges on trial in Ludlow

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