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A Brief Interlude – The Tax Escalator

So, budget time is approaching in the UK which means that beer duty will be hiked yet again due to the mysterious power of the ‘duty escalator’. This is a revenue generator for the government (no bad thing in of itself) that raises the duty on beer by 2% over inflation each year (something slightly more concerning). I don’t know enough to comment particularly convincingly, but Pete Brown has an article over on his blog that explains about the effects of the tax on the industry and why it means more than a few pennies on the price of a pint.

So, the folks at Hobgoblin have put up a petition to get the government to debate the beer escalator – 100,000 signatures forces this (Update: it forces a backbench committee to discuss debating it…not quite so useful, but a start – the next paragraph has other stuff you can do), so please go and sign it if you think that the next few years of taxes could irreparably harm the brewing industry in the UK. Or if you just like beer not being £4 a pint even outside of London. The petition is here.

If you want to do something else, you can encourage your local MP to support an Early Day Motion by Andrew Griffiths, MP for Burton, which also calls for a redebate of the duty situation. The EDM is here, and the nice folks at TheyWorkForYou make it easy to find out who your MP is (which of course you already know…) and contact them. Make sure to include at least the number of the EDM (2785) and let them know if they have any brewers (there may be some) or pubs (there will be some) who’d be affected in their constituency – make it as easy as possible for your MP to find the information: we have these lovely online facilities, we might as well use them.

Update: As the comments on Pete’s blog (including his own) have called into question some of his maths I used my walk to work to utilise the POWER of the mobile internet and the calculator on my phone to do some calculations of my own.

So, current beer duty (for 2.8%-7.5% beer) = £18.57 per hectolitre per cent of alcohol.
A hectolitre is  175.975 imperial pints.
So currently tax is 10.65p per cent of alcohol per pint. ie ~53p for a pint of 5% beer.
An increase of 6% (4% inflation + 2%) on tax is an increase of 0.63p per cent of alcohol per pint. ie ~56.5p for a pint of 5% beer, about a 3.5p increase. And after everything else is added up VAT is paid on the total…

Post budget update: George Osborne and chums went for ‘No change to beer and spirits duty’, which means, much to many people’s surprise, that the escalator was still applied – they didn’t change the already existing policy of inflation + 2%. Inflation is currently 3.4% (rather than 4% as I said above), so the duty on a 5% pint is now 55.4p, a 2.5p increase. With VAT, it’s 66.5p, a 3.2p increase over previously – if the escalator continues for the next two years, as is planned, then (assuming inflation remains the same) this will eventually rise to 73.8p, an overall rise of 10.5p over three years. CAMRA have now got involved and are pushing the petition, with a hope that the 100k signatures needed can be got between now and the next budget. Their ‘sign the petition now’ email claims about £1 a pint is pure tax and after some number crunching they’re right – in a £3.20 5% pint you have 55.4p of beer duty and 53.3p of VAT, almost £1.10 of tax, about 34%.

The extra bit that Pete mentions is that the cost of making the beer has also gone up, due to the inflation which is at the base of beer duty, which will add another chunk on to that price. It’s not catastrophic in one year, but if this keeps on over the next 3 years, as the government is committed to, the joys of compound interest and inflation will make this increasingly significant.

As you were.

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