The surprise freeze in alcohol duty announced in today’s budget has been welcomed by the beleaguered pub trade, while the VAT hike came as no surprise.
"This is a welcome relief for struggling pubs during difficult times," says the British Beer and Pub Association (BBPA) of the duty freeze.
The BBPA, which estimates that the VAT hike would add 6 pence to the price of a pint of beer, is fatalistic about the 20% VAT announcement. "This tax increase is not welcome, but is understandable and applies to everybody," it says. "We hope this will be short-term pain for long-term gain."
Seen as a comparatively effective way of raising additional revenue, the VAT rise was widely expected. And given that alcohol duty was increased above inflation in every budget during Labour’s time in government, the pub and off-licence trade were bracing themselves for a double whammy of a VAT rise and an increase in duty, so there will be a feeling that things could have been much worse for the sector.
If it goes up to 20% that will hurt the food side of the business. Having taken the trouble to diversify to become food-led and to then get hit by this is not welcome
Duncan Colvin, publican of Old Inn, Axminster
So-called 'sin taxes' are seen as easy pickings for a government in need of revenue, so against the background of a huge deficit pubs feared the worst. But with 28 pubs going out of business every week due to a myriad of problems, including the smoking ban, cheap supermarket alcohol and, since 2007, recession, the coalition government decided to cut the industry some slack.
Labour’s planned 10% rise in cider duty has also been scrapped, a move likely to be greeted enthusiastically in Somerset. Tax on tobacco, too, has been frozen.
A Devon publican believes a VAT rise is especially damaging for pubs and restaurants because they cannot recover the VAT they pay on the raw materials.
Speaking to the Telegraph yesterday before George Osborne delivered his first budget as Chancellor, Duncan Colvin from The Old Inn in Axminster said: "If it goes up to 20% that will hurt the food side of the business. Having taken the trouble to diversify to become food-led and to then get hit by this is not welcome.”
The freeze in alcohol duty is unlikely to have placated him, as he then added: “If tax on drink goes up I can claim most of it back."
Although Osborne promised to revisit the alcohol taxation and regulation regime later in the year in a separate review aimed at curbing the problem of binge drinking, the pub sector will hope that any resulting measures will target cheap supermarket deals and not damage the on-trade.
Colvin, however, said he did not think the minimum price for alcohol proposed by the Chief Medical Officer would help pubs. "People will still drink at home but it may stop antisocial behaviour," he says.
