Price of pint could rise as brewers & pubs hammered by Labour's budget

Just days after Chancellor Rachel Reeve's budgetary promise to lower to the price of a pint by a penny, alcohol industry bosses have warned that her plans could have the opposite effect. 

In last week's budget, the Chancellor announced that she would be cutting draught duty by 1.7 per cent, but this has been described as 'an irrelevance' by industry leaders who have slammed her increasing of employer's National Insurance Contributions (NICs) and the National Living Wage.

Tim Dewey, chief executive of the Landlord brewer, has argued that any price decrease brought about by the reduction in draught duty would be immediately cancelled out due to increased tax rates for employers.

With the NIC rising from 13.8 per cent to 15 per cent and the national living wage increasing by 77p to £12.21, Mr Dewey stated; 'There's absolutely no question that the cut in beer duty is really an irrelevance relative to the price pressure (the Chancellor) has put into the pub industry'.

Going on to explain how these additional employer costs would ultimately be passed on to the consumer in the form of higher prices, Mr Dewey said that draught duty was a 'pass-through' cost, meaning that the consumer carries its burden. Therefore, a reduction in duty results in no tangible savings to brewers or pubs.

However, the increases in NIC and the national living wage are costs which will be incurred directly by employers who will likely seek to recoup lost revenue through raising prices for consumers. 

Mr. Dewey is not alone in his criticisms of Ms Reeves' taxation agenda, with other brewers such as Simon Webster, co-founder and chief executive of Derbyshire's Thornbridge Brewery, condemning the claim that pint prices would fall as 'ludicrous'.

Speaking to the Telegrapgh, Mr. Webster stated; 'It's the latest blow for the industry to be honest – hospitality has really been hit with these new rises. We will have no choice but to put the price of a pint up in the pubs and also out of the brewery.'

The unintended consequences of the Chancellor's proposed taxation plans include the possibility of prices hikes on other alcoholic beverages, other sector leaders have warned.

Drinks such as wine, whisky and gin could all see retail prices rise in response to the increased tax expenses incurred by brewers as they seek to mitigate impact of the new NIC and living wage rates on profit margins.

Already an industry which was still on an arduous recovery path following the Covid-19 pandemic and the cost-of-living crisis, last week's budget has been branded a 'kick in the teeth' by Diageo Managing Director Nuno Teles.

Reacting to the budget, Teles stated last week; 'The Government has broken its promise and slammed even more duty on spirits. This betrayal will leave a bitter taste for drinkers and pubs, while jeopardising jobs.

The Wine and Spirit Trade Association (WTSA) were another to air their grievances with Ms Reeves' budget, in particular the move to raise alcohol duty by the rate of Retail Price Index (RPI), which comes off the back of punishing duty increases in 2023 which saw the alcohol trade hit with its largest tax increase in almost half a century.

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Arguing that raising taxes is often counterproductive and doesn't align with revenue increases for brewers, the WSTA warned that the plans could stunt business growth and actually prevent the Treasury from clawing back much-needed funds to plug the £22 billion 'black hole' in government finances. 

Miles Beale, the association's chief executive, said: 'We simply cannot understand why Government has said they are trying to protect income and in the next breath raising alcohol duty in a move that is totally counterproductive.

Going on to express his 'bitter disappointment' with Labour's first budget in power since 2009, Mr Beale lamented the Chancellor's decision to 'not listen to business'.

'Recent history has shown us that duty increases lead to price rises for consumers, a dip in sales and, as a result, fewer receipts for the Treasury. The near £500 million loss in alcohol duty receipts, in the last six months, couldn't make that clearer,' Mr Beale added.

The alcohol sector is not the only industry to raise alarm bells at the plans to hike NIC and the living wage, with high street retailers reacting angrily to business minister Jonathan Reynolds.

On a recent call with the business minister, B&Q owner Kingfisher, Morrisons and Burger King all lamented last week's budget, with Morrisons' Chief Executive Rami Baitieh alleging that Labour's taxation plans would result in 'an avalanche of costs'.

James Lowman, boss of the Association of Convenience Stores, which represents around 50,000 shops, told The Mail that passing increased costs on to the consumer were a ‘last resort’ but ‘there will certainly be some retailers forced to take difficult decisions about how to make ends meet next year.’

The food sector is another which is still reeling from recent inflationary pressures, after enduring large prices hikes in the aftermath of Russian's invasion of Ukraine.

But now, market researchers are cautioning that the cooling of grocery prices in recent times may be short-lived. 

Neil Saunders, from market research group Global Data, warned: ‘The Budget will end up being inflationary and hurting consumers. The government can pretend that putting a greater burden on business doesn’t impact ordinary people but, ultimately, it does. The increased costs work their way through the system.’

Economist Julian Jessop added: ‘If employers’ bills go up, they can absorb some of that in the short term in some of their margins but supermarkets are already super competitive. It’s inevitably going to be passed on. Whether that’s lower wages, higher prices or some combination of the two will depend on individual markets.’