by Geoff Pugh, Professor of Applied Economics
Small breweries face a two-fold disadvantage in competition with larger breweries: (i) by their relative lack of scale economies in production; and (ii) by facing powerful buyers in the market for beer (e.g. national wholesalers and pub chains). Our contribution was to theorise and quantify the latter source of disadvantage – whereby powerful buyers can force down prices for the products of small breweries – as a “market access cost”. This new evidence contributed to HMT’s recent reform of Small Brewers’ Relief, which was designed to enable small breweries to compete in the market for beer by creating a more level playing field.
For more than 20 years a group of Staffordshire colleagues have analysed business support measures for small breweries in cooperation with the Society of Independent Brewers (SIBA) and contributed to policy reviews conducted by HMT. The contribution and demonstrable impact of this work on introducing Small Brewers’ Relief (resulting in the remission of up to 50% of excise duty to small breweries) in the 2002 Budget was submitted as an Impact Case Study for the Business and Management Unit of Assessment in REF2014. Impact on HMT’s recently completed review of Alcohol Taxation (2019-2021) continues the story. To date, the main developments and evidence of impact are as follows.
- HM Treasury’s Small Brewers Relief: Technical Consultation (January 2021) (henceforth HMT 2021a) cites our research at length, fully referencing two of our publications: see Paragraph 3.11 and Footnote 3 (p.16); Paragraph 3.24. (p.19); and Paragraphs 3.31 – 3.36) (pp.21-22). Our research is accurately summarised and introduced as follows: “The review team considered academic research by John Wyld, Geoff Pugh and David Tyrrall on the impacts of SBR on the brewing industry. Treasury officials met with the authors to discuss their research in August 2019.”
- HM Treasury’s Small Brewers Relief: Technical Consultation Response (November 2021) (henceforth HMT 2021b) references the submission we made to HMT’s review, which developed the previous research referred to in HMT (2021a): “Along with feedback from brewers, the Government also received a paper from Geoff Pugh and David Tyrrall, the economists whose previous work on SBR was discussed in the technical consultation document. While produced independently, the paper was endorsed by SIBA and attached to their response” (HMT 2021b, ppp.10-11; see also p.26).
- The particular impact of the Staffordshire research on HMT’s revision of Small Brewers’ Relief was endorsed by SIBA. The nature of the impact was summed up in SIBA’s public response to the changes in Small Breweries’ Relief announced by HMT on November 2021: “It is welcome that the Treasury has listened to SIBA’s representations on behalf of small brewers, and the views of MPs from across the political divide, to increase the 50% threshold from the proposed 2,100 hectolitres to 2,500hl … our worst fears have been averted and the rate is more manageable than was proposed in the consultation.” SIBA responds to Treasury publication of Small Breweries’ Relief changes – SIBA – The Voice Of British Brewing, 30-11-2021). In turn, a direct link to our research was made both by HMT policy makers and by SIBA.
- In a letter made available to the Staffordshire research team, Kemi Badenoch, Exchequer Secretary to the Treasury, replied to a communication regarding SBR from Owen Thompson MP: “The new academic research referred to in your letter was recently brought to my attention, and I have asked my officials to consider it within the scope of our review of the SBR scheme”.
- In an email of November 30th 2021, Barry Watts, SIBA’s Head of Public Affairs and Policy, thanked the Staffordshire team, noting that “your research really helped to make the case to the Treasury and convinced them to alter course”.
- Additional evidence of impact is that I was contacted by Paul Hegarty, Honorary Secretary of the All-Party Parliamentary Beer Committee, to discuss wider issues “about the economics of the cask beer sector”.
The main contribution of our research was to demonstrate that small breweries face a two-fold disadvantage in competition with larger breweries: (i) by their relative lack of scale economies in production, which are well known, if not reliably quantified; and (ii) by facing powerful buyers in the market for beer (e.g. national wholesalers and pub chains).
Our contribution to the literature and to the policy debate was to theorise and quantify the latter source of disadvantage as a “market access cost”, an effect arising from goods market monopsony. This new evidence contributed to HMT’s decision to retain SBR, which benefitted all small breweries and their employees.
Although the precise impact of our research on HMT’s overall policy decision to retain SBR can be little more than conjectural – as one influence among many – the impact of our research on a particular feature of the reformed SBR can be precisely identified. This particular contribution – as attested to in Point 3 above – was to persuade HMT to “alter course” to retain the full SBR remission (50%) for all breweries producing up to 2500 hectolitres (hl) p.a. rather than up to the originally proposed 2100 hl (HMT, 2021a: Paragraph 1.4). This change will help to secure the future viability of almost 100 breweries employing more than 500 full-time and more than 200 part-time . The importance of retaining the full SBR for these breweries is confirmed by the responses to the following question included in the 2019 SIBA Industry Survey: “How important is Small Breweries Relief to your ability to work and compete as a small business?” On a five-point Likert scale – from “Not important” to “Extremely important”, 86% responded “extremely important”.
 The original Staffordshire team comprised Geoff Pugh, David Tyrrall and John Wyld. Geoff (still 0.5 FTE at Staffordshire) and David (now retired) have continued this long-standing project, in part as a scholarly memorial to our colleague and friend John Wyld who passed away in January 2021. In the most recent phase of our research, we have been joined by Dr Dragana Radicic, currently an Associate Professor at Lincoln University and a former Staffordshire PhD student.
 Pugh, G., Tyrrall, D. and Wyld, J. (2001). Will progressive beer duty really help UK small breweries? A case study in profit appropriation, Journal of Small Business and Enterprise Development, Vol.8, No.4 (Winter) pp.311-338.
Wyld, J., Pugh, G. and Tyrrall, D. (2010). Evaluating the impact of progressive beer duty on small breweries: a case study of tax breaks to promote SMEs, Environment & Planning C: Government & Policy, Vol.28 (2) pp.225-40.
 This calculation is based on the most recent data available. In 2019, SIBA’s annual Industry Survey yielded a sample of 280 breweries, each reporting their current annual production of beer (in hl). Of these, 14 produced between 2100 hl and 2500 hl p.a. (5%), employing an average of 5.43 full-time and 2.23 part-time employees. In the same year, according to HMT (2021a: Annex A), there was a total of 1900 breweries in the UK. Hence, scaling up from the SIBA sample size to the population size (5% of 1900) yields 95 breweries producing between 2100 and 2500 hl p.a. which, when multiplied by the mean employment for the breweries in this production range, yields total employment of 516 full time and 212 part time. Of course, we cannot know how representative the SIBA survey is of all breweries. However, these indicative calculations suggest modest but not insignificant consequences of the decision to include breweries in the 2100 hl to 2500 hl range in the full rather than in the initially proposed reduced rate of SBR.
 12 from the 14 breweries producing in the range 2100 to 2500 hl responded “Extremely important”, which scaled up from the sample (280) to the population (1900) gives 81 breweries (rounded) (86%).