Taxing time for brewers

The legal arguments put forward by Shepherd Neame, the Kent brewers, against the Chancellor of the Exchequer's imposition of a penny a pint increase in the price of beer failed to impress at the first stage of the process. Lord Justice May and Mr Justice Moses, sitting in the High Court, refused the company's application to have the matter referred to the European Court of Justice. Lawyers for the brewery claimed that the duty increase announced in the July budget was incompatible with European community law.

The Financial Secretary to the Treasury, Dawn Primarolo, said, "This decision upholds the important principle that parliament can legitimately set excise duties in the UK, subject to minimum rates agreed with our EU partners. Customs and Excise will continue to collect beer duty at the new rate."

However, the next stage of the legal procedure is a full hearing at the Court of Appeal. This was allowed by the Vice-Chancellor, Sir Richard Scott, at a very brief hearing on 20th March, without Shepherd Neame's counsel having to say anything. The brewer's legal team is led by Cherie Blair, QC. Stuart Neame, the vice-chairman of the company, said, "The fact that she is the Prime Minister's wife has nothing to do with her as the choice to fight the government over their rate of tax on beer. But the irony is not lost on me."

The brewery hoped that the raising of the tax on beer would be ruled a breach of European law which requires member countries to harmonise duties across the Union. The possibility now exists that the Court of Appeal will allow the case to proceed to the European Court.

Shepherd Neame declared that the government's decision to put a penny on a pint was "a threat to British beer." Reacting to the original High Court judgement, Stuart Neame warned that "hundreds, if not thousands, of pubs could be closed." As Shepherd Neame control 374 pubs themselves, this could be bad news. The brewery claims that 1.4 million pints of beer enter this country through Dover every day. Shepherd Neame also believe that one third of the pints drunk in Kent come from the continent. They have already closed 45 pubs since the introduction of the single European market, but do not say what other factors were involved. Top stockbroker, Merrill Lynch, point out that the capital expenditure of the ten leading pub companies runs at 78 per cent of their operating profit. This reflects the huge amounts being spent on refurbishing and restyling of pubs to meet what is perceived as market demand. This is part of the restructuring of these companies which sees larger profits in bigger new pubs, a move which inevitably results in the closure of smaller outlets.

The alcohol industry has been energetic in its drive to secure concessions and assistance from successive governments. However, its blandishments have cut less ice at the Treasury since it lowered excise duties on scotch whisky and saw the distillers not only fail to pass on the benefits to consumers but actually raise their prices.