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Fri 16th Oct 2015 - Friday Opinion |
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Subjects: Business rates, the beer market and the sugar tax
Authors: Nigel Ball, Glynn Davies and Paul Chase
Business rates are in flux, but George Osborne’s ‘devolution revolution’ may not be all that it seems by Nigel BallRates, together with rents, comprise a significant cost to the retail hospitality sector, which, quite rightly, has long urged government to reform a system that is unfair, unresponsive to the wider economy, and hard to navigate. But, at least it was predictable. Now, businesses face a system in flux: Chancellor George Osborne’s “devolution revolution” was launched at the Conservative Party conference last week, the results of government’s fundamental review of business rates is due to be announced next spring, and, as you read this, legislation is being pushed through parliament designed to reduce the mountain of appeals being dealt with by the Valuation Office Agency (VOA).
So, what does all this mean for pub, restaurant and food service operators? The Chancellor’s conference announcement was certainly headline grabbing – announcing the abolition of the Uniform Business Rate (UBR) in England and business rates revenues would, in future, be retained by local authorities – and it raises important questions. What will happen to the UBR? On the face of it, it appears to be a return to the pre-1990 position where each authority was given full reign to set its own multiplier. The result of this was hugely uneven, with some councils setting the rate as high as 400p in the pound. However, behind the front-page announcement a very different picture is painted, and we understand that a general multiplier of sorts will continue to be set.
By how much can local authorities raise business rates bills? Only authorities with regionally elected mayors will be able to add a supplement and this must be voted in by a Local Enterprise Partnership (LEP) majority. Businesses may want to consider if they can spend time becoming involved in their local LEP. The supplement can only be raised where it is to fund new infrastructure projects and is likely to be capped at 2p in the pound, as has been the case in London where business rates supplements have been used to help fund Crossrail.
Am I likely to see my bill go down? In order to encourage growth, all authorities will be able to discount the rate in the pound to any level they choose, but crucially, it will be up to them to judge what they can afford. Whether local government will use these powers is yet to be seen; experience shows they have been reluctant to embrace these devolved powers so far, and may be more so as government grant is withdrawn.
Does retention of rates mean some local authorities could struggle to provide business services? With several central London boroughs providing a significant proportion of the total business rates yield, a full return to the pre-1990 system could create a massive imbalance in revenue between authorities. It would seem that central government intends to retain some form of control in order to avoid the inequity experienced in the past.
When will these changes take effect? By the end of the parliament, so the most likely date is from April 2020. This hints that the revaluation due in April 2017 may only have a three-year cycle (with a scheduled revaluation due in April 2020 to coincide with these changes), or it could even be postponed.
What will happen to my rateable value? Unfortunately, very little. The changes are concerned with local government finance and the calculation and administration of business rates payable. Rates payable will rise in April by 0.8%, in line with this week’s announcement of September’s RPI. In the meantime, BNP Paribas Real Estate will continue to work with the Association of Licensed Multiple Retailers and other industry groups to address the weaknesses and fundamental unfairness of the current valuation methodology.
Which properties will be affected? The announcement was only in respect of England so it remains to be seen if Wales and Scotland will look to adopt something similar.
So, while the announcement may have been surprising, coming so soon before the autumn statement, it was also disappointing in that it failed to address many of the weaknesses of the current system. Properties will continue to be valued on an unfair basis, on a revaluation cycle that does not respond quickly enough to economic conditions, and with an impenetrable appeals process. Indeed, clauses in the Enterprise Bill currently before parliament may do more harm than good in this regard – government intends to discourage appeals by placing the burden of proof on the ratepayer to show why its rateable value is wrong, rather than obliging the VOA to explain why it thinks it is right.
Unfortunately, unless the Chancellor springs a further surprise in next month’s autumn statement, his rating revolution risks doing more harm than good.
Nigel Ball works for BNP Paribas Real Estate. Its specialist leisure and licensed property experts provide a range of tried and tested services and professional advice that is a benchmark for the industry.
Beer market flux by Glynn DavisVisiting a tasting of the new range of beers from Marks & Spencer, held at its glassy headquarters in Paddington recently, highlighted the broad range of breweries that the supermarket now works with and the esoteric styles that even M&S can sell to its customers. Maritime Salted Caramel Porter from Meantime Brewing Company, White IPA from Adnams Brewery and Black IPA from Purity Brewing Company are beers that not long ago would not have been seen anywhere near the shelves of a grocery chain that typically serves conservative middle England (whether it admits it or not).
On such evidence few beer drinkers would argue against the motion that the current state of the market is absolutely fantastic for choice. But the emergence of new breweries (that has taken the total in the UK to about 1,400) who service the growing consumer demand for interesting beers by continuously delivering an array of new lines onto the market is bringing about some serious structural change on the industry. It is not just among the smaller brewers where the effect of this revolution in the beer world is taking place because the ramifications are also being felt by the bigger beasts in the global brewing jungle. The continued double-digit growth enjoyed by craft brewers around the world is resulting in the larger operators being awoken from their number-counting slumbers.
In only the last few months a couple of well respected stalwarts of UK brewing have come forward with announcements of how tough the market is for traditional mid-sized brewers of predominantly cask beers. Batemans and Black Sheep Brewery have honestly revealed how the growing army of smaller brewers continues to benefit from paying lower duty (as laid down in the Progressive Beer Duty (PBD) legislation that gives tax breaks to brewers with smaller outputs). This allows them to potentially sell their wares at very competitive prices, which makes the margins for the mid-tier brewers wafer-thin.
The solution for Batemans is to further reduce production to about 7,000 barrels per year (from a historical peak of 30,000) so it too can take advantage of the lower duty. It is also focusing more on growing its managed pub estate – through which it can sell its products more easily – and introducing a bewildering variety of new styles of beer. Bewildering is the very word used by Black Sheep founder Paul Theakson to describe the UK beer market that he says has undergone a revolution in only the last four years. The combination of PBD and the influx of new brewers are making its old model of simply producing a core range of three or four cask beers (sold in volume to the same pub company estates) simply unprofitable and redundant.
Like many brewers of its ilk, it is moving to sell yet more of its wares into the off-trade (hence its Yorkshire Red and Yorkshire Gold among the beers at the M&S tasting) and to also introduce new keg beers into its range that will potentially give it a rolling mix of goods that will prove attractive to the newer beer drinkers coming into the market who are nourished by change and new tastes. This appetite for new has not been lost on the big brewers who are facing their own challenges. The newcomers are nibbling away at their market shares and to arrest this situation the big players have tried competing by launching ersatz craft products. This has largely failed and continued sales growth at their rivals’ has resulted in the next obvious response from the large brewers of buying out the young upstarts.
Most of this activity has taken place in the US with Anheuser-Busch buying its fourth craft brewer, Golden Road Brewing, to add to Goose Island, Blue Point Brewing, 10 Barrel Brewing and Elysian. MillerCoors recently joined the game with its acquisition of Saint Archer, as did Labatt Breweries that has bought Canadian craft brewer Mill Street Brewery, and Heineken has just bought 50% of revered brewing company Lagunitas. Meanwhile, closer to home, Meantime Brewing Company was bought by SABMiller. The ball has really started rolling now and further consolidation looks to be inevitable. The big question with these purchases is what they actually bring to the large breweries?
They certainly do not derive any synergies from them. They are also unable to tinker with them and look to cut costs because they then run the risk of killing any value by denigrating the vital provenance qualities. At best they’ll maybe enjoy a bit of a halo-effect that gives them a short-term buzz before it inevitably fades. The reality is that at both ends of the market the effects of the rise of the new brewers and their crafted products are giving the incumbents a bit of a hard time and they have so far failed to find any equilibrium. Like a drinker who has consumed a little too much strong craft beer, this balance could be some time coming.
Glynn Davis is a leading commentator on retail trends
Do we need a sugar tax? By Paul ChaseDo we need a “sugar tax”? The oleaginous Jamie Oliver thinks so, and so does the nation’s leading nanny, Dr Sarah Wollaston MP, who chairs the Commons Health Select Committee. Their support for this measure is almost enough on its own to prejudice me against the idea, but I’ll try to be objective about this. The sainted Wollaston is embroiled in a row with the health secretary Jeremy Hunt, who is resisting publication of a report from NHS England about the possible benefits of introducing a sugar tax on fizzy drinks and the like. Hunt has promised to “get draconian” on childhood obesity, but has so far resisted the idea of such a tax. Wollaston smells a rat. She remembers the government’s u-turn on minimum unit pricing for alcohol and suspects that some sort of industry responsibility deal is in the offing. Government caving in to Big Soda or Big Sugar angers her almost as much as giving in to Big Tobacco or Big Alcohol. One wonders what it must be like for people who look out so fearfully on a world populated by such a pantheon of cartoon characters. Don’t posh people who are fighting their inner demons normally check into the Priory?
The British Meddling Association (BMA) is calling for a 20% tax on sugary drinks to tackle the “obesity epidemic”. It suggested such a tax would a “useful first step”. I fear that’s a telling phrase. What would be the useful second, third and fourth steps I wonder? Slippery slopes and thin end of wedges come to mind. I suspect there is no limit to the health lobby’s desire to tax and ban products that are staple ingredients in many foods and which they have first sought to demonise. Action on Sugar says sugar is the “new tobacco” and it is pushed on unsuspecting parents and children by a “cynical industry focused on profit not health”. Sugar is addictive it says, because it stimulates the reward pathways in our brains and creates cravings. A cunningly wicked, profiteering food industry is deliberately adding sugar to make their products addictive, so people who buy sugary drinks aren’t really making a free choice. Oh please! I hear the sound of white coats flapping. This fantasy of corporate coercion underpins healthist demands for ever-greater regulation of alcohol, food, drink, tobacco (including e-cigarettes) and the advertising, marketing and availability of all of the above.
But others argue that sugar alone is not to blame for obesity. Over-consumption of calories from all types of food combined with increasingly sedentary lifestyles is to blame. The British Dietetic Association has acknowledged there is little evidence to show that sugar itself causes type 2 diabetes and research from Sugar Nutrition UK, funded by the World Health Organisation, found that “any link to body weight was due to overconsumption of calories and was not specific to sugars”. Whilst sugar campaigners argue a sugar tax would reduce consumption of sugary drinks, Professor Richard Tiffin, director of the Centre for Food Security at Reading University, disagrees. It’s about what is in peoples’ minds he says: “At its most troublesome level, the obesity epidemic is centred on a minority of people who struggle to make healthy lifestyle choices,” he adds. “Convincing these people to change their behaviour requires subtle and targeted action – not the blunt instrument of blanket price increases.”
The government has pointed out it engages with some 300,000 “problem families” and it may be these are the people that Professor Tiffin is referring to. So, finally we get to the crux of the matter. It’s about poor people, and a minority of poor people at that. So, the moneyed middle classes, who are most likely to be receptive to health messages and who can afford to pay the tax, are probably those who already buy the low calorie, calorie free and sugar free alternatives already in the market. The poor will simply trade down to less well known sugary brands that were cheaper to start with.
In a free society we should ensure their isn’t market failure – ie there are calorie and sugar-free products for people who are health-conscious and want to make those choices; we educate children and the general population in health and nutrition and ensure children have access to sporting opportunities at school – and then we let them choose! I know it’s a novel idea – one that horrifies Wollaston – because their patronising paternalism demands that only by pickpocketing the poor by introducing sin taxes that don’t make people virtuous, can we ever hope to get to a healthy society. But writing in the Independent, the gobby and egregious Janet Street-Porter has another idea: “Surely, the best way to deal with our national sugar addiction is to learn a lesson from the last war and return to rationing.” Nurse!!
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol issues
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