Friday, 23 February 2018

Beer profits and prices

I'm back with the economics of WW I. I hope you're as fascinated by it as I am. Because I probably won't be stopping here.

There was a big increase in the tax on beer a couple of months after the war started, rising from 7s 9d per standard barrel to 23s. But after that initial big jump the rises were small: 24s in April 1916 and 25s in April 1917. But that all changed in 1918.

In April that year the tax doubled to 50s. There was a good reason for the huge increase: the amount of money the government was collecting from the tax had fallen dramatically. It was the government's own fault, really. Because they had cut the number of standard barrels that could be brewed to a third of its pre-war level. As the tax was paid on a standard barrel, this restriction had a direct impact on the tax yield.

Because brewers had been cutting gravities, there hadn't been ass big a drop in bulk barrels, as you can see here:

UK beer tax  revenue 1915 - 1919
Year ending April revenue bulk barrels standard barrels
1915 £15,856,412 34,765,780 33,099,411
1916 £33,747,269 32,110,608 30,292,977
1917 £31,567,940 30,163,998 26,626,000
1918 £19,108,663 19,085,043 13,816,173
1919 £25,423,393 23,264,533 12,925,087
1928 Brewers' Almanack.

As you can see, even doubling the tax didn't fully restore the revenue raised.

This article appeared the day after the doubling of the tax.

It is difficult to get a definite idea of what the effect of the increased duty on beer is to be on the trade, either as regards the manufacturers or the retailers. The present prices, in so far as control is exercised, are to be changed in the case of whisky, but so far beer prices remain unchanged, 4d. per pint and 5d. per pint, according to gravity. Whether they are to continue in that position is uncertain but the hope is expressed that the Food Controller will at an early date issue an order on the subject, whichi will clear up a doubtful situation. A popular feeling in both branches of the trade is that not only the manufacturers and the merchants, but the public too should be asked to bear a part in the new taxation, and it has been stated that a fair share of the burden on the consumer would be to ask him to pay a penny more on his beer per pint, making the price for the lower gravity 5d. instead of 4d., and that of the higher gravity 6d. instead of 5d.

One authority, a retail man, expressed the opinion that in Scotland at least, whatever was the case over the Border, the public were getting at the present time a very good article for the money they were paying, that is considering everything, and a brewer confirmed that view. The latter, however, was inclined to think that the manufacturers and the publicans could each manage, out of the profits they have been and are making, to bear the whole burden between them should it be decided that the present controlled prices of beer the consumer is called on to pay must continue. As to that, there are differences of opinion. That handsome profits have been made out of beer, either by the brewers or retailers, or both, is an opinion strongly held by the man in the street, and it will be for Lord Rhondda to consider that point and decide whether or not the controlled price to the public should be raised or should remain as it stands.

A retailer expressed the hope that the Food Controller would see fit to control the price the retail traders have to pay to the brewers for their beer — that would only be fair; he said, when the retailers could charge no more than a certain fixed price. Their oncost charges had increased very greatly, and by controlling the price to be charged by the brewers it was felt that they would be more fairly dealt with, and that there would be a chance for them attaining to at least their pre-war profits in regard to beer. As an example of the increased expenses of the retailer, it was stated that a pint glass tumbler now costs nearly one shilling, and that in the case of breakages by customers or the taking away of a tumbler such an outlay became necessary, and in return the retailer would receive no more probably than 5d. for the pint of beer consumed.

The general view seemed to be that by the increase of the duty by 25s. per barrel a heavy additional burden would be placed upon the trade, but there was no disposition to grumble at the proposals of the Chancellor of the Exohequor. As one man put it, "We recognise it as a perfectly legitimate war charge if only the Food Controller sees to it that it is equitably applied, be that it is shared in by the brewers, the retailers, and the public." A brewer's representative doubted the efficacy of the new taxation, holding the belief that it was pretty much a case of handing money over from one hand to another. What was received from direct taxation would be at the expense of what would in ordinary course have come from the excess profits tax. Another view, also from the brewing side, was that the Government were endeavouring to get at the retail people, who were believed to be making considerable profits on recent sales, through the brewers,  who generally paid on excess profits, whereas the retailers, as a rule, did not do so. A large quantity of beer is still being consumed, and the fact that, generally speaking there has been decreased drunkenness is due more to the fact that, on account of the scarcity of materials, beers of a strong gravity are not being made as formerly, and that the public have acquired a taste for the lighter quality, the sort that has been described as "teetotal-beer," the kind that "you could drink a barrelful of without any intoxicating effects. The opinion has been expressed that even if the price of beer wore increased to th public there is little likelihood that the consumhtion would be decreased."
The Scotsman - Wednesday 24 April 1918, page 4.

You can understand why publicans would be alarmed at the tax doubling, yet the retail price remaining the same. At least for the price-controlled categories. Beer under 1030º retailed for 4d. and that of 1030º-1034º for 5d. Though anything with a higher gravity could be sold at any price the landlord wanted. That would change in 1919, when price controls were introduced for beer of any gravity.

I've read in several places that drinkers got used to the lighter beers and as a result cases of drunkenness had fallen. I can't imagine I would have thought that. A 2.5% ABV Government Ale would have been a poor substitute for a 5.5% ABV pre-war X Ale.


hawthorne00 said...

The key economics question here (IMHO) is to what extent the objective was a reduction in resource use/ alcohol consumption and to what extent an expropriation of economic rent. Less resources/ less fun/ squeeze the rentiers seems an understandable combination of wartime goals.

Anonymous said...

Maybe it’s time for a table showing all the taxes added during to the two wars with a corresponding drop in gravity. With all the separate posts discussing taxes it’s a bit difficult to see the overall big picture.
Hope to see you in St. Louis in April.