My brewery, Timothy Taylor’s, succeeds despite Whitehall, not because of it
Our brewery will not be able to absorb all of Rachel Reeves’s new costs — and we won’t be the only ones
Before the general election, Rachel Reeves told The Times: “If I become chancellor, the next Labour government is going to be the most pro-business government this country has ever seen.” Last Wednesday, she confirmed: “Economic growth will be our mission for the duration of this parliament.”
From where I’m sitting, in a medium-sized enterprise, the actions of the new government since taking office, and certainly since last week’s budget, can hardly be considered pro-business or pro-growth.
This is not a party political point. Labour is doubling down on a pattern established under the Conservatives. Politicians on all sides appear to be completely out of touch with the pressures and challenges of running a small business and the way their constant initiatives make it harder and harder for businesses to survive, never mind prosper.
I have spent the past ten years as chief executive of Timothy Taylor’s brewery, a very successful medium-sized company, 100 per cent family-owned. But even medium-sized organisations like ours (turning over more than £30 million per annum) can’t afford to hire teams of specialists across all areas of business and regulation like the corporates (Unilever, Diageo) I worked for previously.
You can imagine how daunting it is when we receive an email from our trade association, the British Beer & Pub Association (BBPA), like the one in April 2017 highlighting the various new regulations coming into force, including:
• National minimum/living wage rate changes
• Changes to business rates and licensing fees
• A new alcohol wholesaler registration scheme
• Apprenticeship levy
• Gender pay gap reporting
• Changes to the Licensing Act 2003
• Revised guidance to the Licensing Act 2003
I’m able to list these because I have held on to the email as one of the best (worst) examples of the raft of regulation that comes our way each year.
As I said to a Bank of England agent who visited us around this time: “Individually all these policies might make sense, but has anyone in government ever considered their cumulative effect on small businesses? If our time is spent on all this compliance, how can we be focused on the business and maximising growth?”
Let’s take an area more recently in the news: workers’ rights. I’m sure we can all agree employees’ rights should be protected. But did the previous government, or does this one, have any real understanding of the practical challenges and costs for responsible businesses of the existing regulations, never mind after the introduction of Labour’s planned workers’ upgrade?
Some time ago, we had to dismiss an employee for non-performance, having carefully navigated all the required steps and processes. Weeks later, the employee decided they would pursue us for unfair dismissal, citing several falsehoods to support their case. There was absolutely no cost to them. Even if it had gone to tribunal and the company had won, we would not have been able to recover our legal costs, not to mention compensation for the significant time spent on it.
This leads many employers, even those fully justified, to pay a settlement rather than the legal costs to defend themselves. We refused to settle but incurred significant legal costs preparing for a tribunal that never happened, because the complainant dropped their claim when they realised we were ready to defend ourselves.
A policy called Extended Producer Responsibility (EPR) is coming down the road, initiated under the Conservatives but continuing under Labour. From April, brand owners who put packaging on to the market will be expected to pick up the net cost of council recycling collections. While the costs will start to accrue from April 1, the Department for Environment, Food and Rural Affairs (Defra) hasn’t yet quantified them, only given an indicative range that, for our use of glass bottles, will be somewhere between £125,000 to £235,000 per annum. More worryingly, according to Defra’s timetable, the final fees will be known only after the scheme begins.
Do they honestly think we can absorb this level of cost? Do they have any conception of the commercial timelines needed to negotiate this level of price increase with retailers? Do they understand the impact of this on the price consumers will pay and the impact on inflation (our estimate is anywhere from 4p to 7.5p per bottle)?
And so to last week’s budget from our supposedly “pro-business, pro-growth” chancellor. How can she possibly imagine that a 6.7 per cent increase to the living wage, combined with increases to employers’ national insurance contributions and a reduction in the business rates discount for hospitality, is going to help business?
I’m particularly mindful of the already-struggling pub industry on which we rely to serve the cask ale that makes up 85 per cent of our sales. The industry came out of the enforced closures of the pandemic significantly weakened and headed straight into the cost-of-living crisis with significant input cost increases for drink, food, utilities and employees. Many have restricted their opening hours and pushed menu prices to the limit but are only just getting by. What are they now meant to do?
Last year I highlighted that the labour bill at our pub, the Woolly Sheep Inn in Skipton, would increase by £43,000 per annum due to the 2023 wage changes. We now need to find an additional £49,000 per annum (we pay above minimum wage but need to retain our differentials). We will have no choice but to pass a large proportion of this onto consumers, because to pay for it through turnover we would have to generate over £2,500 additional sales per week.
The BBPA calculates that for the industry as a whole, the cost of the budget will be about £500 million. Even for our business, which is far more brewing-focused than most, you might think we are a net beneficiary due to the draught beer duty reduction. But this duty reduction is passed straight through to, and expected by, our customers, while as a business we estimate we will be hit with about £325,000 of increased costs (£172,000 in employers’ national insurance contributions and £153,000 in wages).
While Reeves might say things could have been worse in the area of business rates, where the discount was reduced from 75 per cent to 40 per cent, what most people don’t realise is that a pub’s rateable value is based on turnover, and given the way in which costs for pubs have accelerated in recent years, a given turnover no longer produces anywhere near the profit necessary to pay the historic level of rates. Our rates bill at the Woolly Sheep alone will increase by £21,000 per annum.
The other change, particularly significant for Timothy Taylor’s and our ability to invest in growth, are the changes to business property relief, which will in effect impose a 20 per cent inheritance tax charge on family firms from 2026.
We have several large shareholders. If they were to pass away, the only way their heirs could raise the funds to pay for this new inheritance tax would be to sell some of the shares. However, there is no external market for the shares and, according to our company structure, key to our independence, only descendants of Timothy Taylor or Sir Donald Horsfall can own shares. To allow the tax bill to be paid, the company will now need to find the means to buy back these shares, meaning those funds will no longer be available for further investment and growth.
I accept much of the above is in the context of a company performing well, with a strong balance sheet and extremely supportive shareholders who take modest dividends and reinvest in our future. But many of Britain’s 5.5 million small and medium-sized enterprises (99 per cent of all private companies and 60 per cent of UK employment) don’t have that luxury. They are just getting by. They are not looking for government handouts but they do rely on government to create the environment in which they can thrive. As I said when I spoke to The Sunday Times last year, I sometimes think we are successful despite the government, and certainly not with its assistance. After the budget, the feeling remains.
Tim Dewey is chief executive of Timothy Taylor & Co Ltd
