When the government introduced the new alcohol duty reform on 1 August 2023, one of its headline ambitions was clear: support pubs by reducing the tax burden on qualifying draught products. Alongside a new strength-based alcohol duty system, ministers introduced draught relief and expanded support for small producers.

The theory was simple enough. Lower duty on draught drinks should strengthen the competitiveness of pubs and narrow the price gap between drinking in a venue and buying alcohol from a supermarket.

Three years on, the real question is whether that relief is reaching the publican, or disappearing elsewhere in the supply chain.

According to HM Treasury and HMRC, the ongoing evaluation is specifically examining whether draught relief has increased sales of draught products and supported the on-trade. For operators, however, success is not measured by policy objectives. It is measured by gross margin, cash flow and profitability.

What Is Draught Relief?

Introduced as part of the alcohol duty reform in August 2023, Draught Relief reduces the amount of alcohol duty payable on qualifying draught drinks sold in pubs, bars and other on-trade venues.

It applies to products below 8.5% ABV sold in containers of at least 20 litres.

• Qualifying beer and cider receive a 9.2% duty discount.
• Qualifying wine and spirit-based products receive a 23% discount.
• The relief is only available for drinks consumed on licensed premises.
• It does not apply to takeaway alcohol.

The aim is to make pubs more competitive with supermarkets by reducing the tax burden on draught products. Despite this, the average household spent £324.37, and spending on alcohol is expected to rise by £17.42 annually.

The key question for operators is whether those savings improve pub margins or are absorbed elsewhere in the supply chain. That is why the government's evaluation is examining whether Draught Relief has genuinely supported the on-trade as intended.

Alcohol Duty Reform And The Reality For Pubs

The new alcohol duty system moved the UK from multiple product categories towards a structure where duty is increasingly linked to alcohol by volume and the amount of pure alcohol in a drink.

The reforms also introduced reliefs designed to support pubs and small producers.

On paper, qualifying draught beer and cider received greater support, while products sold in containers of at least 20 litres became eligible for reduced alcohol duty rates where they met the relevant criteria.

However, pubs rarely experience tax changes in isolation.

Since August 2023, operators have faced higher wage costs, rising energy bills, elevated food inflation and ongoing pressure on consumer spending.

Against that backdrop, even where a reduction in duty payable exists, its impact can quickly be diluted before it reaches the bottom line.

The key issue is whether suppliers, producers, pub companies and wholesalers passed the benefit through the supply chain or absorbed some of the gain themselves.

Where Does The Benefit Go?

For independent operators, the answer often depends on purchasing arrangements.

A freehouse buying directly from wholesalers may be able to negotiate better pricing and potentially retain more of the benefit from draught relief.

Meanwhile, tied tenants may see less direct impact if pricing structures with breweries or pub companies effectively absorb part of the savings.

This is one reason why measuring the effectiveness of alcohol duty reform solely through sales volumes can be misleading.

Increased draught sales do not necessarily mean improved profitability for pubs.

At HLWA, we regularly see operators focusing on turnover while overlooking gross profit.

Yet the true measure of whether alcohol duty rates are helping a business is the effect on:

• Gross margin percentage
• Cash profit per pint
• Product mix
• Wet-led versus food-led performance
• Overall business profitability

A one pence reduction in tax does not automatically translate into one pence more profit.

The Shift In Product Mix

One of the more interesting consequences of the new alcohol duty system is the incentive for producers to review product formulation.

Because higher-strength alcohol products generally attract higher tax rates, producers have a commercial reason to develop lower-strength alternatives.

This may encourage innovation in lower-ABV beers, ciders and other fermented products.

For pubs, that creates both opportunities and challenges.

Consumers are increasingly looking for moderation options, and lower-strength products may deliver improved margin performance if they attract lower duty rates.

At the same time, operators need to ensure these products do not simply cannibalise higher-value sales.

The result is a growing balancing act between traditional draught sales, packaged drinks and lower-alcohol alternatives.

What About Consumer Pricing?

The government's intention was partly to narrow the gap between on-trade and off-trade pricing.

Yet consumers continue to make spending decisions based on affordability.

Even relatively small increases in the overall tax burden can influence purchasing habits when household budgets are under pressure.

For many pubs, the practical challenge has been deciding whether to:

1. Pass duty savings to customers through lower prices.
2. Retain the benefit to protect margins.
3. Use the saving to offset rising operating costs elsewhere.

Given the level of inflation seen since the reforms were introduced, many businesses have understandably chosen the third option.

The Bigger Question For The Autumn Budget

The government's evaluation is rightly seeking evidence on whether the reforms have supported the on-trade and reduced alcohol harm.

However, the hospitality sector may be asking a different question ahead of any future Autumn Budget announcements:

Has the combination of alcohol duty reform, inflation and wider business costs genuinely improved the sustainability of pubs?

For many operators, the answer will depend less on the rate of alcohol duty itself and more on how much of any relief they actually retain after suppliers, wholesalers and other pressures take their share.

The Real Impact of Draught Relief

As BII Accredited Advisors to the Licensed Trade, our experience is that tax reliefs rarely tell the whole story.

The real impact of draught relief is not found in legislation. It appears in a pub's management accounts.

Operators should regularly review:

• Gross margins by product category
• Draught versus packaged sales performance
• The profitability of low and no-alcohol ranges
• Supplier pricing changes since the introduction of the new duty system
• Whether duty savings are genuinely reaching the business

The success of alcohol duty reform should ultimately be judged not just by policy outcomes, but by whether pubs are stronger, more profitable and better placed to invest in their future. If the relief never reaches the publican, then the reform may not be delivering quite as intended.