Brexit and booze: what leaving the EU could mean for the pub trade

On 23 June, the UK population will vote on whether or not the UK should remain in the EU. But could Britain’s booze trade be in for a real hangover if the public votes to leave? Robert Sutherland, Licensing lawyer at Keystone Law, analyses the potential impact.

The topic of Britain’s potential exit from the EU, or ‘Brexit’ as it has become widely known, is one of the most widely debated issues of all time. And while we cannot be certain of how much things would change, it is largely agreed that a departure would have a significant impact on a social, economic and political level.

But when it comes to Britain’s beloved pub trade, what effects can we expect to see? Tim Martin’s view is very much that things will be better. Better, because democratic countries in the world do better. His argument states, as we Brits consume so many products across the world (for example, Champagne), countries like France would not want to lose that export trade and therefore it is crazy to suggest that trade agreements will not be reached. However, things may not be as simple as organising a party in a brewery!

Should the nation vote to leave the EU, the romantic notion of a clean break from the EU is far from the more complicated reality. Instead, after the immediate formalities of a withdrawal, the UK would have two years to negotiate a number of different terms and conditions. There are a number of EU Treaties and Regulations that are currently applicable to the UK and these would essentially cease to exist should it depart. In addition, any EU Directives that exist at the moment would not just simply apply. They are, in fact, only enacted either through changes to UK law or by the UK actively choosing to expressly adopt these policies. If Britain wants to continue to flourish on an international scale, there is much to consider.

Such consideration and negotiation breeds uncertainty which for many in business will result in less investment and less profit.

Single market

The completion of the European Union’s ‘single market’ – which removed all restrictions on trade in goods between member countries – is claimed by some to have been a downward pressure on alcohol duty.

The single market benefited smokers and drinkers who were able to go to France and take advantage of lower taxes. But the study shows that even those who did not travel benefited. This is because the government could not raise taxes without encouraging more people to shop – or shop more frequently – abroad. So duty is lower than it might be otherwise, which benefits all smokers and drinkers.*

Whilst this may be true, the greater taxation problem facing the trade is the situation with VAT, and this is will not change whether the UK remains in or leaves the EU.

(* That is the conclusion of research by Professor Ben Lockwood and Dr Giuseppe Migali, published in the March 2009 issue of the Economic Journal.)

The exit options

A number of options exist, but it is unlikely that the United Kingdom would choose one of the set options off the exit model menu. Should the vote leave campaign succeed, the solutions are likely to be bespoke, though they may be based on one of the current options.

Whilst there are infinite possibilities, there are five main set options:

• -The Chinese option is theoretically the most ‘simple’ in that it would mean the UK relying on the World Trade Organization agreement for trade within the EU. The UK would be in the same position as China or the US.
• -The Turkish option would in effect be a customs union. There would be conditions and the UK would most likely be required to comply with certain EU legislation.
• -The Norwegian model or the European Economic Area (EEA, as it is known) would still provide access to the single market but would also require compliance with certain EU law and most likely the freedom of movement.
• -The Swiss model, also known as European Free Trade Association (EFTA), would provide some access to the EU’s internal market but would require a number of separate agreements to be drawn up with the EU, which is likely to mean restrictions.
• -The Mexico model or Free Trade Agreement (FTA) would see the UK building up a relationship based on one comprehensive free trade agreement outside of the EU customs union.

The effect of these options on the pub trade is the effect on business as a whole. Whilst some of the models would be easier and quicker to set up, the conditions or requirements imposed by the EU may be such that they undermine the whole basis for the exit in the first place. Those options that preserve many of the reasons set out for leaving (such as democracy and control over migration) will involve more negotiation, may take longer to put in place, and may therefore have the short-term impact of destabilising and creating uncertainty. Such an effect could in the short term cause a downturn in the economy and a hangover!

Trade regulation

Whether they’re for or against the idea of Brexit, pubs and licensees are currently obligated to comply with existing EU regulation, with many expressing concerns that future legislation coming directly from Brussels would be difficult to predict. While it is very unlikely that there will be any drastic instant changes in the area of regulation, the uncertainty of what might come next is enough to make many publicans – particularly smaller businesses – push for a departure. They hope that by leaving the EU much of the onerous regulation and bureaucracy will be flushed down the drain.

The Wine and Spirit Trade Association members are overwhelmingly in support of staying in the EU. Most members are small to medium-size businesses and they see the benefit of the single market where most of their exports go; and also for exports to other countries outside the EU but based on EU trade agreements.

Outside of the alcohol-focussed businesses a recent Moore Stephens poll showed that the majority of small businesses would vote to stay in the EU because of concerns over the absence of a UK voice at the table to shape EU regulations by which the industry would still be bound, such as is to be found with Norway. It is interesting that this view is not shared by the pub industry in the UK.

I also have a concern that where regulations and bureaucracy exist , bureaucrats are very good at creating further bureaucracy and regulation to replace that which existed previously. Far be it from removing regulation and bureaucracy, one merely changes the rules and procedures.

Conclusion

People are likely to decide to stay or leave based on many different gut feelings and beliefs. The consequences are far-reaching. Whilst some will embrace the challenges and opportunities brought about by Brexit, others will be concerned by the uncertainty and inevitable change that will be caused. Brexit is not the status quo. There may be ramifications for the Government, and possible impact on the Prime Minister (would he resign?) and on the union of the United Kingdom itself. Could such a decision tear apart the very sinews that link the four countries of the United Kingdom, separating Scotland and Northern Ireland (who are likely to want to stay within the EU) from England and Wales? It is almost impossible to tell what the long-term impact of a Brexit on the pub trade might be, but one thing is for certain: the long and complex task of renegotiating agreements will be no mean feat and in the short term this is likely to have a negative impact on investment and trade. Whatever the decision, there will be a good number who will look to drown their sorrows and we may all get a hangover!