Regulation the Spirits Industry - a system with no sense.

I like to think I’m a man with common sense. And yet, when I look at the stifling, strangling system of regulations we face as an industry in the UK, I see absolutely zero of it. Common sense that is.?

The spirits’ industry is one of the most regulated in this country. From a production perspective, this makes sense – it’s one of the only products on sale, which is classified as a legal drug so, it needs to be well manufactured and regulated as such. But beyond this level of regulation is where it gets interesting, or rather - frustrating.

Here in the UK, we operate under a high tax regime and the duty paid on alcohol provides a huge income to the exchequer. Last financial year, alcohol duties equated to ￡13.1 billion; ￡4.4 billion of this provided by duties paid on spirits.?It’s a cash cow; a valuable industry to the government – and in my opinion regulatory developments of late are hammering related businesses to the point of being unacceptable. I’ve previously written a little around the problems with duty stamps and quality regulation, but you know what – there’s a hell of a lot more going on that’s just as restrictive.

Big problems at the border…

The ‘B’ word. And no, I don’t mean border, I mean… Brexit. Whilst I’ll provide no hint as to what my political views were – we were promised a fresh way of doing things, a new found autonomy which would reduce bureaucracy and improve efficiency. What we ended up with is a confused, poorly explained, dreadfully executed system with a chronic lack of capacity for importing goods.

New, laborious bureaucratic systems meant that haulage firms were deterred from coming to the UK, we as distributors struggled to source groupage, and there were huge delays at international borders – you’ll have seen the queues at Calais. HMRC were of little help; bogged down and struggling to understand the incoming international paperwork.

This dreadful new norm caused a few changes in the way things were done if you were looking to import. All of a sudden, middlemen were required to complete the complex paperwork and fewer international drivers meant less competition for imported loads. Both of these changes incurred costs that businesses simply didn’t have to pay before.

Now these incurred costs all add up, and they all end up passed on to the consumer. If you were a company doing due diligence on new markets to enter – would you look at the UK and think it was worth the hassle? As time goes on and more changes are made, that’s a question I’m quite frankly afraid to answer.

…And not just international borders

At least once your product is in the UK, it’s there, right? Let’s get it on shelves and in bars from Brighton to Belfast, Aberdeen to Aberystwyth. Wrong. The internal ‘borders’ between the home nations are fast becoming as complex as our international ones.

Another result of Brexit, exporting to Northern Ireland has become a nightmare. Due to it sharing a land border with the European Union, extra bureaucracy has been introduced for imports coming into the country – and for small loads it becomes difficult to justify the extra work it entails. At Mangrove, we’re adapting and have found solutions to make it worthwhile, but there will be many who can’t. And in these situations, where the export just doesn’t happen, it’s the people of Northern Ireland who are losing out as the choice on their shelves diminish!

Label me the foreteller of doom, but I foresee a similar situation coming into play when it comes to exporting to Scotland. We can expect some upcoming divergence in regulations by our northern neighbour – a different tax regime and the introduction of the Deposit Return Scheme. Now, whether the policy behind these regulations is justifiable or not, is not the point. The point is that once your product reaches the shores of England, there is now a myriad of extra paperwork to be considered and completed before you enter two of the home nations.

If you were a brand looking to enter new markets and examining the process to export to the UK, would you not look at all this and see a regulatory nightmare? My feeling is that we’ll see fewer products coming into these regions, or international brands testing the markets elsewhere. Meaning less diversity and innovation on our shelves.

Overprotection in category governance

Here in the UK we’re fortunate to have industry bodies that protect and govern the categories within the alcohol industry. They do a lot of good, enforce quality control, and govern their category pretty successfully – but there are circumstances where I think it borders on being overprotective.

Let’s take the governing bodies for, as an example. They protect and enforce UK Government regulations (previously EU regulations) that mean, if you’re buying scotch, you know you’re getting a great quality spirit. They drive up quality, promote the product abroad and do a lot of good. That said, they also like to act as the world’s policeman; an enforcement agency for other countries looking to distil and experiment in the category. World whisky is very experimental, it’s different from Scotch and Irish varieties and attracts an entirely different demographic. It’s one for the bold and adventurous; not the purists; and yet these governing bodies are enforcing a number of production regulations abroad, to make the end product more like Scotch. It stifles creativity and, in my opinion is dampening what’s already an incredibly exciting category. If I was going to be really cynical, I’d say they want to minimise competition, and look out for the interests of the big whisky companies who provide a lot of the funding. That’s if I was being really cynical.?

Lack of protection for hospitality

Owning and running a licensed venue is expensive. Licensing and planning is neither cheap, nor simple, and the trend seems to be that it gets increasingly complex and costly as the years go on. I have a real gripe at the moment with the lack of protection for hospitality venues. Whether its historic property converted to residential, or new developments being built near existing venues, the way in which a few community complaints can restrict licensing agreements or shut down venues all together, astounds me. Hospitality shouldn’t be pushed to one side as a result of gentrification or a change in housing policy; our pubs and bars are social spaces that allow us to drink in a regulated environment. Well run venues are better for the public, they allow us more control over consumption, and quite frankly they are an important part of places, be they villages, towns, or cities.

The hospitality industry is a job creator, a social enabler, a hotbed of creativity, that (let’s face it) produces a great tax stream and lines the government’s purse. Yes, I know we have to continually work to ensure responsible drinking, in venue and at home, but given all the reasons listed above – doesn’t the industry deserve more protection from government? I’d say so.

What’s the solution

My stance is pro-business, supportive of entrepreneurship, and I’d like to think is based around common sense. I want an easy life and a climate where the industry can thrive.

If a redo were possible, I’d flip the system on its head – focus on enforcement; prosecuting and punishing those who break the rules, as opposed to forcing the whole industry to undertake costly and time-consuming regulatory commitments. A degree of trust should be given to businesses; this might look like allowing us to clear paperwork in our regulated bonded warehouses, as opposed to at port, or putting digital systems in place to ease the form filling and allow them to be completed retrospectively.

I don’t realistically think this will ever happen. But I’d settle for a holistic review of everything that’s in place, by government. Examining the effect it’s actually having. Are we solving the problems? Are businesses having to do the same thing twice? Yes – then change it. We’re jumping through hoops because of inefficiency and broken processes – surely the time and effort it would take to fix them is nothing compared to what we, as businesses, are accumulatively investing in the status quo? Do businesses a favour, lessen the load, and put in place functional systems that actually work. The industry will thank you.

This article was published by Harpers Wine and Spirits on 11.11.22