The Royal Institution is one of London’s most historic buildings. Since 1799, it has been home to an organisation devoted to scientific research and education, and 15 of its members have won Nobel prizes. The list of luminaries who have addressed audiences in its remarkable round theatre includes Sir Humphry Davy, who discovered sodium and potassium, and Michael Faraday, one of the first people to develop practical uses for electricity.
On 12 September 2017, however, the speaker addressing the great and good of Britain’s wine and spirits trades was no scientist — he was Miles Beale, chief executive of the UK Wine & Spirit Trade Association (WSTA).
The choice of the Institution as the setting for the association’s annual conference was quite inspired, because if any sector of international commerce is likely to need some radical thinking over the next few years, it is the UK wine trade. Britain may be the second largest importer of wine by volume after Germany and by value after the USA, but Brexit could change all that.
A stunning chain of events
Beale’s bespectacled boyish looks are far more in keeping with a bright young accountant or courtroom lawyer than the traditional image of a red-nosed, pinstriped London wine merchant. In fact, it is the skills associated with both of those professions that he has been developing since 1998 when, armed with a degree in politics and French, he was “fast streamed” into the British civil service. After a spell working close to the Prime Minister’s office on local government, he spent four years negotiating with the EU on complex issues such as the reform of the Common Agricultural Policy.
In 2012, when he joined the WSTA, it must have seemed as though his experiences in Brussels would be of less use than his knowledge of the workings of UK government and the way they might apply to legislation, and more particularly taxation of alcohol. But that was before the British voters’ 2016 decision to leave the EU. Now, as he told his audience, much of his time is devoted to trying to persuade the government to ensure that trade with the European mainland after Brexit is “on very similar, if not exactly the same, basis as now”.
The UK wine trade was not supportive of Brexit, as Beale recalls. “We did a poll of our members. Not everyone responded, but 97% or 98% were in favour of Remain. We’re trying to help them manage something they did not want to be managing. It’s taken a while for people to get their heads round it.”
One of his problems has been an apparent failure of the government to listen to the wines and spirits trades, or indeed its own civil servants. “One of the things that we are trying very hard at WSTA to do is help the UK government to grasp that the UK wine and spirits industry is worth £50bn ($54.3bn) per year and that that’s there to be lost — and that would happen quite quickly without some action.”
Beale pauses, before continuing: “There may well be a reason why they might be listening, they might even be hearing, but they’re not acting on it. That’s the bit that particularly worries me, although things have changed at least a bit following the Prime Minister's speech in Florence.”
Beale is particularly reassured by Theresa May’s acceptance of the need for a transition period after the end of the two-year Article 50 period. “If you want to replace an IT system that allows you to import and export, you couldn’t do it by the end of March 2019. If you add two years as a minimum, you have a much better chance.” He says that the same is true of physical infrastructure such as warehouses. But he is not relaxed about the prospects for the next few years: “I’m reasonably confident that we won’t have queues of lorries [at UK ports] in 2019. But I’m still not confident that there won’t be those queues in 2021.”
When it comes to talking to the UK government, the WSTA is unusually well placed. “I think no other trade association can offer quite what we can in terms of balance. We import a huge amount of wine from the EU, and we export a huge amount of spirits there. Ironically, the value per annum is pretty close: something like £3.1bn versus £3.5bn.”
Curiously, while companies such Diageo, whose executives were in the WSTA audience, sell a wide range of alcoholic beverages, Beale’s remit only covers wines and spirits. “I can absolutely see the case for wine, spirits and beer. Not including beer doesn’t make sense. But if you look at most European countries, these sectors are quite separate. We’re the anomaly because we’re both wine and spirits. In the UK, beer is very closely allied with pubs,” Beale points out. “But there are similarities in the aspirations and challenges facing craft spirits producers and craft brewers. They’re generally SMEs for whom tax is relatively a big drain on what’s usually quite difficult cash flow.”
The wine market
Thanks to another British anomaly, and despite its relatively small acreage of vines, Britain exports rather a lot of wine — though not from its own vines. These only produce “5m to 6m bottles, probably doubling by mid-2020s, perhaps a bit earlier,” Beale believes. But financially significant amounts of fine wine from classic regions are traded through London and, in volume terms, far larger volumes of commercial wine are re-exported.
“Quite a lot of bulk wine comes into the UK, is bottled and labeled here, and goes to other parts of the northern hemisphere. For example, a company like Accolade Wines certainly considers the UK its headquarters, or its hub, in the northern hemisphere. The Accolade Park [bottling plant] bottles about a third of all still wine on the UK market, which is enormous. It’s one of the most efficient state-of-the-art complexes in the world.”
As Beale continues, looking forward: “If we’re not in the single market, but there are no tariffs and standards remain the same as at the point of departure… there would be no particular need to change the model. But if there was a really big difference between the UK and the single market, there’d be increasing pressure to have that hub somewhere else.” How much would that kind of impact would that have on the UK? Beale pauses before replying. “It’s the sort of thing we’re discussing with members at the moment. I don’t think anyone has an exact view about how it might work next, but Accolade is definitely taking a look at it already.”
One highly placed politician who might be directly affected by the closure of that bottling plant would be the British Chancellor of the Exchequer, Philip Hammond. “Accolade’s headquarters are in his constituency. So we’ve been able to make that potential risk very clear to him.”
So what else might change in the UK after Brexit? Britain would be free to introduce models of alcohol taxation that are currently forbidden by Brussels, such as a duty scale based on alcohol levels.
“I'm sure a Brexiteer would use that sort of argument, but you would be completely out of kilter with the way wine is treated in almost every other country,” cautions Beale. “That would be particularly risky — and very hard to do it in a way that maintains the internationalist and free trade outlook that most Brexiteers ought to have.”
On the other hand, Beale also notes that “again, if you’re a Brexiteer, you’d also want to see lower taxes, to help fuel this march towards the paragon of international free trade that the UK would be in the world. I think the current rates of excise duty don’t fit with that.”
But, of course, it might all depend on how wine is defined.
“There are limits agreed to by the UK in the context of the EU, on how much alcohol you can take out of wine at the moment,” he says. British companies wanting to make low-alcohol wine could be free to look at those differently, and there has already been some consultation on innovative duty rates below what is recognised as the bottom end of a definition of wine. That is, below 8.5%.
Then there is “British-made wine”, a low-cost product developed in the UK by fermenting imported grape concentrate. “It’s called British-made wine because when we joined the community, the EU didn’t really recognise it [as wine]. Today, it is doing extremely well in the UK and a little bit in Holland, but not anywhere else.”
Looking forward to the way more conventional wine imports may evolve, Beale believes the UK and Australia/New Zealand governments could do a free trade deal relatively quickly. “There’s common history, language, trading culture — at least until 40 years ago. The volume of trade would increase and there will be an acceleration of the trends that see New World wine becoming more prevalent on the UK market and Old World wine less ubiquitous, which has obviously been happening for a while anyway.”
But on a more cautious note, he asks: “What arrangement and rules of trade will we have with the EU? If they’re pretty close to now, I think that that move towards New World wine will probably still accelerate, but less quickly. Then there’s an EU/USA wine agreement, which we need to know if we keep hold of once we’ve left the EU. If you don’t keep hold of it, you have to reinvent the wheel or arguably, have a new wheel that goes further.”
He says that these deals will all take a long time. “I don’t think you could do those sorts of free-trade deals anywhere near as quickly as you could with Australia and New Zealand, because wines and spirits are going to be probably less interesting in a UK/USA deal, for example, than many other industries.”
Miles Beale is under no illusions about the potential broader effects of Brexit.
“It’s no longer the case that the UK is absolutely uncontested as the centre of the wine world, but it definitely still remains one of the key ones — because of its trading history and having forever been next to the biggest wine-producing part of the world. Those two things may well continue forever but there’s already been a change, certainly in terms of weight and balance internationally. I think that will continue and Brexit’s likely to exacerbate it.”
Summing up the size of the task facing his association and its members, Beale is disarmingly blunt: “You can have managed decline, you can have passive decline, and then you can have active efforts to make sure there isn’t decline.”
Robert Joseph
