LONDON (Reuters) - Chancellor George Osborne scrapped the country's above-inflation beer tax rises on Wednesday and cut 1 pence off a pint, cheering drinkers and providing some relief for a pub sector still enduring 18 closures a week.
The much criticized beer duty escalator, put in place to push the levy up 2 percent on top of inflation every year until 2015, has seen the tax on beer increase 42 percent since the previous Labour government introduced it in 2008.
It means that more than a third of every pint pulled in a pub is now paid in duty and value-added tax (VAT).
"We will now scrap the beer duty escalator altogether, and instead of the 3 pence rise in beer duty tax planned for this year, I am cancelling it altogether," Osborne announced to big cheers in parliament.
"That's the freeze people have been campaigning for but I am going to take it one step further and I am going to cut beer duty by one pence. We are taking a penny off the pint."
The cuts will spare squeezed consumers another hit at a time when austerity measures and low wage growth are reducing discretionary spend and forcing pub companies to compete hard among each other and with much cheaper supermarkets.
Shares in Wetherspoon rose 3.4 percent to 544.5 pence on the news, while Enterprise Inns was up 2.6 percent at 112.85 pence at midday.
The British Beer & Pub Association said it was great news: "In abolishing the beer tax escalator, the chancellor has ended a hugely damaging policy that would have made Britain's beer the most heavily taxed in Europe," BBPA Chief Executive Brigid Simmond said.
Since the duty escalator was introduced in 2008, 6,000 pubs have shut and an average of 18 are still closing every week.
Recent research has said scrapping the escalator will save over 5,000 jobs in an industry that employs almost 1 million people. A study by Oxford Economics has also suggested that, despite a slight drop in beer duty revenue, the move will raise an additional 5 million pounds in revenue through higher employment tax contributions and reduced unemployment payments.
Osborne said the 1p cut would take effect this Sunday night. Ted Tuppen, chief executive of Enterprise, welcomed the news and said the benefit would be passed onto its customers immediately.
Not everyone was happy, though.
Osborne maintained a planned rise for all other alcohol duties, meaning wines and spirits will see above-inflation tax rises for a fifth straight year. Diageo said the British spirits maker was being punished for its success in a harsh economic climate.