I have a friend who won't pay more than £3 for a pint or £10 for a haircut. While the measures announced yesterday to put a minimum price on alcohol are aimed at curbing binge drinking and shouldn't affect the average beer drinker, last week's news that the average price of a pint in the UK has passed £3 will hit him hard.

The news gets worse: after the VAT increase earlier in the month, Britain's largest breweries have warned it's likely there will be a further 5-10p added to the cost of a pint in February thanks to rising raw material prices and increasing brewery overheads. All this makes for joyless reading, but raises the question of how much, in the real world, we are willing to pay for a pint.



The economics of a pint are enough to drive anyone to drink. The beer industry is layered with different rates of duty applying to different sizes of brewery, varying base ingredients and processes costing different amounts. Not to mention the pub tie system which causes wide disparities in the cost of a barrel of beer.

Dave Bailey, a former pub landlord who founded the Hardknott Brewery in Cumbria, breaks down how much it costs him to make each pint and enough profit to sustain the brewery as a going concern:

Malt: 3p

Hops: 2p

Cleaning chemicals / finings: less than 1p

Power: less than 1p

Duty: 20p

Transport: 12p

Plant / buildings: 12p

Advertising: 6p

Repairs and renewals: 7p

Labour: 20p

Administration: 7p

Total: 90p

(A global lager brewery or a national or regional ale brewery would have different costs for each of these elements and will also pay additional duty because of their volumes - with Progressive Beer Duty, smaller breweries pay a lower rate).

These costs mean Dave charges pubs £65 plus VAT per firkin (72 pints). When he was a pub landlord Dave would calculate the retail cost of a pint by accounting for what he paid for the firkin plus tax and overheads: staff, rent / mortgage, heating, lighting, insurance, licenses and any other ancillary items like lemons, cleaning supplies and so on down to the endless little details which make each pub unique. Ultimately, most pubs see very little of the price of each pint of beer sold and also need to sell food, spirits, soft drinks and wine to make a profit.

Nine out of 10 pubs in the UK sell cask ale at a lower price than lagers of the same strength, says the 2010-2011 Cask Ale Report. Yet the report also says that real ale drinkers are happy to pay a premium for a local craft product versus a global mass-produced product, and found that a cask ale sales increase when it's the same price as lager and not cheaper, suggesting that people associate price with quality.

This association is an interesting one and the theory of Veblen goods proposes that people want a product more as its price increases - Stella Artois had great success on this principle with their "reassuringly expensive" campaign.

"People usually understand price if it's explained to them," says Dan Fox, manager of the White Horse in Parsons Green. "This includes where the beer has come from, how strong it is or if it's rare and if the customer knows the background then the price makes more sense. The most expensive beer we've sold is Goose Island's Bourbon County Stout and that was £6 for a half pint".

"We find that people are happy to pay £4 for a decent, well-kept pint with provenance, says Charlie McVeigh, who owns the DraftHouse pubs in London. "That said, our bigger sellers are mostly below £4." In Dan's experience at the White Horse, "people don't flinch at anything under £4.70 because in the city you can easily pay this for a pint of lager."

Of course, that's in wealthy west London; charge £4.70 a pint in most pubs and you'll knock the regulars off their bar stools. "My pub would be shut within a week if I charged £4 a pint," says Michelle Fenton, landlady of the White Lion in Delph, Lancashire, who charges about £2.30 for a pint of ale. That said, she goes on to explain that Peroni, her premium lager, sells very well at £3.20 a pint and suggests that some people like to pay extra because they think they are getting a better product.

We've passed the £3 average for a pint yet we are still spending our pounds in the pubs, which is a good thing. So here's the question: if lager is your drink then what price makes you balk? If it's real ale then at what point do you think twice?