Beer taxes: stop crippling pubs says W'spoon boss in plea to government

Tim Martin, the founder of J D Wetherspoon, says “tax equality” between pubs and supermarkets, including slashing VAT on pub food and drink, would give the trade a shot in the arm – not minimum prices for alcohol in high street stores.

He announced on 14 September that his group had enjoyed a major boost in sales as a result of the Royal Jubilee and the Olympics -- but these were unrepeatable, one-off events.  He said the boom wouldn’t last and he plans to open fewer new pubs in 2013 than in previous years as a result of the burden of taxation on his business.

Speaking exclusively to me at his Watford head office, Tim Martin said minimum pricing would act as “displacement activity” and supermarkets would offset any losses by cutting prices on other products. “It’s not tackling the problem. Supermarkets would continue to undermine beer in pubs. There’s not a snowball’s chance of minimum pricing benefitting pub customers.

“Closing the gap between supermarkets and pubs with minimum pricing is an illusion. A pint of Abbot at £1.25 in a supermarket won’t make a massive difference and it pushes back the campaign to reduce VAT.

“People enjoy food and beer together in pubs. Minimum prices won’t help pubs as the supermarkets will merely drop their food prices.” He points out that high street retailers pay no VAT on food while pubs pay the full amount.

“Minimum pricing would be wrong headed and harmful while VAT at 5% would be a shot in the arm. Wetherspoon was the first British company to sign up for Jacques Borel’s campaign to cut VAT – we say Back Jacques!”

Borel is the French hotelier and restaurateur who successfully campaigned for the French and other European governments to slash VAT on food in restaurants and bars to 5%. (See report on right.) Tim thinks the reason there’s been no movement by the British government to reduce VAT here is because the campaign has been mishandled. “Jacques Borel agrees with me. Some pub trade spokesmen went straight to a minister, but it came to nothing. You have to convince officials first before you see a minister.”

Tim Martin said his tenants would prefer the same level of VAT on food and drink as supermarkets, not minimum pricing. Every transaction in his pubs includes 60 pence VAT, compared to 15 pence in a supermarket, while pubs create three news jobs to just one on the high street.

He likens the campaign to reduce VAT on pub food and drink to the introduction of Progressive Beer Duty for small brewers by Gordon Brown when he was Chancellor of the Exchequer. “PBD enabled the micros to improve their position. It might be unfair on the regional brewers but if you can have tax reduced on your favourite beer it gives a boost to all pub sales.” But he described the current overall burden of beer duty as “madness. We pay £11 in tax in order to make £1 in profit. The government has gone too far – it’s made beer a milch cow. Duty should be the average of our economic neighbours. They say bankers can’t be heavily taxed here or they’ll go to France but there would be a very big reduction in beer duty if we enjoyed the French rates here.”

He said the manner in which beer prices are increased every year by the duty escalator is “sleight of hand. When George Osborne said in his budget statement this year that he wasn’t touching beer duty and then allowed it go up via the escalator he was contemptible and he should be ashamed. He should tell the truth to the public.”

Tim stressed that it’s not just duty and VAT that are harming pubs – there are further taxes on top. “As a result of the last budget, we now have two heavy taxes. The Late Night Levy costs us £2 milliona year and the Machine Tax also costs us a further £2 million. They’re stealth taxes – under the radar – and they don’t apply to supermarkets. They’ve worsened the tax disparity and lots of pubs just can’t take it anymore. The government said it would be ‘pub friendly’ but they’re hypocritical.”

As a result of the increasing tax burden, he said Wetherspoon would open fewer new pubs in 2013: 20 to 30, compared to 50 in 2012 and 40 the previous year. New openings would be restricted until the tax problems are sorted out, he says.

Tim stresses that the image of Wetherspoon as a southern company is long out of date. “We’re not Kensington and Chelsea!” he laughs. “We have an even spread. We have 125 pubs within the M25 but we go from Wick in Scotland to Penzance in Cornwall. We don’t only target affluent areas.” (Photos show the Wetherspoon pubs in Cumbernauld, Scotland, above, and College Arms, Peterborough, below.)

On his pricing policy he laughed again and, before I could pose the question, said: “You’re going to ask me about ‘short dated beer’ – well, we don’t do it.” This is the persistent rumour that Wetherspoon buy beer that’s close to its sell-by date from brewers. “The beer we sell is the freshest you can get. We buy 90 to 95% per cent of Greene King’s production of Ruddles. Beers from micros sell faster than anyone else’s and we take beer from 50% of the country’s micros.

“Our margins are half what Greene King or other pubcos charge. We make less profit per barrel but we sell a lot of barrels per pub. So do Sam Smith’s and Joseph Holt but they have less ambitious opening plans.”

Food works on the same principle: he makes low profits per plate but he sells a lot of plates. He moved into pub breakfasts when he saw how much early morning business was being done by Prêt à Manger and Starbucks.

“Pubs have to get into that sector,” he says. “It’s small profit but it’s working well and we sell a lot of coffee.”

He returned to his theme about the injustice of the tax system where pubs are concerned. “Pubs need customers. An empty pub is not appealing. It’s pubs mainly outside the South-east that are closing. Putney, Highgate and Westminster aren’t touched. We need pubs in badly hit areas.”

The Fact Sheet

J D Wetherspoon owns 860 pubs. Like-for-like sales in the six weeks to 9 September saw sales jump by 8.4%, with total sales up 12.8%. This compares with 6.1% growth in the 11 weeks to 8 July.

Profits for the year to the end of July rose 8.4% to a record £72.3 million on revenues up 11.7%, before exceptional items such as impairment charges on pub assets and an IT write-off.