Can the Budget keep Britain’s pubs open? What landlords want from Jeremy Hunt

As Jeremy Hunt prepares to present what could be his final budget as Chancellor this week, the British pub industry remains in tremendous danger.

Closures continue to ruin the sector; Some 3,000 pubs have closed in the last six years, including 509 in 2023, according to the British Beer & Pub Association.

The BBPA has said more pubs closed permanently last year than in 2020 or 2021 when Covid-related restrictions forced hospitality venues to temporarily close.

The end of pandemic restrictions brought immense relief to the pub sector, but many venues are struggling to survive as their own rising costs squeeze margins and inflation reduces consumers’ purchasing power.

Although the Bank of England expects the UK inflation rate to reach its 2 per cent target and cut interest rates in the coming months, most pubs are paying more for everything.

Greg Mulholland, campaign director at Campaign for Pubs, warns: “The cost of living crisis is as big a crisis for pubs and publicans as the Covid-19 pandemic, lockdowns and restrictions.”

If Hunt does not announce significant help for pubs on Wednesday, more communities in Britain will lose a vital institution, which contributes to the local economy and is a social foundation.

Pubs and breweries generate £26.2bn for the country’s economy and support around 960,000 jobs, whether it’s the farmers who grow barley and hops or the pub landlord who runs the town’s drinks.

They also contribute to collecting considerable amounts of taxes, such as excise duties, VAT or corporation tax; The BBPA says £1 in every £3 spent in pubs goes to the treasury.

Pubs welcomed Hunt’s decision in the Autumn Statement to freeze the so-called business rates multiplier and extend the 75 per cent discount on business rates bills of up to £110,000 in England until April 2025.

Commercial real estate intelligence firm Altus Group estimated the two measures will save the average pub almost £12,900.

But many pubs want a change to the business rates regime because of its complexity, volatility and tendency to favor online retailers over high street establishments.

Nick Mackenzie, chief executive of Greene King, believes modernizing business rates would be “the best starting point” for the government to “really show” it supports hotel operators.

He told This is Money: “A system that didn’t disproportionately hit pubs with sky-high rates would go a long way to reducing the painful cost base facing all publicans and help businesses like Greene King unlock more investment in the entire sector, helping to create jobs and boost the economy.’

His comments have been echoed by UKHospitality, which asks ‘root and branch reform’ along with a 3 per cent cap on any business rate increases.

The lobby group also wants a VAT rate of 12.5 percent for the hotel sector, as applied between October 2021 and March 2022 before returning to the usual level of 20 percent.

However, this would still leave pubs and other hospitality establishments at a serious disadvantage compared to shopkeepers because the latter do not pay VAT on sales of food and drink.

In protest at this disparity, founder Sir Tim Martin reduced the prices of Wetherspoon’s food and drink products by 7.5 per cent for one day last September across his company’s 852 stores.

“It makes no sense for the hospitality industry to subsidize supermarkets,” said the New Zealand-born businessman when announcing the one-time discount.

The government has so far resisted calls to reduce VAT rates, but in his budget last spring Hunt extended ‘draft relief’ to eligible beer and cider products to 9.2 per cent.

Beer and pub organizations such as the Society of Independent Brewers and the Campaign for Real Ale want this figure to rise further to 20 per cent.

Susannah Streeter, director of money and markets at Hargreaves Lansdown, says increasing draft relief would be “a welcome measure” which could be offset by lifting taxes on beer bought in shops.

The recent push for the relief bill came as part of wider changes to the alcohol tax system, with the number of main tax rates reduced from 15 to six and products taxed according to their intensity.

HM Treasury estimated the reform would benefit more than 38,000 pubs and would see drinkers paying up to 11p less for pints of beer and cider than in supermarkets.

However, while a slight cut in prices might entice some customers back into pubs, they are likely to still pay much more for their pint (and any meal) than they did a few years ago.

Rising oil and gas prices, partly caused by the Ukraine war, have raised food and beverage production costs, especially for beer makers.

Analysis of last year by Frontier Economics found that the average price of a pint had risen by around 12 per cent in the year to July as brewers passed on extra costs to pubs.

Although the energy price cap for UK households has dropped considerably, Frontier said the pub industry is still facing energy bills double or triple pre-crisis levels.

Two factors explain this: Taxpayer support to help businesses with high energy bills was massively reduced after the Energy Bill Relief Scheme was scrapped in April 2023.

That scheme provided £18bn of financial assistance to businesses, while its successor, the Energy Bill Discount Scheme, will deliver just £5.5bn this financial year.

Second, many hotel operators signed long-term contracts that required them to pay significantly higher bills before wholesale energy prices began to retreat to more normalized figures.

“Soaring energy bills, especially for those forced to sign exorbitant contracts, are disastrous for pubs and prevent many publicans from earning a living,” says Campaign For Pubs’ Mulholland.

It calls for pubs with “unfair and unaffordable” contracts to be allowed to change them, alongside a much bigger push to reduce energy prices for small businesses.

Geopolitical developments in the Middle East or Eastern Europe could cause energy costs to rise rapidly again for millions of British households, making them more reluctant to visit the pub or spend big when enjoying a night out.

Dan Brod, co-founder of Beckford Group, which runs four pubs in Wiltshire and Somerset, admits fewer and fewer customers are coming through his business’s doors, although he believes more are coming for special occasions.

While Brod notes that business is not doing too badly – “neutral at best or slightly down” – he warns that “trading is as difficult as it could be in our particular sector because the probability has been eliminated.” .

He also says the company will struggle to raise prices when the national living wage rises next month, something he describes as “without a doubt the biggest current challenge facing the entire hospitality industry.”

From April, workers aged 21 and over will earn at least £11.44 an hour, a 10 per cent improvement on current levels.

This comes after three years in which the sector increased wages due to labor shortages caused mainly by the departure of many Europeans from Britain in the wake of Brexit and the Covid-19 pandemic.

Few hospitality jobs are included on the Shortage Occupation List, which allows someone to obtain a skilled worker visa while being paid 80 per cent of the usual “going rate” for a job.

It remains uncertain whether any will be admitted to the next SOL replacement, the Immigration Wage List, given the government’s desperate desire to reduce net migration.

If restrictions are not eased, as seems likely, pubs will continue to have to increase wages to attract and retain new staff, further reducing their already low margins.

This dilemma comes as a joint survey published last month by numerous trade bodies, including the BBPA and UKHospitality, found that a quarter of UK hospitality businesses said they had no cash reserves left, while 29 per cent had enough for three months.

In a statement, the industry groups said: “The results clearly show the dangerous state of our pubs, restaurants, hotels and cafes.”

In the absence of any major easing of cost pressures and Jeremy Hunt introducing sweeping reforms on Wednesday, 2024 for the pub industry looks as bleak as the last four years.