The Leisure Business Blog: Of Pubs, Tax and Fairness - by Simon Johnson

Some things never change. Ten years ago, I was lobbying for a reduction in consumption tax rates for pubs and restaurants, on grounds of fairness, compared to supermarkets. After the publication of JD Wetherspoon’s Half Year Results, the same issue is back in the news. Headlines from last week like “Tim Martin blasts disparity in tax treatment of pubs and supermarkets” revealed that the Wetherspoons boss is determined to keep the issue of fairness in taxes on pubs in the news spotlight. In this Article, I examine the issue and question why it is still not resolved after over 15 years of lobbying.

Wetherspoons is a leisure business leader

I will admit to being a fan of Wetherspoons as a business. They have doggedly pursued their business model of affordable, quality meals and drinks in well appointed and locally tailored premises. I admire the way that they have invested in their pubs, focussing on high street, locally interesting locations. In fact, there was a period over recent years, when JD Wetherspoon was one of the few national businesses investing substantial resources in town and city centres. In some of the otherwise neglected towns, especially in the North, Wetherspoons pubs were inspiring confidence in their localities.

Chairman Tim Martin’s political pronouncements in recent years have not been to everybody’s taste. This has tended to detract from the fact that he is one of the most passionate and articulate advocates for the Pub and Hospitality sector of the leisure business. His straight talking approach to complex issues of policy was very helpful to me when I was CEO of Business in Sport & Leisure (BISL) a decade ago.

Supermarkets are the “biggest threat to the UK hospitality sector”

Tim Martin was amongst the first to raise the issue of a lack of fairness on Value Added Tax, arguing that the “vast disparity” in tax treatment between pubs and supermarkets was allowing supermarkets to subsidise beer prices to the detriment of pubs and bars. For some time, this was an industry wide campaign. Now, Martin appears to suggest that he is becoming a lone voice. He returned to the argument last week in his trading statement. “Supermarkets are the biggest threat to the UK hospitality sector. Unless the industry campaigns strongly for equality, it will inevitably shrink relative to supermarkets, which will not help high streets, tourism, the economy overall, or the ancient institution of the pub”.  Strong stuff.

For the same meal, a pie and a pint, pubs pay up to 3 times as much consumption tax as supermarkets

At BISL, we were lobbying on this issue over 10 years ago. We were able to adduce evidence that pubs are taxed much more heavily when selling a meal with a drink than is a supermarket or convenience store.

• 20% VAT is charged on meals in pubs, whereas no VAT applies on the same product if purchased (packaged) in a supermarket.
• VAT and Duty contribution from a pint of lager consumed in a pub is significantly higher than in a supermarket for the same product.

We argued that, in addition to this disparity and lack of fairness, consumption of a pint of lager in a pub presents fewer risks, as it takes place on-site, in a highly regulated, community environment. In comparison, consumption of alcohol purchased at a supermarket or convenience store takes place off-site.

It is self-evident that this disparity will have become worse over the pandemic. While pubs and bars were closed, then open, then closed again, supermarkets were able to gain significant market share. 

The pubs and bars have not been able to claw back this market share since the pandemic. They have been affected by transport strikes, by enforced closures, and the general cost of living crisis. With consumers increasingly being price conscious in their leisure choices and cutting back on some luxuries, this disparity in treatment of consumption taxes is increasingly acting to the detriment of pubs and hospitality businesses. Tim Martin is absolutely right.

The choices for Government

BISL asked the Government in 2013 to begin a longer term examination of a reduced VAT rate for meals at pubs and restaurants. We argued that the UK VAT rate on leisure services was amongst the highest in Europe. I am sure that is still the case. We argued that an equalisation of tax treatments would create new jobs and generate a net benefit for the economy.

We did not succeed in our arguments and it is clear that policy has not changed since then.

For some reason, the Government was reluctant to be persuaded of the benefits for the economy, and especially to the survival of high streets and city centres, of being seen to preserve a vibrant pub and hospitality sector and stopping the sector from being disadvantaged by the comparison with supermarkets. It is not for me to reason why.

But has the pub sector missed the boat with this argument? There was a period when it is absolutely the case that Pubs were amongst the few businesses investing in high streets and town centres. They were a key element of the Government’s stated plan to revitalise town and city centres. They were able to argue that pubs and bars were trying to remain competitive in high streets with one arm tied behind its back. This was a good argument to make in comparison to supermarkets which were increasingly expanding out of town and abandoning high streets.

But the pandemic, and corporate developments in the supermarket sector have changed the argument. Now, high streets increasingly feature not just a pub, a chemists, a betting shop, but also now, high street and town centre versions of Supermarkets like Tesco Extra and Sainsburys Local and convenience stores that have been subsumed into Supermarket groups. The Pub is no longer always the centre of a high street or town centre. with Working from Home a larger factor in the economy, other leisure businesses are moving in, and the investment by the supermarkets in our town centres is also economically important.

The Government has not been persuaded yet and one line of argument has weakened over the years.

The argument remains correct. The tax disparity is unfair to pubs.

Be that as it may, the argument remains correct. The consumption tax disparity on meals with drinks between pubs and supermarkets works massively to the detriment of pubs. It is an unintended consequence and it should be addressed.
It remains to be seen if Tim Martin’s voice continues to be a lone one or if the industry decides that this is an issue worth fighting for.