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

As Jeremy Hunt prepares to deliver what could be his final budget as Chancellor this week, Britain’s pub industry remains in tremendous peril.

Closures continue to blight the sector; about 3,000 pubs have shut in the past six years, including 509 in 2023, according to the British Beer & Pub Association.

The BBPA has said more pubs closed for good last year than in 2020 or 2021 when Covid-related curbs forced hospitality venues to temporarily shut up shop.

The end of pandemic curbs brought immense relief to the pub trade, yet many sites are fighting for survival owing to their own soaring costs squeezing margins and inflation dampening consumer spending power.

Tough times: As Jeremy Hunt (pictured) prepares to deliver what could be his final budget as Chancellor next week, Britain’s pub industry remains in tremendous peril

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

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

If Hunt fails to announce significant help for pubs on Wednesday, more communities across Britain will lose a vital institution, one that contributes to the local economy and is a social bedrock.

Pubs and brewers generate £26.2billion for the country’s economy and support around 960,000 jobs, whether it’s the farmers growing the barley and hops or the pub landlord running the village boozer.

They also help raise considerable amounts of tax, such as excise duty, VAT or corporation tax; the BBPA say £1 in every £3 spent in pubs goes to the exchequer.

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 to April 2025.

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

But many pubs want an upheaval of the business rates regime due to its complexity, volatility and tendency to favour online retailers over high street outlets.

Nick Mackenzie, chief executive of Greene King, believes revamping business rates would be ‘the best place to start’ for the government to ‘truly show’ it supports hospitality operators.

He told This is Money: ‘A system that did not disproportionately hit pubs with sky-high rates would go a long way to lowering the painful cost base all publicans are facing and would help companies like Greene King unlock further investment across the sector, helping to create jobs and boost the economy.’

His comments have been echoed by UKHospitality, which is calling for ‘root and branch reform’ alongside a 3 per cent cap on any business rate increases.

Reform: Greene King’s chief executive believes revamping business rates would be ‘the best place to start’ for the government to ‘truly show’ it supports hospitality operators 

The pressure group additionally wants a 12.5 per cent VAT rate for the hospitality industry, as it was between October 2021 and March 2022 before returning to the standard 20 per cent level.

Yet this would still leave pubs and other hospitality venues at a severe disadvantage to grocers because the latter pay no VAT on food and drink sales.

In protest at this disparity, founder Sir Tim Martin reduced prices on Wetherspoon’s food and drinks by 7.5 per cent for one day last September at his company’s 852 establishments.

‘It doesn’t make sense for the hospitality industry to subsidise supermarkets,’ said the New Zealand-born boss on announcing the one-time discount.

So far, the government has resisted calls to lower VAT rates, but in his last spring budget, Hunt expanded ‘draught relief’ on qualifying beer and cider products to 9.2 per cent.

Brewing and pub organisations, such as the Society of Independent Brewers and the Campaign for Real Ale, want this hiked further to 20 per cent.

More expensive: Analysis by Frontier Economics found the average price of a pint had risen by around 12 per cent in the year ending July because of brewers passing on extra costs to pubs

Susannah Streeter, the head of money and markets at Hargreaves Lansdown, says boosting draught relief would ‘be a welcome move’ that could be offset by lifting duty on beer bought in stores.

The recent boost in draught relief came as part of broader changes to the alcohol taxation system, with the number of main duty rates slashed from 15 to six and products taxed according to their strength.

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

However, while a slight cut in prices might attract some punters back to the pubs, they will likely still be paying way more for their pint – and any meal – than just a few years ago.

Skyrocketing oil and gas prices, partly caused by the Ukraine war, have pushed up food and drink production costs, especially for beermakers.

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

Though the UK’s household energy price cap has dropped considerably, Frontier said the pub industry still faces energy bills at double or triple their pre-crisis levels.

Two factors account for this: taxpayer support to help companies with steep energy bills was cut massively after the Energy Bills Relief Scheme was scrapped in April 2023.

That programme provided £18billion of financial assistance to businesses, whereas its successor, the Energy Bills Discount Scheme, will hand out just £5.5billion this financial year.

Challenging times: The co-founder of Beckford Group, which runs four pubs across Wiltshire and Somerset, warns that ‘trading is as tough as it could be in our particular sector’ 

Secondly, many hospitality operators struck long-term contracts tying them to pay significantly larger bills before wholesale energy prices started retreating to more normalised figures.

‘Sky-high energy bills, especially for those forced into exorbitant contracts, are disastrous for pubs and preventing many publicans from making a living,’ says Campaign For Pubs’ Mulholland.

He is urging that pubs on ‘unfair and unaffordable’ contracts be allowed to change them, alongside a much greater effort to lower energy prices for small enterprises.

Geopolitical developments across the Middle East or Eastern Europe may see energy costs quickly spike back up for millions of British households, making them more reluctant to visit a pub or spend much when they enjoy a night out.

Dan Brod, the co-founder of Beckford Group, which runs four pubs across Wiltshire and Somerset, admits fewer customers are coming through his company’s doors, even though he thinks more are coming for special occasions.

While Brod notes business is not doing too badly – ‘neutral at best or slightly down’ – he warns that ‘trading is as tough as it could be in our particular sector because probability has been wiped out.’

He also says the firm will struggle to raise prices when the National Living Wage increases next month – something he describes as ‘undoubtedly the biggest current challenge facing the entire hospitality industry.’

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

This follows three years of the sector hiking wages due to labour shortages caused primarily by many Europeans leaving Britain in the wake of Brexit and the Covid-19 pandemic.

Few hospitality roles are included in the Shortage Occupation List, which allows someone to gain a skilled worker visa whilst being paid 80 per cent of a job’s usual ‘going rate.’

Whether any will be admitted in the SOL’s upcoming replacement, the Immigration Salary List, remains uncertain given the government’s desperate desire to reduce net migration.

If restrictions are not loosened, as seems likely, pubs will continue having to hike wages to attract and retain new staff, further squeezing their already low margins.

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

In a statement, the sector groups said the ‘results clearly show the perilous state our pubs, restaurants, hotels and cafes find themselves in.’

Short of a huge alleviation in cost pressures and Jeremy Hunt introducing radical reforms on Wednesday, 2024 for the pub industry looks just as bleak as the last four years.

This post first appeared on Dailymail.co.uk