Tim Martin: Why Andrew Griffiths MP is wrong about the VAT campaign

By Tim Martin

- Last updated on GMT

Wetherspoons Tim Martin VAT campaign

Related tags: Alcoholic beverage

The VAT cut campaign may not have penetrated the Westminster bubble but, as Wetherspoon's chairman Tim Martin argues, it is unsustainable to have one tax rate for supermarkets and a much higher one for pubs.

Andrew Griffiths MP, chair of the All-Party Parliamentary Beer Group, stated that Jacques Borel's campaign for tax parity between supermarkets and pubs had as much chance of success as "Crystal Palace have of lifting the Champion's League".

The blithe and superior tone of the criticism is alarming from a supposed supporter of pubs, but the really alarming feature is the complete lack of understanding of the economic case for tax parity - especially from an MP representing the brewing heartland of Burton-on-Trent.

Mr Griffiths refers to the "success" of the campaign to abolish the duty escalator. Fair comment, but perspective is needed. Beer duty has increased by about 40% in the last few years and Britons pay 40% of EEC excise duty with only 20% or so of the population so, although welcome, this is not a Battle-of-Britain-style victory for pubs.

Any plans to increase the prosperity and competitiveness of the industry you tell us you love, Mr Griffiths, by matching France and Germany? How would the car or farming industries fare if they suffered similar tax disparities?

The main point, not addressed by Mr Griffiths at all, is that supermarkets pay next to no VAT on food whereas pubs pay 20%. This effectively allows supermarkets to subsidise their alcoholic drink sales - as they have done - creating a huge gap between pub and supermarket beer prices, draining pubs of their life-blood.

No one, including Mr Griffiths, has argued that this VAT disparity is fair, and every sensible commentator is aware of the huge, and often insurmountable, difficulties this gap causes for pubs, as is evident from catastrophic and continuing numbers of pub closures.

As regards Jacques Borel's VAT Club proposal that VAT on drinks in pubs should also be reduced to 5%, our case is simple: since a pint in a pub costs three or four times the price of a pint in a supermarket, the cash VAT per pint levied by the government would be similar in supermarkets and pubs if VAT were reduced as we suggest.

Mr Griffiths states that the proposed VAT reduction for drinks would fall foul of the health lobby, but why? The cost of a pub pint will remain more in pubs than in the off-trade and the consumption is supervised, a point which has been repeatedly acknowledged by health campaigners.

The most disturbing aspect of Mr Griffiths's article is the almost complete lack of comprehension of the financial consequences of the proposed VAT reduction. In response to the VAT Club arguments that demonstrate that 5% rates will create jobs, he asserts that other industries make "equally ferocious claims".

Well, maybe they do, but you cannot dispute the fact that pubs pay about 30% of the cost of a pint as wages (check out JDW's accounts), whereas supermarkets pay only about 10% (check out Sainsbury's), and you don't need to be the sharpest tool in the box to understand why - pubs employ staff to bring in the deliveries, serve the beer and wash the glasses, for example, but supermarkets don't.

Vicious circle
An interesting and common-sense observation is that there are more pub closures and empty shops in less affluent areas of the country. Walk down high streets in the affluent south and you will find a plethora of coffee shops, restaurants and even pubs, with correspondingly few vacant retail premises.

However in the midlands and the north, for example, where income levels are lower, there are far fewer " hospitality" businesses, since customers can't afford the price difference created by the VAT disparity. So these areas create less jobs and also less tax revenue in an economic vicious circle. Maybe Mr Griffiths' Burton and Uttoxeter constituency is the Notting Hill of the midlands, with restauranteurs and baristas falling over themselves to snap up empty shops, but this job and tax-creating scenario seems very unlikely.

Jacques Borel's VAT Club, supported by diverse companies such as Pizza Hut, Heineken, Young's and the family brewers, has clearly demonstrated that VAT parity with supermarkets will create a large number of jobs and extra taxes for the government and the country. Publicans and the public instinctively understand the merits and logic of the arguments.

However, the message has not yet quite penetrated the Westminster bubble, but it will do so one day. It is unsustainable to have one tax rate for supermarkets and a much higher one for pubs, and that irrefutable logic will, sooner or later, have to be accepted by our political masters.

A key question for the forthcoming election will be: which political party will be the fast learners in this slightly esoteric, but vital, area of economics?

Related topics: Legislation

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