Report calls on Gov't to cut tax and red tape to stop pub closures

By Mike Berry

- Last updated on GMT

Related tags: Alcohol duty, Public house, Beer, Smoking ban

The IEA report says the Government must act to prevent further pub closures
The IEA report says the Government must act to prevent further pub closures
A new report by the Institute of Economic Affairs has called on the Government to reduce VAT, halve alcohol duty, amend the smoking ban and scrap cumulative impact zones in order to help stop pubs closing.

The report Closing Time – Who’s killing the British pub?​ claims that taxation, regulation and declining real wages as a result of the recession have been responsible for the closure of more than 6,000 pubs in the past eight years.

Author Christopher Snowden argues that the blame attached to pubcos for closures has been greatly overstated. As a percentage of total pub stock, net closures represent 16.5% in the pubco sector, and 14.6% in the independent sector.

Put simply – the report states - pubco pubs have been closing at almost exactly the same rate as independents.

'Inappropriate'

“The case against pubcos can only be maintained by portraying transfers from the non-managed to independent sector as closures, but this is clearly inappropriate. The All-Party Parliamentary Save the Pub Group, amongst others, has been guilty of misrepresenting transfers as closures in an effort to support their claim that the ‘the non-managed (largely leased/tenanted) sector has seen many more net closures than those of independent freehouses’ and that ‘pubco pubs are being sold off for alternative use and bulldozed in their thousands’.

“The mere fact that pubcos have sold large numbers of pubs to the independent pub sector does not mean that the ‘tied pub model is a major contributing factor to an increased rate of pub closures,” the report states.

Damaged

The report says the past seven years have been characterised by a flurry of policies which have “severely damaged” the pub industry.

The rise in alcohol duty and introduction of a duty escalator, combined with the increase in VAT to 20% and falling real wages during the recession, have resulted in drinking out becoming much less affordable.

Snowden puts forward a number of solutions:

  • Halve alcohol duty. British drinkers pay 40% of EU’s entire alcohol duty bill; the Government should halve alcohol duty to bring it in line with the European average, which would reduce both the cost of living and alcohol fraud
  • Reduce VAT from 20% to 15% and introduce a lower rate of VAT for food sold in pubs and restaurants, as happens in many European countries
  • Relax the smoking ban. The UK has one of most uncompromising smoking bans in the world. There is clearly a market for venues that allow smoking in one or more ventilated rooms.
  • Abolish cumulative impact zones, which currently prohibit new pubs from opening in areas of high demand.

Regressive

“British pubs may be suffering from long-term cultural shifts, but government policies have hugely exacerbated this trend. Taxation and regulation have been the leading causes of the decimation of the UK pub industry since 2006. The level of alcohol duty in the UK is hugely regressive, hitting the poorest the hardest,” Snowden said.

“Taxes must be lowered, and one-size-fits-all policies like the current smoking ban must be reconsidered if we are to temper the rate of decline of the British pub.”

In response Greg Mulholland MP, chair of the Parliamentary Save the Pub Group, said:

“Of course the All Party Parliamentary Save Group know that there have been challenges and has campaigned for lower beer duty, VAT and are also calling for lower business rates for genuine community pubs (which the IEA report seems to oppose).

“The Save the Pub Group are all for sensible changes to reduce regulatory burdens on business and have fairer taxation for pubs, but it is extraordinary that this someone who claims to believe in market economics is defending the very instrument responsible for restricting licensees with the hugely burdensome terms of the pubco tie. For Mr Snowdon to defend this anti-competitive model and the closed shop it has created, is just bizarre. 

“This is another desperate last gasp in the death throes of one of the most anti-competitive and anti-free market business models in modern UK history and if this is the best the anti-reform brigade can do with this flawed unsubstantiated nonsense, then the many credible organisations backing reform have little to worry about."  

BBPA response

BBPA chief executive Brigid Simmonds said: “This report is a welcome burst of new and balanced analysis into the debate, by a leading independent think-tank.

“It clearly concludes that the tie is not the cause of the economic difficulties in the sector, and that wider economic forces, coupled with high taxation and overregulation during very challenging times for the industry, are really to blame.

“The IEA has also concluded that claims from some, that tied pubs have been closing at a faster rate than non-tied pubs, are a misrepresentation of the reality.

“I hope the report serves to galvanise the industry and Parliamentarians into focusing on the key policy issues that need tackling, not least the still huge rates of beer duty in Britain.”

Download the full report below:

Briefing_Closing time

Briefing_Closing time.pdf 2.32 MB

Related topics: Legislation, Other operators

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Peace and goodwill

Posted by david,

IO, you seem to be distinctly uncomfortable with the absolute pub numbers being quoted without you adding an addendum. You insist on qualifying the figures with "The change in absolute pub numbers is meaningless unless we know how many leased pubs were sold as pubs (and continued to trade as pubs)".

I can only assume you fear the changes in absolute pub numbers give an exaggerated picture of pub closures in the tied sector. But you must concede (as my earlier scenario illustrates) that there are ways in which tied sector closures can be transposed into the free-trade figures.

If the absolute figures need any qualification at all in the context of closures, I'm sure you wouldn't want your addendum to have any bias, so surely both plus and minus possibilities should be mentioned.

In a spirit of seasonal harmony, I would be happy to agree to the following wording:
"The change in absolute pub numbers is not a reliable indicator of pub closure numbers. There are factors that could cause closure numbers in all sectors to be greater or less than what might be inferred from changes in absolute numbers".

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Postscript

Posted by Interested Observer,

APSR: I've just noticed that I didn't answer your question, and not being a question ducker - I played no part in the IEA paper.

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Logic is logic.

Posted by Interested Observer,

david: Your "logic" has the flaw that it "suggests" that something "could be".

Logic is logic; either something follows logically or it doesn't.

Your persistent refusal to accept a simple statement of fact effectively ends my participation in this.

APSR: No apology then.

I take it that you mean this:

http://pubaliciouspubs.wordpress.com/2013/11/21/pub-closures-the-truth/

which (although rather rambling) seems to just repeat the absolute numbers basis for pub closures.

We've come in a full circle.

What I originally posted was "Whatever else he's absolutely right about closure numbers. Unless one knows how many leased pubs were sold as pubs, the number of closures can't be calculated."

It seems that you agree.

I've no comment to make on the rest of it, other than that GM seems to be in accord with some of the author's thoughts on VAT, duty and regulatory burdens, so it can't be all bad.

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