Pubs at risk of closure without VAT reduction

The rising cost of draught beer is one of the major factors contributing to the struggles of pubs. According to data from the Office for National Statistics (ONS), draught beer prices soared by 11.9% in the year to March 2023, more than double the previous record-high yearly increase. The cost of a pint of draught lager rose by 48p, from £4.02 in March. This puts a significant financial strain on pubs, which rely heavily on beer sales for their revenue.

In response to the crisis, pub owners are calling on the government to reduce VAT. The VAT cut, which was introduced in 2020 to help the hospitality industry during the pandemic, was due to end in March 2021 but has been extended several times. The Chancellor, Rishi Sunak, has recently announced that the VAT cut will be extended for the hospitality and tourism sectors until the end of September 2023. However, many pub owners believe that a permanent reduction in VAT is necessary to ensure the survival of the industry.

Current State of Pubs

Pubs in the UK have been struggling to survive due to several factors, including rising costs, competition from supermarkets, and the impact of COVID-19. According to a snap poll conducted by The Morning Advertiser, more than two-fifths of operators stated that a VAT reduction would help the sector avoid further closures.

Impact of COVID-19 on Pubs

The COVID-19 pandemic has had a significant impact on the pub industry. During the pandemic, pubs were closed outright, and the state intervened with emergency funds. However, as restrictions have eased, many pubs have struggled to recover.

According to a report by The Guardian, more than 70% of pubs do not expect to survive the winter due to soaring energy costs. Brewers and pub operators have asked the government to step in to prevent further damage, with reductions in VAT and business rates, caps on energy prices for small businesses, and grants for.

Furthermore, the pandemic has changed consumer behaviour, with many people choosing to drink at home rather than going out to pubs. This has led to increased competition from supermarkets, which can offer lower prices due to lower overheads.

Overall, the pub industry is facing significant challenges, and many operators are calling for government intervention to help them survive.

The VAT Issue

VAT Rates for Pubs vs Other Hospitality Businesses

Pubs in the UK are subject to a 20% VAT rate on all food and drink sales, which is the same rate as other hospitality businesses such as restaurants, cafes, and hotels. However, unlike these businesses, pubs do not benefit from a reduced VAT rate for accommodation and attractions. In 2020, the UK government introduced a six-month cut in VAT from 20% to 5% for food and drink sold in pubs and restaurants, which was later extended until September 2021. However, the VAT rate will increase to 12.5% after that, which is still below the normal rate of 20%.

Effects of High VAT on Pubs

More than two fifths of pub operators stated that a VAT reduction would help the sector avoid further closures. A snap poll conducted by The Morning Advertiser revealed that of the 143 respondents, 44% would find a reduction to VAT most beneficial for their pub. The high VAT rate has been cited as a major factor in the closure of many pubs in recent years. According to a report by the Cut Tourism VAT Campaign, a reduction in VAT to 5% for accommodation and attractions would create 120,000 jobs and add £4.6bn to the UK economy over 10 years. Pubs are also facing rising costs due to the COVID-19 pandemic, including increased cleaning and safety measures, reduced capacity, and a decrease in footfall. A reduction in VAT would provide much-needed relief for struggling pubs and help them to stay afloat during these challenging times.

Rising costs

As rising costs continue to put pressure on the hospitality industry, pubs are looking to the government for support through legislation. The British Beer and Pub Association (BBPA) has called for a range of measures to be introduced to help pubs survive in the face of these challenges.

One of the key areas of concern for pubs is the rising cost of energy, which has been a significant burden on businesses in the sector. The BBPA has called for measures to be introduced to reduce the cost of energy for businesses, including the introduction of a cap on energy prices.

Another area of concern for pubs is the cost of business rates, which can be a significant burden on smaller businesses in particular. The BBPA has called for a reduction in business rates for pubs, as well as the introduction of a relief scheme to help businesses cope with the costs of rate increases.

The BBPA has also called for measures to be introduced to support pubs in recruiting and retaining staff, including the introduction of a training and development programme for pub staff.

The calls for government support come as the hospitality industry continues to face significant challenges, with rising costs and a shortage of staff putting pressure on businesses across the sector. It is clear that urgent action is needed to support pubs and other businesses in the sector, and the government must take action to ensure their survival and continued success.