28/10/2021
A Budget of smoke & mirrors? Who will really pay?
I find it difficult to witness the Chancellor & the PM raising a glass to the Autumn 2021 Budget giving not only the impression, but actually stating that this is a great budget for pubs, when its clearly NOT the case.
On the plus side there is extended Business Rate Relief of 50% that will be given for the year 2022/23, but it is only a year and the Business Rates system for pubs has long been criticised for being calculated in a unfavourabale way compared to the calculations used for other retail businesses.
It was good news too that the previously planned increases in Duty on spirits, wines ciders & beers were cancelled and did not take effect from mid-night last night.
The readjustment of alcohol duty rates and simplification for the number of categories will be most welcomed by brewers, cider makers, wine producers and the like, and the massive "Draught Relief" of a 5% duty cut in beer, if it is actually 5% off the duty, will in real terms reduce the price of a pint by 3p varied only by the ABV of the beer.
This reduction however, does not come into effect until 2023, at least 1 1/2 years from now, and does not apply to beers supplied in containers of less than 40 litres, which will be of no benefit to a great many craft & artisan brewers who favour 20 & 30 litre containers, due the nature of the brews and the need for thier market place to see regularly changing beers available. Interestingly enough some of the biggest & mainstream brewers in the UK supply their craft beers in 30 Litre kegs, but watch out, that will change to 50 litre tubs before the new duty rates take effect. If it means more waste it will be the Pub that takes the hit.
By the time a 3p per pint reduction is finally ready to filter down the system it will have been more than eroded by at least two brewery increases, historically around 4.5p per pint in recent years, they will no doubt have thier own inflationary impacts to disperse via thier product prices too. There will be no benefit to the pub outlet at all, but that wont stop customers asking about the price reduction over the bar - it's amazing just how much people have to say on the subject especially after a few pints!
It is great news that low paid workers are being further addressed with increases in the Minimum and National Living Wage, but many pubs have been paying above these rates for some time in order to attempt to retain staff and especially the good ones. This is an industry that comes with anti-social hours, and has needed to pay above base rates to be staffed. But now these rates will go up further and pay gaps will need to be maintained for all staff. This increase will average out at 7.5% and must be paid for in the retail price of a pubs products; beer wine, minerals & food.
The wage increases are due in April 2022, just at the same time as the current VAT rate on Food and Minerals will rise from 12.5% to 20% a 6.25% increase in retail prices for these items.
On top of this, those in catering will be well aware of sharply rising food prices, massive price hikes in utilities and cellar gases, and of course as all of your service providers feel the effects of inflation, it would not be unreasonable to expect that they will all increase their costs to the pub trade.
Despite the way this has been dressed up by Rishi & Co, it is clear that prices across the bar can only go one way, and thats UP!
Firstly pubs MUST protect thier margins, they are fragile enough after 18 months of pandemic related closures, and address the increases as they affect your businesses starting with the inflationary increases being felt right now. And again, when the brewery or Pub Owning Business increase thier prices to thier tierd tenants, which they will base on thier own inflationary costs citing higher fuel and distribution costs. Retail prices will need to be addressed again early next year as the new wage levels and effects of VAT changes come into force. Faliure to do so will be devastating for some businesses and there will be casualties.
The Chancellor said yesterday that the period ahead "will be challenging", and that the government cannot be expected to pay using tax-payers money, quite rightly so, but someone has to pay.
Of course, the consumer will pay, but how much will they pay, how much will our pubs ask them for, and will these increases change consumer habits? If everyones pockets are being squeezed in an inflationary driven ecconomy then of course they will, and this will further impact the turnover and profitability of our pubs.
Our tied leased and tenanted pubs are paying rents that have been calculated pre-pandemic and of late pre-inflation. These rent models determined by RICS Surveyors working for the Pub Owning Companies are calculated using estimated (mostly optimistic) turnover figures, profit margins suggested by the POB's own surveyor, and overheads that were already overly optimistic prior to the pandemic and the calculation of these figures combined determines the rent payable.
Surely, it is now time that these Rent Models were reviewed and revised downwards to take account of the forseeable economic factors that our industry will face. The cost of the current economy and budget cannot be borne by the tied tenant alone, just as indeed the government cannot carry this cost at the tax-payers expense.
Corporate business, in our case, the Pub Owning Businesses, Brewers & Pubcos must contribute to the costs of maintianing our industry. This can be done by revising the rents and by elimiating the grossly unfair system of the Beer Tie, which sees tenants pay vastly inflated and uncompetitve prices for their tied products. If it means less profitability for them well so be it, it is the times we are in and everyone must share the burden, and that means the beneficiary of their shareholders too.
Do not be fooled by thinking that this is a budget for pubs it clearly was not. But what is clear is that the government has just got even more cosy with our brewers and pub owning landlords, and will stand back and watch as they throw hardworking individuals, families and couples under the bus as thier hard earned savings and resources finally run out, only to be replaced by others who will be tempted by the "roses round the door" and will deliver thier hard earned redundancy & retirement packages to the pub owning businesses, and so the viscious cirlce starts again.
Take care out there!
