Beer tax has caused pubs to lose half of their sales to supermarkets, according to the head of Wetherspoons

Pubs Struggle as Tax Burden Drives Customers to Supermarkets

According to JD Wetherspoon’s founder and chairman, Sir Tim Martin, the pub industry is under severe strain as excessive taxation has made pints in pubs much more expensive than those bought in supermarkets. He warned that further tax increases could be the final blow for many establishments.

The Chancellor is currently working on a relief plan for pubs, following a campaign to protect the sector from damaging taxes and regulatory pressures. Many pub owners have criticized recent changes to business rates introduced by Rachel Reeves, arguing that these, combined with rising energy bills and increased staffing costs due to higher National Insurance and minimum wage hikes, are pushing them to the edge.

Additionally, pubs are preparing for the impact of Labour’s proposal to lower the legal drink-driving limit, which could further reduce patronage.

Sir Tim Martin highlighted that since 2000, pubs have lost half of their beer sales to supermarkets. He attributes this to the tax advantages supermarkets enjoy, allowing them to undercut pub prices. He emphasized the need for a fairer business rates system, but stressed that equalizing VAT is even more crucial.

Currently, pubs must pay 20% VAT on food sales, while supermarkets are exempt. Critics argue this enables supermarkets to keep their prices low, contributing to the dramatic decline in pub beer sales over the past two decades, as reported by Morgan Stanley.

Price Disparity Widens

Official figures show that the average price of a can of lager in supermarkets has risen by 15% to 77p since 2018. In contrast, the cost of a pint in a pub has soared by 33% to £4.83 over the same period. This growing price gap is encouraging more people to drink at home rather than visit pubs.

Research from the Institute of Alcohol Studies (IAS) and the University of Sheffield found that alcohol sales from shops increased by about 24% during the pandemic and have stayed high, while pub and bar sales have not recovered. The IAS reports that the affordability gap between shop-bought alcohol and pub pints has widened significantly over the past twenty years, as higher costs are passed on to customers.

Supermarkets’ Competitive Edge

Katherine Severi from the IAS explained that pubs face higher costs due to greater staffing needs, larger energy bills, and heavier business rates, which allows supermarkets to use cheap alcohol as a loss leader. She noted that pub owners consistently identify low supermarket alcohol prices as the biggest threat to their businesses.

Severi also pointed out that the shift to home drinking is linked to increased rates of chronic alcohol-related health problems, such as liver disease, cancer, and heart disease. She emphasized that supporting pubs is important not only for cultural reasons but also for public health.

Calls for Government Action

Industry representatives and Members of Parliament insist that any rescue plan for pubs must address the VAT imbalance. Daisy Cooper, deputy leader of the Liberal Democrats, described pubs as central to local communities but warned they are facing extinction. She urged the Chancellor to heed calls for a significant reduction in business rates and an emergency VAT cut for the hospitality sector.

Pubs are also calling for a reduction in employer National Insurance contributions and a freeze on beer duty to help ease the financial burden on both businesses and customers.

Government Response

A spokesperson for the Prime Minister stated that the government recognizes the vital role pubs play in communities and is committed to supporting them. Most businesses, they said, will benefit from £4.3 billion in support over the next three years, with increases capped at 15% and £800 for the smallest venues.

The Treasury has been asked to comment on the situation.