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It now seems to be official — Chancellor Alistair Darling wants to kill off the pub trade.
Yesterday's news that Darling had agreed to cut his duty rise on spirits and alcopops to 4% but keep the full 8% rise on beer was another savage blow for the pub trade (Darling drops spirits duty but bashes beer).
The Pre-Budget Report has given assistance to every other small business with a 13-month 2.5% cut in VAT, except for the pub trade.
Beer has been singled out with an 8% permanent duty rise from Monday to off-set the VAT cut, meaning duty has risen a staggering 17% this year alone.
Worse is to follow with Darling sticking by his intention to raise duty 2% above inflation for the next four years in line with his duty escalator.
• Download an Alistair Darling poster to pin on your dartboard here, while below we answer some helpful questions.
What are the implications for the trade?
Licensees and pub operators are digesting the full impact of the Chancellor's budget bombshell, which will see excise duty rates increase by another 8% to make up for the temporary cut in VAT.
At the same time it appears the 2.5% VAT reduction may have little, or no impact, on the average menu price.
Below the MA outlines what the changes mean for the pub trade.
Q: What effect will the VAT reduction have on alcohol prices?
A: The VAT reduction means about 5p off the price of a
£2.80 pint and 14p off a £7 bottle of wine. But the Chancellor has imposed a separate 8% excise duty increase on alcohol to offset the 2.5% VAT cut.
Q:How will pub prices be affected?
A: The Treasury says pubs, which charge higher drinks prices than supermarkets, could see average prices fall slightly as they pay more VAT.
Q. How will licensees react?
A: Many will be busy doing their sums this week. Higher margin pubs will have more room to manoeuvre than smaller businesses as the VAT saving will be more than the duty rise. But Federation of Licensed Victuallers Association chief executive Tony Payne believes Monday's announcement will mean little, if any, move on average bar prices.
Q: What is the longer term scenario for beer and alcohol prices?
A: Gloomy. The Treasury says the latest duty increase will remain intact even when VAT returns to 17.5% in 13 months' time. With a succession of annual duty rises of 2% over inflation pending, prices will remain on an upward spiral. By next spring's Budget, alcohol prices will have soared 17% in 12 months.
Q: Will soft drinks and packaged snack prices be affected by the VAT cut?
A: Technically yes, although licensees and retailers may judge the cut to be so small reducing prices over the bar would not be worth the trouble. It could work out about 1p or even less on a packet of nuts.
Q: How will food retailers cope with the VAT reduction?
A: It is presently unclear how operators and licensees will react. Trade accountant David Jones predicts relatively few may actually reduce menu prices.
Q: Why?
A: Jones says the reduction works out roughly at 2p for every £1 and reckons many operators will conclude making changes is not worth the hassle. A £5 menu dish would be reduced by only 10p to £4.90. Retailers may well take the view that the cost of reprinting menus and working in the price change is simply not worth it. Most pubs have now got Christmas menus printed and may well feel the changes have come at the worst possible time anyway. They will have to take care how they word VAT charges on the bottom of their menus.
Q: Will customers be expecting a price reduction on food and other non-alcoholic goods?
A: Possibly, but it's a tiny reduction. Many may not argue over £1 on a £50 food bill.
Q: Will retailers pocket the 2.5% VAT reduction for themselves?
A: Some may, but others could use the cash for customer offers and incentives in other areas. "You are taking about miniscule figures in the main, which will have little effect on customers' pockets and save retailers only a small amount. Basically it's tinkering with figures. We are on the point of entering the Christmas trading period and many licensees may feel it's too late to change for relatively little impact," says Jones.
Q: Will every retailer take the same view?
A: For the majority of pubs that only sell one mainstream product likely to be affected by a VAT cut, ie food, probably yes. For others that have multiple income streams such as letting-room accommodation and supplementary operations it may be a case of calculating the overall effect on the business.
