Gov’t needs to relieve tyranny of rising costs

Charity: every reader should be supporting our campaign to cut VAT to 5%

The past week has been dominated by the latest round in the on-going tenant and pubco debate. But there’s one issue that we can all agree on. Businesses have been hit by wave after wave of cost increases in the past decade. The increase in regulatory and tax burden, in particular, has got worse year after year.

Perhaps the clearest evidence of the pain this causes comes from the back pages of the most recent JD Wetherspoon results presentation. The company provides crystal clear information on its key financial and capital trends.

One slide tells the story loud and clear. It shows how much profit the average JD Wetherspoon pub makes each year before the cost of its headquarters are taken out.

In 2002, the average JD Wetherspoon pub took £21,019 a week excluding VAT (£1.093m a year) and produced profit of £3,988 a week (£207,400 a year).

This year, nine years later, the company had managed to boost weekly sales per week to £26,153 (£1.36m per annum), an increase of £5,134 per pub per week.

You’d expect its pubs would be making more profit, wouldn’t you?

The story is very different. Each pub is now making a profit of £3,821 per week (£198,700 per annum), which is £167 per week less than in 2002.

In other words, the company has had to add £5,134 per week to sales at each site (or £266,968 per pub per annum) to ensure its profits per pub can be broadly maintained.

And this is a pub company that has added 215 outlets to its estate since 2002, so will have been able to apply more pressure on its suppliers to offer better discounts.

We also know that JD Wetherspoon has not been handing over wodges of extra cash to its landlords at the 56% of the estate that’s leased; it’s been demanding flat-lining rents for the first years of a lease and offering a back-loaded 5% jump at year five.

The past two years have been the most painful in the decade with cost increases wiping £14,000 off each site’s profits.

Analysts claim that last year the company had no choice but to shore up its margins by passing on the duty increases and other costs coming through, which will have eroded it value position in the market. Price increases were around the 8% to 9% mark.

Founder Tim Martin went one step further than ever before at the start of this month in claiming that the Government’s current tax regime is “unsustainable” for the pub sector.

Few licensees will shed any tears for JD Wetherspoon’s plight. But the point here is that if Wetherspoon, with its scale, is feeling this kind of pressure, tens of thousands of licensees will be feeling it even more acutely.

It’s why each and every one of our readers should be supporting our campaign to get the Government to reduce VAT on hospitality services to 5%.

It’s a vital move to boost our sector, allowing job creation and investment (and survival in some cases).