Enterprise claims increased taxation is biggest threat to tenant profitability

06-Dec-2012 - Last updated on 06-Dec-2012 at 08:22 GMT

Tuppen: "Our business has been seriously damaged by the ill-informed and self-interested nonsense spouted by a handful of campaigners"

Enterprise Inns caused much derision and some cynical comments on the PMA’s online forum when it announced last month that the average Enterprise licensee achieves a profit of £45,000 a year (including a £10,000 estimate of the value of accommodation), while Enterprise gains an income of £67,000 and the Treasury takes a whopping £145,000.

Negative comments (among those that are printable) included: “I really honestly want to meet the Enterprise tenants who are earning £45,000 per pub; in fact I want one of those deals” and: “This is fantasy land for me and the other landlords I hear from.”

For the sake of balance, it is important to note that there were some words of support, including the following: “My experience tells me that the publicans who are making these figures are busy running their pubs and not wasting their time moaning on online forums.”

Suffice to say there was plenty of interest in the story. So the PMA challenged Enterprise to provide more details on its calculations, and also to examine how the share of income has changed over the past four years.

Enterprise CEO Ted Tuppen put his team on the case. He said: “We have reviewed the income patterns for publicans, for Enterprise and for the government. The analysis highlights some interesting trends.”

Again (and here comes the caveat) the figures are Enterprise’s own. But for the purposes of this exercise, the trends are at least as important as the absolutes.

Average turnover per pub has increased from £333,000 in 2008 to £360,000 in 2012, in part due to capital investment across the estate of c.£60m a year and in part due to the disposals of unsustainable pubs.

But despite this 8% increase in sales, Enterprise estimates that average licensee income has fallen by 4% from £47,000 to £45,000; it says its own average income per pub has fallen by 12% from £76,000 to £67,000; and the government’s tax take (including VAT, duty, business rates, employment and company taxes) has grown by 19% from £122,000 to £145,000. VAT and duty alone are up 23% from £87,000 to £107,000 — to a figure nearly 2.4 times the licensee’s income and 1.6 times more than Enterprise’s income.

As illustrated by the pie charts (below), tax has increased as a proportion of the (three-way) divisible balance from 49.8% to 56.4%. This has squeezed both the tenant share (from 19.2% to 17.5%) and Enterprise’s share (from 31.0% to 26.1%).

Above-inflation increases in operational overhead,

including utility costs, have also hit profitability.

To shield its licensees from such financial challenges, Enterprise claims it has made significant transfers of value from itself to its publicans, though this has not been enough to mitigate the full impact of cost and tax rises.

Tuppen hits out at ‘hearsay’ and ‘innuendo’

“It may surprise you, but I don’t have a huge problem with the increasing amount of tax taken by the Treasury," said Enterprise CEO Ted Tuppen. "The pub industry, like everyone else, has to make financial sacrifices to help the Government balance the books and keep inflation and interest rates under control.

“Enterprise is a responsible UK-based tax paying co

mpany an

d we have done our best to keep our pubs and our business afloat through a very difficult time for the pub trade. Of course we have made mistakes and there will be some publicans who have genuine grievances that we will do our best to resolve.

"Overall, however, the entire team has worked hard and with integrity and, in the past year alone, we have contributed £54m in profit transfer, equivalent to around £9,000 per pub, towards keeping our pubs in business. As a result, the vast majority of our pubs and publicans continue to be successful in this challenging market.

“This significant value transfer is evident to anyone with a calculator, yet represents an inconvenient truth for the anti-pubco campaigners. I am particularly disappointed by the unprofessionalism and the lack of genuine analytical rigour, applied by those who seek to blame us for all of the ills facing the sector.

"Trial by hearsay and innuendo has no place in an advanced economy and yet our business has been seriously damaged by the ill-informed and self-interested nonsense spouted by a handful of campaigners, which is often adopted as fact by parties who should know better. Those able to influence have an even greater responsibility to investigate the facts and act with balance and fairness.

“Pubs are the home of responsible drinking, a much safer environment than a park bench and a bottle of cheap supermarket vodka. And they are at the heart of communities across the country. The leased and tenanted sector will continue to play a critical role, providing entrepreneurial publicans with a low cost of entry opportunity to run their own pub business.

“The Government needs our great industry to be successful and should be actively looking for ways to support us.”