UK pub rates cut fails to ease wider tax burden
Prime Minister Andy Burnham’s £100m business rates cut for pubs has been dismissed by operators as marginal relief that fails to address a punishing VAT and labour cost structure.
Andy Burnham has announced a 20% reduction in business rates for pubs, clubs and live music venues, costing the Treasury £100m as part of a wider high street support agenda. Despite being one of the new prime minister’s first economic interventions, the measure has drawn a lukewarm response from the hospitality sector.
At the Red Lion in Derbyshire, owner Dan Smith charges £20.50 for a steak and ale pie with chips and a pint of Bass, yielding a profit of just £2.97. Of that bill, £6.48 covers ingredients and £3.88 goes to staff. Business rates account for only 16p, dwarfed by VAT at £3.42. Smith notes that successive policy tweaks and a nationwide property revaluation have made the system unnecessarily complex. “They’ve made it 10 times more complicated than it needed to be,” he says. “I’m not going to knock it, it’s showing willing from Mr Burnham. But it’s a small snippet.”
The marginal impact of rates becomes clearer at scale. Data from consultancy Packed House shows that for a typical hospitality business generating £1m in turnover, post-tax profit stands at just £13,500. Purchases cost £275,333, labour runs to £333,000, and other operating expenses reach £203,333. Business rates account for £5,000 of the total, meaning the new 20% discount translates to an annual saving of roughly £1,000.
That £1,000 saving is easily consumed by rising labour costs, including recent increases to the national minimum wage and employer national insurance contributions. Instead of rates relief, the sector heavily favours a reduction in VAT. Slashing the hospitality VAT rate from 20% to 10% would cost the Treasury an estimated £10bn, a policy Burnham backed during his tenure as mayor of Manchester.
For now, the £100m rates giveaway is unlikely to halt the structural decline of the British high street, where pubs are closing at a rate of roughly one per day. “The speed of this policy decision is a positive sign, but the benefit is a fart in the wind compared to what is needed,” says Colm O’Leary, director at Packed House.
