Thursday, 9 June 2011

Giving it five

It has been suggested that a lower VAT rate of 5% should be introduced for sales of food and drink in pubs and restaurants to give a boost to the “hospitality trade”. Apparently an experiment along these lines has already proved successful in France. It is certainly true that, if you wanted to improve the relative position of the on-trade, cutting VAT is a much better way of doing it than cutting alcohol duty, as VAT applies to the total sale price, not just the cost of supplies brought in.

However, I have to say that on principle I can’t really support this, as I don’t believe government should be giving out special tax treatment simply on the grounds that it’s for “something we like”. It is not the role of government to make value judgments between different types of business. Anyone remember Selective Employment Tax? If a business sector is in overall decline, then all a tax break is likely to do is postpone the evil day. (The argument for tax concessions for small and start-up businesses is an entirely different one).

And surely the biggest beneficiaries of such a move would not be community pubs and real ale, but McDonalds and Stella. Are cafés and restaurants doing so badly at present that they are in need of a shot in the arm anyway?

Given the current anti-drink climate in government, does anyone seriously think there is a cat in hell’s chance of a lower VAT rate being introduced for on-trade alcoholic drinks? On the other hand, if the reduction only applied to food and soft drinks, then that would effectively give restaurants and cafés a boost at the expense of pubs as a higher proportion of their turnover would benefit.

Not to mention, of course, the dire state of the public finances overall which means that any kind of cut in VAT in the next few years is simply not going to happen. At times a reality check is needed as to what changes in government policy are actually remotely achievable.


  1. The government should never have interfered in the first place. Private business should have been heavily taxed in the 1st place to provide for public jobs and stupid f**** quangos.

    The public finances should never have been allowed to funded on a credit card policy in the first place. Nor should they have been allowed to create public positions willy nilly including overpaid secretarial posts for their family members ...

    And if reducing any tax causes an increase of money into the economy from tourism or any other sector it should be welcomed with open arms ..

    Look at Tata Steel .. it's ready to jump ship because of the complex draconian systemn we have ..

  2. "Private business should have been heavily taxed in the 1st place to provide for public jobs and stupid f**** quangos."

    I assume there is a missing "not" there, Maverick, otherwise this sentence is at odds with the rest of your comment, although I'm not persuaded that all public sector jobs are a waste of money. Doctors? Teachers? Driving examiners? Coastguards? Police?

    However, back on topic, I actually believe the tax idea is a good one, not just for pubs, but because it would help the tourist economy. I've often read that some visitors from abroad comment how expensive everything is in Britain. Perhaps we British have just become used to paying through the nose.

  3. Perhaps it should just be accepted that fewer people want to drink in pubs. Only about 1 in 7 have shut in the last 4 years, so 6 in 7 are still open. I bet tourism to Scarborough has declined by more in the last 40 years. Things change. I don't think the cost is most of the problem. Many of the pubs in Todmorden, where I live, have shut. I walk past one of those remaining each evening, and draught beer (several brands from small breweries) is on offer for £2 a pint. I no longer visit pubs because of the smoking ban, but if I were a pub goer, I'd think that was very reasonable. At Morrisons I pay about £1.59 for a 500ml beer of comparable quality. The future for pubs is food and children.

  4. 'The future for pubs is food and children.'
    AAAAAAARG. Exactly what I hate in pubs.
    I've noticed recently that some pubs are barring kiddywinks due to complaints. That gets my vote.

  5. A pub in Southport barred children, not on principle, but because the landlady was sick of running after children who had run out into the street, unnoticed by their parents. "It's a public house, not a creche," she told me, shaking her head.

  6. "Only about 1 in 7 have shut in the last 4 years, so 6 in 7 are still open. I bet tourism to Scarborough has declined by more in the last 40 years. "

    Not comparing like with like. My understanding is that over the last 40 years about 1 in 3 of the pubs in the UK have shut, reducing the total from about 75,000 to 50,000.

    "The future for pubs is food and children."

    In which case there will come a point when they cease to be pubs.

  7. its a non starter because restaurants make nearly all their profit on selling you booze (2pound bottle of wine for 15pounds etc), people only check the food prices when picking where to eat, and automatically buy a drink to read the menu, a drink to accompany the meal, and depending how "go slow" (the more in trouble the slower) the restuarant is, you may find drinking lots of drinks before you get to eat anything

    so restauranters would never pass the saving on to the punters.

    and same deal with pubs to a lesser extent, primarily they still want to sell drinks at a profit, and are happy to cut the margin on the food to sell more drink, thats why we have gastropubs in the first place, they arent about selling food, its about selling you more drink and they realised selling food encouraged more customers, who then bought more drinks.

    france is different, because they eat and drink very differently, most places sell you food 1st, drink 2nd

  8. Bear in mind that much of the restaurant sector consists of places like Pizza Hut, Frankie & Benny's and Nando's, and they don't make most of their money from alcohol sales.


Comments, especially on older posts, may require prior approval. See here for details of my comment policy.