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Morning Briefing Strap Line
Fri 7th Feb 2014 - Friday Opinion
Subjects: Tax policy, the VAT campaign, ‘purpose’ in business and new forms of addiction
Authors: Tim Martin, Luke Johnson, Simon Wright and Paul Chase

Why Ted Tuppen is targeting the wrong tax by Tim Martin

The subject of tax is vexing many people and businesses, and is also a scaldingly hot topic of political debate. There is good reason for this angst, since the wrong tax policies can kill vibrant businesses, reduce government income and inhibit the investment and work ethic which are the cornerstone of any nation’s prosperity. Nowhere is this debate more relevant than the pub trade, which is slowly waking up to the fact that a massive VAT and rates disparity has helped to destroy thousands of pubs. 

After the recent announcement by Ed Miliband that the Labour Party intends to increase the top rate of personal tax from 45% to 50%, panic has broken out in PLC boardrooms. With Usain Bolt-like speed and intensity a number of CEOs have written to The Telegraph criticising Labour’s plans, perhaps with justification, and highlighting the adverse ramifications for the economy of excessive taxes.

Publicans will perhaps be surprised to note that Enterprise’s Ted Tuppen, silent as a monk on the VAT campaign, which his tenants vehemently support, is a signatory of the Telegraph letter. 

One of the paradoxes of running pub companies is that, in a strange way, you eventually have to do what your publicans want – unless you can convince them that you are right and they are wrong. An army marches on its stomach, as Napoleon said, but a pub company marches on its morale. Perceptive directors, and licensees, know that they must take their teams with them or perish. Therefore, although it sounds counterintuitive, Ted needs to convince his tenants that the combination of his silence on the vital question of VAT and outspokenness on personal taxes is correct. However, it is almost certain, in my view, that his stance will be viewed with dismay by publicans up and down the land.

It is universally acknowledged that CEOs often struggle to see the wood for the trees. That is why Steve Jobs created the most profitable company in the world, partly by making the astoundingly obvious observations, yet not seen by Microsoft and others, that computers were very difficult to turn on and to carry. 

Jacques Borel’s astoundingly banal, yet true, insight is that pubs and restaurants will become increasingly uncompetitive against supermarkets if they continue to suffer much higher taxes. In addition, he observes, the country itself will suffer, especially in less-affluent areas, where these tax disparities result in people going out less. Existing businesses will close and new ones will be slow to replace them, increasing unemployment, devastating high streets and diminishing government taxes. 

Enterprise licensees are among the least able to put up with supermarket competition, since they struggle even to compete with the well-capitalised managed houses of Mitchells & Butlers, Greene King, Marston’s and others. These companies realise that huge annual expenditure is necessary to maintain trade against the supermarket threat and most have abandoned, or are abandoning, their tenancies as they pour capital into their managed outlets. 

Ted is right to be fighting a tax battle, but he has picked the wrong one and he should be fighting for tax equality for his own tenants. Taking issue with politicians over personal tax risks appearing like self-interest dressed up as national interest. Tenants, among many other groups, know that tax equality and fairness are vital for the future of the pub trade. Ignoring their views will reap dire consequences for Enterprise itself unless it and other companies change tack very quickly. 
Tim Martin is founder and chairman of JD Wetherspoon

Reform VAT for the hospitality industry by Luke Johnson

Currently there is a tax anomaly which rewards Tesco and the other supermarkets, but punishes every pub, cafe and restaurant across Britain. It is the way in which VAT is charged.

Food and drink are zero-rated for VAT when sold in shops. But they suffer 20% VAT when consumed in pubs and restaurants. It gives the giant supermarkets – which already have benefits of scale – enormous competitive advantages. In 13 other EU states, there is a lower rate of VAT in catering establishments, typically 13%. Their governments recognise that such outlets provide employment and are an important part of the tourist industry, and should not suffer from a prejudiced tax system.

The catering trade is one of the largest employers in the country, and has generated a significant proportion of the new jobs created across Britain in recent years. To stimulate this expansion further, the Treasury should reduce the rate of VAT on caterers from 20% to 5%. In order that this move is financially neutral for government, they should introduce a 5% rate of VAT on prepared, processed and packaged foods sold in stores for consumption at home.

A material cut in the VAT rate on catering sales would stimulate the industry and boost employment. Analysis has suggested it could generate as many as 670,000 new jobs, particularly among young people, who suffer some of the highest levels of unemployment. It would also help our tourist trade, by making meals eaten out much better value. In the coming years, tourism is going to become an ever more important part of our economy, as visitors from countries such as China, India and Brazil come in ever-increasing numbers. Rising sales might even mean the state makes a net gain, especially if the 5% rate is extended to certain packaged foods.

Many parts of the hospitality trade pay excessive taxes. They pay heavy duties on alcohol; business rates on premises; lots of national insurance, because the profession employs a great many people; and of course corporation tax on any profits – as well as VAT. It means most operators pay a very great deal more to the government every year than they can ever earn as profit. This seems to me wrong for a sector which is a huge employer and gives millions enormous pleasure every day of the year. 

There needs to be an intelligent rebalancing, especially since sectors such as the pub trade have suffered from harsh conditions for a number of years. Stimulating the catering business will help life in many declining town centres, which now rely on food and drink outlets for a third of their trade. And pubs remain at the centre of their communities right across Britain. They need to be defended against juggernaut out-of-town supermarkets, and given a level playing field for VAT.

Every society needs to make tackling unemployment its biggest challenge. The dignity of work is good for an economy, self-respect and health outcomes. More jobs means a lower welfare bill for the government. 

Several European governments that have introduced adjustments to VAT for the hospitality industry have seen a big boost to jobs and tourism and a limited impact of tax receipts. The UK needs to follow their lead and listen to the Jacques Borel VAT Club, a network of more than 50 major players in the trade who are asking for the supermarkets’ unfair advantage to be removed when it comes to selling food and drink.
Luke Johnson runs private equity firm Risk Capital Partners

What’s the ‘purpose’ of your company by Simon Wright

Surely every company leader is able to explain the purpose of their enterprise. The answer will be at his or her fingertips, right? You would be amazed at how often this question troubles even the most ardent and experienced brand owner, chief executive or restaurateur. “We want to be the best at what we do” is usually the stock reply. The reality is that this will not cut it as an answer with consumers anymore. On my journey to create my own brand and business, it has become clear that a defined purpose, and the expectations of a modern business from our customers and consumers, are now intrinsically linked. Those that can define a clear and “higher” purpose, and importantly put it into practice, just might be the future of business in the UK.

To answer the question in hand we must ascertain what we define as “purpose” and how you map out what it means for you, your employees and your customers. John Mackey, chief executive and founder of Whole Foods, has very much been a leader in this field of thought, along with other socially conscious brands, such as Innocent. Mackey believes the first step is putting the company purpose well beyond the functional reason for why the business exists. In his book “Conscious Capitalism: Liberating the Heroic Spirit of Business” he says: “Our stores are our canvas upon which we paint our deeper purpose of bringing whole foods and greater health to the world.” It goes without saying that we all want to create the best products we can, but what else? Is this enough anymore?

Mackey stresses in “Conscious Capitalism” the importance of “values” and “meaning’” within a company and how these ultimately sit as the building blocks to achieving long-term company purpose and, with it, its commercial goals – profiting through purpose.

What are your company values? Do you staff and customers know? How often do you talk about them?

Purpose is not something that is ingrained into our corporate culture yet. For example, as a large pub business, is your purpose to be the “best pub business in the UK”? Or is it to “act as the vehicle to bring hundreds of communities together in a safe and friendly environment, creating timeless moments and connections between friends and families”? You get the idea, and the difference.

This is not to say there are no examples of UK companies leading the way. You only need walk into a Pret A Manger, and its higher purpose is everywhere. Aside from its dedication to healthy and nutritional food, you will learn about its mission to alleviate poverty and homelessness in the UK, a cause very close to my heart. My brand, Hawkes Brewery, was born with this same purpose at its very core. The name Hawkes is inspired by the Victorian “street hawkers” who sold ginger beer and other wares on London’s streets; not only were they the original entrepreneurial “pop-ups” but they lived for their community. So my company purpose centres on this ethos and sets out to make create products which can contribute back to our wider community. It’s early days but we are already working with great not-for-profits such as Centrepoint. It was important for me to put this into practice in our business from day one, a simple but measurable purpose. 

A clear purpose, one that can be articulated in one short sentence, can be the most powerful tool in a business’s arsenal. In my own quest to create a simple brand purpose, I turned to some industry leaders and questioned them on how important a defined purpose was to them when they started. Dan Germain, head of brand and creative at Innocent, a business that has been instrumental in paving a path for purpose-led thinking for FMCG brands, told me that defining the “reason” for Innocent has been instrumental in its success. “If your purpose is to make slightly cheaper stuff than the company next door, then that’s going to limit you a little bit,” Dan told me, while I sipped on a strawberry and banana smoothie. “That isn’t going to inspire you. At Innocent, we want to make natural, delicious food and drink that helps people live well and die old. It’s the ‘live well, die old’ bit that resonates most with me. It helps me decide what we should and shouldn’t do next.”

At Innocent you can see the difference when you actually live and breath your values and purpose. Walking through the “Fruit Towers” headquarters, surrounded by the array of colourful product and bare-footed, happy workers, you do feel that everyone knows what part they are contributing toward not just the company’s commercial goals, but also its moral ones.

Not every brand can be, or needs to be an Innocent, but when a brand purpose taps into a universal human truth and is articulated with such clarity you can argue it is far easier for staff, buyers and consumers to support what you do. There is certainly an uplifting moral quality to Innocent’s purpose statement, and one that would motivate anyone going to work on a dreary Monday morning.

There is no denying that this need for being “purpose-led” has come to the attention of some of the biggest companies in the world. Companies such as Procter & Gamble and Unilever are re-addressing their “purpose” and using their footprint to show the positive impact they can have on the world. P&G has recently spearheaded initiatives such as the Live, Learn & Thrive cause programme. This and initiatives such as Children’s Safe Drinking Water are examples of how big business is beginning to contribute to improving the lives of millions of people every day, a sign of putting their new purpose into practice.

But does having a purpose mean embracing philanthropy? Are they mutually exclusive? I would argue that they don’t have to be, but in the same vein, businesses can no longer ignore their role and place in a modern society. The world is now too connected and thus too small to not play your part, no matter what industry you are in. Aligning your purpose with a tangible outcome, I believe, is now not only a necessity but also an incredibly powerful asset for any business, new or old.

So again I’ll ask that question again – what’s your purpose?
Simon Wright is CEO and founder of Hawkes Brewing Company 

We’re all addicts now by Paul Chase

Two controversies have caught my eye in the last couple of weeks: the continued ambivalence of the health lobby to e-cigarettes and the furore over sugar. Personally, I don’t imbibe nicotine in any form and I don’t add sugar to my tea, coffee or cornflakes, although it is the hidden sugar added by food producers that worries health campaigners. What could nicotine and sugar possibly have in common? The answer, apparently, is addiction.

The health lobby argument goes something like this: our brains are hard-wired to find certain things pleasurable, such as eating and having sex. These are behaviours which we need to engage in to survive as an organism or as a species, and they stimulate the reward pathways in our brains to make sure that we do. But there are many things that stimulate our reward circuitry that are not, in fact, necessary for life – including drugs, alcohol, fatty foods, nicotine, and sugar. The pleasure we get from these substances comes from an interaction between the chemistry of the substance and the chemistry of the brain which results in the brain releasing dopamine. And this dopamine-induced experience of pleasure reinforces the desire to repeat the behaviour. Now, before you all decide to cut out the middle-man and rock up at your local GP’s surgery demanding prescriptions for dopamine, it’s not that simple.

What I have just outlined, albeit simplistically for the sake of brevity, is what is known as “addictive substance theory”. Adherents of this theory would admit that it does not follow that any substance that stimulates the reward pathways in the brain will always lead to an addiction, but they do argue that any such substance has the potential to be addictive. Why does the addictive substance theory hold such an appeal for the health lobby? Well, for a start it overcomes objections about nanny-statism and interfering with individual choice. Once you can present the consumption of certain foods as a form of chemical enslavement that arises out of their ability to generate a dopamine hit, then people are transformed from being consumers making a free choice into vulnerable individuals whose behaviour is evidence of the loss of control typical of addicts. Clearly such vulnerable people need protecting with strong legislation that regulates their lifestyle-choices, don’t they?

But anti-sugar campaigners, such as the American Robert Lustig, go on to develop this into a conspiracy theory: Big Food is deliberately addicting their customers by stealth to sugar-saturated products which they will have to buy more of to satisfy their cravings. Oh my! This is not paranoia, honest! They really are out to get us, so alert the media, alarm the public by relentless risk-inflation, and before you know it you have a full-blown moral panic. Sound familiar?

So much for sugar, but what about nicotine? The ambivalence of the health lobby to e-cigarettes is also linked to addictive substance theory. It is not enough for them that the private sector has come up with a nicotine delivery system that avoids the nasties contained in tobacco, because nicotine is still an “addictive substance”. It is OK, in their view, to use e-cigarettes in the same way as nicotine patches – to help you tail off tobacco use; but if you use them as a safe way of enjoying the pleasure of nicotine, that is a Bad Thing that could tempt you use the Real Thing – tobacco! So, are e-cigarettes a way of exiting tobacco-use, or a gateway to it? That appears to depend on whether you are seeking to abjure pleasure or embrace it. This puritanical attitude to pleasure is fundamental to all moral campaigns that seek to regulate personal lifestyles.

For me, whether adults imbibe nicotine by “vaping” is a personal lifestyle choice and I just do not buy the idea that this induces a chemical enslavement that justifies treating e-cigarettes like tobacco. Nor is there any evidence that using nicotine, in and of itself, causes health harms. Indeed the use of nicotine patches has enabled researchers to discover that nicotine confers a number of significant health benefits. Studies have revealed that nicotine, contrary to popular belief, boosts the growth of new blood vessels and this discovery could lead to new treatments for diabetes. In 2006 scientists discovered that people with depression who were treated with nicotine reported a decrease in their depressive feelings. The researchers noted that nicotine led to a direct increase in dopamine and serotonin – the lack of either of these neurotransmitters is a common cause of depression. There is also potential for nicotine to be involved in the treatment of Alzheimer’s.

With sugar, it seems to me that we are a long way from a scientific consensus that obesity arises because added sugar converts certain foods into addictive substances. Last year, NeuroFAST, an independent European Union-funded collaboration between 13 universities which produces “consensus statements” on controversial issues in nutrition science, reviewed all the relevant evidence from human studies. Its conclusion? That there is “no evidence” that food can be addictive.
Paul Chase is a director of CPL Training and a leading on-trade alcohol and health policy commentator

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