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Morning Briefing for pub, restaurant and food wervice operators

Mon 3rd Mar 2014 - Breaking News - Opinion special: Tim Martin on VAT reduction progress

How democracy works by Tim Martin

Winston Churchill famously said that democracy was the worst political system – apart from the alternatives. Say what you like about our politicians, but at least none had a stately Spanish galleon in its own artificial lake, like the former Ukrainian president. It’s fascinating to catch a glimpse of how the political system works as an occasional assistant to the VAT guru Jacques Borel. Jacques has started lobbying in earnest and must be one of the most energetic 86 year olds in human history. We tested him for Lance Armstrong enhancements the other day, but they were negative, so it must be the Mediterranean diet and prodigious quantities of red wine. 

The response from the politicians who have been consulted so far seems to me to be overwhelmingly positive in respect of the proposition that supermarkets and pubs should have equal taxes – Jacques’ argument makes political and economic sense. Many MPs were unaware (be honest, so were most of us publicans) that supermarkets pay no VAT on food whereas pubs pay 20%. There is a degree of incredulity, in addition, that pubs pay about 15p of rates per pint, whereas supermarkets pay about 1p or 1.5p. 

Politicians from all parties are very aware of the damage caused to high streets by pub and shop closures and accept the logic of the closure of pubs having a deleterious effect on the rest of high streets, suburbs and villages. From the meetings I have attended it also appears to be accepted, without reservation, that pubs create far more taxes and jobs per pint than supermarkets, although it is clearly difficult to put an exact number on the jobs and taxes that will be created by the VAT reduction to 5% which is being sought. 

The VAT Club estimates that this reduction will create about 700,000 jobs and will be tax neutral in three years. This estimate has not really been challenged and the Treasury, so far, is focusing on the cost of a tax reduction in the first year. This situation is creating a headache for George Osborne. Both the press and MPs, in terms, accept that the tax inequality between supermarkets and pubs is unfair. A core principle of taxation, in contrast, is that taxes should be fair and equitable. Yet the public deficit, as all political parties agree, needs to be reduced and is unacceptable at its current levels. Although I’m not privy to the government’s view, I suspect that the short-term cost of tax equality is shivering the timbers of the Chancellor and the Treasury. Anything that puts pressure on the deficit, even temporarily, is viewed as a risk and George probably thinks “Who will rid me of this turbulent frog?”

Pressure is being brought to bear on the Conservative allies of the Chancellor in the pub industry, broadly represented by the ‘beerage’ to accept 1p off beer duty (still leaving it the highest in Europe) in return for keeping their traps shut about VAT and rates. As a recent Cardinal survey showed, almost 100% of the major pubco and brewery tenants vehemently support tax equality, but the shrinking violets in the boardrooms are mostly keeping their heads well below the parapet on this issue. 

In my opinion, there is great danger for the industry in pub company directors adopting a partisan political approach to this issue. As one former Treasury official told the Vat Club, it’s your job to demonstrate the unfairness and inequality of the current system and its harmful long-term effect for the economy as a whole. He also said that it wasn’t our principal job to tell the government how to finance a VAT reduction – that’s mostly one for Treasury officials and the government itself. By accepting the partisan offer of 1p a pint in return for silence (or any other inducements) the brewery and pubco chiefs will be going against the specific advice of the greatest VAT-reduction campaigner in history and will also be going against the advice and instinct of their publicans on the front line.
Tim Martin is chairman and founder of JD Wetherspoon

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