One of Andy Burnham's first policy measures as prime minister is a 20% reduction in business rates for pubs, clubs and live music venues. The policy, announced on Thursday, is part of a broader agenda to support the high street and will cost £100m.
But landlords say high costs of running a hospitality business outweigh the potential savings. The policy raises questions about whether the rates reduction can halt a trend in pub closures, running at about one a day.
A pie and a pint: the real cost breakdown
At the Red Lion in Hollington, Derbyshire, a steak and ale pie with chips, cauliflower cheese and onion gravy, washed down with a pint of Bass, costs £20.50. The pub profit is just £2.97.
Dan Smith, who owns the pub, says: 'Over the course of a week, we'd sell about 300 of them and get through about six 25kg sacks of potatoes from a farmer up the road. A local brewery does our own beer, the Pie & Glory, but the Bass is our most popular.'
Smith used to pay no business rates at all thanks to relief for rural businesses. Now he pays about £680 a year and has seen his estimated bill oscillate several times because of policy tweaks, including a nationwide property revaluation. 'They've made it 10 times more complicated than it needed to be,' he says.
Where the money goes
Business rates account for about 16p of a pie and a pint, compared with VAT of £3.42. The full breakdown: ingredients £6.48, VAT £3.42, staff £3.88, employer's taxes £0.74, utility bills, operating costs and mortgage £2.85, business rates £0.16.
'I'm not going to knock it [the business rate cut], it's showing willing from Mr Burnham. But it's a small snippet,' says Smith. He supports a hospitality-wide campaign to cut VAT from 20% to 10%, a measure Burnham supported as mayor of Manchester. That could cost the Treasury an estimated £10bn.
Typical hospitality business: £1m turnover, £13,500 profit
Packed House, a family-run consultancy acting as a commercial director for independent hospitality businesses, provides a breakdown of annual costs for businesses with a turnover of about £1m. Director Colm O'Leary says: 'We help owners who are overworked and underpaid build profitable and successful businesses.'
Costs include high rates of duty on alcohol that pubs buy in, and staffing costs including national minimum wage and national insurance contributions, both of which have gone up under Labour. The breakdown: VAT £166,667, net sales £833,333, purchases £275,333, labour £333,000, other costs (rent, utilities, PR, travel etc) £203,333, business rates £5,000, operating profit £16,667, corporation tax £3,167.
The estimate shows why some hospitality bosses have given only a lukewarm reception to the business rates relief package, given the scale of other costs. The amount paid depends on the type and location of premises, but O'Leary says £5,000 would not be unusual for a business with a turnover of £1m. That means a saving from the policy of about £1,000, in line with what the government has said pubs could save.
'The speed of this policy decision is a positive sign, but the benefit is a fart in the wind compared to what is needed,' O'Leary says.
