Death of the boozer: how the recession called time on Britain's public houses

Pubs are closing in record numbers, as rising beer taxes, regulatory costs and a vicious consumer downturn hit their bottom line, reports James Thompson

Despite unveiling a robust performance, the pub company JD Wetherspoon laid bare the scale of the tax burden facing the pub sector yesterday. Tim Martin, its chairman, said: "In our view, the levels of tax now being levied are unsustainable for many pubs, and this, combined with other factors, is contributing to the closure of pubs in record numbers."

A record 2,000 pubs have closed and 20,000 jobs have been lost since the Chancellor, Alistair Darling, controversially raised beer tax in the Budget in March 2008, Oxford Econ-omics, the independent economic forecasting group, revealed last month.

The Government will add to the existing hefty regulatory burden on pubs when it introduces a mandatory code of practice on alcohol sales this year, designed to reduce under-age or irresponsible drinking, that it admits will cost pubs an extra £300m, as part of the Policing and Crime Bill 2008/09.

These additional regulations come at a time when consumers are shunning their local pub and increasingly drowning their recessionary sorrows at home with booze bought at Tesco, as one of the worst consumer downturns in living memory bites. Mark Hastings, at the British Beer & Pub Association, said the pub sector could lose a further 75,000 jobs over the next two years if the Government does not provide any relief.

Even before the worst of the economic downturn kicked in, pub companies were battling soaring food and commodity prices, as well as rising fuel and utility bills.

The Government has exacerbated the plight of pubs by ratcheting up the regulatory and tax burden on pubs since the introduction of the Licensing Act in 2005. While the smoking ban introduced in 2007 hit the sector like a train, pubs upped their food offer to partly offset the loss of trade from dedicated smokers.

Gavin Humphreys, the client services manager for beer, wine and spirits at Nielsen UK, says: "Pubs are under huge pressure from the commodity increases in terms of the cost of goods coming through and also the increased bureaucracy and legislation at a time when the current economic climate is not helping." Yesterday, JD Wetherspoon said it made a post-tax profit of £17.3m but paid tax of £190m in the six months to 25 January, including £53m of excise duty and £79m of VAT.

Last March, the Chancellor dropped a bombshell on the sector with plans to increase alcohol duty rates by 2 per cent above the rate of inflation in subsequent years. The BBPA, along with four other trade associations, has written to the Government with two specific requests. First, the industry has asked that the proposed duty escalator is not taken forward in either 2009 and any subsequent years and that duty be frozen. Second, the BBPA has urged the Government to "back off introducing further regulations", such as the mandatory code of practice.

Mike Benner, the chief executive of the Campaign for Real Ale, said last week : "The entire economic picture has changed beyond recognition in the last 12 months and, with the return of Keynesian economics, I hope the Chancellor might draw some inspiration from one of the great economist's most famous lines – 'When the facts change, I change my mind.' Scrapping the increases in beer tax would be a truly popular piece of Keynesianism."

Arguably a more serious problem facing pubs is the deepening recession. Oxford Economics says that consumer spend in real terms on alcoholic drinks fell by 9.8 per cent over three years in the early 1980s recession and by 8.9 per cent over four years in the early 1990s. Nielsen said that on-trade sales of beer are already down by 9.4 per cent over the 52 weeks to 21 February 2009.

Yesterday, JD Wetherspoon, one of the sector's most resilient companies, posted half-year pre-tax profits before exceptionals up by 2 per cent to £30.8m and said like-for-like sales had grown by 1.9 per cent, partly due to its 99p pints offering. But many pubs – part-icularly freehouses, which don't have such deep pockets – could find they cannot ride out the economic storm.

Under-age drinking: JD Wetherspoon furious over Draconian entrapment

In 2006, the Government launched a crackdown on binge drinking in pubs, as part of the Violent Crime Reduction Act. A key thrust of the legislation was that a pub could have its licence revoked if it was caught three times in three months serving teenagers under the age of 18.

While party-loving 17 year olds were probably not keen on it, the rules were supported by pub chains, including JD Wetherspoon, which says it has no desire to ply under-age drinkers with booze. However, the methods used by the police and trading standards, under the 2006 law, have left some pub chiefs spitting into their drinks.

Tim Martin, the chairman of JD Wetherspoon, says over-zealous checking of pub drinkers and the policy whereby police recruit under-18-year-olds to "trap" pubs into serving them alcohol is driving the problem of binge drinking into areas where adults are not present, such as at parties or in the parks. "The move by the Government to address binge drinking has been massively unintelligent and Draconian," Mr Martin said.

His mood has not been helped by the fact that under the Policing and Crime Bill 2008/09, to be introduced later this year, pubs could have their licence revoked if they are caught serving under-age drinkers just twice in three months. The fact that pubs will have to spend further money on door staff is another burden the sector could do without, says Mr Martin.