Wetherspoon boss warns of increasing tax burden

Tim Martin, chairman of the Wetherspoon pub chain, said that the economics of the sector had been completely undermined by taxes and red tape imposed by the Government.

Reporting full-year results for JD Wetherspoon, Mr Martin said the company had been forced to scale back its expansion because of the level of bureaucracy and taxation that pubs now faced.

"The tax burden is at the point where the law of diminishing returns sets in. That's what happens when you try to be greedy," Mr Martin said.

He added that Chancellor Gordon Brown would find that the tax take from the sector would shrink because it was becoming increasingly attractive just to drink at home. He said "supermarkets" did not have to meet many of the costs that pubs face in selling drink.

"Pubs currently pay approximately 40 per cent of their turnover in taxes of one kind or another, and further increases will mean that pubs become less competitive and more expensive, relative to an evening at home," Mr Martin said.

He was particularly scathing about an upcoming legal change that will shift responsibility for local licensing from magistrates to local councils. He said local authorities already had a heavy burden of regulation and that they "don't need another huge administrative" responsibility. "This [change] will involve a substantial increase in fees and other regulatory costs," he said.

"Taxation, including excise duty, which will cost approximately £2m in the current financial year, and an increase in stamp duty for new leasehold properties, which will cost approximately £500,000 per annum. These tax increases are in addition to the more highly publicised increases, such as those affecting national insurance."

Wetherspoon shares closed down 7 per cent at 237p on concern over the increased costs and the company's downbeat statement on current trading and future growth.

Mr Martin said: "Whereas we continue to see opportunities for profitable expansion, the uncertainty created by increased red tape and taxation means that it is prudent to reduce the rate of that expansion, so that the level of capital investment for the foreseeable future remains approximately in line with our free cash flow."

Pre-tax profit, before exceptional items, was up 5 per cent at £56.1m, with like-for-like sales up 4.1 per cent, for the year ended 27 July. However, like-for-like sales slowed to 3.5 per cent in August. The company warned: "Profits, both in the current year and going forward, are likely to be impacted by regulatory and employee cost increases".

Analysts said the growth story at Wetherspoon had been taken away and the results showed that margins were under pressure. During the financial year just ended, the company opened 45 pubs, to take its chain to 635, compared with 87 new pubs in the previous year.

Nigel Popham, analyst at Teather and Greenwood, said: "The [full-year] results were in line but the outlook was muted in cloud. August sales were pretty dismal when they should have gained from more people holidaying in the UK and the sun shining".

Jim Clark, Wetherspoon's finance director, said: "In hot weather people head for a country pub and to barbecues, whereas most of our pubs are in towns or cities. We do not really gain when the weather is very hot".

WestLB, the broker, said that despite Wetherspoon's increased costs, it has not been able to raise prices since February and it is unlikely to do so before Christmas.

The broker said it expects margin weakness to carry through into 2004 and 2005, due to increased staff costs, the company having to absorb duty increases and changes in licensing laws.