City experts are warning that beer and food price rises at popular UK pubs such as Wetherspoon are “inevitable” following Budget decisions that put up its costs by £60 million.
The company said this is because changes on taxes, mainly the increase in National Insurance contributions for employers, and a rise in the national minimum wage, will increase its labour costs.
The firm’s boss Sir Tim Martin warned that “Government-mandated wage increases” have a “significantly bigger impact on pub and restaurant companies than supermarkets”.
Details were revealed as Wetherspoon announced a solid festive period with like-for-like sales growth of 5.1 per cent in the 25 weeks to January 19.
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, said the Budget changes are a problem for the entire hospitality sector. “The extent of cost increases for the sector is crippling,” he said.
“The £60 million annual increase in labour-related costs Wetherspoons is facing is almost equivalent to the entire profit it made last year when profits before tax were £73.9 million.”
And he warned: “Price increases are inevitable, but for Wetherspoons this is a delicate balance.
“Raise prices too much and it risks ostracising its loyal customer base. Not enough, and margins could come under serious pressure.
“At least Wetherspoons has scale on its side, leaving it better positioned than many in the sector. It will flex these muscles as much as it can to contain costs in other areas.
“But it’s hard to escape the conclusion that, increasingly, its destiny seems out of its own hands and at the mercy of politicians.”
Sir Tim said that cost increases have made forecasting the business’s finances mores difficult, but the group expects a “reasonable outcome” for the full year.
He used the trading announcement to launch an attack on the different tax regimes for pubs versus supermarkets.
“As previously highlighted, supermarkets pay no VAT in respect of food sales, whereas pubs pay 20 percent. This tax advantage allows supermarkets to subsidise the price of beer they sell,” he said.
He added: “Given the public’s love of pubs, the only possible explanation for this tax discrepancy is that prime ministers and other legislators, in the 45 years since Wetherspoon started trading, have been dinner party goers, rather than pub goers.
“Wetherspoon therefore calls upon Sir Keir Starmer to redress this imbalance, thereby striking a blow for tax equality and ending discrimination in favour of dull (yawn, yawn) dinner parties.”
During the first six months of the company’s financial year, the group opened two new pubs and sold six.
Wetherspoon said it planned to open nine pubs in the year, including sites at London Bridge station, Fulham Broadway underground station, Manchester Airport, Beaconsfield, Wetherby and Bath.
Dan Lane, lead analyst at Robinhood UK, said: “The sector has been punished with a flurry of digs in the form of off-trade drinking, high debt piles, lockdowns and prospective Budget-induced cost hikes.
“And Martin isn’t holding back on the ‘dinner party goers’, as Martin says of UK prime ministers over his tenure, who he points to as making the situation worse.”
A Wetherspoons representative declined to comment on the potential of price rises across the pub chain.
