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Shares in pub groups plunged this week as the industry suffers a hangover from “staggering extra costs” after chancellor Rachel Reeves unveiled the UK’s biggest tax-raising Budget in a generation.
JD Wetherspoon dropped 11.4 per cent this week, while shares in Marston’s fell 10.7 per cent as the sector was hit by a rise in employers’ national insurance and a steep increase in the minimum wage. Fuller, Smith & Turner and Mitchells & Butlers shed more than 6 per cent.
Employers’ national insurance contributions will rise by 1.2 percentage points to 15 per cent from April while the earnings threshold at which the tax kicks in will fall from £9,100 to £5,000. Minimum hourly pay for adults will rise 6.7 per cent to £12.21 with larger increases for younger staff.
Chris Jowsey, chief executive of Admiral Taverns, said together with a reduction in business rates relief from 75 per cent to 40 per cent from April, these costs “will come out of our future profits” and make some investments “harder to approve”.
“A double whammy of national living wage on top of the national insurance employer contribution is a very large cost to swallow for the sector,” said Simon Dodd, chief executive of Aim-listed pub chain Young’s, which avoided a share price fall as Reeves opted against fully removing tax relief on shares on London’s junior market.
The Labour government increased public spending in an effort to repair public services, kick-start economic growth and fuel private sector investment but Dodd said the Budget had left some pubs fighting to stay in business.
“We want to talk about growth but we’re now at a stage where we’re talking about ‘what can we do to survive?’,” he said.
Reeves on Wednesday announced “a penny off the pint in the pub” as she cut duty on draught beer, but landlords said this reduction would be dwarfed by the impact of her other measures.
Kate Nicholls, chief executive of UKHospitality, said covering the full extra costs would require a 6 per cent increase in prices. “That is not sustainable in the current environment so nobody is doing that, but that’s the scale of the challenge,” she said.
Eight out of 10 chief executives in the hospitality sector said they could cut either staff hours or headcount, she said.
The British Beer and Pub Association said the “staggering extra costs” would “undermine growth and investment and risk people’s livelihoods”. Reeves’ measures would impose £500mn of extra costs on the sector, it said.
Shares in listed pub groups had already been falling in the run-up to the Budget on reports of impending tax rises.
Despite the sell-off in pub chains listed on London’s main market, shares in Aim-listed groups rose as the effect of tax and minimum wage increases was more than offset by the bounce in the junior market, whose tax break Reeves left partly intact.
The chancellor steered clear of a total abolition of tax breaks for investors in the junior stock market. Aim shares were previously exempt from inheritance tax but will now attract a 20 per cent levy, still lower than the full 40 per cent rate that many investors feared they would face.