Do pubs have a future?

0:02Sky News, the full story first.

0:12When was the last time you went down the pub? Was it for a Hogman-A-Bash? Perhaps one of the watch parties to see which way Faraz voted in the traitors. So I was toying between do I protect myself and vote Rachel or I know I'm right with Stephen. There are more than a couple of ministers landlords would like to banish, given the struggles of the past few years. They're not doing anything to help. The government has made yet another U-turn. This time it's temporary relief to pubs in England and Wales from the worst of planned business rates. It's a never-ending tsunami, and it is that perfect storm.

0:46So, can the government save the British pub?

0:56Anyone fancy a pint? Well, judging by the number of pubs closing every week, it would appear not. With margins smaller than a landlord's patience at chucking out time, a government rethink on business rates for pubs should presumably be welcomed. A 15 % discount from April plus two years of a freeze means an average of a bit over a grand and a half's respite per pub. So, who'd be a landlord? Well, Simon Wadewood. He owns a number of pubs in North Yorkshire, including the Fox and Hounds in Langthorpe, which is where we find him. Simon, fantastic to have you with us on The Daily. As I understand it, you've been involved in pubs for many a year.

1:35Just explain. Very true. So, I started as a waiter when I was 14 years old, and then I made my way through the ranks in different operations. I got to management at 24, and so I've been in a position of responsibility in the industry for over half my life. Okay, so a number of pubs under your control. How challenging has it been running the business of late? It becomes more and more challenging, well, every year. So we've had things like a big change in the energy increase, cost of energy to the business, so electric, your gas and your water rates. They've all shot up. The cost of actually trying to get finance to buy properties has become very, very difficult.

2:17And then just the actual cost of business through levies, through taxation, and just cost of produce, cost of food, inflation going through the roof, all these costs come to challenges. And it's not something that you can take your eye off the ball for and it happens once a year. These happen week in, week out now. So in terms of what we've been hearing from the government, I mean, how much does that help you out? There's no change in business rates. There's no, they're not doing anything to help. So what they've done is we'll say, well, tell you what, we're going to re-rate your property because it's not been done for three years.

2:51So we've re-rated it at four times its original value. And then what we've done is we've given you a 15 % reduction on that quadruple charge. So in actual fact, the best way to put it is, here's a pint for five quid. But I'm going to charge you a tenner for it and actually know, tell you what, I'm going to give you a bit of a discount. It's going to be£8.50. but it started at five quid they've not done anything other than still increase our cost of business by taxing us again in the rates reform bill and they don't think they understand what they've done and they are really going to drive businesses not just pubs but small independent businesses medium enterprises into the ground they really are because they're not they're not helping at all they're just taxing it even further in an area that's got very very fine margins as it Can you give us some rough figures?

3:39I mean, in terms of your operating costs. So here at the Fox & Hounds, for instance, the rateable value for up until April is£6 ,500. But then the new rateable value that's coming in the 1st of April, it's going to be£21 ,000. Wow. Now, the rates payable now, because we get small business rates relief, is actually nothing. So that helps. but what it's going to be is£3 ,730 going forward. In actual fact, that's manageable. That's fine. Don't mind that. But that is actually an increase of 3 ,730%. Yeah? The rates payable after the transition relief, which means over the next three years, they're going to build it up to the near figure, it's going to go to£8 ,232, which is an 8 ,232 % increase.

4:31The Grantham Arms, which is half a mile away around the corner, has a rateable value of£19 ,000 as it stands right now. The re-rateable value has gone up to£87 ,000. Wow. The rates payable today are£5 ,688 a year, which we're paying. On the 1st of April, it goes to£10 ,903, which is a 92 % increase. and then the rates payable after the transitional relief is£38 ,280, which is an increase of 573%. Sorry, all of this on top of your rising cost of energy, your rising cost of food, your rising cost of having people standing behind the bar. And also don't forget what they introduced already, the minimum wage increase.

5:17We don't have a problem paying people good money. That's not a problem whatsoever. But the national insurance threshold was reduced, So you've got to pay more, 50 % more national insurance contributions to employ people to come and work for you. Because as the minimum wage goes up, so does the cost of the national insurance contribution. So that was the biggest hit last year. And that's why businesses that have closed the doors now, they've not been able to absorb the national insurance cost. But then this year, we've got to absorb this new rateable value cost on top of what they've already put in place.

5:48and there's another minimum wage increase in April, which means there's another increase in national insurance contributions as well. So it's far away from supporting business as it could possibly be. It's almost like they want businesses to close, people to become unemployed and actually live off the state. That's what they want to do. They're trying to tax small business to help people that need it in the state system, but all they're doing is forcing more people to join the state system because no one can afford to employ them anymore. Simon, is there any incentive right now to run a pub? So getting finance is difficult, raising finance is difficult, operating costs are massive, and you're not getting any kind of relief or any encouragement to become a successful pub and to employ people, give people a career, give people an opportunity to develop and move on.

6:37It's almost like it's too high risk. We're not going to bother helping you out. We're just going to leave you to like a fester in the corner. And that's how it feels for us. And that's celebrity people you see on TV, all the way down to people like myself you know we just feel that we're being chastised for trying to be enterprise and what we do is look after communities people go to work they work hard they come out and they want to socialize they want to wind down they want to relax they want to meet their friends their family have an experience and and that's been persecuted as well and and we just don't know why what on earth keeps you going it's it's in my blood and sat back and thought you know what else could i do what else would i want to do i absolutely love people and I love seeing people have a good time and creating something that becomes, you know, someone's occasion or there's an atmosphere.

7:24And when people come into a venue to, like, say, watch the World Cup that they're going to do this summer or watch the Six Nations, and you get people from all different nations together in an environment, sharing the same experience, you can't beat that. Supermarkets, for instance, they can do cheaper booze than we can and it's just horrendous how they don't get charged at the same rates as we do. Well, that's a different story. but equally you can't beat a pint of beer or lager pulled in your pub, stood in front of the TV with your mates, watching your team win or lose. That's what it was worth it for for me.

7:55Do you see yourself still being in the trade in 10 years' time if things don't change? I'd like to think so. I have to navigate my path to remain successful. I don't ever want to leave it. I want to fight every angle I can to make it fairer for everybody. I've got responsibility to 86 people I employ to keep going and to keep them going and for us to fight the fight together so what we're going to do is we're going to increase what we do make sure we're better than our competition we're going to offer as much as we can as much diversity to all the diverse types of clients that are out there and keep working really hard to provide a good service consistently an affordable price as much as we can do if it means that we have to push prices up to the customer for us to survive then that's one of those levers we'll pull and we'll have to do it but I think the understanding is now that even the customer understands just how poorly we're being treated as a as an industry.

8:48Thanks Simon well as he's just laid bare the government is making it more expensive for pubs to turn a profit so is this really an industry that can survive long term? Kate Nicholls is chair of UK hospitality representing the whole of the hospitality sector. Kate great to have you with us on the Sky News Daily look we've heard from the government, there is a bit of assistance being offered to the industry. The government says your average pub will receive£1 ,650 back in their pockets as a result of all of this. What do you make of it? Well, it is better than we were facing as a result of the budget.

9:21We've seen significant increases in business rates. This rose back on those for the pub sector. So for three quarters of pubs, they'll see no increase in their business rates bill. So it removes the immediate April cliff edge. But you're right, the pressures that we're facing business rates is just one. It's the cost pressures overall, and it's the cumulative tax and cost pressures that we've seen hitting the sector over the last two to three years and back to the pandemic. You know, this is a sector closed for two years during the pandemic, hasn't recovered, still has heavy debt, food price inflation, energy inflation, cost of living, cost of doing business.

9:56And then last year's budget hitting us with NICs and increases in employment taxes. This year's on business rates. It's a never-ending tsunami and it is that perfect storm. So we do need to have a comprehensive package of support. Otherwise, we will see businesses fail, jobs lost across our high streets. Kate, look, it's not just business rates, but also the end of Covid relief. What exactly is the issue? So what we had during the pandemic, in fact, from 2019 onwards, we had business rate support that was given by a succession of governments. It's a recognition that the system is fundamentally broken.

10:30It was last reviewed in the 1980s. We were all on, well, some of us, roller skates with Walkmans. We weren't having a computer in our pocket to do online shopping. We did go down our high streets almost on a daily basis. That set of taxes hasn't changed since then, but the world around it has changed. It's a digital economy. And the reliefs that were offered over COVID when we were closed and since then when they've been extended were a recognition of the fact that the system was broken and you needed to reform it. Successive governments have failed to grasp that nettle. They haven't reformed rates.

11:05And so we're left with issues where the hospitality sector and bricks and mortar businesses on the high street are paying more than their fair share. Hospitality generates 5 % of GDP, is paying 15 % of business rates. We need a fundamental correction. This is a tinkering around the edges. Welcome though it is, and welcome though it is for those businesses that were facing a real cliff edge in April, we do need to see fundamental reform. This just is a symptom of the fact that you've got a broken system. Why is the pub trade so susceptible to some of the issues that we've talked about? The increase in national insurance, the rise in energy costs.

11:40I mean, these are things that every business that has bricks and mortar premises will have to consider as well. So why does it so directly affect pubs? You have to go back to COVID. Not every business was closed by legislation for two years. That's a heavy debt to continue to bear. They took out debts to get through COVID. They had two years of loss making. 2026 was supposed to be the first year of COVID recovery. Pre-COVID levels of volume and value to be recovered. That's been delayed. So it takes a long time to recover from such an economic hit. Pubs are not unique in that. Hotels, restaurants, nightclubs all face the same challenges.

12:17That's why we're pressing the government to widen that support. The second point is hospitality relies on a high volume of low value transactions, pubs in particular, and they operate on very tight net profit margins. Because we've had such an inflationary crisis, you've seen costs going up and the revenues, put simply, the money coming through the front door, not enough to cover the costs of doing business. and as a result margins have halved across the sector. So businesses that were only ever making a very small profit are now down at net profit levels of three to four percent. That means any change, any small tinker, any impact on this sort of macroeconomic geopolitical environment and they struggle.

12:58They don't have the resilience to be able to get through. A third of our hospitality businesses are operating at or below break-even and a quarter have no cash reserves. So one small change and that pushes businesses into unviability. There seems to be a broad public perception that people just aren't going to pubs anymore. But actually, when you dig into the data over recent years, haven't we actually seen an increase in footfall, an increase in revenues across the industry? Yes, we have seen an increase in revenues coming from a very low base. I hate to be the person who always goes back to Covid.

13:29But if you've been closed two years and you haven't had very much footfall going through and when we reopened, people forget. We were under so much pressure and restrictions that pubs were only ever operating at 40 % and hospitality only ever operating at 40 % of occupancy. So it's inevitable that footfall and revenues will go back up. The pub is incredibly resilient. It's been going for thousands of years. It's mentioned in Chaucer. I mean, the same pub that's mentioned in Chaucer's Canterbury Tales still is in existence today. Chaucer and the Pilgrims wouldn't recognise what it's providing, but it has changed to meet the needs of a new customer.

14:02and pubs and hospitality will always continue to reinvent themselves, provide food, provide entertainment, look at the new areas that we're getting with experiential leisure, darts, shuffle, competitive socialising. So people are going back out. I think the difference is if you look back when I first started working in the industry, lots of consumers would go out to the pub just to drink. Now they go out to socialise, to meet people, to have an experience. The drink is incidental. The modern pubs are evolving to match that. Clearly, any innovation in the sector is to be welcomed. Let's try things out and see if we can get some longevity to our pubs.

14:39But I remember that there has been an existential crisis hanging over the industry for quite some time. And it, in my mind, goes all the way back to the smoking ban of all things. Back then, many, many people in the trade were talking about the fact that this was the beginning of the end. And I'm just wondering whether, whilst the innovation now is to be welcomed and appreciated, whether it's a bit too little too late. I think the smoking ban is a great example of where pubs did evolve and respond. It was a huge crisis, came at the same time as a credit crunch and a cost of living crisis. And out of that was born casual dining on the high street.

15:13So you saw lots of pubs that closed as old fashioned boozers, but reopened to provide food, entertainment, a different sort of offering and a different kind of space. And that's a good thing. We need to make sure that that continues to evolve. Now, you see the focus on no and low alcohol beers coming through in draft, coming through in bottles, great no and low gin and tonics and cocktails, some really sophisticated offerings that mean that people can try all sorts of different things and don't feel they have to go to the pub just to have a drink. They can look at other things. So we will see more of that evolving.

15:47What we need to make sure is that we've got a supportive regulatory and fiscal framework so that we can support entrepreneurs of the future. People who are coming in to start their own business, it's a great route through for starting your own business, trying new ideas, bringing new innovative solutions to the marketplace, to the high street. If we crucify the whole of the sector with top-down controls and restrictions and too much taxes, we don't get that innovation flourishing and encouraging. Can I then just be really brutal, just for a second, absent the kind of the big scale changes that you were talking about there, isn't this a business model that just doesn't work anymore?

16:23No, I don't think it does. I think it's been put under intense pressure by successive governments with deliberate decisions that have added to the tax burden and made it less viable. It needs to be given that breathing space to be able to recover. Sorry to sound like a stuck record, it would have been a model that worked perfectly and continued to evolve and develop had we not had a COVID pandemic. And political memories seem to be incredibly short about the damage that that has done. When we poll consumers on a monthly basis. They say the first thing they want to do if they've got any disposable income is go out and socialise with family and friends.

16:59That shows demand is there. At the moment, the money coming through the front door is not enough to cover the costs of doing business. That's where the break in the model is. It's those pre-profit taxes, employment taxes, business rates. These are deliberate decisions by government that is making our publicans take tough choices and meaning that the model doesn't work in the current environment. it's in the government's hands to get the economy growing again and if we go back to Covid we know that when pubs, bars, restaurants and hospitality reopened the economy grew we generated tax we dragged the rest of the economy up we don't want to be an anchor dragging the rest of the economy down so it's in the government's interests to make sure that that model does work Thanks to Kate, Simon and of course to you for listening Mine's a lager, we'll see you again tomorrow