JD Wetherspoon has announced that it will have to increase the prices of its meals due to a recent reduction in the VAT on food and non alcoholic drinks sold in pubs and restaurants getting phased out.
The pub chain criticised the Government for “Monty Python” VAT rules, which it claims will bolster supermarkets instead of the hospitality sector.
Why is it increasing its prices?
During the pandemic, the typical VAT rate of 20 per cent on hot food served in pubs and restaurants was reduced to five per cent.
The Government announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at five per cent until 30 September 2021.
A new reduced rate of 12.5 per cent will then be introduced which will end on 31 March 2022, when the original 20 per cent will once again be introduced.
Wetherspoons is set to add around 40p to the price of all of its meals in September, when the five per cent reduction ends.
As of 4 July 2021, 850 of Wetherspoons 860 pubs are open, with most of the closed pubs located in airports.
'An area of undoubted unfairness'
In its July 2021 trading update, the company said: “One area of undoubted unfairness, which creates economic distortions, relates to VAT.
“Supermarkets pay zero VAT on food, but pubs and restaurants pay 20 per cent in normal circumstances.
“The chancellor reduced VAT on food for the hospitality industry to five per cent last year, still above the rate paid by supermarkets, which was nonetheless welcome.
“However, it is now proposed that VAT returns to 20 per cent, in stages, in the next year.
“The interim rise to VAT of 12.5 per cent, in September 2021, will result in Wetherspoon having to increase food prices by around 40 pence per meal.
“The VAT rise will make the entire hospitality industry less competitive vis a vis powerful supermarkets.”
In the update, the pub chain said that “for many years, UK governments have therefore behaved like Monty Python’s Dennis Moore - who robbed the poor (in this case pubs and restaurants) to help the rich (supermarkets)”.
It continued: “Treating the same product, food, the same way for tax purposes makes economic sense.”
'The company expects to make a loss'
Wetherspoons Chairman and founder Tim Martin said: “The company continues to expect to make a loss for the year ending July 25.
“In a trading update of January 19, the company’s principal ‘scenario’ estimated sales in the financial year starting July 26 to be in line with financial year 2019, which remains our current best estimate, on the basis that restrictions are ended, as the Government currently intends.”
In its update, Wetherspoons said its like-for-like sales from 17 May, when hospitality venues were able to reopen indoors, to 4 July declined by 14.6 per cent against the same period last year.
The chain informed shareholders that this sales decline has accelerated while the Euro 2020 tournament has been on.
Wetherspoons said that sales since 10 June, when the tournament started, had fallen by more than a fifth, with the group’s pubs not televising games apart from a very limited number of exceptions.
The company added that like-for-like bar and food sales from 12 April to 17 May, when sites were only able to reopen outside, declined 49 per cent against the same period in 2019.
Wetherspoons said it has opened two new pubs in the past six months and now has an investment pipeline which includes 18 new sites.