Pubs Could Close This Winter Over A “Potent Cocktail” Of Cost Of Living Problems
The pub industry is warning unless action is taken by government on commercial energy costs venues will go bust this winter (Alamy)
6 min read
Pub owners have warned they may have to close this winter unless the domestic energy price cap is extended to commercial contracts, as the hospitality industry faces the dual threat of rising costs and lower consumer spending.
While households have been partly protected from spiralling wholesale energy costs this year by a price cap set by the regulator Ofgem, there is no such cap for businesses. A recent survey of landlords found many are now reporting cost increases of 300% year on year.
They are also facing the problem of massively increased supply costs as inflation has risen to above 10%, with that figure much worse for food and drink. Staffing costs have also risen sharply, both to match inflation and attract people back to the sector after many sought other work when venues were shut by the coronavirus pandemic.
Having already been significantly impacted by Covid-19, industry groups say hospitality’s fragile recovery is particularly vulnerable to further shocks, and fear that as consumers spend less in response to the rising cost of living, they will spend less in pubs and restaurants, or stop going out at all.
Josh Green from the British Beer and Pub Association (BBPA) warns there is now a "particularly potent cocktail" of issues which will lead to places going out of business.
“These increases in costs are so acute that they just can't be covered by price rises," he told PoliticsHome.
“In any case our customers are quite understandably tightening their belts because they're seeing the same pressures on their wallets and the same increase in energy bills.
“So our members are getting it from both ends because they are seeing the input prices going through the roof, and they're also seeing footfall starting to decline as people see going to the pub is a luxury.”
Green said that it was not exaggerating to view the range of cost of living crises faced by the hospitality industry as "existential", particularly for pubs.
“Pubs just won't be able to do business, and if they close they're likely to close for good," he explained.
"That's a town or a village somewhere in the country that no longer has one, and the social value that the pub brings to those areas will be lost forever.”
Molly Davis, from pub industry body the British Institute of Innkeeping (BII), said their members “are facing a minimum of 300% price rises for their energy contracts”, while many gas and electricity providers are simply refusing to offer services to businesses at all.
“Obviously we’re still in summer, and there are some costs for outside lighting and those sorts of things, but for venues where they have to heat in the winter the impact is just going to be devastating,” she said.
“They simply won't be able to survive without further support from government.”
Davis insisted reports of 300% increases in energy bills were not “some sort of outlier”, but what their members across the board are reporting to them, with some saying they are being offered contracts 700 or 800% higher than before.
“It's really not sustainable, it’s wiping out any profits that they may have made in an otherwise peak summer trading period,” Davis said.
She believes we will “absolutely” see pub closures this winter.
“There's no doubt about it, it's a really, really tough situation that's going to lead to business failure, for sure.”
Both the BBPA and BII are calling for an energy price cap for small businesses, as well as more government support with business rates and a cut to VAT.
They would also like to see a significant cut to alcohol duty to boost consumer confidence and keep people coming to the pub, pointing out hospitality provides 10% of jobs and 5% of GDP to the economy.
The government has pointed to the “unprecedented package of support” it has offered businesses throughout the past few years, including the recent fuel duty and VAT cuts.
As well as extending the Recovery Loan Scheme, they have also raised the Employment Allowance to £5,000, and eligible hospitality firms can receive 50% off their business rates bill for 2022-23.
There has been no specific help for rising energy prices, but both Tory leadership candidates Liz Truss and Rishi Sunak have promised further help for households and businesses if they become Prime Minister next month.
However Tom Carnell, who runs The Shed bar and music venue in Leicester, said his electricity bills have quadrupled to £1,600 pounds a month this year, and fears it is only going to get worse this winter.
“We're having to pick and choose our nights a lot more carefully in terms of we need to be at least half full every night we’re open, because if we're not, we're going to struggle to pay our electricity bills,” he told PoliticsHome.
“We can look at raising prices on drinks and tickets and everything like that, but people are struggling with money as it is.”
Carnell said he worries for his business and that the costs are making it prohibitive for anyone in the industry to keep going.
“It's absolutely getting to that point,” he said.
He is so worried about energy costs that during the heatwave he has been taking his staff to work elsewhere during the day rather than have to pay for air conditioning in his own venue.
Abbie Marshall, who runs the Buck Inn in Thornton-Le-Dale in North Yorkshire, said: “In the past six months alone rising costs on everything from energy to food have forced me to update our menu prices four times.
“The unpredictable and extreme nature of the price increases are meaning that I can’t plan ahead, and I know it’s only going to get worse come winter when we need to heat the pub, which is an 18th Century stone building.
“The absolute last thing I want to do is pass on costs to my customers or price locals out of their pub but it’s becoming increasingly difficult to make ends meet and without relief from the Government, I can’t see how it’s going to get any better.”
Davis said if pubs are allowed to fail then “all of the benefits from the grants and the support during the pandemic will be completely lost”.
"The average Pub is bringing £40,000 of debt with it post-pandemic, so if their business fails, then that's lost,” she said.
“That's lost money from the Bounce Back Loans for the Treasury, along with the taxes that they pay, lost employment opportunities in local communities, and the impact of that is going to be felt much more by the younger generation as 40% of people who work in pubs are under 25.
“So there's so many reasons for them not to let us fail. But the overarching thing is that we are viable businesses.”
A government spokesperson said: “No national government can control the global factors pushing up the price of energy and other business costs, but we will continue to support the hospitality sector in navigating the months ahead.
“That includes providing a 50% business rates relief for hospitality businesses across the UK, freezing alcohol duty rates on beer, cider, wine and spirits, and reducing employer national insurance. This is in addition to the billions in grants and loans offered throughout the pandemic."
The government also pointed out the domestic price cap was introduced because the Competition and Markets Authority identified that disengaged households were deliberately being charged excessive prices, but had not found evidence of this happening in the business sector.
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