{Previously published on here several months ago…any small typos due to child minding my Godson who wants me to watch Scooby Do!}
Sat in my local the other night, I wondered why one of man’s few comforts is now so expensive that pubs are closing at disturbing levels. There has been a lot of debate about the fate of the great British pub, but what are the issues behind the Government’s attempts to shape a new policy around alcohol consumption?
In 1987, Lord Young’s Beer Orders Act removed control of the pub trade from the large brewers, which were viewed as uncompetitive by a Monopolies & Mergers Report. Thus one monopoly position was replaced with another in the form of Pubcos (public house operating companies) created to manage the estates that the brewers were forced to shed. These were largely debt funded by the major institutions, and seen as a property-backed, gilt-edged investment; the only risk appearing to be that of the average Brit becoming teetotal. The debt would be serviced by the profits and rents from the new estates.
Pubcos “tie” both the rents and the supply of products. In effect, they control what a tenant can buy and sell, and at what price. The model is, in part, dependent on property values; they secure the debt and determine its cost. If commercial property values fall the pressure goes down the chain.
The largest Pubcos are Punch Taverns (recently split in two with a new entity called Spirit) and Enterprise Inns; these are hugely leveraged businesses with combined net debt levels of £5.6bn. A reduction can only be achieved by squeezing more revenue from the estates or by asset disposals. A tenant faced by escalating rents has few options but to increase prices. Towards the end of 2011 there was a Parliamentary Select Committee Report on the Pubcos that control around 65% of the estimated 52,000 pubs in the country; it was inconclusive.
However, the Pubcos are not the only players in this story. Successive governments have treated the pub industry like a cash cow; it contributes some £19bn in duty and VAT per annum – around 2% of GDP. Since 2008, duty on beer has increased by 35% and if this is maintained the planned rise this month will take this to 42%. Duty and VAT are now estimated at £1.05 per pint, which is 12 times the level in Germany; Britain’s drinkers are now paying 40 per cent of the entire EU duty bill, yet only drinking 13 per cent of the beer.
Small wonder that the Office for National Statistics (ONS) revealed that alcohol consumption is falling in the UK. Pub beer sales dropped 3.4 per cent in 2011 (equivalent to 125 million pints), and the British Beer & Pub Association (BBPA) estimates the rate of pub closures to be 16 per week. It is a diversionary and disingenuous tactic to suggest that the smoking ban is to blame; many non-smokers find pubs more attractive, not less. To use this as an excuse for pub closures, whilst blatantly ignoring the supermarket policy of using alcohol as a loss leader, is sheer hypocrisy. Add to this the social issues caused by the Blair Government’s introduction of 24-hour drinking, which turned city centres into no-go zones, full of drunken youths who “pre-load” courtesy of the supermarkets.
Some might think it’s a good thing we can buy a case of beer for less than a tenner, but we now have a major health issue caused by alcohol and fuelled by a government in cahoots with big businesses. Despite the sums raked in by the Exchequer, estimates of the cost to wider society suggest that the tax take is all but neutral.
Absent from the debate is any commentary on what is actually being consumed; recently, the duty on beers with an ABV% of 2.8% or less was halved. Whilst this is a move in the right direction (assuming it reduces the price of a pint) the increase in duty for higher strength beers starts at 7.5% ABV; this misses an opportunity by not aiming lower.
Minimum pricing is a bit of a red herring. It will only hit the bargain basement end and have little impact on branded lagers or wine, which most young girls tend to favour when “pre-loading”. Rather than using pricing in isolation, there needs to be a focus on the strength of alcoholic drinks.
When I was a lad, I drank in my local pubs; the beer was relatively low strength and it filled me up, so I could drink no more. In addition, last orders were at 11pm. Drinking cheap alcohol from Tesco’s then hitting the city centre for several hours was not an option. There was also the safety net of knowing that the “village elders” were drinking in the same place; if things ever got out of hand, someone would be watching out for me. As a consequence, community pubs were thriving and alcohol-related illnesses were practically unheard of in the young. Rather than the problem, the pub is really the solution.
Respective net debt burdens held by Punch Taverns and Enterprise Inns from latest 2011 public accounts are as follows:
Punch – £2585m
Enterprise – £3003m
Figures provided by BBPA
British Beer & Pub Association website
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