Thursday, 19 September 2013

VAT in the on-trade

Regular readers will know that I take great interest in taxation across the industry. I remain quite split, in reality, on what is best to be done. On the one hand our tax bill, even as a small brewery taking advantage of progressive beer duty, is quite a high proportion of our sales. On the other hand, I support the need for publicly funded services like the NHS, schools, police and transport networks. The money has to come from somewhere.

Alcohol always has been, and will remain a cash cow for the Revenue. The vast majority of the general public have been successfully convinced that we are all very naughty and deserve to be punished. All we can hope for is to defend our position and if we are lucky, nibble a little to our advantage. Any improvement has to be realistic and achievable. The Scrap The Beer Duty Escalator was a huge success. I believe the Burton MP, Andrew Griffiths, was a great influence on this success.

On the surface the VAT Club's call for a reduction of VAT for the hospitality trade seems laudable. The argument goes that the supermarkets have zero VAT on food, so why should pubs and restaurants pay 20% VAT?

Now, there are several holes in this argument. Firstly, supermarkets still pay VAT on alcohol. Pubs would still have to pay VAT on alcohol, even if the proposed cut in VAT for the hospitality trade were realised. OK, so it could be said a reduction in VAT on food in pubs would help, right? Well, no. Food led pubs are actually doing all right, generally. The losses in the trade are the wet lead pubs. A reduction in VAT on food would not help wet led pubs at all. Indeed, it would probably further damage that sector.

Where it would help most would be in high-end restaurants, you know, the ones where you'd typically have over say £60 a head charges by the time you'd finished. Out of the £60 there would be a £10 VAT element. Fair enough I say. This is the underlying issue. VAT is zero rated on essential or altruistic purchases. Food to take home and feed your starving kids with should always be zero rated. Papers and other printed matter is good for your cognitive wellbeing. Eating out is a luxury. Going to the pub, or even drinking alcohol at home is, really, an indulgence. Sure, it's an indulgence that I firmly believe, when done responsibly and in reasonable moderation is good for the soul, but most of the general public would say it is an indulgence.

It is also interesting that Tim Martin has entered the fray. His chain of cut price Wetherspoon's pubs has, in itself, caused huge damage to the pub trade in general. Most of his pubs are not the community pubs that we love and want to maintain. They are cavernous unglamorous pile-em-high and cut price locations frequented often by marginal alcoholics.

Now, I'll admit Tim's empire also attracts people who are just looking for a value night out. Perhaps people who work hard, on low incomes, and deserve an affordable pint or two. All fine and dandy, and my desire to see free market forces at work does mean that I would never like to see positive action against him, contrary to my gut instincts about his places. However, I do not see why he should get preferential treatment against wet only outlets, which is what the crafty bugger realises, in all likelihood, he will get if he succeeds with his aims.

So, I feel that his attacks against Andrew Griffiths are a direct attack against one of the biggest supporters of the beer industry we have in the government. Andrew realises that this call is not realistic and even if something did happen, it would be unlikely to happen for on-sales alcohol. He realises it is unlikely to happen because, frankly, it would be a lot of money. scrapping of the beer duty escalator was good, and the additional penny off a pint. He realises that we need to be realistic and continue the defend and nibble tactic that works well.

What Andrew has argued is that a VAT cut to 5% would represent a loss to the Revenue of around £11-12 billion. It seems to me that Andrew understands the complete impracticability of such a cut, which represents over £200 for each and every person in the UK. That money would have to be found from somewhere.

I've stayed away from this argument because I know it divides opinion in the trade. What has recently been called to my attention is that The VAT club is run as a commercial enterprise. One French bloke seems to be running away with industry money with the promise of getting VAT cut for the hospitality trade. So now I feel like making a fuss.

Now, I might be proved wrong, and a huge drop from 20% down too 5% VAT across the hospitality trade might realise itself, without prejudice against alcohol. I doubt it, but if it does happen, I'll happily eat humble pie.

5 comments:

Cooking Lager said...

You're not wrong, fella.

When is your grog appearing in Spoons, anyway?

Dave Bailey said...

Thanks Cookie, I'm glad you agree.

When is our grog going into 'Spoons? Well, I'd like to be able to say "never" but of course you know I have to always consider options.

I'm business man. If we get to the point where we think that sending some of our output through their system is viable and overall profitable, then we will do so.

However, that time is not now, and unlikely to be in the next 12 months. It's all about having the capacity and economies of scale to make that grog in enough volume and economically enough to make it worthwhile.

Tom B said...

I'd like to contend that the main purpose of taxation is to pay interest on debt incurred by the "government" in borrowing from a private monopoly,the Bank of England.
The money supply itself comes into being as a interest bearing debt,therefore paying off the debt would eliminate the money in existence. This can never be done as the interest payable also has to be borrowed into existence,again,at interest.

Tom B

Dave Bailey said...

Tom,

I'm not at all sure The Bank of England is a private monopoly. It appears to be wholly owned by The Treasury Solicitor on behalf of the Government.

I obviously can't comment on exactly how the money-go-round operates, as this is way beyond my fiscal comprehension. But I also think your comments are concerned with issues way above what I'm talking about here.

What is clear is that services are paid for somehow. You seem to be suggesting that taxation is only there to prop up some form of smoke-and-mirrors system for keeping a few people rich. It may be the case that above this argument there may well be a system that props up stupidly rich people, and we are blinded from that, and if it's true, I'd like to hear what you solution would be.

However, unless public services are in fact funded by some magic that I fail to realise, one assumes that at least some of our taxes go off to keep public services going.

Or perhaps I'm just very stupid.

Curmudgeon said...

It would be richly ironic if hospitality trade VAT was cut, but alcoholic drinks were excluded.

I'm all for tax cutting, but this isn't the best way to do it.