Monday, 12 October 2015

Will the National Living Wage close pubs?

I've just read an article in the Morning Advertiser by William Lees-Jones of the Middleton brewery, JW Lees, suggesting that the National Living Wage (currently £9.15 in London and £7.85 elsewhere) will close pubs. I don't usually take much notice of economic apocalypse predicted by capitalist companies when they are forced to implement social or welfare measures, or - as I prefer to think of it - are required to face up to their social responsibilities, seeing that the doom and gloom they anticipate rarely materialises. Is this situation any different?

I think it might well be. The gradual introduction of the Living Wage over the next five years is coupled with immediate cuts in tax credits. I have long thought that the state shouldn't be subsidising low wages, currently with tax credits, and previously with Family Income Supplement and then Family Credit. However, it has been the policy of both Tory and Labour governments in the last 35 to 40 years to cultivate a low wage economy to make us "more competitive". It's a typical British response: countries like Germany and Japan modernised their industries to improve the products and make them more attractive to customers. We just tried to cut costs. That is why in the 1970s British Leyland was selling mostly unattractive-looking cars with 1950s engines. The same applied to the brewing industry: the 1970s was a terrible time for beer as companies tried to get us to drink mass produced, low quality national brands.

Our motor industry is now mostly foreign owned, but our brewing situation has - against the flow of the tide of British industry - improved beyond recognition, although that has little to do with the industry as it was. The Beer Orders of 1989 liberated brewing by causing the national brewers to shed their massive tied estates, thereby creating a bigger market for small new brewers. Unfortunately, they also led to the parlous situation that many of our pubs are now in, the reasons for which I've covered many times previously, although the huge debts of pub companies must take much of the blame.

The government is transferring responsibility for dealing with low wages from itself to employers. In principle I agree with this, but their motive is not any concern for employees, but simply to save money. This is demonstrated by the gap between the ending of tax credits and the full implementation of the Living Wage, which will undoubtedly cause hardship. You cannot overturn decades of government policy relating to a low age economy within a single parliament: the more quickly you introduce major changes, the higher the chance of unintended consequences. Just as the removal of tax credits without any immediate replacement may drive many workers into further poverty, the requirement to pay the Living Wage may drive pubs that are just about holding on into deficit. Consequently, I think William Lees-Jones may just have a point to some extent, although I feel that his pronouncements are still partly derived from the usual business habit of crying wolf about increased costs.

An increased level of pub closures is not inevitable: the industry's call for a lower level of VAT for the hospitality industry and cuts in alcohol duty could help pubs deal with the extra cost of the Living Wage, but I see no sign of any of that happening. The government's strategy is high risk, not just to pubs. Time will show how risky, but some casualties do seem quite likely. Regrettably, this may include some pubs.

6 comments:

  1. They can either tax more of your pint to pay for wage subsidies, or higher wages can push up your pint. Take your pick.

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    1. It's not that simple. There comes a point where increasing tax reduces what people spend on the product concerned and thereby cuts government revenue. The quite deliberate increasing of tax on cigarettes is an extreme example of this phenomenon, and many drinkers have cited pub prices (much of which is tax) for reducing or stopping their visits to the pub.

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  2. It's important to remember that most pubs are small businesses run by individual tenants, leaseholders or freetraders, not part of some large corporate entity, even though it may say "Punch" or "Marston's" above the door.

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    1. While that's true, it's also true that most tenants don't operate in a free market economy. They are tied, and their prices are very much determined by the pub owners who, as you know, frequently rip them off.

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  3. It's instructive to compare the brewing industry here with that in Germany. Outside pockets of Bavaria and the Rhineland where brewpubs and small breweries produce some wonderful beer, most of the market is made up of national and multinational companies churning out cheap, low-quality lager. I know that's true here too, but at least here there's an alternative wherever you live in the form of cask beer, which makes up 15-20% of the draught beer market compared to under one per cent for the equivalent in Germany, Alt, Koelsch and Kellerbier.

    There are a couple of reasons for that I reckon: the lack of a national campaign for decent beer, and a belief that your local brew, whatever it is, is the best there is, which is based, at least in part, on the mythology of the Reinheitsgebot.

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    1. 'Mythology' is right. The Reinheitsgebot is a perfect example of protectionism that has somehow become seen as a badge of quality. In reality, it simply imposes a monotonous conformity upon the product while excluding foreign competitors.

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