Landlords call time on business rates system ‘which penalises success’
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Suffolk pub landlords are calling for a rethink over business rates, arguing that the current system – based on turnover – is unfair.
The Campaign for Real Ale (CAMRA) argues that pubs carry an unfair tax burden, and is urging government to look again at the issue.
A survey of 650 licensees by the lobby group showed 72% felt the current system was unfair, resulting in financial strain, including the need to lay off staff, put off investment, and raise prices for consumers.
It has sent its evidence to the Treasury Committee, which is currently looking at business rates, and says the issue has attracted cross-party support.
Mike Wood MP, chair of the All Party Parliamentary Beer Group, said in a debate: “We have to address business rates. We need fundamental reform. The relief announced in the Budget last autumn was enormously helpful, with about 80% of pubs benefiting, but they are still hugely overtaxed. Despite only making up about 0.5% of total business turnover, our pubs represent nearly 3% of all business rate payments.”
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CAMRA chief executive Tom Stainer said the current business rates system wasn’t working for England’s publicans.
“The rates hit tied tenants especially hard, as they are usually unable to make cost savings elsewhere and have squeezed profit margins due to the high price of tied beer.”
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The business rates formula for pubs, which is based on turnover, was a particular concern.
Ady Smith, landlord of the Dove Street Inn in Ipswich, said: “When you work hard, and turnover goes up, you are penalised for your success with higher business rates.
“When we took over in 2003 this was said to be a non-viable business. We turned it around, and worked for a pittance to build the business, to create jobs and improve the area, and you are penalised for it.
“We are paying higher rates now, based on four years ago, yet we are seeing a 20% down turn in business year-on-year.”
Essex and Suffolk hotelier and restaurateur Paul Milsom, whose business runs Maison Talbooth, Le Talbooth and Milsoms in Dedham, Kesgrave Hall in Ipswich and the Pier Hotel at Harwich, has become a prominent campaigner for business rates reform.
He went to war with the taxman after the Pier Hotel was designated as a pub, rather than a hotel, attracting higher rates. He won the case, but believes the hospitality industry in general is being crippled by a hugely complex system which he argues penalises success.
Unlike other business units, such as shops or warehouses, pubs and hotels are subject to business rates based on turnover. Within that, there are added complexities, such as higher rates attached to liquor sales over food sales.
Rates were a “dark art”, and a relic of business conditions which no longer apply, with “arbitrary” designations of businesses into ‘hotel’. ‘pub’ or ‘restaurant’ classifications where the reality was that many were hybrids, which diversified to survive, he explained, adding that the system was not fit for purpose and needed a complete overhaul.
“You could have a really big pub with a very low turnover, then a small pub with a massive turnover,” he said. The rates relief for some pubs was “just sticking plaster”, he added. “It’s not dealing with the issue, which is pubs or restaurants or hotels are being taxed too much and the rates are being used as a tax on success.”
The rates should be simplified, and could be worked out on factors such as square footage, rather than turnover, he argued.
“There are a variety of different systems out there and even within the hospitality sector there are different systems for it,” he said. “It’s just ridiculously unfair.”
David Grimwood, chef proprietor of the Froize Inn at Chillesford, said: “What I begrudge is that it goes into central coffers, and we see very little for it locally. If it was going to the local authority for spending here, I could see more reason for it.
“We are a rural area and as a business in a village it is down to me if I can make it successful. We are the only business in the village. We don’t have any street lights and I pay for my own rubbish to be taken away, I don’t even get any free black bags. And we rarely see a policeman.”
Ivan and Helen Sheldrake, who took on the Walnut at Stowmarket in February, have a year’s reprieve from rates after setting up as a new business, but have had to factor it into their running costs from next year.
It was a significant cost, after rent, goods and labour, said Mr Sheldrake, and as it was fixed, there was no leeway with it as there was with beer purchases.
“It appears to be that pubs are hit harder than other businesses and there’s no real logical reason for it,” he said. Pubs were just “an easy target”, he said, as the business model depended on occupying a property. As a freehouse, he had more control of his costs than tied tenants, who were worst affected, he felt.
But lowering costs in order to meet fixed items like business rates meant employing fewer people and working the bar more themselves and sourcing lower-priced beer.
By definition pubs were serving the community, he said, and there was only so much room for business expansion.
“That’s why pubs shut. Pubs are shutting every week and rates isn’t the only reason, but it’s a hefty one.”
Bury St Edmunds brewery and pubs group Greene King said pubs played a “vital” role in communities and high streets but said many face continued pressure from significant business rates increases.
“Urgent steps need to be taken to review the current business rates system to ensure thriving pubs are not unfairly penalised and put at risk of closure,” a spokesman warned.
Andy Wood, chief executive of Southwold brewery and pubs group Adnams, said: “We remain concerned about business rates and their impact on all businesses, not just our own. In our home town of Southwold we have seen large rate increases impacting retailers and the issues highlighted by CAMRA affecting the viability of pubs are also of concern.
“As a progressive, community-focused company, we would welcome the review of how business rates are calculated in all sectors to ensure that we have a vibrant and successful high street community and pub sector that is sustainable for the future.”