Closing Time

I've got a new IEA report out today which looks at the recent decimation of the pub trade. I've written a blog post about it here and this is the press release:

Taxation, regulation and declining real wages as a result of the recession have been responsible for the closure of more than 6,000 pubs in the past eight years.

The last forty years have been characterised by a drastic decline in the pub industry, yet  since 2006 the number of pubs has plummeted from just over 58,000 to 48,000, a drop of nearly 20%.

In a new report, Closing Time – Who’s killing the British pub?, Christopher Snowdon looks at the long-term trends - such as changing tastes and the shift towards home drinking – and finds that these alone do not explain the rapid acceleration of pub closures in recent years. Instead, policies such as the smoking ban and alcohol duty escalator are responsible.

Debunking the myth that PubCos are to blame, as well as misplaced calls for government intervention in the form of taxpayers’ money to boost failing pubs, the paper finds that government policy has actively discouraged people from spending time in the pub. To end the downward spiral of the industry, alcohol duty and VAT must be lowered, and one-size-fits-all policies such as the smoking ban must be reconsidered.

Cultural changes

• The decline in alcohol consumption over recent years has been largely driven by a fall in beer consumption, with wine and spirit sales remaining largely unchanged since 2003. This colossal decline has been hugely damaging. On a per capita basis, there has been a 16% fall in beer purchases in the off trade since 2003, but a massive 54% fall in beer purchases in pubs, meaning that pubs are selling half as much beer as they did eleven years ago.

• Economic changes have led to better domestic living conditions, a shrinking of the working class and decline of heavy industry, which explain some changes to the health of the pub industry. The post-2006 decline, however, is exceptional and gradual cultural change cannot explain it.

Taxation and red tape

• The past seven years have been characterised by a flurry of policies which have severely damaged the pub industry. In 2008 the government raised alcohol duty by 6% in real terms and introduced a duty escalator that automatically increased alcohol taxes by 2% above inflation every year thereafter. In 2011, VAT rose to 20%. Combined with falling real wages during the recession, drinking has become much less affordable. The escalator was finally abandoned this year, yet taxes remain high.

• So-called ‘24 hour drinking’ legislation has seen pubs extend opening hours by an average of just 27 minutes. The smoking ban has, however, had a huge impact. Although only 20% of Brits smoke regularly, smokers have always been disproportionately more likely to drink and visit pubs. Following the introduction of the smoking ban, the amount of pub customers who smoked fell from 54% to under 40% in just two years.

PubCos

• The blame attached to PubCos for the decline in pub sales has been greatly overstated. As a percentage of total pub stock, net closures represent 16.5% in the PubCo sector, and 14.6% in the independent sector. Put simply, PubCo pubs have been closing at almost exactly the same rate as independents.

Solutions

• Halve alcohol duty. British drinkers pay 40% of the EU’s entire alcohol duty bill. The government should halve alcohol duty to bring it in line with the European average, which would reduce both the cost of living and alcohol fraud.

• Reduce VAT from 20% to 15% and introduce a lower rate of VAT for food sold in pubs and restaurants, as happens in many European countries.

• Relax the smoking ban. The UK has one of the most uncompromising smoking bans in the world. There is clearly a market for venues that allow smoking in one or more ventilated rooms.

• Abolish cumulative impact zones, which currently prohibit new pubs from opening in areas of high demand.

Commenting on the paper, its author Christopher Snowdon, said:

“British pubs may be suffering from long-term cultural shifts, but government policies have hugely exacerbated this trend. Taxation and regulation have been the leading causes of the decimation of the UK pub industry since 2006. The level of alcohol duty in the UK is hugely regressive, hitting the poorest the hardest. Taxes must be lowered, and one-size-fits-all policies like the current smoking ban must be reconsidered if we are to temper the rate of decline of the British pub.”

You can download the report for free here.