Oct. 27 (Bloomberg) -- JD Wetherspoon Plc, the U.K. owner of 823 pubs, may have to scale back its expansion plans if the government introduces a further increase in beer tax, said Chairman and founder Tim Martin.
“The tax system is unsustainable from the point of view of pubs,” Martin said in an interview. “They either change the system or they are going to have a lot less pubs. If they put excise duty up again we will look again at our expansion plans. We would consider scaling back on our investments.”
Wetherspoon plans to open 50 new outlets in the next financial year. Beer duty, including value added tax, has increased by 38 percent since February 2008 and the government has a policy to increase beer tax by 2 percent above inflation, said Douglas Jack, an analyst at Numis Securities in London. Pubs pay a 20 percent tax on food sales whereas supermarkets pay no value added tax.
“It would be the straw that broke the camel’s back,” Martin said in a phone interview on Oct. 25. “Taxes have to come down just to make the industry competitive.”
The government should cut the 20 percent rate on pub food sales to 5 percent and suspend any further increases in beer tax, Martin said yesterday in a telephone interview.
Beer sales at U.K. pubs fell 4.3 percent in the third quarter from the same time a year ago, the British Beer & Pub Association said two days ago. U.K. pub profits are being squeezed by cheaper alcohol at supermarkets such as Britain’s largest Tesco Plc. Rising unemployment, government austerity measures and stagnant wages, which are failing to keep pace with inflation, is putting further pressure on household income.
Wetherspoon said in September full-year sales rose 7.6 percent to 1.07 billion pounds ($1.7 billion) for the year ended July 24. Net income rose 14.8 percent to 46.8 million pounds.
A further increase in beer duty at 2 percent above inflation “would be unhelpful for Wetherspoon,” Jack, who has a “reduce” rating on the stock, said. “Wetherspoon is at the discount end, trying to pass higher costs on to relatively price-sensitive customers. They are disproportionately disadvantaged.”
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