JD Wetherspoon warns 'unfair' VAT will force it to hike meal prices

·3-min read
Eating breakfast in a Weatherspoon pub
Eating breakfast in a Weatherspoon pub. Photo: Steve Parsons/PA Images via Getty Images

Pub chain JD Wetherspoon (JDW.L) will increase its food prices by about 40p ($0.55) per meal as a result of "unfair" VAT. 

The company also expects it will continue to make a loss this financial year and plans to seek debt waivers from its lenders for the next financial year.

In a statement, it said “taxes should be fair and equitable” but that “one area of undoubted unfairness, which creates economic distortions, relates to VAT”.

It explained that supermarkets pay zero VAT on food, but pubs and restaurants pay 20%, in normal circumstances.

The government reduced VAT on food for the hospitality industry to 5% last year, but it is now proposing that VAT returns to 20% in the next year.

“The interim rise to VAT of 12.5%, in September 2021 will result in Wetherspoon having to increase food prices by around 40p per meal. The VAT rise will make the entire hospitality industry less competitive vis a vis powerful supermarkets,” the pub chain said.

“Apparent tax benefits to the Treasury, from higher taxes on food for the hospitality industry, are a chimera, since tax distortions cause lower growth,” it added.

Shares in the company were down 0.5% on Wednesday morning.

Wetherspoon's stock ticked lower on Wednesday morning. Chart: Yahoo Finance UK
Wetherspoon's stock ticked lower on Wednesday morning. Chart: Yahoo Finance UK

In its trading update, the company said that as of 4 July, 850 of its pubs were open, out of a total of 860. Most of the closed pubs are at airports. 

Between 12 April and 16 May, when only outdoor trading was permitted, about 500 pubs were opened, and like-for-like bar and food sales were down 49% compared with 2019 before the pandemic hit.

Like-for-like sales from 17 May to 4 July, when pubs were fully open, were down 14.6%.

For the period from 17 May to 10 June, before the UEFA Euro 2020 football tournament started, like-for-like sales were down 8.1%.

From 10 June to 4 July, during the tournament, like-for-like sales were down 20.8%.

Apart from a limited number of exceptions for individual matches, Wetherspoon pubs have not televised Euro 2020 matches.

“While pub operators across the UK have cheered on the Euro football championship as it has boosted sales, Wetherspoon is paying the price for not having televisions in its boozers,” said AJ Bell investment director Russ Mould.

Read more: Wetherspoon's chief blames UK's 'no common sense' COVID lockdowns for £46m loss

“This disadvantage is a complete turnaround from last summer when its pubs had a strong advantage in that they were often bigger than rival outlets in the same area and were better placed to accommodate social distancing measures.”

The company also said it has 75 projects in the pipeline: 18 are new pubs and 57 are extensions and upgrades to existing pubs.

Once complete, it plans to invest approximately £750m on more such projects over the following 10 years, which could mean the creation of about 20,000 jobs.

The company said it is “in a sound financial position” with net debt of £865m on 4 July 2021 which it expects to reduce to £833m by the end of this financial year.

Going forward, Wetherspoon continues to expect to make a loss for the year ending 25 July 2021.

"The company is in need of the dose of tonic which 'freedom day' will present, given that punters will be able to pack in shoulder to shoulder once more," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"Its business model relies on filling its vast venues and selling large quantities of cheap alcohol and social distancing restrictions wreaked havoc with this."

The company posted a £46.2m loss in its half-year results as Britain’s lockdown restrictions cut sales for the company in half. It had posted a £57.9m profit in the same time period last year.

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