Another day, another weighty opinion on the ‘national living wage’. Tim Martin, the outspoken chairman and founder of pub chain JD Wetherspoon, said today that the increase to the minimum salary for over-25s will ‘push up the cost of wages by a large factor… inevitably putting financial pressure on pubs, many of which have already closed’.
Martin has already made known his opposition to the national living wage (NLW), but this time he’s explained in more detail how it is likely to affect his FTSE 250 business. The impact of the NLW will be particularly severe to pubs and restaurants because their wage bills are higher than those of supermarkets, which are their main rivals in the alcohol and food sectors.
As a result, the ‘financial pressure will be felt most strongly in areas which are less affluent, since the price differential in those areas between pubs and supermarkets is far more important to customers’, Martin said.
It comes in some contrast to retailer Next and coffee shop and hotel company Whitbread, both of which weighed in on the issue recently. Whitbread said there would be a ‘substantial cost increase’ from the NLW, while Next anticipated a more modest increase (£2m rising to £27m by 2020, against a current wage bill of £500m). Both, however, said that this would translate to small price increases and productivity gains, rather than widespread job losses and closures.
The difference is that the NLW will have an uneven and thus distorting effect on the overlapping pub and grocery markets, while high street fashion and hotels are more self-contained (this is less true for Whitbread's coffee shops and restaurants, admittedly, making it more exposed than Next).
What Martin really wants is tax relief. He pointed out that pubs and restaurants pay 20% VAT on food while supermarkets pay ‘virtually nothing’, and that ‘this disparity enables supermarkets to subsidise their alcoholic drinks to the detriment of pubs’. Wetherspoon’s tax bill, Martin added, was a whopping 41.8% of its overall sales in the last financial year.
‘The government would create more jobs and receive higher levels of overall revenue, if it were to create tax equality among supermarkets, pubs and restaurants,’ he said. Such a move probably wouldn’t go down well with beleaguered supermarkets, but that’s by the by.
Martin’s comments accompanied Wetherspoon’s full year financial results, which had a rather sour tone. Pre-tax profits fell by 25% to £58.7m for the year to July 26, although that was largely as a result of property impairments for underperforming pubs and a technical change in the way the business accounts its inventories.
Before exception items, profits were only down 2%, off 3.3% growth in like-for-like sales and a 7.4% increase in revenues to £1.5bn. Shares remained almost as flat as a week-old stout on the news, falling 0.4% to 717p.