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Wetherspoon boss attacks minimum wage plan as profits slump Wetherspoon boss attacks minimum wage plan as profits slump
(about 2 hours later)
The boss of JD Wetherspoon has launched a fresh attack on ministers over the “national living wage” and tax policies, as the pub chain reported a 25% fall in profits. JD Wetherspoon founder Tim Martin has warned that a “national living wage” in the UK risks further pub closures, especially in less-affluent areas, and criticised the way the Conservative government has effectively taken minimum wage policy away from the Low Pay Commission.
Tim Martin, the company’s chairman, claims pubs are under unfair pressure from the way they are charged VAT compared with supermarkets and that the introduction of the planned national living wage will intensify the squeeze on them just as many are closing. “There was a nice sense of impasse with the coalition where issues such as this were settled in the economic arena and it was difficult for politicians to cause too much damage. My worry is that these decisions are now all in the hands of politicians,” said Martin.
Martin claimed the new pay rules had been decided “by one or two politicians on a whim, for political reasons”. “We can not make the country richer by setting the minimum wage at an unrealistic level.”
It comes a day after retailer Next became the latest company to set out how it would be affected by the living wage policy, saying the cost of implementing it could rise to £27m a year, resulting in higher prices for consumers. Related: George Osborne’s national living wage a gamble, warns CBI boss
Chancellor George Osborne surprised many in the summer budget that the minimum wage would rise to £7.20 in April for workers over-25 and increase to around £9 by 2020.
“The issue is that investment is bound to be affected if businesses feel that important issues, such as the minimum wage, are to be decided by one or two senior politicians on a whim, for political reasons, rather than being subject to careful consideration by organisations such as the Low Pay Commission,” Martin said.
His comments came as the pubs group reported a 25% fall in pretax profits to £58.7m for the year to 26 July despite a rise in like-for-like sales of 3.3%.
The results were hit by a large number of exceptional items. The group’s bottom line was weighed down by one-off items including an £11.2m write-down on the value of under-performing pubs.
Martin said it was “impossible’” to predict how many pubs might close as a result of being forced to bring in the national living wage but he said his feeling was that the “economic pressure” would be felt more in Port Talbot, Bridgend or Ashington than in Notting Hill Gate.
“It is especially in the less-affluent areas where the price differential between pubs and supermarkets have widened,” he added.
Related: Next boss serves up some sober analysis of wage policyRelated: Next boss serves up some sober analysis of wage policy
Martin spoke out as JD Wetherspoon reported a slump in pretax profits to £58.7m for the year to 26 July, despite a rise in like-for-like sales of 3.3%. Bar sales grew 1.2% with food up 7.3% and slot and fruit machine revenue down 2.8%. “My real point is that this has been taken out of the economic arena and put into the political arena where politicians do things for populist reasons and perhaps short-term ones.”
The group’s bottom line was weighed down by one-off items including an £11.2m write-down on the value of under-performing pubs. But stripping these out, profits were still down 2% to £77.8m, partly due to higher wage costs. Martin stressed that pub wages represent about 30% of sales and that a pint purchased in a pub at the national average price of about £3.50 will represent about 85 pence in wages. “In contrast, a pint bought in a supermarket, at an estimated price of £1, will only represent about 10 pence of supermarket wages, since their wage percentage and selling prices are both far lower those of pubs.”
Martin has long campaigned about the disparity between pubs being charged 20% VAT on food sales while supermarkets are charged nothing, allowing the big grocers to subsidise alcohol sales.
Wetherspoon said it increased the minimum hourly rate for staff by 5% in October 2014 and by a further 8% at the end of July 2015. Both decisions were taken without the knowledge that the government was about to announce a new minimum wage. In addition, the group said it paid about 40% of profits (£30.7m in the year under review) as a bonus or via free shares, over 80% of which is paid to people who work in its pubs.
Martin said the coalition’s policy of allowing the Low Pay Commission to effectively determine policy for the lower paid was “imperfect” but it nevertheless was better than leaving it to politicians.
Martin has long campaigned about the disparity between pubs being charged 20% VAT on food sales while supermarkets are charged nothing, saying this allows the big grocers to subsidise alcohol sales. He says it is the biggest danger to the pub industry.Martin has long campaigned about the disparity between pubs being charged 20% VAT on food sales while supermarkets are charged nothing, saying this allows the big grocers to subsidise alcohol sales. He says it is the biggest danger to the pub industry.
He has now also voiced alarm over the new national living wage, in which over-25s paid a minimum of £7.20 an hour from April next year, rising to £9 by 2002 – claiming again that this will weigh more heavily on pubs than on supermarkets.
That is because 85p of a typical pint costing £3.50 goes on wages whereas a pint bought at a supermarket for £1 only represents 10p of wages, he said. Wetherspoon employs nearly 35,000 people.
Martin said Wetherspoon had already increased its minimum hourly rate by 5% last October and a further 8% in July and that it pays about 40% of profits - £30.7m in the current year – as a bonus or free shares, mainly to those working in pubs.
He said: “By pushing up the cost of wages by a large factor, the government is inevitably putting financial pressure on pubs, many of which have already closed.
“This 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.
“It is certain that high streets in less affluent areas, which already suffer from serious problems of empty shops and dereliction, will suffer further if pubs and other labour-intensive businesses close.”
JD Wetherspoon, which operates Wetherspoon pubs as well as Lloyds No 1 bars, opened 30 pubs in the financial year and closed or sold six taking the total to 951. It plans to open 15 to 20 in the year to July 2016.
The group said like-for-like sales in the six weeks to 6 September rose 1.4%.
For the current year it expects to benefit from opening more pubs, a better economy and low interest rates but faces a drag from competition with supermarkets and restaurant groups as well as higher staff, repair, bar and food costs.
Analysts at N+1 Singer said annual results were “a smidgen below” consensus forecasts and a slow start to the current year reinforced fears about overcapacity and heightened competition.