On-trade

Pubs on track for 50% decline in business

Alcohol sales in pubs will decline by 50% or more for the second half of 2020 according to a new report out today - and this is “our most optimistic market expectation” according to the report’s author DCU Economist Anthony Foley.
According to detailed analysis contained in the report, the cost of reducing the VAT any on-licence alcohol sales to 9% from 23% in the second half of this year will be €143 million.

According to detailed analysis contained in the report, the cost of reducing the VAT any on-licence alcohol sales to 9% from 23% in the second half of this year will be €143 million.

Even if pubs regain half their normal capacity by the end of 2020, which is an optimistic scenario, as many as 22,500 jobs could be permanently lost not to mention countless more in supporting trades like catering, security and entertainment, he stated.

The report, Reduce VAT on On-Trade Alcohol, has been commissioned by the Licensed Vintners Association, the Vintners Federation of Ireland and Drinks Ireland as part of the ‘Protect our Pubs’ campaign. It also states that most bars will re-open with only 40% of their customers – “indefinitely”.

This week, while one-third of Dublin pubs remain closed, outside Dublin over 60% of pubs – small businesses in cities, towns and villages – remain closed. For the pubs that have, or intend to re-open over the coming weeks, Government guidelines will mean a significant change in how they operate.

Another recent LVA/VFI report outlined the stark impact on capacity of operating under Social Distancing guidelines. When applied in any 100sq m area in an on-licensed premises, standing capacity drops to 12.5%, while seating capacity is reduced to 34% of pre-crisis levels – 66% of capacity is wiped out.

The report states that over 50,000 people are employed in the drinks industry through 19,205 businesses in the hospitality sector (pubs, hotels, restaurants). Of these, 96.5% employ less than 50 people meaning that the sector is dominated by small businesses – businesses that are extremely exposed and at risk of shedding half their employment capacity should supports not be made available.

 

The solution

The LVA, VFI and Drinks Ireland have called for a temporary reduction in the hospitality VAT rate, extending this to apply to alcohol sales in the on-trade until the 31st of December 2020 as part of the July Stimulus Package promised by Government.

The measure is being sought to support pubs – 7,000 businesses nationwide – who’ll struggle in the short term until they can resume operating and trade viably at increasing levels of capacity in 2021 and beyond.

According to detailed analysis contained in the report, the cost of reducing the VAT any on-licence alcohol sales to 9% from 23% in the second half of this year will be €143 million. An amended European Commission directive makes it possible to extend and apply a lower VAT rate to the Irish on-trade.

In the UK, a lower VAT rate for the tourism sector – including pubs, restaurants and hotels – is an option currently being considered. Measures are due to be announced later this week as part of its economic statement and fiscal stimulus.

“We anticipate that economy-wide and hospitality-related levels of consumer demand will be lower after lockdown due to the higher level of unemployment and reduced earnings,” said Tony Foley, “It will likely be 2023 before we reach pre-Covid labour market conditions. Without doubt, Ireland’s drinks, hospitality and tourism sectors have been among the worst impacted. Due to restrictions, there’s almost zero tourism and reduced demand in our hospitality sector. This impacts our entire economy and so represents a sector that requires Government intervention.”

The greatly worsened post-Covid commercial model – reduced physical capacity, demand and timed customer visits to the pub – puts thousands of jobs and businesses at permanent risk, claimed VFI Chief Executive Padraig Cribben.

“Pubs closed for four months are continuing to experience the harsh realities of the pandemic, taking the necessary precautions and adapting accordingly. Government policy needs to adapt too. A reduction in the VAT on alcohol would deliver an immediate support to these businesses and instantly improve their commerciality, supporting the initial recovery phase and survival of pubs over the next few months as demand is reduced and costs increase. The alternative is many bars will never open again and the pre-Covid employment and economic contributions will not be recovered,” he warned.

“About one-third of the alcohol revenues generated by the on-trade sector, including public houses and other licensed premises, is taken by Government and diverted from customers, staff, entrepreneurs and investment,” added LVA Chief Executive Donall O’Keeffe, “This very large tax burden is not justifiable in the exceptional circumstances we’re faced with – a severe national and sectoral economic situation – caused by Covid-19. All businesses must adapt and adjust to the new reality which the drinks and hospitality industry has done. Now Government and the Exchequer must adjust its tax expectations accordingly and support one of our key domestic industries”.

And Drinks Ireland Director Patricia Callan pointed out, “The recent government report Economic Considerations for Reinstating Economic Activity concluded that the accommodation and food sector (including pubs and restaurants) had a high vulnerability to permanent damage or output loss. We must act now and provide support to critical industries with ambitious policy decisions.

“Traditionally a VAT cut would enable businesses to reduce prices and stimulate demand. In this case, we’re seeking a temporary VAT cut on alcohol to support businesses – this type of policy measure is the direction we need to go. It will deliver immediate and tangible support for an industry that is a substantial economic contributor.”

The Reduce VAT on On-Trade Alcohol report was published as part of the ‘Protect our Pubs’ campaign which seeks to highlight the important social and cultural role that the drinks and hospitality industry play in our communities and to demonstrate the loss that would be felt should some pubs not re-open due to Covid-19.

Follow the Protect our Pubs campaign at #NewGovProtectourPubs.

 

 

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