Sir Keir Starmer’s position on the ‘pub tax’ is “unsustainable” and the Government will have to U-turn on the measure, Labour MPs believe – piling more pressure on Chancellor Rachel Reeves.
The Prime Minister has offered “licensing reforms” to soften the blow of higher business rates, but publicans have said they need a reduction in the steep increase in tax bills planned for April for establishments to survive.
In November’s Budget, the Chancellor Rachel Reeves announced changes to business rates.
A discount on rates introduced during the pandemic will come to an end in April, with the Government saying it will help the high street instead by lowering the “multiplier” it uses to calculate rates.
However, at the same time the Treasury has readjusted the values of commercial properties, with many business owners seeing an overall tax rise as a result.
Tax will force pubs to close, landlords claim
UK Hospitality, which represents more than 100,000 venues, suggested that in 2027/28, an average pub’s rates will be £4,500 higher than today, and in 2028/29 £7,000 higher.
Publicans in particular have voiced outrage over the move, with many warning that it will increase their tax bills by thousands of pounds and force some establishments to close or hike up prices.
In December Paul Crossman, owner of three venues in York and chair of the Campaign for Pubs, told The i Paper the hospitality trade had failed to bounce back since Covid and would not cover the extra taxes. “The only solution is price increases – the money has got to come from somewhere,” he said.
“You can see people already on social media saying, ‘God I’ve just paid over £8 for a pint in London.’.
On Monday, Sir Keir Starmer said he recognised that the revaluation meant many hospitality businesses would “struggle” with new rates.
As a result, he said the Government was “working” with pubs on issues such as “more freedom for licensing”, which could mean longer opening hours or more pavement eating and drinking.
Labour MPs believe ministers will have to U-turn
However, Labour MPs increasingly think the Prime Minister and Reeves will be forced into a U-turn on the tax changes in the same way they had to concede ground on inheritance tax for farmers, where ministers U-turned just before Christmas by increasing the planned threshold from £1m to £2.5m.
A Labour MP told The i Paper that the situation on business rates for hospitality was “unsustainable, economically but ultimately politically too.”
The MP said it was “inconceivable” that the Government would go into the 2029 election having presided over a huge increase in rates. “No one is that stupid”, they said.
They said it was not yet clear what form the “policy tweak” would take. “The legitimate challenge [the Treasury] has is that the previous government ‘drugged up’ business with huge discounts and reliefs on reduced valuations,” they said.
Paul Crossman (Pic: Kathy Evans)The MP added that this meant the Treasury was faced with a dilemma about how to be fair to businesses without upending local government financing.
A second Labour MP said on the prospects for a U-turn: “I would be shocked if there is not support announced before the spring statement [on 3 March].”
On Tuesday, Downing Street said venues could get longer opening hours and more freedom to let customers drink on outside pavement areas.
The Prime Minister’s Official Spokesman said: “We’re talking to the sector, particularly hospitality and pub, about what further support we put in, whether that’s licensing freedoms or other measures.
“We want to talk to the sector, we want to keep working with them to make sure we can work this through.
“But what we’re talking about here is working with pubs and other hospitality businesses to slash red tape, speed up licensing reforms, boosting business by helping more venues stay open later, offering pavement drinks and putting on one-off events.
“We know that some pubs and other hospitality venues like hotels face challenges as their business rates transition away from pandemic-era valuations and temporary pandemic support, and that’s why at the Budget, we confirmed £4.3bn pounds of support over the next three years.”
Treasury says support will be ‘non-fiscal’
A Treasury source told The i Paper that the support for firms would be “non-fiscal” and that no changes were planned to the tax arrangements announced in the Budget.
However, the hospitality industry has said that licensing reform will not be enough to compensate pubs for the business rate changes.
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Kate Nicholls, Chair of UK Hospitality, said: “Licensing reform was looked at last year. We now need to discuss solutions to avoid staggering business rates hikes in April.
“I’m pleased that the Prime Minister is open to dialogue on this issue. We stand ready to talk directly with him about the only issue that matters to hospitality today – business rates.”
A Treasury spokesman said: “We’re protecting pubs, restaurants and cafés with the Budget’s £4.3 billion support package.
“Without this support, pubs would face a 45 per cent increase in the total bills they pay next year. Because of the support we’ve put in place, we’ve got that down to just 4 per cent.
“This comes on top of our efforts to ease licensing to help more venues offer pavement drinks and put on one-off events, maintaining our cut to alcohol duty on draught pints, and capping Corporation Tax.”
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