A higher minimum wage threatens to put many British pubs out of business, JD Wetherspoon said on Wednesday, warning of “unsustainable pressure” on an industry struggling with taxes and competition from supermarkets.
British finance minister George Osborne last week announced a bumper pay increase in his first post-election budget, with the current 6.50 pound ($10.20) minimum wage set to rise to a 7.20 pounds for those aged over 25 from next April.
Renamed the “living wage”, the rate will grow steadily over the following four years to around 9.35 pounds an hour.
“Pubs contribute around 40 percent of sales as taxes of one kind or another and are important generators of jobs,” said Chairman Tim Martin.
“Capricious initiatives by the government, widening the financial disparity between pubs and supermarkets, will threaten the future of many more pubs,” he added, as he trimmed the group’s own profit expectations.
Wetherspoon, which operates more than 900 pubs, had already agreed to raise its average minimum pay by 8 percent from August to 7.29 pounds.
Higher wages, price competition and investment in improvements to its pubs are depressing Wetherspoon’s margins. Its shares fell five percent on Wednesday after it said pretax profit in 2015/16 would be unlikely to better this year’s figures.
Many British pubs have lost drink sales to much cheaper supermarkets and around 29 pubs a week are closing.
Wetherspoon, which spends almost a quarter of its revenue on wages, called on the government to harmonise VAT sales tax and business rates for pubs and supermarkets to ease pressure.
Pub groups argue that supermarkets can subsidise alcohol prices because they do not have to pay VAT sales tax on most food sales. Pubs pay 20 percent VAT on food they serve.
Wetherspoon’s pretax profit is set to fall 1.5 percent to 78 million pounds for the year to July 26 and the firm forecast a similar performance for 2015/16, dashing analyst forecasts of 86 million pounds.
The group’s fourth quarter operating margin fell again to 7.0 percent, due to higher costs and cut price breakfasts and coffee deals. The firm guided to a full-year margin of 7.4 percent, down from as much as 10.2 percent in 2009.