Living Wage to add ‘financial pressure', Wetherspoon warns

The new National Living Wage will put financial pressure on pubs already struggling with closures and a VAT rate of 20%.

That's the warning from JD Wetherspoon chairman Tim Martin, who was speaking as his company unveiled its preliminary results for the 52 weeks ended 26 July 2015.

Wetherspoon saw its revenues over the period increase slightly to just over £1.5b for the period, up from 1.4b the year before.

However pre-tax profit dipped slightly to £77.8m, down from £79.4m the year before.

Martin, who has long highlighted the disparity between pubs and restaurants, which are obliged to pay 20% VAT on food sales and supermarkets, which pay virtually no VAT, said the new living wage would create further "financial pressure".

The National Living Wage, announced by chancellor George Osborne in his Budget earlier this year, will see companies obliged to pay their workers aged 25 and over a minimum of £7.20 an hour from April 2016, rising to £9 an hour by 2020. The current minimum wage level is £6.50 an hour.

Martin said: "Wetherspoon 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, now called a ‘the living wage'.

"In addition, as Wetherspoon shareholders are aware, we pay about 40% of our profits (£30.7m in the year under review) as a bonus or free shares, over 80% of which is paid to people who work in our pubs. 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."

Wetherspoon said that pub wages already accounted for around 30% of sales. Therefore a pint purchased in a pub at the national average price of around £3.50 represents about 85 pence in respect of wages. In contrast, a pint bought in the supermarket at around £1 represents about 10% of supermarket wages.

The company claimed to have paid taxes of £632.4m during the year, an increase of £32.2m compared to the previous year, accounting for 41.8% of its sales.

Meanwhile, in the six weeks to 6 September 2015, the firm saw a like-for-like sales increase of 1.4%, with total sales increasing by 5.2%.

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