Article by Douglas Lambie, Licensed & Leisure Associate at Ryden
There will be a lot of understandable excitement over the reopening of pubs, hotels and restaurants as over four months have elapsed since the lockdown began. Because of social distancing measures, not all licensed premises will reopen and evidence from England indicates that at least one third of venues will remain closed.
Operators face significant practical difficulties and require to balance the cost of reopening, particularly wage costs with the anticipated profit from the sale of food and drink. We envisage that, at least initially, there will be plenty of demand from customers eager to return to some sort of normality. However, fewer customers will be able to be accommodated at any one time.
Reduced customer capacity will result in several premises remaining closed, as operational costs will outweigh the perceived profit. In particular, we anticipate that traditional community style pubs will be the most adversely affected by the social distancing measures. The one with the one metre rule dictating that customers cannot stand around the bar, resulting in a much reduced customer capacity. Venues that rely on providing live entertainment are also unlikely to reopen.
The reduction in VAT from 20% to 5% for sales of food and soft drinks is very welcome. However, we do not consider that the saving in VAT will be passed back to the customer in the form of lower prices. In all probability, the extra revenue will be retained in full by the operator, which is entirely understandable given the precarious financial position affecting all licensed premises and the forecast of lower anticipated earnings until social distancing measures are removed.
We would have preferred to see the reduction in VAT to be extended to cover the sale of alcohol, as not all licensed premises serve food and will receive little benefit.