Business

Not The Beer: UK Minimum Wage Could Kill Pubs

The popular British and Irish chain J D Wetherspoon warned Wednesday that a newly proposed minimum wage will cause more pubs across the United Kingdom to close.

Restaurants and bars tend to operate at a low profit margin and are often impacted much worse than other industries when the cost of labor goes up. According to company chairman Tim Martin, the pub industry is already struggling with costly taxes and unfair regulations.

“Pubs contribute around 40 percent of sales as taxes of one kind or another and are important generators of jobs,” Martin said, according to Reuters. “Capricious initiatives by the government, widening the financial disparity between pubs and supermarkets, will threaten the future of many more pubs.”

Pubs are already in danger across the country. Nearly 96 close down every week in the U.K. reports Sky News. The new minimum wage was introduced last week by Chancellor George Osborne and is expected to rise gradually over the course of several years.

“Britain deserves a pay rise and Britain is getting a pay rise,” Osborne said at the House of Commons. “I am today introducing a new National Living Wage.”

“We’ve set it to reach £9 an hour by 2020,” he detailed. “The new National Living Wage will be compulsory. Working people aged 25 and over will receive it. It will start next April, at the rate of £7.20.”

Martin also argued the government should reverse prior policies which unfairly hurt the pub industry. Specifically pubs have to take on extra costs compared to businesses like supermarkets because they have to pay a Value-Added Tax. Such taxes take 20 percent of profits from the food they serve.

Studies on minimum wage increases have shown similar results in the United States. Just like in England, the effects are often worse because restaurants and bars already operate at a low profit margin.

“A higher minimum wage represents a particular challenge for restaurants, which depend heavily on hourly workers,” William Fahy, vice president and senior credit officer for Moody’s, said in a statement from June. “But restaurant operators will have a tough time passing higher labor costs on to customers without negatively impacting traffic.”

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