The British and Irish pub is an institution unique to this corner of Europe. Pubs sit at the centre of most British communities, simultaneously serving as restaurants, drinking establishments and social venues. Where a pub drifts into being a bar, restaurant, or even a hotel is hard to define, but what makes a pub a pub is so ingrained in our culture that for Brits the simplest definition is that we know it when we see it.
However since 2002 the number of pubs in the UK has been in steady decline. A number of factors have been blamed for this including high levels of taxation on alcohol, rising property prices and bad management. The British press has taken up the cause and the falling number of pubs regularly generates column inches and editorials.
Over the last few years the Government has regularly taken action to halt the slide but has so far failed: the number of pubs fell by almost 1% between 2015 and 20161. Taxes have been cut, planning laws have been tweaked, and special allowances have been made, but the number of pubs is still falling. However, the story is not simply one of decay but also one of change. Perhaps more than any other high street enterprise, pubs reflect the society in which they exist. The pubs of today are very different from the pubs of twenty years ago, which were, in turn, different from their predecessors. These shifts come from changing regulations such as the smoking ban and health and safety laws, the changing tastes of the customers and changes in the structure of the pub industry. In 2016 the number of British pubs which were independently owned overtook the number owned by breweries and pub companies for the first time.
These small British businesses, often backed by the price of their property, have proved to be very popular investments under the UK Government's tax-advantaged schemes. VCT managers have made significant investments in pubs and restaurant as part of their portfolios. EIS products have been set up investing exclusively in chains of pubs.
In August 2017 the UK Government published its consultation on the Patient Capital Review. The consultation highlighted that the majority of EIS funds "had a capital preservation objective in tax year 2015/16". This has led to speculation in the tax-advantaged space that asset-backed investments may be restricted or removed entirely in the upcoming November budget. The EIS Association response to the consultation proposed that EIS investments be "excluded from partially or wholly contributing to the purchase of a freehold, or lease premiums on leaseholds on [sic] more than 25 years." Investment in pubs is a prominent example of asset-backing in the tax-advantaged market and, while any specific actions that the Government may take are as yet unclear, investors and managers hoping to use EIS schemes to invest in pubs should be holding their breathe on November 22nd.
In 1946 George Orwell wrote an article for The Evening Standard in which he imagined his perfect London pub: a quiet and cosy venue called The Moon Under Water. It had a big garden, tobacco for sale and the bar staff knew your name. Today Wetherspoon's owns 15 pubs called The Moon Under Water, including a converted cinema in Manchester which is one of the largest in the United Kingdom, serving thousands of pints every day. In the world of the British pub nothing remains static for long but fresh ideas and fresh energy can turn real profits and build big companies.
In its new sector overview report Allenbridge, part of MJ Hudson examines the key drivers and threats to the UK pub industry, as well as the way in which investments in this area have been made under the UK Government's tax-advantaged investment schemes. The report looks at the future of pubs and suggests to potential investors which questions to ask when making an investment in this space.
We will also be providing commentary on the potential changes to the rules governing the tax-advantaged investment world further to the Chancellor's Budget. Look out for more newsletters and reports in the months ahead for the latest on what investors and managers should expect.
1 BBPA Statistical Handbook 2017
MJ Hudson Allenbridge's Pub Sector Piece can be found at https://www.mjhudson.com/wp-content/uploads/2017/10/Tax-Advantaged-Investment-in-the-Pub-Industry.pdf
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