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Pub trade suffering from smoking ban

Pubs across the country have lost so much trade as a result of the smoking ban that some are now entitled to a tax cut.

By Patrick Hennessy
Last Updated: 9:32PM GMT 08 Nov 2008

The hardest-hit establishments could be in line for reductions in their business rates, potentially worth thousands of pounds a year, according to newly-disclosed official documents.

The decision has come about because tax inspectors, after consulting legal counsel, now accept that the smoking ban represents a "material change" to the trading position of pubs.

When the ban was first introduced in July 2007, amid claims by health campaigners than smoke-free would attract more drinkers into pubs, tax inspectors said that the new law would not represent a material change in either direction to their trading position.

As a result of the initial flawed advice, the Government's Valuation Office Agency (VOA) refused to give pubs any rate reduction for loss of business.

Last night the Conservatives accused ministers of "ripping off" of pubs and "covering up" vital information that could stop locals going out of business. Currently four are closing every day according to the British Beer & Pub Association (BBPA).

The blunder was exposed after Tories obtained previously-unpublished guidance from the VOA on how firms should be charged business rates.

Pubs can now use the finding that the smoking ban is harming their trade to make a claim to lower the "rateable value" of their premises – cutting their bills every year. However, they can only do so if they make an application, fill out complex forms and, in the words of the VOA, "satisfy the general requirements for validity including sufficient wording to identify the nature and date of the change".

The Government has made no announcement about the potential for tax reductions for pubs.

Eric Pickles, the shadow local government secretary, said: "Whilst massive pub chains may be making money out of Labour's 24-hour drinking laws, small everyday pubs are suffering from the onslaught of higher beer taxes, a weakening economy, supermarkets selling alcohol below cost price and the public smoking ban.

"Whatever people's views on the smoking ban, it has been a significant change that has affected many pubs. The Government's own tax inspectors have now admitted that pubs may be eligible for refunds on their business rates, but pub owners are being intentionally kept in the dark on this U-turn. This is yet another tax cover-up from the same bureaucrats who have conspired to hide council tax errors.

"Thanks to Whitehall secrecy and this stealth pub tax, local firms are going to the wall and everyday pub goers are being hit in the wallet."

The VOA's guidance on setting ratable values, updated in June this year to include advice on the smoking ban, states: "It was not considered that this change [the smoking ban] could constitute a MCC [material change of circumstance] and earlier versions of this advice reflected this. Advice from counsel now shows this view to be wrong that the ban on smoking can be a matter affecting the physical enjoyment of a hereditament.

"In considering smoking ban proposals, VOs [valuation officers] need to envisage what rent would be have been paid for the hereditament at the AVD [original valuation date] assuming the ban was then in place affecting both the subject premises and other premises ... Proposals citing the ban on smoking should be re-examined."

Unlike council tax, business rates are based on the 'rateable value' of the property. For every pound that this rateable value is increased or decreased, the final business rates bill will rise or fall by 44p – so a reduction in rateable value of £5,000 because of the smoking ban would see a pub's business rate fall by £2,200 a year.

The BBPA estimates that pubs – hit by the effects of the ban, declining consumer confidence and the credit crunch, are now closing at the rate of 27 a week. This is seven times faster than in 2006 and 15 times faster than in 2005.