Why single out taxes?

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There have been reports that UK Ministers are planning to change the planning rules around pubs in order to make it harder to close them, with developers to be required to prove that there is no reasonable prospect of keeping a pub afloat before a change of use can be considered. Talking of the causes of pub closures, the Guardian says “Pub and restaurant bosses have blamed the employer national insurance increase, the higher minimum wage and food price inflation as well as high business rates”, the BBC blames “taxes and employment costs”, whilst the Sunday Times (paywall) says the closures are “largely as a result of rising costs from the increased rate of employers’ national insurance contributions … and high VAT and business rates”.

It’s true, of course, that if the costs of a business increase, it can be harder to keep that business viable without an increase in prices. That’s just Economics 101. The corollary is that if one element of those costs could be reduced whilst leaving all other factors unchanged, then the business will become more profitable. So, if the government stopped collecting taxes on pubs, those pubs would become more profitable. But it’s equally true that those same pubs would become more profitable if the breweries stopped charging them for beer, or the wholesalers stopped charging them for food. Taxes are just one element of the costs of a business, rather than some sort of special extra cost. The bottom line isn’t that taxes are causing pubs to shut, it is that the demand for the services of those pubs at the prices required to make a profit is insufficient. And the ‘rules’ of capitalism tell us that a business which cannot sell its wares at a price which enables it to cover its costs and make a reasonable profit is a non-viable business, which should close, with the demand then concentrated on a smaller number of businesses.

I wouldn’t actually advocate that – pubs perform useful social functions particularly in rural communities and there may be good reasons for subsidies or other forms of assistance to keep them open.

The point, though, is that blaming taxes tells us more about the ideological stance of those making the claim than about the economics of the pubs sector. Successful businesses depend on a supply of suitable trained and educated workers; they depend on those workers being healthy and fit for work; they depend on the infrastructure required to get their supplies delivered and the customers to their door. What, exactly, is the argument that those are not in themselves business costs, even if indirect? And a business which cannot pay its employees a living wage has no basis for remaining open anyway.