Bearing how erudite and learned the Institute of Economics (IEA) I am very proud to have my essay on pub closures published. My hypothesis was that the smoking ban has led to 75% of pub closures since July 1st 2007.
“Is the smoking ban to blame for the high rate of pub closures?”
Labour leadership candidate David Miliband has been posing as the champion of the Great British pub, saying he can save it by confronting large breweries over the beer tie. Under the beer tie, a landlord might pay £130-£140 for 88 pints of beer, while a freeholder might pay £60-£80. Cheap supermarket drinks have also been blamed for the recent spate of pub closures, as well as the recession of course.
However, figures from the British Beer and Pub Association (BBPA) suggest that these factors may be relatively unimportant. The smoking ban is probably the main reason for the recent decimation of pubs and may be primarily responsible for 3 in 4 closures.
Taking the pre-ban years, 1980 to 2006, the average percentage loss of pubs per year was 0.65%. From 2007, the year of the ban, onwards, the average has been 2.8%. In 2007, there were 56,791 pubs in the UK, so one would have expected, based on the long-term trend, 369 pubs to close. The actual figure was 1,409. So, an ‘excess’ of 1,040 pubs closed, suggesting that perhaps three-quarters of the closures may have been caused by the ban. The ‘excess’ closures have continued at a similarly high rate in subsequent years. (Studies of the pub industry byNielsen PLC and PriceWaterhouseCoopers provide additional support for the hypothesis that the smoking ban is a key driving force behind pub closures.)
There are alternative explanations – the rate of closures would be expected to increase during an economic slowdown, for example. Yet the closure rate quadrupled in 2007 before the onset of the recession. Moreover, the closure rate in 2008 and 2009, at around 3% per year, has been far higher than in previous recessions. For example, in the deep recession of 1980-82 the average was 0.86%, while in 1990-92 it was 1.5%.
The beer-tie issue is long-standing so does not explain the acceleration of the closure rate. Indeed, the reduced turnover caused by the smoking ban has inevitably focused attention on pubs’ costs – rent and business rates, as well as the beer.
Finally, it is a myth that supermarkets all of a sudden started selling cheap alcohol after the smoking ban was introduced. The issue of much lower supermarket prices compared with pub prices predates the ban, so does not convincingly explain the acceleration in closures.
While in-depth research would be required to ascertain accurately the relative impact of various factors, the statistical evidence certainly appears to support the view that the smoking ban is playing a pivotal role in the rapid decline of Britain’s pubs. If this is the case, the policy implications are clear: to reduce the rate of closures, pubs and clubs should at the very least be allowed to provide separate ventilated smoking rooms.”