Why are so many pubs closing?

400 pubs closed in England and Wales in 2024.  There are still about 39,000 pubs but 2025 is set to see more than 400 more close their doors forever.  The British pub is a dying institution.

Why are so many pubs closing?

Very simply ....taxes, high labour costs (due to employment taxes) and energy prices.

Well Sweden is well known for being expensive for beer yet taxation in the UK is higher than Sweden!  Swedish taxes are 48.2% yet Britain is 54.2% for draught beer. Contrast that with Spain which is just 4.8%.

Let's start with a pint of beer.  Let's say it's £6 per pint.

Firstly there's VAT at 20% on a £6 pint. So £1 goes to Rachel.

Next there's alcohol duty.  Some good news here. It was 61p but has been reduced since Feb 25 to 48p.  Yes you are paying VAT on the tax.....

Although it's not all good news.  Alcohol duty is linked to RPI so will increase again on the 1st Feb 2026. RPI is currently 4.4% and the Bank of England expects inflation to rise higher this year so that's at least another 2p on duty next year.

For now £1.48 (24.6%)  of your £6 pint goes to Rachel.  It brings a whole new dimension to "did you spill my pint".

The price of a cask of beer (72 pints) is around £65+VAT. We'll ignore the VAT as that will be recoverable. So the material cost of a pint of beer is about 90p. 

However there is wastage. Sediment, spillages, customers tasting it if it's a real ale, breakages, the barrel being empty so a full pint is not pulled etc. Best in class wastage is 5% so we'll assume 10%. So the material cost has increased to £1.

So let's look at a pub I know has closed.  Looking up the business rates the current rateable value is £45,750. Let's assume the standard multiplier of 54.6p so the actual business rates due is £24,979.5.

So the gross margin on a £6 pint is  £3.52 so the pub needs to sell 7,096 pints just to cover the business rates.

This assumes the beer sells before the "use-by-date" and isnt poured down the drain.

This closed pub was (is) seasonal.  Prime seafront location.  It was open 7 days per week June to end of September then only open Friday, Saturday and Sunday out of season and closed November to February. So in reality the pub was open 160 days per year. 

So 45 pints (£270 bar sales) for each day it is open are needed just to cover the cost of the Business Rates. Zero profit made so far.

Energy bills are another pub killer. Pubs are businesses so the energy price cap doesnt help them. My sample pub is likely to have been paying £3,000 per month on average. By being open in the summer months only it probably saved them the expensive heating bills by being closed in the winter. So we will pro-rata the spend.  It would have cost them £36,000 for a whole year but part-time trading reduced their energy bill to around £16,000 per year.

So Rachel is making more money here.  Energy bills are subject to the Climate Change Levy.  Currently it's 0.775p/kwh and will rise to 0.801p/kwh from April 2026 (expect more pub closures).

We'll assume pub energy consumption is 50% electric and 50% gas.  Typical electric prices are 27p/kwh and 9p/kwh for gas (excluding VAT). 

So the Climate Change Levy is another £1,000 of tax per year that pubs have to pay hidden in their bills.

OK let's move on to staffing costs. Our pub needs people to function.  

So our pub is open 11am until 1am during the summer. It was open shorter hours out of season. For simplicity we will assume 14 hours of trading for 160 days per year.  Let's assume staff worked 7 hours per day (2x 7 hour shifts) and we have 4 people per shift. So we have 8 people working per day. In reality we will employ more people that 8 since they probably wont want to work every day June to September.

So we have  1,280 work days per year.  With minimum wage of £12.21 per hour our annual wage bill is £109,401 per year.

We now need to factor in national insurance (the Rachel employment tax) and other costs such as paid holiday, pension etc.

So employer pension contribution will be £3,282 per year.

The national insurance Rachel tax would be £2,583 per year per employee so £20,666 however we're only open 160 days per year (and dont pay the staff when they are not working) so the Rachel tax is reduced to £9,059 per year.

So let's recap on all these costs

Business rates     £24,979

Energy                £16,000

Wage bill            £109,401

Rachel tax          £9,059

Pension               £3,232

So far our costs are £162,671.  So assuming £3.52 gross margin per pint, we need to sell 46,213 pints to break-even - not even make a profit.  So that's 289 pints every day (£1,734) - 21 pints per hour we are open just to cover costs. 

We have ignored credit card commissions etc.

Hang on - we havent factored in any rent or purchase costs for the pub - a pretty big cost.

The pub freehold is up for sale for £450,000.  

A quick search shows commercial interest rates are 7.1% so the interest on the mortgage will be  £31,950 per year

So our costs are now £194,621 per year.  So we need to sell 55,290 pints per year to break-even. So 345 pints every day (£2,070) - 24 pints per hour to break-even.

Now our pints are £6 whereas the local Wetherspoons are selling for around £3.00.  Let's assume we want to compete with Wetherspoons. So we price our pints at £3.60. So VAT is 60p, alcohol duty is still 48p so the gross margin on the pint is now £2.52.

We now need to sell 77,230 pints per year, 482 pints per day (£1728), 34 pints per hour to break even. That's 40% more pints for 17% less turnover.

Let's assume we want to make £194,621 profit per year to enable us to pay off some of the capital in the mortgage and have money to invest in the business for things like maintenance, repairs, refurb. Handle emergencies like staff sickness (temporary labour).    We would need to double the sale of beer to 964 pints per day.

We haven't considered other operational costs like refuse collection (glass, empty cans etc).

That means we would need to now sell 68 pints per hour to achieve that.

Our turnover is now £548,352 (£3,427/day).

Rachel is making the following regardless whether we make any profit

Business rates     £24,979

VAT on sales    £92,540

Alcohol duty    £74,035

National Insurance    £9,059

Total taxes = £200,613 (36.6% so far)

If we do make a profit we will be subject to corporation tax and likely hit with the marginal rate of 26.5% (approx £51,000 in tax).  

It's clear wet sales is going to be a challenge.  If we decide to stock lots of real ales to attract people to our pub then there's a higher risk of wastage.  If we focus on a small range of beers then people may not come to our pub as there's too little choice.  If we decide to sell bottles of beer for a longer shelf life then we are hit with packaging taxes and increased waste collection costs.  

If we want to have entertainment eg live bands then there's more cost and probably the nosy council will get involved.

We would then need more security - our staff costs have just gone up....

We may decide we need to sell food as part of the proposition.  We then have increased staff costs, food wastage, energy bills are pub etc.

It's all getting way too complex. My assumption is we have customers coming through the door that want to buy a steady stream of beer.  The reality is probably very different. A bit of sunshine and we get sales - if the weather is bad then no-one is out and our sales flat-line.

I can see why people are closing their pubs. Even with somewhere like Wetherspoons I have noticed the trading environment has changed in the last 5 years.  5 years ago it was difficult to find an empty table on a Friday night. Nowadays it's pretty easy to find a table. Imagine how hard it much be for local pubs to attract customers?

So how can pubs survive?

1/ Reduce their energy costs - increased use of solar power for example. Wood burners in the winter to avoid expensive gas heating.

2/  Look at automation - maybe self serve beer terminals for example in order to reduce staffing levels.  OK that detracts from the pub experience but this is about survival of the pub industry.

3/ Close your UK pub and open a bar in Spain.

4/ Elect a new government that cares.

Sadly option 4 seems to be the simplest option....