We need a government that understands the difference between taxing a business and dismantling a community
The state is funnelling cash into rural areas to address isolation while killing the businesses that cure it
On Wednesday mornings in my little rural village in Hampshire, I have two options for a morning coffee. The first is the charming community café, freshly ensconced in the village hall, which is a cross-generational space where my teenage daughter serves coffee to our octogenarian neighbours, and which I happen to love. The second is an equally charming local pub, sadly now our only one after the other closed its doors two years ago. The café is packed, so I head up the hill to the pub. It is shut, presumably choosing not to compete for custom with Wilfrid’s in the village hall.
My village is fortunate. According to the British Beer and Pub Association, the UK’s main trade body for brewers and pub companies, we have lost more than 21,000 pubs since 1980, which is nearly a third of the 69,000 that existed then. The majority of those lost are in exactly the kind of small settlement where no coffee shop, no community café and no publicly-funded warm hub has materialised to replace them. For those villages, the question of whether the pub survives is not a lifestyle question. It is the difference between having somewhere to go and having nowhere at all.
It is a small, local illustration of a much larger policy problem.
Nobody in Whitehall can tell you how much tax the village pub contributes to the Exchequer. That is not because the number is small – it runs, conservatively, into hundreds of millions. It is because HMRC collects alcohol duty at the warehouse gate, not the bar, and has never felt the need to find out exactly what happens after the truck departs on its delivery rounds. The village pub, in fiscal terms, is invisible to the state that depends on it. It is not, however, invisible to the state that competes with it.
We can make an educated estimate of that contribution. Total alcohol duty receipts for 2024/25 came in at £12.6 billion (with the forecast for 2025/26 already revised down to £11.9 billion, a quiet admission that declining consumption is beginning to erode the base). Roughly 20% of alcohol by volume is consumed on-trade, suggesting the entire pub, bar and restaurant sector accounts for around £2.5bn of that duty. The BBPA puts the sector’s total tax contribution – rates, employment taxes and VAT included – at north of £15bn, but the alcohol duty alone will do for now.
Of the UK’s remaining 45,000 or so pubs, around 15,000 broadly qualify as village locals by location. They collectively serve far less volume than town-centre bars, restaurant chains and Wetherspoon megapubs, so a reasonable working figure for their duty contribution is in the region of £250 million annually.
Now, let us look at what the state spends to replicate what those pubs do for free.
The picture, as with most government intervention, is fragmented, but the scale is far from trivial. The Plan for Neighbourhoods is rolling out £1.5bn specifically targeting community cohesion and loneliness. The Rural England Prosperity Fund (REPF) directs around £50m a year to settlements below 10,000 people. The ACRE grants awarded by Defra fund warm hubs and social inclusion in rural communities. A £1bn Great British Energy programme exists partly to keep village halls financially viable.
No single number captures the full picture, and not all this spending targets the precise social function a pub performs. But the direction is clear: the state is funnelling substantial sums into rural areas to address the very maladies of isolation, loss of community space and lack of warm social infrastructure that the village pub has historically cured, while simultaneously making it harder to be a village pub. This creates a tension which has two distinct dimensions, both traceable to government policy.
The first is unfair competition. The Community Ownership Fund (COF), the REPF, ACRE grants and similar streams fund community halls, warm hubs and social spaces that are free or near-free to users, subsidised by public money. In a village context, these perform precisely the social function the pub has always performed: a warm gathering place, a venue for the kind of incidental human contact that combats loneliness. When a subsidised village hall hosts a weekly coffee morning for £1 a head, it is competing directly with a pub that must charge £4 for a coffee or £5 for a pint. The subsidy is not neutral in effect.
The scale of that competition is admittedly modest in aggregate: the COF spent £135m over four years, the REPF £143m over two. Set against a £28bn pub industry those numbers look manageable. They feel rather less manageable if you run a rural character pub with a weekly turnover of £5,000 – the BBPA benchmark figure – and a subsidised community space has just opened down the road.
The second problem is more fundamental. The government taxes pubs as commercial businesses while publicly funding their community function elsewhere. This is structural incoherence: the state acknowledges that village social infrastructure has public value (hence the subsidies, grants, and the community ownership frameworks) but taxes the primary private provider of that infrastructure as though it were no different from any other leisure business. A subsidised warm hub carries no NI liability, no business rates, no alcohol duty, no commercial rent. A village pub bears all of those, and the 2024 Budget made every one of them heavier. The contest between publicly-funded hubs and privately-run locals was already uneven. It is becoming more so.
Buried within that structural picture is one particularly striking illustration of the dysfunction. The COF gave £13.7m in direct grants to 52 pubs to save them as community assets. The government was, in other words, subsidising pubs to survive while simultaneously raising their operating costs to the point where they needed saving. The COF was, in part, a rescue fund for a sector that government policy had helped to put in distress.
There is a word for a system that taxes a private provider of public goods into distress, funds alternatives to replace it, then hands out grants to stop it closing: incoherent. There is another word for continuing that system after the evidence of its effects is visible in every closing-time notice nailed to a village pub door: obstinate. The village pub does not need a strategy, a taskforce or (especially!) a community ownership framework. It needs a government that understands the difference between taxing a business and dismantling a community.
If government genuinely believes that rural social infrastructure has public value, and its willingness to fund it suggest that it does, then it should align policy accordingly.
The neatest solution would be to designate single-pub villages as a protected category and exempt those pubs from business rates and employer National Insurance, and to reduce or rebate alcohol duty attributable to on-trade sales in those locations. The sums involved would be modest in Treasury terms (plausibly comparable to what is already being spent on competing community provision) but transformative at the margin for fragile rural locals, and could pump millions in discretionary consumer spending back into underserved communities. Instead of taxing the primary private provider of social infrastructure and subsidising alternatives to replace it, the state could simply allow the pub to survive on its own terms.
(Note: Wilfrid’s receives no direct subsidy, and runs at a surplus, which it donates to local causes)
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