Pubs giant Mitchells & Butlers today called time on dividend payments for the immediate future, as it said it would concentrate on lowering its medium-term debt.

"We have produced a resilient performance despite the smoking ban and the credit crunch," said chief executive Tim Clarke. "The suspension of dividend payments reflects proactive debt reduction in uncertain markets, not a change in the fundamental long-term prospects of the business."

The City was not fazed by the cut, which followed rival Punch's last month, and the shares rose 7½p to 146p.

The news on current trading was slightly better than expected, with M&B saying that in the eight weeks up to last Saturday like-for-like sales were running 1% ahead of last year.

As has been the case since the smoking ban came in from July 2007, food sales are driving growth, up 3.5% against drink sales up 0.5%.

Clarke said that M&B's outlets, which include Harvester, Crown Carveries and Sizzling Pub Co, will pass on the 2.5% cut in VAT to customers this weekend.

He said: "It's a massive operation to change the tills and systems, but it's important we pass the cut through in what is a very value-driven eating-out market. Obviously we are disappointed that the Chancellor took back in duty on drink what he cut in VAT."

Clarke would not put a date on when dividends might be resumed, saying the target is to cut unsecured medium-term debt from its current £475 million to £300 million by December 2010.

He said cash generation remained strong at £164 million in the last year. Total debt is £175 million lower at £2.73 billion.

As food, energy and wage costs climbed, pre-tax profits fell by 13.5% to £179 million in the year to end-September. Revenues rose by just 0.7% to £1.9 billion.

Clarke said rises in bills, wages and duties mean sales have to go up about 3% for profits merely to stand still.

He said the run-up to Christmas is less important to pubs than it used to be, with his key period the extended holiday from 22 December to 3 January when he hopes people will eat out.