Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
I beg to move,
That this House believes that the Department for Business, Innovation and Skills’ proposals for reform of the pub industry fall short of the undertaking given to the Business, Innovation and Skills Committee in July 2010 and that only a statutory code of practice which includes a free-of-tie option with an open market rent review and an independent adjudicator will resolve the contractual problems between the pub companies and their lessees; and calls on the Government to commission a review of self-regulation of the pub industry in the Autumn of 2012 to be conducted by an independent body approved by the Business, Innovation and Skills Committee.
I thank the Backbench Business Committee for agreeing to allocate time for this very important debate. It might not be immediately obvious, but the motion addresses issues that are vital to some of the poorest people in our community—publicans, many of whom work very long hours and earn less than £15,000 a year. It is hardly surprising that many of them just give up and go elsewhere, and the consequences are visible up and down the country as pubs close day after day. The consequences hit not just publicans but the local communities they serve. Increasingly, rural villages are without a village pub and without the social hub and activity concentrated in that pub. That adds to the sense of alienation.
Even in my local area, where 10 years ago there were four pubs within a mile, only one is left. I know that experience is shared by Members up and down the country. There is obviously something profoundly wrong in the industry. Some of it is about social changes, but, to go to the heart of the problem, a huge volume of evidence now shows that the business model governing the relationship between pub licensees and the pub companies that own the pubs is crucial. The code of practice that governs the relationship between them is heavily weighted in favour of the pub company. I and others will be addressing some of the issues that arise from that.
Mr James Gray (North Wiltshire) (Con)
I would be grateful if the hon. Gentleman clarified one small point that is missing from the motion: namely, that he is referring to large pub companies that own large numbers of pubs and that family-owned brewing companies that own fewer than 500 pubs, such as Wadworth and Arkells in my constituency, are specifically excluded from the statutory regulation for which he is calling.
Mr Bailey
Yes. Let me make it clear that I am basically speaking about the Select Committee reports, which were about pub companies, but I recognise that there is an issue with breweries and their tenancies that in some cases might be relevant to this discussion. I know that individual Members will draw the necessary distinctions in the debate and I hope to allay any fears they might have.
Kevin Brennan
Towards the latter end of the previous Parliament, when I, as a Minister, and my right hon. Friend the Member for Wentworth and Dearne (John Healey) did a lot of work on this subject, there seemed to be a great deal of consensus between the then Select Committee and the then Opposition parties that such a measure was necessary. Is my hon. Friend surprised that we have reached a stage in this Parliament where we have to debate this matter because action has not been taken?
Mr Bailey
I need to make a little progress, as I am conscious that many people want to speak. If I have time, I shall take further interventions.
For the reasons I have outlined, the BIS Committee and its predecessor have held no fewer than four inquiries into the issues surrounding the trade. The previous report in 2010 under the chairmanship of the hon. Member for Mid Worcestershire (Peter Luff) gave the industry a year to get its house in order or have statutory legislation. That was agreed by the Labour Minister in 2010. Subsequently, after the general election, when the Secretary of State for Business, Innovation and Skills was asked whether he would uphold the previous Government’s position, he confirmed he would.
The current BIS Committee held an inquiry in 2011 and came to the unanimous conclusion that pub companies had not met the requirements of the previous Committee’s recommendations and that a statutory code with an independent adjudicator should be introduced. It also recommended that any code should have within it the option for a publican either to be tied to the pub company or to be free of such a tie and instead pay a rent to the pub company, which would be determined by a general open market review by a suitably qualified assessor.
The Government’s response to the Committee’s recommendations has been totally inadequate. The Minister’s pledge fails to meet the aspirations of virtually all sections of the industry apart from those of the pub companies and reneges on the pledge given previously by a Minister. In the time available, I cannot deal with every point of variance between the recommendations of the Government and those of the Committee, but I know that many of the issues will be teased out in subsequent speeches.
Greg Mulholland
I thank the hon. Gentleman for giving way and I pay tribute to his work and that of the Committee. He mentions the clear commitments given by Ministers. Is he aware of the e-mail from the office of the right hon. Member for Witney (Mr Cameron) to Justice for Licensees on 13 April 2010, saying:
“The Conservative Party support the idea that should the industry fail to deliver self-regulation by June 2011, the Government . . . should end up consulting on putting the Code of Practice on a statutory basis”?
Mr Bailey
No, I was not aware of that e-mail, but I am sure it will illuminate subsequent discussions.
I cannot deal with every issue that has arisen, but it is possible to summarise some of the key issues, the first of which is the statutory code of conduct and an adjudicator. Instead of doing as the Select Committee recommended and introducing a statutory code, determined after consultation with all sections of the industry, the Government have said they will make the existing codes between pub companies and their licensees legally binding. That might sound like a very subtle distinction, but most pub companies believe that their existing contracts with their licensees are legally binding anyway. This approach simply legalises and regularises a situation that is the source of the problem in the first place, and makes very little change.
The second key issue concerns the legal advice that the Government seem to have obtained in reaching their conclusion on the best way forward. On pressing this issue, it became clear to the Committee that the legal advice taken by Government was actually that given to the British Beer and Pub Association—the trade association of the pub companies. They do not seem to have taken any independent legal advice whatever.
Ann McKechin
My hon. Friend is very generous in allowing me to intervene. Does he share my concern that the key difference between a statutory code and a self-regulated one is that under a self-regulated code if a pub should be sold by the landlord to another company that was not a member of the said trade association, the tenant would have no rights, as currently provided under the code, whereas under a statutory code they would have rights?
Dr Murrison
The hon. Gentleman is being very generous. How does he believe the motion might be improved or amended to dispel the concerns expressed by family brewers of the sort referred to by my hon. Friend the Member for North Wiltshire (Mr Gray) that they would be affected by a statutory code when that is not the case?
Mr Bailey
I am not amending the motion, but I assure the hon. Gentleman that in the Select Committee’s consideration of any panel to assess the workings of the voluntary code the Committee would make the panel well aware of this issue.
The third issue is the weakness of the framework code. It is fair to say that the Government acknowledge that the existing framework code is weak, even though they are making it legally binding, but to date all the proposals for strengthening it seem to have come—surprise, surprise—from the British Beer and Pub Association. I cannot think of anything more likely to destroy confidence within the wider industry and among publicans than a code that has been supposedly strengthened on the advice of the BBPA.
John Healey (Wentworth and Dearne) (Lab)
I am very grateful to my hon. Friend for giving way and I congratulate him and the Committee on the report. Does he think that the code will help Mr Wild, who runs a very popular pub in Rotherham, whose business is being throttled by the terms of his tenancy? He tried to arrange with Enterprise Inns to buy his cask ales free of tie. He was told it would be £10,000 to £15,000 negotiable but was then told, three days later, it would be £20,000 non-negotiable. He asked for that to be put in writing but was refused. He was then told that the agreement would be for each one of his cask ales, not all five, and that it would be not a one-off payment but an annual payment.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. A lot of Members want to get in, so we need shorter interventions.
Mr Bailey
Thank you, Mr Deputy Speaker. The short answer is that the motion is designed to provide a way forward that will end that sort of abuse. Like other Members up and down the country, I am sure, I have several equally unjust examples.
A fourth and crucial problem is the concern within the wider industry that the proposals do not reflect the interests of all relevant sectors. Given that there is effectively a dispute between the pub companies and the licensees, it would be reasonable for all their interests to be considered equally, but this does not seem to have happened. I thank the hon. Member for Leeds North West (Greg Mulholland) for the work he has done, through freedom of information requests, which has clearly highlighted that the Government always intended to have a voluntary code, rather than a statutory one, and above all that in their response to the Committee they have reproduced almost word for word sections of submissions made by the British Beer and Pub Association. That completely undermines the confidence that the wider industry had in the Government’s impartiality and commitment to finding an even-handed solution. That is one of my motives for wanting to put what I hope will be a fail-safe device in the motion to gain some sort of purchase on the process.
The fifth issue that I want to address is the Government’s refusal to accept the BIS Committee’s recommendations regarding the free-of-tie option with open market rent review, which I have mentioned. The Select Committee’s position is not that there should be one option or other, but we do say consistently in all our reports that that option should be available for new and existing publicans so that they can, on the best professional advice, make a decision about what most clearly meets the needs in their business plan. Unfortunately, that is not included in the Government reply.
It is fair to ask why the motion does not call for immediate statutory legislation. The original recommendations of the Select Committee were predicated on the assumption that any such statutory intervention would arise from genuine and inclusive consultation, but the overwhelming evidence—I again thank the hon. Member for Leeds North West for the information he has obtained through FOI requests—is that the process is being driven by the BBPA. It is for that reason that I included in the motion a requirement that an independent panel be set up, with membership approved by the Select Committee, to ensure that any assessment of the processes that the Government undertake to deliver their proposals is monitored, and that recommendations can subsequently be made.
It is important for Parliament not only to state clearly today the need in principle for a statutory code, but to retain control of the process to ensure that the code genuinely reflects the interests of all sides of the industry. That is why I changed the motion in that respect.
Richard Fuller (Bedford) (Con)
My point is about the timing of the review. A reasonable person looking at the motion would see that it mentions changes that are currently being implemented, but the hon. Gentleman is now calling for a review just a few months after they have been put in place. Will he explain the reason behind holding a review so soon after the changes?
Mr Bailey
The reason is that the Government started to implement their proposals for changes in the industry a month before Christmas, so it is reasonable to assume that by autumn 2012 we shall have some idea of how they are working. By setting up an independent panel of professionally qualified and suitably experienced people to assess the changes, we will be able to make a judgment about pursuing further statutory intervention.
Mr Bailey
No, I am sorry. I am coming to a conclusion and other people want to speak.
Concerns are reflected in a submission from the Association of Licensed Multiple Retailers, which comments on the Government’s existing proposals:
“We have seen no action plan or agreed procedure to ensure open consultation in accordance with Government standards of best practice. There are also no agreed criteria or timetable against which progress may be judged or successful outcomes determined. Finally, there is no process for ongoing monitoring of Government to ensure that these commitments are delivered or sanctions available if they are not.”
The proposals for an independent panel are designed to deal with that concern in the industry. My real fear is that if we pursue a statutory code without a mechanism for ensuring that it is based on the interests of all sectors of the industry, we could end up with the worst of all worlds—a statutory code based only on the interests of the BBPA.
The motion is not about more regulation; it is about liberating licensees, not regulating them. They are already heavily regulated in their contractual relationships with the pubcos. Our proposals for a statutory code would enable them to be free of some of those regulations. A properly constructed code of practice would provide a basis for some of our most entrepreneurial small business men to free up their talents and demonstrate how well they can serve the community.
I remind everybody in the Chamber that thousands of publicans up and down the country will be listening to and watching our debate, because they know that its outcome could be vital in determining their future. At the moment, they feel overwhelmingly let down. It is up to Parliament to pass the motion and to demonstrate today that we are on their side and that we will not rest until they get a fair deal.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I remind Members that Mr Speaker has not selected the amendment and that we have a five-minute limit on Back-Bench speeches.
Mr Brian Binley (Northampton South) (Con)
I thank my friend and colleague the hon. Member for West Bromwich West (Mr Bailey), the Chairman of the Business, Innovation and Skills Committee for his contribution. It has been an honour to serve as vice-Chairman under his guidance and I welcome the debate.
Mr Deputy Speaker, as you in particular will know, since 2004 there have been four Committee inquiries on this subject; I have had the pleasure of participating in two of them. Progress has been made, but many assurances have been given about the voluntary code that have not been upheld and that is not good enough.
The background is relatively simple. The nature of public houses and the associated brewing industry has changed much in the last 30 years. I recall a Monopolies Commission investigation as long ago as 1972, as a result of which breweries were increasingly made to question the value of maintaining their estate. In consequence much of the estate was sold, initially to entrepreneurs, but they were progressively usurped by the big players who developed massive estates of pub chains. They borrowed much to create those estates and therein lies the problem.
Bob Stewart (Beckenham) (Con)
Is my hon. Friend talking about pub companies that own pubs, rather than breweries that have a pub estate? Is that the thrust of his argument?
Mr Binley
That is absolutely correct. I am talking about pubcos and I exclude family businesses that own fewer than 500 pubs. The big owners of pubs and their unsustainable financial structures are the real problem. Let me make it clear: this is not about family-owned brewery companies, who do a very good job indeed. I am talking about big pub companies whose model is unsustainable; it is based on excessive debt, misleading information and deception, as the inquiry has proved.
Karen Bradley (Staffordshire Moorlands) (Con)
Will my hon. Friend clarify this point? Is it correct that large pub companies borrowed against future rental income, so they are dependent on that to sustain their high levels of debt?
Mr Binley
They borrowed against the value of the properties, and rental income is very relevant. That is absolutely correct. Therein lies the unsustainability of the model, when we bear in mind that the breweries built up their estate over a 200-year period.
Sadly, tenants are the victims of that unsustainable structure. In many cases they face prices higher than those on the open market, exorbitant rents and a quart-measure of misleading information. To make a pub work, individuals have ploughed in their savings on the back of distorted information, and as a consequence they have gone to the wall. Most publicans are dedicated and hard-working people. We should take note: they are influential opinion formers in our communities and many of them have been badly treated. All I seek is fairness on their behalf.
Following the Committee’s 2010 inquiry, there was a clear understanding that the industry would have a year to get its house in order, or a statutory code of practice would be introduced. I questioned the previous Government and received that assurance. I questioned the current Secretary of State, who confirmed that he would continue with that promise, but the Government have sadly reneged on that undertaking. I find that very sad indeed.
The Government’s proposals for a legally binding voluntary code are not good enough. They have performed a volte face on this issue and it is incumbent on them to explain why their proposals are superior. How will a voluntary code work? The Minister’s argument seems to be that the level of protection will be comparable to that provided by a statutory code, but why is a voluntary code preferred when it has failed in the past? If the answer lies within the industry, why has it taken so long to make such desultory progress? Why should this Minister have any more faith in the industry than his predecessors, who had similar confidence? What is the cost of the voluntary code? How does it compare with the certainties that statutory regulation would bring? How much will it cost tenants, when they are in trouble, to pursue an action under the voluntary code? Those answers I demand from the Minister today. Concerns about the future of the industry abound. Why should small tenants be made to pay the price? They have suffered enough. Were they not persuaded to take on these pubs under false pretences, under an unsustainable structure? Does not all the Committee’s evidence prove that to be true?
I want the Government to support the entire industry, including the tenants. That means that in companies with more than 500 pubs—that excludes the small businesses—tied tenants should have the option to become free of the tie.
Andrew Bridgen (North West Leicestershire) (Con)
Does my hon. Friend agree that the current relationship between many tied pub tenants and large pub chain owners is almost feudal, and is neither fair nor sustainable?
Mr Binley
I agree, and I am grateful to my hon. Friend for making that point.
We need an opportunity for an independent, open rent review within the terms of the tenancy. Those who choose to stay tied need to have the option of selling a guest beer. We need to give tenants more freedom to decide the style and structure of their business. Those things are not available within the pubcos at present. Those are fairly simple requests. I do not believe that they can be achieved without an independent ombudsman to monitor compliance—history and practice are on this side of the argument.
I do not know why the Government have sought to back away from their own commitments. I recognise the need to compromise in the way that the Chairman of the Select Committee has explained, but if we want, as I do, a virile and vibrant pub industry that is strong for the future, we need to deal with the cancer that is undermining it and putting its very existence under threat. That, Mr Minister, means that we need to change the proposals that have already been made. I expect the explanations I have asked for, and I expect the Minister to be compliant and say that changes will be made—
Ian Lucas (Wrexham) (Lab)
It is a pleasure to follow the hon. Member for Northampton South (Mr Binley), whose eloquence I aspire to and whose passion I can only dream about. I know that he has much experience of the detail of this issue from the Select Committee. One aspect of it in particular has concerned me for many years.
Before I came to the House, I was a high street solicitor, although I try to keep that quiet most of the time. One thing that I found most surprising when I began to work on commercial leases, particularly in the licensing sector, was the existence of this curious anomaly called the beer tie, which seems to create an anti-competitive situation in the brewing industry that does not appear to be allowed in any other industry.
Andrew Griffiths
The hon. Gentleman talks about the anti-competitive nature of the beer tie. Does he accept that a number of Government reports and one by the Office of Fair Trading have said that it is not anti-competitive at all?
Ian Lucas
I shall come on to that, and I reject that decision entirely. I accept that the OFT has investigated the matter on a number of occasions. Like many Members of the House and publicans in my constituency and across the country, I have for many years been completely mystified by the inactivity of the OFT and by the conclusions it has reached. We all know that pubs in our constituencies are in crisis and that the beer tie is part of the problem.
Greg Mulholland
The hon. Gentleman will be aware that the OFT said clearly that the imbalance in the relationship between tenants and pub companies was not within its remit. It did not even comment on the substantive issue that we are debating today, so its report is not relevant.
Ian Lucas
Absolutely. The inequality in the bargaining power of pub companies and publicans is a central issue. We see that month after month in our constituencies. It is part of the crisis that is happening in town centres and high streets across the country. We must view the debate in the context of the important challenges that we all face, no matter what type of constituency we have.
I looked at this issue in detail before the last general election, when I surveyed publicans throughout my constituency on how their business could be improved. They were vociferous in responding, and one of the overriding themes was the existence of the beer tie. I am therefore astonished that the Government’s response to the Select Committee states that
“the Government therefore considers the debate over ‘tied’ or ‘free-of-tie’ to be largely a distraction. There is nothing in itself that causes the tie to be fundamentally wrong—and, in fact, in some instances, the tied model may be essential to the preservation of small British brewers and local beer—and, with them, British businesses and jobs.”
We have already touched on the position of small brewers. The inequality in the bargaining power of large pub companies and the publicans on our high streets is a central issue.
I was a Minister for regulatory reform before the last general election, and my view is that regulation should be a last resort. As far as I am concerned, this is the last resort, and this case desperately calls for regulation because we have to balance out the unequal bargaining power that is removing real choice from consumers on our high streets. When consumers go to their local pubs they are prevented from purchasing beers that they want because of the existence of the beer tie.
Fiona Mactaggart (Slough) (Lab)
I am glad that my hon. Friend is talking about consumers. One of my concerns is that the number of pubs in my constituency has declined since 2005 from 52 to 33, which is not untypical. There is less choice for consumers, partly as a result of this issue.
Ian Lucas
That is absolutely right. We know that CAMRA, which has done superb work in this area over many years, takes the view that
“the ‘beer tie’ as operated by the large pub companies is a key driving factor behind the decline of the pub trade.”
These concerns have been recognised over the years by various Select Committee reports. We all know that it is a very complex and difficult matter of long standing and that it is of grave concern to our constituents.
CAMRA goes on to say that the Secretary of State for Business, Innovation and Skills and the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey),
“both gave clear Government commitments that if the pub companies failed to meet a deadline for self regulation by June 2011 then they would act to require meaningful reform. These commitments have been broken.”
That is a very serious allegation, and I am sure that the Under-Secretary will want to respond to that in due course.
The commitments were given in the context of the build-up to the last general election. This was a major issue in campaigns in all parts of the House. When the election came there was a broad consensus about what action needed to be taken. It is unfortunate that the parties in government have not carried that consensus through to the implementation of policies that are broadly based and command respect throughout the House.
We know that there is a crisis on the high street and that pubs on those high streets play an extremely important part in a functioning and vibrant local community. The Government have the power to make a real impact on high streets by dealing with this issue, and they must do so simply by fulfilling the commitments they gave before the general election and that Ministers have made since. They need to respect publicans, the pub trade and our high streets and follow through on those commitments.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Time is very tight, so perhaps Members could ease back on interventions. Those Members who wish to catch my eye, if they have already intervened, will have to go lower down the list, because otherwise it is unfair on those waiting to speak. If Members can try to make the most of this and shorten their speeches, the better it will be.
Greg Mulholland (Leeds North West) (LD)
I echo my earlier comments commending the Select Committee on its excellent work. The all-party save the pub group has been delighted to work with the Committee and support its work. I am disappointed that we have to have this debate. As has already been made clear, in the past 18 months we received unanimous, cast-iron commitments from Front-Bench spokesmen of all three main parties that, if self-regulation failed by June 2011, a statutory code of practice would be introduced, including the all-important genuine free-of-tie option.
If people ask why this should be reviewed in the autumn, the simple answer is that it has been going on for seven years and generated four Select Committee reports. The last attempt at self-regulation was supposed to be the final one, which makes the Government’s response even more baffling. The sad reality is that their response simply does not deal with the fundamental issue, which is that the big pub companies take too much from each pub and it makes it difficult or impossible for those licensees to make a living, and that also shuts pubs. The Government’s response does nothing whatsoever to address that.
I am afraid that the Government have also been sold a pup. The immediate improvements outlined in their response are illusory. First, there are no substantive changes in the new framework code of practice produced by the British Beer and Pub Association. Secondly, and even more worryingly, the whole idea of putting the new codes on a legal footing is a mirage. The BBPA’s own legal advice—let us all be clear that it is the representative organisation of the pub companies—based on a legal authority that goes back 100 years, the Carlill case, has made it clear that, if we are to rely on that case, those codes are already binding. A letter was sent to pubco lessees over Christmas that worried them considerably. It suggested that the 2010 company code of practice would become binding if they sought to use it in any case, which is clearly an offer to ensnare them in further obligations to their landlords not already covered in the lease.
The first question to the Minister is this: how on earth can anyone be seeking to put on a legal footing codes that he himself has said are inadequate? He has written to the Select Committee Chair, stating:
“In some case, primarily where the letter was sent in advance of the new code being agreed, the link to the industry Framework Code led to the former version rather than the enhanced version, of the code; however, this will be superseded by the new version of the code once it has been agreed.”
The simple problem is this: which code and which offer? There are so many codes floating around, it is an absolute mess. The Minister needs to know that many licensee organisations believe that the Government, accepting the advice of the BBPA that it is a good idea to make the codes legally binding, will actually make the situation worse for licensees, not better.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
For the sake of clarity, it is the industry framework code that will be legally binding, and it is the strengthened industry code as agreed with the Federation of Licensed Victuallers Associations and the BBPA on 22 December last year.
Greg Mulholland
Not only was that code opposed by all the other organisations, but it was the old company codes that were mentioned in the letter, and the Minister has not adequately addressed that point.
Kevin Brennan
Is the hon. Gentleman surprised at what has happened, given that before the general election we worked closely together, he as a Back Bencher and I as a Minister, as did the Select Committee and the Front Benches, to come to an agreed position? Does he have any explanation for why the Government have taken this stance?
Greg Mulholland
Sadly, I am afraid that the explanation appears to be clear from the freedom of information request submitted by the save the pub group: the so-called Government response is basically the BBPA’s own report, with some passages and commitments taken word for word—indeed, there is even a typo in the BBPA report presented to Ministers that was directly cut and pasted into the Government’s response. I am afraid that the evidence is damning, which is why many organisations are saying that the Government should halt their entire proposal for reform in its tracks.
Greg Mulholland
I apologise to the Minister, but I have given way twice. He will have plenty of time to respond.
This is clearly not an industry solution. I am afraid that the Minister has been misled by the BBPA, because its report, which was copied into the Government’s response, clearly stated that the Association of Licensed Multiple Retailers and the Guild of Master Victuallers had agreed to be part of the pub independent conciliation advisory service. However, the chairman of GMV has stated:
“We as an organisation have neither agreed to, or been presented with, any proposal in respect of our participation in PICAS at this time.”
The Minister needs to ask why he has been misled by the BBPA and then answer to the House.
Let us be clear that the Government’s proposals for reform are not industry proposals. They are not supported by the Independent Pub Confederation, the GMV, the Federation of Small Businesses, the Forum of Private Business, the ALMR, CAMRA, Fair Pint, Justice for Licensees, Licensees Unite or the all-party save the pub group. Why on earth did the Minister suggest throughout the Government response that it is an industry proposal? It is not even the Government’s response, but the response of the pubcos trying to avoid the self-regulation that he agreed was necessary.
The Prime Minister rightly talks about dealing with crony capitalism, and I absolutely agree with him on that. In 2010, after shares in Enterprise Inns collapsed—they fell from 770p in 2007 to 26p in January this year, a decline in value of 96.6%—Mr Ted Tuppen awarded himself a 50% pay rise of £412,000, taking home £1.22 million, including a bonus of £558,000. At the same time he was closing pubs and making things impossible for tenants. I am sorry to say that the Government’s response has backed the pub companies and crony capitalism in the worst sense.
We now need the statutory code of practice, including the genuine free-of-tie option. That was promised by the Minister, the Secretary of State and the Prime Minister before the election. We have waited long enough. We will wait until the autumn, but no longer.
Fiona O'Donnell (East Lothian) (Lab)
I congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) on securing today’s debate. It is about so much more than a fair deal for publicans; it is about the vital role pubs play in so many of our communities, particularly rural communities. In the village where I live in East Lothian, the pub is one of the few remaining facilities. It is where local community groups and organisations meet and where a newcomer like me goes to get to know the locals and find out what is going on in the community. Pubs are also vital employers in rural communities, but that is being hit hard by the Government’s failed economic plan. The flexible working and shift patterns often fit well for women and provide them with vital employment opportunities.
We need to give publicans a fair chance to make a decent living, and as a new Member I have been amazed at the scale of the problem and at the number of publicans who have come to me to seek help. I am regularly copied into correspondence that extends to dozens of e-mails between them and the pub companies, and I cannot begin to imagine the stress that the situation causes publicans as they try to negotiate a fair deal. In that process, they often manage to negotiate a fair deal in one area, but then the pub company raises costs or reduces income in another. It really is time for the Government to do something about the situation.
Fiona O'Donnell (East Lothian) (Lab)
I am afraid that I will not, because I am aware that many Members want to contribute.
Indeed, in my constituency one publican, Mr Laurence Brunton, contacted me when he heard the Government’s response to the Business, Innovation and Skills Committee report, and said that the
“government’s lame response to BIS committee recommendation makes a laughing stock of a hard working publican who is earning £10k a year.”
Has the Minister had any conversations with the Chancellor about how much the taxpayer is having to pay out in tax credits to subsidise the way in which many of our publicans are being ripped off?
The problems that I hear from publicans in East Lothian are about pubco-packaged beer prices, as well as those for alcopops and soft drinks, being almost 100% more expensive than the wholesale price. They describe rent negotiations as totally one-sided, and they feel like they are being bullied. The correspondence that I have seen certainly seems to back that up. Pubcos are often slow to carry out repairs or they do not carry them out at all, and that affects a publican’s ability to generate income and to achieve the targets that the companies set them. Many publicans survive only because of their family’s help, often paying the minimum wage to family members in order to keep the business running.
The hon. Member for Leeds North West (Greg Mulholland) described the Prime Minister as talking about a fair system of capitalism, but actually the Leader of the Opposition has been leading that debate. It is good to see the Government catching up, if a little belatedly, but this is an opportunity for them to take some action to redress the imbalance in the pub industry.
I should like also to make some positive suggestions to the Minister and, indeed, to invite him to my constituency to see some different pub models that are fairer and give something back to the community.
Does he have any plans to encourage mutual pub models? The Prestoungrange Gothenburg pub in Prestonpans is an example of a pub giving back to the local community. It has recently won prizes and awards from the Campaign for Real Ale, as the best new enterprise in East Lothian, and, just last year, as Forth Radio’s pub of the year. Its website describes just what the Prestoungrange Gothenburg does. It is
“under the management of the East of Scotland Public House Company Limited which trades wholly within the original Gothenburg Principles its founders established. After a 5% pa cumulative return on the capital employed in the enterprise, all further surpluses are Gift Aid granted to the Prestoungrange Arts Festival which is a charity devoting all its resources to using the arts to stimulate and encourage the economy of Prestonpans and its vicinity.”
I should like the Minister to come to Prestonpans; I will even buy him a pint if he does. I hope to welcome him there soon.
Andrew Griffiths (Burton) (Con)
I pay tribute to the work of the Business, Innovation and Skills Committee, which has been diligent and dogged in taking this issue forward and looking at the pressures and problems that publicans and pub owners face throughout the country. I also thank the Backbench Business Committee for allowing this debate, as it demonstrates the real commitment on both sides of the House to ensuring that the Government do something to support pubs and brewers and get our pub industry back on its feet.
It is a pleasure to follow, in particular, my hon. Friend the Member for Northampton South (Mr Binley), who has immersed himself in pubs more, and has more experience of pubs, than any other Member. I have no doubt that everybody taking part in today’s debate has read the Science and Technology Committee’s report and abstained for at least two days this week in order to contribute this afternoon.
I should also declare an interest as the chairman of the all-party beer group, and because in my constituency I have Punch Taverns, Spirit Group and Marston’s, a family brewer that also owns pubs.
I think we all agree on the need to clean up the pub companies’ act and the way in which tenants are treated. None of us disagrees on that, and we all want to see healthy and vibrant brewing and pub industries. I do not defend the actions of some pub companies, as uncovered by the Business, Innovation and Skills Committee, but although the hon. Member for West Bromwich West (Mr Bailey) said earlier that he was concerned that pubs are over-regulated, his solution was to increase the regulation on pubs.
Andrew Griffiths
I think we both agree that pubs are highly regulated, but I assert that introducing a statutory code would increase regulation. We want to allow anybody taking on a pub to have access to information, we want transparency, and we want them to understand what they are taking on when they take on their pub.
Dan Rogerson (North Cornwall) (LD)
It is absolutely right to point out those in the pub sector and brewing industry who are doing all they can to create a thriving industry and to secure jobs, but we need the backstop of regulation. It should not be brought to bear daily in every pub throughout the country, but I believe that if we have a review in the autumn, it will prove that the threat of such regulation is necessary to ensure that the worst practices in the industry are ruled out.
Andrew Griffiths
I agree that we may well wish to consider a review in future, but as for the idea that we should bring in new regulation and new requirements and then, within just a few months, review them again, I worry that companies will be concerned more about the review than about implementing the changes themselves.
Andrew Griffiths
I have given way twice already, so I shall continue, if I may.
We have to be careful what we wish for. More mature Members will be fully aware of the beer orders—well-intentioned regulation to improve the lot of publicans and pubs throughout the country, which, I argue, got us into this situation in the first place. We have to be careful before we reach for the lever of regulation, because once it is imposed, the costs, burdens and unintended consequences are there for everyone to see.
We all recognise that pubcos are drinking at the last chance saloon, but today I heard the accusations made against the BBPA and I am, quite frankly, staggered. Hon. Members have mentioned several small family brewers, but all are members of the BBPA. It is not some sinister organisation, and although it is made up of pubcos, it also includes family brewers from up and down the country, so the idea that it has some sinister hand on the Minister’s shoulder and is influencing him in an underhand way is blatant nonsense, as is the idea that the Minister should develop policies for the brewing and pub industry and not have a proper dialogue with the biggest trade body in the industry.
We have a proposal to bring in a tough industry code. It will provide transparent information as a matter of course to anyone who is thinking about taking on a pub, and provide people with legal redress. The code will now be legally binding, so anybody who finds that their pub company or family brewer has not upheld the code will be able to have their case heard in court. There will be a process of arbitration so that anybody who feels that they are being dealt a bad hand by a pub company or the pub industry can have redress through independent arbitration. Those are the things that any tenant who feels hard done by requires to get the assistance and redress that they need. Most importantly, that will be delivered through self-regulation, which I believe will be cheaper, more cost-effective and speedier in producing remedies. We can all point to Departments that have brought in regulation or arbitration that has not worked. We do not have all the answers in government. It is far better to allow the industry this last chance to get its act in order.
Finally, the idea that the tie is the only thing that is leading to the closure of pubs is blatant nonsense. Yes, it is an issue, but we have to consider the impact of people’s drinking habits, the power of below-cost selling by supermarkets, and the red tape and regulation that we have loaded on to pubs. We should not for one minute think that if the motion were passed and the Government introduced the statutory code, it would solve the industry’s problems. It patently would not.
Paul Murphy (Torfaen) (Lab)
I am grateful for the opportunity to speak in this important debate. I pay tribute to my hon. Friend the Member for West Bromwich West (Mr Bailey) for securing the debate, and to the hon. Member for Leeds North West (Greg Mulholland) for the tremendous speech he gave and for the work that he has done over recent years.
The work of the Business, Innovation and Skills Committee has been a model for what a Select Committee should do, not only under the chairmanship of my hon. Friend the Member for West Bromwich West, but under that of the hon. Member for Mid Worcestershire (Peter Luff). The Committee is absolutely right to point out the inadequacies of the pub companies system, and in trying to bring the Government to account and asking them to do what is right. The report, which I have read a number of times, shows the tenacity, doggedness and hard work that members of the Committee put into the investigation. My hon. Friend the Member for West Bromwich West is right that landlords and tenants across the country will be interested to see what happens at the end of the debate and to hear Members’ contributions.
Kevin Brennan
The hon. Member for Burton (Andrew Griffiths) said that pubcos were drinking at the last chance saloon. Given how long the Select Committee has been working on this matter and how long that metaphor has been used, does it not seem that the last chance saloon is somewhere where time is never called?
Paul Murphy
I agree entirely with my hon. Friend. He and I have drunk in many pubs together over the years, and understand the importance of that.
I entirely support the recommendations and conclusions of the Select Committee, including a statutory code of practice, a free-of-tie option and an open market rent review with an independent adjudicator. What comes through in the report is the frustration and loss of patience of Committee members with the pub companies. I hasten to add that we are talking not about our family brewers, such as Brains in south Wales, which are respected and good employers with good public houses, but about companies that lack transparency in what they do, and did not impress the members of the Select Committee when they gave evidence. A cursory glance at the evidence given to the Committee shows how the pub companies tried to evade and wriggle out of the important issues.
Greg Mulholland
Does the right hon. Gentleman find it odd that the first response of the Department for Business, Innovation and Skills to this wonderful Select Committee report was to rush out an invitation to the pub companies to a meeting to talk about how to circumvent the report?
Paul Murphy
I was not aware of that. I know that the hon. Gentleman has done a great deal of work on these important issues using freedom of information requests and so on. It is obvious that the Government must speak to the trade association—it would be daft if they did not. However, there is a difference between speaking and listening to the members of that association and engaging in one of the biggest acts of plagiarism that we have seen in responding to the Select Committee. The Government appear to have put into their sloppy response the wishes of the pub companies in their entirety, including the typing errors. That was a great disappointment, because it was clear that all Front Benchers agreed that there should be a statutory code of conduct and with all the other issues that the Select Committee put forward.
I have been looking at this matter for three to four years in my constituency. Every Member will have examples of tenants, landlords and publicans in their constituency who have come to the end of their tether with the way in which they are treated by the pub companies. In my constituency, Mr Phil Jones, the landlord of the Open Hearth public house in Pontypool, has been a doughty fighter on this issue. He has given evidence to the Business, Innovation and Skills Committee and its predecessor. He has shown how shamefully the companies have treated their tenants. It is about time that changed. Like many of his colleagues up and down the country, he has shown Members of Parliament the personal tragedy and misery caused by the way in which those systems operate.
The Government have to change their mind. Outside in the country, there is a genuine desire for tenants and publicans across the country to be treated fairly and properly. There is no doubt, as my hon. Friend the Member for East Lothian (Fiona O'Donnell) has said, that public houses play a tremendous part in our national life and a huge integrated part in our communities. I hope that the Government will listen to Members across the House, change their mind and implement the recommendations of the Select Committee.
Andrew Stephenson (Pendle) (Con)
I congratulate the Backbench Business Committee on granting this debate and the hon. Member for West Bromwich West (Mr Bailey) on his efforts to secure it. I am a great fan of the British pub, so much so that I live next door to one and have worked shifts behind the bar at three of my local pubs over recent months—the White Swan in Fence, the Four Alls in Higham and the George and Dragon in Barrowford.
As many Members have said, the future of the pub looks far from rosy. UK pubs are in crisis, with 25 closing every week. Pubs are under pressure for many reasons, including the tough economic times that we are in, rising beer prices and taxes, and below-cost sales of alcohol in supermarkets, which I am particularly against. I believe that there is increasing evidence that the beer tie, as operated by the large pub companies, plays a significant role in the decline of the pub trade. I point out explicitly that I am referring only to the behaviour of some large pub companies that own more than 500 pubs, not to family-owned breweries, which tend to act much more responsibly.
In my constituency of Pendle over the past few years, seven pubs have closed in Brierfield, five in Barnoldswick, seven in Nelson, three in Colne and numerous others in the surrounding areas.
Andrew Griffiths
We want to keep more pubs open and to stop pubs closing. Does my hon. Friend agree that all the evidence shows that free houses are closing faster than tenanted pubs?
Andrew Stephenson
The evidence that I have seen does not suggest that. In my area freehold pubs have certainly been able to buck the trend and survive because they have additional flexibility in the products that they can buy and in the other costs of the pub. I have seen some of the practices of the pub companies hindering rather than helping the pub trade in my area.
Karen Bradley
I should like to add my personal experience to the debate, because I am the daughter of a publican who was tied to a large pubco but now runs a free house. I can reassure my hon. Friend that having a free house is a much more favourable position, and that being free of the beer tie is very important.
Andrew Stephenson
I could not agree more with my hon. Friend. That is why I am speaking in support of the motion’s call for a statutory code for pub companies, despite the fact that I am normally in favour of voluntary regulation.
A case in point in Colne, where I live, is the North Valley pub, which closed about two years ago. Like a number of pubs in Pendle, it was owned by a large pub company that completely refused to reduce the rent, although the landlord was experiencing vastly reduced sales, partly because of the tough economic times and the smoking ban. I am sure that if there had been an open market rent review and an independent adjudicator, that pub would still have been open today, but instead the landlord had to hand back the keys and the pub is now a plumbing merchant’s premises. I am sure that the pub company involved would say that it was no longer viable, and that it was always going to close down in the long term, but I do not believe that voluntary regulation is delivering what we need. We therefore have to consider putting things on a firmer footing.
As things stand, the business model of large pub companies is based on extracting an inequitable share of profits through excessive rents and forcing tied landlords to purchase beer and other products at a premium of about 50% on open market prices. That figure has already been mentioned in the debate. Some pub companies, when they set their beer tie, seem to ignore local circumstances completely. From what I am led to believe, landlords in my area tied to Punch Taverns have to pay the brewery something between £1.32 and £1.56 per pint that they buy. In the town where I live, Colne, the Derby Arms sells Foster’s and John Smith’s for £1.49 a pint, and the Wallace Hartley and the Duke of Lancaster sell Foster’s for £1.79. [Interruption.] Move up north. Some of the large pub companies are forcing their tied landlords to buy the product at a higher price than that for which other local pubs are selling it to the man in the street. That inevitably forces pubs out of business, because they cannot compete in the local market conditions. I therefore have no hesitation in supporting the motion and calling on the Government to reconsider self-regulation and stop the large pub companies abusing their position.
Hugh Bayley (York Central) (Lab)
York’s pubs are part of the heritage of the city. Some of them have been open, welcoming guests and serving beer, for hundreds of years, whereas others have of course opened more recently, but they are all valued by local people and attract thousands of tourists to the city and contribute to the local economy.
I meet the members of the Licensed Victuallers Association in York from time to time to discuss business conditions, and recently I conducted a survey of 160 pubs and working men’s clubs in my constituency. In their responses, the licensees were extremely critical of the relationship between lessees and pub companies, and one commented:
“It’s like me renting you a house for a market rent but telling you that you can only do your food shop in Harrods, ie: at top prices”.
The beer tie, which of course covers a lot more than beer—soft drinks, peanuts and practically everything that a pub sells—is clearly anti-competitive and not in the consumer’s interest.
The previous Government endorsed the then Select Committee’s recommendation that, over a period of time, all existing and new lessees should be offered a free-of-tie lease with an open-market rent. In its recent report, the Business, Innovation and Skills Committee revealed that only 16% of new lessees and 9% of current lessees had been offered that, which is clearly completely unacceptable.
The Government’s response is out of touch with the industry. We are told that the tie is a lawful practice, so that is all right. However, the Select Committee argues that there should be legislation to give lessees the opportunity of running a business without the tie. The Government’s response also expresses the view that whether a lease or tenancy includes a tie is simply
“a commercial decision on the part of both parties.”
That is like suggesting that the competition for road space between a juggernaut and a bicycle is a competition between equals. It is not a satisfactory response.
If one of the major clothing retailers decided to get into the business of renting out small shops, but restricted its tenants to selling only its own brands and then insisted on selling those brands to the tenants at double the market price, we would immediately say that it was anti-competitive, unfair and wrong, and we would not allow it, yet that is exactly the relationship between the pub companies and many of their lessees.
I wish to refer to one other issue, which is the retail price of alcohol in supermarkets and off-licences. In my survey, 76% of York licensees said that alcohol sales at supermarkets were the leading cause of their falling profits, and 96% thought that supermarkets should not be able to sell alcohol at cheap rates. Indeed, 70% wanted a minimum retail price for beer sales on licensed premises.
Before the general election, I wrote a chapter of a policy pamphlet in which I proposed a minimum retail price for alcohol on health grounds. I suggested a price of 50p a unit, which would equate to £3 as the minimum cost of a bottle of wine, or £1 for a pint. Pubs would not go out of business if we had a minimum price of that level; nor would it prevent people on modest incomes from going to a supermarket and buying an occasional bottle of wine or beer to enjoy. However, it would stop the sale of alcohol as loss-leaders by supermarkets, which is doing so much damage to both pubs and public health.
I believe that the Government’s response is intellectually incoherent. They say that there is no need for legislation on the terms of leases, because they affect lessees rather than consumers. Yet on the subject of the beer tie, they propose taking no real action because it would affect consumers rather than lessees. They should concern themselves both with the viability of pubs as businesses and the rights of consumers, but they fail to do either of those things in their response.
Charlotte Leslie (Bristol North West) (Con)
I congratulate the Backbench Business Committee on bringing the debate forward. It is massively important, because as I think we all agree, pubs play an incredibly important role in our society. If we are to talk about the big society, we should recognise that an awful lot of charity ventures and community groups and activities involve a pint, whether of beer or orange juice, at the local pub at some point.
The subject is massively important also because pubs are a place for social, intergenerational drinking rather than the isolated drinking that very cheap supermarket alcohol can often encourage or the antisocial behaviour caused by preloading—kids drinking a lot before they go out. Pubs are important for all sorts of reasons, as I know we all agree.
The issue of the beer tie is one part of the equation that is leading to many of our pubs closing. Although we must recognise the importance of that, we must also recognise the other factors in the closure of pubs, which have already been mentioned. Cut-price supermarket alcohol is a massive one and social changes are another, and there may also be things that we can do about business rates and licensing to help to create a level playing field for pubs.
Greg Mulholland
Of course there are a number of factors affecting pubs, but when we compare a tied pub and a free-of-tie pub, we see that the fundamental difference that shuts a tied pub is the pubco’s unreasonable terms.
Charlotte Leslie
I thank my hon. Friend for that, and I am just coming to the role of the pub tie and the pub companies.
It is a shame that there seems to be a lot of distrust among the various factions about how the Government’s response to the Select Committee has come about. I know that figures have been put forward stating that non-tied pubs close faster than tied pubs, but those figures are in dispute because tied pubs tend to be sold to developers before they close down, so they are not listed as tied pubs by the time they close down. There is also the issue of large businesses reporting business failures. There are therefore doubts about the statistics on whether a pub is better off being tied or non-tied.
Greg Mulholland
To be clear, the CGA Strategy figures, which no one disputes, show that between December 2008 and June 2011, the number of tied pubs fell by 3,216, and that in the same period the number of free-of-tie pubs increased by 425. Does the hon. Lady agree that it is baffling that the Department for Business, Innovation and Skills simply accepted the British Beer and Pub Association's misleading representation of those events, which, as she says, omitted transfers that happen, in some cases deliberately to distort the figures?
Charlotte Leslie
It is very obvious—this is crucial to the debate—that there is a strong feeling that the response was unilaterally informed. I am not in a position to say whether that is the case, but it is difficult for the Government’s response to have authority, particularly on such an important issue, when there are allegations that it was overly unilaterally informed. I take my hon. Friend’s point. The dispute over the figures is very much a case in point. Another result of the beer tie is the substantially lower earning of the publicans who try to manage those pubs.
That is statistics, but anecdotally—we are all very aware of the limitations and strengths of anecdotes—we hear of people opting out of the beer tie to find their rent increasing. Publicans who have been in the business for a long time and who took on pubs under big companies 20 years ago report how much more restrictive pub companies have become in recent times. Given the upward slope that pubs face in making themselves viable, that seems a counter-intuitive direction for pub companies if they want pubs to succeed.
Other areas of distrust that are not at all helpful to the debate include disputed membership of the Pub Independent Conciliation and Arbitration Service, which my hon. Friend the Member for Leeds North West (Greg Mulholland) also mentioned.
I shall vote for the motion. Given the lack of success of self-regulation in the past, there is a question mark over whether it will work in future. I am not one to run for more regulation—there are lots of unintended consequences.
Charlotte Leslie
My hon. Friend makes a good point. One issue at stake is the efficacy of a voluntary code. Although there might be problems with the timing of a review, a review of the kind of voluntary code that the Government have suggested would be extremely valuable—it will set in place many of the issues that we are discussing.
I do not want to take up too much time because lots of hon. Members want to speak. As a Conservative on the Government Benches, I do not believe that regulation is always the answer, but it is sometimes. It must be looked at—it cannot be dismissed out of hand out of religiosity. I also believe that if a business model is not sustainable, it must be allowed to fail. However, the key thing is that pubs face an uphill struggle—it is not a level playing field—in so many aspects of their operation. Looking at the relationship between pub companies and publicans is just one factor in levelling out that very uneven playing field, which has devastating effects on community cohesion not only in rural communities, but in communities all over the country.
Caroline Lucas (Brighton, Pavilion) (Green)
I congratulate the hon. Member for West Bromwich West (Mr Bailey) on securing this important debate and commend the excellent Business, Innovation and Skills Committee report.
It is deeply worrying that the pub market in the UK has become so dominated by just a handful of companies. Tenants are being ripped off by those companies, which can overcharge for beer because the tenants are tied to them. The pub tie has been instrumental in hundreds of successful local pubs going to the wall, which continues.
Lessees can currently buy only a limited range of beer, often at inflated prices, which restricts pub goers’ choice, prevents small local brewers selling to such pubs and remorselessly accelerates the number of pub closures. That scandal must stop. The Chair of the Committee has reminded the House in both his motion and his speech that the Secretary of State promised action to save our pubs if the industry did not get its house in order, but neither the industry nor the Secretary of State has delivered. That is why this debate is so important.
I welcome the introduction of a new arbitration service, and requirements to follow rental guidelines and to publish national wholesale price lists, but the package as a whole will do little to stop pub closures or to provide meaningful support for sustainable local community pubs.
Greg Mulholland
Apart from concerns about the misrepresentation of PICAS, does the hon. Lady share licensees’ concerns that although PICAS is set up to be an independent arbitrator, it will be funded and controlled by the British Beer and Pub Association, and therefore the pub companies?
Caroline Lucas
That is a good point. I was trying to find something positive to say, but the hon. Gentleman is right that there are concerns about that aspect.
The Government’s response has failed to address the key issues of providing lessees with a genuine free-of-tie option. It will therefore not rebalance the relationship between struggling licensees and large pub companies. I am also concerned that even the limited package that has been announced will not actually be delivered, given the pub companies’ history of broken promises and abandoned commitments.
As other hon. Members have said, pubs are central to our communities. Chris Beaumont, the landlord of The Greys in the Hanover area of my constituency, tells me that his is the only pub in the area that has not closed and reopened in the last nine years. The London Unity has had three owners in two years, The Geese has changed hands four times in six years, and the Horse and Groom recently closed and reopened. In the pub trade, such closing and reopening is known as churn. Churn matters, because it means ruined livelihoods for the individual landlords and their families. It also means instability for our pubs and our local economy. It takes years to build up a great community pub. A high turnover of pub landlords as pubs regularly close and reopen sends out a negative message that times are not good and that it is difficult to survive in an area, which clearly does not help other local businesses. The tied scheme was a significant factor in all the closures I mentioned, but the pubcos would prefer that we did know about it: the data on pubs that close do not tell of pubs that close and reopen.
The other thing that pubcos are less than honest about is that when they sit down and negotiate with lessees, they claim that lessees can always be free of tied options, yet often fail to mention that they must pay a premium to qualify for that. On wines and spirits, the charge is between £4,000 and £5,000 extra per year. It is a similar amount for bottled beers. To put that into context, the typical annual rent for a pub tenant in Brighton is around £25,000 a year. Pubcos are therefore essentially extorting an additional 20% increase on the rent to free landlords from the tie. Furthermore, pubcos do not generally offer an untied option on draught beers or lagers.
The Government must listen to lessees such as Chris and the many others in my constituency represented by the Brighton & Hove Licensees Association. They are all deeply worried and believe as I do that it is high time the Government acted to protect community pubs and lessees. Pubs are pivotal to the economy and the tourist industry, so the health of the sector has a particular resonance in my constituency.
Mrs Anne Main (St Albans) (Con)
The headquarters of the Campaign for Real Ale is in my constituency, and we host the annual beer festival. I completely concur with the hon. Lady on the importance of tourism and pubs together. Tourism and pubs mean not just casual drinking, but major economic activity in the local area, and she is right to highlight that.
Caroline Lucas
I thank the hon. Lady for her intervention. I agree that pubs are good not just for the community, but for the local economy—in fact, they are often essential to it.
In Sussex, for example, we have an impressive range of local breweries, including micro-breweries. If they are to thrive, we need to change the situation that has arisen with ties. We must not allow big business to continue to wield such unfair power over pub lessees by restricting access to locally produced ales. We must make it possible for local brewers to sell their beers to local pubs. Without statutory regulation to ensure fairness, a huge part of the potential market for our local ales is closed off.
If the Government act to protect and promote real community pubs, they could begin seriously to promote a strategy to encourage responsible drinking and the enjoyment of local ales, ciders and other drinks.
I fully support CAMRA’s championing of functioning and well-run community pubs. An effective approach to reduce alcohol-related harm must involve support for good community pubs, which provide a safe and responsible place for people to drink. Therefore, parallel to the statutory code of practice described in the motion, our community pubs should be supported with a policy of minimum pricing of alcohol in supermarkets. That would begin to tackle seriously the problems caused for our pub trade, and indeed for wider society, by the off-sale of cheap alcohol, which is often low quality. I accept that is a topic for another debate, but it is not unrelated to the intention behind today’s motion, which is to protect our community pubs.
In conclusion, I fear that the Government are being cavalier in rejecting the recommendations of the Business, Innovation and Skills Committee and instead putting their faith in the very companies accused of malpractice to put their house in order finally. The future of community pubs is at stake, so, in common with many other Members, I call on the Government to eschew the grasp of the large pub companies and instead to champion, protect and increase the number of local pubs. The tied pubs in Brighton, Pavilion want to know when the Business Secretary will keep his promise. We need a statutory solution that better reflects the wishes of all publicans and pubcos, as well as the careful work of the Business, Innovation and Skills Committee.
Peter Aldous (Waveney) (Con)
I am grateful to the Backbench Business Committee for granting this debate and to the hon. Member for West Bromwich West (Mr Bailey) for securing it.
Before I came to this place, I spent 27 years as a chartered surveyor. During that time, I carried out rent reviews on most types of business properties, although my experience with licensed premises was peripheral. Underpinning most rent review valuations is a requirement to assess the open-market rental value. That is the best way of establishing a rent that is fair to both parties, providing landlords with a fair return on their investment and tenants with a reasonable opportunity to build a sustainable business into the long term. If the two parties are unable to agree, the matter is referred to an arbitrator or an independent expert.
It is bizarre that a procedure that is routine for the vast majority of business people who lease premises is not available to a particular group: pubco tenants. Research produced by CAMRA shows that such publicans are at a considerable disadvantage compared with non-tied operators. They are worse off financially and work harder for a lower return, normally burning the midnight oil, tackling red tape and filling in the dreaded VAT return.
The tied system has some advantages in that it can provide an opportunity for people to set up their own businesses without having to raise large amounts of capital, and it continues to form an important part of many family brewing businesses. However, it should have the potential to act as a stepping-stone, with people then moving on to own their own businesses, as we heard from my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley); it should not drive people out of business altogether.
The tied system was devised in a different era, which is long since gone, when the pub market was dominated by many family brewers, who wanted to ensure that their pubs sold their beer. Those brewers had a vested interest in ensuring that their pubs were well run, and landlords duly received support. In return, they bought their beer directly from the brewers, with no middleman in between. Many of those breweries were household names, but they have long since gone. Tollemache, Cobbold, Lacons, Bullards and Manns owned pubs across Suffolk and Norfolk. Today, only Greene King and Adnams remain, along with micro-breweries such as Green Jack in Oulton Broad in my constituency. Greene King and Adnams continue to run their tied houses well and successfully, but the market is now dominated by pubcos, which do not brew their own beer; they are middlemen taking their margin, and they have different business objectives from the family brewers. Given those changes, it is appropriate that the tied system should be reformed, and the proposals in the motion appear sensible and logical.
As we have heard, there are other issues that need to be addressed: the taxation of beer; the reform of licensing laws, which, since 2003, have made it more difficult to play live music; and the below-cost sale of alcohol by supermarkets. However, for me as a chartered surveyor, there is one other subject that needs to be addressed: the rating system. Many publicans scratch their heads over how the Valuation Office Agency has arrived at such a high rateable value assessment for their properties. The art of rating valuation has, I am afraid, become totally abstract and distant from reality. Town centre drinking barns, which are subject to a different rating regime, seem to have an unfair advantage over community pubs. That anomaly needs to be addressed, but that is a debate for another day.
Mr Davey
I wanted to intervene on the hon. Gentleman before he finished his remarks, because he is a chartered surveyor. I therefore invite him to welcome the fact that, in our negotiations with the BBPA, we secured a strengthening of the industry framework code, which will specify that all rent review assessments must comply with Royal Institution of Chartered Surveyors guidance, and that rent assessments for new full repairing and insuring leases must be signed off by a RICS-qualified individual.
Peter Aldous
I am grateful to the Minister for giving that clarification.
In the meantime, let me conclude by saying that although there are other issues that need to be addressed to enable pubs to compete on a level playing field, we have an opportunity to address an iniquity that, in many respects, is leftover from a bygone age. I therefore support the motion.
Paul Blomfield (Sheffield Central) (Lab)
I represent a constituency that includes 197 community and city centre pubs, as well as five breweries. Almost 4,000 people are employed in the industry in one way or another. I cannot miss the opportunity to point out that CAMRA held its last annual conference in Sheffield and, in effect, endorsed us as the real ale capital of the country, praising our unrivalled choice of real ales and pubs—I challenge the Minister to come and sample some of them. I am also a member of the Business, Innovation and Skills Committee. Furthermore, in one of my jobs before being elected to this place I ran a £5 million licensed operation consisting of several bars and pubs.
We are talking about a sector that employs about 500,000 people in 54,000 pubs. As the hon. Member for Pendle (Andrew Stephenson) said, the sector is in crisis, with about 25 pubs closing every week. We know that, and we see it in our communities. As several Members have said, that is a loss to not only the landlords and the people who work in the pubs but the communities.
As the hon. Gentleman said, there are several reasons for those business failures, but a key factor is the way in which the big companies, which own almost half our pubs, squeeze unreasonable returns out of their landlords to support their own flawed business model. To respond to a point made by the hon. Member for Bristol North West (Charlotte Leslie), it is that business model that should be allowed to fail, not the business model of the individual small business men and women who run the pubs.
It was not supposed to be like this, and those behind the 1989 beer orders legislation cannot have expected such an outcome. The legislation was supposed to open up the market to give small players a better chance; instead, the big corporate interests regrouped, and seven pub companies now dominate the industry. However, Parliament has responded, as has been said. In 2004, the Select Committee on Trade and Industry highlighted concerns about the unhealthy and unbalanced relationship between pub companies and their lessees. Five years later, the Select Committee on Business and Enterprise revisited the issue, concluding that little meaningful reform had taken place.
As several Members have said, that was accepted by the then Labour Government. When the Business, Innovation and Skills Committee report was published in March 2010, the then pubs Minister, my right hon. Friend the Member for Wentworth and Dearne (John Healey), gave notice to the pub companies that if in the Committee’s view the voluntary code was not working as well as it should be by 2011—this is crucial—the Government would put it on a statutory basis.
The coalition maintained that commitment. When the Secretary of State was questioned in July 2010 by the hon. Member for Northampton South (Mr Binley), who is the deputy Chair of the Business, Innovation and Skills Committee—he is a relentless champion of small business, and I am sorry he is not in his place to hear me say that—he confirmed that commitment. He said that pub companies were “on probation” from the Committee and that “the commitment is to give them until 11 June and if they have not delivered a more satisfactory arrangement then there will have to be legislative action.” So, in 2011, the Select Committee reviewed the position and gave the Government its report on the industry’s probationary period. In our report, Members from all three parties represented on the Committee agreed that there had been
“a process of implementation which can only be described as half-hearted”.
We also found that the
“BBPA (British Beer and Pub Association) has shown itself to be impotent”,
and that there had been
“a lack of meaningful sanctions”.
We concluded:
“This latest attempt at reform has failed…We therefore conclude that the reforms do not meet the test set by our predecessor committee.”
That should have been the end of the matter; following several years of consideration by successive Select Committees and clear pledges from successive Governments, the time had come for legislative action and a statutory code.
At that point, however, the Government reneged on their commitment and put the corporate interests of the big pub companies before the interests of the small business men and women who run our pubs, and before those of the consumers who use them. Not only did the Government make the wrong call following our report; appallingly, it became clear—thanks to the work of the hon. Member for Leeds North West (Greg Mulholland)—that they had already made their mind up before receiving our verdict. The Minister should be held to account for that. The industry needs action now, and I support the motion.
Stephen Lloyd (Eastbourne) (LD)
Pubs are a significant feature in all our constituencies. In Eastbourne, when people ask where I live, I say, “Just up the road from the Lamb”, and everyone knows where I mean. That is just a small way of illustrating how valuable pubs are across the UK.
I pay tribute to the hon. Member for West Bromwich West (Mr Bailey) for securing this debate, and to my hon. Friend the Member for Leeds North West (Greg Mulholland), who has been leading on this issue for a number of years.
Before becoming an MP, I had observed over the past 10 years or so a rapid decrease in the number of pubs. Since coming to the House, I have received representations from publicans and constituents in Eastbourne, and I have carried out some research. Much of what I was going to say has already been said, and I shall not repeat it, but I want to mention some research by the Institute for Public Policy Research. My hon. Friend the Member for Leeds North West and many others today have expressed with passion the fact that we have visited this issue on numerous occasions, under the previous Government and this one. The same issue keeps coming up, and the Select Committee keeps working away at it, focusing on what needs to be done. The Government of the day listen, say that they will do something about it, and then do nothing. The reason that we have to keep coming back to it is that the major players behave deplorably; there is no other way of putting it.
The more I researched the matter over the past few months, having spoken to my hon. Friend the Member for Leeds North West, the more I kept asking myself, “What is going on? What other industry would keep saying that it was going to do something, yet keep breaking its word?” Then I thought, “I’ve got it! It’s investment banking!” I am very much a business-wing Liberal, and, like my hon. Friend the Member for Pendle (Andrew Stephenson), who is not in his place, a great believer in light-touch regulation. There are exceptions to every rule, however. I do not like light-touch regulation for investment banks, because that is what got us into the mess we are now in. Nor do I think that the argument not to regulate the pubcos stacks up.
Duncan Hames (Chippenham) (LD)
It sounds as though my hon. Friend, like me, hopes that the motion will be successful today. He has had a great deal of experience working with the Federation of Small Businesses. If he were giving business advice, would he ever advise someone to become the tenant of a pubco?
Stephen Lloyd
My hon. Friend is so right: a lot of the work that I did for the FSB before coming to the House involved meetings with landlords who had pubco tenancies. Some of the meetings were among the most desperate I have ever had, because those people were getting absolutely nailed by the pub companies. So, to be perfectly honest, I would not advise anyone to become a tenant under the present criteria. That is absurd, because I am massively pro-small business; it is precisely that sector that is going to get us out of this economic mess. At the moment, however, the playing field is much too uneven, and something really has to be done.
Let me cite the recent research by the IPPR, which was called “Tied Down”. It talked to 550 publicans, and some of the resulting figures are quite startling. It found that 57% of those subject to the ties that oblige tenants of the big pub groups to buy beer from them were struggling financially, compared with 43% of non-tied landlords. That is a difference of almost 20%. The IPPR’s associate director, Rick Muir, said:
“Thousands of publicans across Britain are being put under significant financial pressure by the ‘beer tie’. Our survey of publicans shows that they have suffered worse through the recession because of this tie. A recent select committee report shows that the higher prices tied publicans have to pay for their beer are not adequately compensated for by lower rents.”
That is why we need regulation. The original theory was that the publican would pay a lower rent because of the tie, but some of those absolutely deplorable companies got themselves into such a mess financially because they were so heavily leveraged in debt that they leant on their tenants to a quite disgraceful degree, and lifted the rents hugely.
The time has come for the Government seriously to look at regulation. I could, just possibly, be persuaded to give the companies nine months and review the situation in the autumn, but this has been going on for years, and I would urge the Minister to agree to a review. Furthermore, he should publicly state on behalf of the Government, in the Chamber, that if the pub companies do not come up to speed this time—and, my God, they have had so many opportunities in the last chance saloon—we will regulate.
It was noted earlier that pubcos have a lot on their mind at the moment, and we were asked whether we really needed to put them under this pressure. Well, yes we do. How many times are we going to allow them to say that they are going to do something, only for them not to do it? I urge the Government to tell them that if they have not come up with voluntary proposals within nine months, there will be statutory regulation. That is the compromise that I am prepared to accept. I know that the Minister has worked hard in this area, but if the companies do not change, to the extent that we have to regulate, they will have brought that upon themselves. I urge the Minister to take action.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I should like to praise the hard work of the hon. Member for Leeds North West (Greg Mulholland) on this issue over many years; it has been well documented. I also want to congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) on securing this debate.
Licensees in my constituency are getting a poor deal from exploitative pubcos, and the Government have to act. At present, on this issue the Prime Minister is dodging his round at the bar. Louise Gibben of the Huntsman in Guisborough in my constituency has told me that, after paying Enterprise Inns £20,000 a year in rent, plus her overheads, her business rates and her Performing Rights Society licence, she is left with next to nothing. That is not because of a lack of hard work, or because the pub is of poor quality. Indeed, new local customers have documented the fact on a website that her staff are “great” and that she has made
“every effort to make the pub a success”
by serving meals and making it a family-friendly environment. Unfortunately, however, the rep for Enterprise Inns has told her to try harder.
Sadly, this situation is not unique to Louise. She is not the only one who is struggling to keep her pub afloat despite the rent and contractual conditions imposed by a pubco. For example, nearly 30,000 tenants face the problem of being tied to a specific brewery as part of their tenancy. While tenants are struggling to survive and pubs are closing, pubcos are still reporting millions of pounds in profits. Enterprise Inns, for example, reported a pre-tax profit of £157 million last year, despite the harsh prevailing economic circumstances, yet its tenants in my constituency are struggling to maintain their livelihoods.
Large pubcos are not producing value; they are exploiting the small business people who, through their own endeavours, are trying to make a living. It is also obvious to everyone that they are not giving their tenants the respect that they deserve. The Government have to act to ensure that relations between the pubcos and their tenants are fair. The self-regulatory framework that the Government are proposing does not go far enough. According to the Fair Pint campaign, it will not require any concessions by the pubcos, and it will result in very little, if any, change to the wholly unsatisfactory status quo.
The Government’s measures might enjoy the support of the large pubcos, but I know that tenants in my constituency, as represented through the Independent Pub Confederation, feel betrayed and very disappointed by the lack of a genuine free-of-tie option accompanied by a review into open market rent. They feel that any self-regulatory framework will not help them to secure a fairer deal. We cannot trust these pubcos to regulate themselves. I urge this Government, for the sake of tenants and the future of pubs in my constituency, to ensure that any code of practice exists by statute rather than by the will of the people whom we wish to regulate.
Mr Marcus Jones (Nuneaton) (Con)
Pubs are not just places we frequent to buy beer; they are vital community hubs that can be fundamental to our lives. I can say that, given that I met my wife in a pub called the Chetwynd Arms in my constituency back in 1997. Given that it was in 1997, I conclude only that it was probably the only good thing to come out of that year. Since those heady days, we have lost much of that community heritage that our pubs give. At the moment we risk the continuing demise of the good old British pub. Part of the demise has no doubt been exacerbated by the relationship between the pubcos and their lessees.
History tells us that the arrangements between pubcos, lessees and tenants, which emanated from the break-up of the estates of the large breweries back in the 1990s, were not initially dissimilar to the situation that obtained under the breweries. Where the model differs tremendously, however, is that the pubcos are middlemen—yet another middleman between the product producer and the end user of the product. That has necessarily added costs over a number of years. The costs seem to have been met quickly by the tenants and lessees who have seen many changes over that period: metered pumps, tighter reins on guest ales, loss of machine income, reductions in the will to help with refurbishments—these are probably only a few of the additional burdens that lessees have had to face. We need to be aware that much of that stems from 1980s legislation in the context of the fundamental shift towards the large pubco estates that we now have.
I welcome much of the work done by successive Select Committees on the practices of pubcos, but I think we should be careful about what we wish for as we look to legislate now. We could end up out of the frying pan into the fire, because we are in a very different world today than we were when the Select Committee first considered this issue in 2004. Back then, pubs were still in decline, but there has been a huge aggregation of issues since. We have had the smoking ban, increased regulation on alcohol sales, beer duty rising by 35% over the last four years alone, below-cost selling at supermarkets becoming more prevalent and, to top all that, we have suffered the deepest and longest recession since the 1930s. These factors have no doubt strained even further relations between pubcos and their lessees.
Jason McCartney (Colne Valley) (Con)
I thank my hon. Friend for giving way and would like to add to his list of other factors affecting our local community pubs. We heard about Performing Rights Society licences from the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop). There is also the cost of live television sport in pubs; one of my local landlords needs £800 a month to pay for that. My hon. Friend mentioned regulation a few moments ago. Does he agree that self-regulation of the pubcos is not working; will he join me and many other Members in supporting this motion and setting a timetable for the Government to look again at self-regulation?
Mr Jones
I thank my hon. Friend for his comments. I shall come on to the issue of self-regulation.
The relationship between pubcos and lessees has been exacerbated by external factors. That has not been helped by the fact that, as many hon. Members have mentioned, the pubcos are now greatly overleveraged. That leads me to be a little concerned about what we seem to be wishing for. The overleveraging of the pubcos makes the position very difficult for them in comparison with 2004, as the horse might now have bolted. Perhaps we should have done the legislating back then when the circumstances were different.
When it comes to the external factors I mentioned, there are many things—in addition to what the Select Committee report raised—that the Minister with responsibility for pubs and the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), who is to reply to this debate, need to look at and address. The Select Committee focused its mind on the relationship between the pubcos and lessees. That is important when we have reached a position in which the pubcos are looking at things in a different light, albeit not quickly enough for many lessees.
I believe that the voluntary measures put forward are positive and I welcome the industry framework code, which will be legally binding. I welcome PICAS, the three year accreditation code and the strengthening of the framework code. I particularly welcome having a new pubs advisory service. More advice, training and information is vital to potential lessees, who need to go into these businesses with their eyes fully open. Having the right training for the lessees going into them is important. Under the old breweries, most of the lessees coming into pubs as tenants had managed pub groups for many years. They knew their trade inside out. That is why they ran successful pub businesses. In that respect, there is a gap now.
Voluntary measures will be positive only if they are adhered to and only if PICAS has teeth and the pubs advisory service has more independence. That is why I fully support a review of these arrangements over direct, immediate regulation. I think we need to give more time to see whether the voluntary arrangements being put in place are going to work.
We must try to avoid making the mistakes of the past, which happened when the big breweries were broken up. Voluntary regulation is important. It must be monitored carefully, and we must not look to deal with this issue in a silo or depend only on this aspect to solve the problems that our community pubs face.
John Pugh (Southport) (LD)
I begin by paying full tribute to the Select Committee for its work, particularly for the sterling work done by the hon. Member for Northampton South (Mr Binley) and my hon. Friend the Member for Leeds North West (Greg Mulholland)—usually the quietest and most self-effacing of men. They have clearly been angered by this issue.
This seems to be a debate about two solutions to a commonly recognised problem—the unfair trading practices associated with the tie, and the relationship between tenants and the pubco. The problem is not one of competition, and it is not one of competition failure or consumer choice. It is connected with associated issues, which hon. Members have mentioned, such as the decline of community pubs, the decline of community cohesion and so forth—generally regarded as a social ill, except perhaps in temperance circles. What we are debating now is not necessarily connected with that problem, however, as free houses are also closing, disappearing and depriving their community of their benefit.
At its simplest, the issue is about the running of the tied pub and how it can be made uneconomic for tenants through unfair and non-transparent terms of trade. It has been suggested that this is not an unwelcome outcome so far as the pubcos are concerned, because they are short of capital and in some cases anxious to sell off. That the terms of trade are penal, non-transparent and arbitrary is simply not in dispute anywhere in the Chamber. It has been demonstrated by the turnover of tenants, who are coming and going all the time, by the Select Committee’s reports, and by the Government’s own undertakings to do something about what they have clearly identified as a problem. The issue that divides the House, if indeed it does divide it, is how to find a way out.
The Government are arguing for a non-statutory code, for fairly straightforward reasons. They dislike regulation in principle—they have said as much—they prefer effective self-regulation, and they believe that a non-statutory code represents a quicker fix. It clearly does not help that their favoured solution is also the favoured solution of the accused—the pubcos, in this instance—and that there has obviously been collusion in the refining of the suggestion, but that in itself does not invalidate the solution.
John Pugh
I refer the Minister to the speech of my hon. Friend the Member for Leeds North West, who presented a fair amount of prima facie evidence that I think impressed the House. However, I want to do the Minister a favour here. It could be argued that the consent and co-operation of the pubcos will make any solution more workable—just as restorative justice is often preferable to sheer penal justice—especially if a self-regulatory code is given some legal significance, although, as other Members have pointed out, a statutory code would lead to more compliance and less legal recourse. That sounds pretty reasonable, apart from the fact that the Government clearly promised something else and have lost trust, and the fact that the pubcos have a dismal record of keeping to commitments, as the Select Committee’s report made clear.
Overall, the Government’s response represents the triumph of hope over experience, or of realpolitik over trust. There is a long and—as must not be forgotten—sordid history of a connection between politicians and the brewing industry over the ages, dating back to the time of Gladstone and before, with the tenant often perceived by the Liberals as the victim. Ultimately, this is the Government’s call. If they ignore the Select Committee’s advice, they will risk being considered untrustworthy; I think that that is inevitable now. They gamble on the good faith of the pubcos, but what if they are wrong? That is my main question to the Minister. If this is not a solution but in fact an evasion, statutory regulation must be the only conceivable answer.
Mr Dave Watts (St Helens North) (Lab)
Is it not clear that in virtually every case self-regulation does not work, and that Governments are eventually forced to regulate for that reason rather than because they want or prefer to do so?
John Pugh
I think self-regulation might work sometimes. What we are debating is what will happen if it does not. What do the Government intend to do in that event? I think it incumbent on the Minister to state plainly that if self-regulation does not work, statutory regulation remains an option. If the Government have an objection in principle to statutory regulation, they must make it clear to the House, because that is the most honest and forthright approach.
Mr George Howarth (Knowsley) (Lab)
I have been following the hon. Gentleman’s argument closely. Does he agree—indeed, I think this is his conclusion—that if self-regulation is to work, the industry needs to know that if it does not in fact work, the Government will be prepared to follow up with statutory regulation?
John Pugh
I think that the Government must say that. The industry has been given a second, third, fourth, fifth, sixth, seventh—however many chances we may care to cite. If the Government do not intend ever to introduce statutory regulation, they can and should say so at the Dispatch Box today.
Justin Tomlinson (North Swindon) (Con)
I pay tribute to all the Members who have shown a real commitment to supporting our essential network of community pubs. That is incredibly important, because we politicians are often accused of not debating issues that are discussed in pubs up and down the country. On this occasion, we can raise a glass to that.
My local brewery, Arkell’s, which was established in 1843, is an example of good practice in terms of pub ties. I intend to describe the challenges that it faces, and then present my brief conclusions. Arkell’s has about 106 pubs, many of which have tied tenants. That has several benefits. It allows low-cost entry, providing an easy way for someone who feels that his calling in life is to be a landlord to get into the industry; there are economies of scale, and the skills assistance and training which, in most instances, transform the “I think I would be a very good landlord” attitude into some form of reality; and, crucially, it enables an enthusiastic landlord to delegate a number of tasks that he may not himself wish to perform, perhaps preferring to focus on good customer service rather than dealing with the accounts, the portable appliance testing and the insurance.
Moreover, as a family brewery, Arkell’s has a long-term commitment—historical and emotional—to local communities, and will make long-term investments. My local pub, the excellent Tawny Owl, is installing 85 solar panels which will have a 25-year payback return. Arkell’s has the confidence that that is worth doing. When local community pubs start to struggle, it does everything it can to keep them going. Although sometimes a community will no longer wish to have a community pub and the pub closes, Arkell’s considers itself to be a brewer first and believes it needs to sustain a network to sell its beer.
The head of the Arkell’s family brewery is James Arkell. When I spoke to him, he highlighted that he felt the problem with the pubcos is that over the past 20 years the bond of trust has been broken. Many speakers have highlighted a number of the issues involved in that, including increasing costs and service charges, and lack of transparency, so that when an enthusiastic potential landlord signs up they are not 100% sure of what they are signing up to, as well as lack of support and aggressive changes in contract terms, often driven by the fact that the pubco has decided it no longer wishes to have that pub site as it will make more money if it sells it. Such behaviour is often driven by the fact that many pubcos are drowning in debt. They are accountable to shareholders, and therefore tend to make short-term decisions. I think that all Members agree that action was needed.
I welcome the voluntary code. One of its advantages is that it can be implemented quickly, but the Minister must make it clear that if the industry does not sort itself out and act responsibly, the voluntary code will be replaced by regulation. As a good, proud Conservative, I do not normally favour more regulation, however, so we must try to address this issue in the best way.
We must also be careful what we wish for, because we all seem to want both sides of the coin. At the end of the day, these buildings have to be paid for. As I have said, one of the advantages is that this is a cheap form of entry into the industry. What would people think if franchisees who operate under the McDonald’s badge instead wanted to sell KFC because that might be more profitable? This has to work both ways, therefore.
We must continue to review progress, and the pub sector must know that we are doing so. We must then focus on the other issues affecting the pub industry, such as tax, red tape and training. Training is crucial because pub failures are often a result of poor-quality landlords. The next generation of landlords must be able to step up to the challenge and address problems such as the social changes of recent times. Fewer people are inclined to go to the pub, and people tend to go less often. Landlords have to be able to address such trends by providing food and offering quiz nights and sports opportunities. We must therefore look at hospitality management courses in universities and colleges. They train people to work in the restaurant industry, but they should also be proud to train them to work in the pub industry so that we have a new generation of pub landlords who can meet the challenge of protecting those valuable community assets.
Damian Hinds (East Hampshire) (Con)
The importance of this subject is clear from the number of Members present for this debate. That is unsurprising as pubs are an important part of being British; they are an important part of what holds us together and of what, literally, brings us together. This has been a difficult time for the licensed trade as a result of Sky TV costs and Performing Rights Society costs, as well as changing social habits leading to a decline in wet sales, combined with the underlying structural problem that prices go up by price inflation but the biggest cost, which is people, goes up by wage inflation. There are clearly far too many pubs closing in our towns and villages, and we need to find ways to stop that. Changing the tie arrangements is not the right way, however.
I should declare an interest: I used to work in the pubs and brewing business, but I no longer do so. The industry is built on partnerships between large companies and individual entrepreneurs. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, that brings many people into the business who otherwise would have no way in. However, whenever there are two businesses working together there is always potential for conflict, and this business certainly has its fair share of that. We should also make it clear that there are many happy tenants and lessees, however; not everybody is at loggerheads with their partners.
At its heart, the tie is a way of sharing risk between the real estate owner and the individual entrepreneur. Different sectors do that in different ways: they have franchise fees as a percentage of revenue, turnover-related rents or whatever it might be. In this sector, it just so happens that it is done primarily through the tie. Everything that I know about economics and business tells me that loading all cost on to fixed cost and de-variablising it would increase, not decrease, the number of business failures because of the increased operational gearing.
There is a somewhat false impression implicit in much of this debate—in the wider sense; not so much today—that, were the tie to go, everything else would stay the same, so nobody’s rent would go up. Of course, that is not true at all. There is a required return on every piece of real estate; the market expects a required return from quoted companies.
Martin Horwood (Cheltenham) (LD)
Does the hon. Gentleman not accept that hardly anybody in this debate has asked for the tie to go? We are talking about rebalancing the power relationship between lessees and pubcos, so that there is greater incentive for pubcos to provide a more generous arrangement for small businesses.
Damian Hinds
The motion does in fact specify a “free-of-tie option”. Many pub-owning companies would say that some sites are appropriate for leases—where the partner can build the value of the lease by building up the food business, for example—whereas others are more appropriate for a traditional tenancy-type business. The motion as stated would conflict with that approach.
In addition to that false implicit impression, there is a confusing conflation of tenants and lessees. On the one hand, we seem to be saying that this is only about very large pub companies that run leases; yet a number of those who have spoken in favour of that proposition have referred to the people in question as tenants. I am not entirely sure where the cut-off point of 500 sites comes from. It is possibly intended to target just a couple of companies, but frankly, coming up with a regulatory package for the whole industry is probably not the best way to do that. I fear that that would pull in a couple of other companies it is perhaps not intended to target.
Most importantly, there is little evidence that I know of that traditional, smaller, integrated brewers have any difficulty with the tie, which suggests to me that there is no problem with the tie per se.
Mr Davey
My hon. Friend is right, and that is one reason why the Government response made a big distinction between the tied tenancy model and the leasehold model of full repairing and insuring leases, with which most, if not all, of the real detriment and problems have occurred.
Damian Hinds
The Minister is correct, and that is indeed in the Government response. Unfortunately, the BIS Committee report, which is a fantastic report and to which we are to some extent referring, does not make that distinction quite so clearly.
What should we do if the tie is not the answer? Let me start with what we should not do. The Government response puts it rather well:
“Government should not intervene in setting the terms of commercial contractual relationships”
where, according to the OFT, there are no competition issues that significantly affect consumers; and
“whether or not a lease or tenancy includes a tie is a commercial decision on the part of both parties.”
Damian Hinds
I am afraid not.
We do need to make sure that there is fairness and transparency and that properly informed people come into this business. On fairness, I welcome the commitment in the new framework code to having no more upward-only rent reviews in full repairing and insuring leases. On transparency, I welcome the commitment to publish national wholesale price lists, although I am not quite clear how that would work. In this business, where pricing is a complex art, wholesale prices are not necessarily that much use unless the actual prices charged and tariffs are known. My hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi)—he is not with us today—suggested to the Select Committee that, through the medium of the internet and the wisdom of crowds, it might be possible to use these data in ways hitherto not possible.
I also welcome the industry’s commitment to look again at common formats for shadow profit and loss accounts to make it easier to compare different pub owners. I agree with the predecessor Select Committee’s finding in 2009 that all the information on a pub’s trading history should be available to the potential licensee. However, it is also important that we understand the limits of that. Pub companies will say that they would love to know a lot more about the trading history of various sites, often having limited sight of that information. We need properly to inform people who are going into the business. I welcome the pre-entry awareness training, but I also agree very much with the Committee’s judgment that we need deep vigilance on its quality. None of that invalidates the tie.
If we want to be totally focused on keeping pubs open, as I believe all hon. Members do, we have to address two fundamental things. The first is pubs competing on price, partly against the supermarkets, but also, as some hon. Members have said, against managed houses, particularly urban “vertical drinking establishments”, as they are known in the trade, which often severely undercut the traditional tenanted trade. The second is alternative usage value, as one way of keeping pubs open is to make it harder and more expensive to secure a change of use for these premises. That will focus minds on making sure that companies are supporting sustainable businesses.
Martin Horwood (Cheltenham) (LD)
I congratulate the hon. Member for West Bromwich West (Mr Bailey) on promoting today’s motion. He is a fellow Robins fan, and I know that he, like me, will have wanted to toast, in a pub somewhere, Cheltenham Town’s phenomenal, confident performance against Spurs last week—but as he rightly points out, the choice of pubs is becoming much more limited. That is happening for many reasons, but the pub tie is clearly one of the factors contributing to pub closures.
I promoted a private Member’s Bill on this subject last year. It received very wide cross-party support, and that same level of cross-party support has been evident in the backing for early-day motions; the all-party save the pub group, ably led by my hon. Friend the Member for Leeds North West (Greg Mulholland); the Select Committee reports that have repeatedly set a timetable, which has now passed, for introducing a statutory code; and, of course, today’s debate and motion.
When I promoted my Bill I received a lot of correspondence, especially from the trade. I did receive one letter from Enterprise Inns, which pointed out the value of the tie. Indeed, the company generously took me round my constituency and demonstrated that the tie can sometimes deliver real benefits; that is true, especially where extensive capital investment is required. Yet the overwhelming volume of correspondence from the trade was supportive of a statutory code with a free-of-tie option.
One of the most powerful letters I received came from someone who said the following:
“I have the misfortune to have a successful pub/restaurant…under a tied Enterprise lease…Having taken the lease last May from previous tenants who couldn’t make the business work, looking back no one seems to have had success since Enterprise bought the pub”.
Jason McCartney
The hon. Gentleman makes some excellent points, as many colleagues have done on the basis of their own personal experience, be it from meeting their partner in pubs or having worked in the industry. My experience is of my two local pubs in Honley, in Yorkshire. The Allied has had three tenants in 18 months—it is on to its third lot now—and the Coach and Horses, after numerous tenants over the past three years, has just closed. Although an Indian restaurant called Balooshai is going to open, which I welcome, I no longer have a pub within a minute’s walking distance. For those reasons, as well as because of all the other points made in the Chamber this afternoon, does my hon. Friend agree that action needs to be taken?
Martin Horwood
Yes.
My correspondent also said:
“The local rep visited at my request this May, only his 3rd visit and I now prefer to deal with him by email to have everything in writing.”
That supports the points that have been made about loss of trust. The letter continued:
“He first volunteered the figures from the brulines system, showing my doubling sales, food has also gone from nothing to a very good business and is the only way to make any money on this lease. I then put to him that at £5.5k breakeven I am paying about £23k rent and £50k through the beer tie. This equates to around 17% return on the value of the property while I will struggle to even repay my investment let alone make a return on it or pay myself an income. When I put to him that unless he rebalanced this I would be selling up and moving on he confirmed that I have a lease in order that I can do this.”
As my correspondent pointed out, the pubco representative would
“make a mean poker player.”
My correspondent continued:
“I’m waiting to see what comes from Westminster…Last resort is to sell up and move on.”
He points out that this is not just about the price of the beer either, saying:
“Aside from paying between 1.5 to 2 times wholesale value within the tie. Enterprise restrict what I can buy, for example I can not have Crabbies Ginger Beer”.
I have never heard of that. [Hon. Members: “Oh dear!”] Other hon. Members obviously have.
The letter continues:
“this may seem petty, but Crabbies is heavily marketed and is hence what customers ask for.”
He concludes:
“With a monopoly to supply 7,000 pubs, the service is understandably poor, why would you offer more than a week or 2 payment terms, daily delivery, knowledgeable staff, sale or return, dependable deliveries, useful special offers, volume discounts, why would they? It’s not as if I can take my business elsewhere.”
That inequality in the power relationship between struggling small businesses and the major pubcos demonstrates my point.
Mr George Howarth
As I am ever anxious to be helpful, may I tell the hon. Gentleman that Crabbie’s ginger beer is made in Knowsley?
Martin Horwood
The right hon. Gentleman will have to buy me whatever the relevant quantity is in a pub sometime, if we can find one.
To be even-handed, I must say that I have had quite a lot of complaints and correspondence from lessees of Punch Taverns, too. One wrote:
“I am a Punch Lessee, I am at present on the biggest discount”—
in other words on beer price—
“that Punch can give me, I am paying what is in my view an extortionate rent, an example of pricing is as follows:
My buying price from Strongbow Cider at highest discount from Punch = £110 + VAT—Price from free-trade Moulton Coors = £64 +VAT.
This comparison is throughout the range. What chance have I got of staying in business. The truth of the matter is that the prices we have to charge to customers = empty pub.”
That is the unequal power relationship we need to have tackled, and that view is widely held across the trade.
The Minister should take credit for the positive steps that he is taking, but none of them really sort out the central issue, which is not the need to abolish the tie or even customer choice and competition among pubs for customer trade but the need to rebalance the relationship between publicans and the pubcos, and the lack of any real incentive for those highly leveraged businesses to offer better terms and avoid pub closures. It is increasingly clear to everyone in the trade, to the Select Committee, which has repeatedly considered it, and to Members across this House, that the only way to do that is to introduce a statutory code with a free-of-tie option. We should not force all pubs out of the tie, but give the pubcos an incentive to rebalance the relationship and offer more generous terms to those struggling small businesses. The pubcos have been drinking in the last chance saloon for so long that they must be under the table by now, and it is time for Ministers to join us all in saying, “Time” and “Enough”.
Lorely Burt (Solihull) (LD)
Although several Members have a lot of knowledge of the pub industry, I think I am the only Member who has spoken today who has operated under a tie. Admittedly it was an awfully long time ago, but the experience of operating under a tie is principally the same now as it was when the beer orders came in.
I agree with the hon. Member for East Hampshire (Damian Hinds) that the tie is not the problem. In my view, it represents the symbiotic relationship between the company, which owns the pub, and the tenant, who puts his or her labour, blood, sweat and—often literally— tears into the equation. Landlords have always complained about the unfairness of the tie—they did it in my day and they do it today—but people should enter into tenancy agreements with their eyes wide open, not with the starry-eyed image of being “mine host” behind the bar obscuring the economic facts. I am glad to see that the new pub advisory services will be established to support would-be tenants and ensure that they understand what they are getting themselves into.
The difference today is that the vast majority of tied pubs are owned not by breweries but by companies whose purpose is not just selling beer but owning properties that they expected to accrue in value. Several changes over the years have made that a less and less attractive business proposition, including changes in drinking habits, drink-drive legislation and so on. The property bubble has now burst and the pubcos can no longer rely on increasing property values to square a decreasing profit circle. To their shame, some pubcos have resorted to imposing increasingly punitive terms on their tenants to make up the difference, including the full repairing and insuring leases that have been mentioned, along with many other examples.
Martin Horwood
Does not the point that my hon. Friend is making underline the difference between the kind of tie under which she operated with a brewer and those under pub companies, which have no incentive not simply to sell their pubs and take the cash, as that helps their balance sheets?
Lorely Burt
I agree with my hon. Friend to a degree, but the principle of the tie is the same. We need to make sure that the tie operates fairly.
These problems must stop, but should the answer be legally to require companies to offer a free-of-tie option? The balance has indisputably tipped too far towards the landlord, but I think we are tipping the baby out with the bathwater. For the breweries, what would be the point of having their own pubs if they could not impose a tie? Why would they go to the trouble of buying and refurbishing property and recruiting suitable tenants only for those tenants to start in competition against them, selling someone else’s beer? Breweries have been anxiously awaiting the Government proposals because they want to invest in the industry, but they will not do that if they cannot keep the tie.
Susan Elan Jones (Clwyd South) (Lab)
Does the hon. Lady accept that one problem with the current situation is that it prejudices against local ales? I am thinking of McGivern ales in Ruabon. Its ale is hugely popular and I would like to see more pubs selling it, but the current situation prejudices against that.
Lorely Burt
Indeed, but the Office of Fair Trading report found that there was not detriment to the consumer in response to the tie. The pubs I go to tend to have all sorts of guest ales as well, so there is still that possibility.
Lorely Burt
I am grateful for that intervention.
As for the pubcos, those over-relying on the property model have become increasingly unviable and they are being hoist on their own petard. Punch is selling off 2,000 pubs and Enterprise is selling 500. Those that are left will be protected by the code of practice. Why should we wait for two or three years to introduce legislation, given that 98% of the industry has signed up to the code of practice today? The code of practice is stronger and is legally binding. Rents must be based on independent guidance from the Royal Institution of Chartered Surveyors, and unhappy tenants can appeal easily and cheaply to an independent mediation service and to the courts. On the whole, this is a good deal for landlords and customers. I can support the proposal in the motion for a review to ensure that the voluntary code and other measures are properly implemented and that they work, but I would be happier if a little more time were given to assessing whether they are working properly.
Where I think that we as a Government have failed is in not taking strong enough action against the supermarkets and their pernicious cheap alcohol policies. Several colleagues have mentioned that. I should like to say, “Well done,” to my hon. Friend the Minister for the safeguards and changes he has managed to wring from the pubcos, but can he now persuade his right hon. and hon. Friends in the Treasury to substitute for the lily-livered excuse for a minimum charge for alcohol of VAT plus the rate of duty, a proper minimum charge to protect our pub industry and the health of our nation?
Toby Perkins (Chesterfield) (Lab)
It is a pleasure to stand here at the culmination of this excellent debate, which has shown the House in a tremendous light. Let me start by congratulating my hon. Friend the Member for West Bromwich West (Mr Bailey) on securing and opening the debate. I congratulate also the hon. Members for Leeds North West (Greg Mulholland) and for Northampton South (Mr Binley) on their work on this issue. It is to the Minister’s shame that despite diligent research and the magnificent campaign fought by many interested organisations, we are debating how to put safeguards into a policy that was announced without proper consultation and in direct contradiction of assurances given by him.
I shall refer to the remarks of some Members during my contribution, but I must pick out specifically the brilliant and passionate speech of the hon. Member for Northampton South. He described how the Government have reneged on their undertaking, and pointed out that the problem was the major pub companies that have more than 500 pubs. The hon. Member for Leeds North West spoke brilliantly and exposed the shameful collaboration of the Government and the BBPA. That point was also taken up by the hon. Member for Southport (John Pugh).
My hon. Friend the Member for East Lothian (Fiona O'Donnell) talked about the impact on jobs. That is a vital issue: every week hundreds of people lose their job as a result of the number of pubs that are closing.
The hon. Member for Burton (Andrew Griffiths) spoke up for pub companies, but said that they were drinking in the last chance saloon—and my right hon. Friend the Member for Torfaen (Paul Murphy) rightly said that the last chance saloon sounded like a pub where time is never called.
Toby Perkins
I am afraid I do not have time.
The hon. Member for Bristol North West (Charlotte Leslie) felt that on balance there needed to be some regulation. She defied those who think that a Member cannot make a serious speech wearing a scarf—something that may catch on.
My hon. Friend the Member for Sheffield Central (Paul Blomfield) talked about how, because of their flawed business model, the big pub companies are squeezing out unreasonable returns. My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) said that the Prime Minister was dodging his round at the bar. The hon. Member for Nuneaton (Mr Jones) reminded us of the role of the pub in uniting couples over the years. He reflected on the good fortune of Mrs Jones to have been drinking in the right pub at the right time.
There were interesting contributions from my right hon. Friend the Member for Torfaen and my hon. Friend the Member for York Central (Hugh Bayley). The hon. Members for North Swindon (Justin Tomlinson) and for East Hampshire (Damian Hinds) spoke about alternative ways in which pubs might choose to improve themselves.
Today we have heard a lot about the history of this issue, but it is worth reminding ourselves that we have had seven reports and there have been four inquiries by the Business, Innovation and Skills Committee. The Government’s response has many flaws, which other Members have exposed, but I want to talk about two specifically.
On the issue of pub closures, which was exposed by the hon. Member for Pendle (Andrew Stephenson), the Minister has swallowed the big pub company line that free-of-tie pubs are more likely to close. He must know that in general tied pubs do not close permanently, because, as the hon. Member for Brighton, Pavilion (Caroline Lucas) pointed out, they have a history of churning through huge numbers of landlords who try and fail—another business going under, another life unfairly ruined. One pub company had a churn rate of 65%, so although the hon. Member for Solihull (Lorely Burt) says that people should go into such arrangements with their eyes open, that does not reflect the reality experienced by many tenants and lessees. Like the hon. Lady, my hon. Friend the Member for Edinburgh South (Ian Murray) was previously a landlord—for Enterprise—and has strongly made the point that many people’s lives were ruined because they were not aware of what they had let themselves in for.
In March 2010, a Federation of Small Businesses survey found that 84% of tied businesses believed that their relation with the pubco did not allow them to compete effectively, 90% believed that the arrangements meant that they could not make a fair profit, and 87% indicated that they wanted to be free of the tie. Despite that evidence, the Government say in their response, as my hon. Friend the Member for Wrexham (Ian Lucas) pointed out, that the debate over tied or free-of-tie status is a distraction. We think that is entirely wrong.
The FSB is not the only organisation to study the issue. The Institute for Public Policy Research also questioned tenants and lessees, and its findings showed that free-of-tie landlords manage pubs longer, are more optimistic about the future, are less likely to be struggling financially, and earn more. According to that study, 46% of tied publicans earn less than £15,000 a year. The hon. Member for Cheltenham (Martin Horwood) noted that the IPPR found that 88% of publicans who claim to be struggling financially identified the beer tie as one of the most significant factors in their financial problems.
The Minister, in his written response, built a man of straw, claiming that the critics were calling for the tie to end completely. He must know that that is not the case. All the critics are saying is that if the traditionally tenanted arrangement is such a good deal, why can the big pub companies not offer both tied and free-of-tie options, and let their tenants decide?
The Select Committee discovered that at every turn the big pubcos had failed to take the actions they had promised. In desperation, the Committee said in March 2010 that it would give the industry a final chance to prove that self-regulation could work. It was supported by a sympathetic Government who promised to back its findings. When there is such knowledge and such commitment and when the industry has been given every chance to put its house in order, how can the Minister possibly write that the issue is more complicated than the critics realise?
What the critics may have failed to understand is not the issue surrounding pubcos but the developing relationship between the pubcos, the BBPA and the ministerial team. As the hon. Member for Leeds North West said, the save the pub group has discovered, through freedom of information requests, that throughout the process the referee was getting changed in the same room as one of the teams.
Toby Perkins
The Minister’s colleagues, the hon. Members for Southport and for Leeds North West, were deeply uncomfortable about the relationship. The findings of the save the pub group, through freedom of information requests, show that parts of the BBPA’s report—including the typing errors—were just cut and pasted into the Government’s response. I do not know whether the Minister is still listening to me. It is difficult for him to say that there is no evidence when Members who sit on the same side of the Chamber as him feel that the relationship is deeply unhealthy.
It transpires that before the Select Committee report came out the Minister had made up his mind that he would not consider legislation. As I said, the Government’s response to the report is, in substantial part, the BBPA’s own report. As my hon. Friend the Member for West Bromwich West said, it is now clear that the Minister has had no independent legal advice on the legality of the framework, and instead has relied on legal advice provided by the BBPA. It has become clear that his officials were assisting the BBPA with the wording of a press release as early as October, when as far as interested bodies were concerned the Minister was still sticking to his commitment to push through legislation. In fact he was merely paving the way for the BBPA’s preferred option. That is just what we know. Other information requested by the save the pub group has been hidden by the Government. How much worse can it be?
The verdict of the all-party save the pub group is damning. It says that the Minister has not been naive; the action is deliberate and, at best, a lazy response by him in the hope of clearing his desk. The verdict of the Federation of Small Businesses is equally clear. It is extremely disappointed by the Government’s response to the Select Committee inquiry and extremely concerned that this agreement appears to have been negotiated with the BBPA and the larger pubcos without substantial consultation with interested parties.
If a Minister were able to come to the House and create a policy that united opinion throughout the House, including the Select Committee, and among the numerous groups referred to by the hon. Member for Leeds North West, we would call him a genius. I have no idea what the word is for the opposite of a genius, but the Minister appears to have achieved the absolute opposite of that united opinion. Who else is calling for the Government to legislate on this issue? Who else does the Minister think simply does not understand its full complexities? Alongside the Select Committee, the Federation of Small Businesses and the all-party save the pub group, there is CAMRA, the Independent Pub Confederation, Fair Pint, the GMB, the Association of Licensed Multiple Retailers, the Guild of Master Victuallers, Unite, the Society of Independent Brewers and the Forum of Private Business. If the Minister could leave the Chamber and come up with a policy that united all those people in his favour, he would take a huge step forward in his career.
As has been declared, this was an opportunity to take steps to resolve the problems faced by the 87% of landlords who indicated that they wanted to be free of the tie. The Minister has wilfully and deliberately set out to avoid living up to that commitment. He says in the Government’s response that the industry will waste no time in living up to these demands, given the parliamentary interest in the matter. As the hon. Member for Eastbourne (Stephen Lloyd) made clear, that is a risible claim, as all the evidence we have seen from the pub companies over the years demonstrates.
Who has the Minister let down? He has let down the Select Committee, which worked so hard and which he promised to back, and all those who contributed to its hearings. He has let down the small family brewers who have been shut out of many pubs as a result of the pub companies’ market domination. He has let down the Federation of Small Businesses, which campaigned so strongly, and let down CAMRA and the Fair Pint campaign. He has let down the 25,000 publicans across Britain who run tied pubs. Most of all, he has let down the customers who were relying on him to secure a fairer balance between landlords and the pub companies.
Never before has there been such a concern about crony capitalism or such an expectation that the Government should stand up for small businesses. This issue confirms what we have always suspected: beneath the warm words, what we are getting from the Government is business as usual. They are on the side of the rich and the powerful, standing up for large vested interests and leaving publicans to fight for themselves.
Ultimately, this issue set three tests for the Minister. Would the Government intervene to ensure a fair relationship between big pub businesses and small business people? Would they keep their word and do what was right, even when a big, powerful lobby asked them not to do so? Would they listen to the voice of the people, the voice of small businesses and the publicans at the coal face of the industry or, when they were needed, just back down? On all those tests, the Government have failed.
This is not a party political issue. Everyone agrees that the Government have got it wrong, as we heard today from Conservative and Liberal Democrat Members. A huge opportunity has been missed and the pub lobby will not believe that this House is serious about action, but it is not too late. Members must ensure that the industry is held to account by supporting the motion, ensuring that an independent body is allowed to come in and monitor what actually happens. Only then will there be any chance of people having a serious hope that the House will take action. I commend the motion to the House.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
It might surprise the House to learn that I am very grateful for today’s debate and for all the contributions made by hon. Members, not least because our deliberations will be read by the industry, including the pubcos, and because there is agreement on a number of issues. We all agree that, while we want to enable businesses to generate growth and jobs, we also want them to operate fairly. There is no doubt that the Business, Innovation and Skills Committee identified a number of concerns about how the pub industry is operating. I strongly agree with the importance the Committee and hon. Members attached to the role of pubs in communities the length and breadth of this country.
Before addressing some of the specific issues raised today, I would like to outline the reforms that the Government recently secured from the industry so that no one is in any doubt about them. The reforms deliver on our promise to take action and are much more significant than many Members have suggested today. The industry framework code is to be made legally binding, and I can tell the House that all six of the big pubcos, as well as a number of the smaller family operators, have already declared publicly on their websites that they are legally bound by this code and sent letters to their licensees setting out an open and unlimited offer to this effect. That already represents over 70% of the tied trade and 100% of the large pubcos.
A pub independent conciliation and arbitration service—PICAS—is to be set up. It will provide mediation and arbitration on any matter relating to the framework or company codes and the results will be binding on both parties. That will be done by the end of next month. There will be a three-yearly re-accreditation process for company codes, administered by the British Institute of Innkeeping benchmarking and accreditation scheme through examination of annual compliance reports and spot checks. A new pubs advisory service—PAS—will provide an initial offering of free advice to all prospective and current tenants and lessees. There will be a strengthened framework code, with a particular focus on full repairing and insuring leases and on issues such as rent, insurance, transparency and pre-entry training. This strengthened code was agreed between the BBPA, the BII, and the FLVA, which is a licensee organisation, on 22 December. Those reforms have the potential to deliver real change for tenants and lessees across the country, and they are being brought into effect far more quickly than legislation could achieve.
There have been suggestions of collusion, with allegations that in the process the Government listened only to the BBPA and were deaf to the voices of licensees. That is simply not true. I have met CAMRA three times over the past year; I have met my hon. Friend the Member for Leeds North West, the chair of the all-party save the pub group, four times over that period; I have met the Independent Pub Confederation; and I have met representatives of the Association of Licensed Multiple Retailers, a licensee organisation, with which we were in detailed discussions while negotiating with the BBPA.
Toby Perkins
Did any section of the representations from the groups that the Minister has just mentioned find its way directly into the Government’s response, or was it simply the BBPA’s representation that turned up there?
Mr Davey
I heard the concerns of those organisations and the problems in the industry, and that is why we have taken action. The hon. Gentleman tried to say that this was not a party political issue, but he made it into one. He and his hon. Friends had 13 years to take action, but they took none.
During this process, I have read copious reports on and information about the concerns of licensees, and we have taken action to address their concerns when we have felt that action is appropriate. We will always listen—
Mr Iain Wright (Hartlepool) (Lab)
My hon. Friend is a former Business Minister.
Mr Davey
I will give way later on; I want to make some progress, because some serious allegations have been made.
Reference has been made to the freedom of information request, which is alleged to show that we just accepted the status quo and the views of the BBPA. The Government have now released more than 90% of the documents requested under the recent FOI request, and more than 500 pages of documentation can now be found on our website, including discussions and minutes of meetings with the BBPA, the ALMR and CAMRA. They show clearly that we listened to all sides and negotiated hard with the BBPA.
For example, there are the minutes of the meeting with the BBPA on 12 October, in which I laid down the conditions that any self-regulatory deal must satisfy. Otherwise, we would have had to consider regulation. The minutes show that the key conditions were those that I laid down—that the code must be legally binding, that the code must be strengthened and that there must be an independent dispute resolution service.
Following my initiative, the BBPA went away to write its report, which it sent to me on 20 October, and I can assure the House that in the meeting on 12 October the BBPA did not want to give the concessions that we wrung from it. Indeed, an e-mail on 20 October, which is in the FOI request, shows that my officials contacted the ALMR, a member of the IPC and a licensee organisation, within half an hour of receiving the BBPA’s offer in order to seek that organisation’s opinion. In the freedom of information request, there are e-mail exchanges in which we pressed the BBPA on how it was to make the code legally binding, and to give firm dates for implementing its commitments and establishing PICAS. That information is available on our website, and I am happy to place it in the Library.
Mr Davey
No, I want to make some progress. [Hon. Members: “Oh!”] I will give way to the hon. Gentleman in a bit, because in two and a half hours’ evidence to the Select Committee he quizzed me for an hour, so let us be clear that I have answered an awful lot of questions from him.
Why did we not legislate? Some in this Chamber wanted the Government to step in and regulate, and some even believe that we promised to do so, but we promised to take action, and that is what we have done. We have had to consider all the evidence and the action that we would take, and I believe that the action we have taken is appropriate and effective.
We did not legislate because, first, we wanted to act now, not in two or three years’ time. To legislate, we would have had to carry out a lengthy process of consultation, of drafting and of pre-legislative scrutiny, and after that we would have had to fight for a slot in the legislative Sessions. It is highly unlikely that such a slot could have been found quickly.
Secondly, this is a deregulatory Government. Additional regulation should always be a measure of last resort. For the Government to intervene in the commercial contractual relationships between two parties, they must have very good reason. That is in line with the Government’s top priority of achieving strong, sustainable and balanced growth, and generating a climate that supports enterprise and creates jobs.
Thirdly, the Office of Fair Trading found in October 2010 that there were no competition issues affecting consumers in this market. That is a critical point, but I am afraid that the Select Committee report did not discuss it. I am aware that in some circles, it is believed that the OFT is wrong. That is not a view that I share. As Minister with responsibility for competition, I have high confidence in the rigour and accuracy of the OFT. Without evidence of competition issues, the rationale for Government intervention is significantly reduced. That is in contrast to the situation in the groceries market, where the Competition Commission found evidence of competition issues. The Government have therefore committed to introducing a groceries code adjudicator as soon as parliamentary time allows to ensure that large retailers treat their suppliers fairly and lawfully.
Mr Davey
I will in a bit, but I want to make progress.
What we have delivered instead of regulation is a self-regulatory regime much stronger than we have had before. As a result of commitments made by the pubcos, they will be obliged to comply with the code and it will be delivered at least two or three years sooner than under an Act of Parliament. That is in line with the Government’s commitment to focus on delivering reform for small businesses right now, not in a few years’ time.
I have listened to campaigners on the issue of the tie, including the IPC, CAMRA and hon. Members. After careful reflection, I disagree with them. I say careful reflection because, like other Members, I have always been worried by the tie, primarily because I had assumed that it must be interfering with competition and was therefore against the interests of consumers. That is why, like others, I was keen for our independent competition authorities to consider the matter. The OFT’s investigation concluded that consumers are well served by British pubs, that there is choice and that a wide variety of beers is available. To override an independent competition authority would be a serious decision for a Minister to take and would require significant evidence that the authority had failed to deliver. As CAMRA decided not to challenge the OFT further, presumably it did not have further evidence; we certainly did not.
Mr Davey
No.
Secondly, when one examines where the relationships between pubcos and licensees have gone wrong, it quickly becomes clear that the major problem is not with the traditional tied tenancy, but with full repairing and insuring leases, which are mostly, but not exclusively, used by the pubcos. There are problems with pre-entry training, transparency and rent guidance not being followed, but not with the basic question of whether a pub is tied for beer. That is why my solution targets full repairing and insuring leases and leaves alone the traditional tied tenancy model, which is used successfully, and for the most part amicably, by local and regional brewers alike.
Thirdly, the market is driving a solution. The figures show that since December 2008, slightly more free-of-tie pubs closed than tied pubs. That is true whether one uses the gross closure rate or the net closure rate, which CAMRA says is more important as it takes account of churning. Furthermore, big pubcos are selling off hundreds of pubs a year, many of which are being bought by family brewers or converting to being free-of-tie. Since December 2008, three times as many free-of-tie pubs have opened than tied pubs and a further 1,300 pubs have converted from being tied to free-of-tie. Where the market is working, the Government do not need to intervene.
Mr Binley
I am most grateful to the Minister for giving way. I remind him that I asked the Secretary of State whether he would uphold the undertaking given by the previous Government that they would act on recommendations from the Select Committee if they were meaningful and in its report. Will the Minister confirm that the Secretary of State said that he would uphold that undertaking? Does he accept that that is the truth of the matter?
Mr Davey
My right hon. Friend the Secretary of State said that he would take action, and we have taken action. Let us be clear that what the Select Committee wanted was legislation to deal with the problem. Through negotiation and using contract law, we have got legally binding codes of practice that are in the spirit of what the Select Committee asked for. More than that, the Committee asked for an adjudicator, and we will have PICAS to adjudicate on the code by February. Not only are we tackling the issues that the Committee raised, we are doing so far more quickly than expected. I would have thought that the hon. Gentleman would welcome that.
Toby Perkins
It is one thing for the Minister to argue that what he is doing is better than what he undertook to do, but it is simply wrong for him to try to claim that he is doing what the Secretary of State and he undertook to the Select Committee to do. He must know that the commitment that the Secretary of State gave is not what he is delivering. Why does he not just be honest and say that?
Mr Davey
Throughout my speech I have shown that the hon. Gentleman was wrong in almost everything that he said to the House, and he is wrong again.
I recognise that some Members would want us to have gone further, yet our reforms, including the strengthening of the code, its establishment on a legally binding footing and the soon to be completed establishment of PICAS, will mean real change for licensees and tenants across the country.
Martin Horwood
I believe that Members can welcome the positive steps that the Minister has announced but still believe that they do not really tackle the key issues, which are not about compliance and competition but, as the debate has shown, more about the relationship between struggling small businesses and big pubcos. If we are to have one last drink in the last chance saloon, what time scale will he now unambiguously put on the self-regulatory regime before statutory action is taken?
Mr Davey
I am grateful to my hon. Friend. We do need to give the self-regulatory regime time to work, and I pay tribute to him, and even to my hon. Friend the Member for Leeds North West—[Hon. Members: “Even?”] I say “even” because we do not always see eye to eye on every measure. However, both my hon. Friends have campaigned very hard, and I can tell the House that in my meeting with the BBPA, my hon. Friends' campaigns and the Select Committee reports were critical to my being able to make it absolutely clear that, this time, the pubcos really had to come up with the toughest self-regulatory regime imaginable, or else Parliament would wish to take action. We have come up with the toughest self-regulatory regime imaginable, but it needs time to work. I commend our response to the Select Committee to the House.
Mr Bailey
A lot of points have been raised in the debate, and I will try to respond to them in a very brief time.
First, a number of Members have raised the issue of regulation. I wish to make it quite clear that the Select Committee put the ball in the industry’s court to find an appropriate level of regulation to address the problems that we highlighted. It has had any number of opportunities to do that and failed.
The Committee is not instinctively a body of regulators. It has a coalition majority, and at the time of the report it included a former publican, a former pub company owner and, I believe, a former brewery regional manager. There was a level of expertise and historic involvement in the industry that meant the Committee would not favour excessive regulation.
There are issues to consider about the brewers and their tenants and about the pub companies and their licensees. An adequate consultation with all sectors of the industry would have enabled those issues to be teased out and the introduction of an appropriate regulatory regime that would have addressed them sufficiently. Now, the question is whether the Government will conduct such an inclusive consultation to ensure that that takes place.
Another issue that has been raised on many occasions in the debate is the OFT verdict, which is a red herring. The OFT did not give the pub companies clearance in their contractual relationships. It said that the matter did not come within its remit. The Government have used that as a basis for saying that we should not interfere. I find that rather strange, given the fact that Governments have historically introduced many statutes to deal with injustices and imbalances in contractual advantage.
The Government's response is therefore not sufficient, and I find the Minister’s approach to be somewhat incoherent. On the one hand, he says he cannot interfere, but on the other he argues in the House that he is taking action. Either he can interfere or he cannot, and he is either taking action or not taking action, but he cannot marry the two.
At the end of the day, the Government’s approach will be judged by the industry as whole, and not just by the BBPA. We will be able to judge the success of their approach by changes in the relative balance of income on the two sides of the dispute, which has implications for the rate of closure within the industry. In effect, the proof of the pudding will be in the eating.
The motion provides a mechanism for a professional, comprehensive and inclusive judgment of whether those changes happen. If that mechanism does not work, the Minister, whether he likes it or not, will have no alternative but to introduce a statutory code that will be inclusive and representative of all bodies within the industry.
Question put and agreed to.
Resolved,
That this House believes that the Department for Business, Innovation and Skills’ proposals for reform of the pub industry fall short of the undertaking given to the Business, Innovation and Skills Committee in July 2010 and that only a statutory code of practice which includes a free-of-tie option with an open market rent review and an independent adjudicator will resolve the contractual problems between the pub companies and their lessees; and calls on the Government to commission a review of self-regulation of the pub industry in the Autumn of 2012 to be conducted by an independent body approved by the Business, Innovation and Skills Committee.
Mr Andy Slaughter (Hammersmith) (Lab)
On a point of order, Mr Speaker, of which I have given you and the hon. Member for Brentford and Isleworth (Mary Macleod) notice. Hammersmith flyover in my constituency has been closed for three weeks. Although we hope for good news as early as today about the reopening, it is clearly a serious matter for my constituents. The hon. Lady has convened a public meeting—nothing wrong with that—to discuss the matter, but she has advertised and convened it in my constituency. She has invited various public bodies, but not me, to the meeting to discuss these matters—she has not invited me to be on the panel.
This goes beyond the ordinary trespassing that Members sometimes commit. I have never heard of an event of this kind. In reality, it means that the public bodies may not attend, because the meeting is now party political. I ask for your guidance, Mr Speaker. The hon. Lady is a new Member and might not know the protocols of the House as well as others do.
Mr Speaker
I will restrict my understanding thus far, and I am grateful to the hon. Gentleman for notice of his intention to raise the point of order. It will almost certainly not be a matter of order for the Chair, but, reserving my position, I think it only right before I say anything further—I am sure he will accept this—to ask the hon. Member for Brentford and Isleworth (Mary Macleod) to offer her own thoughts, of which I have had some notice, on the Floor of the House.
Mary Macleod (Brentford and Isleworth) (Con)
Thank you very much, Mr Speaker. This public meeting is being held purely to help local residents. It is for Transport for London and Hounslow and Hammersmith councils to update local residents and help them. Frankly, that is what I came into politics to do.
I am extremely disappointed that the hon. Member for Hammersmith (Mr Slaughter) has attempted to threaten, intimidate and bully me into doing what he wants and play political games. He knew what was happening—I told him at the earliest opportunity. I invited him to the meeting verbally and in writing. He said initially that he was happy with the plans for the meeting.
I have worked well recently with my Labour Hounslow council and expect to have a very positive working relationship with the new hon. Member for Feltham and Heston (Seema Malhotra). It is really sad that we cannot help our local residents without an hon. Member trying to stop us. We should work together for the good of our local residents and our constituencies.
Mr Speaker
Order. I assume the hon. Gentleman’s point of order is on an unrelated matter. [Interruption.] Order. Before the hon. Gentleman jumps to his feet, let me say this: I am grateful to him for his notice and for his attempted point of order, and I am grateful to the hon. Lady for what she has said to me via e-email and on the Floor of the House. I do not think this is a matter of order for the Chair; it concerns a matter that is operational, outside of the Chamber of the House. I would want to reiterate the exhortation to Members to co-operate on matters affecting neighbouring constituencies and to observe the customary courtesy of informing other Members about actions and visits proposed in another Member’s constituency. These are, however, not rules of the House; they are conventions. I intend to leave this matter here for today. I say this with no discourtesy to any hon. Member, but because there is pressing business of the House to which we need to move.
Mr Speaker
Before we do so, I must, of course, take what I gather is a totally separate and unrelated point of order from the hon. Member for Wrexham (Ian Lucas).
Ian Lucas
On a point of order, Mr Speaker, that is indeed completely separate. In the previous debate, the Minister, speaking on behalf of the Government, expressly contradicted the content of the motion in an intervention on me, but the Government did not oppose the motion when it came to a vote. Can you offer me guidance on ascertaining the Government’s position on this matter?
Mr Speaker
Thankfully, that is not a matter for the Chair. I have no influence over the conduct of the Government, the decisions they make about policy or the way in which they choose either to vote or not to vote. In saying that, I think that the hon. Gentleman will hear my expression of relief.
Chris Bryant (Rhondda) (Lab)
Further to that point of order, Mr Speaker. Notwithstanding what you have just said, it is a matter of order that it is the custom of the House for a vote to follow a voice. If the voice spoke in one direction, but did not follow that up with a vote, that would surely be disorderly.
Mr Speaker
I think if somebody says one thing and then votes in a different direction, that would be a breach of order. I think if an individual Member—be that a Back Bencher or a Minister—gives an indication of a view, but chooses not to vote in the Division, that is qualitatively in a different category. I have a sense coming on of a potentially stimulating but arcane and preferably delayable exchange on this matter with the hon. Member for Rhondda (Chris Bryant). Perhaps we can now move to the second debate, which is of great interest to a great many Members, on parliamentary representation.