Small Business, Enterprise and Employment Bill

Lord Hodgson of Astley Abbotts Excerpts

Tuesday 2nd December 2014 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Young of Norwood Green. He is always engaging. I shall come back to the pub in a minute but hope that he will not take offence if I gently remind him that one of the reasons for the high levels of employment is the flexible labour markets introduced by this Government. Some of the removal of flexibility that he was recommending, proposing or thinking about would reduce employment, which we all agree it is essential to preserve.

If one is 23rd in the speakers list, much of what one wants to say has been said already—sometimes more than once; sometimes several times over. However, like other noble Lords, I agree with and support the Government for what they are proposing. I have some questions that we shall wish to examine in Committee but applaud the general direction of travel. I want to make just three points.

First, I congratulate the Government on taking up the challenges of pre-pack administrations in Part 10. Pre-packs have been promoted as a way of saving jobs in the firm in question—and they may well do so. However, in my experience, the ability to write off debts often appears close to a fraud on the creditors. When the firm that has been pre-packed arises like a phoenix from the ashes, no one considers the position of the creditors in the firms that have lost everything. Job losses may have been avoided in the pre-packed firm but may well have been replaced by job losses in the creditor firms. Nowhere is this more important than in pre-packs involving connected parties. I am therefore very glad that the Government are going to tackle this aspect, and I look forward to discussing the details of this in Committee.

My second point concerns the procurement provisions in Part 3. I wrote a report for the Government entitled Unshackling Good Neighbours, which, inter alia, looked at the problems and regulatory burdens that inhibited the growth of small companies, charities and voluntary groups. It is not yet clear to me that the well meaning provisions in Clauses 38 and 39 will enable the Government to tackle the fundamental issues that too often put smaller companies at a competitive disadvantage. The noble Earl, Lord Lytton, referred to these. In particular, it is the innate conservatism of commissioners, for whom risk aversion is the default option. Of course, one has to applaud the objective, as explained in the memorandum that my noble friend on the Front Bench so kindly circulated, which is,

“to create a simple and consistent approach to procurement across all public sector authorities”.

However, we have been here before. Four years ago, the Merlin commissioning approach, designed to provide a common governmental template—originally devised by the Department for Work and Pensions—was then being rolled out across government generally. What has happened to Merlin; where has it gone to? Perhaps my noble friend could let us know, either by letter or when she responds.

My final point is about the pub tie, on which, as others have mentioned, the Government suffered a defeat in the House of Commons. I am afraid that I am going to have to upset the noble Lords, Lord Snape and Lord Young, because I was disappointed to hear that the Government do not propose to reflect further on this decision. The arguments are not as simple and straightforward as our colleagues down the corridor believe.

In making these comments, I have to recognise two things. First, in any dispute that can be broadly characterised as David versus Goliath, the British people will instinctively side with David. It is one of our most endearing national characteristics to want to stick up for the little man. Secondly, in any arrangement involving more than 20,000 people—and there are between 20,000 and 25,000 tied pubs—there will always be problems, difficulties or misbehaviours. While we need to deal with and remedy these, they must be set in context and proportion to the whole.

[Lord Snape]

I apologise for interrupting the noble Lord, but before he leaves that point will he at the next stage of the Bill bring forward some evidence from satisfied pubco tenants about how wonderful their relationship is with Enterprise Inns or Punch Taverns?

[Lord Hodgson of Astley Abbotts]

I shall be glad to bring forward some evidence. I have some here but, given the hour, I should not be talking about the Black Bull, Mansfield, which is one of the pubs on which I have some evidence for the noble Lord. We will discuss this at a later stage.

There are two types of integrated pub. The first, called integrated operators, are companies that brew beer and sell it through their own estate, whether managed by employees or tenants in tied pubs. They sell their beers also through supermarkets, free houses and off-licences, but their estate is an important route to market. The second group consist of what are known as pubcos. They do not brew any beer but buy it in, often from the breweries of the integrated operators. Their focus—which the noble Lord, Lord Snape, is driving at—is on rental levels. They are, to some extent, very specialist property companies.

Noble Lords may wonder how on earth this rather counterintuitive second group came into existence. As my noble friend Lord Stoneham of Droxford said earlier, it is the result of a decision of Parliament. The beer orders were designed to strip the breweries of too much market power, and the pubcos were the result. If our predecessors all those years ago had seen where we were going to end up, they might have considered it better to think of an alternative business model. If we do not revisit the decision to end the tie, our successors in 20 years from now may find that, far from this decision slowing pub closures, it may well accelerate them.

Before I get into the rest of my remarks, I need to remind the House that I was, until a year ago, a director of an integrated brewery. We had five breweries, two big and three small, stretching from Cumbria to the New Forest, and more than 2,000 pubs—500 managed and the balance tied in various forms.

Why is it that pubs arouse such strong emotions? In some large measure it is the result of the image that we have of a community—a point made by the noble Lord, Lord Bilimoria, earlier this afternoon. That community has three aspects: a church, a post office with a shop and a pub. We may not wish to use them much: we may go to the church on high days and holidays and for hatches, matches and dispatches; to the shop or the post office only to buy the milk when we have forgotten to buy it at the supermarket; and to the pub only for the occasional drink. However, we like them to be there. We also like them for the ambiance we believe they project. We all have our image of the ideal pub: the welcoming atmosphere, the cheery landlord dispensing pints and homespun philosophy over the bar. However, for reasons quite unconnected with the brewers, the pubcos or the tenants, the pub sector is under severe strain.

I identify three fundamental features behind this. The first is the rapid rate of socioeconomic change in Britain. Twenty-five years ago, the company of which I was a director would have operated probably a dozen pubs in Kidderminster, the home of the carpet trade. The carpet trade has gone and there are three pubs left. In areas of Nottingham, Leicester, Manchester, Leeds and Birmingham the increase in the Muslim population, who do not drink, leads to many pub closures. It is exceptionally hard for a publican who has put 10 years of his life into trying to build up a business to accept the inevitabilities of these tides of history.

Secondly, there is the inexorable rise of regulation and of cost generally. Noble Lords may not be aware that, for many pubs, business rates and council tax are more important items than rent.

Thirdly, there is the availability of low-priced alcohol in supermarkets. The average price of a pint in a UK supermarket last year was £1.13. It would be substantially less in the weeks leading up to Christmas and in the few days before a bank holiday. If any noble Lord can find a pub, tied or untied, that is selling lager at less than £2.50 a pint—more than double the price in a supermarket—let me know and we will go along to sample the wares.

These are trends that defy King Canute, so pubs are likely to continue to close. The reasons for closure may be portrayed as rapacious owners increasing rent, wishing to profit by turning pubs into houses or corner stores, but the tide is turning against the ordinary pub. To offset this trend, the pub has to offer an experience and value for money for its target market: maybe with food, with fine dining or pub grub; maybe for families, with play areas for kids; maybe for younger men, with Sky Sports and pub games; maybe for younger women, with more of a wine bar feel to the place; or maybe for pensioners, with cheap food, particularly at lunch. However, this all requires operational experience and capital resources. It is this that pub owners can provide. It is exceptionally difficult to find capital for all the sorts of things that are required to refurbish a pub—kitchen fittings, signage, fixtures and fittings of one sort or another—and it is the pub owners who can do this.

The balancing item is the tie. The brewery is assured an outlet for its beer and other drinks, though it should always be remembered that every bit of profit from the foods goes to the tenants alone. Remove the tie and you risk removing this ladder, by which many people have become very satisfactorily self-employed. No pub owner is going to invest many thousands of pounds—hundreds of thousands of pounds in some cases—in refurbishing a pub if the tenant can then walk away from supply agreements.

In an effort to lance this boil of suspicion about rents and treatment, some breweries have introduced a franchise agreement, which has been approved by the British Franchise Association. This means that the tenant is in exactly the same position as a franchisee selling hamburgers, pizzas or ice-cream. The Bill apparently proposes to ban even these arrangements. To do so only where they involve a pub and not, for example, a McDonald’s outlet, seems to me to be illogical, perverse and unfair.

My final word must go beyond your Lordships’ House to the wider world: the most important thing to do if you wish to save your local pub is to use it. If you do not, you will lose it whether it is tied or not. I look forward to some vigorous debates in Committee.