Civil Liability Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Committee: 1st sitting (Hansard): House of Lords
Thursday 10th May 2018 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, I return to the issue of employee exemption, which several noble Lords have mentioned in this debate. I have a lot of sympathy with it. In my Amendment 23, I shall be seeking some kind of exemption for vulnerable road users. My worry in these amendments is the definition of who is driving in the course of their employment. My understanding is that under the Health and Safety at Work etc. Act, you are covered if you are driving to work in your car and you are employed. The car does not have to be owned by your employer; it can be hired or your own. You are at work and, therefore, covered by the Health and Safety at Work etc. Act. I assume it is the same for Uber drivers, truck drivers and anyone in between.

It is difficult to accept an exemption that would cover all those things, whether you are self-employed or employed by a company or by somebody else. It would be fine if one could find a definition, but there are so many loopholes nowadays in driving and road safety law. I have had many discussions with Ministers over the years about whether road safety and driving legislation should be led by the rules of the Health and Safety at Work etc. Act. In other words, you are at work all the time. That applies to drivers’ hours, driving safety and everything else. I worry about the definition of driving when in the course of employment, and I have a lot of sympathy with anyone trying to find a definition.

[Lord Hodgson of Astley Abbotts]

My Lords, I intervene briefly, having put my name to the noble Earl’s amendments. I am not sure that the noble Lord, Lord Trevethin and Oaksey, quite followed the idea behind this, which is that psychological injuries are specifically identified at various places in this clause but minor injuries are not. The purpose of the amendments is therefore to remove psychological injuries as a specific category and reinsert them further down, through Amendment 22, with minor injuries, so that we sweep up everything concerned with a whiplash unless it is a serious injury, such as a fracture of a leg, which is clearly a different issue. However, the issue is picked up by the reinsertion by Amendment 22 of the words “minor injuries”, such as a bruised knee.

Neighbourhood Planning Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Report: 2nd sitting (Hansard): House of Lords
Tuesday 28th February 2017 Lords Chamber

[Lord Hodgson of Astley Abbotts]

I hear what the noble Lord says. Actually, I am not sure that the British Beer and Pub Association does approve of these amendments. It is concerned at further restrictions being placed on the operation of pubs which will deter investment. What the British Beer and Pub Association favours, with which I entirely agree, is a review of the operation of the asset of community value system in the round. We are taking a sledgehammer to crack a very small nut. The danger is that we will miss the nut and damage the industry.

[Lord Berkeley (Lab)]

My Lords, I am very interested to hear the noble Lord, Lord Hodgson, for once sticking up for the couples who run pubs. We have been listening for the past two or three years to him, virtually single-handed, opposing the ACV system that both the Labour Party and the Government supported. There are still problems with it, as we know; we need not get into it. It was, however, good to hear him stick up for the small pub couples. I agree with the noble Lord, Lord Bilimoria, that the noble Lord, Lord Hodgson, is wrong. Pubs are closing. They are closing and having change of use when the community does not want them. It is very easy to stereotype. I live in Cornwall, in a little village by the sea; if the two pubs there were to close it would be a disaster for the community, but the owners would make much more money selling them as desirable second homes. The same applies in London, because the property prices are so high. Many owners would rather sell their pubs and turn them in to luxury flats or something rather than keep them going, especially when the business rates issue is coming to the fore and there is fear of an enormous growth in the rates they will have to pay.

It is perfectly reasonable and very desirable that these amendments are supported. Pubs, as other noble Lords have said, are an essential part of the community. There have been examples where people have walked down the road and found that their pub suddenly has a barrier around it and is closed for good. They did not know that was going to happen as it was all done in secret.

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[Lord Hodgson of Astley Abbotts]

My question is: is the noble Lord now questioning property rights for individuals? If someone has an asset, should they not be allowed to dispose of it?

[Lord Berkeley]

There are many types of property in this country that have different constraints on them, and from my point of view pubs should be one of them because they are a very important part of the community. These are reasonable amendments and I fully support them.

Enterprise Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Wednesday 4th November 2015 Grand Committee

[Lord Hodgson of Astley Abbotts]

Certainly. The noble Lord is a businessman to his bootstraps. He knows perfectly well that if you are running a public company, you will be required and encouraged by your shareholders to take on a certain level of gearing. He would; I am sure that he does in his own businesses, which no doubt he looks after splendidly. The idea that somehow a business should be run with a completely different model because it happens to be in the pub sector does not hold water. It is bound roughly to march to the beat of the same drum that applies to public and private companies generally.

I promised the noble Lord, Lord Snape, that I would get to the specific amendments, of which there are three. Amendment 53ZD is obviously concerned with introducing all pubs. That really has absolutely nothing to do with anything that the Minister has said or any part of our discussions earlier in the year. Managed pubs are an entirely different matter and are run in an entirely different way. They are run by employees, who have a bonus system and a wage system. To say that this is a way of gaming the system, as was said by the noble Lord, Lord Whitty, is not accurate at all. If the amendment were passed, some companies that have no tied pubs at all would be caught, so the tied pub area would not even be further dealt with. I cannot see that Amendment 53ZD has any relevance to what has gone before, to what the Minister said, or to tackling the basic problem that we have been considering.

Amendment 53ZC has exceptionally vague wording. One important aspect of maintaining pubs is for there to be some effective secondary market. Pub companies rebalance their portfolios where they have too many pubs in one part of the country and want exposure in others. To be perfectly honest, some pubs will operate better with individual ownership and should therefore be sold to individual proprietors. An acceptance of this amendment, with its broad powers and imprecise determinations, would freeze up that secondary market and make it almost impossible for new entrants to come to the market, or indeed for existing pubcos to operate effectively.

Amendment 53ZF is about parallel rent assessments. Although the noble Lord has specified Section 43(5) I think that he means Section 42(5), but we do not need to worry about that. As I understand it—if my noble friend does not support me on this, I shall go down in flames—when the market rent option is triggered, there will be an opportunity for the PRA to be introduced. That is provided for in the consultation. Therefore, no tenant undertaking the MRO route can be precluded from the parallel rent assessment. He or she can make a judgment as to which is the best route to follow. That answers the point about the dangers of the PRA being unduly sidelined.

Finally, I think that the noble Lord, Lord Snape, believes that somehow big pubcos want to close pubs. I was the director of an integrating brewery; we wanted to sell our beer. We wanted good pubs because that meant that we managed to sell more beer. We wanted to find every way to make our pubs do better. The same may not be true of the pure pubcos that do not have brewers in them, but I urge noble Lords to be careful what they wish for. There is now the concept of a real estate investment trust, or REIT. It would be perfectly possible for a pubco to create a REIT to remove all the support from their pubs. They would make quite a lot of money in the short run because quite a lot is spent on supporting their pub chains. Over time, some or many pubs would fail and they would close them down and sell them off. They could do so within the very tax advantageous structure of a REIT.

We have not even reached the stage of implementing the results from the last set of consultations and already people are starting to think about how things should be tightened up, changed and altered. We should at least allow some time for the structure to settle down so we can see how things develop. Creating further uncertainty in a sector that is under extreme pressure, as I have explained, would be a grave error. It would not help all of us who would like to see the maximum number of pubs maintained in a way that is fair to all parties.

[Lord Berkeley (Lab)]

The noble Lord said he wanted to have good pubs and that he was worried about uncertainty in the sector. I recall that in the Committee and Report stages that my noble friend referred to, the noble Lord repeated that but could not answer the questions of so many landlords who are working very long hours for very little money. There seems to be a turnover of landlords in many pubs of not much more than a year or 18 months. That does not make a good pub and it creates uncertainty. There may have been one or two cases when landlords were not performing but probably the financial pressures from the pubcos were so high that they could not cope. Does the noble Lord not recognise that that is at least as much of a problem as the one he is talking about?

[Lord Hodgson of Astley Abbotts]

Of course I understand the pressure on tenants. But the noble Lord must agree that the pressure on the sector is terrific. If your primary product can be bought down the road at 25% of what you sell it for you are under pressure. You will find it exceptionally difficult to buy a pint of lager for less than £3 in a pub. But I will take the noble Lord out, when Committee ceases to sit this evening, and we will find lager at 75p a pint within two miles.

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Monday 9th March 2015 Lords Chamber

[Lord Hodgson of Astley Abbotts]

I said that CAMRA claims that there is a wave of money. I said that there is not; the briefing that CAMRA sent us claims that there is a wave of money and that if you remove the tie, people will start to put money into pubs.

[Lord Berkeley]

I am grateful for that clarification. I do not know whether the noble Lord is aware that a dozen or so tenants of Punch and Enterprise Inns have gone public today, listing all the defects that have not been corrected by their owners—including unsafe gas appliances, leaking roofs, unsafe fire exits and so on —with the companies claiming that they have done the work and having put up the rents to some extraordinary degree to cover that when they have not actually done it. It confirms that something is seriously wrong and needs to be put right.

Small Business, Enterprise and Employment Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Wednesday 28th January 2015 Grand Committee

[Lord Berkeley (Lab)]

My Lords, I am grateful to the Minister for that introduction. I have two amendments in this group and I am certainly not happy that they are in a group of 66 amendments. This must be about a record for Committee stage. It is interesting that amendments in this group have been put down by a number of different noble Lords, but there are five separate groups further on for amendments tabled by the noble Lord, Lord Hodgson. I am sure that he deserves such special treatment but I wonder why. I do not know whether any other noble Lord was consulted about this grouping—I certainly was not. I give notice that I would like to debate Amendment 90A separately. I do not know whether any other noble Lords will have a similar view, but I hope that that is acceptable.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I also have a number of amendments in this group. I think the answer to the noble Lord’s question is that these amendments are all about Clause 42 and the subsequent groups are about subsequent clauses. What we are doing here is debating the whole of Clause 42, rightly or wrongly. It may be too big a group but that, I think, is the background. I think other amendments to subsequent clauses form other groups.

The Government have said that they will accept the spirit of the amendments passed in the other place, but I am afraid that despite the Minister’s assurance—

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[Lord Hodgson of Astley Abbotts]

I was about to say that in the 25,000 or so examples of tied tenancies, I do not doubt that there are examples of egregious behaviour by pub owners. Those need to be addressed swiftly and promptly. But I do argue, and I will provide at least two specific examples when we come to Amendment 82 on significant investment—I remember the noble Lord, Lord Snape, chiding me at Second Reading and asking me to produce them—that the tie can work well for all parties and can provide a cheap and effective way of creating a satisfactory, profitable small business. I do not want to see the creation of a regulatory structure that strangles the possible advantages that the tie can offer.

To compete for people’s leisure time and their leisure pound, pubs have to offer an experience that is valued by the chosen target market. The target market may be younger males with sport, TV and pub games; younger females want more of a wine bar; families want play areas for children; and cheaper meals attract the retired. But noble Lords will quickly recognise that setting out first to choose a target market and then to develop it successfully takes experience and knowledge. That back-up and support is what in good circumstances a pubco can provide.

Whatever type of pub you are running, running a successful pub is very hard work: long, anti-social hours; periods of the year when external events such as the weather dramatically reduce your level of trade—this evening, if the weather continues as it is, pubs all over the country will be empty; and a readiness to deal with, humour and enjoy the company of the great British public in all their diversity. By no means do we all possess the multifaceted set of skills required to be a successful Mein Host.

[Lord Berkeley]

Looking at the list of groupings, it appears that the first amendment in the name of the noble Lord, Lord Hodgson, is Amendment 69, which seeks to leave out Clause 41(6), which says:

“The Pubs Code may require large pub-owning businesses to provide parallel rent assessments”.

Is that what he has been speaking to for the past few minutes?

[Lord Hodgson of Astley Abbotts]

I hope I made it clear to the Committee that I was trying to give a bit of a tour d’horizon of how these amendments fitted into the future. I was trying to explain that the adverse tides, which I have just been talking about, are not part of the tie but are part of other, bigger issues. In a couple of minutes I will come to each of the amendments, of which Amendment 69 is the first.

I explained that running a pub was exceptionally hard work and many people coming into it, often as a second career, find that it is not as easy as it looks. Like all of us, they are inclined not to blame themselves but to look for somebody else to blame. In such circumstances, the owner of the tied pub can be a first, and relatively easy, target. A complaint sells itself well in the community and the local MP’s surgery. This does not just apply to pubcos; I have had correspondence since Second Reading from people with free-of-tie pubs which have fallen on difficult times. When they tried to close them they were prevented from doing so by them being listed as assets of community value, so they were left with a bit of a pub they could not sell and a pub which they did not want to buy.

Finally on this opening section, I draw the Government’s attention to what I call the nuclear option. This is not available to the integrated companies because, as I explained, they need the pub estate to sell their beer, but it is available to pubcos. The pure pubcos could react to this parliamentary focus on rent only by becoming property companies. They could cut their overheads drastically by removing all the pub support, such as business development managers. This would boost their profitability in the short term; in the longer term, they would sell the better performing parts of the estate to other companies while closing and seeking alternative uses for the rest. This nuclear option—and I have no idea how likely it is—could dramatically increase the rate of pub closures. The amendments in my name—the focus of the intervention by the noble Lord, Lord Berkeley, a minute ago—are designed, as a whole, to avoid a dogma-driven solution and instead create, with the MRO option, a balanced and flexible structure which affords the best chance of keeping pubs open in as many places as possible.

After that very long introduction, I will whip through the amendments in my name. Amendment 69 seeks to delete Clause 41(6). As my noble friend said, this proposes a system of parallel rent assessments. These might have been of value before the House of Commons amendment introducing the MRO and associated provisions. Given that change, parallel rent assessments are essentially duplicates of what is proposed elsewhere. I am not sure whether they are needed anywhere, but they are certainly not needed in connection with the MRO option. I hope that my noble friend will explain why they are still there and how they are supposed to operate within the confines of the Government’s proposed new clause to replace Clause 42.

The remainder of the amendments in my name are all concerned with Clause 42—which, as my noble friend has explained, it is proposed to remove. The proposed new clause definitely answers some of them, definitely does not answer others, and the impact in the remaining cases is unclear. I would be grateful for my noble friend’s help in bringing clarity to these points. Amendments 70 and 71 are covered because they are about tied and managed pubs and my noble friend has made it clear that managed pubs form no part of the new regime. Amendments 72, 73 and 74 are important because they concern integrated businesses that brew beer and sell it through their own estate. It must be logical for the Pubs Code to permit such businesses to require their tenants to stock their own brands of beer and cider. If, under the code, a new MRO tenant could immediately turn round to the pub owner and say: “I am not going to stock your beer any more: I am going to stock the beer of your bitter rival”, this would have a disastrous effect on pub ownership.

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[Lord Berkeley]

Has the noble Lord thought about what the word “unfair” means? For the pubco, it is probably different to what it means for the tenant. It seems to me to be rather more wishy-washy than “significant”.

[Lord Hodgson of Astley Abbotts]

I am delighted that the noble Lord, Lord Berkeley, said that. I am about to come to the definition of “unfair” in about one second. I am talking about the importance of the definition of “significant” as important and notable. The price of beer might rise sharply because of: the cost of raw materials, such as hops; governmental action on alcohol taxation following medical advice; or increased delivery costs following price rises or road tax changes. It is surely not right to potentially penalise the pub owners alone as a result of such events, which have equal impact on all parties.

By contrast, coming to the point made by the noble Lord, Lord Berkeley, the Oxford English Dictionary definition of “unfair” is: not equitable; “unjust”; not according to the rules; partial. In my view, this precisely matches the concept behind the Pubs Code. It is intended to deal with situations that are inequitable—that is to say unfair—between the two parties: the pub owner and the tenant. I hope that the Government will think again about this wording before Report.

I turn to Amendment 80, which concerns the other events that could trigger the requirement to offer an MRO option. This formed part of my noble friend’s introductory remarks. Clause 42(6)(c) requires an MRO offer on the sale of a pub. This would be quite unfair to pub-owning companies. Pubs, whether singly or in blocks, can be sold for perfectly legitimate reasons. So long as the tenant’s position is protected, as it would be, the identity of the owner really makes no difference to the tenant. If this paragraph were to remain in the Bill it would freeze up the market for pubs and so discourage investment.

The amendment also seeks to remove another trigger point at Clause 42(6)(d): that, if a pubco goes into administration, an MRO offer must follow to the tenants. I think that my noble friend addressed this point in her opening remarks. The same objections apply to this: provided that the tenant’s position is protected, he has no interest in the affairs of the pub owner. If this paragraph were to remain, it would have serious consequences for the industry. First, pubcos would find it much harder to borrow. From a bank or lender’s point of view, the fact that, on administration, the relationship of the pub owner could change with every one of its tied pubs would make lending significantly more risky and, therefore, less attractive, thereby reducing the flow of investment to the sector. Secondly, if administration was to occur, the position of the creditors would be significantly worsened as value could be destroyed by the uncertainties that would result from an MRO option. I understand that the Government are proposing to withdraw those paragraphs. I would like my noble friend to give that commitment.

Amendment 81 is also concerned with a trigger point: Clause 42(6)(e), which appears to form part of the proposed new clause at subsection (6)(d) and subsection (9). This also covers the emergence of trigger events. In the proposed new clause, the definition of a trigger event is drafted very widely and is likely to lead to a good deal of uncertainty in its application and interpretation. That is surely not to the advantage of any party in these circumstances.

We have the well established procedure that has been used to determine appeals against rateable value; that is, whether there is deterioration in the circumstances of a property. Paragraph 2(7) of Schedule 6 to the Local Government Act 1988 lays out the matters to be taken into account. They include,

“matters affecting the physical state or physical enjoyment of the hereditament … the mode or category of occupation of the hereditament … matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and … the use or occupation of other premises situated in the locality”.

This definition sets out the criteria for when a change happens to a business and a rating reduction can be allowed. It is a well used and well understood definition that could, with advantage, be used to define when an MRO option could be triggered. I hope my noble friend will reflect further on this before Report.

I come now to Amendment 82 and the points made by the noble Lord, Lord Snape. This is an important amendment and I do not think it has been addressed in new Clause 42. The amendment inserts into the Pubs Code:

“The Pubs Code shall offer an exemption from the Market Rent Only Option for a mutually agreed period in return for a significant investment by a large pub-owning business in that tenant’s pub”.

This would mean that if a pub-owning business spends a significant sum improving a pub, the Pubs Code would permit an agreement with the tenant for a period during which there would be an exemption from the MRO option.

Those who successfully proposed the amendment to Part 4 of the Bill in the House of Commons see the tie as universally malign—the point that the noble Lord, Lord Snape, and I discussed a few minutes ago—an arrangement without merit and having no benefit. But this is not true. I was challenged by the noble Lord, Lord Snape, at Second Reading to produce evidence to support the continuation of the tie in any form, and this I will now do, with a couple of examples.

If I may, I will take the Committee to the Black Bull in Mansfield. I should make it clear that the tenant, Janice Shaw, has given permission for me to use it as an example. When Janice Shaw took the pub on, it was trading at about £7,000 a week as a result of a lack of catering facilities, which resulted in strict food service times and a rather poor food offering. The brewery invested £100,000 in the pub. It addressed kitchen standards and capacity, doubling the size of the kitchen by extending it into the car park. In addition, the pub was redecorated, with new signage and fixtures and fittings. The result is that the turnover is up to £10,000 a week—an increase of £3,000 a week or £150,000 a year. The brewery has increased the rent by £5,200, from £32,800 to £38,000, and is making, as it wished me to remind the Committee, £6,000 more from increased sales of beer. So from Janice Shaw’s point of view, she has £150,000 of extra revenue while the landlord has £11,200 of extra profit. It is doubtful whether a bank would have funded this. It is a messy lend, being part construction work, part purchase of fixtures and fittings, and part redecoration. Of course, a bank would not have had the same vision and confidence as to the likely success post-investment.

My second example is the Crown Hotel in Southwell, Nottinghamshire. Anna Guise is the current tenant. She took on the Crown in 2005. Although pretty well run, the site had become tired, resulting in the consumer often becoming confused; little food was being sold; the reliance on the town centre drinking circuit was evident; and there was a need to change to a more balanced offer in order to appeal to wider consumer groups. Anna Guise tried to invest in the site but could not afford the necessary capital and the pub remained in decline. To support the operation, the brewery reduced the rent and Anna’s father supported her with regular cash injections.

The brewery invested £84,000 in November 2013 without requesting any rental uplift. The cap ex addressed both internal and external standards, modernising throughout. It developed the back bar to include coffee, wine and a more rounded offer. A new menu was introduced and food was served all day. The evening drinking remained but the message to the consumer was that the feel of the building had been improved and fresh signage was introduced. Post investment, decline has been reversed and there is now 39% growth. That has enabled her to plan for a brighter future for her pub.

The basic point is that integrated pubcos that wish to sell will not invest £100,000, or even £84,000, if there is no guarantee that they will be able to sell their beer and if, after the money has been accepted and an investment has transformed the pub, the tenant will be able to say that they want to change the basis of the contract. The amendment would permit—not require—a situation in which if significant investment has taken place, of the sort that I have just described, the two sides could agree a period during which the MRO option would not be available. Without this, pubco investment will be significantly reduced, and I hope that my noble friend can give some reassurance on that point.

Amendments 84, 85 and 87 are drafting amendments to Clause 42(8). Subsection (8) is concerned with the 90-day assessment period during which an independent assessor reaches a judgment on the terms of the no-tie agreement. It is important to be clear what happens during that 90-day interregnum. It must be made clear that the tenant must comply with the existing contract until the new MRO contract comes into effect.

Finally—no doubt much to the relief of the Committee—Amendment 89 is paralleled in large measure by Amendment 83A in the name of my noble friend Lord Borwick, concerning the rather unattractively named SCORFA—special commercial or financial advantages. I will leave my noble friend to address that and how it will fit into the MRO world post the break of the tie.

I recognise that I have thrown a lot at my noble friend in the last few minutes, although I hope that her officials were already aware of my direction of travel. It is important that all parties to the debate get clarity on the Government’s position. I am talking not about clarity on the broad principle—we all understand the MRO option—but rather on the more granular aspects of how the policy is intended to operate and what the consequences are likely to be.

[Lord Berkeley]

In this grouping, my Amendment 69A is the next one that is not a government amendment, so if it is convenient for the Committee I will speak to that and try not to delay the Committee too long with comments on the amendments from the noble Lord, Lord Hodgson. If I then have comments after the Minister has spoken, I am sure she will be willing to accept them.

I want to put on record that it is great shame that the Government have somewhat changed what was agreed in the House of Commons. I see the government amendments, and those of the noble Lord, Lord Hodgson, as putting the whole issue into the long grass, which is very sad. Rather than having the MRO option in primary legislation, which I thought was excellent—although obviously there is detail that we need to talk about—we could be left for many years with people opposing any secondary legislation that comes in and then debating it at that stage. Who knows what will happen then?

Amendment 69A is a probing amendment about why the Government, or the House of Commons, chose a maximum of 100 pubs rather than 500 pubs. I have had some useful discussions with St Austell brewery in Cornwall, which comes somewhere in-between. I have also talked to many of its tenants and others, and many who I talked to would be pleased to be able to renegotiate under the MRO. The family brewers, including St Austell, believe that they provide a much better and friendlier quality of ownership than the very big ones. I suspect that they are right in that.

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[Lord Hodgson of Astley Abbotts]

On Amendment 80, if it were a retail outlet such as a high street store, there would be no reason why a company should not sell its retail store to someone else. Why should a brewery be any different?

[Lord Berkeley]

It is a question of what would constitute selling and what would be transferring it to a company in which the brewery had 100% or 99% of the shares. It is a grey area. The noble Lord may be right but I do not see that as a reason for having his Amendment 80 or any of the others. We can go on debating this.

I still think that Amendment 82, in the name of the noble Lord, Lord Hodgson, is trying to say that once the tenant has started the negotiation he has to finish it. That is very unfair on the tenant because, while he may have said that he wanted to start it, if he is not happy with the outcome it is surely reasonable that he would not have to conclude an agreement. The short answer is that he will not stay there long and will suffer severe financial hardship.

I could go on for a long, long time, but I have one last comment on Amendments 73 and 74. I did not really understand the noble Lord’s explanation to my noble friend Lord Snape. If his amendment would enable the tenant to buy his beer and other drinks at whatever price he chose from whomever he chose, why are we going through all the rigmarole of all these different adjudications? Just let him do it now. I am sure that I have it wrong, but it would be nice if at some stage the noble Lord could explain the amendment in words of one syllable.

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[Lord Hodgson of Astley Abbotts]

The issue is that every company has a target return on capital. If it is to make an investment, it wants to make a return on capital and the company will set a target. The problem is that if you are going to invest your £30 million, you want to know what your return on capital will be. One issue that relates to return on capital is what will be the contractual relationship. Therefore, before you make your investment, you want to know what the end play will be, because that means that you can be assured—if it all goes well; it does not always go well—that you will get that rate of return on capital. That is the background to the figure that my noble friend is giving. Companies want to be certain that they have targets for the return on capital which they need to meet.

[Lord Berkeley]

With respect, “They would say that, wouldn’t they?”. I am glad that the cavalry has been brought in to help the noble Viscount, Lord Younger. The noble Viscount says that that £30 million would not be invested. “They would say that, wouldn’t they?”. We could do with some figures.

[Lord Hodgson of Astley Abbotts]

The truth of the matter is that every time an argument is produced to point out how pubcos operate as commercial enterprises, the noble Lord says, “They would say that, wouldn’t they?”. Capital investment budgets are set to be achieved, with certain target rates of return required to justify them. Otherwise the value of the stock—or the value of the company, if it is a private company—falls. If you do not have a rate of return on your investment higher than the cost of capital, the value of your business is falling.

You need to know what you are getting into, what your contractual relationships are and how long they will last. You cannot be certain, because, with the best will in the world—taking the example of pubs—some pubs do not do as well as one hopes. It does not work because the location is not right, the tenant is not right or the arrangements are not right. The idea is to hit the target. With the greatest respect to the noble Lord, he must understand that unless your rate of return on capital is higher than your cost of capital, you are destroying the value of your business.

[Lord Berkeley]

I am sorry, my Lords, but I will try just one last time. The rate of return could just as easily be calculated on the basis of the rent that the tenant will be paying once he has been through the process, because that will be fixed and the company will know it. That is the rate of return, whether the company likes it or not.

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[Lord Hodgson of Astley Abbotts]

In the situation envisaged under Amendment 68U, could the guest beer be provided by the brewery that owns the pub?

[Lord Berkeley]

I am sorry, I did not quite hear.

[Lord Hodgson of Astley Abbotts]

Under Amendment 68U, can the guest beer be provided by the brewery that owns the pub?

[Lord Berkeley]

Of course it could, but to some extent that defeats the object, because if it is a tied pub, the brewery is already supplying the beer. It would be for the tenant to decide; that is the point. If the tenant decided to do that and to have a monopoly with one brewery, that would be fine.

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[Lord Hodgson of Astley Abbotts]

My Lords, this amendment is concerned with the franchise of pub operations. I have remarked repeatedly during the past few hours that the point of weakness of the tie is where the interests of the two parties—the pub owner and the tenant—diverge.

That tension occurs in two places in particular. The first is the rent being charged for the tied premises. The belief or allegation is that landlords are insufficiently deterred from increasing the rent charged. I would emphasise that pubcos have an interest in avoiding pubs closing, particularly those that have an integrated model because they need the outlet for their beer, but undoubtedly the tension exists and, as I said, I do not doubt that some bad cases have occurred. The second point of tension is in the pricing of the goods that the tied tenant is obliged to sell. Again, the allegation is that the pub owner will push the sale price as high as possible. Again, there are arguments why this is not in the pub owner’s interests. Again, let me recognise that the conflict of interest exists.

Some pubcos, particularly integrated pubcos, have sought to address these twin challenges. They have done so by creating a business model based on revenue-sharing. Under such a model, both parties have an interest in maximising turnover. This business model is exactly like a franchise for McDonald’s, Pizza Express or Costa Coffee. Indeed, the agreements have been accredited by the British Franchise Association.

How does it work? The franchisee receives the property, fixtures and fittings, capital investment, and repair and replacement of the fixtures and fittings of the building. All his bills are paid, including rates and utilities. The only bills not paid are council tax and staff wages. He also has services such as training, marketing and business support—the SCORFA arrangement we talked about earlier—and he has products to sell. For this, the franchisee—the operator of the pub—takes a share of the income at the cost of a business fee of about £5,000, compared to the £250,000 that you have to pay for a McDonald’s franchise, for example.

The cost of the products to the franchisee is irrelevant because they are paid a percentage of the revenue of the pub. The goods are delivered to the site and the franchisee holds them on behalf of the franchisor—the brewer. The products are held on the sale-or-return basis. At no time does any cash change hands in respect of payment for the products. The franchisee and franchisor take an agreed share of the total income. The franchisee has the ability to set the retail sales price for the beer in the pub being operated. The pubco effectively supplies everything, with the franchisee then dictating the price to sell it at. The pubco shares the income and, on top of this, the franchisee also receives a profit share. Under the agreement, the percentages and shares of the profit are set out in the contract and cannot be altered.

It appears that this revenue-sharing franchise-type arrangement will still fall within the provisions of the proposed code, so Amendment 96 seeks to insert a new subsection into Clause 67, which is concerned with the definition of tenancy. It proposes that:

“The definition of ‘tenancy’ in subsection (2) excludes franchise agreements whereby no rent is paid by the franchisee and their share of the profit is unaffected by the price paid for tied products”.

This approach in the wording ensures a community of interest between the franchisor and the pubco. If the Government do not accept this amendment, or one like it, they will be singling out the pub trade for very discriminatory treatment. If the argument is that the franchisee has to sell a certain type of product, that is true—but if you hold a McDonald’s franchise, you have to stock Pepsi and are forbidden to sell Coke. Members of the Committee might liken it to walking into a Costa Coffee and asking, “Please can I have a Starbucks?”.

This revenue-sharing arrangement ends the possibility of divergence of interest between pub owner and tenant. It provides a useful model for future pub developments and I trust that the Government will either be able to reassure me tonight that it is not intended to include these or make the necessary changes on Report. I beg to move.

[Lord Berkeley]

I really cannot imagine how anyone would want to take a franchise like this. It is a variation on the old zero-hours contract, which we talk about. It could be a franchise with zero income and the hours being 24/7. Why should anybody want this contract? I will be interested to hear what the Minister says, but the pubcos must love it.

Consumer Rights Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Monday 27th October 2014 Grand Committee

[Lord Hodgson of Astley Abbotts]

My Lords, I rise briefly to support my noble friend’s amendment. We had a preliminary canter over this ground when the Committee sat last week. I said then that I thought Amendment 53 was far more felicitously phrased than my amendment, and, indeed, it has so proved. The case is powerfully made. However, I take slight issue with the noble Baroness, Lady Maddock: this is not about age discrimination but about a consumer’s right to choose the way they receive bills and the way they wish to pay them. They should not face additional charges or discrimination in that sense. It does not matter whether they are 21, 81 or 101, that is the way it should be because that is the right the consumer should have. I support my noble friend’s amendment. I would like her to have thought of a way of ensuring that the banks do not charge for providing statements, which they are doing now increasingly, as statements are often important as a means of identification. Her amendment is much better than mine and I hope that the Government will be more sympathetic towards it than they were towards mine last week.

[Lord Berkeley]

My Lords, I, too, support this amendment. As the noble Lord just said, it does not apply just to old people like me but to many people who do not have access to the internet, or they or their carers are unable to use it, as other noble Lords have said.

I should point out one thing one has to watch if one is doing things electronically—that is, how do you file things? It is fine getting a bill on your mobile phone, but what do you do with it subsequently? How do you keep a record of it? There are many ways of doing it but it is not just a question of paying it directly through bank transfer, you have to keep a record and feel comfortable that it is secure. Security is becoming more and more difficult so these regulated monopolies, as many of them are, need to be aware of the importance of people getting paper bills if that is what they want.

When you read a meter you can put the reading on a postcard, if you want, or you can fill it in online. One of these days, I think that meters will be read down the phone line or the electricity line with no human input. They might get it right. If they do not, heaven help us. A friend bought a house from me and six months later he got a bill for £10,000 for water because there had been a leak. That had probably been happening since the war, about 50 years before, and it had soaked away into London gravel. You can imagine how you end up with a bill like that electronically but it was all quite difficult.

The other issue is paying by cheque. I tried to pay my EDF bill by direct debit this weekend and failed completely. My bill did not say how you could do direct debit, although there was lots of detailed stuff on the back of the paper bill. So I thought I would phone them up. I hung on for half an hour for a nice, friendly voice but got nothing at all, so in the end I went on the website. I found that EDF has a new website and you could do it on the web. But how many other people will think, “What do you do?”. You get a second reminder every two months. You put a cheque in the post or whatever you do but you cannot even talk to them down the phone. A friend of mine in the Isles of Scilly has four BT lines because they have four houses that they let out in the summer. This weekend, she told me she spent a total of six hours on the phone to BT. They have not had two of the lines working for a month. They tried dealing with this electronically and down the phone. Today they spoke to five different people at BT and still do not know if it is working. Before the utilities start charging people, they should get the service right. This is a very important amendment for both the paper/electronic debate and paying things by cheque. I strongly support it.

Infrastructure Bill [HL]

Debate between Lord Hodgson of Astley Abbotts and Lord Berkeley

Tuesday 14th October 2014 Grand Committee

[Lord Berkeley (Lab)]

My Lords, I will also speak to Amendment 100. These amendments are nothing to do with fracking. They take us back to infrastructure of the road and rail sort. This amendment came about because, quite conveniently, the Law Commissions did a study on the legal situation of level crossings. I believe they took about seven years to do that, so they must have done it extremely thoroughly. They produced an excellent report about this time last year which made a number of recommendations and, very helpfully, included a draft Bill to implement them.

The purpose of it all was because, as we will see, some of this legislation goes back to the first railway. Some 150 years or so ago, there were of course no internal combustion engines and if there were level crossings they were probably to take horses and carts across. It is very different now when in some places, as noble Lords will know, the pressure on level crossings for access is pretty extreme whether it is from the railways or the roads, and particularly in urban areas. When the railways want to run more trains, they find that they cannot because people complain too much that the gates are shut too often and vice versa. Obviously, the solution is to build a bridge or tunnel but that does not really go down very well in urban areas either.

This report by the Law Commissions really deserves some detailed consideration. I tabled these amendments in July and the Government had not responded so I was tempted to try to get a response by tabling the Law Commissions’ draft, which was about 50 pages long. The noble Baroness was quite pleased when I withdrew from that. However, it has resulted—we can debate whether it is a result or a coincidence—in the noble Baroness kindly sending to me and colleagues the government response to this report, and putting a copy in the Library. It is an excellent response, so my purpose in moving this amendment now is to see whether we can press the Government a bit more for a timetable and to discuss one or two of the issues on which I think they might not agree with the Law Commissions.

One issue which covers the whole thing is whether level crossings should be subject to the Health and Safety at Work etc. Act, as most similar activities are. It may come up on Report when we start talking about the strategic road company, which the Minister kindly gave some of us a briefing on yesterday, and the comparison of safety relationships between road and rail. But on level crossings, the Government have moved a good way in accepting many of the recommendations to make the thing simpler. I do not know how many of the Committee have managed to read these 28 pages overnight but perhaps I could mention a couple of issues. If your Lordships have not, it does not really matter.

For me, if the Government went ahead with their recommendations it would be 90% good and I hope that they will. They are quite right to query again how much this should apply to heritage railways, especially when there are volunteers. That needs taking with a bit of a pinch of salt because dealing with a level crossing on a 100 miles per hour railway is not the same as dealing with one on a 25 miles per hour railway, so they have done well to question that. I mentioned the Health and Safety at Work etc. Act; we could go through that again.

It is a good idea to get rid of all this old legislation. I am told that there are 800 Acts applying to level crossings. Network Rail has to deal with all these things and if we started talking about how much all these changes might cost, I get the impression from Network Rail that a lot of money would be saved—especially on lawyers, which is always a good thing. On whether the Office of Rail Regulation should introduce codes of practice, I think that it should but it is not really the end of the world if it does not. But on the regulations, I worry about what happens when it comes to consultation between road users, planners, highways authorities and rail people, and whether the Government have got it quite right as to who has the last word on how discussions will take place as to who gets priority. That needs a lot more consultation but it is still in the report. As I said, the legislation goes back to 1839. I shall not read out all the different bits of legislation because it will take too long but this certainly needs further work.

The closures need to be made simpler. Network Rail has told me that it costs a great deal of money, time and effort to get closures. Some people will debate whether Network Rail should be allowed to make closures, but when you look at the railway safety statistics, level crossing accidents come very high up the list of causes of accidents—leaving suicides aside, which are slightly different. As we try to make our railways more efficient, run faster and more frequently, we need to look at protecting the public by making some of these closures. I hope that the Minister will accept that they can go ahead. I am not going to go through any more, particularly the Scottish ones. We can possibly leave those to the Scottish Parliament if we get some devolution, which is another issue.

In her covering letter, which is very helpful, the Minister said:

“I have … asked officials to develop, as a matter of urgency and no later than the end of 2014, an action plan which will outline where we believe further work is required and how this will be taken forward”.

That is very good and I welcome it, but there are always two sides to these things. Perhaps the Minister can answer either tonight or in a letter how many of these changes actually need legislation—primary legislation, secondary legislation or none at all? The Law Commissions proposed one great big Bill but it does not have to be done that way. I worry after the next election. Which Government would want to bring in a level crossing Bill in their first session? They would not because they would have other priorities.

Therefore a timetable would be good, showing what could and could not be done. We could then start a process of discussion about some of the issues in this government response, which would be very helpful. It really is important. It will save Network Rail a great deal of money and it will help avoid some of the disputes that take place between road and rail users and their operators. Everyone must agree that we should get rid of legislation going back to 1830-something. Now is the time to do it. With that quick introduction, I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I support the noble Lord, Lord Berkeley, and in particular his request for the Minister to consider a timetable. I will not pretend that I have the knowledge of the railways that he has, but I have worked with the Law Commission on a number of its proposals and Bills. It is punctilious about avoiding political controversy and exceptionally thorough in its consultation; as the noble Lord pointed out it has been involved in this in the seven years of consultation. It therefore does an exceptionally valuable job in updating, tidying up and spring cleaning our legislation.

There is, however, a danger attached to that, which is that the Law Commission regards legislation proposals that it has brought forward that have not been implemented within a certain period as needing to go back for further consultation because it needs to make sure that the public mood and the facts have not moved on. I support the noble Lord, Lord Berkeley, in this because I hope my noble friend will realise that if this matter is left on the shelf, the Law Commission will say that it is no longer fit for purpose and will need to start consultation all over again to see what has happened in the intervening period since the last consultation was carried out.

I support what the noble Lord is suggesting and I hope that my noble friend will be able to act as Dyno-Rod for departmental inertia to make sure that it is brought forward quickly to avoid having to go round the whole course again.