Small Business, Enterprise and Employment Bill
Debate between Lord Snape and Lord Hodgson of Astley Abbotts
Lord Hodgson of Astley Abbotts
My Lords, I have Amendment 33W in this group. The noble Lord, Lord Mendelsohn, has done us all a favour by tabling Amendment 33M, which has the great virtue of ensuring a reference in the Bill to the importance of investment in the sector. There are aspects of his amendment which would be operationally and definitionally problematic, which I will come to in a minute or two, but there is a germ of a good idea and I hope that we may be able to persevere with this over the next few days. By contrast, I find the Government’s position less satisfactory, in that, as I understand it, there is to be no reference to the importance of investment in the sector anywhere in the Bill. It will all be left to the consultation process, with all the attendant uncertainties which all sides of the House have referred to during the debates this afternoon.
The Government have made a practical argument that the pubcos could achieve certainty by offering tenants a new agreement at the same time as the offer of investment. In the explanatory note that the Government circulated last week, there is a suggestion that the Bill does not prevent pub companies from issuing a tenant with a new lease alongside the offer of investment. Sadly, most tenants will not be attracted by this because of the problems of stamp duty. A lessee on a 15-year lease with a rent, say, of £50,000 will pay stamp duty of around £5,000 at the outset. If they are in year two or year three of the lease, and the pub company has to grant them a new agreement in order to make an investment with a five-year payback, they will have to write off the £5,000 they have already paid, pay another £5,000 in stamp duty for the new lease and then pay all the legal costs associated with it, which are estimated at around £1,500. Not surprisingly, this is not a particularly attractive option for the lessee. In essence, the Government’s position now is to force small businesses who want to take advantage of pub company investment to pay additional tax to do so. That is surely contrary to the aim of the Bill, which is to increase access to finance for small companies.
I think all noble Lords agree that investment in pubs is urgently needed if the trade is to prosper, because pubs are having to reinvent themselves to meet new competitive conditions, with a greater emphasis on food, facilities for families and so on. These investments are what bankers called “messy lends”, because they tend to be a mixture of: land works, for example extending the car park; construction—increasing the footprint of the pub; internal fittings, such as enlarged kitchen facilities; and general work such as new signage, new fixtures and fittings, and general decoration. A banker will have some doubt as to the ultimate value of that investment if it is unsuccessful. They are not always therefore very attractive to third-party lenders, but they are attractive to integrated pubcos, because their own estate is an important route to market for their own beer, often accounting for up to 25% or 30% of their production. It needs to be made clear that there is no requirement for a tenant to accept the pub owner’s money. If he or she can find funds elsewhere, on better terms, so be it, although the fact is that an integrated brewer usually is able to offer the best terms.
I referred to the need for pubs to reinvent themselves as a result of changes in society. That brings me to the downside of the amendment of the noble Lord, Lord Mendelsohn, as currently drafted. He referred to the vast range and diversity of investment needs, but I fear that parts of his amendment represent a straitjacket. What is a “rent assessment” in relation to MRO in the introductory section of his amendment? Reinventing yourself as a gastropub in a prosperous London suburb is a vastly different proposition from reinventing yourselves as a value-conscious family-friendly pub in Middlesbrough, but both are important if we are to maintain the pub trade in all its glory and all its diversity.
I argue that the maximum deferral period of five years, as proposed in subsection (2)(b) of Amendment 33M in the name of the noble Lord, Lord Mendelsohn, is not appropriate to appear in the Bill. Secondly, the proposed buyout provisions under subsection (2)(d) are likely to act as a disincentive to investment. Thirdly, for reasons that were clear from my previous amendment, I am anxious to pull MRO and PRA together, whereas the noble Lord has separated them under paragraphs (f) and (g) of his amendment.
My Amendment 33W does not suggest a new clause— as the amendment in the name of the noble Lord, Lord Mendelsohn, would do—but the insertion of two paragraphs in Clause 43, “Pubs Code: market rent option”. My amendment envisages a situation where the Pubs Code would clearly set out what can and cannot be included in such a deferral agreement. Tenants would continue to enjoy all the protections of the Pubs Code and the Pubs Code Adjudicator. No tenant could enter into a deferral agreement without having first taken appropriate professional advice to ensure that he or she is aware of the terms of the agreement and has taken advice on its suitability for their business. The tenant must choose to opt into the deferral agreement; that is, he or she has the right to refuse to enter into any such agreement. The adjudicator should oversee the deferral system to allay concerns from tenants around the process of entering a deferral. A deferral would apply only to significant investments to be defined in the Pubs Code and would not therefore be available for incidental investments for maintenance or repairs which are the responsibility of the owning pub company. The deferral agreement could last for a mutually agreed period of time.
The Pubs Code could set a maximum period of time for a deferral agreement if appropriate. Some flexibility may benefit both tenants and pub companies depending on the scale of the investment, as the noble Lord, Lord Mendelsohn, pointed out, and the length and nature of existing lease arrangements. For the avoidance of doubt, during the deferral agreement the tenant will maintain their right to exercise all other MRO triggers, including significant price increases and material change in circumstances as defined in the Pubs Code.
Whatever approach is followed, it is critical that there is some reference to the importance of investment in the sector in the Bill. Without that certainty, the flow of investment, most of which will inevitably come from the big pubcos and are the subject of the restrictions in this Bill, will reduce. Having heard the remarks of the noble Lord, Lord Mendelsohn, as well as my own, I hope very much that my noble friend will be able to accept the spirit of what is intended and agree to table a suitable amendment to address this issue at Third Reading.
Lord Snape
My Lords, following what the noble Lord, Lord Hodgson, has said, I hope that the Minister will do no such thing as regards his amendment. Amendment 33W seeks to legitimise a loophole in the legislation. The pub-owning businesses are seeking to introduce a provision in the Bill permitting them to defer market rent only option in exchange for significant investment. The fact is that there is nothing now and, as I understand it, nothing proposed in the Bill to restrain pub-owning businesses from undertaking such an exercise. A pubco could simply offer an investment in conjunction with the surrender of the existing lease in exchange for a new lease and a deferred period until the next rent review. I hope that the noble Lord, Lord Hodgson, who has tabled this amendment, agrees with that. I do not believe, and I think that most pub tenants do not believe, that there is any necessity to have this opt-out in the Bill.
As ever, the noble Lord talks about investment being urgently needed in some of these buildings. The reality is that this investment is not taking place. There is a queue of licensees and tenants who are anxious to tell noble Lords on both sides that this investment is not taking place. It would not take place if the Minister were to be unwise enough to accept this amendment, no matter how ably spoken to by the noble Lord, Lord Hodgson. As licensees see it at present, only pubs which accept an increase in rent to cover any investment by the pubco receive any investment. Much of the investment, such as it is, that takes place in pubs takes place in closed pubs in order to tart them up to sell them on the market. I am afraid that pubcos have a pretty bad reputation in these matters.
Lord Snape (Lab)
My Lords, I fear that I am going to miss the dulcet tones of the noble Lord, Lord Hodgson, on the rest of the Bill. I have sat through this paean of praise for the pubcos at Second Reading, in Committee and so far during the proceedings in your Lordships’ House today. I have some sympathy with the noble Lord’s view about the events of the late 1980s; it is a pity that he was not around in the other place when a Conservative Government were insisting that the power of the brewers at that time should be curbed. He obviously feels that the outcomes of that legislation, such as the beer orders that followed, have led to the situation in which we find ourselves now. Yet the contradiction appears to be that, while it is fair to say that he deplored the effects of the beer orders and what took place—the sell-off of the pubs and the relinquishing of the tie between the brewers and pubs has led to the pubcos that we have today—he has spent every stage of this Bill defending those same pubcos. He cannot really have it both ways; if the beer orders and their aftermath were so bad in the 1980s in creating these organisations, I wonder why he has spent so much time defending them during the passage of this legislation.
Lord Hodgson of Astley Abbotts
My Lords, I know that this is Report, not Committee, but if I may say so to the noble Lord, I have made it perfectly clear that there are between 20,000 and 25,000 tied agreements between pubcos and tenants, and not every one of them behaves like a saint; clearly, mistakes are made. I have explained, if he was not listening to my remarks earlier, that the problem with the tie is that built into it are two inherent conflicts of interest.
Lord Snape
I am grateful for that clarification; perhaps if the noble Lord had made it at Second Reading we might have spent less time bickering. The noble Lord’s Amendment 33Y seeks to put into the Bill some exemption for franchise agreements. The Minister will correct me if I have got this wrong but I think the Government have taken care of those franchise agreements and arrangements within the Bill itself. If they have not, they left themselves enough time, with the consultative procedures that the Minister has so ably outlined, to look at them again over the next few months, when these consultative arrangements are actually taking place.
The problem with accepting the amendment, of course, is that in effect it would pre-empt that consultation and we would be likely to see the pubcos working their way around the legislation in the way about which the noble Lord, Lord Hodgson, warned us. So although I found him as lucid as ever, I think that he convinced one or two of us on this side of the House that his amendment not only was not necessary but, were it to be accepted by the Minister, would lead to an even worse situation than we are in. Surely the noble Lord can see that making exemptions in the Bill, denying the adjudicator and the Pubs Code the opportunity to consider what agreements should be exempt, and to reverse that exemption if it transpires that the exemption is being gamed at a later date to circumvent the legislation, is the proper way forward. I hope that the way in which the Minister indicates the Government’s attitude to this amendment will indicate the way in which they will take this matter forward.
Like the noble Lord, Lord Hodgson, I am coming to the conclusion of my own remarks on the Bill. I would like again to say a few words about investment. It has been a consistent theme of the noble Lord that the Bill and the failure to accept his amendment would have a serious negative effect on investment that the pubcos make in licensed premises generally; I think that that is a fair summing up of his position. However, when one looks at what I repeat is the myth of investment by the pubcos, a different situation is immediately apparent. In 2014, for example, Punch invested £43 million in its core estate but sold pubs to the value of £111 million. It has already announced that it hopes to make £307 million from selling over 1,000 of its non-core estate. Enterprise Inns invested £66 million in pubs that year, then disposed of £73 million-worth of them. This does not sound to me like either a prosperous industry or an industry controlled by those who seek a sensible and profitable way forward for it, regardless of the legislation before your Lordships today.
Small Business, Enterprise and Employment Bill
Debate between Lord Snape and Lord Hodgson of Astley Abbotts(9 years, 9 months ago)
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Lord Snape
If, as the noble Lord implies, the tie is not the principal reason behind the unhappiness of many tenants, perhaps I could refer him to the CAMRA report into the tie. Can he explain to the Committee why more than 70% of tied tenants feel that the tie is, to say the least, unhelpful to their business?
Lord Hodgson of Astley Abbotts
I do not say that the tie is perfect. In fact, I was about to say that the tie has had its imperfections. But I do not think the statistics that are produced by some of the pubcos show that there is the level of dissatisfaction that the CAMRA figures indicate. We can argue about the polling; no doubt the way you ask the question and who asks the question can move the figures around a bit. But I think the other side—the pubcos—would argue that actually the level of dissatisfaction among tenants is not as great as the CAMRA figures suggest.
Lord Snape
Again, can the noble Lord give us some examples? If CAMRA has got it wrong and he has got it right, perhaps he can explain to the Committee how he has come to that conclusion.
Lord Hodgson of Astley Abbotts
The noble Lord is very kindly almost making my speech for me. I was about to say—
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.
Lord Snape
Has the noble Lord reflected on the wording of Amendments 73 and 74? Does he feel that, as presently drafted, they restrain the sale of products other than beer, even if they do not stop it? I agree with the principle, but is he happy with the drafting?
Lord Hodgson of Astley Abbotts
Well, the focus in these pubs is on the beer—and possibly cider—because that is what is really essential to the brewers. That is part of their output. If they cannot sell their beer through the tied pubs, that might be cutting off 30% of their market.
Lord Snape
No, the point that I am seeking to make is that if the amendment is accepted, it appears to stop the tenant selling anything other than beer.
Lord Hodgson of Astley Abbotts
My wording is focused on beer and cider and not on other products at all. I think the clause is clear. It has to be read in conjunction with the fact that the MRO tenant can be clear that he is free to purchase those beers or ciders wherever he wishes, not necessarily through the brewery, so there can be no question of unfairness of pricing.
Lord Snape
I am sorry to keep interrupting; I am asking him to define his own amendments here. Brewers do not only sell beers. They sell soft drinks as well, which are often part of the tie. His amendments appear to stop them from doing that. That is the only point I am putting to him. To be quite honest, I think his amendments are daft anyway, but they appear even sillier when one reads them.
Lord Hodgson of Astley Abbotts
There are two parts to this. The question is whether the tenant is being forced to take supplies at a price higher than he can buy elsewhere. The key part is to ensure that, if the tenant feels that he or she is not getting the fairest price from the brewery, he or she can buy elsewhere. They can go to a wholesaler or other sources. That is his or her protection. A protection for the brewery is that it can insist that its beer be sold. A protection for the tenant is that the brewery cannot insist that the beer be bought from that brewery. It can be bought wherever the tenant wishes. The brewery has to compete for it and make sure that they offer the keenest price to the tenant.
After that exchange, I hope that my noble friend will be able to clarify and reassure me that the Government intends to provide certainty of supply, and that this provision will form part of the Bill. This is a very important amendment for the future of the industry.
Moving to Amendments 75, 76, 83 and 86, these are essentially drafting points to clarify the timing on when an MRO offer has to be made. I think the new clause addresses them but I hope my noble friend can confirm this.
Amendment 88 amends Clause 42(9)(b), adding at the end,
“provided that the requirement to enter into a new tenancy or lease if such tenants choose the Market Rent Only option shall not be considered discrimination”.
The purpose of that amendment is as follows. It would surely be unfair for the tenant to use the MRO option as a means to evade his obligations under his existing lease. A tenant may choose the MRO option, but having made that choice, he must then sign up for it and it should not be discriminatory for the pub owner to require him so to do. Further, in taking the MRO option, the tenant is electing to agree to a normal commercial lease as defined by the British Property Federation. That is to say, an MRO lease does not contain any special underlying legal features unique to the sector. It would be most helpful if my noble friend would give some assurance on that point.
Amendments 79 and 89 are about “significant” and “unfair” and potentially have a greater impact. They concern the events that can trigger the requirement to make an MRO option available. Clause 42(6)(b) requires the offer of an MRO option,
“when the large pub-owning business gives notice of, or imposes, (whichever is the earlier) a significant increase in the price at which it supplies products, goods or services”.
This wording appears to be replicated in subsection (6) of the proposed new clause. Amendments 79 and 89 propose to replace “significant” with “unfair”.
The question is, what constitutes a “significant increase”? Is it the right word anyway? The reasons given for the introduction of the Pubs Code revolve around the inequality of arms between the pub owner and the tenant. The Pubs Code is intended to ensure fair dealing between the two parties and give the tenant redress when unfair practices have taken place. The word “significant” is a general term, not a particular one. The Oxford English Dictionary defines “significant” as important and notable. There might be many reasons for there to be a significant, important and notable increase in the price of what the Bill calls a “product, good or service” supplied to a tenant.
Lord Snape
My Lords, to respond to some of the amendments of the noble Lord, Lord Hodgson, I say in passing that although, at my request, he came up with some examples of landlords being happy with the tie, they did not seem to me typical of what takes place in the industry. I do not want to repeat to the Committee anything that I said on Second Reading, when I detailed some of the problems that my daughter and son-in-law have had. Their treatment by Enterprise Inns is a lot different from the cases outlined by the noble Lord when he moved his amendment. Similarly, on Second Reading, with the permission of a couple called Dawn and Michael Shanahan from the Bulls Head in Old Whittington near Chesterfield, I read out a letter showing how they had been treated, which, I am sure that the noble Lord would agree, is a lot different from either of the examples that he gave to the Committee this afternoon.
The fact that more than 70% of pubco tenants have expressed their unhappiness to CAMRA indicates that far more of them have been and are being treated as in the two examples that I gave on Second Reading than in the two examples that the noble Lord has given to the Committee today.
I thought that the noble Lord was seeking to intervene; he looked a bit restive. I thought that he was going to come up with even more examples of happy tenants, but there are not that many of them around. He has probably exhausted the lot of them with those two.
Lord Hodgson of Astley Abbotts
The noble Lord has provoked me enough. I was sent a book this thick by some of the pubcos containing responses from tenants. Have I leafed through it? Do I want to bore the noble Lord and the Committee by producing it? Certainly not, but a large number of tenants drawn from all around the country were explaining how satisfied they were with the way that the tie operated. The ALMR has written to Members of the Committee to say that the tie works for its members and that it supports it.
Lord Snape
The first question about that association, whatever it was he said, is: who is funding them in the first place? Let us leave that aside. The noble Lord tells the Committee that he has a very thick book of completely satisfied tenants. Again, is there some reason why CAMRA did not consult them? The figures are there. I will send the document across to him. Oh, he does not want it—he indicated dissent. If there is such a crowd of happy tenants up and down the country, CAMRA would surely have spoken to them. I hope that I take both sides of the Committee with me when I say that CAMRA is a trusted and respected organisation on these matters. The fact that it records a dissatisfaction figure of more than 70% indicates that the bulky document referred to by the noble Lord, Lord Hodgson, may not be as laudatory about the pubcos as he indicated.
Let us look at some of the amendments in the noble Lord’s name. It is impossible to read, from the Minister’s expression, whether or not she favours them. Sometimes it can be an advantage sitting on this side, as Ministers are not always as inscrutable as the noble Baroness. Given some of the obvious failings in these amendments, I cannot believe that the Government are about to accept them. The noble Lord has not told us why in Amendment 69 he wants to take out the parallel rent assessment, but I presume he—or those who have briefed him—has a good reason to do so.
Amendments 70 and 71 are concerned with the definition of a large pub-owning business as one with 500 tied pubs. I do not know whether the Minister can understand what the noble Lord is getting at, but I am afraid I do not and I find those amendments pretty confusing. I ask for clarification from the noble Lord on Amendments 73 and 74 because they seem to refer specifically and solely to beer, whereas we know that the tie includes lots of other products, including soft drinks. They are excluded under the terms of the amendment, presumably, and it would have been useful if the noble Lord could have expanded on that point.
On Amendments 75 to 82, it is interesting that the former editor of the Sunday Telegraph is in favour of denying MRO to existing tenants. She did not particularly say why but the newspaper has, sadly, sunk in its popular appeal since she left the editorship. It would have been helpful if she had given some reason why she feels that existing tenants should be denied MRO. If one combines those amendments with Amendment 69ZB, there would be neither code nor MRO for existing tenants. I am not sure whether the noble Baroness is in favour of that too, because she did not tell us. I can understand that the noble Lord, Lord Hodgson, and—I put this as delicately as possible—those he associates with might be in favour of excluding existing tenants from both the code and the MRO, but I am at a loss to understand why the Committee at large would wish to do so.
Amendments 84 to 87 are also in the noble Lord’s name. In Amendment 85 there is no time laid down for the period of negotiation between the tenant and the pubco. If a tenant is in financial trouble and the pubco knows it—and, of course, it would—dragging on the negotiations would mean that the tenant went under anyway, regardless of the final outcome. I am sure that was not the intention behind the amendments. If I have provoked the noble Lord to his feet again, I would be delighted to give way.
Lord Hodgson of Astley Abbotts
I understand that the noble Lord wishes to find fault with my proposals. The amendment relates to Clause 42(8)(e), which refers to,
“at the time of the three month assessment”.
The question is, where in the three months? All my amendment does is change this to, “at the end of the three month assessment”. All I wanted to do was to get clarity so that the tenant—presumably an MRO tenant—or the pub owner knows when the events actually happen. It must be in everybody’s interests to have clarity about the sequence of events and how everything fits together, whatever one’s view may be about the legislation as a whole. That is my only point.
Lord Snape
I am sorry that the noble Lord feels that I am out to find fault with his amendments. He should not be unduly sensitive. I was under the misapprehension that that is what Parliament is about: maybe I have got it wrong. I find fault with his amendments first because they do not do what he thinks they will—or at least I hope that they do not—and secondly because they are unfair, particularly to existing tenants. That is one of the reasons why I have taken the view that I have. I would like to know the Minister’s view on the amendment, particularly the question of denying the MRO to existing tenants. As far as Amendments 88 and 89 are concerned, if the Minister accepts them, she would be discriminating against existing tenants and I hope that she will reject them.
There is a considerable debate to be had on new Clause 42. I am not proposing to start that now. I hope that the Minister will reply to these amendments and bear in mind that as far as the general point of new Clause 42 is concerned, we would seek to have a substantial debate on its content aside from the amendments that we are currently discussing.
Lord Snape
I will be extremely brief, as the Minister has dealt with most of the points that arose from the amendments. There is a nagging feeling that what we are going to approve now is not what the House of Commons actually wanted. The fact is that—surprisingly, at this stage of a Parliament—the Commons defeated the Government on a fairly basic principle with regard to this Bill.
At Second Reading, the Minister accepted on the part of the Government the will of the Commons and said, basically, that the Government would adopt the principles that the Commons had advocated with regard to pub codes and publicans. With respect, that is not what we are getting today; what we thought was there in the Bill has now become a consultative period and what will amount to secondary legislation. I put it to the Minister, and to the Committee at large, that at this stage of this Parliament what we are doing is not what the Commons wanted us to. I can see that questions will be asked at that end of the building about our procedures here.
We have only a short time before the general election on 7 May, after which there will be a new Government, of whatever political hue or hues. That will mean there is a considerable amount of time before consideration takes place and the Minister’s undertakings to the Committee today are brought into force. I put it to the Minister that before Report we should look again at the two Clause 42s, the old one and the new, and see if there are parts of the old one that really ought to be incorporated into the new one, if only to ease the feeling outside this place that whatever happens over the next year or 14 months will water down the agreements that we thought had been reached as a result of the Commons decision. It is unusual, to say the least, that a Government should be defeated on something like this.
I address my closing remarks to the noble Lord, Lord Hodgson, in particular: he should not think that the decision was arrived at because of pressure from CAMRA or any other body. I think that many Conservative Members of the other place looked at what was happening to their own local in their own town or village and decided that that was why they felt Greg Mulholland’s amendment ought to be accepted. I hope I can get some assurances from the Minister that there will be some discussions with other people before Report so that we can see some of the watering down that we perceive in the difference between the two Clause 42s being rectified.
Lord Hodgson of Astley Abbotts
Once again, the trade is under pressure and the noble Lord assumes that it is all due to the tie. I wish it were that simple. The fact is that there are real difficulties for our pubs, for the reasons that I have explained. Trying to put more pressure on one particular part of the industry will not help it, I fear.
Lord Snape
Again, I accept that, but the noble Lord must accept that when Back-Benchers rebel in the way that Back-Benchers rebelled in the other place on a piece of legislation such as this, those rebels share a great many concerns. I put it no higher than that. I asked the Minister for an undertaking that she will look again at the differences between the two clauses and see whether we can toughen up new Clause 42 in the way that I believe the House of Commons intended in the first place.
Lord Hodgson of Astley Abbotts
Amendments 94 and 95 once again concern Clause 67, the definition clause—in particular, the definition of a tenancy in Clause 67(2). Amendment 94 would remove line 43, the words,
“includes a tenancy at will”,
from the provisions of the code. A tenancy at will is essentially a short-term informal agreement which imposes no timescale on either side. It would therefore seem illogical to impose the relatively heavy-duty encompassing arrangements of the code in such circumstances, which either side can abrogate at any time. For the same reason, Amendment 95 would exclude from the code short-term temporary agreements by the wording:
“The definition of tenancy … excludes temporary agreement where the tenant has occupied the same pub premises for less than twelve months”.
There are many reasons why individuals take on a pub under temporary agreements. For example, earlier I referred to the hard work and long hours required to run a successful pub. Some people find the experience not entirely to their liking and give up. Others, perhaps more wisely, decide to give the experience a try for a few months to see how it fits with their lifestyle and whether they really enjoy it. They do so under a temporary agreement. It surely cannot be logical to apply the administrative burden of the new regulatory regime in such circumstances.
There are those who argue that that will provide a loophole to evade the new regime—the noble Lord, Lord Snape, will no doubt be on his feet in a second. I accept the existence of that suspicion. The answer must be to draft the code or the primary legislation so that temporary agreements cannot last more than 12 months and that one temporary agreement with the same premises and tenant cannot follow another. That will give people the opportunity to dip their toe into the water and see how they like it, without having to go through a lot of administrative hassle. That is a simpler, better and less costly way to encourage tenants to come forward and see whether they like it without having to take on all the administrative requirements of the code. In that spirit, I beg to move.
Lord Snape
My Lords, I enter the debate with some trepidation after the way that it was introduced. I, too, will be very brief. I am grateful to the noble Lord, Lord Hodgson, for making my speech for me. He underlined the dangers of the amendment. Tenancies at will are where part of the problem lies. I go back to my daughter and son-in-law’s experience. They think that it must be wonderful to have a tenancy on a country pub with ivy round the door, great customers and all the rest of it. Of course, they will be treated very well by the pubcos. They will be looked after; their delivery will come on the proper day; lots of things will be done on their behalf. After a year, once they sign up, they will find out the reality of the situation. It is at that stage that many problems arise, despite the blandishments of the noble Lord, Lord Hodgson, so I hope that despite his honeyed words, the Minister will resist the temptation. I say to him: nice try but it will not wash, I am afraid.
Lord Hodgson of Astley Abbotts
My Lords, on a rather sour note, I am afraid that that was a very disappointing response. To say that it is a loophole, this arrangement with revenue sharing does not come within the tied tenancy arrangements, as envisaged. The tension in the tie is the rent you pay and the price you pay for the prize.
Lord Hodgson of Astley Abbotts
There are probably 400 or 500. The idea is that it is a very easy way for a tenant to start in the pub trade and he shares the risk as he has a revenue-sharing arrangement. Unless the Government say that they will require McDonald’s and others to offer other people’s products, there is no argument for discriminating against pubs that are franchises as long as they have franchises that match what happens in McDonald’s, pizza franchise companies and the coffee companies.
It is just a way of driving the pubs into a corner and finding ways that they cannot live with. The arrangements are used frequently by many other industries, and if pubcos are to prosper they must be able to use similar new developments and not be trapped in what is essentially a framework that has existed for hundreds of years. It was an innovative idea by pubcos to get away from the problems that have bedevilled us all this afternoon. I shall come back on this strongly as it has been too quickly and too easily brushed aside. But, for tonight, I beg leave to withdraw the amendment.
Small Business, Enterprise and Employment Bill
Debate between Lord Snape and Lord Hodgson of Astley Abbotts
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.