Small Business, Enterprise and Employment Bill

Lord Whitty Excerpts

Wednesday 28th January 2015 Grand Committee

[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—

[Lord Whitty (Lab)]

My Lords, before the noble Lord, Lord Hodgson, proceeds, the point made by my noble friend Lord Berkeley indicates a more serious procedural problem. It is not that these amendments are not serious, but they are specific. I also have some amendments in this group, but if I degroup them, a decision would have been taken on the Minister’s amendments before we reached the appropriate point in the text of the Bill.

We have a very new clause, inserted at the final stage in the Commons. The Minister quite rightly said that there has been limited chance for consultation on that. We have a huge amendment from the Government deleting an entire clause and replacing it. The noble Lords, Lord Berkeley and Lord Hodgson, and I, all have amendments to the original amendments. My noble friends Lord Mendelsohn and Lord Stevenson have amendments to the Government’s amendments. So, there is not only a large number of amendments, but it is going to be a very confusing debate.

That is not to say that we should not have the debate today. However, the way that this has been dealt with, and the fact that consultation since the Commons decisions until now has not allowed consultation with the bodies that represent tied landlords, has not allowed for significant debate with those in the Commons who pushed this amendment. We have a few weeks between now and Report stage for proper consultation to take place. I am very happy to have the discussion today because that will inform the Government, but at the end of that discussion it will behove all of us to withdraw our amendments and move them for a proper discussion on Report, which could have been preceded by some effective consultation between the Government and the various parties involved, both politically and industrially.

Although we can degroup this group, there is a rather more profound problem here. If all noble Lords agree to withdraw their amendments at the end of the debate, there is no great problem and we can have a sensible discussion over the next three weeks. However, if we proceed, we proceed as per normal. It would be sensible, even from the Government’s point of view, if we allowed ourselves a bit of a breathing space to have those discussions.

[Lord Berkeley]

Is my noble friend suggesting that the Minister should withdraw her amendments as well?

[Lord Whitty]

Yes, my Lords.

[Lord Berkeley]

Good.

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[Lord Whitty]

My Lords, I have a number of amendments in this huge group. I should point out that none of them applies to Clause 41, which, strictly speaking, is what the noble Baroness’s amendment relates to, but I have a number that apply to Clause 42: Amendments 69ZC, 71A, 72A, 74ZA, 74ZB, 87A to 87C and 89ZA. However, in view of the way this discussion is going, and my earlier points, I hope the Committee will forgive me for straying somewhat wider. For the avoidance of any doubt, I have no interests to declare, ancestral or otherwise, except as a consumer—and even then, not in January, which is probably why I am in such a bad mood.

The Committee probably should be grateful to the noble Lord, Lord Hodgson, for explaining the structure of the industry and how it works, and those situations where the tied arrangement has worked very well for both sides, but it was an explanation that was really from the point of view of the large pubcos. He also explained the context in which they work—the economic context, the social changes and so forth—and that the whole industry is under some significant pressure. But my concern in this area is for those small businesses—and they are small businesses—of the tenants who are in tied or partially tied accommodation. This Bill is called the Small Business, Enterprise and Employment Bill; it is not called the big brewers’ restrictive contracts and exploitation Bill. Were it so, it might have been closer to what some Members of the Committee appear to be wanting.

The Minister and the Government have to recognise that the Bill we are dealing with, and Clause 42 as brought over from the Commons, is a result of a quite unusual political event and a quite unusual level of lobbying, if you like, on behalf of those small businesses we are talking about. Actually, in substantive terms, it is the first major defeat that this Government have suffered as a coalition. I think, therefore, that we should take seriously what the Commons have sent to us rather than trying to redraft virtually the totality of it, even though the Government, as the Minister has made clear, accept that MRO should be in there. I would also point out to noble Lords that this is not saying that this is the end of tied tenancies; it is simply putting those tied tenancies on a fairer basis. I know that there are those—I suspect my noble friend Lord Snape is one of them—who wish to abolish tied tenancies in total. But this is in a sense much more of a compromise position.

[Lord Snape]

I would be grateful if my noble friend would not portray me as being a raving left-winger on these matters. I am not seeking to abolish the tie completely; like most people, I just want a fairer system than we have at present.

[Lord Whitty]

In that case, my noble friend and I are on exactly the same point in the ideological spectrum—as ever. We are discussing these as amendments to the pre-existing text that we received from the Commons. Government Amendment 89A effectively rewrites that proposition from the Commons.

At Second Reading the Minister said on behalf of the Government that there were things that needed to be done to ensure that the proposition was going to be workable and did not have unintended consequences. I understand that, and that means there are parts of the noble Baroness’s amendment that I would be in favour of. But under the amendment as we now have it—and we have not had it for very long; the fact that we are debating it today puts us in some difficulty given that the consultation hitherto, as I said earlier, has been somewhat attenuated—the Government’s changes in detail do a number of things. They delay the implementation because whereas the proposition adopted by the Commons set the situation on the MRO in primary legislation, therefore bringing it into effect at the earliest point when the Bill came into law, we are, instead, reliant on the drafting of the code and the bringing forward of secondary legislation.

The Government’s amendments also change a number of the trigger points, thereby diluting the effectiveness of the MRO proposition. Amendment 89A changes the threshold because it confuses the issue of tied pubs with all tenanted pubs. The Pubs Code ought to relate to all relationships between the pubcos and their tenants, whether they are tied or not. The MRO relates to the tied pubs but the threshold of defining who this applies to should be the size of the company as a whole, which includes all sorts of tenancies. Restricting it to tied tenancies lays open the possibility of them ending one or two ties to get below the 500 mark. I do not suppose I could prove it in a court of law, but there are indications that some of the pubcos are looking to split their company structure so they would not hit the 500 mark for tied tenancies. We ought not to lay that temptation before them. The Government’s proposition fails to recognise that there is a distinction between how a Pubs Code—which I think we are all in support of—operates and the MRO option, which relates only to tied tenants. I hope, therefore, that my propositions do a number of things. They separate out the issue of the code from that of the MRO. The code is set out clearly in Clause 41 and, at the beginning of Clause 42, the MRO coming into effect is not dependent on the code. The amendments in my name would also change the definition of the threshold, although most of that comes up in a later group, in relation to Clause 66.

I do not like the procedure on this Bill because the Government have misjudged the mood, not just in the Commons and among those tied tenancies and other organisations which have pressed for this. They have succumbed unnecessarily to pressure from the larger breweries. There is no need for some of the changes to the proposition that we have received. There is, therefore, a need to reinforce those rather than go in the opposite direction, which the Government’s amendments are doing. What came to us from the Commons was not perfect, but the Government are proposing to make it worse. For that reason, we all need to take a step back and look at what we agree on in the original proposition, the amendments we are discussing today and the Government’s proposed complete redraft. We need to see whether we could, in discussion with all sides of the industry, come up with something closer to an agreement in time for Report or, possibly, send it back to the Commons and let them sort it out.

We are in an unfortunate position today. This is a complex group of amendments and none of us understands all the issues. Whatever comes out of this is going to be pretty unsatisfactory and not a good basis on which to go to Report at this point in a parliamentary Session. This does need sorting: it needs to be workable and I agree with the noble Baroness that we do not want to see unintended consequences. However, we need to be clearer as to what the consequences are that have led to the propositions in the Government’s redraft.

I hope that the Government take a step back and talk to everyone concerned. The easiest way to do that would be to withdraw all the amendments today. If the Government will not do that, we are probably in for a fairly rocky time between now and Report. If we have not met at least the overwhelming spirit of what the Commons decided, the Bill will be back in the Commons and we are in for ping-pong on the Bill. I cannot believe that the Government’s business managers really want that. There is a way to deal with this quietly and consensually. It may not work, but it might, and it would get the Government out of an awful lot of trouble. As usual, I am trying to be helpful to the Government, and I hope that they heed my words and those of my noble friends.

[Lord Borwick (Con)]

My Lords, I want to speak to Amendments 82A and 83A and thereby take in my noble friend’s Amendment 88. Amendment 82A concerns the amount of time for the negotiation of the MRO. In the original Bill, it was stated to be 21 days, which I think is too short. The difficulty for identifying a time for any negotiation is that the time required at the beginning of the process, when it is new to both parties, will be different to the time to produce a market rent in a negotiation in, say, five years’ time, when everyone knows what the rules are. When the lawyers are helping both sides with their arguments, it could take substantially longer than 21 days.

My noble friend may say that that will come out in the detail of the Pubs Code and the statutory instrument, but how will that time be judged? Will it change from the beginning of the period and a few years’ time?

Amendment 83A concerns the problem that under the Bill and the government amendments, existing tenancy agreements would continue. So the lease would continue in all respects other than in the rental. That brings up the difficult subject of SCORFA—an acronym standing for “special commercial or financial advantages”, and is designed not to flummox the great people of Hansard but to refer to all the advantages given to the pub tenant, all the way down to providing glasses, ashtrays and beer mats.

If the lease is being changed to rent only, it is unreasonable to leave the landlord, the pub owner, in the position of providing those benefits when he is not providing the rent. My noble friend may say that all those points will be dealt with in the statutory instrument that forms the Pubs Code, but it will be subject to consultation. What if the result of that consultation is a mass of people saying that it should not be included? If so, will we have landowners subject to a lease that is not right, where one important clause has been removed?

Surely my noble friend will agree that a matter as reasonable and important as this should be in the Bill and bring forward government amendments to deal with the issue.

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[Baroness Neville-Rolfe]

Before the noble Lord sits down and the noble Lord, Lord Whitty, takes the Floor, the answer is 12 months—but that is 12 months after the Bill comes into force. Apparently it will take two months for the Bill to go through to Royal Assent, so the maximum is 14 months. However, the message that I was trying to impart to the Committee is that we are determined to get on with this, push ahead and find workable solutions in that time.

[Lord Whitty]

My Lords, I am not sure that the Minister is procedurally correct to say that I have the first amendment. She has the first amendment in this group, which she can move at this point. Although mine is the first amendment on Clause 42, it is not the first one in this group. If she is asking whether she has said enough for me to roll over in relation to her own amendments, the answer is probably, “Almost, but with great regret”.

She has said that she is prepared to talk to all the parts of the industry involved, and she has done that in a very generous way. However, when she went through this clause by clause, there seemed to be fairly clear opposition to all the areas of concern that had been expressed by me, the noble Lord, Lord Stoneham, and my noble friends Lord Berkeley and Lord Snape. If she is prepared to say that all these things are open for discussion before we get to Report, I suppose that the sensible thing for me to do would be to say that I did not object to her clause. While I was clear on the conciliatory tone at the beginning, when it came to any individual item it seemed to be the firm position of the department to oppose it. However, it is not really my position to object at this point.

[Baroness Neville-Rolfe]

Okay. I welcome the lecture on procedure and apologise for not getting it right. As a new Minister, I am learning. The answer is yes, we are very open to discussion. What I was trying to do, I thought, was to be helpful in going through our thinking about why the various provisions were set out in the way that they were. I have already indicated that there are one or two places where I can see that the points made today would lead to further discussion. The answer is that we are open-minded and are keen to find a workable way forward, and are happy to do that in discussion in this House. I beg to move.

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Tabled by

[Lord Whitty]

69ZC: Clause 42, page 38, line 30, leave out from beginning to “be” and insert “A Market Rent Only Option shall”

[Lord Whitty]

My Lords, this amendment is the first in my name relating to Clause 42. Clearly, I cannot press it today if the Government do not agree with it but I hope they understand that, in the discussions that the Minister has promised us, we will wish to return to all the issues that relate to the distinction between the Pubs Code provisions and those of the MRO. Subject to that, I will not press the amendment.

Amendment 69ZC not moved.

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[Lord Howard of Rising (Con)]

My Lords, I wish to speak to Amendment 91D in this group. Its purpose is to remove uncertainty and so give smaller breweries a stable background in which to run their businesses. Helping small business is after all the purpose of the Bill. For these smaller breweries—indeed, for any pub company—to be successful in a declining market, it is essential that they make significant investment in their pubs. This necessary investment is not practical if they do not know under what rules they are operating. My noble friend mentioned changing the figure of 500 by affirmative resolution, but while change by regulation or order goes some way towards parliamentary examination it is, for practical purposes, a rubber stamp. Between 1950 and 2014, only 11 resolutions were rejected in the other place and only five in your Lordships’ House.

For that reason, if the Secretary of State can change the 500-pub definition to a different number by regulation, that will create uncertainty and severely restrict, if not halt, the investment necessary for the survival of the smaller breweries—which, by the way, generally speaking, have been increasers rather than closers of pubs. If noble Lords think that it is overpessimistic to say that investment will dry up, I remind them that under the last change in the rules governing the ownership of pubs many famous names, as my noble friend Lord Hodgson alluded to earlier, such as Whitbread, Bass, Scottish & Newcastle, Courage and Watneys have been absorbed by multinationals. It would be against the spirit of what we are trying to achieve today if a consequence was to contribute to the demise of small breweries.

Any change to the number of 500 should be subject to primary legislation. I urge the Minister to consider the amendment seriously so that those smaller breweries can continue to invest and create the prosperity necessary to maintain that part of the pub sector and help stem the decline of pubs.

[Lord Whitty]

My Lords, I have three amendments in this group which go in exactly the opposite direction of the noble Baroness’s amendments.

We could keep the question of definition to talks between now and Report. I do not want to go over the arguments that we had earlier, but to define the owners, the pubcos, to which this applies in reference solely to tied pubs runs the danger of those pubcos altering their tenancy arrangements so that they fall below the threshold. I assure the noble Lord, Lord Howard, that this provision is not intended to hit the family and small regional brewers. We know that the large companies have a range of arrangements with their tenancies and are defined by the totality of their portfolio. It is relatively easy, given the turnover of tenants, for the companies to switch from one form of tenancy to another. They would have a motivation to do so, in order to fall below a tenancy threshold related to tied accommodation alone.

This is one of the issues on which we should have further talks. It is possible that we would have a different tied-specific definition, but that would require other obligations being put on the pubcos so that they would not change the designation of their portfolio to get around this threshold. I suppose that it would be difficult to draft such clauses, but there is a real danger of them gaming this situation. We know that some companies are already contemplating breaking their structure up.

We need more talk about what the definition covers. In a sense, this is the wrong way to go about it, but I would hope that the noble Baroness would not press the amendment and would rather make it subject to the talks to which she has committed for the coming period.

[Lord Hodgson of Astley Abbotts]

The noble Lord, Lord Whitty, and I have taken common cause on various things but he will not be surprised to know that I cannot take common cause with him on this tonight. A managed pub, as I explained at some length in my opening remarks, has an employee. It is a totally different relationship. To say that pubcos could switch their estate from being tied to being managed would mean changing the whole basis of the employment. The fact is that they are employees with salaries and bonuses and fringe benefits. It is not possible to undertake the sort of gaming that the noble Lord is describing—in terms of switching from managed to tied—which is why managed pubs can safely be left out. The question of what the tie means is something which we have been discussing tonight, but managed pubs form no part of this because they have employees with all the applicable rights and responsibilities.