Small Business, Enterprise and Employment Bill

Adrian Bailey Excerpts

Wednesday 16th July 2014 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Thank you, Madam Deputy Speaker. The Secretary of State described his 50-minute speech as “Castroesque”, whereas I shall describe my five-minute speech as highly castrated. But, in the limited time available, I wish to concentrate on an issue that has long exercised the Select Committee on Business, Innovation and Skills and its predecessors: pub companies and their regulation. Let me say to the Minister that although I may appear critical, I recognise that, having wavered and gone down the voluntary route, he has tried to rescue this and put regulation on the statute book. That has long been the position of the Committee, but grave flaws remain with the proposals before us.

The Shadow Minister outlined the problems of low incomes among tenants and mentioned the attrition rate of 28 pubs being closed every week. Our basic model of tenant and pub company is not viable and is in long-term decline. Worse still, the low incomes of tenants mean that many have to resort to state benefits to prop up their income. Under the current model, the pub companies take substantial profits from an unfair relationship with the tenants; the number of pubs is declining, with a consequent impact on the community; and many pubs that do survive have tenants on low incomes, which generates personal problems and the taxpayer liability. So that issue needs to be addressed.

Having the statutory code and adjudicator, which the Government are supporting, is a step forward, but it does not address the issue of the free-of-tie option. The Minister said that the Government were not going to introduce that because of the potential impact on the pub industry. It is difficult to see how, in the long term, we are going to affect the balance of risk and reward between the pub companies and the tenants without introducing a mechanism that will strengthen the hand of the pub tenants. The proposals for parallel rent assessments, which would enable the tenant, in certain circumstances, to apply to have a rent assessment, suffer from a number of difficulties, not least that it has to be after a five-year review or after protracted negotiations have failed. In some cases, they can last two or three years and drive the tenant into bankruptcy long before they reach the assessment point. It is difficult to say how such a time-consuming and complex procedure can substantially alter this balance of risk and reward. Indeed, under the existing system there is a voluntary arrangement whereby tenants can go to an adjudicator and, although that has addressed certain problems, it certainly has not changed the overall balance of risk and reward in the industry.

The argument against that is that pub companies will abandon their tied tenants and become real estate investment trusts and that others may step in and try to reproduce the model to the detriment of the existing variety of agreements and range of beers. That is a hollow threat, because under real estate investment trust legislation, 95% of rental income must go to shareholders, which would render that impossible for pub companies, and 75% of income must come from rents, which would also be a barrier. Therefore, the threat of an alternative model is hollow.

[Greg Mulholland (Leeds North West) (LD)]

I pay tribute to the hon. Gentleman’s work and the fantastic work of the Select Committee on Business, Innovation and Skills over the years, including the four crucial reports that have finally led us to legislation. Does he share my bewilderment that the Government did not listen properly to the Business, Innovation and Skills Committee and have not introduced the market-rent-only option that he proposed? A clear two thirds—67%—of all respondents to the Government’s consultation said that it was the right way to deal with the problem.

[Mr Bailey]

I thank the hon. Gentleman for his intervention and pay tribute to his contribution to the ongoing political pressure. I do find it mystifying; at the end of the day, the Government have fudged the issue and have bought some of the pub companies’ arguments. They are being more protective of pub companies than of tenants, which is to the potential detriment of the industry.

The free-of-tie option would lead to considerable changes in the industry, but such changes would be difficult to quantify. The survey by the Federation of Small Businesses found that 75% of tied tenants would take on more staff and increase staff hours, 78% would increase investment, 73% would invest in modernisation and 91% would deal with microbreweries. It therefore seems that the alternative model has the potential to strengthen the industry while the present proposals will only lock it into a long-term, terminal decline.