Brian Binley
Main Page: Brian Binley (Conservative - Northampton South)(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Brian Binley (Northampton South) (Con)
I thank my friend and colleague the hon. Member for West Bromwich West (Mr Bailey), the Chairman of the Business, Innovation and Skills Committee for his contribution. It has been an honour to serve as vice-Chairman under his guidance and I welcome the debate.
Mr Deputy Speaker, as you in particular will know, since 2004 there have been four Committee inquiries on this subject; I have had the pleasure of participating in two of them. Progress has been made, but many assurances have been given about the voluntary code that have not been upheld and that is not good enough.
The background is relatively simple. The nature of public houses and the associated brewing industry has changed much in the last 30 years. I recall a Monopolies Commission investigation as long ago as 1972, as a result of which breweries were increasingly made to question the value of maintaining their estate. In consequence much of the estate was sold, initially to entrepreneurs, but they were progressively usurped by the big players who developed massive estates of pub chains. They borrowed much to create those estates and therein lies the problem.
Bob Stewart (Beckenham) (Con)
Is my hon. Friend talking about pub companies that own pubs, rather than breweries that have a pub estate? Is that the thrust of his argument?
Mr Binley
That is absolutely correct. I am talking about pubcos and I exclude family businesses that own fewer than 500 pubs. The big owners of pubs and their unsustainable financial structures are the real problem. Let me make it clear: this is not about family-owned brewery companies, who do a very good job indeed. I am talking about big pub companies whose model is unsustainable; it is based on excessive debt, misleading information and deception, as the inquiry has proved.
Karen Bradley (Staffordshire Moorlands) (Con)
Will my hon. Friend clarify this point? Is it correct that large pub companies borrowed against future rental income, so they are dependent on that to sustain their high levels of debt?
Mr Binley
They borrowed against the value of the properties, and rental income is very relevant. That is absolutely correct. Therein lies the unsustainability of the model, when we bear in mind that the breweries built up their estate over a 200-year period.
Sadly, tenants are the victims of that unsustainable structure. In many cases they face prices higher than those on the open market, exorbitant rents and a quart-measure of misleading information. To make a pub work, individuals have ploughed in their savings on the back of distorted information, and as a consequence they have gone to the wall. Most publicans are dedicated and hard-working people. We should take note: they are influential opinion formers in our communities and many of them have been badly treated. All I seek is fairness on their behalf.
Following the Committee’s 2010 inquiry, there was a clear understanding that the industry would have a year to get its house in order, or a statutory code of practice would be introduced. I questioned the previous Government and received that assurance. I questioned the current Secretary of State, who confirmed that he would continue with that promise, but the Government have sadly reneged on that undertaking. I find that very sad indeed.
The Government’s proposals for a legally binding voluntary code are not good enough. They have performed a volte face on this issue and it is incumbent on them to explain why their proposals are superior. How will a voluntary code work? The Minister’s argument seems to be that the level of protection will be comparable to that provided by a statutory code, but why is a voluntary code preferred when it has failed in the past? If the answer lies within the industry, why has it taken so long to make such desultory progress? Why should this Minister have any more faith in the industry than his predecessors, who had similar confidence? What is the cost of the voluntary code? How does it compare with the certainties that statutory regulation would bring? How much will it cost tenants, when they are in trouble, to pursue an action under the voluntary code? Those answers I demand from the Minister today. Concerns about the future of the industry abound. Why should small tenants be made to pay the price? They have suffered enough. Were they not persuaded to take on these pubs under false pretences, under an unsustainable structure? Does not all the Committee’s evidence prove that to be true?
I want the Government to support the entire industry, including the tenants. That means that in companies with more than 500 pubs—that excludes the small businesses—tied tenants should have the option to become free of the tie.
Andrew Bridgen (North West Leicestershire) (Con)
Does my hon. Friend agree that the current relationship between many tied pub tenants and large pub chain owners is almost feudal, and is neither fair nor sustainable?
Mr Binley
I agree, and I am grateful to my hon. Friend for making that point.
We need an opportunity for an independent, open rent review within the terms of the tenancy. Those who choose to stay tied need to have the option of selling a guest beer. We need to give tenants more freedom to decide the style and structure of their business. Those things are not available within the pubcos at present. Those are fairly simple requests. I do not believe that they can be achieved without an independent ombudsman to monitor compliance—history and practice are on this side of the argument.
I do not know why the Government have sought to back away from their own commitments. I recognise the need to compromise in the way that the Chairman of the Select Committee has explained, but if we want, as I do, a virile and vibrant pub industry that is strong for the future, we need to deal with the cancer that is undermining it and putting its very existence under threat. That, Mr Minister, means that we need to change the proposals that have already been made. I expect the explanations I have asked for, and I expect the Minister to be compliant and say that changes will be made—
Andrew Griffiths
I agree that we may well wish to consider a review in future, but as for the idea that we should bring in new regulation and new requirements and then, within just a few months, review them again, I worry that companies will be concerned more about the review than about implementing the changes themselves.
Andrew Griffiths
I have given way twice already, so I shall continue, if I may.
We have to be careful what we wish for. More mature Members will be fully aware of the beer orders—well-intentioned regulation to improve the lot of publicans and pubs throughout the country, which, I argue, got us into this situation in the first place. We have to be careful before we reach for the lever of regulation, because once it is imposed, the costs, burdens and unintended consequences are there for everyone to see.
We all recognise that pubcos are drinking at the last chance saloon, but today I heard the accusations made against the BBPA and I am, quite frankly, staggered. Hon. Members have mentioned several small family brewers, but all are members of the BBPA. It is not some sinister organisation, and although it is made up of pubcos, it also includes family brewers from up and down the country, so the idea that it has some sinister hand on the Minister’s shoulder and is influencing him in an underhand way is blatant nonsense, as is the idea that the Minister should develop policies for the brewing and pub industry and not have a proper dialogue with the biggest trade body in the industry.
We have a proposal to bring in a tough industry code. It will provide transparent information as a matter of course to anyone who is thinking about taking on a pub, and provide people with legal redress. The code will now be legally binding, so anybody who finds that their pub company or family brewer has not upheld the code will be able to have their case heard in court. There will be a process of arbitration so that anybody who feels that they are being dealt a bad hand by a pub company or the pub industry can have redress through independent arbitration. Those are the things that any tenant who feels hard done by requires to get the assistance and redress that they need. Most importantly, that will be delivered through self-regulation, which I believe will be cheaper, more cost-effective and speedier in producing remedies. We can all point to Departments that have brought in regulation or arbitration that has not worked. We do not have all the answers in government. It is far better to allow the industry this last chance to get its act in order.
Finally, the idea that the tie is the only thing that is leading to the closure of pubs is blatant nonsense. Yes, it is an issue, but we have to consider the impact of people’s drinking habits, the power of below-cost selling by supermarkets, and the red tape and regulation that we have loaded on to pubs. We should not for one minute think that if the motion were passed and the Government introduced the statutory code, it would solve the industry’s problems. It patently would not.
Charlotte Leslie
It is very obvious—this is crucial to the debate—that there is a strong feeling that the response was unilaterally informed. I am not in a position to say whether that is the case, but it is difficult for the Government’s response to have authority, particularly on such an important issue, when there are allegations that it was overly unilaterally informed. I take my hon. Friend’s point. The dispute over the figures is very much a case in point. Another result of the beer tie is the substantially lower earning of the publicans who try to manage those pubs.
That is statistics, but anecdotally—we are all very aware of the limitations and strengths of anecdotes—we hear of people opting out of the beer tie to find their rent increasing. Publicans who have been in the business for a long time and who took on pubs under big companies 20 years ago report how much more restrictive pub companies have become in recent times. Given the upward slope that pubs face in making themselves viable, that seems a counter-intuitive direction for pub companies if they want pubs to succeed.
Other areas of distrust that are not at all helpful to the debate include disputed membership of the Pub Independent Conciliation and Arbitration Service, which my hon. Friend the Member for Leeds North West (Greg Mulholland) also mentioned.
I shall vote for the motion. Given the lack of success of self-regulation in the past, there is a question mark over whether it will work in future. I am not one to run for more regulation—there are lots of unintended consequences.
Charlotte Leslie
My hon. Friend makes a good point. One issue at stake is the efficacy of a voluntary code. Although there might be problems with the timing of a review, a review of the kind of voluntary code that the Government have suggested would be extremely valuable—it will set in place many of the issues that we are discussing.
I do not want to take up too much time because lots of hon. Members want to speak. As a Conservative on the Government Benches, I do not believe that regulation is always the answer, but it is sometimes. It must be looked at—it cannot be dismissed out of hand out of religiosity. I also believe that if a business model is not sustainable, it must be allowed to fail. However, the key thing is that pubs face an uphill struggle—it is not a level playing field—in so many aspects of their operation. Looking at the relationship between pub companies and publicans is just one factor in levelling out that very uneven playing field, which has devastating effects on community cohesion not only in rural communities, but in communities all over the country.
Damian Hinds
The Minister is correct, and that is indeed in the Government response. Unfortunately, the BIS Committee report, which is a fantastic report and to which we are to some extent referring, does not make that distinction quite so clearly.
What should we do if the tie is not the answer? Let me start with what we should not do. The Government response puts it rather well:
“Government should not intervene in setting the terms of commercial contractual relationships”
where, according to the OFT, there are no competition issues that significantly affect consumers; and
“whether or not a lease or tenancy includes a tie is a commercial decision on the part of both parties.”
Damian Hinds
I am afraid not.
We do need to make sure that there is fairness and transparency and that properly informed people come into this business. On fairness, I welcome the commitment in the new framework code to having no more upward-only rent reviews in full repairing and insuring leases. On transparency, I welcome the commitment to publish national wholesale price lists, although I am not quite clear how that would work. In this business, where pricing is a complex art, wholesale prices are not necessarily that much use unless the actual prices charged and tariffs are known. My hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi)—he is not with us today—suggested to the Select Committee that, through the medium of the internet and the wisdom of crowds, it might be possible to use these data in ways hitherto not possible.
I also welcome the industry’s commitment to look again at common formats for shadow profit and loss accounts to make it easier to compare different pub owners. I agree with the predecessor Select Committee’s finding in 2009 that all the information on a pub’s trading history should be available to the potential licensee. However, it is also important that we understand the limits of that. Pub companies will say that they would love to know a lot more about the trading history of various sites, often having limited sight of that information. We need properly to inform people who are going into the business. I welcome the pre-entry awareness training, but I also agree very much with the Committee’s judgment that we need deep vigilance on its quality. None of that invalidates the tie.
If we want to be totally focused on keeping pubs open, as I believe all hon. Members do, we have to address two fundamental things. The first is pubs competing on price, partly against the supermarkets, but also, as some hon. Members have said, against managed houses, particularly urban “vertical drinking establishments”, as they are known in the trade, which often severely undercut the traditional tenanted trade. The second is alternative usage value, as one way of keeping pubs open is to make it harder and more expensive to secure a change of use for these premises. That will focus minds on making sure that companies are supporting sustainable businesses.
Mr Davey
No, I want to make some progress. [Hon. Members: “Oh!”] I will give way to the hon. Gentleman in a bit, because in two and a half hours’ evidence to the Select Committee he quizzed me for an hour, so let us be clear that I have answered an awful lot of questions from him.
Why did we not legislate? Some in this Chamber wanted the Government to step in and regulate, and some even believe that we promised to do so, but we promised to take action, and that is what we have done. We have had to consider all the evidence and the action that we would take, and I believe that the action we have taken is appropriate and effective.
We did not legislate because, first, we wanted to act now, not in two or three years’ time. To legislate, we would have had to carry out a lengthy process of consultation, of drafting and of pre-legislative scrutiny, and after that we would have had to fight for a slot in the legislative Sessions. It is highly unlikely that such a slot could have been found quickly.
Secondly, this is a deregulatory Government. Additional regulation should always be a measure of last resort. For the Government to intervene in the commercial contractual relationships between two parties, they must have very good reason. That is in line with the Government’s top priority of achieving strong, sustainable and balanced growth, and generating a climate that supports enterprise and creates jobs.
Thirdly, the Office of Fair Trading found in October 2010 that there were no competition issues affecting consumers in this market. That is a critical point, but I am afraid that the Select Committee report did not discuss it. I am aware that in some circles, it is believed that the OFT is wrong. That is not a view that I share. As Minister with responsibility for competition, I have high confidence in the rigour and accuracy of the OFT. Without evidence of competition issues, the rationale for Government intervention is significantly reduced. That is in contrast to the situation in the groceries market, where the Competition Commission found evidence of competition issues. The Government have therefore committed to introducing a groceries code adjudicator as soon as parliamentary time allows to ensure that large retailers treat their suppliers fairly and lawfully.
Mr Davey
No.
Secondly, when one examines where the relationships between pubcos and licensees have gone wrong, it quickly becomes clear that the major problem is not with the traditional tied tenancy, but with full repairing and insuring leases, which are mostly, but not exclusively, used by the pubcos. There are problems with pre-entry training, transparency and rent guidance not being followed, but not with the basic question of whether a pub is tied for beer. That is why my solution targets full repairing and insuring leases and leaves alone the traditional tied tenancy model, which is used successfully, and for the most part amicably, by local and regional brewers alike.
Thirdly, the market is driving a solution. The figures show that since December 2008, slightly more free-of-tie pubs closed than tied pubs. That is true whether one uses the gross closure rate or the net closure rate, which CAMRA says is more important as it takes account of churning. Furthermore, big pubcos are selling off hundreds of pubs a year, many of which are being bought by family brewers or converting to being free-of-tie. Since December 2008, three times as many free-of-tie pubs have opened than tied pubs and a further 1,300 pubs have converted from being tied to free-of-tie. Where the market is working, the Government do not need to intervene.
Mr Binley
I am most grateful to the Minister for giving way. I remind him that I asked the Secretary of State whether he would uphold the undertaking given by the previous Government that they would act on recommendations from the Select Committee if they were meaningful and in its report. Will the Minister confirm that the Secretary of State said that he would uphold that undertaking? Does he accept that that is the truth of the matter?
Mr Davey
My right hon. Friend the Secretary of State said that he would take action, and we have taken action. Let us be clear that what the Select Committee wanted was legislation to deal with the problem. Through negotiation and using contract law, we have got legally binding codes of practice that are in the spirit of what the Select Committee asked for. More than that, the Committee asked for an adjudicator, and we will have PICAS to adjudicate on the code by February. Not only are we tackling the issues that the Committee raised, we are doing so far more quickly than expected. I would have thought that the hon. Gentleman would welcome that.