Pub Companies

Debate between Damian Hinds and Greg Mulholland

Tuesday 21st January 2014 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

The hon. Member for Chesterfield (Toby Perkins) outlined effectively and persuasively the importance of pubs as valuable assets to this country. They are at the heart of our communities and a big part of being British. In East Hampshire we have great community hubs, from the Fox and Pelican at Grayshott to the White Hart at Holybourne. There are also a number of the beautiful country pubs that form part of our national image and attract people to visit this country, such as the Queens and the Selborne Arms, the Greyfriar at Jane Austen’s Chawton, the Harrow, the Trooper and the Pub With No Name. That great range of brilliant pubs is a mixture of managed houses, tenancies, leases and independent free houses.

Like many other areas, we have also suffered too many pub closures. Just in the past couple of years, in one town in my constituency, Alton, and its surroundings, we have lost the Gentleman Jim, the Railway Hotel, the Barley Mow, the Wey Bridge, the two pubs in Ropley—the Chequers and the Anchor—and, just recently, the only pub in the growing community of Four Marks, the Windmill. Like the pub that my hon. Friend the Member for Norwich North (Chloe Smith) mentioned, the Windmill is going to become a Co-operative retail store. Of course, a lot of other publicans are struggling to break even and make a decent living.

I welcome the Government’s support for the licensed trade, such as the scrapping of the beer duty escalator, the 1p of tax taken off a pint, the extension of small business rate relief and the community right to bid. It is worth remembering that the pub trade’s problems predate the beer duty escalator and exist in both tied houses and free houses. Top of the list is the declining propensity of men to visit a pub after work multiple times a week to drink reasonably large quantities of draught beer, which is a high gross margin product. The second, related, problem is the wide price gap between the on-trade and off-trade in alcohol sales, which has coincided with the arrival of affordable, decent quality new world wine. There are a whole range of other factors, many of which we would welcome in themselves but have had adverse consequences for the pub trade. I refer to things such as the smoking ban, radically different attitudes to drink-driving and changes in people’s living rooms, such as having big-screen TVs at home, not just at the pub. There is also intense price competition in food and leisure in general.

When I used to work for an integrated brewer—I worked for Greene King for a couple of years—the cost pressures that licensees used to talk about included the massive price of Sky, which my hon. Friend the Member for South West Bedfordshire (Andrew Selous) mentioned, the national minimum wage and the cost of products through the tie.

We could argue that pub owners take too much money from publicans, but to mention only the tie is to chase the wrong target. People have two key objections to it: the impact on product range, and the way the product is priced. On the first point, we must remember that the tie is not the same for every pub. For some, particularly food-led pubs, it excludes wine and spirits, for example, which can be bought from outside. For others, even a tied house, there may be provision for a guest beer or for what is sometimes called a “local hero”, which means that a pub owner in an area where there is one dominant beer brand might be allowed to have that brand, even though it is a direct competitor.

A lot of the focus has been on whether licensees have the right to buy in a guest ale of their choosing. The hon. Member for Chesterfield mentioned the 160,000 members of CAMRA, and a lot of other people are also real ale lovers. I am proud to count myself among their ranks. I am proud of real ale—it is a uniquely British product that is not found anywhere else in the world, and I am proud to bits that it is growing. It is a craft product, and we should support it. I would love the Triple fff brewery in Four Marks, in my constituency, to have more outlets for its beer, which people would enjoy drinking. A guest ale option is positive for the increase of the brewery industry. However, we must be clear that it is a red herring for the survival of most pubs. Real ale is a small category in most pubs, and four out of 10 do not stock it at all. The drinks that matter in most pubs are standard lager, bag-in-box Coke and the others that generate the bulk of revenue.

The second set of objections to the tie are about pricing, which goes to the heart of pubs’ profitability. Sometimes when we discuss the matter—it happened in the last debate in the House—we speak as though, if we could remove the tie and the inflated beer prices from the equation, everything else would stay the same. Of course, that is not what would happen at all. The target margin for pubs is set by starting with a target return. There is an asset on the books with a certain value, and it is believed that the shareholders and the market require a certain return to be demonstrated on it. That return is split between rent and margin, the latter sometimes being known in the trade as “wet rent” for that reason. If the return was all on rents, the rent would clearly be higher and pubs would be more operationally geared, with a higher fixed cost. Arguably, more businesses might fail.

[Greg Mulholland]

With respect, although my hon. Friend speaks from a position of knowledge, I think he is missing the point. The whole point of the benchmark level of the market rent-only option—the Select Committee’s solution—is to stop the double overcharging that currently happens. The large pub companies have skewed the traditional tie so that there is no longer a lower rent if there are higher beer prices. The benchmarking survey by the Association of Licensed Multiple Retailers shows that tied rents are higher, on average, than free-of-tie rents, which is an abuse of the tied model.

[Damian Hinds]

It is difficult to go into the maths in great detail in a forum such as this, but with respect, I do not see how we can make that comparison, because we are talking about different pubs in different places.