Small Business, Enterprise and Employment Bill

Greg Knight Excerpts

Tuesday 24th March 2015 Commons Chamber

[Jo Swinson]

The adjudicator could look into whether practices were all fair and whether the code had been properly complied with. Depending on the circumstances, competition law may also be relevant. The companies would have to assure themselves that any restrictions that they were placing were compliant with competition law. Through the new code and the adjudicator we will make sure that there is somebody who can look into the circumstances and arbitrate on whether what is being offered is fair and compliant with the statutory code.

For completeness, I shall touch on three other important areas of debate both here and in the other place where the Government have made important commitments to use existing powers in the Bill. On Report in this House, I committed to consider calls to exempt genuinely short-term agreements from the pubs code. My noble Friend Baroness Neville-Rolfe confirmed that the Government would use the power in clause 68 to exclude from the code tied pubs that are operated on short-term tenancy at will and temporary agreements that do not extend beyond a certain limited period. We intend to consult on the length of the period for exemption.

Hon. Members will remember that pub franchise agreements are in scope of our measures. They are, after all, tied pub agreements and share many of the characteristics of traditional tied pubs. Nevertheless, consistent calls have been made in both Houses to exempt certain franchise agreements from the code, or at least from MRO, if they do not charge rent and the price of products does not affect the tenant’s share of income. After much consideration, my noble Friend the Minister announced in the other place that the Government will use the power in clause 68 to exempt genuine franchises from the MRO provisions. The remaining code protections—for example, in respect of transparency—will still apply.

Given the differences between traditional tied pubs and genuine franchise agreements, we consider this a reasonable exemption. We will consult on the precise definition of “genuine franchise”, but we expect it to include criteria such as where a turnover fee rather than a rent is paid by the tenant and the share of the profit is unaffected by the price paid for tied products. This is important as these criteria can mean that the tenant’s interests are arguably more aligned with those of the pub company because both rely on a fixed proportion of turnover. The tenant in such circumstances does not face the combination of the wet and dry rent, as tenants do in traditional agreements.

There are other agreements in the industry which may be marketed as a pub franchise that display elements common to franchises in other sectors, such as common branding. But if they charge tenants a tied rent in the traditional way, they are not inherently fairer than a tied pub agreement. The consultation will allow us to set out the criteria for a genuine franchise.

In addition, I should clarify that where a franchise pub falls within the definition of a tied pub in clause 65, it will count towards the number of tied pubs that a company owns for the purposes of the 500 tied pub threshold. This will ensure that we do not create a loophole in the legislation. Furthermore, the Government would be able to amend the regulations should there be attempts to use this exemption as a means of avoiding the legislation.

Next, I come to the matter of investment. Hon. Members will recall that Government committed to avoiding unintended consequences in introducing this legislation. In the other place, and in discussions with stakeholders, concerns were raised as to whether investment in tied pubs could be discouraged because of uncertainty as to whether a tied tenant might trigger MRO. Views vary as to the extent of this risk to investment, but the Government consider that we should act to minimise any risk. We want to ensure that investment in pubs can take place and that pubs thrive. I am sure that sentiment is shared across the House.

The Bill as drafted does not prevent pub companies from issuing a tenant with a new lease alongside an offer of investment, and no amendment to the Bill is necessary to enable companies to do so. This would, in effect, provide a waiver from the rent review and renewal MRO triggers for five years. However, the Government recognise that significant investments may warrant a longer period of return on investment. My noble Friend the Minister therefore announced in the other place that the Government will use existing powers in clause 41 to set out in the code different rent assessment periods for different amounts of substantial capital investment offered. This will have the effect of deferring the rent assessment trigger for MRO for a longer period. It is important to note, though, that the other MRO triggers—that of a significant price increase and an economic event that impacts on a tenant’s trade—will remain throughout the deferral period.

Alongside setting out the deferral periods for different levels of investment, the secondary legislation will set out important safeguards for tenants—for example, to ensure that they accept an investment offer only after taking proper advice and that they cannot be pressurised. This is an area where both sides of the debate recognise that the need to enable investment and the need to protect tenants must go hand in hand. It is important that we can consult fully on the details so that we get it right.

These commitments regarding exemptions for certain tenancy at will, temporary and franchise agreements, and for a deferral of MRO in return for substantial investment, are not on the face of the Bill. They will be set out in secondary legislation after full public consultation.

I shall touch briefly on a number of technical amendments in this group before turning to the second issue in the group. Amendments 34 to 37 are technical clarifications to the “no worse off” and “fair and lawful dealing” principles. The key change is to make it clear that tied pub tenants should not be worse off than they would be if they were not subject to any product or service tie. Amendments 35, 36, 38, 42 and 48 to 54 are consequential on the changes made to clause 66 in this House to exclude family brewers from the provisions. This change means the legislation will apply only to a pub-owning business with 500 or more tied pubs. There are further minor technical amendments, on which I refer honourable Members to the explanatory notes for a fuller explanation.

Finally, amendments 136, 137, 138, 140 and 141 relate to adjudicator staffing and the point that I made earlier in response to the hon. Gentleman. They amend schedule 1 to enable the adjudicator to second staff from any source, in addition to the existing power in the Bill for the adjudicator to second from the public sector. The aim is to provide the necessary flexibility for the adjudicator to find suitable staff from a wider pool.

I am sure the House will agree that throughout our debates in both Houses all the pubs measures have been thoroughly scrutinised. Incorporating the market rent only option into the Bill in the limited time available to us and ensuring that it will work in practice has not been easy, but I believe that we have produced legislation that promises to be effective as well as targeted and proportionate. Crucially, these measures mark an historic moment for tied tenants of pub-owning companies. They will have the protections of a statutory code with a powerful and independent adjudicator to enforce that code. That the measures have the support of my hon. Friend the Member for Leeds North West, CAMRA, Fair Pint and others is testament to that, so I hope the House will agree to the amendments.

[Sir Greg Knight (East Yorkshire) (Con)]

I understand that the provisions on staff secondment require the Secretary of State’s approval. Can my hon. Friend give the House an example of the circumstances in which a Secretary of State might refuse such approval?

[Jo Swinson]

Clearly, the intention is to make sure that the adjudicator is able to recruit staff with the requisite expertise and experience, not only from the public sector pool. That is an important change and we have learned from the legislation that we have in place for the Groceries Code Adjudicator. Understandable concerns were raised in Committee about whether staff would come with vested interests. It is important that protections are in place to ensure that everybody can have confidence in the staff who are seconded, and to ensure that up-to-date experience of industry does not entail a conflict of interest.

On amendment 86 and the important matter of pay transparency, I am delighted to reiterate the Government’s support for this amendment to the employment part of the Bill that was introduced in the other place. We have already legislated in this Parliament to ensure that companies which directly discriminate against women in pay matters can be required by a tribunal to complete a gender pay audit, as well as to pay compensation. The new provision requires the next Government to make regulations under section 78 of the Equality Act 2010 within 12 months of the Bill receiving Royal Assent. Section 78 requires mandatory reporting of gender pay information by larger companies.

It is 45 years since the Equal Pay Act, and although the gender pay gap is at its lowest ever level and has been virtually eliminated for full-time workers under the age of 40, it is simply not acceptable that in 2015 we still have a gender pay gap at all. We are determined to eliminate it entirely.