Pubs Code and the Adjudicator

Greg Mulholland Excerpts

Thursday 14th April 2016 Westminster Hall

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

I beg to move,

That this House has considered the Pubs Code and the Adjudicator.

It is a pleasure to serve under your chairmanship, Sir David. I thank the Backbench Business Committee for granting this important debate. I also thank colleagues. This is very much a cross-party motion, with its lead Members being the hon. Members for Lincoln (Karl MᶜCartney), for West Bromwich West (Mr Bailey) and for Isle of Wight (Mr Turner), but it is also supported by a large number of Members from across the House. The hon. Member for Worthing West (Sir Peter Bottomley), who is one such Member, cannot be with us today, but he asked for his support to be recorded,

“not just because I am a life member of CAMRA but because better practice reduces exploitation, promotes better hospitality and allows fairer rewards to those who work hard building good pubs around the country.”

In my parliamentary experience, this issue is quite unique in how it has united Members from across the House irrespective of party or political perspective. It has united Liberals, the left, the right, Conservatives and Labour Members and, whether we look at the social, economic or personal argument, there is broad agreement over the need for a statutory code that works and for an adjudicator who enjoys the confidence of publicans in addressing the historical imbalance of power between pubcos and their tenants.

[Nick Thomas-Symonds (Torfaen) (Lab)]

It is a pleasure to serve under your chairmanship, Sir David, and it is great that we are having this debate. On the Pubs Code Adjudicator, does the hon. Gentleman agree that it is vital that all sides, and particularly pubco tenants, have confidence in the adjudicator? Such is the nature of adjudication, and many tenants in my constituency have expressed concern about getting actual fairness and not more unfairness.

[Greg Mulholland]

The hon. Gentleman expresses the views of his tenant constituents. Tenants’ organisations and tenants throughout the country have expressed that same view. I will come on clearly to lay out why the appointment of the pubs adjudicator is simply untenable.

[Mr Stewart Jackson (Peterborough) (Con)]

The hon. Gentleman is right to pay tribute to the cross-party nature of the campaign. I am someone who voted with him in 2014 and am very much on his side, but, in fairness, to balance things out, does he concede that our coalition Government between 2010 and 2015 realised the necessity of a new code and regulatory framework to address the issues that he has raised over many years?

[Greg Mulholland]

The hon. Gentleman is absolutely right. I want to thank him personally because he has been a real champion for pubs in Peterborough and his support of the Save the Pub group and the Fair Deal for Your Local campaign has been warmly welcomed. Today is precisely about trying to finish a job that dates back to Select Committee inquiries, the first of which was in 2004—that is how long the issue has been on the political agenda. We are finally getting to the stage of a statutory code of practice, but that, still, is flawed and contains loopholes.

In the spirit of the hon. Gentleman’s intervention, that is an issue about which tenants have asked: is this conspiracy or cock-up? I am clear that what has happened is a cock-up. There was an excellent leading article in the Publican’s Morning Advertiser on 7 April in which Mike Berry, who is a neutral person on such issues, said:

“The Government has not covered itself in glory throughout this entire process. From accusation by campaigners of acting in bad faith by removing or amending parts of the legislation, to U-turns over the original omission of parallel rent assessments, the latter part of this saga has been particularly fraught. And that’s before we even consider the furore from some over the appointment of Paul Newby as the pubs code adjudicator”.

I say to the Minister that this is not personal, but the change of civil servants at the Department for Business, Innovation and Skills after the election has clearly led to mistakes being made and a lack of understanding of some of the complexities and technicalities of this legislation, to the extent that in a meeting with a group of tenants, one of the people who has been involved in drafting the pubs code and was on the panel that interviewed the adjudicator said, “I don’t really know much about this.” That being the case, how can tenants possibly have confidence in the Department? I have also been informed that one of the civil servants who had previously worked on the code and who did have experience and the confidence of tenants was brought back in to work on it.

Mistakes have been made, and those mistakes must now be rectified—that is all that we are asking for today —so that, when the pubs code comes in on 26 May and the Pubs Code Adjudicator starts work at the beginning of June, people will have confidence that that has been done properly and that the will of both Houses has been abided by. The legislation was subject to votes in both Houses, and Ministers in both the last Government and this Government, including the Minister here today, made clear promises to abide by those votes and introduce the pubs code and the market rent-only option.

I will address the concerns about the pubs code, the first draft of which was published on 29 October 2015. I declare an interest as chair of the British Pub Confederation, which represents 13 organisations, 11 of which are licensee organisations. The confederation and the Fair Deal for Your Local campaign, which many hon. Members supported, were appalled at the first draft, which included the outrageous clause 8.12. I have given credit to the Minister and her team, and to the Secretary of State, for being prepared to listen and to drop that provision, and we ask them to do so again to address the issues highlighted by an amendment that I tabled to the Enterprise Bill and by one tabled in the name of the shadow Minister, the hon. Member for Sefton Central (Bill Esterson). Unfortunately, we did not get the chance to discuss or vote on either of those amendments, so we urge the Minister to make those changes herself.

The first loophole in the draft code is that, as it is currently written, any tenant seeking to take the all-important market rent-only option that we voted through the House on 18 November 2014 will be forced to give up their lease for a shorter, five-year one. That is simply not acceptable. Clearly, all that the market rent-only option means and ever has meant is that tenants have the simple right to seek an independent assessment of their commercial rent on a free-of-tie basis and then pay that sum—and only that sum—to the pub-owning company for the entire remainder of their lease or tenancy. That loophole is simply not acceptable and must be removed if BIS is to stick to its commitment to introduce the market rent-only option that was voted for. As the person who tabled that clause, I can say that the code simply does not do that as long as that loophole is there.

The second loophole is an extraordinary one that allows a waiver in exchange for investment for people who have not even taken on a tenancy or lease. There has been much discussion about investment, but I think many hon. Members fail to understand the reality of pubco investment. A Federation of Small Businesses survey of its licensee members found that 68% had not had any investment from their pub companies in the past 12 months. Indeed, the costs of investment presented by pubcos are often inflated. Many tenants report that they have had cheaper quotes from other suppliers but are forced to use the contractors that the pub company insists on. There is a problem with allowing a waiver for people who have not yet taken on a pub. We accept that there will be a waiver to allow for investment—it must be limited, substantial and genuine investment—but we strongly say that it should not come in until someone has been in a lease or tenancy for two years.

The reality is that when pubs are vacant, frequently because of a failure of a previous tenant due to the tied pubco model, there is a need for repairs and basic investment simply to make the pub fit to let to someone else. If someone is forced or encouraged to sign a waiver before they have even taken on that pub, there is a real danger that that will be used and abused, with people able to say, “We have invested in this pub that you are about to take, and therefore you have to give up your right to an independent rent assessment for another five years.” That would be the case, and they would therefore not get that assessment for 10 years. There is also a great danger of encouraging pub companies to seek to force out sitting tenants who have the right to a market rent-only option, in favour of someone new who will sign away their right to it.

[Mr Jackson]

The hon. Gentleman is making a strong, detailed and comprehensive argument. He will know that paragraph 127 of the impact assessment produced by the Department specifically references a non-gaming caveat. Rather than waste valuable time and energy and the efforts of civil servants and others, including hon. Members, down the track in producing secondary legislation to amend the code, is it not better that we identify the gaming loopholes now before the code comes in on 1 June?

--- Later in debate ---

[Greg Mulholland]

The hon. Gentleman is correct. That is why we are doing this. The British Pub Confederation and other organisations have clearly written about these two glaring loopholes. In the wording of the pubs code, BIS must ensure that any waiver is limited, reasonable and entered into willingly by both parties. The code must also restrict waiver-free investment to a tenant who has been in a substantive agreement, not a tenancy at will, for two years, and must clearly forbid any waivers for investment for new tenants.

I have brought the attention of the Minister and her Department to pubco gaming and some of the behaviour at the moment, and have not really had any response. Paragraph 127 of the impact assessment says:

“Some specific risks include…That pub owning companies find a loop hole in the statutory code that allows them to continue acting as they do currently. To mitigate this risk the rules will be written in terms that are difficult to game. The code, which is likely to be set out in secondary legislation, will be amendable in certain circumstances which will allow it to reflect new developments in the industry and close any loop holes that are found.”

We have already identified these two loopholes, which must now be closed if people are going to have confidence in the code, and if it is going to work in the intended way.

[Neil Carmichael (Stroud) (Con)]

I am certainly a supporter of this code, but I note that codes like this can have unintended consequences. One unintended consequence might be that pub owners would be put off from investing if they were discouraged by the changes that the hon. Gentleman recommends. Would it not be wiser to allow the code to bed in and then review it? The risk is that gaming and unintended consequences could occur, which we would need to monitor anyway.

[Greg Mulholland]

I thank the hon. Gentleman for his intervention, though I do not agree with him. With respect, I feel he has always been slightly confused on this issue. These are clear loopholes that could have very damaging consequences. I can tell the hon. Gentleman, the Minister and the House that pub companies are currently doing all they can to avoid the legislation and the code before 26 May. They are applying pressure on lessees to take up a rent review before 26 May, in advance of scheduled reviews, in order directly to circumvent the code and the market rent-only option specifically.

Some tenants are being coerced to relinquish long leases and take up five-year contracts that are not renewable, so that they are not subject to a market rent-only option. Some pubcos—I have seen one such case myself—are cynically issuing section 25 notices, ending existing tenancies or leases by 31 March to escape the impact of the market rent-only option. The Government must make it clear that the pubs code and the market rent-only option apply to all agreements that have renewal dates or rent reviews from 1 June 2016, because there is some confusion. I hope we will hear that from the Minister today.

Some tenants are also being bribed to sign an agreement without a market rent-only option. One tenant contacted the Save the Pub group to say that she had been offered a 20% drop in her dry rent if she signed a new five-year non-renewable tenancy, which therefore will not have the market rent-only option. It is funny, however, that the pub company did not mention that last bit. It simply presented the agreement to her and said, “Would you like to sign this very attractive new lease with lower rent?”

Is BIS aware of what is going on? It has not said so or responded. If it is aware, is it dealing with the problem, and how? We need a clear announcement that any agreements made from the date on which the pubs code comes in will be subject to the market rent-only option, and that the sort of behaviour that is going on is unacceptable. That is what we want to hear from the Minister today.

Before I move on to the Pubs Code Adjudicator, I will simply say that if the Minister and her Department make the two changes that have been requested, I will announce that we are happy and will praise the Minister, her team, the Department and the Government for getting it right and for listening. All we ask is for those two loopholes to be closed and for her to criticise the way in which pub companies are cynically trying to avoid the code before it even comes in.

[The Minister for Small Business, Industry and Enterprise (Anna Soubry)]

Will the hon. Gentleman make it clear whether there are three things he would like me to do, or two?

[Greg Mulholland]

By the end of my speech, the Minister will be clear about exactly the things I wish her to do. Two loopholes must be removed from the code, and she must deal with the current cynical behaviour. She must clearly criticise that today, in this Chamber, and say that it is unacceptable.

[Anna Soubry]

indicated dissent.

[Greg Mulholland]

The Minister scoffs as if she does not accept that that behaviour is happening. I suggest that tied tenants around the country drop her a line to tell her that it most certainly is.

[Anna Soubry]

As I am sure you would agree, Sir David, it is important that nobody ever thinks there is any form of coercion, and I will do what I feel is right. In this Chamber, as in the main Chamber, we speak freely, so I do not think it is good for Members to put down conditions that say, “Ministers must condemn,” and “Ministers must do this, otherwise we will criticise.” We will have a good, free debate and then we will all make our comments accordingly.

[Greg Mulholland]

What a quite extraordinary comment, in the mother of all Parliaments, that somehow we are not allowed to challenge a Minister to condemn bad behaviour—what an extraordinary comment, even from the right hon. Lady. Quite remarkable.

The next thing that the Minister and her team must do is on the Pubs Code Adjudicator. Representatives from all sides of the pub sector noted as long ago as 2013 that to ensure impartiality, it would be sensible for the post to be taken up from outside the pub sector, if the role were to gain industry-wide confidence, credibility and acceptance. That is clearly the basic, essential nature of this role, yet BIS has clearly and demonstrably failed to ensure that.

Let me lay before the House the very serious issues as to the clear flaws and untenability of this appointment. The appointee, Mr Paul Newby, is a chartered surveyor and a director and shareholder of Fleurets. He clearly has a conflict of interest, and it is clearly a disqualifying conflict of interest. Fleurets is the largest surveying practice operating in the very sector that the pubs code is being introduced to regulate. Of course, the reason for that is to protect tenants from abuse by their pubco freeholders.

Mr Newby’s CV, which is publicly available—although, interestingly, it has been taken off the Pubs Independent Rent Review Scheme website—openly advertises for whom he acts. Let me list the six companies that Mr Newby is required to regulate: Enterprise Inns, Punch Taverns, Marston’s, Greene King, Heineken—which is Star Pubs & Bars—and Admiral Taverns. Who do he and his firm currently, and boastfully, say they act for? Enterprise Inns, Punch Taverns, Marston’s, Greene King, Heineken and Admiral Taverns. He clearly is conflicted and biased. Of course the Minister will say, “But he has also operated and acted for tenants,” but actually, given the nature of this appointment, that equally would mean that he is conflicted.

[Mr Jackson]

Mr Newby may be an exceptionally gifted and talented man to have appointed, but does the hon. Gentleman agree that just the appearance of a conflict of interest is difficult? In this respect, it would circumscribe due process on those occasions when he was required to act in his official capacity. In that sense, it is not fair on him or the taxpayer, or on all the other stakeholders in this situation.

[Greg Mulholland]

The hon. Gentleman is absolutely right. I actually believe that Mr Newby has been let down in this process, because clearly his application was never tenable and should never have been proceeded with.

The Minister will say, “Oh yes, Mr Newby has represented tenants,” but does she realise that some tenants are actually pub companies themselves? It says that in Mr Newby’s own CV. I was in such a pub last night—the excellent, award-winning Eagle Ale House in Battersea. The award-winning licensees there lease it from Enterprise Inns, but Enterprise Inns are themselves tenants of a property company, so some of the “tenants” that Mr Newby has represented may well be pub companies.

Let me deliver this message as clearly as I can. Let me tell the House about the Fleurets website, and I would urge hon. Members to look at it. Fleurets widely advertises, including on its website and in trade publications, that it acts for all six of the large pubcos to be regulated, and that these are all clients that Fleurets and Mr Newby, as a director and shareholder, derive a substantial part of their income from.

The British Pub Confederation asked in a letter to the Secretary of State what proportion of the number of cases that Mr Newby has acted in have been on behalf of pubcos, and what proportion have been for tied licensees. The Government refused to answer that question in the letter of response, so I ask it again, and we must have a reply. And what is the proportion of income that Fleurets and Mr Newby make from pub companies and from tenants? We know the answer. Companies House records show that Mr Newby has been a director of Fleurets Ltd since 1995 and of Fleurets Holdings since 2009. He owns 100 ordinary A shares in Fleurets Holdings, amounting to 11.79% of the ordinary share capital in the company. Fleurets Holdings Ltd wholly owns Fleurets Ltd.

The Fleurets website makes it plain that the thrust of the company is to market its services to corporate entities, not to individual tenants. The logos of Fleurets’ corporate clients appear on various pages of the site but there is no mention of tenant clients. There are quotes from satisfied clients. The only ones from the tied pub sector are from Star Pubs & Bars—owned by Heineken—Fuller Smith & Turner, Marston’s, J.W. Lees and Daniel Thwaites. None of the CVs of the nine directors on the website shows any specialisation in acting for individual tied tenants or mentions doing so. Mr Newby’s own CV does not mention his acting for any individual tenants. His CV that was on the PIRRS website—strangely, now taken down, as I said—confirmed that for the last five years, he has worked most closely with Enterprise Inns, Marston’s and Punch Taverns. In 2008, when Martin Willis, the current chairman of Fleurets, was questioned by the Business and Enterprise Committee over a conflict of interest, he said:

“I think we represent just about every pubco”.

That is clearly very true today.

Interestingly, I noticed that among the logos of companies that Fleurets has represented was that of Criterion Asset Management, the director of which is Theo Osborne, brother of the Chancellor of the Exchequer. Did the Minister and her team know that? Mr Newby’s company website provides an interesting indication of the preferences of Mr Newby’s firm in relation to the pros and cons of the tied model, which he is now expected to regulate. In 26 pages of news and information articles on the Fleurets website, as of yesterday, there was no criticism at all of the tied model. In contrast, the website is effusive in its promotion of that very business model, the one practised by so many of Mr Newby’s clients—the very companies that he is supposed to regulate.

Let me read some of the headlines. Under “Leasehold pubs are an Attractive Option”, the article states:

“There are some excellent businesses on offer from most Pub Companies”.

Under “The Leasehold Pub—The route to success”, the article states:

“With very little capital needed, tied and free of tie leasehold pubs offer the opportunity for passionate people to build spectacular businesses”.

Under “How Do I Go About Getting Into The Pub Trade?” the article states:

“Whilst getting into the licensed trade can seem quite daunting it must be remembered that breweries and pub companies are continually on the look-out for enthusiastic new partners to run their pubs...For the first time operator this route can often be the best as it comes with various support and training packages and it is invariably the lowest cost of entry”—

that is something that many tenants who have struggled with the tied pubco model would strongly dispute.

Another interesting article, and something that has been missed entirely by BIS in this process, is headlined, “Pubs sold for alternative uses in 2014 by Fleurets”. The truth is that Fleurets is not only a surveyor, but the estate agent of choice in the big pubco sell-off. The indebted companies, who got themselves into billions of pounds of debt through their own recklessness and their acquisition spree, are now asset-stripping their estates, often selling for non-pub use, sometimes against the wishes of licensees and often against the wishes of local communities. Fleurets is doing that for them and profiteering from it—and so, currently, is Mr Newby. Did BIS realise that? It does not appear so, because there has been no mention whatsoever of Fleurets’—or Mr Newby’s—role and financial links in that respect.

I will give a powerful example of why tenants cannot and will not accept Mr Newby as the adjudicator. This morning I had an email from a former director of the British Institute of Innkeeping—an organisation that the Minister was keen to quote from, citing it as a licensee organisation. I need to correct the record because it is not; it is a charity rather than a representative licensee body. I think she was indicating somehow that it supports this appointment. Well, that former director is now an adviser to publicans and other small businesses, but during his years with the BII he worked closely with larger surveyors, specifically naming Fleurets. He has described the relationship between these chartered surveyors’ firms—again, specifically naming Fleurets—and their pub company customers. He says—I quote from that email—that it is “a gravy train”. He explains that there are chartered surveyors in the sector who use valuation methods that advantage their pub company customers, and explains how surveyors and pub companies work together, using what he says are—I quote again—“questionable” practices, to ensure the best outcome for the pub company and not for the pub tenant, because of course most of the surveying work and most of the income comes from pub companies, not tenants—which is inevitable when tied tenants are running a pub and can barely break even.

We need to put to bed the idea that somehow this situation is acceptable because Mr Newby has represented a few tied tenants in his time and has potentially even won some cases for them. Very interestingly, there was an admission at a roadshow by Fleurets that it delegates tenant cases to less experienced and less expensive surveyors—something that Mr Newby very clearly is not.

When we were going through the process, we were told that the Pubs Code Adjudicator would be like the Groceries Code Adjudicator and that the Department for Business, Innovation and Skills would follow similar principles. It has clearly and demonstrably failed to do so. Paragraph 1 of the Groceries Code Adjudicator’s conflicts of interest policy and register of interests refers to ensuring

“that no conflict arises, or could reasonably be perceived to arise, between the official position of the Adjudicator and private interests, financial or otherwise”.

The hon. Member for Peterborough (Mr Jackson) has said clearly that that is not the case with the appointment of Mr Newby, who has a prejudicial financial interest. Paragraph 6 states:

“A conflict may arise whenever an outside interest might influence, or be perceived to be capable of influencing, a person’s judgment.”

The extraordinary thing is that the reply to the British Pub Confederation’s letter states simply, “We don’t think there is a conflict of interest.” When asked whether Mr Newby declared his clear conflicts of interest, the reply was: “We asked him about his conflicts of interests at the interview and were told that there weren’t any and we accepted that.” That is extraordinary and should never have happened.

Let me share with the Chamber paragraph 18 of the Groceries Code Adjudicator’s policy and register of interests:

“Financial interests will generally arise from the ownership of assets (or other investments or sources of income) such as shares (whether bearing a right to vote or not)”.

Just yesterday, the British Pub Confederation’s secretary, Simon Clarke, received a letter from the Secretary of State saying:

“I understand that Mr Newby will continue to hold a number of non-voting shares in Fleurets, as security whilst monies owed to him are repaid”.

The situation is serious. Someone will be allowed to continue to have shares in a company that profits from the work of the very companies that he will be regulating. You could scarcely make it up.

This week, the Prime Minister has been keen to tell us that he divested himself of all shares before becoming Prime Minister, but that has not got him out of the hole he has found himself in during the last few weeks. Yet we are seriously discussing a statutory adjudicator with a quasi-judicial role and the Department seems to think it is fine for him to hold shares in such a company. That is quite extraordinary.

Just this week, the Premier League, which has much higher standards than the Department for Business, Innovation and Skills, removed Kevin Friend as a referee for Tottenham Hotspur’s game against Stoke on Monday because he lives near Leicester and supports Leicester. That was a good decision by the Premier League to avoid any feeling of bias. Yet the clear perception of bias in Mr Newby’s appointment is being ignored. With respect, simply to say, “We don’t think tenants are concerned,” when tenants’ associations have written to make clear their concern, is extraordinary.

Fiona Woolf was unable to preside over the child abuse inquiry simply because she had had dinner with someone who at that stage might have been of interest to the inquiry. Yet in Mr Newby’s case, the Department for Business, Innovation and Skills has simply brushed under the carpet and dismissed his clear professional and financial links to the very companies he is supposed to regulate. How can the Minister possibly say that tenants can and will have confidence in Mr Newby, given that he will continue to receive share dividends from a company that has pubcos as its majority customer base?

Part of what the Minister will say today and part of what she has already said relates to her former career and profession of barrister, a profession I strongly admire. My sister and brother-in-law are barristers and I have huge respect for the work that barristers do. The Minister therefore knows that barristers are obliged to operate under the cab rank rule and to represent a client who comes to them with a legal problem in their area of expertise. As advisers, they are expected and mandated forcefully to advocate their client’s position. The role of adjudicators and judges is different.

The Minister has stated that a surveyor is like a barrister—another form of professional—and simply takes cases. That completely misses the point. Surveyors do not operate under the cab rank rule. Mr Newby and his company, Fleurets, actively market themselves to pubcos, including two of those he is supposed to regulate in a matter of weeks, boasting on his company’s website of his expertise in representing them. If the Minister is under any impression that there is some equivalence between the way barristers operate under the cab rank rule and how a director and shareholder of a commercially active chartered surveying company would act, she is missing the reality of surveying, particularly in the pub sector.

The point is that Mr Newby will not be like a barrister. He will be like a judge. He will no longer advocate for his clients, but will adjudicate like an ombudsman or a judge, in this case like a jury and executioner. Why are the standards of public confidence that our excellent judiciary regard as essential to their legitimacy not applicable to Mr Newby in his new rule as statutory adjudicator, which is a quasi-judicial role? He will be judging contentious legal issues that would otherwise see the parties concerned in front of the judiciary.

At the heart of the problem—the British Pub Confederation has taken legal advice on this—is that there is a lack of protection in contract law for tenant publicans who may enter into tied lease arrangements naively or when the realities of their new circumstances have been misrepresented by pubco representatives. That is precisely why we are legislating. It is impossible for Mr Newby with his current position and links to be able to fulfil that quasi-judicial role.

I have mentioned the 11 licensee groups that form part of the British Pub Confederation. They all oppose this appointment. The Minister has suggested that some licensee organisations support the appointment, but I am not aware of any and certainly the British Institute of Innkeeping, a trade charity, does not. The Campaign for Real Ale, which she mentioned, has not welcomed the appointment and has said it will scrutinise Mr Newby’s activity. It is a consumer group and does not, as she wrongly said in the main Chamber, represent licensees. It is a consumer, campaigning group.

The Association of Licensed Multiple Retailers—which could be an organisation the Minister is talking about—represents multiple tenants, some of whom are individuals and some of which are companies, including Greene King, one of the companies the adjudicator will regulate. The Association of Licensed Victuallers Associations is run by a former Enterprise Inns employee and its 2015 dinner and AGM was sponsored by Enterprise Inns. I am afraid the Minister is kidding herself in saying that tenants’ groups and tenants may support the appointment.

Let me say clearly that British Pub Confederation licensee groups and their licensee members have made it clear that they will not accept Mr Newby adjudicating on their cases. They have a clear right to do that, which means he will be unable to act in a large proportion of cases, which will need to be dealt with by someone else, presumably a deputy adjudicator. What a farce. What a mess.

I am not the only one saying that. According to the guidance on conflicts of interest and the arbitrator’s code of conduct of the Royal Institution of Chartered Surveyors, in the majority of cases brought before Mr Newby, either party will be able to stall the process by citing his conflict of interest as a reason not to accept him as adjudicator. The adjudicator cannot be a surveyor, particularly not one from the pub sector.

On that, I can do no more than read to the House what the Royal Institution of Chartered Surveyors told the Government in its response to the 2013 consultation on the adjudicator:

“Whether or not the Adjudicator is a chartered surveyor, he/she will require assistance from other specialist Chartered Surveyors…It is likely that many will have a conflict of interest having advised one of the parties on a range of matters”.

Was the Minister aware of that advice from 2013? Also, a pub sector surveyor might well wish, intend or need to return to their career surveying and acting for the pub companies and selling off pubs for them after their term as adjudicator, so there would always be the suspicion that they were worried about annoying the people from whom they would then seek to again be taking the majority of their income.

BIS was warned in 2013 by tenants groups. Simon Clarke of the Fair Pint Campaign and the secretary of the Independent Pub Confederation wrote:

“It would be catastrophic if the Adjudicator were a Chartered Surveyor”

because

“specialist Chartered Surveyors active in the market may have conflicts of interest and should not be put in positions where perception of independence or impartiality is a requirement of the parties”.

Mr Clarke is himself a chartered surveyor, a RICS member, so he knows what he is talking about. He knows that he could not be the adjudicator—the pubcos would certainly be screaming had he been appointed—but Mr Newby cannot either.

I hope that, having heard what I have shared with the House today, the Minister will reflect and realise that this appointment is untenable. However, let me make it clear: if Mr Newby is not removed from post, an initial early legal opinion taken by the British Pub Confederation is that there are indeed strong grounds for the decision—one that the Department has clearly made on a flawed basis, not taking into account the reality of the situation—to be judicially reviewed. I hope that the Minister will listen and accept that this was a mistake. We do not believe it was anything more than a mistake, but a mistake it certainly was—one that did not follow the previous knowledge that the very same Department had.

To conclude, I urge the Minister to listen at this late stage to people who have been involved in this issue for five, 10, 15 or 20 years—to experts in the sector. The pubs adjudicator cannot be someone from the sector, for the very reasons that I have laid out. It has to be someone who is impartial and has the confidence of all sides, or it simply will not work. The pubs code must be changed. The two loopholes must be removed. I urge the Minister not to make the mistakes that the Conservative Government made with the 1989 beer orders. That was very courageous and correct legislation to give consumers better choice in pubs, but there was lobbying by the large companies, which saw the opportunity to sell off pubs to their friends, giving golden handshakes and setting up the very pubcos that we are now talking about. We must not make the same mistake again. We must close the loopholes and we must see a proper adjudicator, so that we can finally have confidence that this long-running saga will come to an end and so that tenants can have confidence in both the code and the adjudicator.

--- Later in debate ---

[Christian Matheson (City of Chester) (Lab)]

It is a pleasure to see you in the Chair, Mr McCabe. It is also a pleasure to follow my hon. Friend the Member for York Central (Rachael Maskell). I confess that I once went with a group of friends to York to sample the delights of the pub trade there, on the basis that we had been informed it had the highest number of pubs per square mile in the country. I can tell my hon. Friend that I was not disappointed. At least, I think I remember that I was not disappointed; my memory was slightly affected that day.

I join in the tributes to the hon. Member for Leeds North West (Greg Mulholland) not only for securing this debate but, as other hon. Members have suggested, for the constant and never-failing campaign that he has led and for the way that he has maintained this issue at the forefront of hon. Members’ minds. I largely support the position that he has advanced today. I could talk about the appointment of the Pubs Code Adjudicator, but the hon. Gentleman’s case was so compelling, so comprehensive and so forceful and forensic that there is little point in my repeating it. Suffice it to say that my concern is that the credibility of the pubs code and its implementation will be damaged if the appointment continues. Like other hon. Members, I do not know the gentleman concerned personally. To the best of my knowledge, I have never come across him previously, but it would damage the credibility of the operation of the pubs code itself if the appointment continues.

If I may caution the Minister, there is a danger that the lack of credibility and the damage to credibility might also contaminate to an extent the credibility of the Department and Ministers who made the appointment. For the sake of the Ministers’ credibility, they might want to consider that. Somebody might wish to take Mr Newby out for a pint in one of the nice pubs and say to him, “Paul, it is not going to work. Think about perhaps withdrawing your name from the process and handing in your resignation. It’s not you but the circumstances.” That might be one way forward.

The hon. Member for Leeds North West mentioned two glaring loopholes. I absolutely support him on this. From what the hon. Member for Peterborough (Mr Jackson) and others have said—they obviously know quite a lot about the process—I suspect there were simply errors of drafting, but I am particularly concerned about the idea of the waiver of the right to market rent-only options. My hon. Friend the Member for York Central alluded to this. When there is an imbalance in power in a relationship, the organisation with the greater power has the potential for abuse. To force waivers on to tenants in this way distorts what I believe was the original intention of the code and of Parliament. It reminds me of when the working time directive was introduced. Jobs were offered to job applicants on the basis that when they signed their contract, they also signed a waiver to the working time directive. So what was intended to protect people was easily evaded and got around by unscrupulous employers. It has happened and will happen again, so I back the hon. Member for Leeds North West absolutely.

If the hon. Gentleman, who I support, will permit me, I want to give a perspective from the pubcos’ point of view. Admiral Taverns, which he mentioned in his speech, is based in my constituency where it is a large employer. Although the issues and problems that the hon. Gentleman has had with pubcos might extend to all those he has mentioned, he will not necessarily have Admiral in his sights for all his criticisms. I make that point because I was pleased that that company in my constituency, which I am therefore proud to support, has recently been crowned best leased/tenanted pub company of the year. It won the accolade from an independent survey of tenants, so it has a little more credibility than others.

[Greg Mulholland]

I am enjoying the hon. Gentleman’s speech. I want to respond directly to him because I had a meeting recently with Kevin Georgel from Admiral Taverns. Kevin said that the difference that he perceives between Admiral and Punch and Enterprise is that Admiral does not have the catastrophic levels of debt that Punch and Enterprise do, on which basis Punch and Enterprise are continually overcharging and exploiting tenants on an industrial basis. That is what Kevin told me in a meeting, and I am happy to meet other people.

[Christian Matheson]

I am grateful for that intervention. Of course, the catastrophic debt built up by some of the larger pubcos as they built their empires based on debt is now being passed on to the tenants. The financial planning of the pubcos was catastrophically wrong. That completely wrong financial planning was not the fault of the tenants and landlords and it should not be passed on to them now in the way that my hon. Friend the Member for York Central described.

However, looking at it from Admiral’s point of view—from a pubco’s point of view—because I have sought advice from the other side, Admiral is concerned about the implementation of the pubs code, which it absolutely supports and wants to happen, but, in its words,

“the lack of any transitional arrangements is wholly unreasonable and will cause total chaos for pub companies, tenants and indeed the adjudicator”,

whoever they may eventually be, assuming that the Minister has listened to hon. Members today.

Admiral points out that at the moment there are no transitional arrangements relating to the implementation of the pubs code. It had hoped there would be a minimum of six months from the implementation date to the market rent-only agreement, simply because that would allow time for negotiations with tenants and landlords. Negotiations can be quite complex and can last several months before the new arrangements are signed off. If the market rent agreement is to be signed off and handled fairly, that will require training, and full information available to both sides. However, at the moment, as things stand with the pubs code, I do not believe it will come in until May, and pubcos are still not actually aware of what the final arrangements will be. Nor, therefore, I suspect, are the tenants and the landlords. There is the potential for a lack of transitional arrangements, and for upheaval without the time being built in for making the complicated arrangements; those involved are very keen for that to happen.

There is associated guidance from the adjudicator to consider, as well as the fact that tenants will have only a short window in which to get up to speed with the new legislation and apply for the market rent-only option. Such transition might also apply to other key aspects of the code, such as business development manager training obligations, code compliance officer appointments, and systems to deal with due diligence and the very substantial information requirements. I am pleased that the hon. Member for Leeds North West spoke to the chief executive, Mr Georgel, my constituent. He believes that it is in everyone’s interests to ensure that the much-awaited legislation is implemented effectively, rather than on the hoof with the resultant chaos that he predicts. I remind the House of what the hon. Member for Peterborough said about getting things right first of all rather than having to review the legislation later. The same applies to the implementation of the code. We need to get it right and give due attention to what is being asked of landlords and pubcos before it is implemented. My constituents’ plea would be to encourage the Minister to have proper transitional arrangements put in place to ensure the minimum of disruption.

The main point of my speech is to endorse the powerful and compelling case made by my hon. Friends and, indeed, the hon. Member for Leeds North West. There is still time for the Minister and her Department to consider how the credibility of the appointment in question might affect the operation of the pubs code and, indeed, their own departmental credibility. I hope that they will take the time to do that, because, as hon. Members from across the House have said, the importance of pubs to communities and society should not be underestimated. It is a hard job running a pub. The hours are long, often for little return, and the pressure is constant. The hon. Member for Peterborough described pubs as important parts of our communities’ social fabric, and we need to make it as easy as possible for them to carry out their role and make our communities cohesive. I support the case made by the hon. Member for Leeds North West and I hope that his campaign will flourish and hit its goals.

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[Bill Esterson]

It seems to me that if he is sharing his professional insights, he is giving observations and helping to draft the code. We can split hairs over this all afternoon, but I am sure others will draw their own conclusions about what his involvement has been in preparing for his office.

[Greg Mulholland]

As has just been demonstrated, the Minister has contradicted herself. She suggested that Mr Newby’s only involvement was in setting up the office, but then she read from a departmental letter or memo, which clearly stated that it was more than that. Does the hon. Gentleman agree with me and many tenants that it is because of precisely this kind of confusion that people simply do not have confidence in the Pubs Code Adjudicator and, frankly, in the Department?

[Bill Esterson]

The hon. Gentleman described it earlier as a cock-up. Unfortunately, as with so many other aspects of the way the pubs code was drawn up and the way the level playing field was supposedly being created, the Government have not handled it well. There is clearly a contradiction between setting up an office and what the paragraph that the Minister read out states. As I said, others will make their own judgments about that.

I was talking about the Fair Pint campaign’s submission, which, by the way, was made before Mr Newby’s appointment was announced. It said that surveyors will have acted for the big pub-owning companies and will not be seen to be impartial in arbitrating as the adjudicator between pub companies and tenants. What is more, it also points out that Royal Institution of Chartered Surveyors members who deal with pub valuations depend on pub companies for a large portion of their fee income. That is a clear conflict of interest. That warning was made before the adjudicator’s appointment was announced by the Minister and her boss the Business Secretary.

In RICS’s response to the consultation on the adjudicator in 2013, it said:

“We also have concerns in relation to how the Adjudicator process might work on a practical level…It is likely that many such specialists will have a conflict of interest having advised one of the parties on a range of matters or as an Independent Expert or Arbitrator.”

So RICS made the same point, well in advance of the appointment, that a surveyor is almost certainly going to be conflicted. Si Clarke from the Fair Pint campaign told the Minister when he met her that appointing a surveyor would be “catastrophic”. As he told me this morning, having an independent adjudicator can only mean not appointing a surveyor. He and others made that point extremely clearly to officials and Ministers throughout.

It is important to stress that the concerns about the adjudicator’s appointment are not a reflection on one individual. Nobody is suggesting that surveyors act in anything other than a professional way, with the utmost integrity. The concerns about the appointment of Paul Newby are not about Mr Newby. His integrity is not in question in any way. That has been confirmed throughout our discussions today and previously, and the hon. Member for Peterborough (Mr Jackson) made that point extremely well.

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[Bill Esterson]

Will the Minister give way?

[Greg Mulholland]

Will the Minister give way?

[Anna Soubry]

I will continue with these comments by people who have paid tribute to Mr Newby, and then I will give way.

The British Institute of Innkeeping’s licensee of the year, Mr Keith Marsden, has said that Mr Newby has “fantastic integrity” and will be “both feared and respected” by pub companies. Others have also welcomed his appointment, highlighting that he has worked on both sides of the industry. I support the view of Ed Beddington, editor of the Publican’s Morning Advertiser, who said that Mr Newby should be “judged on his actions”. Punch Taverns has written that as well as acting for it on a couple of occasions, Mr Newby has

“acted against Punch on one occasion, on behalf of a tenant acting against us…To our mind, this gives him good experience from all angles of what will be a challenging role.”

[Greg Mulholland]

It is rather extraordinary that the Minister is giving an endorsement from Punch Taverns—one of the companies that Paul Newby is supposed to regulate—as if that is a good thing. But on the RICS point, I have seen that same correspondence to a RICS surveyor and I must point out that the RICS statement was only on the evidence seen “to date”. That was then challenged, and the fact is that it had not had any submissions before the one it had from the RICS surveyor who has complained. So I am afraid that is far from a RICS endorsement, and its own clear guidance shows that Paul Newby’s appointment is inappropriate. If we need to write to RICS further, then we will.

[Anna Soubry]

I shall continue.

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[Anna Soubry]

Dumfries and Galloway. Excellent—I know exactly where he represents: Kirkcudbright. He made that point about when he was a solicitor. I do not know what work he did, but the point I was trying make was that certainly at the English Bar, and I think it is the same in Scotland with the advocacy system north of the border, a barrister may act for someone—I will be frank: I have acted for people who have been exceptionally unpleasant, usually because they had been accused of vile offences against children—and put forward their case, but that is not to endorse it in any way. Actually, the barrister might think they are some of the most despicable human beings.

Of course, that is not the position that Mr Newby will have as the Pubs Code Adjudicator. The clue is in the title: he will adjudicate, based on his experience and particularly because he has been able to see both sides of arguments. He brings great skills to the role. He will take up his appointment on 2 May to enforce the pubs code with independence and impartiality.

In answer to the proper comments made by a number of hon. Members, as it happens, on 10 May he will appear at 9.30 am in front of the Business, Innovation and Skills Committee. There is a good debate to be had as to whether public appointees should effectively have their appointments endorsed by Select Committees. I know that some are and some are not, but I do not think this is the time for that debate and I truly do not think that would have made any difference to Mr Newby’s appointment. He will also meet representatives from both sides of the industry in May and I hope that the hon. Member for Leeds North West will be pleased to know that Mr Newby is keen to meet him and representatives of the British Pub Confederation in his first weeks as the Pubs Code Adjudicator.

Today—very soon, I hope—I will place the Government’s response in the Library and lay the pubs code regulations. Time is of the essence, because we now know when the House will prorogue, so to get the pubs code up and running on 27 May we will lay the regulations today.

[Greg Mulholland]

rose—

[Anna Soubry]

I have some very good news for hon. Members, but if the hon. Gentleman wants to intervene, I will give way.

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[Greg Mulholland]

It is a pleasure to serve under your leadership, Mr McCabe. It has been an excellent debate and I say a huge thank you to all right hon. and hon. Members who have taken part and stayed here on a Thursday, which at this juncture is not always an easy thing to do, with other commitments.

We heard some fantastic contributions today. It was fascinating to hear the passion of the hon. Member for Peterborough (Mr Jackson) who, rightly as a proud Conservative, said that crony capitalism is wrong—it is an abuse of capitalism, and a failed market does not work for anyone. He was then followed by the hon. Member for Easington (Grahame M. Morris), someone from the other end of the spectrum, representing Unite and standing up for people and social justice. This issue encompasses all those positions.

There was a powerful contribution, of course, from the hon. Member for West Bromwich West (Mr Bailey), who did such a fantastic job. Let me thank him for all the work that he did, which was absolutely instrumental; he is regarded as a real pub hero by licensees and campaigners. It was great to have such strong contributions from representatives of two of the finest cities in the country—our walled cities of York and Chester—the hon. Member for City of Chester (Christian Matheson) and the hon. Member for York Central (Rachael Maskell).

Every single voice was in accord. The hon. Member for Dumfries and Galloway (Richard Arkless) provided some absolutely insightful legal perspectives on conflict of interest, which I really do not think can be argued with. Just so that he knows, I visited Fergus Ewing, a Minister in the Scottish Government, to discuss this issue, because the next stage of this campaign will be to get a pubs code and adjudicator in Scotland and that, of course, will be the job of the next Scottish Government. I hope that we can work with him and whoever is in government in Scotland after the election, and I look forward to doing so.

I thank both the Minister and her Parliamentary Private Secretary. It has been good to have that line of communication with the hon. Member for Rugby (Mark Pawsey), who is a cross-code colleague of both games of rugby. It is always a pleasure to work with him, and it has been very helpful. I thank the Minister for the announcements that she has made today. Whether they were going to happen today anyway, or whether she made those announcements specially in response to this debate, does not matter; I very much appreciate what she has said.

It is excellent news that the Minister has clearly accepted the points about the loopholes. I warmly thank her and the team for listening on that. The market rent-only option is the one we voted for, and she and the team have ensured that people will not have to make the sacrifice of accepting a shorter lease for it. On the investment, our priority clearly was that it would not be for new tenants, so, if that is the case, we are delighted that she and the team have listened on the code, and that will be the view of other organisations.

However, having thanked the Minister warmly and sincerely—I mean that, and she will similarly be warmly thanked for those changes by licensee groups and by the British Pub Confederation; we will write to her to thank officials for listening—I have to say that the issue of the pubs adjudicator remains. Although she has listened on the pubs code, she did not listen on the issue of the pubs adjudicator. I also say gently, because of the nature of her speech and the announcement, that she has contradicted herself twice in today’s debate. First, she contradicted herself about whether or not Mr Newby has been helping with the code or with dealing with BIS officials. Secondly, in responding to the urgent question, she said:

“Paul Newby is a good man”—[Official Report, 10 March 2016; Vol. 607, c. 430.]

I quote from Hansard—yet today she said she does not know if he is a good man. I gently say that these are the kinds of things that are leading to concern. We do need to get clarity. After this debate, we still need clarity as to precisely what he has been doing since his appointment in December. We only found out about it through an intervention, so what was happening during that period? Why were none of us told?

Finally, I turn to the absolutely key issue. With respect, we should consider the factual evidence in respect of the Groceries Code Adjudicator and the reality of Fleurets. Mr Newby is a director and shareholder who will retain his shares in a company that makes the majority of its money from both acting for pubcos and flogging off pubs for pubcos. It is quite absurd to think that somehow there is not a conflict of interest. It was extraordinary that the Minister’s written answer yesterday to the parliamentary question finished by stating:

“The Panel was satisfied there were no conflicts of interest, and put this advice to ministers.”

The fact is that there are conflicts of interest—that is a fact. The question is, are they disqualifying ones? It is not, are there conflicts of interest—they are there, even if she has decided they are not. So that parliamentary written answer yesterday is wrong. It is plainly, clearly, legalistically wrong. There are clear conflicts of interest and I believe that I have laid out today that they are prejudicial and disqualifying.

If the Minister is still not going to listen on that, I have to say to her that Justice for Licensees, the Fair Pint campaign, the Federation of Small Businesses, the Forum of Private Business, the Guild of Master Victuallers, GMB and Unite: two of the largest trade unions in the country, Licensees Supporting Licensees, the Pubs Advisory Service, the Punch Tenant Network, and all bar one genuine tenant-representing organisations—supported, incidentally, by the Scottish Licensed Trade Association, even though this will not apply to its tenants yet—are saying very simply that they will not accept Mr Newby. They will not have him act on any of their cases. Tenants will not accept him; they should not accept him.

The Minister has clearly listened, and there has been consultation. In conclusion, I gently ask her to look at what I have said today. We will supply further information. I firmly believe that, as the hon. Member for Peterborough said, this was a mistake. There is no question in my mind about the Minister’s integrity. She certainly is not a sop and I do not think anyone would ever accuse her of being so, but I think she has to accept that when we look at the evidence, we can see that this was a mistake and that the pubs adjudicator cannot be any pub surveyor.

So I would gently say, could she, and the hon. Member for Rugby, and her diligent officials, who do work hard and do a good job, but on this occasion have erred, look at this again? Can they look at the evidence? Because simply to ignore it, as is currently happening, and appoint someone to such an important role, considering the whole history of this matter, would undermine everything that she and her Department are trying to do on this issue. I urge her: please look closely; please listen. Mr Newby must stand aside. I echo the comments of the hon. Member for City of Chester, who said that Mr Newby must consider his position. If he does not—and he will not—command the confidence of so many tied licensees, as a good man and a man of integrity he must realise that, and he must stand aside.

Question put and agreed to.

Resolved,

That this House has considered the Pubs Code and the Adjudicator.