Pub Companies

Hugh Bayley Excerpts

Thursday 12th January 2012 Commons Chamber

[Hugh Bayley (York Central) (Lab)]

York’s pubs are part of the heritage of the city. Some of them have been open, welcoming guests and serving beer, for hundreds of years, whereas others have of course opened more recently, but they are all valued by local people and attract thousands of tourists to the city and contribute to the local economy.

I meet the members of the Licensed Victuallers Association in York from time to time to discuss business conditions, and recently I conducted a survey of 160 pubs and working men’s clubs in my constituency. In their responses, the licensees were extremely critical of the relationship between lessees and pub companies, and one commented:

“It’s like me renting you a house for a market rent but telling you that you can only do your food shop in Harrods, ie: at top prices”.

The beer tie, which of course covers a lot more than beer—soft drinks, peanuts and practically everything that a pub sells—is clearly anti-competitive and not in the consumer’s interest.

The previous Government endorsed the then Select Committee’s recommendation that, over a period of time, all existing and new lessees should be offered a free-of-tie lease with an open-market rent. In its recent report, the Business, Innovation and Skills Committee revealed that only 16% of new lessees and 9% of current lessees had been offered that, which is clearly completely unacceptable.

The Government’s response is out of touch with the industry. We are told that the tie is a lawful practice, so that is all right. However, the Select Committee argues that there should be legislation to give lessees the opportunity of running a business without the tie. The Government’s response also expresses the view that whether a lease or tenancy includes a tie is simply

“a commercial decision on the part of both parties.”

That is like suggesting that the competition for road space between a juggernaut and a bicycle is a competition between equals. It is not a satisfactory response.

If one of the major clothing retailers decided to get into the business of renting out small shops, but restricted its tenants to selling only its own brands and then insisted on selling those brands to the tenants at double the market price, we would immediately say that it was anti-competitive, unfair and wrong, and we would not allow it, yet that is exactly the relationship between the pub companies and many of their lessees.

I wish to refer to one other issue, which is the retail price of alcohol in supermarkets and off-licences. In my survey, 76% of York licensees said that alcohol sales at supermarkets were the leading cause of their falling profits, and 96% thought that supermarkets should not be able to sell alcohol at cheap rates. Indeed, 70% wanted a minimum retail price for beer sales on licensed premises.

Before the general election, I wrote a chapter of a policy pamphlet in which I proposed a minimum retail price for alcohol on health grounds. I suggested a price of 50p a unit, which would equate to £3 as the minimum cost of a bottle of wine, or £1 for a pint. Pubs would not go out of business if we had a minimum price of that level; nor would it prevent people on modest incomes from going to a supermarket and buying an occasional bottle of wine or beer to enjoy. However, it would stop the sale of alcohol as loss-leaders by supermarkets, which is doing so much damage to both pubs and public health.

I believe that the Government’s response is intellectually incoherent. They say that there is no need for legislation on the terms of leases, because they affect lessees rather than consumers. Yet on the subject of the beer tie, they propose taking no real action because it would affect consumers rather than lessees. They should concern themselves both with the viability of pubs as businesses and the rights of consumers, but they fail to do either of those things in their response.

--- Later in debate ---

[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.

[Hugh Bayley]

Will the Minister give way?

[Mr Davey]

I will in a bit, but I want to make progress.

What we have delivered instead of regulation is a self-regulatory regime much stronger than we have had before. As a result of commitments made by the pubcos, they will be obliged to comply with the code and it will be delivered at least two or three years sooner than under an Act of Parliament. That is in line with the Government’s commitment to focus on delivering reform for small businesses right now, not in a few years’ time.

I have listened to campaigners on the issue of the tie, including the IPC, CAMRA and hon. Members. After careful reflection, I disagree with them. I say careful reflection because, like other Members, I have always been worried by the tie, primarily because I had assumed that it must be interfering with competition and was therefore against the interests of consumers. That is why, like others, I was keen for our independent competition authorities to consider the matter. The OFT’s investigation concluded that consumers are well served by British pubs, that there is choice and that a wide variety of beers is available. To override an independent competition authority would be a serious decision for a Minister to take and would require significant evidence that the authority had failed to deliver. As CAMRA decided not to challenge the OFT further, presumably it did not have further evidence; we certainly did not.