Statutory Pubs Code and Pubs Code Adjudicator

Iain Wright Excerpts

Thursday 26th January 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

May I begin by saying how grateful I am to the Backbench Business Committee for allowing this important debate to take place? I thank the hon. Member for Leeds North West (Greg Mulholland), and the hon. Member for Tewkesbury (Mr Robertson), who has just spoken. I bow to their superior knowledge and awareness of the pubs code and how it should operate. I also pay tribute to the hon. Members for Warwick and Leamington (Chris White) and for Cannock Chase (Amanda Milling), who are in their places, and are fantastic and assiduous members of the Select Committee on Business, Enterprise and Industrial Strategy, which I am privileged to chair. All who have spoken so far have worked hard on pubs and the pub industry.

The industry has been characterised for many years by an imbalance in power between large pub companies and the tenants of pubs tied to those companies. The market has not worked in a fair and equitable way, and tenants have had unfair conditions imposed upon the manner in which a variety of things happen: how they sell beer and, particularly, the rent that they pay and the lease under which they operate.

The pubs code sets out how pubcos should deal with their tenants in a much fairer way. I am pleased that my hon. Friend the Member for West Bromwich West (Mr Bailey), my predecessor on the Select Committee, who worked hard on pushing the matter and ensuring that the Government’s feet were held to the fire, is in his place. I pay tribute to him, his Select Committee and my hon. Friend the Member for Chesterfield (Toby Perkins), who was on the Labour Front Bench at the time and did some great work on the subject. I am pleased to see him in his place. Those hon. Members have worked incredibly hard to try to rebalance the power relationship between pubcos and tenants.

A key part of addressing the imbalance is the Pubs Code Adjudicator. The adjudicator provides guidance on complying with the code and judges transactions to make things fairer. As we have heard, Mr Newby is the first adjudicator. In many respects, by being the first appointment, Mr Newby will shape the nature, style and tone of the job and the way in which matters will be dealt with by his successors. His judgments will set precedents, which could have ramifications for the pub trade and the pub property business for decades.

Dave Mountford of the Pubs Advisory Service and a landlord himself said to the Select Committee when we were taking evidence:

“The Pubs Code Adjudicator needs to be fair and impartial, and the decisions that he makes need to be based on our common law of justice and fairness such that they can then be applied to similar cases, so the precedent is set.”

I do not think that anybody would disagree with that. It is therefore essential that this first appointment of someone to a key role commands universal respect immediately and is not subject to any criticism or accusations of conflicts of interest, whether actual or perceived. Perception is important in such matters.

[Sir Oliver Letwin]

Does the hon. Gentleman agree that the imbalance of which he rightly speaks means that the adjudicator’s proper role is not solely to maintain an impartial view, but specifically to consider cases of abuse by the pubcos? They are asymmetrical cases of abuse: the tenants are not abusing the pub code, the pubcos are allegedly abusing it. The adjudicator’s role should therefore be to enforce on the pubcos obedience to the code. At the moment, we see examples of his looking as if he is just an arbitrator between the two parties.

--- Later in debate ---

[Mr Wright]

The right hon. Gentleman makes an incredibly important point. The adjudicator has to redress the balance in the power dynamics in the industry and there is evidence to suggest that that is not happening.

I want to be clear: Mr Newby’s professional credentials and expertise are not disputed. His knowledge of the industry, having worked in the pub property business for something like 35 years, is not in doubt and cannot be questioned. However, having looked at the matter in the Select Committee, we believe that there is a significant reason why Mr Newby will find—and is finding—it difficult to command the confidence of all parts of the industry, namely a strong perception of a conflict of interest, made worse by Mr Newby’s ongoing financial interest in his former firm.

[Chris White]

During the speeches of the hon. Member for Leeds North West (Greg Mulholland) and the Chair of the Select Committee, a number of criticisms have been made of the Pubs Code Adjudicator. Does the hon. Gentleman think that he should be called before the Select Committee again?

[Mr Wright]

The issue has attracted enormous interest, not just from our Select Committee but from predecessor Select Committees, which helped to change the law. As Chair of the Select Committee, I maintain that, given the hard-working and determined members of the Select Committee such as the hon. Gentleman and the hon. Member for Cannock Chase, the issue will not go away, but continue to command our attention. We want to put pressure on the Government to look again and reopen the appointments process so that this important appointment is seen as fair and impartial, and that is not happening.

I want to touch on an issue that came up in the Select Committee’s consideration. Simon Clarke is a tied tenant and a surveyor, and both he and Mr Mountford expressed surprise and concern that Mr Newby, as a chartered surveyor, even applied for the job. Both said that someone from outside the industry was needed. Mr Mountford told us that they had said to the Department that the post required

“a judge, a retired lawyer or somebody with legal experience. We definitely said it should not be a surveyor.”

Mr Clarke said that it definitely should not have been a chartered surveyor, because there would always be a conflict of interest as surveyors would, in all likelihood, have advised one of the parties.

That brings me to the central concern about Mr Newby’s appointment. Before becoming the Pubs Code Adjudicator, Mr Newby was a director of Fleurets, a firm of business property valuers and surveyors. As the hon. Member for Leeds North West mentioned, in giving evidence to the Select Committee Mr Newby said that about 20% to 23% of the firm’s fee income—a material amount—derived from advice provided to the large pubcos. That alone lends itself to accusations of potential and perceived conflicts of interest. However, Mr Newby also continues to have financial interests in the company. He gave evidence to the Committee in May and then clarified some of his self-confessed inaccuracies in a letter to me in November—at, he said, the instigation of the Minister. Mr Newby has both shares in Fleurets Holdings Ltd and debenture loan notes owed to him by the company.

The Committee asked Mr Newby if he would provide a clean and definable break with his old firm by divesting himself of those financial interests. He stated in his November letter to me that the company is unwilling to do so in order to avoid putting

“undue strain on capital resources”—

it is probably more accurate to call it the firm’s cash flow. That is very serious and really undermines the ability of the adjudicator to command the trust and respect of all sides of the industry. He has a significant financial interest in shares and loans from the company, which derives a significant part of its revenue from large pubcos, but he cannot alter that situation because that would put strain on cash flow. In other words, he retains an ongoing financial interest, and it is in Mr Newby’s interest for the firm to do well to secure the moneys owed to him. That could mean that his judgments would assist large pubcos that have commissioned Fleurets to advise on tenancy arrangements so as to maintain the firm’s cash-flow position and profitability, and thus allow payments to be made to Mr Newby.

When Mr Newby came before the Committee, he said:

“I have taken off my previous hat and thrown it away.”

But he has not: the ongoing financial interests mean that he is still clearly wearing that hat. There is a clear perception of conflict of interest. This is like a referee officiating at a football match between Chelsea, who are top of the premiership, and Newport County, who are bottom of league two—

[John Healey (Wentworth and Dearne) (Lab)]

Or Hartlepool.

[Mr Wright]

They are not bottom just yet. It would be like a match between Newport and Chelsea, with a huge imbalance in skills and experience—perhaps that is a subject for a different debate—only for fans to discover that the referee owned shares in Chelsea’s shirt sponsor. It is as close a relationship as that. Perceptions of conflict of interest would have started immediately on appointment, and as I said to Mr Newby at the Select Committee, he cannot possibly win. Any judgment he makes will now always be accused of being unfair and partial—like that referee, who would not be seen as independent. This is a serious failing in the ability of the pubs code to operate effectively.

A vivid contrast was brought home to me in the Select Committee when I asked tenants and landlords and then executives from large pubcos whether they had confidence in Mr Newby and his appointment. The large pubcos said that they did not have a problem. The tenants were clear that they did not believe that judgments would be fair and impartial. That contrast shows that the code cannot operate effectively. The pubs code has broken down before it has even begun, and the Minister needs to intervene to ensure the code starts to work.

I am disappointed that the Secretary of State rejected our calls to reopen the appointment process. I hope the Minister accepts that this case demonstrates a serious perceived conflict of interest, and that perception is stopping the code working effectively. To ensure the viability of the pub industry and to protect the interests of tenants, which have not been addressed for many years, will she look again at reopening the process and have an adjudicator that is, and is seen to be, completely impartial and independent?