Enterprise Bill [ Lords ] (Sixth sitting)

Jo Churchill Excerpts

Tuesday 23rd February 2016 Public Bill Committees

It is hoped that the changes we are debating will help many small breweries, including those in my constituency, and will contribute to an ongoing improvement in the brewing and sale of a wide variety of quality local beers. The majority of microbrewers’ sales are to tie-free pubs. Extending their market to pubs that have the option to go free of tie will be a real benefit to businesses not only in my constituency, but across the country. As an aside, I hope that Members on both sides will be able to try the beer brewed in my constituency when Red Star’s “Formby Blonde” is the guest beer in the Strangers’ Bar in the week commencing 8 June, news which is hot off the press today.

[Jo Churchill (Bury St Edmunds) (Con)]

I represent Bury St Edmunds, the home of Greene King. I just want to put it on the record that other beers are available.

[Bill Esterson]

My hon. Friend the Member for Cardiff West just suggested that I was about to be invited for a pint of something that is already on in the Strangers’, but we can discuss that later perhaps.

The market rent-only option will also benefit consumers. We have seen welcome growth in sales of real ale and micropubs that specialise in local, microbrewed ales. The Cornerpost in Brighton-le-Sands in my constituency opened last year and serves locally brewed beer; it is already popular in the neighbourhood. It is clear that many people, including me, have enjoyed access to micropubs. Giving more pubs the opportunity to go free of tie will be as welcome for pub goers as it is for tenant landlords.

The argument for a tie-free option is clear, but it has taken a significant amount of time for the Government to reach the point of putting real support on the table for tenant landlords. In January 2013, the Government announced a statutory code of practice and an adjudicator, but it was not until mid-2014 that they included the plans as part of the Small Business, Enterprise and Employment Bill—now the SBEE Act 2015. However, the option to give tenants the automatic right to go free of tie was not included in the Bill.

In November 2014, amendments to the SBEE Bill were agreed in this House, despite Government opposition. The amendments included a market rent-only option as part of the new regulatory regime. In the Lords, the Government accepted the will of this House, and in March 2015 Baroness Neville-Rolfe made clear the Government’s commitment to both market rent-only and the parallel rent assessment that goes with it. Following the assurances of the Minister, amendments were not pressed to a further vote. Baroness Neville-Rolfe told peers:

“I was clear at Second Reading that the Government accept the will of the other place that there should be a market rent only option. Our work since has been to ensure that it delivers the protections for those tied tenants without potential unintended consequences. The questions that have arisen and the discussions that have taken place are over exactly how the market rent only option should work in practice. I am pleased to say that we have now reached a position where the Fair Pint campaign and CAMRA are content with our amendments.”—[Official Report, House of Lords, 9 March 2015; Vol. 760, c. 448.]

On parallel rent assessments, she said that the pubs code would

“require pub companies to provide parallel rent assessments and turn the adjudicator functions in relation to PRAs into a duty. We have made a commitment to this House to introduce PRA. This commitment, together with the duty on the Secretary of State to produce the pubs code in Clause 42(1)”—

of what was then the SBEE Bill—

“means that the Government must deliver on these provisions in…secondary legislation one year after these provisions come into force, as I explained a minute ago. There can be no doubt that we will introduce these provisions.”—[Official Report, House of Lords, 9 March 2015; Vol. 760, c. 468.]

I note that one year is coming up very, very soon.

The promise of parallel rent assessments is of course important, as it means that pub tenants can compare like with like. As long as the parallel rent assessment is an independent process, then tenants can make a meaningful comparison between the situation they face as a tied pub tenant who buys beer and other supplies from their landlord on the one hand, and a tenant who only rents the pub premises, buying their beer where they want, on the other hand.

When Baroness Neville-Rolfe made her promises last March, tenants and pubcos alike had accepted the arrangement, and yet what followed was a lengthy delay, and the feeling among organisations representing tenant landlords that they were being kept in the dark about progress. The consultation on the draft pubs code, when published, caused dismay on all sides: parallel rent assessment was missing and conditions were placed on market rent-only that would block access to it for many tied landlords—a point that the Minister accepted in her opening remarks.

I will return to details of the draft code shortly, but for now I should like to reiterate the importance of improving the relationship between pub tenants and pub companies by quoting Dave Mountford. Dave used to be a tied tenant and now runs a free house called The Boat. I am sure Dave will be known to some Committee members at least from his work with the Pubs Advisory Service. Dave said:

“Between 2007 and 2012 I ran a Punch Taverns leased pub. During that period…I lost in excess of £85,000, eventually going bankrupt in 2013, despite running what became the busiest Pub in the area, achieving sales of £500,000 per year.

In 2012 myself and my wife took on a Free of tie Pub very close to our first Pub in The Peak District. This Pub was sold by Punch Taverns as being non viable, having had 5 tenants in the 6 years Punch owned it. It was purchased by a local business man for us to run.

Despite being closed when we took on the Pub it is now, 4 years later, a thriving and profitable business, and despite paying a higher rent than we did at our tied Pub, the ability to choose who we purchase our beer from means we can negotiate our own suppliers and prices.

Being able to utilise the huge range of craft beers, which were denied to us by the exorbitant price charged by Punch, we have developed a reputation for a wide range of choices, and an excellent reputation for food.

We have invested our own profits back into the Pub, developing it further, and in our 4th year we achieved a turnover of over half a million pounds running a Pub that Punch sold as being ‘unviable’.”

Dave goes on to say:

“It is important to remember that MRO is only an option and if the Pub Companies and Brewers run a robust and positive business model then they have nothing to fear from an alternative model. MRO should encourage competition between Pub Companies striving to recruit the best people to run their Pubs rather than exploiting the unwary and the inexperienced.”

Strong words. Sadly, Members on both sides of the House have heard numerous examples of similar experiences from pub tenants up and down the country.

The Government’s new clauses will in principle make it easier for a tenant to qualify for a market rent-only agreement. The inclusion of a parallel rent assessment should give tenants the opportunity to make an informed and objective decision about the best option available to them, as it will mean that tenants will be able to compare what they are being offered by their landlord—the pubco—with the situation if they pay only market rent.

The adjudicator will be able to take into consideration broader issues of unfair practice in what has become a very unbalanced relationship between many pubcos and their tenant landlords. It is hoped that that will mean that examples of pub tenants who have been promised major investment by the pubco but seen nothing, or who live in very poor living accommodation at their pub, will become a thing of the past, and that if the landlord promises to repair or maintain the public area or the living area, the repairs will take place in a timely fashion if they are part of the agreement with the tenant.

New clause 5 entitles a tied pub tenant landlord to market rent-only at rent renewal. When the Government published part 1 of the consultation, the impression was given that tenants would be able to access market rent-only agreements only if a rental increase was on the table at assessment, a point raised by a number of Members at Business, Innovation and Skills questions at the time. That was clarified by the Minister, and she has done so again today. We are pleased to see that the Government have listened to the many voices calling on them to confirm the position on market rent-only and parallel rent assessment.

New clause 6 enables the adjudicator to report on breaches of the code to the Secretary of State. It is a report mechanism to keep in check the large pubcos, both on the issue of market rent assessment and, more broadly, on the type of unfair business practices to which I referred a few moments ago. I commend Members in the other place for their dogged determination on this issue before the Bill came to this place. We should also commend the Pubs Advisory Service, which has done a great deal to fight for a fairer deal for tenant landlords right the way through the passage of this Bill and did so for a considerable time before the Bill was published.

Ultimately, the measures are about giving tenant landlords a transparent set of options when it comes to negotiating their rental agreements with pubcos. What was needed was an option for tenant landlords to choose to shake off their beer ties with the pubco and agree to pay them only rent while getting their beer elsewhere. That is what was agreed in the previous Parliament, it is what the Lords amendments sought to clarify and it is what we are told is the purpose of new clauses 5 and 6.

It is important to remember that there are significant concerns about what has happened since Baroness Neville-Rolfe made her promises in March 2015, hence the need for in-depth debate this afternoon. By including market rent-only in the Bill, Members in the other place intended to give us a chance to rectify any shortcomings in the pubs code that might still result from the Small Business, Enterprise and Employment Act 2015, not least following the apparent omissions in the consultation on the pubs code.

Market rent-only is a valuable option to have on the table at rent renewal, but its absence for the majority of tenants, according to the consultation, meant that until the amendments—now to be replaced by the latest round of Government changes—were agreed in the Lords, a significant question mark remained for many pub tenants about whether they would ever be able to consider it. Remember: that was because the Government’s consultation suggested that market rent-only would be available only for tenant landlords at rent renewal if the renewal was going to lead to a rent increase.

The problem with having a rent review that was triggered, among other things, only if rents were rising was that recent rental surveys showed that rents for some pubs were decreasing at rent review. Under market rent-only conditions, as indicated in the first part of the consultation, none of the pub tenants whose rent reviews were due would have been entitled to the market rent-only option. Market rent-only is not just about rent. Indeed, the whole point of it is to reflect the overall financial burden of being a tied pub. It is also about the beer tie, which places a financial obligation on the tenant, and any other obligations they face.

--- Later in debate ---

[Kevin Brennan]

I do not think the Minister was being misleading, because had she been, it would have been out of order, but she was perhaps using an example that was not directly comparable, if I can put it that way.

[Jo Churchill]

I am listening to the hon. Gentleman and, having run a small business, I can say that when one faces decisions about making staff redundant, one is invariably looking at a situation in which one’s business is compromised by financial circumstances or a change in direction or whatever. To surmise that the majority of businesses—99%-plus of which are small and medium-sized enterprises in this country—give enhanced rates and so on is an illusion.

[Kevin Brennan]

That is certainly not what we are saying with the amendments, which are designed to ensure that the Government’s avowed intentions and the sentiments with which they were expressed are actually fulfilled. Without going over all the detail in this lengthy groups of amendments—the Minister made an effort to respond in some detail, for which I thank her—it is important that we test the Committee’s view on the Government’s previous position.

Last year, the then Treasury Minister, the right hon. Member for Witham (Priti Patel), said:

“This commitment, which will be included in our 2015 General Election manifesto, will cap payments for well-paid public sector workers at £95,000. Crucially, those earning less than £27,000 will be exempted to protect the very small number of low earning, long-serving public servants.”

That is exactly what amendment 105 would do. It would fulfil the commitment that that Minister made to the British people at that time, which was the basis on which people understood the Government were intending to act to ensure that those earning less than £27,000 would not be affected. On that basis, I ask my hon. Friends and others to support me in voting for amendment 105, but I beg to ask leave to withdraw amendment 116.

Amendment, by leave, withdrawn.