The Future of Pubs

Karen Bradley Excerpts

Thursday 9th December 2010 Westminster Hall

[Karen Bradley (Staffordshire Moorlands) (Con)]

I am grateful for the opportunity to speak in this debate, Mr Benton, and it is an honour to serve under your chairmanship.

I want to begin debate by thanking the Backbench Business Committee, which gave the all-party save the pub group the opportunity to debate this very important issue. I was about to apologise for the absence of my hon. Friend the Member for Leeds North West (Greg Mulholland), who chairs the group—hon. Members may have noticed that I am not the hon. Gentleman. However, he has now arrived, so I will not apologise for his absence.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)]

Just his presence.

[Karen Bradley]

I am taking the role that my hon. Friend was due to take, because he was participating in the important debate that is under way in the main Chamber.

The all-party save the pub group secured this debate and it is therefore incumbent on me to set out the group’s purpose and mission, which is to bring together Members of the Houses of Commons and Lords who want to add their voice to the efforts to preserve and protect the British pub. Pubs are now closing at an estimated rate of 39 a week. The group shares the profound concern that pubs up and down the country are being closed for a variety of reasons, often when they do not need to close, and that more must be done to offer support and make legislative changes to address this problem.

The group shares a belief that the British pub is an important part of this country’s history and heritage, and that pubs are hugely important to the communities they serve as a focus for community, social, sporting and charitable activity. The traditional public house also provides a sociable and controlled drinking environment, which is important to encourage responsible sociable drinking.

The group campaigns on a number of issues, including calling for changes in planning law properly to recognise the importance of pubs and to offer more protection to pubs faced with closure; calling for reform of the current model of the beer tie as operated by some of the big pub companies, which makes it impossible for some licensees to make a living and leads to pub closures, for example by making some pubs unviable that would be viable if they were free of the tie; calling for fairer levels of beer duty; challenging the Government to look at supermarket beer pricing, to stop below-cost selling in the off-trade, and to create a more level playing field between the on-trade and off-trade; calling for a change in the law to outlaw the practice of restrictive covenants, whereby companies sell pubs on the basis that they are prevented from continuing as pubs, thus denying a community a pub simply to benefit a company’s commercial interests; calling on the Government and local authorities to do more to support community pubs, including using the means of taxation and rates; campaigning to give local communities the right to buy pubs that are planned for closure, and supporting “The Pub is the Hub” scheme.

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

Does my hon. Friend agree that members of the previous Government bear a large share of the blame for the predicament that many pubs now find themselves in, first because of the overly bureaucratic Licensing Act 2003, which means that many pubs are now unable to provide live entertainment, and secondly because of the implementation of the heavy-handed smoking ban?

[Karen Bradley]

I acknowledge my right hon. Friend’s comments. Although I do not believe that we want to make this a terribly party political debate, I think that he has made some very valid points.

I will cover some of the issues that I have already raised and on which the all-party group campaigns, and I am sure that colleagues will make their own contributions to the debate. It is incumbent on me to declare my own personal interest in this particular issue. For the last 43 years, my family has run a pub. My grandparents, my parents and my brother have been landlords of the same community pub. My aunt and uncle have also run pubs, so my family has had a long interest in the pub trade.

The pub that I grew up in was originally a tenanted pub belonging to one of the big brewers. It was then granted a long lease, following the beer orders of 1989. It was then bought out by one of the big pubcos. Finally, just over 12 months ago, my family, after 42 years of running the pub, were able to buy the freehold and buy out the beer tie, meaning that for the first time in all those years they were at last in a position where everything that they worked for was for themselves. So, I clearly have quite an interest in this issue. I want to explain what is unique about pubs.

[Andrew Griffiths (Burton) (Con)]

My hon. Friend clearly points out the benefits to her excellent family business of buying the freehold of their pub and running it for themselves. However, does she agree that many pub companies offer a great product to the public, that they provide an opportunity for people to start their own small business and that, in many cases, they play a very important role in their community?

[Karen Bradley]

I thank my hon. Friend, and I note the points that he has made. My own personal experience of pub companies has perhaps not been favourable. However, I fully accept that they have a place and a role, as do brewers, and it is important that we have the pub industry working in a way that supports all types of pubs.

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

I thank my hon. Friend very warmly for taking over this debate from me at short notice. Does she think it striking that small pub companies and indeed small breweries are doing exceptionally well and opening pubs, while the largest pub companies, which have very different business models that have been a cause of concern for the Business, Innovation and Skills Committee, the previous Government and this Government, are in trouble, in debt and having to get rid of pubs every week?

[Karen Bradley]

My hon. Friend makes a valid and important point. That issue is part of the debate—again, we should not over-generalise and say that all pubcos and all brewers are bad. They are not bad; they are doing a job in difficult economic times. However, it is clear that the smaller ones are perhaps having more success than the bigger ones.

I would now like to explain what is so unique about a British pub. Pub closures are an issue that affects every single Member in this House; every constituency is affected by it. Running a pub is unlike any other business. It is a way of life, not a job. You live on site, and your home is a public house; people come into your home at all hours of the day and night, and expect to be welcomed into your home. Landlords—I apologise for using that generic term, and I want to make it clear that I mean landlords and landladies—have a civic responsibility to provide the heart of the community, and it should not be surprising to anyone in this country that the longest running TV programme in Britain, which today celebrates 50 years on our screens, is based, and has always been based, around the community pub.

Landlords have a responsibility to look after their customers, both in the pub and when they leave the pub. There are very few other businesses where the retailer can be held responsible for the behaviour of customers after they have left the premises. We do not often see a situation in which a supermarket gets into trouble if a customer uses a product that they have bought at the supermarket and then, let us say, disposes of it as litter; the supermarket is not held responsible. However, the pub landlord is held responsible when the customer leaves and engages in antisocial behaviour. Landlords also have a duty to the local community, to work with residents and authorities, such as the police, to ensure good behaviour. In my view, however, the most unique element of the pub business and one of the reasons why I think we are seeing so many pubs struggling is that no two pubs are the same, because pubs are absolutely dependent on the building in which they are located.

[Simon Kirby (Brighton, Kemptown) (Con)]

As someone who has run some 40 pubs in my time, I agree with my hon. Friend that pubs are absolutely essential as the heart of the community. She is absolutely correct in saying that they are all different—all special, but all very different at the same time.

[Karen Bradley]

I agree absolutely, and that is a very good contribution to the debate.

It is not possible to take what works in one pub, move it to another building and make it work. Pubs have different clienteles, they are in different locations and they have different layouts. I accept that there are some pub chains that have a sort of homogenous generic feel, but I would assert that almost all the successful ones have not moved into existing pubs, but have taken other premises, such as old banks and shops, and turned them into pubs. What works in one community pub cannot be moved to another building and made to work there.

As we know, some pubs are based on food sales, and they can be successful, but other pubs are drinkers’ pubs. I know from experience that a drinkers’ pub cannot be changed into a food pub. It simply does not work. Customers who come for the drinking will leave if they think that it is a food pub, and others will not necessarily be attracted.

[Andrew Griffiths]

I agree with my hon. Friend’s comments. Does she accept that the smoking ban was one major reason why so many wet trade pubs, which focus predominantly on selling beer, closed? Many local pub customers left because the smoking ban was introduced. Although not many people in the industry are calling for the ban to be overturned—I do not think that that is what people want—does she recognise that those pubs have been hit particularly hard?

[Karen Bradley]

I do not dispute that some pubs have closed as a direct result of the smoking ban, but I do not think that the industry wants the ban to be rescinded. The pubs that have closed as a result of the smoking ban would not reopen if it were rescinded. The wet pubs that are successful have adapted to the smoking ban and compensated for it.

Dependence on a building makes a pub unique, but it is also at the heart of many problems that pubs face. As for pub companies and the beer tie, the beer tie has a long history. It dates from the time when brewers ran their own pubs and wanted to ensure that their pubs sold their beer, which is a sensible business model. Brewers had a vested interest in ensuring that their pubs were well run, and self-employed tenant landlords ran the pubs for them. Again, that is a good business solution. People were given the chance to run their own business and, as long as they paid their rent and continued to sell the brewers’ beers, the brewers could leave the landlords to it. Brewers had a guaranteed and responsible drinking outlet; clearly, they wanted to ensure that their landlords sold responsibly.

In those days, landlords bought directly from the manufacturer, cutting out middlemen and their margin. However—I remember it well—the industry moved to gain more security of tenure for tenants, who often had 12 or 18-month tenancies, as well as the option for landlords to sell guest beer, which is lucrative and allows them to make a significant profit for little extra effort. As a result of that pressure, the beer orders were introduced in 1989. No doubt the intention of the orders was good. They were meant to increase competition by reducing the size of brewers’ estates. Offering tied landlords the option to sell guest beers was a good move that allowed them to make more profits. The orders also gave tenants the security of 20-year leases. My parents were some of the first to benefit from the changes when they took out a 20-year lease and introduced a guest beer. At the time, the industry was positive about the changes, and welcomed them.

As is often the case, however, the problem with the legislation was its unintended consequences, by which I mean pubcos. Under the beer orders, only brewers are restricted in the number of pubs that they can own, and pubs owned by non-brewers, which do not sell only one brewer’s beers, do not need to offer guest beers. Pubcos became the middlemen, buying beers from a range of brewers and selling them to their tied landlords, who lost the right to offer guest beers.

The pubco business model is certainly clever and innovative. I am a chartered accountant—that is probably another interest that I should declare—and I must say that I have always admired the pubco model and thought that some clever financial whizz kid came up with it. Pubcos raise finance to buy large estates of pubs from brewers by securitising future rental income, which is the only asset that they have. Some of those pubs are tenanted, some are leasehold and some managed houses. The pubco makes money from its margin on selling beer to tied landlords and from its rental income. If a pubco wants to increase its profits, it must increase either margins on beer sales or rents, or both, which leads to landlords being squeezed twice.

Rents are based on barrelage, or sales, not rateable value or any other measure that I would consider sensible. Rents increase in line with the retail prices index, even when pubs are struggling, and are reviewed upwards if sales increase. Even if a self-employed landlord is successful and increases beer sales, their rent will go up and the profits of all their endeavours will be given back to the pubco.

[Simon Kirby]

I do not intend to interrupt my hon. Friend too often, I promise. Does she agree that many landlords suffer a penalty of tens of thousands of pounds for having tied leases? They must compete not only with pubs that are free of ties, but with managed houses. The price of a 36-gallon barrel of beer is often hundreds of pounds cheaper free of tie than it is with the tie.

[Karen Bradley]

I am coming to exactly that point. The margin on beer is the pubco’s other source of income. When my family bought out their beer tie last year, the pubco from which they bought the tie told them that the average additional amount that it charged per barrel under the tie was £185. A 36-gallon barrel of Carling Black Label sold under the tie was £369, compared to a free trade price of £227. Imagine us allowing any other industry to disregard free-market pricing so blatantly.

Pubcos have clearly accepted that many pubs are closing. That is not in their interests, so they try to help landlords who are struggling, which is undoubtedly a laudable aim, but they do so either by over-managing or by giving with one hand and taking with the other. For example, they might install monitoring equipment, ostensibly to help landlords see what is selling well and what is failing to sell, but the equipment is then used to establish whether the landlord is buying out of tie. The monitoring equipment sees how much beer is travelling from the cellar to the pump; the pubco then says, “That is more than you are buying from us. You must therefore be buying out of tie,” perhaps forgetting that it is in all our interests for the pipes to be cleaned regularly, which involves liquids other than beer going through them. The feeling—I accept that some of this is anecdotal—is that it is “them and us”, and that the landlord is guilty until proven innocent. The two parties should be working together to run a successful pub for the sake of the community, but instead they are fighting each other.

[Greg Mulholland]

I thank my hon. Friend for her generosity in giving way again. As we have not had a meeting recently, she might not be aware that both the all-party save the pub group and the all-party group on beer recently received a copy of a letter from the Fair Pint campaign to Enterprise Inns that raises serious issues about the Brulines system and Enterprise Inns’ use of that equipment. It is important to put that on the record. We await with interest developments in that case.

[Karen Bradley]

I was not aware of that letter, so I thank my hon. Friend for raising that issue. I look forward to reading it.

A pubco area manager might also suggest that a landlord adopt a practice that has worked elsewhere, such as showing live football. However, a one-size-fits-all approach does not work. Pubs are all different. Just because one pub succeeds in selling more beer after installing equipment to show live football, it does not mean that a neighbouring pub will do so as well, and it must be borne in mind that under leasehold agreements, the landlord is responsible for buying all the equipment, fixtures and fittings and entering into an arrangement with the sports provider. Landlords can therefore be left with significant outgoings and future liabilities, but no extra revenue. If they do make extra sales, their rent will be reviewed and increased the following year.

[Andrew Griffiths]

I am sorry to interrupt my hon. Friend again—she is making a strong case—but speaking as a Member who represents the constituency in which the country’s largest pub company, Punch Taverns, is based, I must urge her to accept that there are many pub companies in this country that support their tenants in a positive way. As a result of the actions of pub companies, there are many people in business who would not have thought about going into business without having that help, support and expertise. Although there are examples of practices that we should not be content with, the reality is that many people benefit greatly as a result of being an employee or tenant of pub companies.

[Karen Bradley]

I hope that I am not giving the impression that I am completely opposed to pub companies, because I appreciate that they have a place in the market, but it is important to put on the table some of the practices that are making it difficult for pubs to survive. The debate is about the future of the British pub, so it is important that we understand how pub companies and practices could be improved to save even more pubs.

Another area where pubcos may offer concessions on prices to tied landlords is in return for the landlord giving up the right to take income from, for example, gaming machines, pool tables and other such things. Gaming machines are a really important part of the landlord’s income, but many landlords find that they are forced to accept the loss of that income. The problem is that they have lower-priced beer, which they sell at a lower price so that more is sold. Their barrelage then increases, their rent goes up, and they end up no better off. It is important that we ask pub companies to look at how the rents are set, so that we can reach a point where it is in landlords’ interests to take the offers from those companies and work with them to make everyone better off.

I want to mention the Fair Pint campaign, which represents the interests of tied publicans across the UK. It has found that 67% of tenants earn less than £15,000 a year from their pubs, and that includes 50% of pubs that have a turnover of more than £500,000 a year. I can assure Members that one has to work very hard to sell £500,000 of beer a year—at £3.50 a pint, that is nearly 150,000 pints a year, or around 400 pints a day. I think that £15,000 a year is little reward for working that hard. It is no coincidence that most pubs that close are owned by pub companies, especially when one considers the effort involved and the fact that, no matter how hard one works, someone else can end up benefitting as a result of the contractual arrangements. As I have said, I accept that pubcos are here to stay and hope that, with a little action from the Government, we can make the system work better for all.

I ask the Minister to consider looking at basing rents on rateable values, or at some other system that does not penalise successful, responsible landlords. I also ask him to look at the beer tie to see whether a system could be developed that would allow a guest beer or some such incentive to be introduced. Good, well-run pubs encourage sensible drinking, so I hope that the Government will look at the sources of binge drinking, which largely are not pubs. Although I accept that there is a need to look at how policing is paid for, it will be little help to the pub trade if the responsible landlord has to make a contribution while the supermarkets and off-licences that sell at below cost price make no contribution because they close before midnight. Unlike many Government Members, I support the current licensing laws and ask that, instead of introducing new laws, the existing ones be properly enforced to ensure that those guilty of encouraging anti-social behaviour and binge drinking are targeted; that is preferable to a blanket restriction being imposed on everyone.

[Roger Williams (Brecon and Radnorshire) (LD)]

I congratulate the hon. Lady on the way she is taking the debate forward. She will be aware of the current consultation on licensing. In my constituency, while many pubs are run well, temporary event notices are causing concern. Good pubs often seem to fail on that one little hurdle, so does she have any thoughts on how we should respond to the consultation with regard to that matter?

[Karen Bradley]

I absolutely agree. The point is that we should help the responsible landlords who encourage responsible drinking rather than binge drinking and anti-social behaviour, and we should use the law to clamp down on those landlords—we all have these cases in our constituencies—who flout the rules, encourage anti-social behaviour and are happy to sell at below cost price. As we know, people are going to supermarkets and off-licences to buy alcohol and are getting hideously drunk before they even go out. The pubs are getting the blame for that and it is not their fault. I accept my hon. Friend’s point and think that we should look at the consultation and make a robust response to it.

Finally, I ask the Minister to look at the planning laws to see how we can support the many communities across the country that rely on their local pubs and do not want to see them join the many others that have been shut. As I said earlier, the building is the most important part of the pub business, and we need to protect it to preserve that great British institution.

[Several hon. Members]

rose—

--- Later in debate ---

[Andrew Griffiths (Burton) (Con)]

I welcome the community pubs Minister to his position, and congratulate him on his elevation. Few Members of the House have done more to support brewers and the British pub industry. The coalition Government’s commitment to the pub trade is demonstrated by our pubs Minister being pint-sized, and I am sure that he will be stout and resolute in his support for the industry—[Interruption.] And never bitter.

I thank my hon. Friends who arranged the debate. It is testament to the House’s commitment to the pub and the beer industry that so many hon. Members are giving up their valuable time to contribute to this substantial debate on a day when such an important discussion is taking place in the main Chamber. That is hugely encouraging.

I also welcome colleagues from the Campaign for Real Ale. Everyone will agree that it has done a huge amount of work to develop real ales, and to support British pubs, and we should commend its work. Long may it continue to strive and to develop. The manifestos of all the main political parties at the last election included a commitment to the British pub. The Liberal Democrats, the Conservative and Labour parties all had a section pledging their support for the British pub and brewing industry, but the pub trade is still in a perilous state. My hon. Friend the Member for Isle of Wight (Mr Turner) said that 56 pubs were closing every week. I am pleased that the statistics that I was given recently showed that that number has slowed to 30 pubs a week, although we all recognise that that 30 is too many.

[Karen Bradley]

Perhaps the rate has slowed down because there are fewer pubs, so the stock of those that can be closed is smaller.

[Andrew Griffiths]

That is absolutely true. Last night, I hosted the all-party beer group’s Christmas party. We sampled 25 brews from some of Britain’s best brewers. I was pleased that Marston’s was represented, and I am told that it will open 20 new pubs this year, which is encouraging, but we recognise that the pub estate has shrunk dramatically, and every pub lost is a community resource that will be missed. If we are to stick up for the commitment that all parties made at the general election, we need action, not just talk and fine words, to deliver meaningful support to the British pub and brewing industry.

It is important to examine why we are in this situation. There is no doubt that the smoking ban had a dramatic impact on many pubs throughout the country. Many pubs that were reliant on the wet trade were unable to find alternative income when drinkers who had used their pubs for many years decided that if they could not enjoy a cigarette with their pint they would stay at home with a can of lager and sit in front of the television to smoke. That is regrettable, but we all recognise that the time to overturn the smoking ban has passed.

--- Later in debate ---

[Andrew Griffiths]

My hon. Friend makes a good point. The difference is bulk buying, and the power of supermarkets to drive down the price for the brewers is the crucial factor. Earlier in the debate we heard about the methods used by supermarkets to force down prices paid to our dairy farmers, and we have seen a drastic reduction in the price that they receive at the farm gate.

[Karen Bradley]

The issue is not just the power of the supermarkets in buying, but the fact that they use alcohol as a loss leader to get people into the supermarkets, where they buy other goods. The supermarkets offset the profit that they make on other goods against the loss that they make on alcohol.

[Andrew Griffiths]

As always, my hon. Friend is spot-on. We cannot allow a situation in which the supermarkets are fuelling the phenomenon of binge-drinking, which we see all too often on our streets. I am not trying to hype that or to scaremonger. The fact is that the irresponsible pricing by supermarkets has led to an increase in consumption. The facts speak for themselves. In 1992, 527 ml was the average for alcohol consumed at home; in 2008, that increased to 706 ml. In 2000, 733 ml was the average for alcohol consumed away from the home; in 2008, it was 443 ml. It is cause and effect. Cheap, irresponsible pricing by supermarkets is changing people’s drinking habits and leading to unsupervised drinking.

--- Later in debate ---

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

Given the time and the nature of the debate, I shall restrict my comments to championing proudly the small rural pub. In the old days, rural communities had the post office, the bank, the shop, the garage and the pub. Then, the community had just a few of them, and then even fewer, and now, if we are lucky, it might have only a pub. We are losing pubs at a rate of 40 or 50 a month, as we have heard. That is more than a shame or a mild inconvenience to the communities who depend on them—in many cases, for most of their lives. We can only remove the beating heart from a community once, and yet over the past few years we seem to have done it time and again, and we are then surprised when that community withers and dies.

Hon. Members have made passionate speeches about their areas, and each constituency will have its list of fantastic pubs and institutions. I will be no different, because I want to highlight precisely what this issue means to me. There is a little place in Carmarthen West and South Pembrokeshire called Cresswell Quay with a pub called the Cresselly Arms, run by a great and old friend of mine. In that pub we used to gossip, talk, commiserate, celebrate and do almost everything other than drink and smoke—those were the least of the services the pub provided. Without a shadow of a doubt, it was the one place to which everybody turned at any time of year, for various reasons.

My hon. Friend the Member for Staffordshire Moorlands (Karen Bradley) mentioned the value of the landlord and, indeed, the landlady, and I cannot overemphasise the importance of that appointment. They were more than people who pulled pints and dished out the odd bag of crisps; they were our friends, advocates and advisers. They told us when we were doing things well or badly, if our neighbours were ill, or if the dynamics of the village were changing. They gave us advance warning of things that were important to our communities.

[Karen Bradley]

I thank my hon. Friend for giving way. He is powerfully making the point, which perhaps has not been made so far, that there is a human cost of pubs closing. Those pub landlords and landladies have put their all into their pubs. They have, perhaps, put their life savings into the pub, and if that pub fails, they lose their home and their savings—they lose everything. We have to remember that human element and cost when we see pubs close.

[Simon Hart]

My hon. Friend reflects my view. The example I cited—and I cited it because I know that everyone has an equivalent example—completely epitomises everything that a local pub stands for. My landlord—my friend, Mr Cole—has probably carried more coffins than the local undertaker. He is a pillar of the community. He is the pioneer of the big society. He started talking about the big society while we were still babes in arms. Somehow, we have managed to get ourselves into a position where all of that is at risk. We have allowed these institutions to be strangled by red tape and regulation. We have allowed them to be strangled by increased alcohol duty and by layer upon layer of increased planning restrictions, which constrict the ability of businesses to grow.

I make a special plea to the Minister: will he spare a thought for those institutions that have to operate in national parks? I have made a few speeches recently that may lead to me being accused of being anti-national park. I am not, but I hope that national parks across the UK see it as their duty to enable good local community institutions and businesses to grow. Their job, in my humble opinion, is not to stop growth but to enable it in a way that is sympathetic to the park.