Pub Companies

Karen Bradley Excerpts

Thursday 12th January 2012 Commons Chamber

[Mr Binley]

That is absolutely correct. I am talking about pubcos and I exclude family businesses that own fewer than 500 pubs. The big owners of pubs and their unsustainable financial structures are the real problem. Let me make it clear: this is not about family-owned brewery companies, who do a very good job indeed. I am talking about big pub companies whose model is unsustainable; it is based on excessive debt, misleading information and deception, as the inquiry has proved.

[Karen Bradley (Staffordshire Moorlands) (Con)]

Will my hon. Friend clarify this point? Is it correct that large pub companies borrowed against future rental income, so they are dependent on that to sustain their high levels of debt?

[Mr Binley]

They borrowed against the value of the properties, and rental income is very relevant. That is absolutely correct. Therein lies the unsustainability of the model, when we bear in mind that the breweries built up their estate over a 200-year period.

Sadly, tenants are the victims of that unsustainable structure. In many cases they face prices higher than those on the open market, exorbitant rents and a quart-measure of misleading information. To make a pub work, individuals have ploughed in their savings on the back of distorted information, and as a consequence they have gone to the wall. Most publicans are dedicated and hard-working people. We should take note: they are influential opinion formers in our communities and many of them have been badly treated. All I seek is fairness on their behalf.

Following the Committee’s 2010 inquiry, there was a clear understanding that the industry would have a year to get its house in order, or a statutory code of practice would be introduced. I questioned the previous Government and received that assurance. I questioned the current Secretary of State, who confirmed that he would continue with that promise, but the Government have sadly reneged on that undertaking. I find that very sad indeed.

The Government’s proposals for a legally binding voluntary code are not good enough. They have performed a volte face on this issue and it is incumbent on them to explain why their proposals are superior. How will a voluntary code work? The Minister’s argument seems to be that the level of protection will be comparable to that provided by a statutory code, but why is a voluntary code preferred when it has failed in the past? If the answer lies within the industry, why has it taken so long to make such desultory progress? Why should this Minister have any more faith in the industry than his predecessors, who had similar confidence? What is the cost of the voluntary code? How does it compare with the certainties that statutory regulation would bring? How much will it cost tenants, when they are in trouble, to pursue an action under the voluntary code? Those answers I demand from the Minister today. Concerns about the future of the industry abound. Why should small tenants be made to pay the price? They have suffered enough. Were they not persuaded to take on these pubs under false pretences, under an unsustainable structure? Does not all the Committee’s evidence prove that to be true?

I want the Government to support the entire industry, including the tenants. That means that in companies with more than 500 pubs—that excludes the small businesses—tied tenants should have the option to become free of the tie.

--- Later in debate ---

[Karen Bradley]

I should like to add my personal experience to the debate, because I am the daughter of a publican who was tied to a large pubco but now runs a free house. I can reassure my hon. Friend that having a free house is a much more favourable position, and that being free of the beer tie is very important.

[Andrew Stephenson]

I could not agree more with my hon. Friend. That is why I am speaking in support of the motion’s call for a statutory code for pub companies, despite the fact that I am normally in favour of voluntary regulation.

A case in point in Colne, where I live, is the North Valley pub, which closed about two years ago. Like a number of pubs in Pendle, it was owned by a large pub company that completely refused to reduce the rent, although the landlord was experiencing vastly reduced sales, partly because of the tough economic times and the smoking ban. I am sure that if there had been an open market rent review and an independent adjudicator, that pub would still have been open today, but instead the landlord had to hand back the keys and the pub is now a plumbing merchant’s premises. I am sure that the pub company involved would say that it was no longer viable, and that it was always going to close down in the long term, but I do not believe that voluntary regulation is delivering what we need. We therefore have to consider putting things on a firmer footing.

As things stand, the business model of large pub companies is based on extracting an inequitable share of profits through excessive rents and forcing tied landlords to purchase beer and other products at a premium of about 50% on open market prices. That figure has already been mentioned in the debate. Some pub companies, when they set their beer tie, seem to ignore local circumstances completely. From what I am led to believe, landlords in my area tied to Punch Taverns have to pay the brewery something between £1.32 and £1.56 per pint that they buy. In the town where I live, Colne, the Derby Arms sells Foster’s and John Smith’s for £1.49 a pint, and the Wallace Hartley and the Duke of Lancaster sell Foster’s for £1.79. [Interruption.] Move up north. Some of the large pub companies are forcing their tied landlords to buy the product at a higher price than that for which other local pubs are selling it to the man in the street. That inevitably forces pubs out of business, because they cannot compete in the local market conditions. I therefore have no hesitation in supporting the motion and calling on the Government to reconsider self-regulation and stop the large pub companies abusing their position.