Enterprise Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

Monday 30th November 2015 Lords Chamber

We have tabled Amendment 70ZE to deal with some of the issues relating to pubcos gaming the situation since the passing of the Small Business, Enterprise and Employment Act 2015 and the establishment of the code. Some comments have been made publicly to frustrate people choosing an MRO option either by bringing forward terms or by placing the arrangements in what some have called a holding tank. We are keen for the Government to adopt these measures so that we can ensure that no one takes advantage of their situation or continues to take advantage of any potential loopholes, as that frustrates the will of Parliament and the sensible and equitable arrangements that were brought forward after discussions in this place. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, those of us who sat through long—some may say interminable—debates on this topic in not one but two Bills will be familiar with the details of the situation. I do not propose to replough the ground, except just to state for the record that I was until two years ago a non-executive director of one of the pubcos affected by the code. Given that familiarity, I hope that the noble Lord, Lord Mendelsohn, will forgive me if I describe the amendments essentially as either unfair, ineffective or superfluous.

I accept that that is a rather uncompromising beginning. However, there is a point on which we are all agreed—namely, that we wish to keep pubs open. They are an important and historical part of the country’s social fabric. But how do we achieve this against a background of increasing pressure on the pub sector from a variety of sources which I have described before: availability of low-priced alcohol in the supermarkets; changes in people’s leisure patterns; and more restrictive licensing laws, which have led to much lower returns and lower profitability in the sector as a whole?

Underlying the comments of the noble Lord, Lord Mendelsohn, and, I dare say, those of the noble Lord, Lord Snape—I will not predict what he will say, but I have an idea—is a belief that in reality profitability in the sector is not low, there is a hidden pot of gold in the cupboard, and that, if only one could get one’s hands on the key, everything would be well. However, I fear that no such pot exists. What is needed in my view is something much more prosaic—a reasonable equality of arms so that landlords can plan future developments against a reasonably certain background and tenants can be protected against the impact of sudden, unexpected shocks. That is what I understood we had arrived at with the Small Business, Enterprise and Employment Act. Every tenant could opt for the market rent only option, which gave them complete freedom, but if they decided to remain tied and any of a series of adverse events—called “trigger events” in the legislation—happened subsequently, they would be able to revisit their decision to remain tied.

In my view, Amendment 70ZC upsets this delicate balance because, as the noble Lord, Lord Mendelsohn, said, at every rent review, even when the rents are remaining the same or maybe even declining, there has to be an option to re-examine and exercise the MRO option. What sort of business can plan confidently on a basis which will mean that every five years, or possibly more frequently, the terms of trade could change so dramatically? This will make no contribution to keeping pubs open.

Amendment 70ZD revives the parallel rent assessment. It is important that we examine the background to the PRA. The PRA came about to help the “no worse off” principle, which we have all accepted, but this preceded the MRO option. Therefore, the arrival of the latter made PRAs redundant. It is clear that parallel rent assessments present valuers with huge challenges, as the Royal Institution of Chartered Surveyors has made clear. This is because of the rather unattractively named SCORFA—special commercial or financial advantages—under which pubcos can offer their tenants additional special advantages, such as support and training; marketing and menu support; or discounts on the Sky subscription or on wi-fi. Putting a value on those is exceptionally difficult. Even more importantly, every tied tenant has recourse to the adjudicator established under the Small Business, Enterprise and Employment Act if they feel that their rent is unfair.

Finally, Amendment 70ZE seeks to insert a clause headed, “Report on pub company avoidance”. This is entirely duplicative of what is already provided for in the Small Business, Enterprise and Employment Act. Noble Lords may not be familiar with the Act but Section 46 ensures that the Secretary of State must produce a report on the Pubs Code in general. Sections 53 and 54 give a power to the adjudicator to investigate non-compliance and produce investigation reports on any potential breaches of the legislation. Section 62 requires annual reporting by the adjudicator. Section 65 requires the review of the adjudicator’s functions, and guidance by the Secretary of State on a regular basis. Finally, Section 69 gives the Secretary of State the power to determine which pubs are in scope of the legislation. Therefore, Amendment 70ZE adds nothing to the sum of human knowledge or to the prosperity of the industry other than causing some more forms to be filled in and some more duplicative work to be undertaken.

To conclude, the pubs sector is in a delicate financial condition for all sorts of reasons—societal and economic—that are outside its control. After extensive debate, we reached a modus vivendi. Nobody on either side of the argument was ecstatic about it but that is probably in the nature of a negotiated settlement. In my view, we need to go through the consultation process on the code and get the adjudicator up and running. After some practical experience, it may be necessary to revisit the balance now established, but to do so now, before the ink is even dry on the original settlement, cannot improve the sector’s health, confidence or prosperity. So I very much hope that my noble friend will reject these amendments.

[Lord Snape (Lab)]

My Lords, I am grateful to the noble Lord, Lord Hodgson, for telling your Lordships what would be in my speech. I had no idea he was so perceptive. He might have had the idea that I would disagree with pretty much everything he said, as I am sure he would acknowledge I have done at every stage of the Bill. To listen to the noble Lord, one would think that the employers’ side—the pubcos—are a group of eminently reasonable people who are anxious only that their tenants enjoy a decent living. Without going back to my own experiences, which I related at an earlier stage of the Bill, such a figment of the imagination should be treated as exactly that.

The amendments we are discussing are perfectly reasonable. As we keep saying, apparently to no avail, they would reinforce what we thought was agreed in the other place before the last general election, and during discussions in your Lordships’ House since. Even if the noble Lord, Lord Hodgson, disagrees, it appears perfectly reasonable for MRO to be offered on a fixed timescale and not just in the event of a rent increase. There are lots of ways the pubcos can get round the proposals if they remain as they are in the Bill. Indeed, they are planning to do so already. The chief executive of Enterprise Inns, Simon Townsend, has already said publicly what they intend to do. Given that these matters have been debated ad nauseam, both at previous hearings and in Committee, I do not propose to repeat what was said but I ask the Minister to reflect on whether the pubcos are already planning ways around the proposals in the legislation. They are certainly adamant in their opposition to my noble friend’s amendments.

For example, can the noble Lord, Lord Hodgson, assure us that there have been no instances of pub companies gaming or intending to game the Pubs Code by selling pubs to avoid the 500-pub threshold? Can he assure the House that such conduct is not taking place or that the pubcos are not manipulating rents at present, and preparing what they describe as a holding tank for certain pubs that they would wish to see outwith this legislation? I would be delighted to give way to him if he can, but of course he cannot because the pubcos are, as ever, planning to evade the legislation in any way they can. My noble friend’s amendments are perfectly reasonable, as they would put into the Bill the promises the Government made before the last general election and which, if the legislation is passed as it stands, will not be kept. Indeed, a lot of pub tenants will be in the same invidious position that—

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

My Lords—

[Lord Snape]

I will give way in a second if the noble Lord can control himself while I finish this sentence. Tenants would be put in the same position they were in prior to the passing of that legislation in the other place before the last general election.

[Lord Hodgson of Astley Abbotts]

I am grateful to the noble Lord. He knows, of course, that I cannot speak for every single pubco in the country. It would be exceptionally foolish to do that. But if the noble Lord reads the small business Act, which contains the powers with which the adjudicator is set up, he will see that it has the power to investigate potential breaches of legislation. So this is not just about waiting until the horse bolts; it can be tackled in advance. There is a great deal of power already there, which I do not think the noble Lord’s remarks give full weight to.