Lord Snape
Main Page: Lord Snape (Labour - Life peer)Enterprise Bill [HL]
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Lord Snape (Lab)
My Lords, I support these amendments so ably moved by my noble friend. Like him, I hesitate to lower the temperature of the Committee. As he put it, earlier we had amicable discussions that did not please everyone making representations to noble Lords on both sides of the Committee about the future. We thought, after our discussions on 28 January, that we had an agreement and that we could rely on the good faith of the Minister. As my noble friend says, although the Government have changed since 28 January, we have the same Minister as when we discussed the previous Enterprise Bill.
I hope that I will not need to get too personal in the course of this debate about ministerial responsibility and accountability. However, I remind the Minister that she made certain pledges during those deliberations on 28 January and that we expect those pledges to be confirmed today, rather than her simply sticking to the terms of the consultative document. Like my noble friend, I was shocked to see this. My first indication that the consultative document had been issued was when I received a phone call asking if I had seen the front page of the Morning Advertiser. Surprisingly enough, that is not a publication that I normally enjoy over my breakfast cornflakes, but I made a point of looking at the content of the front page online and, like my noble friend, I was shocked at what I saw. It appears that those pledges that were given on 28 January are to be cast aside because we have a new Government, and I feel that people who made representations about the previous Bill and the present one will feel betrayed—I choose my words carefully—if the words in the consultation document are to become law.
On 28 January, I said in Committee that:
“At Second Reading, the Minister accepted on the part of the Government the will of the Commons and said, basically, that the Government would adopt the principles that the Commons had advocated with regard to pub codes and publicans.”—[Official Report, 28/1/15; col. GC 141.]
All that has been cast aside. The Minister replied in her pleasant and emollient way that she would listen to what the Committee had said and that we could in effect rely on her to bring forward legislation that would meet at least some of the points that we had made. However, as we heard from my noble friend when he moved his amendments, the PRA aspect for the future has been dropped completely.
I ask the Minister what connection there may be between the publication of the consultation document last Thursday, in such an apparently hurried fashion, and the notification from my noble friend and others that various amendments would be tabled to the Bill to ask about progress so far on these matters. It will not have escaped the attention of noble Lords on both sides that the normal procedure for legislation like this, if the House of Commons had voted in the way that it has and the House of Lords had accepted the view of the House of Commons, would be a Bill that would have incorporated the changed views that had been agreed by both Houses. We accepted from the Minister in good faith the need for a consultation period lasting up to a year, and we accepted the assurances that the will of both Houses of Parliament would be respected in the future. That is not what we have here.
I await with interest the Minister’s explanation as to why, other than the fact that the Government has changed. Some former House of Commons Whips more senior than I are present in the Committee today, and I realise that there is a convention that one Parliament cannot bind another. However, I hope that there is also still a convention that ministerial promises are worth the paper that they are written on. We in this Committee expect those promises that were made on 28 January to be kept this afternoon.
Lord Hodgson of Astley Abbotts (Con)
My Lords, those of us who sat through the long reaches of the night on the Small Business, Enterprise and Employment Bill earlier in the year may feel like the football manager being interviewed on “Match of the Day” who says, “I have a sense of déjà vu all over again”. We are repeating the arguments and, although it is almost a year later, I should say that two years ago next February I was a director—I should not say that I was a director, but that I had an interest in it—of one of the pubcos that is covered by the code. At some point I think I ceased to have an interest, but for the purposes of the debate I think I should put that on the record.
Behind the thinking of the noble Lords, Lord Whitty and Lord Snape, about parliamentary procedure is really the question of pub closures and the impact on tenants in particular, along with the reasons why our pub sector is contracting. This is what parliamentary procedure promises and it may be the hook to hang it on, but that is what we are concerned about, wherever you stand on the argument. Underlying the noble Lords’ arguments is the belief that the basic reason for the accelerated rate of closures in the pub sector is the activities of the larger pub-owning companies. It may be argued that they are often predatory and inimical to the rights of tenants. I have to argue with that because I am afraid I think that that is too simplistic an approach to a very complex matter. It is more complex than those who have moved this group of amendments appear to comprehend. Indeed, I argue strongly that if the Government were to accept the amendments, the danger is that it would accelerate rather than slow the rate of pub closures.
If the noble Lords are right about pubcos predating on tenants, the rate of closures in the tied sector would be much higher than in the independent sector, whereas the CGA Strategy analysis shows that the rate of closure is broadly the same—perhaps slightly higher in the independent sector but, as I say, about the same. In those circumstances, it is strange that it is being argued that the pubcos are the cause of it. It seems to me, given that the rate of closure is the same across both sectors, that it is about something much more deep-seated than merely the activities of three or four companies. The reality is that the whole pub sector is under the most terrific pressure. It is not the operators that are causing it—they may have done in some places, but I will come back to that in a second—rather, it is the market.
The market can be looked at in various ways. The brutal fact of the matter is that we can leave this House and buy a pint of lager for 75p, 80p or 90p a pint. It is available in the local supermarket. Many people would prefer to pay that price than pay £3 for a pint in a pub. They take the drink home and drink it there. Along with the fact that some young people buy “a slab”, as it is called, in the supermarket to drink in the street and then go into the pub to watch the football, that is one of the reasons why pubs are struggling. Moreover, there has been a regulatory impact on pub operators, owners and tied tenants, whether it is licensing, smoking, drink-driving, the increase in council tax or the late night levy for pubs that wish to extend their financial take by opening for longer. Not one of these issues on its own is back-breaking; they are all straws, but together they make the life of a pub operator in whatever form very difficult. The sector is not profitable enough now and it is under pressure wherever it is. Unsurprisingly—if I was a tenant I would think this—tenants think that somewhere there is a hidden pot of gold that they cannot get their hands on and is somehow being hidden from them.
There is another, psychological reason for disapproval of larger pubcos. For many people, taking on a pub is a lifestyle choice—a second career. As they undertake it, they leave the pressure of a nine-to-five job and have visions of themselves as cheery landlords dispensing pints and homespun philosophy over a bar as the evening sun goes down. However, tonight there is not much sun going down. You will be sitting in your pub dispensing not many pints to not many people and wondering why on earth you are there. In reality, running a pub is grindingly hard work and not everybody is cut out to be a landlord. None of us, wherever we are, likes to accept that the failure lies with ourselves in whatever we are trying to achieve. We think that there must be some external reason that has caused us to fail, and who better to blame than our landlord or pubco? If they could help us more, we would be in a position to make sure that everything was all right.
When the inevitable problems happen—and happen they do—there is a very sympathetic reaction among the community. The community believes that there are three essential ingredients: a post office/shop, a pub and a church. People do not want to use them much but they will go to the post office and shop when they have failed to buy a pint of milk at Tesco; the rest of the time they do not go at all. They will go to the church for what are vulgarly called “hatches, matches and dispatches”, and occasionally they will go to the pub. They like it to be there and, if they see it disappearing, they are upset and believe that it should be preserved. Unfortunately, you have to use a pub or you lose it, and too often, to be candid, pubs are not being used.
Also behind the noble Lords’ thinking is the CAMRA belief that if you could remove the dead hand of the big pubcos there would emerge a range of independent pubs that would provide new, independent opportunities for beer brands. I am afraid that that is misplaced optimism.
Lord Snape
Perhaps I may tell the noble Lord that I am not a member of CAMRA and that I do not even like real ale very much. That will probably get me denounced in some political circles. The noble Lord is giving a highly polished speech, which it should be as he has delivered it two or three times already. It is a rather—if I may say so without offending him—Second Reading speech. Would he like to talk about the matters before the Committee at present, particularly the difference between the consultative document and the agreement that both sides of this Committee thought we had with this Minister in January this year?
Lord Hodgson of Astley Abbotts
I am afraid that I have to disagree with the noble Lord. I am explaining why the background to these amendments is the rate of pub closures. That is what we are seeking to consider. That is the whole background to the amendments. I am sorry if the noble Lord feels that I am making a Second Reading speech but I am just trying to set out the status of the pub sector at present. In about a minute and a half, I will come to the treatment of the three amendments that the noble Lord, Lord Whitty, has tabled, and I shall certainly tackle them straight on. However, I need to do that against the background of the reasons for the problems in the sector. Those are not merely to do with the operation of the Mulholland amendments but are part of a bigger societal change.
Going back to CAMRA for a moment, I think that this is misplaced optimism. There is not the demand for a wide range of specialist beers changing week by week—Old Boot Polish one week and Sheep Dip the next. Some pubs will be interested in selling those but, for the most part, demand is for the well-known lagers such as Stella Artois, Peroni and so on. That will be the profitable and sensible way for landlords to trade.
I would not want the Committee to think that I was arguing that everything in the sector was rosy. In a sector with 20,000-plus tenants, there are bound to be pubcos—and, dare I say, tenants—who do not behave quite as well as they might. I freely admit that in the tied sector that conflict of interest is most acute.
Lord Hodgson of Astley Abbotts
Of course I understand the pressure on tenants. But the noble Lord must agree that the pressure on the sector is terrific. If your primary product can be bought down the road at 25% of what you sell it for you are under pressure. You will find it exceptionally difficult to buy a pint of lager for less than £3 in a pub. But I will take the noble Lord out, when Committee ceases to sit this evening, and we will find lager at 75p a pint within two miles.
Lord Snape
Does the noble Lord realise that he has just made a very effective case for the argument we are putting from this side of the Committee?
Lord Stoneham of Droxford
My Lords, the arguments have been very well put by the noble Lord, Lord Whitty. I support them and there is no point repeating them. These provisions are largely probing because the events of the last week mean that we are going to have to give greater attention to this. I had the inevitable job of dealing with the Member for Leeds North West on the basis of the assurances I had from the Minister. I hope she will be helpful in her reply so that when I go back to him he will not tell me, “I told you so”.
Baroness Neville-Rolfe
My understanding is that she met with the pubs after the consultation, as, in turn, she will be meeting the tenants once the consultation was published. I have to reject the underlying implication that somehow we are not balanced on this. Consultation is a serious matter for business. You have to put things out in draft and you have to listen to what is said, which is what we always do.
I turn now to Amendment 53ZC. I understand the concerns about potential manipulation of the ownership of tied-pub estates but I am not convinced that this amendment is the way to address the issue. It would place an additional burden on the adjudicator by requiring him or her to monitor all pub sales, to make a judgment as to whether they reveal a pattern of divestments, and to assess whether their effect is to exempt the pub companies concerned from the jurisdiction of the Pubs Code, thereby causing detriment to the tenants concerned. While one large pub company sold around 150 tied pubs earlier this year to a company that will not be covered by the code, another has recently purchased more than twice as many tied pubs that were previously outside the scope of the code. Purchases and sales of this order have been a feature of the sector for at least 15 years. However, the Secretary of State has a duty under Section 46 to review the operation of the Pubs Code every three years, and that will present an opportunity to look again at issues around sales and acquisitions.
Amendment 53ZD was debated in Committee on the 2015 Act. Parliament’s decision to define the threshold for the Pubs Code in terms of tied pubs reflected more than a decade’s worth of evidence that the problem in the pub sector related to abuses in the tied sector. We talked about this at the time. It is those abuses that the Pubs Code Adjudicator has been introduced to address, and I remain of the view that Parliament was correct to define the threshold solely in terms of tied pubs. At present, the amendment would bring within scope just one company with tied pubs—Mitchells & Butlers, which has in total around 1,800 pubs in England and Wales but fewer than 60 tied pubs. Bringing these few extra tied pubs into scope would create the anomaly of leaving a number of companies owning several hundred tied pubs outside it. Such an anomaly would have risked legal challenge—noble Lords will remember that we discussed this before—possibly imperilling all the pubs measures, which was something that we were keen to avoid.
Section 69 gives the Secretary of State the power to amend the number of tied pubs required to meet the threshold. That is the right safeguard for ensuring that the code delivers its overarching principles.
I turn now to Amendment 53ZF. I know that it is a disappointment to some noble Lords that the Government have decided not to proceed with implementing the PRA, if I may call it that. As noble Lords will recall, it was the previous Government’s intention during the passage of the Bill to introduce PRA and to streamline it with the market-only option. We have had a change of government and the incoming Government have looked again at the commitments that their predecessors made in order to get the legislation on to the statute book. We have looked at the best way of achieving the objectives of this policy. Our focus has been on providing a robust Pubs Code and adjudicator that deliver fairness for tenants and stability for the industry within the timeframe set out in the Act. It became clear, when working through the details over the summer, that the complexity of introducing PRA alongside MRO would put unnecessary burdens on the industry. Having two processes which can be triggered separately but on the same bases, which are not administratively connected and which follow different timetables and rules is not a practical or sensible proposition. We want to minimise the burdens on business. Not taking forward PRA at this time would reduce the regulatory burden of the pubs measures by £600,000 a year. These are burdens that we would have to compensate for by a reduction in another regulatory area, so it is a big figure at a time when pubs are closing.
Lord Snape
Was that figure not available on 28 January when the noble Baroness made that pledge? She said that,
“our amendments provide that they”—
that is, the tenants—
“will have the protection of the parallel rent assessment—PRA—which will show them how their tied deal compares with a free-of-tie deal”.—[Official Report, 28/1/15; col. GC92.]
That appears to be a specific pledge. Did it not cost £600 million then and, if it did, why did she make that pledge?
Baroness Neville-Rolfe
I am sure that we had some measure of the costs available at the time. I am not trying to dispute that. What I am trying to explain is why we have changed the situation. The costs are not the only matter. I am trying to explain how the two measures sit together and how we have sat down to have a look at these things. Perhaps I may proceed.
Baroness Neville-Rolfe
It is £600,000 for having the PRA in addition. I am sorry if I gave the figure incorrectly. I felt that it was helpful to share that figure of £600,000 with the Committee.
Lord Snape
In the context of government expenditure, we are grateful for that but it does not really amount to a great deal, does it?
Baroness Neville-Rolfe
This is a figure for the burden on business, so to that extent there is a parallel. Perhaps we can move on but there is a cost, and a complexity, in having a double system. We want to try to do this the right way. The market rent only option is the central plank of the Pubs Code. It is a fundamental change for the industry and, I believe, a powerful new tool for tenants. I do not think that there is any disagreement there.
The noble Lord, Lord Whitty, was concerned that the significant increase in price thresholds had restricted the access of tenants to the MRO trigger. We have taken the advice of stakeholders from across the industry on the definition of a significant increase in price. Our draft code reflects the advice we received: that the primary focus should be on the price of beer and that the threshold should be in the order of 5%. We are consulting on this and the percentage increases for other tied products and services. As I said, we welcome the views of stakeholders.
It is vital that we get this right for all concerned. The market rent only option will ensure that tied tenants are no worse off than free-of-tie tenants. That is the actual principle in the Act. Tied tenants will be able to request a market rent only offer when certain trigger events take place. The Government have published draft provisions that allow for the request by the tenant of an MRO in all the circumstances required by Section 43, mentioned by the noble Lord, Lord Whitty. There are four circumstances, which I will not go into again because noble Lords in this Committee are extremely familiar with this.
When we discussed these provisions before, there was a view that giving tenants access to a variety of comparators was of itself a good thing. That was what was being said in the Chamber, but the conclusion we have come to is that that is not really necessary. What really matters is that the tenants are given meaningful comparisons so that they can make the right business decision. We believe that MRO provides that. They will not be committed to accept the MRO offer but can compare it with the tied terms they are being offered. They can use the MRO offer to negotiate a better tied deal, if that is their preference, or choose to take up the MRO offer. They will not need a PRA to do either of those things. I reassure the noble Lord, Lord Whitty, that there is scope for comparison when a tenant requests an MRO, as he or she can request a tied rent assessment. That allows the comparison process to happen.
However, if experience of the Pubs Code in action produces evidence that the introduction of the PRA provisions would be a useful addition to the options available to tenants, this is something that the Government can of course reconsider. The point has been made. It is in the legislation. The power to introduce PRA remains in the Act but it is the Government’s view that we should focus first and foremost on introducing the MRO-only option and the other key provisions of the code on transparency, with the new adjudicator to enforce them.
Lord Snape
Before the Minister leaves that point, how was it possible without PRA for a tenant to demonstrate that they would be worse off? The purpose of PRA was to allow them to prove it one way or the other, was it not, so how can they do that without PRA?
Baroness Neville-Rolfe
My Lords, I am sure we will come back to this. I will take that point away and go through it again myself. There is scope for a comparison in the way that I have described, so the tied tenants should be able to look at the options easily and clearly. We are trying to bring in a system that is simple, clear and well understood. We have looked at the provisions in the Act and come forward with a consultation that we feel is fair, right, simpler, easier and better.
Lord Whitty
The noble Baroness played an effective defensive game on a very sticky wicket with a fair amount of hostile bowling. However, I do not think that she actually scored any runs. She is in a difficult position, as we all recognise. The fact of the matter is that she has clearly admitted that there has been a change of policy. As far as I can see from her responses to the various questions from my colleagues, that change of policy was not conveyed to the participants in this industry. In effect, it changes the legislation, which certainly was not communicated to us as legislators. That is a failure on behalf not of the Minister but of the department. We are therefore faced with a rather difficult situation regarding this issue between now and Report on this new Bill.
In terms of my two amendments which relate to the threshold, yes, we have discussed this at great length before but I do not agree with the noble Lord, Lord Hodgson, or the noble Baroness. I put them down so that we could look at this again but they were at that point probing amendments. The real issue before us is the nature of the consultation document and the degree to which it differs from what our understanding was prior to the election—in this Committee, in this House on Report and in the House of Commons—and from the position that is reflected in the current legislation and the understanding of most of the parties in this industry.
The central issue here is not the economic state of the industry. We all deplore what faces most pubs. There are one or two pubs that I would not mind closing but I would prefer most pubs to stay open. Irrespective of the state of the industry, there is an imbalance between the individual tenant and a large brewer or pub chain organisation. This legislation was designed to redress that imbalance. Whatever view we may take, the MRO was seen as one way of redressing it. We would see the PRA and the MRO not as alternatives; they are complementary. However, what has happened with the consultation paper is that the triggers for the MRO have been limited, as has the availability of the PRA to those who might not necessarily want to go for the MRO but need to understand how the situation with their rent arrangements would compare with going for an MRO. It would therefore inform their discussions and relationships with their landlord.
That is fairly straightforward but we have limited the triggers and dropped entirely the provision for any tenant to get hold of that comparative information. That is a restriction on where we were under the previous Bill. It is a restriction on the discussions that we had just before the election involving all aspects of the industry to try to reach consensus. I understand why people feel betrayed. It is an emotive thing when people feel that the Government have not played straight with them.
Lord Snape
Is the position not even worse? How is a tenant able to request a rent review under MRO without a rent increase? Is it not presupposed under the Government’s proposed legislation that all current rents to tenants are fair and that only if they are increased can a tenant make this application under MRO? Am I right in thinking that? I asked the Minister but she did not give me a straight answer. Perhaps my noble friend can help me.
Lord Whitty
As I understand it, some of the triggers that were outlined by the Minister at the previous stage were dropped. Triggers remain if there is a rent increase, or if the price of the supplied tied goods goes up beyond a certain level. There are now therefore only two triggers, whereas we previously had four or five. If you add to that the drop in the PRA, then access to information by tenants of all sorts has been seriously limited.
Baroness Neville-Rolfe
I demurred from reading out the triggers because I did not want to labour the Committee with too long a speech. I do not think they have changed or been reduced to two.
Lord Snape
I am as anxious as ever to help the Minister out but I put the same question to her as I did to my noble friend: do the conditions that the Government have attached to MRO under these proposals not mean that a tenant could apply for a rent review only if he or she received a rent increase, and that they could not apply on the basis of the existing rent?
Baroness Neville-Rolfe
My Lords, given the disappointment and concerns expressed and the lack of complete clarity as a result of my not having read the consultation paper in detail—I have tried to do so and my understanding is that there are actually four triggers—I suggest that we come back to some of these issues in a meeting, outside Committee and formal debate, between now and Report. In the mean time the discussion should continue at a technical level. We are trying to get a good outcome that will help tied tenants and will help the industry go forward in a prosperous manner. We have put out a consultation paper that was designed to try to do things in a simpler way. It is a genuine consultation. Noble Lords have raised concerns and we will obviously look at those. We will try to clarify the various points raised from the perspective of the concerns that have been expressed.