Tied Public Houses (Code of Practice)

Martin Horwood Excerpts

Wednesday 9th March 2011 Commons Chamber

[Martin Horwood (Cheltenham) (LD)]

I beg to move,

That leave be given to bring in a Bill to require the Secretary of State to introduce a statutory code of practice to require certain pub owning companies to provide their tied lessees with a guest beer option and the option to become free of tie accompanied by an open market rent review; and for connected purposes.

I should straight away express my appreciation for the support that this Bill has received from hon. Members on the Liberal Democrat, Labour and Conservative Benches; the hon. Member for Na h-Eileanan an Iar (Mr MacNeil); the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd); the hon. Member for Brighton, Pavilion (Caroline Lucas); the Campaign for Real Ale; the Federation of Small Businesses; and the all-party Save the Pub group. I am grateful for all their support.

In bringing the subject of beer and pubs before this House, I stand in a fine Cheltenham tradition: my Liberal Democrat predecessor, Nigel Jones, now Lord Jones of Cheltenham, was chair of the all-party group on beer; his Conservative predecessor, Sir Charles Irving, was himself a licensee; and the longest-serving Member for Cheltenham, another Conservative, the right hon. Sir James Agg-Gardner, was a local brewer. In 1848, the very first MP for Cheltenham, a great Liberal, the hon. Craven Berkeley, risked the wrath of the religious lobby in the town by trying to delete the fixed opening hours for pubs on Sundays from the Sale of Beer Bill. All of them shared an appreciation of the very special and much-loved role that pubs play in our national life. As Lord Jones has said,

“a pub does not just sell beer. It is a social centre, providing meals and snacks, raising money for local charities and diversifying offerings all the time.”—[Official Report, House of Lords, 11 December 2008; Vol. 706, c. 559.]

He might have added that pubs are places where national sports are watched in good company and local sports teams are formed—indeed, hugely popular skittles leagues operate almost nowhere else.

The pub is the hub scheme, another one of those inspired initiatives for which His Royal Highness the Prince of Wales gets insufficient credit, has shown that, imaginatively used, pubs can provide a location for community shops, post offices and even youth centres. Of course, perhaps most importantly of all, they provide a social drinking environment, open to families and pensioners, and to new drinkers and old regulars. Pubs are personal enough to exert peer group pressure on those who might be tempted to drink irresponsibly and people who really have had too much are refused another in them, as they should be everywhere.

The British pub is a unique institution—it is a product of history that would be very difficult to recreate if we ever lost it. But we are losing our pubs, at the rate of as many as 40 a week; we are losing thousands a year. The list of lost pubs in Cheltenham includes the Greyhound, the Cat and Fiddle, the Bass House, the Duke of York and four others since just 2007. Whole communities, such as Whaddon in my constituency, are now without any local pub. Even where the pub does not close, many publicans are finding it harder and harder to make ends meet, and many go bust only to be replaced by a rapid succession of new tenants or lessees.

The reasons given for the decline are many, and I acknowledge that they are not restricted to the tied public houses which are the subject of this Bill. Such reasons include everything from happy hours to economic downturn, supermarkets and lifestyle changes.

In 2004, the Federation of Small Businesses was so concerned about a particular issue that it asked the then Select Committee on Trade and Industry to investigate. That issue was the profoundly unequal relationship between tenant and lessee landlords and the big new pub companies, or pubcos. At the heart of this relationship is the tie—a strange addition to the normal landlord and tenant business relationship that applies to short-term tenants and long-term lessees. In what should be a relationship of mutual benefit, tenants and lessees have to pay a premium of 40% or more on the open-market rate for beer. I have seen invoices side by side for the same quantity of the same beer to support this contention. Those tenants and lessees also have to pay rent based not on the normal calculations of square footage but on the rather obscure and highly subjective judgment of the pub company of estimated earnings of a reasonably efficient operator. In other words, the pub company calculates the maximum amount it can extract from the business and charges it. In return, publicans get apparently valuable business and marketing support from the pubco.

That first Select Committee inquiry rang alarm bells about the state of the industry but was pretty gentle on the tie itself, weighing up the benefits and costs for publicans. Self-regulation appeared to be the name of the game and the Committee shied away from recommending a legally binding code of practice, although it did say that

“Government should not hesitate to impose a statutory code”

if matters did not improve. The follow-up report in 2008 by the Select Committee on Business and Enterprise was much more damning and included its own commissioned research into the state of lessees’ businesses. The research found that 78% of lessees were dissatisfied with the tie, that 67% were earning less than £15,000 a year and that 50% were earning less than that even when their pubs were turning over more than £500,000 a year. The majority believed that the tie with the pubco did not add value to their business. The Committee concluded:

“The imbalance of bargaining power persists”

between pubco and publican. It went on:

“The arrangements for assessing rents remain opaque…Rental assessment should be the basis for negotiation, but incumbent lessees often risk loss of their home as well as their business if they cannot reach agreement.”

This time, the Committee concluded that it had

“no confidence that the advantages of the tie outweigh its drawbacks.”

Another follow-up report by Select Committee on Business, Innovation and Skills in the following year reviewed the new British Beer and Pub Association framework code of practice and concluded that it represented only “modest progress” and that the issues surrounding the tie had not been resolved. The Committee suggested a deadline of June 2011 for self-regulation to give way to statutory regulation. Its message to the pubco industry was clear:

“If it fails to deliver on its promises by June 2011, it should be in no doubt what the reaction will be.”

Well, June 2011 is not far away and I can tell the House that new FSB research still paints a gloomy picture. According to its preliminary findings, 91% of its tied pub members do not think the tie allows them to make a fair profit. More than 85% believe it prevents them from competing effectively in the marketplace and the same number would like to be free of the tie. One FSB member told researchers:

“Enterprise Inns are happy for any tenant to fail. They would sell a pub and land for top market value and only then reinvest in other property to suit. They are, after all, property and land developers”.

That might be harsh but there is a serious breakdown in the relationship between the pubcos and their tenants and lessees, whose businesses continue to fail at an alarming rate while we continue to lose pubs at the heart of many communities.

A quick glance at the latest BBPA framework code of practice and the codes of practice used by the two leading pubcos, Enterprise Inns and Punch Taverns, highlight the inequality of the situation. Potential tenants and lessees are given a terrifying list of responsibilities. They are urged to engage solicitors, get structural surveys, talk to the police, environmental health and other appropriate authorities, check if a Highways Act licence is in place, engage their own qualified accountants and stocktakers, apply for their own gaming licences, obtain an asbestos survey, a full electrical report and a gas safety certificate, and so on—all at their own expense. The pubco helpfully offers training in food safety, health and hygiene, drug awareness, first aid and door management, along with repairs, maintenance and insurance—but also at the publicans’ expense. Indeed, publicans are not allowed to get insurance from anywhere else.

The real support that the pubco provides, outside the rather opaque area of the rent, is in marketing and advice on the product mix, legal compliance and cash-flow and financial management. That is helpfully explained in one of the codes of practice: it is given face to face, typically for one and half hours, once every 12 weeks. That adds up to less than one working day of face-to-face business support a year, in exchange for which the pubco could extract between £15,000 and £20,000 of value from lessees’ businesses.

It is difficult to escape the conclusion that unless Parliament steps in, we will see those pubcos manage even more traditional British pubs into oblivion. The Bill does not ban or abolish the tie, but it does aim to replace the codes of practice with a statutory one, as recommended by the Select Committee, and almost in time for its deadline, along with a guest beer option and the option for lessees to relinquish the tie in a process that is fair and transparent to both parties. My illustrious and sociable predecessors would be proud of us if we saved the pub that they all enjoyed, and future generations will thank us if we help to save the traditional British pub for them to enjoy as well. I hope the Bill will help us to do just that, and I commend it to the House.

Question put and agreed to.

Ordered,

That Martin Horwood, Greg Mulholland, Tony Cunningham, Neil Carmichael, Mr Angus Brendan MacNeil, Mr Elfyn Llwyd, Caroline Lucas, Stephen Metcalfe, Lisa Nandy, Lorely Burt, Stephen Williams and Jackie Doyle-Price present the Bill.

Martin Horwood accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 10 June, and to be printed (Bill 160).