Martin Horwood
Main Page: Martin Horwood (Liberal Democrat - Cheltenham)(12 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text
Damian Hinds (East Hampshire) (Con)
The importance of this subject is clear from the number of Members present for this debate. That is unsurprising as pubs are an important part of being British; they are an important part of what holds us together and of what, literally, brings us together. This has been a difficult time for the licensed trade as a result of Sky TV costs and Performing Rights Society costs, as well as changing social habits leading to a decline in wet sales, combined with the underlying structural problem that prices go up by price inflation but the biggest cost, which is people, goes up by wage inflation. There are clearly far too many pubs closing in our towns and villages, and we need to find ways to stop that. Changing the tie arrangements is not the right way, however.
I should declare an interest: I used to work in the pubs and brewing business, but I no longer do so. The industry is built on partnerships between large companies and individual entrepreneurs. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, that brings many people into the business who otherwise would have no way in. However, whenever there are two businesses working together there is always potential for conflict, and this business certainly has its fair share of that. We should also make it clear that there are many happy tenants and lessees, however; not everybody is at loggerheads with their partners.
At its heart, the tie is a way of sharing risk between the real estate owner and the individual entrepreneur. Different sectors do that in different ways: they have franchise fees as a percentage of revenue, turnover-related rents or whatever it might be. In this sector, it just so happens that it is done primarily through the tie. Everything that I know about economics and business tells me that loading all cost on to fixed cost and de-variablising it would increase, not decrease, the number of business failures because of the increased operational gearing.
There is a somewhat false impression implicit in much of this debate—in the wider sense; not so much today—that, were the tie to go, everything else would stay the same, so nobody’s rent would go up. Of course, that is not true at all. There is a required return on every piece of real estate; the market expects a required return from quoted companies.
Martin Horwood (Cheltenham) (LD)
Does the hon. Gentleman not accept that hardly anybody in this debate has asked for the tie to go? We are talking about rebalancing the power relationship between lessees and pubcos, so that there is greater incentive for pubcos to provide a more generous arrangement for small businesses.
Damian Hinds
The motion does in fact specify a “free-of-tie option”. Many pub-owning companies would say that some sites are appropriate for leases—where the partner can build the value of the lease by building up the food business, for example—whereas others are more appropriate for a traditional tenancy-type business. The motion as stated would conflict with that approach.
In addition to that false implicit impression, there is a confusing conflation of tenants and lessees. On the one hand, we seem to be saying that this is only about very large pub companies that run leases; yet a number of those who have spoken in favour of that proposition have referred to the people in question as tenants. I am not entirely sure where the cut-off point of 500 sites comes from. It is possibly intended to target just a couple of companies, but frankly, coming up with a regulatory package for the whole industry is probably not the best way to do that. I fear that that would pull in a couple of other companies it is perhaps not intended to target.
Most importantly, there is little evidence that I know of that traditional, smaller, integrated brewers have any difficulty with the tie, which suggests to me that there is no problem with the tie per se.
Martin Horwood (Cheltenham) (LD)
I congratulate the hon. Member for West Bromwich West (Mr Bailey) on promoting today’s motion. He is a fellow Robins fan, and I know that he, like me, will have wanted to toast, in a pub somewhere, Cheltenham Town’s phenomenal, confident performance against Spurs last week—but as he rightly points out, the choice of pubs is becoming much more limited. That is happening for many reasons, but the pub tie is clearly one of the factors contributing to pub closures.
I promoted a private Member’s Bill on this subject last year. It received very wide cross-party support, and that same level of cross-party support has been evident in the backing for early-day motions; the all-party save the pub group, ably led by my hon. Friend the Member for Leeds North West (Greg Mulholland); the Select Committee reports that have repeatedly set a timetable, which has now passed, for introducing a statutory code; and, of course, today’s debate and motion.
When I promoted my Bill I received a lot of correspondence, especially from the trade. I did receive one letter from Enterprise Inns, which pointed out the value of the tie. Indeed, the company generously took me round my constituency and demonstrated that the tie can sometimes deliver real benefits; that is true, especially where extensive capital investment is required. Yet the overwhelming volume of correspondence from the trade was supportive of a statutory code with a free-of-tie option.
One of the most powerful letters I received came from someone who said the following:
“I have the misfortune to have a successful pub/restaurant…under a tied Enterprise lease…Having taken the lease last May from previous tenants who couldn’t make the business work, looking back no one seems to have had success since Enterprise bought the pub”.
Jason McCartney
The hon. Gentleman makes some excellent points, as many colleagues have done on the basis of their own personal experience, be it from meeting their partner in pubs or having worked in the industry. My experience is of my two local pubs in Honley, in Yorkshire. The Allied has had three tenants in 18 months—it is on to its third lot now—and the Coach and Horses, after numerous tenants over the past three years, has just closed. Although an Indian restaurant called Balooshai is going to open, which I welcome, I no longer have a pub within a minute’s walking distance. For those reasons, as well as because of all the other points made in the Chamber this afternoon, does my hon. Friend agree that action needs to be taken?
Martin Horwood
Yes.
My correspondent also said:
“The local rep visited at my request this May, only his 3rd visit and I now prefer to deal with him by email to have everything in writing.”
That supports the points that have been made about loss of trust. The letter continued:
“He first volunteered the figures from the brulines system, showing my doubling sales, food has also gone from nothing to a very good business and is the only way to make any money on this lease. I then put to him that at £5.5k breakeven I am paying about £23k rent and £50k through the beer tie. This equates to around 17% return on the value of the property while I will struggle to even repay my investment let alone make a return on it or pay myself an income. When I put to him that unless he rebalanced this I would be selling up and moving on he confirmed that I have a lease in order that I can do this.”
As my correspondent pointed out, the pubco representative would
“make a mean poker player.”
My correspondent continued:
“I’m waiting to see what comes from Westminster…Last resort is to sell up and move on.”
He points out that this is not just about the price of the beer either, saying:
“Aside from paying between 1.5 to 2 times wholesale value within the tie. Enterprise restrict what I can buy, for example I can not have Crabbies Ginger Beer”.
I have never heard of that. [Hon. Members: “Oh dear!”] Other hon. Members obviously have.
The letter continues:
“this may seem petty, but Crabbies is heavily marketed and is hence what customers ask for.”
He concludes:
“With a monopoly to supply 7,000 pubs, the service is understandably poor, why would you offer more than a week or 2 payment terms, daily delivery, knowledgeable staff, sale or return, dependable deliveries, useful special offers, volume discounts, why would they? It’s not as if I can take my business elsewhere.”
That inequality in the power relationship between struggling small businesses and the major pubcos demonstrates my point.
Mr George Howarth
As I am ever anxious to be helpful, may I tell the hon. Gentleman that Crabbie’s ginger beer is made in Knowsley?
Martin Horwood
The right hon. Gentleman will have to buy me whatever the relevant quantity is in a pub sometime, if we can find one.
To be even-handed, I must say that I have had quite a lot of complaints and correspondence from lessees of Punch Taverns, too. One wrote:
“I am a Punch Lessee, I am at present on the biggest discount”—
in other words on beer price—
“that Punch can give me, I am paying what is in my view an extortionate rent, an example of pricing is as follows:
My buying price from Strongbow Cider at highest discount from Punch = £110 + VAT—Price from free-trade Moulton Coors = £64 +VAT.
This comparison is throughout the range. What chance have I got of staying in business. The truth of the matter is that the prices we have to charge to customers = empty pub.”
That is the unequal power relationship we need to have tackled, and that view is widely held across the trade.
The Minister should take credit for the positive steps that he is taking, but none of them really sort out the central issue, which is not the need to abolish the tie or even customer choice and competition among pubs for customer trade but the need to rebalance the relationship between publicans and the pubcos, and the lack of any real incentive for those highly leveraged businesses to offer better terms and avoid pub closures. It is increasingly clear to everyone in the trade, to the Select Committee, which has repeatedly considered it, and to Members across this House, that the only way to do that is to introduce a statutory code with a free-of-tie option. We should not force all pubs out of the tie, but give the pubcos an incentive to rebalance the relationship and offer more generous terms to those struggling small businesses. The pubcos have been drinking in the last chance saloon for so long that they must be under the table by now, and it is time for Ministers to join us all in saying, “Time” and “Enough”.
Lorely Burt (Solihull) (LD)
Although several Members have a lot of knowledge of the pub industry, I think I am the only Member who has spoken today who has operated under a tie. Admittedly it was an awfully long time ago, but the experience of operating under a tie is principally the same now as it was when the beer orders came in.
I agree with the hon. Member for East Hampshire (Damian Hinds) that the tie is not the problem. In my view, it represents the symbiotic relationship between the company, which owns the pub, and the tenant, who puts his or her labour, blood, sweat and—often literally— tears into the equation. Landlords have always complained about the unfairness of the tie—they did it in my day and they do it today—but people should enter into tenancy agreements with their eyes wide open, not with the starry-eyed image of being “mine host” behind the bar obscuring the economic facts. I am glad to see that the new pub advisory services will be established to support would-be tenants and ensure that they understand what they are getting themselves into.
The difference today is that the vast majority of tied pubs are owned not by breweries but by companies whose purpose is not just selling beer but owning properties that they expected to accrue in value. Several changes over the years have made that a less and less attractive business proposition, including changes in drinking habits, drink-drive legislation and so on. The property bubble has now burst and the pubcos can no longer rely on increasing property values to square a decreasing profit circle. To their shame, some pubcos have resorted to imposing increasingly punitive terms on their tenants to make up the difference, including the full repairing and insuring leases that have been mentioned, along with many other examples.
Martin Horwood
Does not the point that my hon. Friend is making underline the difference between the kind of tie under which she operated with a brewer and those under pub companies, which have no incentive not simply to sell their pubs and take the cash, as that helps their balance sheets?
Lorely Burt
I agree with my hon. Friend to a degree, but the principle of the tie is the same. We need to make sure that the tie operates fairly.
These problems must stop, but should the answer be legally to require companies to offer a free-of-tie option? The balance has indisputably tipped too far towards the landlord, but I think we are tipping the baby out with the bathwater. For the breweries, what would be the point of having their own pubs if they could not impose a tie? Why would they go to the trouble of buying and refurbishing property and recruiting suitable tenants only for those tenants to start in competition against them, selling someone else’s beer? Breweries have been anxiously awaiting the Government proposals because they want to invest in the industry, but they will not do that if they cannot keep the tie.
Mr Davey
I will in a bit, but I want to make progress.
What we have delivered instead of regulation is a self-regulatory regime much stronger than we have had before. As a result of commitments made by the pubcos, they will be obliged to comply with the code and it will be delivered at least two or three years sooner than under an Act of Parliament. That is in line with the Government’s commitment to focus on delivering reform for small businesses right now, not in a few years’ time.
I have listened to campaigners on the issue of the tie, including the IPC, CAMRA and hon. Members. After careful reflection, I disagree with them. I say careful reflection because, like other Members, I have always been worried by the tie, primarily because I had assumed that it must be interfering with competition and was therefore against the interests of consumers. That is why, like others, I was keen for our independent competition authorities to consider the matter. The OFT’s investigation concluded that consumers are well served by British pubs, that there is choice and that a wide variety of beers is available. To override an independent competition authority would be a serious decision for a Minister to take and would require significant evidence that the authority had failed to deliver. As CAMRA decided not to challenge the OFT further, presumably it did not have further evidence; we certainly did not.
Mr Davey
Throughout my speech I have shown that the hon. Gentleman was wrong in almost everything that he said to the House, and he is wrong again.
I recognise that some Members would want us to have gone further, yet our reforms, including the strengthening of the code, its establishment on a legally binding footing and the soon to be completed establishment of PICAS, will mean real change for licensees and tenants across the country.
Martin Horwood
I believe that Members can welcome the positive steps that the Minister has announced but still believe that they do not really tackle the key issues, which are not about compliance and competition but, as the debate has shown, more about the relationship between struggling small businesses and big pubcos. If we are to have one last drink in the last chance saloon, what time scale will he now unambiguously put on the self-regulatory regime before statutory action is taken?
Mr Davey
I am grateful to my hon. Friend. We do need to give the self-regulatory regime time to work, and I pay tribute to him, and even to my hon. Friend the Member for Leeds North West—[Hon. Members: “Even?”] I say “even” because we do not always see eye to eye on every measure. However, both my hon. Friends have campaigned very hard, and I can tell the House that in my meeting with the BBPA, my hon. Friends' campaigns and the Select Committee reports were critical to my being able to make it absolutely clear that, this time, the pubcos really had to come up with the toughest self-regulatory regime imaginable, or else Parliament would wish to take action. We have come up with the toughest self-regulatory regime imaginable, but it needs time to work. I commend our response to the Select Committee to the House.