Pubs Code and the Adjudicator

Lord Jackson of Peterborough Excerpts

Thursday 14th April 2016 Westminster Hall

[Greg Mulholland]

The hon. Gentleman expresses the views of his tenant constituents. Tenants’ organisations and tenants throughout the country have expressed that same view. I will come on clearly to lay out why the appointment of the pubs adjudicator is simply untenable.

[Mr Stewart Jackson (Peterborough) (Con)]

The hon. Gentleman is right to pay tribute to the cross-party nature of the campaign. I am someone who voted with him in 2014 and am very much on his side, but, in fairness, to balance things out, does he concede that our coalition Government between 2010 and 2015 realised the necessity of a new code and regulatory framework to address the issues that he has raised over many years?

[Greg Mulholland]

The hon. Gentleman is absolutely right. I want to thank him personally because he has been a real champion for pubs in Peterborough and his support of the Save the Pub group and the Fair Deal for Your Local campaign has been warmly welcomed. Today is precisely about trying to finish a job that dates back to Select Committee inquiries, the first of which was in 2004—that is how long the issue has been on the political agenda. We are finally getting to the stage of a statutory code of practice, but that, still, is flawed and contains loopholes.

In the spirit of the hon. Gentleman’s intervention, that is an issue about which tenants have asked: is this conspiracy or cock-up? I am clear that what has happened is a cock-up. There was an excellent leading article in the Publican’s Morning Advertiser on 7 April in which Mike Berry, who is a neutral person on such issues, said:

“The Government has not covered itself in glory throughout this entire process. From accusation by campaigners of acting in bad faith by removing or amending parts of the legislation, to U-turns over the original omission of parallel rent assessments, the latter part of this saga has been particularly fraught. And that’s before we even consider the furore from some over the appointment of Paul Newby as the pubs code adjudicator”.

I say to the Minister that this is not personal, but the change of civil servants at the Department for Business, Innovation and Skills after the election has clearly led to mistakes being made and a lack of understanding of some of the complexities and technicalities of this legislation, to the extent that in a meeting with a group of tenants, one of the people who has been involved in drafting the pubs code and was on the panel that interviewed the adjudicator said, “I don’t really know much about this.” That being the case, how can tenants possibly have confidence in the Department? I have also been informed that one of the civil servants who had previously worked on the code and who did have experience and the confidence of tenants was brought back in to work on it.

Mistakes have been made, and those mistakes must now be rectified—that is all that we are asking for today —so that, when the pubs code comes in on 26 May and the Pubs Code Adjudicator starts work at the beginning of June, people will have confidence that that has been done properly and that the will of both Houses has been abided by. The legislation was subject to votes in both Houses, and Ministers in both the last Government and this Government, including the Minister here today, made clear promises to abide by those votes and introduce the pubs code and the market rent-only option.

I will address the concerns about the pubs code, the first draft of which was published on 29 October 2015. I declare an interest as chair of the British Pub Confederation, which represents 13 organisations, 11 of which are licensee organisations. The confederation and the Fair Deal for Your Local campaign, which many hon. Members supported, were appalled at the first draft, which included the outrageous clause 8.12. I have given credit to the Minister and her team, and to the Secretary of State, for being prepared to listen and to drop that provision, and we ask them to do so again to address the issues highlighted by an amendment that I tabled to the Enterprise Bill and by one tabled in the name of the shadow Minister, the hon. Member for Sefton Central (Bill Esterson). Unfortunately, we did not get the chance to discuss or vote on either of those amendments, so we urge the Minister to make those changes herself.

The first loophole in the draft code is that, as it is currently written, any tenant seeking to take the all-important market rent-only option that we voted through the House on 18 November 2014 will be forced to give up their lease for a shorter, five-year one. That is simply not acceptable. Clearly, all that the market rent-only option means and ever has meant is that tenants have the simple right to seek an independent assessment of their commercial rent on a free-of-tie basis and then pay that sum—and only that sum—to the pub-owning company for the entire remainder of their lease or tenancy. That loophole is simply not acceptable and must be removed if BIS is to stick to its commitment to introduce the market rent-only option that was voted for. As the person who tabled that clause, I can say that the code simply does not do that as long as that loophole is there.

The second loophole is an extraordinary one that allows a waiver in exchange for investment for people who have not even taken on a tenancy or lease. There has been much discussion about investment, but I think many hon. Members fail to understand the reality of pubco investment. A Federation of Small Businesses survey of its licensee members found that 68% had not had any investment from their pub companies in the past 12 months. Indeed, the costs of investment presented by pubcos are often inflated. Many tenants report that they have had cheaper quotes from other suppliers but are forced to use the contractors that the pub company insists on. There is a problem with allowing a waiver for people who have not yet taken on a pub. We accept that there will be a waiver to allow for investment—it must be limited, substantial and genuine investment—but we strongly say that it should not come in until someone has been in a lease or tenancy for two years.

The reality is that when pubs are vacant, frequently because of a failure of a previous tenant due to the tied pubco model, there is a need for repairs and basic investment simply to make the pub fit to let to someone else. If someone is forced or encouraged to sign a waiver before they have even taken on that pub, there is a real danger that that will be used and abused, with people able to say, “We have invested in this pub that you are about to take, and therefore you have to give up your right to an independent rent assessment for another five years.” That would be the case, and they would therefore not get that assessment for 10 years. There is also a great danger of encouraging pub companies to seek to force out sitting tenants who have the right to a market rent-only option, in favour of someone new who will sign away their right to it.

[Mr Jackson]

The hon. Gentleman is making a strong, detailed and comprehensive argument. He will know that paragraph 127 of the impact assessment produced by the Department specifically references a non-gaming caveat. Rather than waste valuable time and energy and the efforts of civil servants and others, including hon. Members, down the track in producing secondary legislation to amend the code, is it not better that we identify the gaming loopholes now before the code comes in on 1 June?

--- Later in debate ---

[Greg Mulholland]

What a quite extraordinary comment, in the mother of all Parliaments, that somehow we are not allowed to challenge a Minister to condemn bad behaviour—what an extraordinary comment, even from the right hon. Lady. Quite remarkable.

The next thing that the Minister and her team must do is on the Pubs Code Adjudicator. Representatives from all sides of the pub sector noted as long ago as 2013 that to ensure impartiality, it would be sensible for the post to be taken up from outside the pub sector, if the role were to gain industry-wide confidence, credibility and acceptance. That is clearly the basic, essential nature of this role, yet BIS has clearly and demonstrably failed to ensure that.

Let me lay before the House the very serious issues as to the clear flaws and untenability of this appointment. The appointee, Mr Paul Newby, is a chartered surveyor and a director and shareholder of Fleurets. He clearly has a conflict of interest, and it is clearly a disqualifying conflict of interest. Fleurets is the largest surveying practice operating in the very sector that the pubs code is being introduced to regulate. Of course, the reason for that is to protect tenants from abuse by their pubco freeholders.

Mr Newby’s CV, which is publicly available—although, interestingly, it has been taken off the Pubs Independent Rent Review Scheme website—openly advertises for whom he acts. Let me list the six companies that Mr Newby is required to regulate: Enterprise Inns, Punch Taverns, Marston’s, Greene King, Heineken—which is Star Pubs & Bars—and Admiral Taverns. Who do he and his firm currently, and boastfully, say they act for? Enterprise Inns, Punch Taverns, Marston’s, Greene King, Heineken and Admiral Taverns. He clearly is conflicted and biased. Of course the Minister will say, “But he has also operated and acted for tenants,” but actually, given the nature of this appointment, that equally would mean that he is conflicted.

[Mr Jackson]

Mr Newby may be an exceptionally gifted and talented man to have appointed, but does the hon. Gentleman agree that just the appearance of a conflict of interest is difficult? In this respect, it would circumscribe due process on those occasions when he was required to act in his official capacity. In that sense, it is not fair on him or the taxpayer, or on all the other stakeholders in this situation.

[Greg Mulholland]

The hon. Gentleman is absolutely right. I actually believe that Mr Newby has been let down in this process, because clearly his application was never tenable and should never have been proceeded with.

The Minister will say, “Oh yes, Mr Newby has represented tenants,” but does she realise that some tenants are actually pub companies themselves? It says that in Mr Newby’s own CV. I was in such a pub last night—the excellent, award-winning Eagle Ale House in Battersea. The award-winning licensees there lease it from Enterprise Inns, but Enterprise Inns are themselves tenants of a property company, so some of the “tenants” that Mr Newby has represented may well be pub companies.

Let me deliver this message as clearly as I can. Let me tell the House about the Fleurets website, and I would urge hon. Members to look at it. Fleurets widely advertises, including on its website and in trade publications, that it acts for all six of the large pubcos to be regulated, and that these are all clients that Fleurets and Mr Newby, as a director and shareholder, derive a substantial part of their income from.

The British Pub Confederation asked in a letter to the Secretary of State what proportion of the number of cases that Mr Newby has acted in have been on behalf of pubcos, and what proportion have been for tied licensees. The Government refused to answer that question in the letter of response, so I ask it again, and we must have a reply. And what is the proportion of income that Fleurets and Mr Newby make from pub companies and from tenants? We know the answer. Companies House records show that Mr Newby has been a director of Fleurets Ltd since 1995 and of Fleurets Holdings since 2009. He owns 100 ordinary A shares in Fleurets Holdings, amounting to 11.79% of the ordinary share capital in the company. Fleurets Holdings Ltd wholly owns Fleurets Ltd.

The Fleurets website makes it plain that the thrust of the company is to market its services to corporate entities, not to individual tenants. The logos of Fleurets’ corporate clients appear on various pages of the site but there is no mention of tenant clients. There are quotes from satisfied clients. The only ones from the tied pub sector are from Star Pubs & Bars—owned by Heineken—Fuller Smith & Turner, Marston’s, J.W. Lees and Daniel Thwaites. None of the CVs of the nine directors on the website shows any specialisation in acting for individual tied tenants or mentions doing so. Mr Newby’s own CV does not mention his acting for any individual tenants. His CV that was on the PIRRS website—strangely, now taken down, as I said—confirmed that for the last five years, he has worked most closely with Enterprise Inns, Marston’s and Punch Taverns. In 2008, when Martin Willis, the current chairman of Fleurets, was questioned by the Business and Enterprise Committee over a conflict of interest, he said:

“I think we represent just about every pubco”.

That is clearly very true today.

Interestingly, I noticed that among the logos of companies that Fleurets has represented was that of Criterion Asset Management, the director of which is Theo Osborne, brother of the Chancellor of the Exchequer. Did the Minister and her team know that? Mr Newby’s company website provides an interesting indication of the preferences of Mr Newby’s firm in relation to the pros and cons of the tied model, which he is now expected to regulate. In 26 pages of news and information articles on the Fleurets website, as of yesterday, there was no criticism at all of the tied model. In contrast, the website is effusive in its promotion of that very business model, the one practised by so many of Mr Newby’s clients—the very companies that he is supposed to regulate.

Let me read some of the headlines. Under “Leasehold pubs are an Attractive Option”, the article states:

“There are some excellent businesses on offer from most Pub Companies”.

Under “The Leasehold Pub—The route to success”, the article states:

“With very little capital needed, tied and free of tie leasehold pubs offer the opportunity for passionate people to build spectacular businesses”.

Under “How Do I Go About Getting Into The Pub Trade?” the article states:

“Whilst getting into the licensed trade can seem quite daunting it must be remembered that breweries and pub companies are continually on the look-out for enthusiastic new partners to run their pubs...For the first time operator this route can often be the best as it comes with various support and training packages and it is invariably the lowest cost of entry”—

that is something that many tenants who have struggled with the tied pubco model would strongly dispute.

Another interesting article, and something that has been missed entirely by BIS in this process, is headlined, “Pubs sold for alternative uses in 2014 by Fleurets”. The truth is that Fleurets is not only a surveyor, but the estate agent of choice in the big pubco sell-off. The indebted companies, who got themselves into billions of pounds of debt through their own recklessness and their acquisition spree, are now asset-stripping their estates, often selling for non-pub use, sometimes against the wishes of licensees and often against the wishes of local communities. Fleurets is doing that for them and profiteering from it—and so, currently, is Mr Newby. Did BIS realise that? It does not appear so, because there has been no mention whatsoever of Fleurets’—or Mr Newby’s—role and financial links in that respect.

I will give a powerful example of why tenants cannot and will not accept Mr Newby as the adjudicator. This morning I had an email from a former director of the British Institute of Innkeeping—an organisation that the Minister was keen to quote from, citing it as a licensee organisation. I need to correct the record because it is not; it is a charity rather than a representative licensee body. I think she was indicating somehow that it supports this appointment. Well, that former director is now an adviser to publicans and other small businesses, but during his years with the BII he worked closely with larger surveyors, specifically naming Fleurets. He has described the relationship between these chartered surveyors’ firms—again, specifically naming Fleurets—and their pub company customers. He says—I quote from that email—that it is “a gravy train”. He explains that there are chartered surveyors in the sector who use valuation methods that advantage their pub company customers, and explains how surveyors and pub companies work together, using what he says are—I quote again—“questionable” practices, to ensure the best outcome for the pub company and not for the pub tenant, because of course most of the surveying work and most of the income comes from pub companies, not tenants—which is inevitable when tied tenants are running a pub and can barely break even.

We need to put to bed the idea that somehow this situation is acceptable because Mr Newby has represented a few tied tenants in his time and has potentially even won some cases for them. Very interestingly, there was an admission at a roadshow by Fleurets that it delegates tenant cases to less experienced and less expensive surveyors—something that Mr Newby very clearly is not.

When we were going through the process, we were told that the Pubs Code Adjudicator would be like the Groceries Code Adjudicator and that the Department for Business, Innovation and Skills would follow similar principles. It has clearly and demonstrably failed to do so. Paragraph 1 of the Groceries Code Adjudicator’s conflicts of interest policy and register of interests refers to ensuring

“that no conflict arises, or could reasonably be perceived to arise, between the official position of the Adjudicator and private interests, financial or otherwise”.

The hon. Member for Peterborough (Mr Jackson) has said clearly that that is not the case with the appointment of Mr Newby, who has a prejudicial financial interest. Paragraph 6 states:

“A conflict may arise whenever an outside interest might influence, or be perceived to be capable of influencing, a person’s judgment.”

The extraordinary thing is that the reply to the British Pub Confederation’s letter states simply, “We don’t think there is a conflict of interest.” When asked whether Mr Newby declared his clear conflicts of interest, the reply was: “We asked him about his conflicts of interests at the interview and were told that there weren’t any and we accepted that.” That is extraordinary and should never have happened.

Let me share with the Chamber paragraph 18 of the Groceries Code Adjudicator’s policy and register of interests:

“Financial interests will generally arise from the ownership of assets (or other investments or sources of income) such as shares (whether bearing a right to vote or not)”.

Just yesterday, the British Pub Confederation’s secretary, Simon Clarke, received a letter from the Secretary of State saying:

“I understand that Mr Newby will continue to hold a number of non-voting shares in Fleurets, as security whilst monies owed to him are repaid”.

The situation is serious. Someone will be allowed to continue to have shares in a company that profits from the work of the very companies that he will be regulating. You could scarcely make it up.

This week, the Prime Minister has been keen to tell us that he divested himself of all shares before becoming Prime Minister, but that has not got him out of the hole he has found himself in during the last few weeks. Yet we are seriously discussing a statutory adjudicator with a quasi-judicial role and the Department seems to think it is fine for him to hold shares in such a company. That is quite extraordinary.

Just this week, the Premier League, which has much higher standards than the Department for Business, Innovation and Skills, removed Kevin Friend as a referee for Tottenham Hotspur’s game against Stoke on Monday because he lives near Leicester and supports Leicester. That was a good decision by the Premier League to avoid any feeling of bias. Yet the clear perception of bias in Mr Newby’s appointment is being ignored. With respect, simply to say, “We don’t think tenants are concerned,” when tenants’ associations have written to make clear their concern, is extraordinary.

Fiona Woolf was unable to preside over the child abuse inquiry simply because she had had dinner with someone who at that stage might have been of interest to the inquiry. Yet in Mr Newby’s case, the Department for Business, Innovation and Skills has simply brushed under the carpet and dismissed his clear professional and financial links to the very companies he is supposed to regulate. How can the Minister possibly say that tenants can and will have confidence in Mr Newby, given that he will continue to receive share dividends from a company that has pubcos as its majority customer base?

Part of what the Minister will say today and part of what she has already said relates to her former career and profession of barrister, a profession I strongly admire. My sister and brother-in-law are barristers and I have huge respect for the work that barristers do. The Minister therefore knows that barristers are obliged to operate under the cab rank rule and to represent a client who comes to them with a legal problem in their area of expertise. As advisers, they are expected and mandated forcefully to advocate their client’s position. The role of adjudicators and judges is different.

The Minister has stated that a surveyor is like a barrister—another form of professional—and simply takes cases. That completely misses the point. Surveyors do not operate under the cab rank rule. Mr Newby and his company, Fleurets, actively market themselves to pubcos, including two of those he is supposed to regulate in a matter of weeks, boasting on his company’s website of his expertise in representing them. If the Minister is under any impression that there is some equivalence between the way barristers operate under the cab rank rule and how a director and shareholder of a commercially active chartered surveying company would act, she is missing the reality of surveying, particularly in the pub sector.

The point is that Mr Newby will not be like a barrister. He will be like a judge. He will no longer advocate for his clients, but will adjudicate like an ombudsman or a judge, in this case like a jury and executioner. Why are the standards of public confidence that our excellent judiciary regard as essential to their legitimacy not applicable to Mr Newby in his new rule as statutory adjudicator, which is a quasi-judicial role? He will be judging contentious legal issues that would otherwise see the parties concerned in front of the judiciary.

At the heart of the problem—the British Pub Confederation has taken legal advice on this—is that there is a lack of protection in contract law for tenant publicans who may enter into tied lease arrangements naively or when the realities of their new circumstances have been misrepresented by pubco representatives. That is precisely why we are legislating. It is impossible for Mr Newby with his current position and links to be able to fulfil that quasi-judicial role.

I have mentioned the 11 licensee groups that form part of the British Pub Confederation. They all oppose this appointment. The Minister has suggested that some licensee organisations support the appointment, but I am not aware of any and certainly the British Institute of Innkeeping, a trade charity, does not. The Campaign for Real Ale, which she mentioned, has not welcomed the appointment and has said it will scrutinise Mr Newby’s activity. It is a consumer group and does not, as she wrongly said in the main Chamber, represent licensees. It is a consumer, campaigning group.

The Association of Licensed Multiple Retailers—which could be an organisation the Minister is talking about—represents multiple tenants, some of whom are individuals and some of which are companies, including Greene King, one of the companies the adjudicator will regulate. The Association of Licensed Victuallers Associations is run by a former Enterprise Inns employee and its 2015 dinner and AGM was sponsored by Enterprise Inns. I am afraid the Minister is kidding herself in saying that tenants’ groups and tenants may support the appointment.

Let me say clearly that British Pub Confederation licensee groups and their licensee members have made it clear that they will not accept Mr Newby adjudicating on their cases. They have a clear right to do that, which means he will be unable to act in a large proportion of cases, which will need to be dealt with by someone else, presumably a deputy adjudicator. What a farce. What a mess.

I am not the only one saying that. According to the guidance on conflicts of interest and the arbitrator’s code of conduct of the Royal Institution of Chartered Surveyors, in the majority of cases brought before Mr Newby, either party will be able to stall the process by citing his conflict of interest as a reason not to accept him as adjudicator. The adjudicator cannot be a surveyor, particularly not one from the pub sector.

On that, I can do no more than read to the House what the Royal Institution of Chartered Surveyors told the Government in its response to the 2013 consultation on the adjudicator:

“Whether or not the Adjudicator is a chartered surveyor, he/she will require assistance from other specialist Chartered Surveyors…It is likely that many will have a conflict of interest having advised one of the parties on a range of matters”.

Was the Minister aware of that advice from 2013? Also, a pub sector surveyor might well wish, intend or need to return to their career surveying and acting for the pub companies and selling off pubs for them after their term as adjudicator, so there would always be the suspicion that they were worried about annoying the people from whom they would then seek to again be taking the majority of their income.

BIS was warned in 2013 by tenants groups. Simon Clarke of the Fair Pint Campaign and the secretary of the Independent Pub Confederation wrote:

“It would be catastrophic if the Adjudicator were a Chartered Surveyor”

because

“specialist Chartered Surveyors active in the market may have conflicts of interest and should not be put in positions where perception of independence or impartiality is a requirement of the parties”.

Mr Clarke is himself a chartered surveyor, a RICS member, so he knows what he is talking about. He knows that he could not be the adjudicator—the pubcos would certainly be screaming had he been appointed—but Mr Newby cannot either.

I hope that, having heard what I have shared with the House today, the Minister will reflect and realise that this appointment is untenable. However, let me make it clear: if Mr Newby is not removed from post, an initial early legal opinion taken by the British Pub Confederation is that there are indeed strong grounds for the decision—one that the Department has clearly made on a flawed basis, not taking into account the reality of the situation—to be judicially reviewed. I hope that the Minister will listen and accept that this was a mistake. We do not believe it was anything more than a mistake, but a mistake it certainly was—one that did not follow the previous knowledge that the very same Department had.

To conclude, I urge the Minister to listen at this late stage to people who have been involved in this issue for five, 10, 15 or 20 years—to experts in the sector. The pubs adjudicator cannot be someone from the sector, for the very reasons that I have laid out. It has to be someone who is impartial and has the confidence of all sides, or it simply will not work. The pubs code must be changed. The two loopholes must be removed. I urge the Minister not to make the mistakes that the Conservative Government made with the 1989 beer orders. That was very courageous and correct legislation to give consumers better choice in pubs, but there was lobbying by the large companies, which saw the opportunity to sell off pubs to their friends, giving golden handshakes and setting up the very pubcos that we are now talking about. We must not make the same mistake again. We must close the loopholes and we must see a proper adjudicator, so that we can finally have confidence that this long-running saga will come to an end and so that tenants can have confidence in both the code and the adjudicator.

[Mr Stewart Jackson (Peterborough) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. I am sure that you have visited many pubs over the years in your constituency.

In many respects, the debate that we have been having ever since 2014, when we considered the Bill that became the Small Business, Enterprise and Employment Act 2015, is a microcosm of what it is to be a good, diligent Member of Parliament, because we have two jobs of course. One is to represent all that is best in our constituencies, and pubs are part of that social and business fabric. The other is to scrutinise, oversee and assist in the production of good legislation. I think it is only fair that we pay tribute, as I said in an intervention, to the previous Government for taking the action that was certainly necessary at the time and remains necessary, to address some of the very clear infringements and unfairnesses in the legal, operational and commercial relationship between tenants and pubcos.

As a Conservative, I understand—I think we all understand; certainly my right hon. Friend the Minister, as an experienced parliamentarian and Minister of the Crown, understands—that all markets have to be regulated. We cannot just let the market have free rein. There has to be some paradigm, some rules that govern the market. The previous Government, of which the Conservative party was part, accepted that and understood it very carefully. The legal framework needed to be put in place, and followed on from the Report stage of the Bill in November 2014.

The context was a dysfunctional market, and a dysfunctional market is not good for anyone. It is not good for the taxpayer; it is not good for the consumer; and ultimately, in terms of reputational damage, it is not good for the owner, the landlord, the big business. We therefore needed to address that. We had market distortions. One might even, if one were being pejorative, say that it was an example of crony capitalism. As a Conservative, I do not favour crony capitalism. That oligopolistic behaviour of the pubcos needed tackling, and it is to the credit of the previous Government that they tackled it. They needed to do that because we did witness, and are witnessing now, potential abuse of section 25 notices and full repairing and insuring leases and other loopholes that the hon. Member for Leeds North West (Greg Mulholland) mentioned. I was remiss in not paying tribute to him for bringing this issue to the House today and for being a doughty champion over many years on it. I know that he has not always endeared himself to Ministers—this Minister or her predecessors—but he is not in the business of doing that. He is in the business of doing what he thinks is right and representing his constituents in Leeds, and he has done a fine job in that respect.

That dysfunctional market was the challenge we had. Of course, on a wider level, we were defending diversity, customer choice, fairness and individual decisions. We were right to take those steps, so essentially what we are doing now, as the hon. Gentleman said, is finishing the job. It will not be perfect. It will always be subject to legal challenge and to tweaking in its execution. Nevertheless, I agree with him that we are looking at cock-up rather than conspiracy. I do not know Mr Newby; I have never met Mr Newby. I am sure that if I were in a pub, he would buy me a fine flagon of ale and talk about life and the universe and put everything to rights. But that is not the point. I think this has been a cock-up, and part of the job of being an MP is to point out where a Department might be going wrong and to accept the basic premise of the policy, but try to tweak it to improve it. On that basis, it is right that the Backbench Business Committee granted this debate today.

Before I go any further, I should say that there are some superb pubs in my constituency—I will be in trouble otherwise. Most notable, and not far from where I live, is the Hand & Heart in Highbury Street in Peterborough. I would be remiss if I did not also mention Andy Simmonds, the landlord of the Ploughman at the Werrington centre in the north of Peterborough. But I will not go through all the licensed premises in my constituency.

That is the background to why we are here. I do not want to recapitulate the very erudite, comprehensive and well researched remarks of the hon. Member for Leeds North West, but I do want to raise the issue of investment. That was one of the loopholes that he identified—the waiver of the market rent option for investing in pubs. If it were as simple as that—a symmetrical, rather than an asymmetrical, relationship—it would be all fair and good, but I do not think it is. One anecdotal fact that has come out of experiences over the past few months and years is that the burden of investment to keep a licensed premises going and to keep it viable falls disproportionately on the tenant. On that basis, it is quite demonstrably, obviously and self-evidently unfair.

Paragraph 141 of the Department’s impact assessment of the pubs code and adjudicator noted that

“a FSB survey of their members found 68% hadn’t had any investment from their pub company in the last 12 months.”

As we know, the cost of investment that the pubco presents is often inflated. Many tenants report that they have much cheaper quotes from other suppliers but are forced to use the contractors insisted upon by the pubcos, which use their buying power to get low prices but, as with beer, on-charge it as a mark-up to their tenants.

Often, the investment is not an investment in any true meaningful sense. It is a de facto loan that the tenants are compelled to comply with as part of a contractual relationship. Any pubco money that is spent on a pub is often spent when the pub is vacant, in order to get the business back on its feet. Pubco money is not often spent to support a sitting tenant. Churn tenants—those who have to move—are often pursued through litigation over dilapidation clauses in the lease.

The concept of investment as a quid pro quo for waiving the rights that are established in legislation on the face of the Small Business, Enterprise and Employment Act—or, certainly, in secondary legislation—is not as simple as it may seem. On that basis, it is an area that needs to be looked at. I referred to paragraph 127 of the impact assessment earlier. It is better to finesse and nuance the code to deal with the loopholes and problems that have been identified, rather than to wait for 12 months or two years to introduce secondary legislation to do that or, indeed, to have to defend the code in the courts if there is a judicial review. There is no hidden agenda. In the same way that the loopholes are possibly a cock-up, there is no conspiracy among hon. Members to do down what we agree is a superb piece of legislation that rights some long-standing wrongs. We just want to improve it.

I will not take up too much more of the House’s time, but I want to further develop the point about the Pubs Code Adjudicator. I was going to raise the issue of the comments of the Royal Institution of Chartered Surveyors, but I will not go into them now. The comments are pretty strong evidence from observers who do not really have a vested interest. I have had dealings with RICS, and it is a professional organisation. In this respect, it has been asked its honest, reasoned opinion as to whether something will give rise to problems in the future, and it has given it. That is something we should take very seriously.

The appearance of impropriety and of a conflict of interest is the Achilles heel of the appointment of the adjudicator. If we are discussing the methodology of the appointment, it is not good enough just to say, “Well, we had a nice chat and a robust interview. We all got on famously. Everything’s tickety-boo. He’s essentially a good egg. Job done.” [Interruption.] I exaggerate for effect, as the Minister knows, before she gets too concerned. The point is that the hon. Member for Leeds North West was quite right to make the distinction between and comparison with the supermarket adjudicator.

If the Department is to develop a methodology for important appointments, it has to be consistent. It is a serious issue when there is almost unanimous opposition and potential threat of a legal case, and when an individual is put in the difficult position of being unable properly to discharge his duties—the duties incumbent on him, which Parliament has given him—because the code circumscribes the workload and gives rise to potential problems.

Not everyone is as decent and honourable as everyone else. If people can find a way of winning a case by alleging that the adjudicator is biased or has a vested interest, they may very well seek to hold up legal proceedings and bring the whole thing to a juddering halt. We do not want that because we want the market to work effectively. I gently say to my right hon. Friend the Minister, who I have known for many years, that that is a consideration that she would be exceedingly unwise completely to dismiss out of hand.

The example we are debating probably supports the suggestion of many hon. Members that we need to move towards confirmation hearings before Select Committees or specially convened Standing Committees of the House to confirm the appointment of very senior people to regulatory roles. However, that is a bigger issue and we will not meander down that particular avenue of joy and excitement now.

In conclusion, we are right to have this debate because it is imperative that the Minister addresses the issues, and I am sure that she will do so in her customary combative but eloquent way. The hon. Member for Leeds North West has made some very strong points. My plea to the Minister is to think again about the Pubs Code Adjudicator and the loopholes. We still have a number of months—or weeks, at least—until the code is formally published. I urge her to give it consideration, listen to the debate and make the legislation as efficient as it could be in righting the wrongs and bringing fairness to the market because it is something on which there is consensus and around which we can all unite.

--- Later in debate ---

[Grahame M. Morris]

I was there, Minister, with all due respect. I thought it was a rather heated and fractious exchange. The fact that it was not anticipated does not reflect well on the Department. If the Government insist on appointing Mr Newby, I fear that, intentionally or not, they will undermine the office of the Pubs Code Adjudicator from the day that he starts work.

[Mr Jackson]

The hon. Gentleman is making a good speech. Does he agree that this debate also gives an opportunity for the Minister to clear up the confusion about whether the adjudicator has helped design the code since December? There have been mixed messages from BIS about whether he is coming in clean from May or whether he has been complicit, to use a pejorative term, in the construction of the regulatory regime. That is an important issue.

[Grahame M. Morris]

Once again—for the second time in one Parliament—I agree with the hon. Gentleman. It is a completely reasonable question, and I hope that the Minister will be able to clear it up in her response.

There seems to be no doubt that the pub companies see Mr Newby as their man. Worse still, the tenants seem to agree. More than a dozen stakeholder groups have come together under the auspices of the British Pub Confederation. Collectively and individually, in the representations that I have received, all of them see Mr Newby as not independent. I am not saying that that is correct; I am just saying that it is their perception. I worry that the Minister cannot see that the situation is untenable. If she truly wants the pubs code to work, she will need to appoint an adjudicator who can command confidence across the industry. Regrettably, I think that she should apologise to Mr Newby and rerun the recruitment process.

In conclusion, the pub and brewing industry makes an immense contribution to our local communities and our economy. I love pubs; I love the industry, and I want to see it flourish. I want community pubs to thrive and tenants and landlords to have successful businesses. The drive behind the pubs code and the role of the adjudicator is to strengthen the industry. It should be seen as a step towards addressing the decline and closure of pubs over the past 20 years. It is in the hands of the Minister to listen to the concerns expressed by hon. Members from all parties, and to take the issue forward in a positive way that addresses them all.

--- Later in debate ---

[Mr Bailey]

It is very helpful to have that on the record. I am sure that the Minister will understand, as I do, that often in politics perception can become reality, and if these rumours are going round, obviously that has considerable significance and could underlie or even reinforce the level of suspicion that exists about the proposed impartiality—

[Mr Jackson]

In an effort to be helpful and for the avoidance of doubt, let me point out that the Minister said on 10 March that Mr Newby had

“already started work. He has been very helpful to my officials in making sure that we have the pub code up and running, and ready to come before this House.”—[Official Report, 10 March 2016; Vol. 607, c. 425.]

Therefore, with all due respect to the Minister, there was some room for ambiguity and I am pleased that she has clarified that matter now.

[Mr Bailey]

I thank the hon. Gentleman for his intervention, which demonstrates the source of the ambiguity. That is certainly something that needed to be clarified, because if there is any suspicion that the arbitrator is involved in the drafting of the code, that calls into question the future impartiality of its interpretation. His intervention also demonstrates how easy it is, in this rather long-standing antagonistic set of relationships, to set things going that could perhaps be remedied with a slightly different approach.

What is undeniable is the lack of trust from the tenants’ side on the appointment of Mr Newby. I do not like to prejudge that appointment. The hon. Member for Peterborough (Mr Jackson) mentioned having some kind of pre-appointment hearing for the adjudicator. That had crossed my mind as being something that, if the Minister is to go ahead and make this appointment, might go some way to satisfying everybody. I am in a slightly difficult position, because I am not on the Business, Innovation and Skills Committee—as its former Chair, I do not feel that it is my job to start recommending what it should be doing now—but it would certainly fall within the Minister’s remit to perhaps gently suggest that it would be helpful for the Department to have such a hearing. I know that often there are informal channels of communication between Departments and Select Committees, and their roles can be reinforced if those channels are used properly. I gently suggest that the Minister could look, if not at a BIS Committee pre-appointment hearing, then at some form of parliamentary scrutiny that would enable an adequate response to the questions that are circulating.

In conclusion, I reinforce this point. The legislation has been a long time coming and people have devoted so much work to it. A successful outcome is so important. Given its long gestation, we do not want the legislation to be damaged at birth. I stress the need for the Minister to listen to the comments that have been made today. She should take them on board and provide mechanisms and responses that will not only enable the wider participants—the tenants, the community pubs and the beer-drinking community—to be satisfied, but Parliament, too. Every opportunity should be given for scrutiny to deliver that satisfaction. The importance of the industry to the individuals within it, the communities they represent and the economy as a whole is so great, and we want to get the legislation right. This is a once-in-a-lifetime opportunity. I ask the Minister to listen to everyone to ensure that we get it right.

--- Later in debate ---

[Bill Esterson]

The hon. Gentleman described it earlier as a cock-up. Unfortunately, as with so many other aspects of the way the pubs code was drawn up and the way the level playing field was supposedly being created, the Government have not handled it well. There is clearly a contradiction between setting up an office and what the paragraph that the Minister read out states. As I said, others will make their own judgments about that.

I was talking about the Fair Pint campaign’s submission, which, by the way, was made before Mr Newby’s appointment was announced. It said that surveyors will have acted for the big pub-owning companies and will not be seen to be impartial in arbitrating as the adjudicator between pub companies and tenants. What is more, it also points out that Royal Institution of Chartered Surveyors members who deal with pub valuations depend on pub companies for a large portion of their fee income. That is a clear conflict of interest. That warning was made before the adjudicator’s appointment was announced by the Minister and her boss the Business Secretary.

In RICS’s response to the consultation on the adjudicator in 2013, it said:

“We also have concerns in relation to how the Adjudicator process might work on a practical level…It is likely that many such specialists will have a conflict of interest having advised one of the parties on a range of matters or as an Independent Expert or Arbitrator.”

So RICS made the same point, well in advance of the appointment, that a surveyor is almost certainly going to be conflicted. Si Clarke from the Fair Pint campaign told the Minister when he met her that appointing a surveyor would be “catastrophic”. As he told me this morning, having an independent adjudicator can only mean not appointing a surveyor. He and others made that point extremely clearly to officials and Ministers throughout.

It is important to stress that the concerns about the adjudicator’s appointment are not a reflection on one individual. Nobody is suggesting that surveyors act in anything other than a professional way, with the utmost integrity. The concerns about the appointment of Paul Newby are not about Mr Newby. His integrity is not in question in any way. That has been confirmed throughout our discussions today and previously, and the hon. Member for Peterborough (Mr Jackson) made that point extremely well.

[Mr Jackson]

The hon. Gentleman is making a powerful point. It is unfortunate that the Minister has to defend this situation, which is, as much as anything else, about governance in her Department—indeed, in all Departments. In the absence of a confirmation hearing, the decision to go by statutory instrument rather than Standing Order and therefore to restrict the level of oversight and scrutiny by Parliament is regrettable. I gently say that the Government should reflect on the fact that we will continue to have instances when people say, “Is it cock-up or conspiracy?” and question individuals if the system sets its face against proper scrutiny.

[Bill Esterson]

I agree and echo the hon. Gentleman’s call for such appointments to be subject to Select Committee appointment hearings. That is the right way to go. The way he phrased it is a good way of emphasising that this is not about any individual. We are not questioning anybody’s integrity. I am glad he made that point, because it is important that we continue to stress it.

The problem is the conflict between Mr Newby’s work for Fleurets and his representation of the big pub companies over many years, and his ability to gain the trust of pub tenants. It is no good to say, as the Minister did, that he acted for pub tenants. As RICS pointed out, having advised either a pub company or a pub tenant could be perceived to lead to a conflict of interest. In any case, in examining the claim about Mr Newby’s having represented pub tenants, it is important to understand what that really means. Mr Newby’s CV, dated 10 February 2012, shows that he acted for the following pub tenants, among others: Enterprise Inns, Marstons and Punch Taverns. In other words, the same large companies can be pub owners and pub tenants, which raises questions about why his more recent CVs omit such detail.

We have not been able to get an answer to how many pub tenants whom Mr Newby or Fleurets has represented are the tied tenants of a single pub or the small number of pubs that they run. After all, with fees of £300 an hour or more for a firm such as Fleurets, it is rather doubtful whether any tied pub tenant with an annual income of £15,000 or less—or those with no income or those making a loss—would be able to afford such services.

When the Minister wrote to me, she told me that the appointment panel had satisfied itself that Mr Newby had no conflicts of interest. That is rather odd, given the RICS assessment of the same topic. I suggest to the Minister that had she said to me that the panel had found conflicts of interest, but had decided that they would not affect Mr Newby’s ability to do the job, that might have been a rather better case for her to make.

The point about conflicts of interest is that, by definition, they have the ability to undermine impartiality, to influence and to create doubt among those involved. The example of the Groceries Code Adjudicator’s conflicts of interest policy was mentioned earlier by the hon. Member for Leeds North West. The policy comments in some detail, recommending a two-year period before conflicts of interest start to diminish. It also states that they have the potential to be a “disqualifying interest”. When setting up the pubs code, why was a similar approach not adopted from the outset? Why are such rules not already in place? The pubs code conduct policy will be developed in time, but it would have made more sense to have it in place earlier. Had it followed the same approach as that of the Groceries Code Adjudicator, I suggest that it would have ruled out the appointment of surveyors, including Mr Newby.

Another thing that did not help was that the Minister chose to announce Mr Newby’s appointment during an intervention in a speech being made by the hon. Member for Leeds North West in the Third Reading debate on the Enterprise Bill. The way in which that was done, I am afraid, raised suspicions that not all might be well. She could have made the announcement in a statement to the House—she was forced to come back the next day anyway, to answer an urgent question—or in the Enterprise Bill Committee. Why did the Secretary of State not make the announcement during his speech on Third Reading? Why in an intervention, of all things? That was an odd thing to do and it raised suspicions.

Given the way the pubs code was drawn up—with the exclusion of parallel rent assessment from the consultation; with the need, in the last Parliament, for amendments to the Small Business, Enterprise and Employment Bill to protect pub tenants; with real, ongoing concerns about the way MRO could be avoided; and with the appointment of a surveyor with clear conflicts of interest, despite the advice not to appoint a surveyor—it is no surprise that pub tenants and the members of the British Pub Confederation are still deeply concerned about what is going to happen when the pubs code is implemented. In reality, as things stand, there is a strong possibility that the lack of a level playing field will remain and that tied pub tenants will continue to be denied a fair deal.

The Minister needs to get a grip, to ensure that the loopholes in the pubs code are slammed shut, and to go away and take a long hard look at the appointment of the adjudicator. I believe the Minister wants a fair market in pubs and beer, but she has a lot of work to do to get there and little time in which to do it before the 1 June deadline. The hon. Member for Leeds North West made a point in his opening speech about the need for confidence in the pubs code and the adjudicator. I ask the Minister: please listen to what has been said by Members today and by pub tenants, to ensure that the new pubs code delivers.

[The Minister for Small Business, Industry and Enterprise (Anna Soubry)]

I congratulate the hon. Member for Leeds North West (Greg Mulholland) on securing the debate, I thank everyone who has contributed to it and I pay tribute not only to the hon. Gentleman, but to other hon. Members who have for many years been campaigning to ensure that the great British pub has a genuine, sustainable future.

I have to put on record a number of things. One of the things that has annoyed me all my life is any form of stereotyping. I object to it, so I object to anyone who thinks that because I am a woman I do not like pubs or ale—although I am not suggesting that anyone present has said any such thing. Throughout my life, I have enjoyed drinking ale in great pubs. By way of example, I name the Crown Inn in Beeston, the Horse and Jockey in Stapleford and the Nelson and Railway—a particularly exceptional pub—in Kimberley, all of which are in my constituency.

I confess that I started enjoying pubs at the age of 16 and I well remember, with great fondness, the many happy bonds with my school friends that were forged in the Old Ship Inn in Worksop and that have continued all the way through my life. As for so many people, those bonds were formed in pubs. We could also go on to debate all that pubs bring to our communities and to individuals, and the role that they play in the lives of so many people, which they have done for many centuries.

We all agree that we want to ensure that our great British pubs have a genuine, sustainable future. We want to ensure a fair deal for tenants, and for too long they have not had that fair deal in too many instances. Equally, we want a sustainable industry. Unlike some, I do not want pubcos to go out of business. I want them to invest in the future and I want them to act responsibly. It is a question of balance.

If there is one thing that I have learned since being appointed last May—the hon. Member for West Bromwich West (Mr Bailey) mentioned this, and he has been at it longer than I have, if I may say so—it is that there is a lot of noise and aggravation, distrust and, in some instances, anger about this. Sometimes there is also a lot of unpleasantness, but unfortunately that is a feature of modern political life. I have been the subject of abuse on Twitter from some tenants groups and tenants, and it all gets a bit tedious. However, we have to try and calm everything down and work together, so that we get the right balance and fairness to secure a proper future for our great British pubs. That is what I seek to do.

I mentioned stereotyping, and I also get a little—some might say overly—excited about the notion that, as a Minister, I am not fully aware of my duties in making appointments, or in all matters, of course. I have served in a number of Departments as a Minister, so I have made a number of appointments in my time. My duty is to ensure that I get the right candidate—to go through the proper process, with rigour and fairness, to get the right person into the job. I object to any suggestion that I appointed Mr Newby because I thought he was a lovely man.

I took my decision with great care. Three candidates were placed before me, all of them eminently appointable. I took the view that Mr Newby was the best of the three. Those other two people are real human beings, and they were exceptionally good candidates, but he shone out. The idea that I did not consider whether his appointment might please some more than others is frankly rather patronising. I wanted to appoint someone who I believed had the skills, ability and, most importantly, integrity to ensure that there was a level playing field and fairness—in particular, if I may say so, for tenants. If anyone suggests otherwise, I will take a very robust view with them.

[Mr Jackson]

For all I know, Mr Newby might be a lovely man. It is important to put that on the record.

May I also correct the record? I erroneously stated that the appointment was made under the auspices of a statutory instrument. I now know that that is not the case.

I think it is quite reasonable for key stakeholders to say that for a new group of Ministers and civil servants dealing with a complex, dense, difficult and contentious area, to err is human and there may have been genuine mistakes. I do not think that anyone is impugning the Minister’s integrity.

[Anna Soubry]

I am very grateful to my hon. Friend for his wise words. I take objection to the idea that the civil servants, in the most difficult of circumstances—they really are up against the clock—have not acted with total integrity. They have done a great job. I think that we sometimes forget that civil servants are professionals and human beings. With few exceptions, they serve us extremely well and do a good job.

Make no mistake: I do not have any complaints about the rigour of this place’s questioning and probing, and I am grateful to my hon. Friend for his comments. I hope he knows that I always act with complete integrity and would weigh up all the matters in favour of and against the appointment of anyone to ensure that we get the right person. I do not know whether Mr Newby is a lovely person, but I do know that he brings the requisite skills, ability and experience, and I am confident that he will act with integrity and do a good and fair job.

As I made clear on 10 March, Mr Newby is an excellent candidate. He was appointed in accordance with the code of practice for ministerial appointments to public bodies. As I did then, I take exception to any allegation that I or, indeed, anyone else has acted improperly or with complicity, and I have no doubt that he has all the necessary skills and experience of the pubs trade.