Pub Company Business Models

Vince Cable Excerpts

Monday 14th October 2013 Commons Chamber

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

I thank my hon. Friend the Member for Leeds North West (Greg Mulholland) for raising the issue and for his dedication to promoting, encouraging and supporting a fair and flourishing pub sector. He has a deep knowledge of the subject that was much on display this evening and I think that it is fair to say that he has played an enormous and disproportionate role in getting the policy debate moving in this House. That took us to the recent consultation on statutory regulation. He knows and acknowledged that we shall soon respond to the consultation, and I cannot say more about it other than that I will not be intimidated by scaremongering, which seems to be his fear.

My hon. Friend has left me approximately five minutes in which to respond, so I will not be able to say a great deal. He acknowledged that he did not expect a reply on the subject of the consultation, but he used the opportunity to develop his criticism of the business model of the pubcos in general. Although many of the abuses he described were highly specific, they are not unique to the pubco industry. We saw problems of over-leverage in a whole set of industries, notably banking, and the horrible consequences of that. He has provided examples of another sector where those problems occurred in a different way.

My hon. Friend asked a number of questions. I cannot answer them all in the handful of minutes I have available, but he asked specifically about the evidence on the rent of tied licensees set against that of those who are untied. We are all aware of the ALMR benchmarking survey that shows that for the second year running tied pub rent has exceeded the free-of-tie rent as a proportion of turnover. Tied rents as a proportion of turnover were 10.7% whereas for the free-of-tie rent the figure was 9%. He has asked me to check a number of other specific points and we will certainly do that.

Let me make a few general points to round up the debate. There is consensus on both sides of the House that although this is an important industry that makes a significant contribution to the economy, it is also an area in which many of the publicans who communicate with us have a strong sense of facing hardship, adversity and unfairness. I acknowledge the work of the Select Committee on Business, Innovation and Skills over the years as well as that of the all-party save the pub group in raising awareness of the issue.

Just last week—I think that this is the report my hon. Friend described as coming out tomorrow—the Fair Deal For Your Local campaign, backed by the Campaign for Real Ale, the Federation of Small Businesses, the GMB union and various tenants’ groups published “Setting the record straight”. That report brought together much of the material in this area. We have had four Select Committee reports on whether the tied model causes an imbalance in bargaining power and we have received a vast amount of correspondence from tenants. We acknowledge—this is the common ground—that the problems faced by tenants are real and demand our attention.

In the short time I have, I should stress that the tied business model, as opposed to abuses of it in recent years, is probably not the main source of the problems in the industry. I am not sure how far my hon. Friend agrees with that, but the number of pubs has been declining for three decades at least—there were 70,000 in 1980 and there are 50,000 today. Neither the 1989 beer orders nor the pub company consolidation, which is the source of the problems he describes, brought about a major change in the rate of decline. There have been bigger and deeper problems in the commercial property market, in which over-leverage was a common feature.

However, I appreciate that his central point—this is the concern of hon. Members on both sides of the House—is not the rate of closures, but the low incomes prevalent in the tied centre and the impact they have. The question throughout is how we deal with those abuses. Initially, we hoped that self-regulation would work. As we know, there was an agreement between the pubcos and tenant groups in November 2011. The pubs independent conciliation and arbitration service and an industry framework code were introduced, but they have not gone far enough, and the problems persist.

There is plenty of evidence of the ongoing hardship faced by individual publicans. Work commissioned by CAMRA suggests that, based on self-reported income, 57% of tied tenants earn less than £10,000 a year, compared with—