Pub Companies

Debate between Vince Cable and Gerry Sutcliffe

Wednesday 9th January 2013 Commons Chamber

[Vince Cable]

I think we are talking essentially about the latter—although most of the abuses have happened in the relatively small number of pubcos that happen to have a particular business model—but as I have said, we will define the precise range of companies that will be covered in the consultation.

There has been a contraction of the industry, as the hon. Gentleman acknowledged, from 70,000 pubs in 1980 to 50,000 today. The financial crisis brought into stark relief the slow process of sectoral decline. At present, 18 pubs are closing every week—that is, 18 net; some are opening. Various factors have aggravated the problems of the industry—we have discussed one or two already. The beer duty escalator is one and the outlawing of smoking is another. Many of us supported that measure on public health grounds; none the less, it drove away a certain amount of the clientele. Having voted for those things, I would not criticise them, but we all have to acknowledge that the problems of the pub industry are multiple, and the structure of the industry, which is what we are concerned with in this debate, is only one of those factors.

However, it is undoubtedly the case that the activities of the pubcos, with their highly leveraged business model, have intensified the crisis. These companies were established in the 1990s and started to attract comment and criticism a decade ago. Like an awful lot of other business models that were constructed in the long, artificial, debt-based boom, there did not appear to be a great many problems at the time. With the banking collapse and subsequent recession, the weakness of companies with high debt-to-equity ratios has been rather brutally exposed. What we have seen in recent years is the pubcos trying to retrieve their financial position at the expense of their tenants. We are all familiar with well managed, popular pubs in our constituencies being driven to the wall by, frankly, exploitative financial practices.

[Mr Gerry Sutcliffe (Bradford South) (Lab)]

Enterprise Inns announced over Christmas that it would go from 6,000 pubs to 5,200 over the next three years. It will be important to get the code of practice in place quickly, because some of those will be the tied pubs.

[Vince Cable]

They will, and the terms of sale under which that pubco, along with others, is disposing of those pubs is another important element in the protection that we now propose to offer.

The pattern of behaviour we see in this area—where there is a serious imbalance between the contracting parties in the business relationship—is not unique to the pub industry. We see something similar with the banks and small business, as has been exposed by the derivatives scandal, and in the relationship between supermarkets and the farmers who supply them. In both cases, Parliament and Government have accepted the need to act to protect the weaker parties. That is precisely the position we have now reached with the pubcos. We took the view in 2011 that they should be put on probation, with a strengthened voluntary code. We gave them every chance, but we concluded that there was not enough progress. We therefore decided to establish, subject to consultation, the statutory code and an independent adjudicator, as I have described. I am disappointed—the Labour party probably is too—that a long period of trying to get a voluntary process has not worked sufficiently. I stress that we are not starting from the standpoint of a competitive market; rather, we are often talking about relationships that are almost feudal in character. We want to introduce a relationship that is genuinely market based, where there is genuine competition and a genuine choice for people entering the industry.

Let me describe more specifically how we envisage the code operating. It will draw on the existing framework code—we are currently on version 5 and there is a discussion about version 6—but be strengthened to include an overarching “fair dealing” provision and the fundamental principle that a tied tenant should be no worse off than a free-of-tie tenant. I recognise that those concepts, especially the first, will need legal clarification.