The Chancellor of the Duchy of Lancaster (Mr. Anthony Newton) : With permission, Mr. Speaker, I wish to announce the Government's response to the report from the Monopolies and Mergers Commission on the supply of beer. This was a comprehensive report. It recommended far-reaching changes in the brewing sector. Passionate views for and against its recommendations have been expressed forcefully since it was published on 21 March. We have listened carefully to views from all quarters--large and small brewers, the tenants, and most importantly, the consumers. But before we announce our decisions I should like to restate the Government's position in relation to this and all other MMC reports.
The essence of the Government's view is that competition is good for industry and commerce and, above all, for consumers. It encourages enterprise, greater productivity, greater diversity and lower prices. In general, the operation of the market delivers the benefits of competition to the consumer. But sometimes the Government have to step in--in mergers, restrictive and anti-competitive practices, and monopolies. And the ultimate sanction which the Government hold--and exercise when necessary-- is to order divestment. Without this sanction our policies to ensure that competition is kept free would be without force and effect.
Certain preliminary conclusions were announced by my hon. Friend the Parliamentary Under-Secretary of State on 8 June ; and my right hon. and noble Friend made a further statement of the Government's position during a debate in another place on 14 June. We made it clear that certain measures would apply to the national brewers but not to regional and local brewers.
I now turn to the specific decisions we have reached on matters covered in the MMC's recommendations. We have taken particular note of recent further evidence of the need for more competition in the supply of soft drinks and low-alcohol beers to pubs. We have decided therefore that tenants of the national brewers should be free to buy those and certain other products from any source, free of ties. Products thus freed from the tie will include non-alcoholic and low-alcohol beers, soft drinks, ciders, wines and spirits. These measures should significantly enhance competition in the supply of those products.
All brewers will be required to supply beer to the wholesale trade at prices no more than those in a published list. The MMC showed that some wholesalers had been prevented from operating in the market because brewers had refused them supplies. These measures, and others I shall shortly come to, should stimulate a more open and competitive wholesale market in beer and other drinks.
We agree with the MMC's conclusion that licensed tenants must be given greater security of tenure in the new circumstances. I confirm that amendments to the Landlord and Tenant Act 1954 will be brought forward as soon as parliamentary time permits to give licensed tenants the same protection as other business tenants. We are conscious that many tenants have found themselves in an uncertain position since the MMC report was published. In some cases they have already been served with notice to quit. It is regrettable that some brewers have seen fit to take this action before firm decisions have been announced.
Column 686We envisage that subject to parliamentary approval of the necessary legislation, all tenancies which have three or more years to run from today's date will fall within the scope of the Act. In the case of tenancies without a definite term, they will fall within the scope of the Act with effect from three years from today, or from the first rent review after the legislation takes effect, whichever first occurs.
The MMC made a number of recommendations aimed at giving tenants further protection beyond that provided by the Landlord and Tenant Act. We have considered this carefully, and have taken particular note of the representations made by the National Licensed Victuallers Association that the power the brewer landlord has over the tenant is such as to justify a special level of tenant's protection. We have, however, decided that it would not be right to go further than affording licensed tenants the same protection as all other business tenancies.
We hope that landlords who have issued notices to quit to their tenants as a consequence of the MMC report will now withdraw such notices. We have announced what we believe are appropriate transitional arrangements. We do not wish to see the position of tenants unduly jeopardised in the period before any amendments take effect. If necessary, my right hon. and noble Friend will make an interim order under the Fair Trading Act 1973, as amended by the current Companies Bill, to safeguard their position.
The MMC recommended the prohibition of all new loan ties. The effect of loan ties is, however, very different from that of ties resulting from ownership, which are permanent ties to one brewer's products. Loan ties can and do change from brewer to brewer frequently. It is clear that in the right circumstances they can be pro-competitive. We have also been persuaded that these loans can be an invaluable source of finance for new public houses and particularly for clubs.
We have therefore decided not to prohibit them, but instead to require that they conform to certain conditions to ensure that they are not used anti- competitively. All loan ties must be capable of termination at no more than three months' notice without penalty and, in the case of loans from the national brewers, must be confined to beer.
We have already made it clear that the requirement recommended by the MMC that tenants should be allowed to offer a guest beer should apply only to the national brewers. We have also made it plain that the guest beer will be a cask-conditioned beer, other than stout. The issues to be resolved are who should be permitted to supply the guest beer and whether the requirement should apply to all exclusive ties entered into by national brewers, whether through ownership or loans.
We have decided that the right to take a guest beer should indeed apply to all exclusive ties entered into by national brewers. As to who should be able to supply to the houses of the national brewers, one view is that any brewer, other than the one responsible for the tie, should be able to supply the guest beer. On the other hand, the Brewers Society has suggested that only brewers with an annual output of less than 200,000 barrels may supply. That would exclude any other than small, local brewers. We would welcome further views on this point during the statutory consultation period.
I now turn to measures to address the central question of the size of the tied estate of the national brewers. The MMC recommended that no brewer should be allowed to own more than 2,000 on-licences. We have always made it
Column 687clear that we were prepared to consider alternatives provided that they dealt with the public interest issues clearly identified by the MMC.
The national brewers made it clear that nothing which fundamentally affected the strength of the tied house system would be acceptable to them. But this is the central detriment identified by the MMC. Furthermore, it is clear that greater freedom to purchase products outside obligations imposed by the brewers would be widely welcomed both by publicans and by their customers.
We have decided that all brewers who own more than 2,000 on-licensed premises will be required to release from ties one half of premises above this threshold. They must be leased free of ties to the company's products. As these premises will now become free houses, the owning brewer will be permitted to make the new form of tied loans should the new tenants require them.
At present there are about 15,000 free houses. On the basis of the data in the MMC report, these measures will add an additional 11,030 free houses. These proposals should enable a major freeing of the market without the compulsory divestment originally recommended by the MMC. The central problem identified by the MMC was that the tied house system restricts choice and competition. The MMC identified a number of ways in which the operation of the licensing system itself has this effect.
The licensing system exists to control the supply of alcoholic drinks and to ensure that such drinks are sold only by fit and proper persons. However, in practice, licensing justices take account of a wide range of factors in deciding whether to grant a licence to an applicant, including whether in their view there is a demonstrable need for a new licensed premises.
The MMC took the licensing system as given. However, in view of the consequences for competition, we believe that we should consider this matter further, even though the MMC made no recommendation to that effect.
It is no part of Government policy to seek to increase the number of licensed premises. But, equally, a licensing system devised for one purpose should not be used for another purpose, namely, to fortify a local monopoly. My right hon. and noble Friend, together with my right hon. Friends the Home Secretary and the Lord President, have agreed to look into this point further.
The main measures we have announced will take some time to put into effect. We propose that a period of two years should be allowed for those measures which involve modifying tenancy agreements or separating a business into a tied and free estate. At the end of one further year we propose that the effect of these measures should be reviewed by the Director General of Fair Trading. They involve significant structural changes to the market, and it will be important to review whether they have had the desired pro- competitive effects.
Throughout our consideration of the MMC report we have been in close touch with the European Commission, which is conducting a review of competition in the brewing sector throughout the Community. The measures that we intend to take are compatible with the terms of the existing block exemption from article 85 of the treaty of Rome. The Commission's own examination is also looking closely at the effects on competition of vertical tying and we look forward with interest to the conclusions of the
Column 688Commission's study. When the position in the United Kingdom is reviewed at the end of three years we shall take fully into account the results of the EC review and any consequent change to the EC block exemption regulation.
Drafts of orders to give effect to the measures that we have announced today will be published as soon as possible. Parties whose interests are affected by such orders will have at least six weeks after they have been published in which to make representations before the orders are placed before Parliament.
Mr. Bryan Gould (Dagenham) : Does the Chancellor recall the enthusiastic welcome given by the Secretary of State to the Monopolies and Mergers Commission report, his readiness to grapple with the monopoly identified by the commission and his proclaimed keenness to protect the consumer? What has happened in the meantime to explain the embarrassing shift from initial welcome to the craven and complete capitulation which he has announced today? Could it conceivably be something to do with the immense lobbying power of the big brewers and the fact that they are major bankrollers of the Tory party?
Is this not a blatant example of a Government being bought and sold by its major commercial backers, a phenomenon which should be regarded as wholly unacceptable to all who are committed to good government? What price now the Government's competition policy and the authority of the MMC? Does not this climb-down completely undermine the role of the MMC? What weight can now be given to the important reports which are still expected on credit cards and on petrol retailing?
Does the right hon. Gentleman accept that allowing the big brewers to retain their ownership and their continuing power to loan-tie the so-called free houses gives them all the power they need, irrespective of any formal tie, to compel tenants to accept their products? Is this not therefore a complete failure to address what, in the Chancellor's own phrase, is the central detriment identified by the Monopolies and Mergers Commission?
On other issues, we welcome the extension of the Landlord and Tenant Act to tenants, but what protection is to be offered to tenants who will come under immense pressure from owners to contract out of the Act? Does he not accept that without that safeguard the so-called protection is largely illusory? Is this not an extreme disappointment to the smallest breweries? For example, what has happened to the sliding scale for duty on which they placed such hopes to improve their access to the market? Is it not the truth that after so much posturing the Secretary of State has shown, as many of us foresaw, that he simply does not have the bottle to take on the big brewers? Many public houses carry the name "The King's Head". After this climb-down we can expect many public houses to be renamed "Lord Young's Scalp".
Mr. Newton : I can only assume that the hon. Gentleman scripted his remarks before he had a chance to study the statement. The notion that the proposals that I have put before the House represent anything other than a substantial change in the structure of the industry to produce a much more competitive framework in respect of the national brewers is far fetched. The hon. Gentleman might recall that the comments that were made following the publication of this report contained not merely objections by some brewers, but vigorous objections by the
Column 689TUC. Indeed, there was a letter from the hon. Gentleman himself on 29 March pointing to what in his view were the real dangers in the MMC proposals on tied houses and calling for somewhat different steps to be taken. The Government have addressed the defects in the industry that were shown by the report and in a way that will avoid the dangers to which the hon. Gentleman himself drew attention.
Mr. Michael Jopling (Westmorland and Lonsdale) : Will my right hon. Friend understand that his announcement is a huge improvement on the unfortunate proposal that was made originally? Will he clarify what he meant when he talked about half the pubs owned by the big brewers having to be free houses? Can he say whether his new rules will prevent brewers from continuing to increase the size of their estates? Will they still be allowed to buy and build extra pubs provided that 50 per cent. of those over 2,000 remain free houses?
Mr. Newton : Yes, that is the position. Our proposal is that half the pubs that they own over the threshold of 2,000 should be dealt with on an arm's-length basis. It would follow, of course, that if they increased their ownership of pubs they would also have to increase the number operated on an arm's-length basis.
Mr. Stan Crowther (Rotherham) : Is the Chancellor of the Duchy aware that the Government's refusal to grant full and immediate protection, including an enforceable code of practice, to all tenant licensees will be greeted with dismay throughout the country? Does he not appreciate that in many respects the licensed trade is different from other businesses, not least because the pub is the tenant's home as well as his business? Why can he not accept that there is a need for proper protection for public house tenants? Does he realise that allowing contracting out will mean that the brewery companies, if they wish, can simply refuse to grant a tenancy to anyone who does not agree in advance to contract out of the Landlord and Tenant Act? Does he not appreciate that security for the licensee is very much in the interests of the customers as well as the tenant, because customers do not want to see their licensee subject to the danger of being thrown on to the street?
Mr. Newton : We considered carefully the difficult balance that had to be struck and, as I said in my statement, we concluded that it would be right to stick to extending to this particular class of business the same provisions as apply to others. We had in mind the fact that, if tenancy arrangements are made so unattractive to brewers that they do not want to go in for them, that will hardly be in anyone's interests.
Mr. Michael Colvin (Romsey and Waterside) : May I first declare an interest, not as one of the fat cats referred to by the Leader of the Opposition but as a simple tenant of a major brewer who would have benefited considerably from the initial Monopolies and Mergers Commission recommendations? If the Secretary of State's intention--by his initial, knee-jerk reaction that he was mindful to accept the recommendations--was to provoke the maximum constructive debate about the recommendations, then he has succeeded beyond his wildest dreams. Instead of scoring what might have been a monumental own goal, the Government have come up with a winner.
Mr. Charles Kennedy (Ross, Cromarty and Skye) : Surely the logic of the pro-competitive stance by the Department of Trade and Industry, with the divestment requirement above 2,000 on-site licences, would have been to make divestment above that limit absolute instead of the 50 per cent. half/way house that the DTI has gone for on this occasion.
The Minister referred to the further consultations that will take place on the question of guest beers. What will be the nature of those consultations? Will they be led by the DTI or will it play another passive role, waiting for the industry to comment?
Mr. Newton : On the hon. Gentleman's latter point, I expressed our views with genuine and complete openness in my statement. We shall need to lay draft orders covering consultations in the fairly near future. We shall then further consider precisely what arrangements should be made concerning where the guest beer should come from. On the first point about divestment, I hope that it is clear to the hon. Gentleman and to the House that our proposal--that the national brewers should have to put at arm's length 50 per cent. of the on-licences that they own over 2,000--means that if they were to sell a number of pubs they would have to put yet another number at arm's length in order to fulfil the requirements.
Mr. Bowen Wells (Hertford and Stortford) : I congratulate my right hon. Friend on what I regard as a pragmatic and sensible programme for progress in the beer industry. Does he think that his proposals will protect the industry from foreign acquisition, particularly by the European Community?
Mr. Newton : The effect of the proposals, which increase the competitiveness and the service that the industry offers to the consumer, will be generally beneficial to the industry. I do not think that I can speculate beyond that.
Mr. Sydney Bidwell (Ealing, Southall) : In these days, which mark the decline in the fortunes of the Tory party, would it not be appropriate, in the name of democracy, for the brewers to conduct a ballot within the pubs as to whether they wish to continue to subsidise the Tory party?
Mr. Newton : I am quite content to leave it to the brewers to decide what surveys to conduct. The Government have paid more attention to surveys conducted by others, including the Consumers Association, that have shown strong support for the proposals that I have put before the House this afternoon.
Mr. Roger Moate (Faversham) : Does my right hon. Friend accept that most of us on this side of the House are concerned primarily about protecting the legitimate interests of the large and small brewers and the jobs in many local breweries, representing national and regional breweries, and about protecting the very delicate structure of public houses to which the British people are so greatly attached? Does he accept that the primary public interest appears to be to keep the maximum number of public houses?
As for the proposal regarding the size of the tied estate, does my right hon. Friend accept that there is still some danger that the freeing of over 50 per cent. in some areas
Column 691could jeopardise the variety of beer that is available from certain local breweries and the existence of many pubs that are only just viable? If my right hon. Friend sees evidence of closures as a result of the proposals, what steps can he now take to ensure that those pubs, particularly village pubs, are kept viable?
Mr. Newton : It is very unlikely that the proposals I have put forward this afternoon will have the effect that my hon. Friend suggests, especially when taking account of the guest beer proposals which are calculated and reckoned by the regional and small local brewers to have the effect of enlarging the opportunities for distinctive local and regional beers.
Mr. Peter Shore (Bethnal Green and Stepney) : As there is no evidence of a monopoly or of collusive price fixing by the six large brewers, does the right hon. Gentleman agree that the MMC report was extraordinarily ideological? What are the Minister's expectations for a reduction of prices of beer--which, after all, is the major consumer test of what is the right policy--which would have followed the Monopolies and Mergers Commission's recommendations, had they been carried out, or the modified proposals which the right hon. Gentleman is putting forward?
Mr. Newton : On the second half of the right hon. Gentleman's question, I would expect the increase in competition to have its normal effect, which is to keep the downward pressure on prices greater than it otherwise would be.
On the first part of the right hon. Gentleman's question, I must confess that I am in some difficulty in deciding who is speaking for the Opposition in this matter. The view expressed by the right hon. Gentleman is not only at variance with the report's findings but clearly is at variance with the views of those on his own Front Bench.
Sir Peter Hordern (Horsham) : As the new tenancies for the holding companies with more than 2,000 houses are to be run under the Landlord and Tenant Act, which applies to commercial tenants, what will happen to those tenants when the owners rightly decide that they must operate a commercial rent? Is that not likely to lead to the closure of the most marginal pubs, notably those in the most rural areas?
Mr. Newton : I very much doubt it. The Brewers Society's evidence to the MMC suggested that rentals of tied properties were about 20 to 30 per cent. below the full market rental. However, those tenants pay much more than they otherwise would for their beer. Our reckoning is that the two factors will roughly balance out.
The Chancellor of the Duchy said that
"tenants of the national brewers should be free to buy these and certain other products from any source, free of ties."
What sources and what products was he referring to, and who controls the key question of distribution?
The Minister continued :
"As these premises will now become free houses the owning brewer will be permitted to make the new form of tied loans should the new tenants require them."
Column 692The issue of tied loans is crucial to many individuals. Precisely what form of tied loans does the Minister have in mind?
Finally, the Minister said :
"We have decided that it would not be right to go further than affording licensed tenants the same protection as all other business tenancies."
Why has he taken that decision?
Mr. Newton : I answered the hon. Gentleman's third question in response to an earlier question when I said that it was in no one's interest to make pub tenancies so unattractive that the brewers would turn away from them altogether.
On the issue of detriment and whether there is what the commission called a complex monopoly, I refer the hon. Gentleman to the substantial list of detriments which are set out in the MMC report. I have it in front of me, but I shall not attempt to read it to the House. If the hon. Gentleman thinks that there is not a complex monopoly, we must simply agree to differ.
On the hon. Gentleman's question about the tied loans, it should be made absolutely clear that we do not think it right to prevent arm's-length pubs from enjoying the advantages of a loan tie which have been pressed on us in a number of other cases, including clubs, and which the House welcomed when I made the announcement. We do not think it right to deny arm's-length pubs that right, but they will have the same protection--the capacity to withdraw at three months' notice if they wish--and of course they will be free to take a loan tie from anybody, not necessarily the brewery which owns the pub.
Sir Giles Shaw (Pudsey) : I thank my right hon. Friend and his colleagues for the care with which they have tried to deal with the central issue of the report. As to the disposal of 2,000 pubs, what is my right hon. Friend's estimate of the reduction in the market that will therefore pass from the six major brewers to those who will compete from outside the hallowed circles?
Mr. Newton : I am grateful for my hon. Friend's initial remarks. I cannot make a realistic estimate of the precise changes in the amount of barrelage supplied by one brewer or another. In the short term, despite the arm's-length proposal, it is unlikely that pubs will suddenly decide to change completely from the beer to which their customers are accustomed to another beer. Over a period it is likely substantially to widen the choice available in all pubs.
Mr. Joseph Ashton (Bassetlaw) : Does the Minister intend to disband the Monopolies and Mergers Commission? What is the point of a long, independent inquiry on behalf of the consumer if political paymasters can simply lean on the Government and knock it to one side? Is not the Conservative party supposed to be the party of the free market? How can the market be free if the manufacturer is the wholesaler, retailer and landlord? The Monopolies and Mergers Commission is now considering the set- up for petrol stations. Will not the oil companies be laughing all the way to the bank to buy off the Tories at the next election?
Column 693have devoted to these and, if necessary, take the same substantial steps to address the problems revealed in a report.
Mr. Tim Smith (Beaconsfield) : Is not the key issue for the beer drinker not who owns the pubs but whose beer he can drink? Will not an extra 11,000 free houses substantially increase consumer choice? Is this not, therefore, a sensible and balanced package that will increase competition but at the same time avoid the worst excesses of an Australian- style scenario for the brewing industry?
Mr. Tom Cox (Tooting) : Is the Minister aware that the point made by my hon. Friend the Member for Rotherham (Mr. Crowther) about protection for licensees of public houses is of crucial importance, because often it is they who are successful or unsuccessful in running a pub? The Minister has repeatedly referred to consultation. Will he tell the House what that means? Is he aware that in the London borough of Wandsworth there is a small family brewery called Youngs which has a high reputation in the area not only for the quality of its products but for its care of the people who run its pubs and its employees? Is he aware that its chairman sent his observations to the noble Lord Young, yet not only did he not receive a reply but he was not even given the courtesy of an acknowledgement? What sort of consultation is that?
Mr. Newton : I shall look into the latter point. I have said that we shall listen to further thoughts about how far the guest beer provisions should be restricted to beers from smaller or regional brewers. It sounds as though Youngs may make representations on that, which of course we shall welcome.
Mr. Ian Taylor (Esher) : Will my right hon. Friend accept congratulations on shaking up the pubs without breaking the glasses? Will he give further information about whether the major brewers--who appeared, when the original announcement was made, to prefer to hang on to their pubs rather than their breweries--will be content to continue as brewers and pub owners? Does he accept that, in effect, there are 23,000 more pubs in which there is at least partly free choice for the drinker?
Mr. Newton : I cannot predict precisely the reaction of national brewers. I suspect that they will not show the same enthusiasm as the hon. Member for Dagenham (Mr. Gould) implied for the proposals that we have brought forward. I agree with my hon. Friend that there will be a substantial increase in competition and choice for the consumer.
Mr. D. N. Campbell-Savours (Workington) : Why has the Minister sought to dither on the question of guest beer? Why has he not taken a clear decision to establish the principle of the small brewers having access to the supply of guest beer? If he had done that, there would have been an immediate effect on small brewing companies, which would have been building up to provide the capacity to ensure that that part of his proposals was complied with. By delaying, a vacuum in the market may well appear.
Column 694the small local brewers will have access, to use his word, to the guest beer proposal. The issue is whether it should be confined in some way so that only such beers can be guest beers, and that raises more difficult issues.
Dr. Ian Twinn (Edmonton) : Does my right hon. Friend agree that his announcement brings good news to the British public, the consumer and the landlord and is particularly good news because it brings competition in the supply of soft drinks and real ale to many pubs?
Mr. Newton : I agree. Insufficient comment has been focused on the issue of soft drinks and alcoholic drinks other than beer, including cider. The effect of the proposals on those drinks will be substantial. The proposals are directed towards one of the main consumer grievances--the high price of drinks, especially soft drinks, in many public houses.
Mr. Tony Banks (Newham, North-West) : What action does the Minister intend taking against those brewers who have already given their tenants notice to quit? Those tenants will not be assisted by his proposals. Will he consider giving tenants the right to buy the pubs in which they not only work but live? In view of the Minister's retreat in the face of the brewers' hostility, this seems to be the equivalent of brewer's droop on his part.
Mr. Newton : I do not think that I can comment on the latter part of the hon. Gentleman's question. I simply ask him to reflect on the extent of the opposition from the TUC and ask him whether he is accusing me of backing down to the TUC. We have sought to produce a set of proposals that meet the anxieties about the original proposals in a way that my hon. Friends have rightly welcomed.
As for the Landlord and Tenant Act, we have sought to strike an appropriate balance. I said in my statement that, should we feel it necessary in the light of the pressures exerted on tenants, my right hon. and noble Friend will be prepared to make an interim order under the Fair Trading Act 1973 to prevent them from being dispossessed, for example, for exercising the new rights that we propose to give them.
Several Hon. Members rose
Mr. Speaker : Order. I must have regard for the subsequent business, I shall endeavour to call the hon. Members who have been standing, but I ask for brief questions. We should move on to the next business at about 4.15 pm
Sir Charles Morrison (Devizes) : I note the helpful reassurance that my right hon. Friend gave my hon. Friend the Member for Horsham (Sir P. Hordern) about the rural pub. Is my right hon. Friend aware that some of us retain some fears for the future of the rural pub? Will he please therefore take account of the representations that may be made to him? Will he bear in mind that too often in the past many policies have been perfectly sensible for urban areas but nothing like so good for rural areas?
Mr. Newton : I note what my hon. Friend says. None of us can predict with accuracy the result of the proposals in terms of the balance between urban and rural pubs that may be managed at arm's length. My general view is that the greater freedom that some rural pubs may gain from
Column 695the proposals will enable them to exploit the already considerable natural advantages that exist and, perhaps, strengthen them.
Mr. Michael Morris (Northampton, South) : As lager is the faster growing part of the beer market and as probably the finest lager in the world is brewed in Northampton, am I to understand from my right hon. Friend that the guest beer is to be opened up to lagers, or are we to have no competition in lager?
"cask-conditioned" beer. I understand that no cask-conditioned lager is manufactured in this country.
Mr. David Amess (Basildon) : Does my right hon. Friend agree that the package of measures announced this afternoon represents a sensible compromise between the views of the Monopolies and Mergers Commission and the brewing industry? Does he also agree that, above all, the measures emphasise the importance the Government place on promoting competition, which is the best consumer protection policy of all?
Mr. Barry Field (Isle of Wight) : Does my right hon. Friend accept that the brewers who have given notice to quit to their tenants represent a tiny minority of the brewing industry and that a number of the larger brewers, such as Whitbread, have issued a reassurance to tenants that there will be no notice to quit and that they welcome the measures announced today?