Previous Section Home Page

Column 1238

Orders of the Day

Order for Second Reading read.

Mr. Roger Moate (Faversham) : On a point of order, Mr. Deputy Speaker. I apologise for raising a point of order now, but I wonder whether it would be helpful to the House to have your guidance on how this and succeeding debates, which are on a related matter, are to be conducted. I think that it would be in the interests of the House to hear hon. Members speak as infrequently as possible on the subject, but some might be tempted to speak on Second Reading and on the motions that are to follow it. I wonder whether it might be possible to learn whether you would be tolerant of hon. Members restricting themselves to just one speech in this debate, thereby saving the time and patience of the House.

Mr. Deputy Speaker (Mr. Harold Walker) : I appreciate what the hon. Gentleman is saying. While the subsequent motions are separate, they could be construed as being related. It might be sensible to see how we get on and for me to take account of the advice offered by the hon. Gentleman.

8.54 pm

The Secretary of State for Trade and Industry (Mr. Nicholas Ridley) : I beg to move, That the Bill be now read a Second time This Bill is part of a package of measures to promote greater competition and consumer choice in the supply of beer. It will give tenants of pubs the same protection as it gives to other business tenants under part II of the Landlord and Tenant Act 1954. The Bill arises from a report by the Monopolies and Mergers Commission on the supply of beer, which was published on 21 March of this year. It found that a complex monopoly existed in favour of the brewers with tied estates. This complex monopoly restricts competition at all levels by protecting brewers from competition in supplying their managed and tenanted estates because other brewers do not have access to them.

On 10 July, the Government announced a series of measures to remedy the public interest detriments identified by the MMC. The Bill forms part of the Government's response to the MMC report. Other measures are being implemented through orders under the Fair Trading Act, 1973, which hon. Members will have an opportunity to debate later this evening.

The starting point for considering this Bill is the MMC report and its recommendations. In its report, the MMC said :

"tenants of on-licensed premises are not, under the present arrangements, able fully to act as independent businessmen. We therefore consider that it is essential that a tenant's interest in on-licensed premises should be legally protected."

It recommended in consequence that the interests of all tenants of on- licensed premises should be brought within the provisions of the Landlord and Tenant Act 1954, whether the premises were subject to a tie or not. The Bill is addressed to this recommendation.


Column 1239

The MMC also outlined a number of further measures to increase tenants' security. They included, in respect of tenants of licensed premises, disapplying the provision in the Landlord and Tenant Act 1954 that allows parties to an agreement to agree to apply to the court to contract out of the Act, and a recommendation that the Director General of Fair Trading renegotiate the current Brewers Society's code of practice with all interested parties. The code would then be given some mandatory status.

Following publication of the MMC's report, the Government recognised that, like any radical proposals, the MMC's

recommendations could have consequences that could not be anticipated, and that they were best explored in public debate. The Government therefore listened to representations from all shades of opinion, including the Brewers Society, individual brewers, representative organisations of licensed trade tenants and managers, individual tenants, consumer associations, members of the public, and, of course, hon. Members.

It became clear as a result of that process of hearing representations that the issue with tenants' security was how to increase protection without making the tenancy system so unattractive commercially that it would be killed off. The Government concluded that it would not be right to set up a special class of tenancy under the Act just for licensed premises. It is therefore intended that licensed tenants should simply be placed on all fours with other business tenants, and that it should remain for the parties concerned to decide whether it is in their commercial interests to forgo their statutory rights.

Similarly, the Government concluded that a mandatory code of practice was inappropriate. The brewers have said that they are prepared to accept the present proposals on tenants' security. The National Licensed Victuallers Association too, while continuing to press for more extensive security for tenants, has made it clear to us that the inclusion of licensed tenants within the Act is the key, and it is pressing for its earliest adoption.

Although I cannot agree to all that the tenants seek, I want to assure them and their representatives that we do understand and appreciate the difficulties that many of them face. Nobody likes paying higher rents or having their tenancies terminated against their will, but we cannot solve such problems by legislating. Pub tenancies, like rented property or any other form of asset, are part of a market, with terms governed by supply and demand. A pub tenancy agreement is the result of a commercial negotiation, and while we can set out what are fair procedures for reaching agreement we cannot force the agreement to be more or less favourable to one side than what the market dictates. Our proposals therefore represent a balance, as carefully struck as the balance in the Act itself. That has been shown over 35 years to be workable.

I should like to describe briefly how part II of the Landlord and Tenant Act works. Essentially, it sets out rules for both landlords and tenants of business premises with regard to the beginning and ending of tenancy agreements. Under these rules, if a tenant has paid the agreed rent on time and complied with the tenancy agreement, the landlord can bring the tenancy to an end at or after the end of the current tenancy only by serving the tenant with a notice of termination.


Column 1240

Upon receipt of the notice, the tenant has the right to apply to the court for a new tenancy, which it is bound to grant unless the landlord can show grounds for being granted possession. Such grounds include failure by the tenant to comply with the conditions of the tenancy or the fact that the landlord wishes to occupy the premises himself for the purposes of running a business, a residence or to reconstruct the premises.

Currently, section 43(1)(d) of the Landlord and Tenant Act, part II, serves to exclude licensed tenants. We are proposing that section 43(1)(d) should be repealed. We are additionally proposing to repeal paragraph 5 of schedule 2 to the Finance Act 1959, which substituted a new paragraph for the original section 43(1)(d). As a matter of keeping the statute book tidy, it should also be repealed. The transitional provisions are intended to ensure that tenancies agreed before 11 July 1989 are unaffected if they end before 11 July 1992. Most brewery tenancies are for terms of three years, and the Act will apply in those cases only when a new tenancy is agreed. The significance of the 1992 date is that it is exactly three years after the 10 July 1989 statement. Clause 1(3) provides that, where the Landlord and Tenant Act provides for statutory notices to be given by a landlord or a tenant, these notices can be validly served before July 1992, where appropriate.

As I have suggested, the Bill represents a carefully struck balance between the interests of tenants and those of their landlords, who are in most cases brewers. In this, the approach mirrors the one we have taken with all the measures to deal with the MMC's findings. Some hon. Members will feel that we should have gone further. Others, I know, will argue later this evening that we have gone too far, and that the measures are an unnecessary intervention in the market. I would urge hon. Members in both these camps to recognise that, while the package of measures will not satisfy everyone, it achieves a balance between the conflicting interests involved. Tenants will have greater freedom to buy products that meet their customers' preferences, and they will be able to do so at competitive prices. They will also have the protection of the Landlord and Tenant Act. Consumers will benefit from this greater freedom on the part of tenants. They will be beneficiaries of the more open and competitive market that we shall see in beer and other drinks.

Brewers and pub owners will also benefit. The long-term success of their industry depends on creating an environment in which a wide range of products that people want to buy can be offered at prices people believe are competitive.

9.4 pm

Mr. Doug Henderson (Newcastle upon Tyne, North) : The Opposition support the principle behind the Bill but we believe that the Bill has major flaws and we shall seek to amend and modify it as it passes through its various stages of consideration. We want to give the Bill a backbone so that it can make a real contribution to improving competition in the industry and protecting the 33,000 tenant landlords of Britain's pubs. Our support follows the report of the Monopolies and Mergers Commission on the supply of beer, which we welcomed some months ago as a useful and long overdue report on monopoly practices in the supply of beer.


Column 1241

Tenant landlords know that there is a monopoly every time they are threatened with increased rents or a loss of tenancy, or are forced to accept the brewer's tied products. The consumers- -regulars and even weekend punters--know that there is a monopoly every time that they pay over the top for lager, every time they cannot get a cask beer and every time they are forced to buy a brewer's soft drinks. The Consumers Association estimates that the average price of a pint of orange juice in an English pub is £2. The Secretary of State knows that people in Northumberland shudder--perhaps it is the same in the west country--when it is their round and their friends want a soft drink. Workers know that there is a monopoly every time the brewery is threatened with rationalisation and every time the company is threatened with a takeover.

Mr. James Couchman (Gillingham) : I know that the price of soft drinks is of great concern and causes dismay among those who use public houses, but the overheads that accrue in serving a whisky and those that accrue in serving a soft drink are precisely the same for the person serving them.

Mr. Henderson : That may well be so, and I am glad that the hon. Gentleman mentioned it, but I do not think that it is central to the point about competition in the industry.

The Opposition, like the tenant landlords, the consumers and the work people, agree with the Monopolies and Mergers Commission that a complex monopoly exists in the supply of beer. We shall discuss that in greater detail in our next debate. I hope that at that stage I can show that the orders fail to tackle the real measures required to bring competition to the industry. It is in that context that the Bill should be debated.

I wholeheartedly agree that the Bill is necessary, not only to protect tenants but to protect the industry from monopoly pressures, and thereby to protect consumers. We have all had our arguments with pub governors in our time, and no doubt won very few of them. Perhaps that is why the public ask, "What has protecting pub governors to do with guaranteeing competition in the industry? Are they not the same people who overcharge us and often restrict our choice of beer?" They are the same people, but they are not ultimately responsible because they are not the ultimate governors. Hon. Members know, and I hope that the Government recognise, that one of the principal ways that breweries control the industry and reinforce the monopoly is by tying tenant landlords to taking their beer. If the tenant has no security and if he is forced into the pocket of the brewery, ultimately the consumer will suffer.

The Opposition firmly believe in a competitive environment in the brewing industry and the supply of beer. We back the consumer and we welcome the opportunity to debate the Bill. In the past, Governments have rejected legislative controls and there has always been a powerful lobby against them. Now, the brewers' arguments against legislation have been shown to be spurious. Indeed, in their evidence to the Monopolies and Mergers Commission the brewers argued that the relationship between a landlord and a tenant was special and that the rental terms were at a discount as a condition of the tie. If the tenant lost his licence, perhaps for some criminal offence, how could the brewery get that person to leave his premises? That sort of argument might be defensible if there was an agreement that the monopoly should continue, but if we are to go down the road of


Column 1242

encouraging competition--I hope that that is the Government's intention--and if we are to break, or at least to loosen, the tie, the brewers' arguments have no basis. Without a tie, the first thing that the brewers will do is to put rents up. In any case, their ability to protect their interests in relation to someone who may be justifiably dismissed for some felony could still be protected through a code of practice.

The National Licensed Victuallers Association has a major interest in the Bill. On numerous past occasions, including when giving evidence to the Monopolies and Mergers Commission, it has insisted that it needs a legislative shield to protect its members against excessive rent increases. In its evidence to the commission it cites a number of cases. A tenant in Kent complained that after agreement had been reached for alterations at a cost of £35,000, the brewer wanted to increase the landlord's rent by 200 per cent. to £11,000 per year. On top of that, the tenant would also have to fund the cost of furnishings, recarpeting and new fittings. He said that the new rent level represented the equivalent of 13.75 per cent. of his turnover. The association also cited the case of a tenant in Berkshire who complained about high rent increases. In particular, he complained about an increase of 208 per cent. after the public house had been refurbished and about the practice of increasing rent in line with barrelage. He said that the brewer's representative had told him that his rent might be further increased if he did not purchase soft drinks from the brewer. He also complained about the wine and spirits tie which made retail prices higher than they need be. Those are but two of hundreds of examples which occur throughout Britain because of the weak bargaining position of tenant landlords in relation to rent increases.

The association argues that the voluntary code of practice is completely ineffective and that if a tenant wishes to challenge the decision of a brewery, the costs of doing so, even within the code of practice, are prohibitive. The association has also shown that tenants who have built up a business can end up with little or no compensation if a brewery disposes of a public house. It cites the example of a tenant in central London who had been given notice to quit the house which he had run successfully for 12 years. The tenant told the association that no suitable alternative premises were offered. In fact, his request for a suitable alternative was met with a refusal. The brewer offered the minimum compensation payable under the code, which would largely be used for redundancy payments to his long-serving staff. The tenant suggested that the motive for the brewer's action was based solely on the value of the site for redevelopment.

The case for legislative protection is overwhelming, but there are major weaknesses in the Bill. The Secretary of State alluded to some of them. Under the Landlord and Tenant Act 1954, as amended by the Law of Property Act 1969, landlords and tenants can mutually exclude themselves from the terms of the Act by making an application to the court. The evidence submitted by the tenants' association is that in the overwhelming number of cases the court accepts the joint application. The National Licensed Victuallers Association has argued that that is completely inappropriate for governing the relationship between brewers and landlords. If there is an exclusion clause, the brewer will say to the tenant, "If you don't


Column 1243

accept such a clause your future might not be so bright as you imagine when you next seek to review your tenancy." That is the evidence from the people involved.

Does the Secretary of State accept that that could be the case? Does he accept that poor Bet and Alec Gilroy could be in trouble in the Rovers Return or that Pat and Frank could be saying goodbye to the Queen Vic if they do not agree to an exclusion clause? All of us know that they have enough troubles without having the Secretary of State adding to them with this legislation which is supposed to help them. Does the Secretary of State accept that, in a world of ever-tightening margins and international competition, pressure will be put on landlords to opt out? If he accepts that that will be the case, does he also acknowledge that it will undermine the whole purpose of the Bill? Will the Government make proposals to meet that major problem?

Why have the Government not recognised that the timing of the Bill is too slow? If it lets off the hook most tenancies expiring before 1992, brewers will simply terminate tenancies so as to avoid the Bill's effects. Will the Secretary of State not recognise that a code of practice is necessary as an adjunct to the Bill? Is he aware that most tenants believe that the existing voluntary code is unworkable and that the brewers are unchallengeable? Will the right hon. Gentleman accept the introduction of a code of practice during the progress of the Bill?

The Government claim to believe in private ownership. If that is so--I do not suggest for one moment that it is not--why have they failed to introduce the right to buy for pub tenants? Partly because of the current market situation, partly in an attempt to avoid the legislation, and partly in anticipation of some of the matters that we shall be debating later today, brewers will try to dispose of some of their tenanted houses. In fact, in my own area in the north-east Scottish and Newcastle Breweries announced only last week the sale of 250 of its premises.

If council tenants have the right to buy council assets, why should not brewers' tenants, who have shown a deep commitment to their businesses and who have built up much goodwill in their houses, have the right to buy brewers' assets? Surely Scottish and Newcastle Breweries public house tenants should have the first right to purchase their tenanted houses and to protect their livelihoods. Or does the principle of a property-owning democracy not apply when those who should comply are contributors to Conservative party funds?

Another worrying aspect of the Bill is the exclusion of Scotland from its provisions. The level of brewery-owned tenancies in Scotland is lower than in England and Wales, but about 750 tenanted houses will still be at risk. Will the Secretary of State consider inserting into the Bill protection for Scottish tenant landlords? Those matters are all of concern to tenant publicans, and if they believe that those shortcomings weaken the Bill and their protection, the public at large should also be worried. If the tenants' position is undermined, competition will also be undermined. If competition is undermined, public and consumer interest will also be undermined. I described five main objections to the terms of the Bill, but it has merit of purpose, and on that basis the Opposition will not seek to block its Second Reading. I have no doubt, however, that the Bill in its current form


Column 1244

would fail to achieve its purpose--to offer landlords the necessary protection--or to make a lasting contribution to improving competition in the industry. I hope that the Secretary of State will examine all the issues and seek to strengthen the Bill before it returns to this Chamber. If the Secretary of State is receptive in Committee, he may continue to receive the wider support of the whole House when the Bill returns here.

9.18 pm

Mr. Roger Moate (Faversham) : The hon. Member for Newcastle upon Tyne, North (Mr. Henderson) gave a grudging welcome to a Bill that I thought had received almost universal acceptance throughout the industry. I welcome the Bill largely because it is a generally agreed measure.

It is something of a disappointment to me that my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary of State for Industry and Consumer Affairs felt unable to translate the recommendations of the Monopolies and Mergers Commission into a series of voluntary agreements, which I believe were on offer and would have been immensely beneficial to all concerned in a great industry. None the less, the Bill that we are debating this evening has been welcomed by all concerned--with the exception of the hon. Member for Newcastle upon Tyne, North. Certainly most of us accept the argument for greater security for tenants, and we welcome the fact that that has been agreed with the brewers.

Having said that, I must add that I think that the hon. Gentleman is trying to have his cake and eat it. He said that the Opposition broadly welcomed the MMC report ; if that is the case, the Opposition would have done more damage to the tenants whom they now claim to defend than any of the minor factors cited by the hon. Gentleman. I regret the introduction of this package of proposals, which I believe will do serious harm to every aspect of the industry. They may provide protection for tenants, but there will be fewer and fewer tenants, and that will mean a major loss not only for the tenants themselves but for the whole cause of small business. This package of restrictions will cause a gradual decline in a tenancy system which in the past has proved a splendid way for small business men to build their own businesses, often with limited resources.

Mr. Jerry Wiggin (Weston-super-Mare) : My hon. Friend is absolutely right : the lessons are never learned. Let us go back to the simplest relationship between landlord and tenant--that covered by the Rent Acts. We know that there are no properties to rent ; similarly, the more the agricultural tenant is protected, the fewer farms there are to rent. It is utter hypocrisy for the hon. Member for Newcastle upon Tyne, North to suggest that the proposals will improve the position of tenants : in fact, fewer and fewer brewers will be prepared to offer the partnerships that are currently offered so widely.

Mr. Moate : Indeed, the sad logical consequence of the MMC report is that we shall end up with fewer pubs owned by the brewers, and of those many will be managed rather than tenanted. Nevertheless, we welcome the increased security : there are many arguments for it. In my constituency-- and, I believe, in many others--the views expressed by the trade unions, which Labour sometimes claims to represent, have been totally at variance with the stance adopted by the hon. Gentleman


Column 1245

and his colleagues. When the MMC report was published, I was concerned not for a specific sector--the large national brewers, the regional brewers, the smaller brewers or individual publicans- -but for the industry collectively. I felt that the proposals would damage jobs in one of our greatest and most successful industries. The proposals that the Opposition Front Bench has supported were opposed by the Transport and General Workers Union, particularly in my area, and any loss of jobs will be in part due to the remarks of Opposition Members.

The hon. Gentleman is fundamentally wrong. The view that he propounded-- that some tenants are unhappy with the terms imposed by their landlords, and that that implies a monopoly--is simply nonsense. Commercial partnerships often involve unequal relationships, but the fact that a tenant does not like the terms of a contract, or would rather buy elsewhere, while it may call that particular relationship into question, does not suggest the existence of a monopoly. The hon. Gentleman--and, indeed, my right hon. Friend the Secretary of State--mentioned the allegation that a complex monopoly was in operation. There has been considerable debate about whether that term has any meaning ; indeed, it has been suggested that it is a technical concept that people latched on to with the purpose of bringing this subject within the competence of the MMC. Certainly it does not conform with the view of the man in the street about what constitutes a monopoly. I hope that my right hon. Friend will consider that point, because we do not want the MMC in future to dredge up a "complex monopoly" in the absence of other obvious public detriments so that it can make recommendations that the House, for one reason or another, feels obliged to follow through. I should like to see that concept eliminated : a monopoly either exists or does not exist.

In my view--and, I believe, in that of any fair-minded person--the brewing industry in this country is highly competitive. There is little evidence of consumer dissatisfaction with the brewing industry. Beer prices are generally low compared with those in almost every other country. The quality of pubs has improved dramatically in the past few years and they have made a major contribution to our leisure industry. More than 440,000 people are employed in one of our most successful industries.

Against that background, the MMC report made its wide-ranging attack on a supposed monopoly. Are we not foolish to be inflicting damage on one of our most successful industries, which is far more competitive than those in almost every country of Europe with which we are supposedly in competition? For that reason, we are being extraordinarily foolish in accepting this package of measures so blithely. That may sound ungrateful, but I do believe that the package, including the Bill and the other measures, is a dramatic improvement on the original recommendations. I realise that I have sounded churlish, so I want to pay tribute to my right hon. Friend the Secretary of State and to my hon. Friend the Under-Secretary of State for Corporate Affairs, because they have been receptive and flexible. I make those comments now, as I intend to vote against the draft Supply of Beer (Tied Estates) Order 1989 later tonight. However, although I think that the order is bad, I welcome the rest of the package and the tremendous improvements that have been introduced.


Column 1246

Some bad consequences will flow from the whole package which will become visible not in years, but in months. We shall see a concentration in brewing. Many of our brewers will amalgamate or be taken over, some into foreign ownership. We shall see a reduction in the number of pubs, the sale of pubs--ultimately, some may move out of serving the public--and fewer tenanted pubs. Those consequences will flow directly from the MMC report and partly from the recommendations tonight.

I want to put on record, as the House should, the fact that this package is a bad move for British industry, for British brewing and for the public. The other result of all the measures will be higher rather than lower prices for the consumer. The object of introducing anti-monopoly measures is to try to obtain a better deal for the consumer, but there is no evidence that consumers were paying too high a price for beer. One judgment of a monopoly is that the producers were making excessive profits, but that was not alleged in the MMC report. Is it not extraordinary that we are faced with these recommendations and that it has been decided to implement them? Higher prices will result.

If we force the brewers to change from tenancy to management in many cases, they will become, in effect, property owners and will no longer use pubs as retail outlets. The breweries will no longer be interested in beer production or beer retailing, but will move out or will be obliged to charge far higher rents to tenants and higher prices to the consumer. That will be the net result of the extraordinary intervention of the MMC.

Is it not extraordinary that the MMC--and I stress again that the Bill arises from the recommendations of the MMC investigation--made no reference to the experience abroad. The Australians went through this exercise and the result was a dramatic increase in beer prices. Beer production became concentrated to the extent that two brewers control 98 per cent. of production. That is what came of breaking the tie. How can that be defended? Yet that is the road that we are supposed to be taking. We have more competition than in almost any other country. As I have said, in Australia, two brewers control 98 per cent. of production. In Japan, four brewers control 99 per cent., in the Netherlands, four brewers control 95 per cent. and in France, four brewers control 93 per cent. Yet here we need to consider four brewers to arrive at a figure of 58 per cent. of the market. We have a highly competitive industry. There is a large number of regional brewers and small brewers. There is a total of 66 sizeable brewing companies. There will be fewer and fewer brewing companies as a result of the proposals. I deeply regret that. I deeply regret also the fact that we were not able to reject the MMC report in its entirety, because it will be bad for business, the industry, jobs, and the consumer.

9.29 pm

Mr. Stan Crowther (Rotherham) : I declare that I am the parliamentary adviser to the National Licensed Victuallers Association. I must disagree with almost everything that we have heard from the hon. Member for Faversham (Mr. Moate). He seems to think that brewery companies are charitable institutions which are only too anxious to provide their tenants with all the protection for which they could possibly ask on the basis on voluntary agreements. The lessons of history are against him. As for the latter part of his remarks, I cannot believe that a brewery


Column 1247

company cannot stay in business with fewer than 2,000 pubs. It is not logical to suggest that the proposal that will be debated tonight will put brewery companies out of business.

The Bill is warmly welcomed by the National Licensed Victuallers Association and its members. It is a long-overdue reform. As my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said, it does not go as far as it should. The voluntary code of practice has been of some value, but it does not alter the fact that there have been far too many cases of tenants being treated disgracefully by pub owners--not always brewers by any means, but the people who own their public houses. The trend towards ownership by companies other than brewers will be accelerated as a result of the orders. Bearing in mind that, in any case, the code of practice is subscribed to only by the Brewers Society and the NLVA and that people outside the Brewers Society are not covered by it at all, the need for a Bill of this kind, which provides a measure of protection for all tenants, irrespective of who owns the pub in question, is particularly important.

I do not intend to regale the House with a long rigmarole of horror stories, but I will mention just one or two examples. One of the worst in recent times concerns a licensee in Lancashire who won some cans of lager in a raffle. They were presented to him by the area manager of his brewery company, who said that he could drink them or sell them as he wished. Being a decent man, the licensee decided to sell them at £1 a can in aid of an excellent charity, cancer research. It seemed a sensible and reasonable thing to do. When the head brewer found out about it, the licensee was called to the brewery office and handed his notice to quit because he had been selling lager that had not been supplied to him for that purpose by his landlord, the brewery company.

There was a long argument. The NLVA's legal advisers were brought in , but eventually the man who had been the licensee of the pub for 14 years finished up out on the street with a derisory amount of compensation. That is one particularly disgraceful example, but there are many other equally disgraceful stories.

Recently in the south of England, a licensee--a woman, as it happens--who has been paying rent of £13,000 a year for a pub which is in great need of repair and improvement has been offered a 20-yar lease by her brewery company landlord--one of the big six ; not a small regional outfit- -which is part of its policy. Many people will guess that I am referring to Grand Metropolitan. It is a full repairing lease, which provides for total responsibility for all the money that has to be spent on the pub at a rent of £40,000 a year, which is just over three times what she is paying now.

In my constituency, a licensee of a small Victorian pub--a nice little place where I have been known to have a pint or two myself--was told by his landlords, a company that is expanding fast in the leisure industry not in brewing, that it wished to sell the premises. He was invited--at least, he expressed his wish--to make an offer. He did so and was told by the owners' representatives that if he increased it a little, it would be enough to clinch the deal. In fact, he increased it substantially to well above the local valuation. It is alleged that the owners let his rival bidder know the


Column 1248

amount of his bid. The rival bidder then put in a slightly higher offer and the first that the licensee heard of the result was when the other man walked into his premises and said, "I've bought your pub." That happened just a few weeks ago--not a very nice Christmas present for any licensee.

However, at least that man was invited or allowed to put in an offer for his own pub. Even that has not been permitted for the tenants of Scottish and Newcastle, to whom my hon. Friend the Member for Newcastle upon Tyne, North referred. Scottish and Newcastle has decided to sell 250 pubs without allowing the tenants the chance to put in bids to buy them. Scottish and Newcastle is selling them to bring itself below the level that would render it liable to various responsibilities under the orders that we shall be debating later. Surely it would have been reasonable to allow the tenants to put in an offer for the premises in which they make their livings. Although I should have thought that reasonable, there is no obligation on the landlord companies to do so, and they have not done it.

While licensed tenants appreciate the protection that the Bill will afford them under the Landlord and Tenant Act 1954, the provisions do not take account of the unique features of the licensed trade--features that do not apply to other kinds of business tenancies. The most important is the fact that for the vast majority of licensees their pub is not only their business, but their home. If, because of some capricious decision by the owners of the premises, they lose their business, they also become homeless. That in itself is sufficient reason for giving them special treatment, which would not necessarily apply to other business premises.

At the very minimum, it would be reasonable if the Bill provided for some of the MMC's recommendations, which the former Secretary of State for Trade and Industry, Lord Young, said that he was minded to implement. I refer especially to the MMC recommendation that there should be a provision in every tenancy agreement such that "the brewer/landlord shall not be permitted to take back the premises for the purposes of installing his own manager if the licensee/tenant wishes to continue in business at the premises on terms agreed (or in default of agreement as determined by the court)".

That proposal seems eminently reasonable. It would need only a small amendment to the Bill, possibly in the form of a schedule, to require those provisions to be written into tenancy agreements. I can see nothing wrong with that. At the moment there is nothing to protect a tenant from being put out of his pub by the owners so that they can install a manager. The compensation payable in such circumstances is derisory. As I understand it- -I may be corrected on this by the Secretary of State--even with the protection of the Landlord and Tenant Act, the only compensation statutorily required would be six times the rateable value.

Although this has not yet been mentioned, we must bear in mind the fact that the goodwill in the business does not vest in the tenant ; it is held by the brewery company. A tenant who has devoted a great deal of work to building up a successful business does not have equity in the sense of goodwill in the event of the business being transferred. That is a serious matter. It is nothing new. A former right hon. Member, one Mr. Gladstone, told the House about it a long time ago on 5 March 1880. He said :


Column 1249

"As to compensation, the licensed victualler ought to be dealt with on the same principle as every other class in regard to which a vested interest has been permitted to grow up."

That has not happened. Compensation for a licensed victualler who loses his business is not based on the same principle as the other classes referred to by Mr. Gladstone. A few months later he called for equitable compensation. Such a provison should be written into the Bill, which is intended to provide some form of protection for occupants of licensed premises.

We must bear it in mind that an owner is unlikely to take back most types of premises covered by the Landlord and Tenant Act to put in his own manager because of the nature of the business. For example, the owner of a grocery shop is unlikely to be in the grocery business himself. It is unlikely that he will put out the tenant in order to put in a manager. It takes only a moment's thought to appreciate that that applies to many other types of business premises. The owner of a public house is likely to be in that sort of business and, if the tenant has built up a flourishing business, may wish to get rid of the tenant to put in a manager. Tenants rightly feel that they should be provided with that sort of protection under the Bill.

It is unfortunate that the Government have not been persuaded that such protection is needed. When the Secretary of State says that the problems cannot be solved by legislating, I am bound to say that I disagree. The Opposition will seek provisions to solve the problems during the progress of the Bill.

My hon. Friend the Member for Newcastle upon Tyne, North referred to another great weakness in the Bill. It is the proposal to allow contracting out, as provided for in relation to other premises covered by the Landlord and Tenant Act. The MMC was right to suggest that contracting out should not be allowed in this case because of the special circumstances of licensed premises. It said : "We recommend there should be no right on the part of the parties to contract out of the provisions contained in Part 11 of that Act, except for a preliminary period not exceeding one year. This exception is solely to allow a probationary period for a new tenant to establish the satisfactory nature of his abilities."

Again, that is a reasonable suggestion.

It is unfortunate that that important recommendation has been rejected by the Government. I do not wish to repeat my hon. Friend's remarks, but contracting out could defeat the whole purpose of the Bill. When negotiating a tenancy, an owner of a public house, whether a brewery or other company, could say to a prospective tenant, "You will join me in going to court to apply for us to be contracted out of the provisions of the Landlord and Tenant Act". The prospective tenant will say, "No, I would like the provisions of the Act made by Parliament on my behalf to apply to me". The owner will then find someone else who is willing to contract out. As time goes by we may find that the new protection which the Bill is supposed to provide will be used less and less because the owners of the premises decide that they are not prepared to let their premises to someone who will not join them in applying to the court to contract out of the protection of the Act.

Tenant licensees are appreciative that the Government are introducing a Bill to bring them within the terms of the Landlord and Tenant Act. They are grateful to the Secretary of State for what he is doing. If he would go just that bit further and close those loopholes, he would earn their undying gratitude.


Column 1250

9.45 pm

Mr. Vivian Bendall (Ilford, North) : I agree with much of what the hon. Member for Rotherham (Mr. Crowther) said.

For more than 30 years, part II of the Landlord and Tenant Act 1954 has unquestionably served business premises and leasing well. The Act has stood the test of time and proved to be excellent. However, many people in licensed premises--I have known some personally--who have gone into a broken-down public house and built up the business find, perhaps at the second rent review after five or six years, that for improving the sales of the company's liquor and other products, they face a huge rent increase. That does not occur in any other business areas which come within the terms of the 1954 Act.

Under the terms of the Act, if agreement cannot be reached on the rental the matter goes to the courts. That is a perfectly right and fair way to proceed. Years ago there was no voluntary code of practice for licensed tenants of public houses. It has been formulated over recent years. For many years I have been in favour of this type of legislation because it is entirely wrong that licensees of public houses should be treated differently from anyone else in business. For that reason I am sure that the House welcomes the Bill.

Part II of the present Act lists exceptions in which a landlord can gain possession, and I see nothing wrong with them except in one case. It is right that a landlord should gain possession, for example, before a comprehensive redevelopment. But that can be covered by the licensee getting the right sort of compensation. The management area worries me. It is a technical area and we must understand it. As the hon. Member for Rotherham rightly said, when the lease of a business premises runs out, the landlord can step in and run it as his own business, thus gaining possession. If a brewery puts in a manager, is that the same as running one's own business? It is not strictly the same. The Committee must give careful consideration to that point. It must ask itself whether the management should lose that right, so that there is continuity for the lessee. In normal business, one can assign a lease on business premises. I wonder whether that should happen in this case.

If the management has to stay at the end of the lease, the only other alternative is to give substantial compensation which takes account of goodwill. There is no doubt that a couple can go to work in a pub and the wife can work extremely hard on the food side to build up a business which is going very well, and then the couple can find that they have nothing. They will have lost not only their home, but an immense amount of goodwill which they had built up over a great number of years. That is morally wrong and it happens nowhere else in business. I hope that the Committee will address itself to that problem, because it is a matter of grave concern. Although I welcome the Bill wholeheartedly, if we are to give the proper protection, we must deal properly with that area in Committee. I know that many of my colleagues want to speak tonight, so I shall merely refer to one other matter : the code of practice. The right place to decide the rental is the court. That should not be done by any code of practice set up outside but, as part II of the 1954 Act states, when a rental cannot be properly agreed, the matter should go to the courts.


Column 1251

If we can resolve the small issue relating to management when we discuss the Bill in Committee, I sincerely hope that we can start to create not more managements, but more tenancies. I have often seen a public house which is built up by a tenant but, when changed over to management, starts to deteriorate rapidly. If we want to encourage the small business man, as the Conservative party has said over and over again that it does, the right way to do so is to give him the right protection within a tenancy.

9.51 pm

Mr. Alistair Burt (Bury, North) : I shall begin with a declaration of interest which came about in a curious way. About three years ago I first became involved with tenants in my constituency who had problems with breweries. I was then a consultant to a firm of London solicitors called Watts, Vallance and Vallance. Two months ago, in October this year, that firm amalgamated with another and by a complete coincidence that firm, now known as Vallance Lickfords, is the firm retained by the National Licensed Victuallers Association. Therefore, although I have never done any paid work for the NLVA, I have an indirect connection with it because I am a consultant to the firm of solicitors which acts for the National Licensed Victuallers Association. I felt it right to declare that interest right from the start.

I am drawn to speak in the debate because of my concern about relationships in the brewery industry. Like all hon. Members, I welcome the fact that the Landlord and Tenant Act 1954 is to be extended to licensed premises. However, I share the concerns expressed by hon. Members on both sides of the House that the Bill may be seen as a halfway house because it does not go far enough to secure the better relationships in the industry which it is designed to bolster and support.

About three years ago, I first became aware of concern in tenancies in my constituency about the way in which breweries were behaving. Since then, my appreciation of what is happening in my constituency suggests that some breweries behave extremely well towards their tenants while others behave poorly. It was because of that mixture of relationships and behaviour that the Monopolies and Mergers Commission made its recommendations. If, as my hon. Friend the Member for Faversham (Mr. Moate) suggested, life could be sorted without legislation, it would be a lot sweeter and better than it is. Alas, however, we cannot in all circumstances rely on those with greater power than others to use that power fairly.

In my investigations of the relationships in the industry in my constituency I am most concerned about the inequality of bargaining power between brewers and tenants. I welcome the Bill because to some extent it redresses that inequality of bargaining power, but it does not go far enough.

I have been greatly helped in investigations in my constituency by Mr. Peter Roberts, chairman of the local branch of the National Licensed Victuallers Association and owner of the Grant's Arms in Ramsbottom. He and his colleagues were enormously helpful in taking me through the trade and in preparing some of the concerns which I shall express. Before I became so closely interested in the subject, I did not appreciate that relations between


Column 1252

some tenants and brewers were so bad. Many people who go into pubs do not appreciate that behind the pumps all is not so cheerful as it appears. Some of that is caused by sharp practices on the part of the breweries. The hon. Member for Rotherham (Mr. Crowther) and my hon. Friend the Member for Ilford, North (Mr. Bendall) gave examples of tenants who had worked extremely hard in the pub in which they were living and then found that as a result of their hard work the rents were increased and, effectively, money was taken from them. There are other sources of concern which are not immediately apparent on the face of the Bill. It is not widely known that the provision of machines such as juke boxes or one- armed bandits, which many people enjoy using when they go into a pub, do not necessarily provide profit for the tenant. The tenant may have taken the trouble to have such machines installed to increase the amount of enjoyment in his pub, but the brewer takes a considerable rake-off without having done anything at all. Such matters make tenants feel that they are not being fairly dealt with. Such worries were set out in the report by the Monopolies and Mergers Commission, and that has led to legislation rather than to a voluntary code of conduct.

I quote briefly from the Morning Advertiser of 7 July to show why it was important to have certain provisions of the Landlord and Tenant Act 1954 incorporated in the Bill so as to protect tenants. It says :

"If their landlord wants to take their pub into direct management because they have built it up so successfully, he can.

If their landlord wants to take a bigger slice of their income as rent-- again, because of their success--he can.

If their landlord wants to introduce arbitrary and sweeping changes to the nature of the tenancy agreement, he can.

Can this be justice? Of course it can't, and now at last you" --that is, the Government--

"are in a position to do something about it by altering the Landlord and Tenant Act 1954 to protect pub tenants."

Such sentiments have led to the Bill. The Bill is needed and I welcome it.

I wish to direct the Minister's attention to one or two matters which should be examined in Committee. I share the concerns expressed by some hon. Members about contracting out. It is clear from what hon. Members have said that there is genuine inequality of bargaining power. Those who wish to become tenants of pubs may seek to sign an agreement. They may be told by the brewery that unless they agree to contracting out they will not be allowed to sign and that there is another person in the corridor who is even more anxious to become a tenant. The attitude is that if the prospective tenant does not wish to contract out, there are plenty more applicants waiting. One of the great tragedies in the industry is that many people imagine that they should spend their life as pub tenants, and sometimes they want to do that so badly that they do not read between the lines and appreciate everything that they are signing. The trade must do something about that. There should be better training and instruction, and breweries could help a little by preparing tenants for what they will have to face. At the end of the day, inequality of bargaining power is not always dealt with in that way. If contracting out is not possible, the protection desired by the Bill and the Government may not come about. I should be grateful if the Minister would look at that again.


Column 1253

I share the concerns expressed about management and I echo what my hon. Friend the Member for Ilford, North said about that. I also share the concern about the date on which the Bill will come into effect. It would be better to have it as early as possible ; 1992 is too late and the brewers may take unfair advantage of that. Perhaps I could suggest a way forward. I should be grateful if my hon. Friend the Minister and his colleagues would look carefully in Committee at the defects of the Bill that have been mentioned. There is great good will for the measure and there is wide understanding of the great importance of the brewery industry in this country.

In many ways and in many places, the system works perfectly well. We are trying to make a good system work better, and to ensure that the poor relationships in the industry, which would ultimately destroy it from the inside, can be remedied with sensible legislation that is properly followed.

I would welcome a commitment from my hon. Friend the Minister that, even if he cannot make concessions during the passage of the Bill, he will agree to monitor the effects of the Bill carefully and listen to further representations from tenants, and if he finds that the spirit of previous voluntary agreements and of the Bill is not adhered to-- It being Ten o'clock, the debate stood adjourned.

Ordered,

That, at this day's sitting, the Landlord and Tenant (Licensed Premises) Bill may be proceeded with, though opposed, until any hour.-- [Mr. Chapman.]

Question again proposed, That the Bill be now read a Second time.


Next Section

  Home Page