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Mr. David Drew (Stroud): May I remind my hon. Friend of the history? Pubmaster came into being because of Whitbread's divestment under the 2,000 tied houses rule. Is it not worth reconsidering that issue? In my area, pubs were handed over haphazardly, which led to much disagreement in the intervening time. It may be worth looking at the history to find out whether the business can be managed better in future.
Miss Johnson: I am grateful to my hon. Friend for that intervention. I have listened carefully. I cannot respond on the particular, but it may be helpful if I set out some more general observations on the brewing industry as a whole and on competition within the sector.
Historically, the beer sector was and remains the most important alcoholic drink industry in terms of UK production. Both consumption and production of beer have fallen in the past 10 years. Since 1989, the beer sector has seen considerable restructuring in the wake of the beer orders of 1989. The number of national brewers has reduced from six to three and the break-up of large, national brewer-owned pub estates has given rise to independent pub companies such as Pubmaster.
The UK brewing industry was referred to the Monopolies and Mergers Commission for investigation in 1986. That investigation resulted in measures, known as the beer orders, being taken to weaken the links between brewers, especially large national brewers, and pubs. The orders are the Supply of Beer (Tied Estate) Order 1989 and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989.
The tied estate order required national brewers owning more than 2,000 pubs to release from tie half the pubs they owned in excess of that number by 1 November 1992. It also gave the national brewers' tied tenants the right to serve a guest beer and source wines, spirits and soft drinks from any supplier of their choice from 1 May 1990. The loan ties order enabled recipients of brewers' loans to terminate them without penalty on giving three months' notice, required brewers to publish wholesale price lists for their beers and prohibited brewers from imposing restrictions on the future use of licensed premises when they are sold.
The Office of Fair Trading monitors the brewing and pub industries closely and investigates any suspected anti-competitive practices, but structural changes in the industry such as the closure of breweries, or contractual matters such as the treatment of tied tenants by breweries and pub chains, cannot be dealt with under competition law.
There have been major developments in the industry since 1989, including the growth of pub chains as a counterweight to the market power of the large national brewers. The DGFT announced a review of the beer orders on 14 January 2000 and submitted his report to the Department last summer. He recommended the retention of some parts of the beer orders: the provisions relating to loan tie agreements, the prohibition on refusing to supply beer for resale and the requirement to publish wholesale prices. He recommended the removal of the remainderthe cap on the size of brewers' tied estates,
In his response to the DGFT's recommendations, the then Secretary of State said that the beer orders were radical and necessary in their time but that, more than 10 years on, the market had changed and some of them had now served their purpose. He agreed, in particular, with the DGFT's recommendation that the 2,000 cap on the number of pubs that a brewer can own should be revoked.
There is no doubt that the introduction of the cap in 1989 encouraged the subsequent major growth and development of retail pub chains by forcing on to the market 11,000 divested brewers' pubs. In that sense, the beer orders have served their purpose in that the cap has been instrumental in creating the market power of the retail pub companies, which is now ranged against the national brewers. Moreover, it is right that the cap should go because, as the DGFT said in his report, it is restricting the growth of those larger regional brewers that want to continue to brew.
Competitive changes in the beer industry are also affected by individual decisions on merger cases. Such cases are considered on their merits. On occasions, mergers raise competition concerns that justify a reference to the Competition Commissionfor example, Bass and Carlsberg-Tetley in 1997, Whitbread and Allied Domecq in 1999 and Interbrew and Bass last year. On other occasions, competition concerns can be remedied by undertakings in lieu of a reference, as was the case for Scottish and Newcastle and Greenalls, and the Punch Group and Allied Domecq in 1999. Other transactions raise no competition concerns and are cleared, such as the merger between Grand Pub, Inntrepreneur and Spring Inns in 1997, or Wolverhampton and Dudley's acquisitions of Marston, Thompson and Evershed and of Mansfield Brewery in 1999.
As with all these cases, I can assure hon. Members that the merger that we are discussing today will be considered on its merits by the Secretary of State in the light of the advice of the Director General of Fair Trading and, in undertaking this consideration, the competition effects of the merger will be the key issue.
Sir Patrick Cormack: I intervene because we are not so time-constrained as usual in Adjournment debates. I am grateful for what the Minister has said. Will she give an absolute assurance that the social impact will be taken most seriously into account, as well as all the other factors?
Miss Johnson: I have already indicated some of the factors that can be taken into consideration, including employment issues. I cannot give him an on-the-spot undertaking on the points that he has raised, but I can assure him that these things will be properly considered. Perhaps that is the assurance that he seeks. I cannot comment further on these matters due to the nature of the consideration that Ministers need to give to them. I am sure that the hon. Gentleman will accept that. However, I hope that what I have said has shed some further light on the situation.