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28 Apr 2009 : Column 209WH—continued
11.14 am
Mr. John Grogan (Selby) (Lab): It is a great pleasure to make a brief contribution to this debate. I congratulate the hon. Member for Southport (Dr. Pugh) on initiating the debate and on presenting his case in such a measured way. I speak as chairman of the all-party beer group; it is a tough job, but someone must do it.
The only time that I appeared in the News of the World was when MPs’ expenses were published for the first time and, for no apparent reason, there was an unflattering picture of me on an inside page with the headline “Hard to swallow”. I think that I was illustrating all MPs’ expenses rather than just mine. One of my mentors told me that MPs should never be photographed with a pint of beer in their hand, but as chairman of the all-party group, that is a stricture that I am pleased to have ignored over the years.
I want to address the hon. Gentleman’s specific point about the structure of pub ownership and how it influences the market. He also alluded to many other issues, and it is worth putting on the record the fact that about half of our pubs are free houses or managed pubs, although the number is declining faster than the number of tenanted and leased pubs. It is worth mentioning in response to an intervention by my hon. Friend the Member for North-West Leicestershire (David Taylor) that the rate of decline is increasing massively, and has been for the past two or three years. A few years ago, a handful of pubs closed every week, but 35 or 40 now close weekly. Whatever the reason, the decline has increased rapidly in recent years.
Other factors are also at work. Half our pubs do not operate under the tied model, and they should not be neglected. Supermarket prices, taxation and other issues affect them particularly.
Mr. Grogan: As my hon. Friend says, social change is obviously one issue. It was interesting that although the hon. Member for Southport did not call for the tie to be outlawed, he came close and said that it was an anachronism. Some people in the Fair Pint campaign say that that is the prime, if not the only cause of pub closures. It is on record that the all-party group is funded by about 70 breweries and pub companies, which have different views about the tie. I listen to people in the Fair Pint campaign. Some have their own economic interest and are very successful entrepreneurs. Part of their frustration is that they would like to be even more successful and have even more pubs, which they believe is a proper view. I try to listen to all economic interests, including the Fair Pint campaign, pub companies and brewers, and then make up my own mind. On some issues, such as smoking and minimum pricing, my view is different from those of large sections of the industry. There are as many views of the tie in the all-party group as there are members. One vice-chairman of the group has signed a motion calling for the tie to be abolished, but I do not agree and will explain why.
According to the facts, figures and statistics, it is not true that tenanted and leased pubs are closing at a faster rate than free houses and managed pubs. Indeed, some evidence suggests that it is the other way round, although I accept the hon. Gentleman’s point that that may mask a high turnover in many leased and tenanted pubs. According to industry analyst, A.C. Nielsen, last year’s prices were much the same. In managed pubs, the average price of a pint was £2.56, and in leased, tenanted and independent pubs it was £2.66. That evidence must be borne in mind.
Dr. Pugh: The crucial factor is the amount of profit that a tenant makes on those pints.
Mr. Grogan: I was about to say that the pricing figures do not reflect profitability. Nevertheless, it is important to consider those factors, if the contention is that the economic model is the main reason for the closure of pubs.
Another way of approaching the subject was reflected in the hon. Gentleman’s opening comments. The economic arrangement of vertical integration in the market has been investigated 19 times since 1966, and receives exemption by the EU, although that is up for renewal next year. There could be an imbalance of power in that relationship.
David Taylor: I declare an interest as a treasurer of the all-party save the pub group, whose founder, the hon. Member for Leeds, North-West (Greg Mulholland), is here today. My hon. Friend the Member for Selby (Mr. Grogan) is old enough to remember and perhaps to have been a drinker at the time of the Monopolies and Mergers Commission report in the early 1990s, which was blindly implemented by the then Conservative Government. Looking back, does he believe that that was a fundamental mistake that worsened the position? The Conservatives said that they would break up the monopolies of breweries, but in fact they passed over some of those monopolies to the pubcos.
Mr. Grogan: I want to explore that in my remarks. There were many unintended consequences of the beer orders, and I am anxious that there should not be other unintended consequences, if we ban the tie completely. I shall examine some of the proposals for reform of the tie. CAMRA, to which the hon. Member for Southport has referred, does not support the complete abolition of the tie, for reasons that I shall come to. However, it thinks, for example, that there should be rights for guest beers, and it has made a number of other proposals. I have suggested to CAMRA, because it has doubts about the market, that if the Select Committee on Business and Enterprise, which is currently considering the matter, recommends that this market be examined, CAMRA should make a super-complaint to the Office of Fair Trading, which it has a right to do under the Competition Act 1998, to have the matter examined for the 20th time. It would be a tragedy if for the next year or half year we were waiting for the Government to respond to the Select Committee’s report, and many of the other issues that affect pubs were left on one side. That is one proposal.
The Association of Licensed Multiple Retailers has set up a committee to consider various clauses that could be inserted in the contracts between the pub companies and their lessees and tenants to make the situation fairer—to give long-term lessees the choice of paying a higher rent, which obviously would have to be determined in a fair way, and having a wider choice of supplies of beers, if they are willing to do that. That is another proposal. The Institute for Public Policy Research has reported to CAMRA and said that there should be a statutory code of conduct. A range of proposals are on the table and will be examined in the next year.
I do not want to take up too much time, because other hon. Members want to speak, but let me say why I do not think that the tie should be abolished and why I agree with the consumer body, CAMRA. First, the tie helps small brewers. I was once taken to the opera by a very big brewer. He took me to the opera for two reasons: to tell me that he certainly did not want minimum pricing and that he wanted the tie to go. Why did he want the tie to go? Many small, family brewers rely on the tie, because it gives them a guaranteed outlet for their beer supply and their markets. That is one reason why CAMRA does not want the tie to go. If we were completely to outlaw the tie as an economic model, an unintended consequence could be family brewers up and down the country going into liquidation and not being able to supply the pubs that they support. Sam Smith’s in Tadcaster in my constituency—Tadcaster is now the only town in England with three brewers—is an example of a family brewer. There are many others.
Punch Taverns and Enterprise Inns come in for much criticism. They are big players in the market, and it is right that people should hold them to account, but they provide a market for some small beers. One of the big changes in the pub and brewing market in recent years has been the rise of the micro-brewers, the small brewers. On a day when my right hon. Friend the Prime Minister may need a little encouragement because not everything is going right for him, let me point out that he was responsible for small brewers relief and that he created a market. In fact, we made him beer drinker of the year for that. He has not yet accepted his award, but perhaps like his predecessor going to accept the congressional
medal of honour after he stepped down, we can look forward to his accepting it sometime in the future. Some pub companies and pubs tied to brewers provide a market for small ales, and some of the small independent brewers certainly do not want the tie to go.
The long lease, which is characteristic of the arrangements made by pub companies, has to be examined. It has to be properly regulated, whether that is on a statutory or voluntary basis. Let us look back to the time of the beer orders, as my hon. Friend the Member for North-West Leicestershire has done. The complaint then was that there was no economic arrangement whereby someone with a small amount of capital—£25,000 or £30,000—could get a long lease, which potentially they could sell on if they grew the business in the meantime. The only leases available were short-term tenancies with the brewers. I would hate it if the only people who could go into the pub business were those who could raise perhaps £250,000 in capital to buy a pub outright. That has to be watched as well.
I have taken too much time already, but let me just say this. The hon. Member for Southport has said that it is possible to be too sentimental about pubs, and I think that it is. It is possible to forget that many of them are still dynamic businesses that give many people without much capital but with a bit of entrepreneurial initiative—regardless of sex, creed or colour, by the way—the chance to make an impact on our national life and to make a success of themselves. However, there should be a bit of room for sentimentality as well. That is why pubs always excite such passion in the House and why I and many members of the all-party beer group want to examine this issue and propose measures that will help not only tenanted, leased pubs, but all pubs. As Hilaire Belloc reminded us a long time ago:
“When you have lost your inns...you will have lost the last of England.”
11.26 am
Sir George Young (North-West Hampshire) (Con): It is a pleasure to follow the hon. Member for Selby (Mr. Grogan), who is one of the world’s greatest experts on the subject that we are debating this morning. I congratulate the hon. Member for Southport (Dr. Pugh), who has a knack of choosing subjects for these debates that interest North-West Hampshire. His last one concerned further education colleges—indeed, both subjects are of great interest to students in my constituency.
Not all the problems that confront pubs are due to the tie. As hon. Members have mentioned, other factors include changing social and leisure patterns, the recession, the duty on alcohol, the regulatory burden, business rates and, crucially, competition from supermarkets, which also sell alcohol. Those broader issues were discussed at the beer summit, which I attended, on 4 March in Room 10. It was attended by an array of Ministers, who, as far as I can see, have so for been unable to respond to the issues debated there.
This debate is about the tie—ownership. I agree with the hon. Member for Selby that there are some benefits to the tie, in that those without the capital to buy a freehold can run a pub and have a stake in its success. There are many well-run tenanted pubs with happy tenants and customers. There is not inevitably a tension between pubco and tenant, in that the more beer that is
sold, for example, the better both parties do. It is also argued that the tie brings stability to the sector and to British brewing, although I am not as yet convinced of that argument.
If we are considering the case for radical reform, some philosophical issues need to be addressed, particularly by those in my party, before we advocate that Government should intervene in a private contract, freely entered into by the two parties, and, indeed, before we advocate that Government should actively restructure an industry. That appears to be the view of the present Government. In a written answer on 9 February, the Minister stated:
“I have not met with Pubcos to discuss beer pricing. This is a commercial matter for the businesses concerned.”—[Official Report, 9 February 2009; Vol. 487, c. 1677W.]
Let me address the role of Government. The Government have intervened in landlord-tenant relationships for a very long time, where they believe that there is an imbalance. In residential contracts—for example, assured tenancies—there are clauses that the Government have insisted be there. In enfranchisement proposals for leaseholders, the Government have intervened in the relationship between a freeholder and a tenant and given that tenant certain rights that are perhaps relevant to this debate. People who live on mobile home parks have been given contractual rights by the Government that they could not get from the owner. On more commercial matters, the Government consulted in 2004 on removing the upward-only rent review clause in commercial leases.
I therefore see nothing sacrosanct about the tie that precludes the Government from intervening, if the case is made. Of course, the Government intervened back in the 1990s, as we have heard, to alter the structure of the industry in the name of competition, but pubcos now have the same grip on the industry that the three biggest brewers had then. If it was right for my party to intervene then, it is difficult to argue that it is not right to intervene now, if the case is made.
Agencies of the Government, such as the Office of Fair Trading, have taken an interest in pubs. In 2002, the OFT concluded that the tie had no major negative effects on the pub industry. In its 2004 report, the then Select Committee on Trade and Industry said:
“There is considerable scope for eliminating the root causes of such disputes”,
which arose from the tie. It concluded that
“if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it.”
My views on the matter are subjective, and this is not something in which I specialise, but my understanding is that the root causes that the Select Committee mentioned in 2004 have not been eliminated and are still there.
I am influenced in that by two factors: a meeting that I attended earlier this month of licensees in Andover, nearly all of whom are pubco tenants; and what has happened to far too many pubs in my constituency, where a sequence of pubco tenants have simply been unable to make a go of their pub on the terms offered. On the first, I am grateful to Mr. Alex Gillies of the Station hotel in Andover for setting up the meeting. We covered a lot of ground, but there were two important
concerns. One was the inability to buy beer as cheaply as people could buy it in supermarkets, after which they could consume it without supervision. Tenants are simply unable to compete effectively in the market for their prime products. Although I am not in favour of resale price maintenance, it is difficult for those of us who believe in competition, the marketplace and free trade to swallow such a significant restraint on trade.
The second issue is the uneven nature of the contract, which has been touched on. In one case, a tenant signed a lease on the basis of high turnover figures, without knowing that they had been preceded by a special offer. I will not repeat the points about the operation of the tie, but all the tenants whom I met had used solicitors, only subsequently to discover that small print in the contract was greatly to their disadvantage.
That brings me to my next point: I want to see greater stability in the industry. I see from the GMB union briefing that 32 per cent. of the Punch Taverns estate of 8,400 pubs changed hands in three years and that those that did changed hands twice on average. Too many tenanted village pubs in my constituency have a series of tenants, none of whom can make a go of the business. Tenants lose their savings, go bankrupt and become homeless or disappear, and the process starts all over again. Six months later, there is another failed business and another tenant. That is not good for the community or for the pubco.
I am interested in a more stable environment and a better business model. In the village of Ecchinswell, the villagers simply got fed up, and they bought the village pub, which is run by a not-for-profit company. I am a keen supporter of that solution, where the market has failed.
What should happen? I am not in favour of a ban on the tie, because that would be too dramatic, but it should be loosened, and we should move to a different business model over time. It would be better if we had more free houses where the publican owned the freehold, and I welcome the fact that the pubcos are selling, which shows that we are moving in the right direction. However, one licensee I talked to at the weekend said that his pub had been valued three years ago and that that was the value in the pubco books. He has offered a third of that price, which he believes is the pub’s going value. If his offer were accepted, it would have enormous consequences for the balance sheet of the pubco, whose asset values would fall.
We should encourage a change in the business model, as the hon. Member for Southport has suggested, because that would lead to a more stable and profitable industry. In an Adjournment debate on 26 March, which my hon. Friend the Member for Tewkesbury (Mr. Robertson) initiated, the Minister said:
“We need to consider the role of tied houses and other pub companies, which, through differential pricing and the rents charged, have an impact on landlords...I will discuss with colleagues in the Department for Business, Enterprise and Regulatory Reform how we can better understand the sector and provide help.”—[Official Report, 26 March 2009; Vol. 490, c. 551.]
We look forward to hearing at half-past 12 just what the Minister has been able to do.
As an interim measure, we should move towards obligatory clauses in leases, such as exist in other contracts. In the longer term, however, a combination of shareholder pressure on pubcos, pressure from the Select Committee,
whose report we await, pressure from the House and the availability of finance to enable tenants to buy pubs might move us from where we are to a different structure and a more sustainable and stable pub industry.
11.34 am
Greg Mulholland (Leeds, North-West) (LD): I pay tribute to my hon. Friend the Member for Southport (Dr. Pugh) for calling this important debate. He is one of the people who has been speaking out about issues affecting pubs, including today’s subject. He has had the courage to speak out about something that many organisations do not want to have raised.
I want to start with a simple question: who owns the British pub? Morally the answer should surely be the community that it serves: the area or village, whether that is a rural village, town or suburb. Surely the moral ownership of a pub that might have been there for years—in some cases, indeed, hundreds of years—should be with the community, the area and the people living there. Legally, of course, apart from when a pub is the last one in a rural village, the community has virtually no say in the future of the pub.
What is the ideal pub? I echo the comments of the right hon. Member for North-West Hampshire (Sir George Young) that the ideal pub would surely be owned by the people who put in all the hours and run it to try to make it a success. It would also serve locally brewed beer, and, if it is a food pub, locally sourced food. There would be a genuine relationship between the business people and the people whom they serve in the community. A pub is much more than a business, but the sad reality is that in Britain today we could not be further from that situation.
David Taylor: The chairman of the new all-party save the pub group has presented an idealistic view, particularly with respect to rural areas. I represent a partly rural seat, and I believe that he represents a largely urban seat. When pubs are threatened, particularly in villages and sometimes on urban estates, does not a great deal of the welter of opposition and concern reaching MPs and others come from people who never go through the doorway of the pub in question? They have an emotional feeling that the pub should continue in their community, but they are not willing to sustain it in any commercial or social sense. Is that not the problem?
Greg Mulholland: As the hon. Gentleman knows, one of the things that the save the pub group wants to do is encourage people to visit pubs. However, my answer to the hon. Gentleman is no; he has described a problem, but the problem that we are discussing today is ownership.
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