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28 Apr 2009 : Column 221WH—continued
The brewers would retain a presence in the market, but they might have to stop subsidising supermarket sales in the off-trade from pub sales in the on-trade. That would have the knock-on benefit of discouraging the kind of pricing regime in supermarkets that we see as a major contributor to binge-drinking culture.
Clearly, the pub companies would not be completely enamoured of the proposal, but they would still retain by far the largest percentage of products on display on the bar. They would still have an interest in maintaining the pubs’ viability, but would be pressured into more competitive pricing. That is an entirely good thing, because within their doors, all such pubs are monopolies. As my hon. Friend the Member for Southport rightly said, in the end, our obligation is not to the shareholders of pub companies; it is to local communities. If we manage to achieve sensible reform of the tie, pubs will be more open and more attractive, offering a better range of drinks. They will be more connected to local communities and more competitive with the supermarkets. That offers a positive future. If we do not reform the tie, local communities will continue to lose their pubs and their heart.
12.2 pm
Lorely Burt (Solihull) (LD): Thank you, Mr. Betts, for showing leniency to my hon. Friend the Member for Cheltenham (Martin Horwood) in his interesting and worthwhile submission and suggestions. I congratulate my hon. Friend the Member for Southport (Dr. Pugh) and all those who have spoken in this debate. It has been an interesting and well-considered report from knowledgeable people.
I know that running pubs is tough, because I had a small pub company myself at one point in the late ’90s. Revolving-door tenancies have been referred to; interestingly, the situation was just the same then. Economic circumstances, changes resulting from the beer orders and changes to the whole culture and nature of British life, which used to embrace the pub to a far larger degree, were taking their toll at that time.
There is, or should be, a symbiotic relationship between the pubco and the tenant. If one fails, both fail. It should permit entrepreneurs who want to have a pub but cannot afford to buy one to use their entrepreneurial talent. There are four basic models of pub in the United Kingdom: managers, the free house, the tie and the lease. The benefit of the tie is purported to be vertical integration. The pubco should provide business support, and it gives a three to five-year contract. The quality of the business support can vary. The pubco maintains the property, but a tie is on the beer and often, although not always, on other drinks as well. That is open to negotiation between the company and the tenant.
Martin Horwood: Not from the examples that I have quoted but from talking to other tenants in my constituency, I discovered that the relationship in negotiating the contracts is so unequal that it does not offer the landlords much realistic chance for leeway.
Lorely Burt:
I am grateful to my hon. Friend. Obviously, the situation will vary. The theme running through the debate is the perceived inequality in the relationship between the pub company, which seems to hold the
cards, and the tenant. It has almost been portrayed as a David and Goliath relationship, but both have to benefit; otherwise, neither will.
Greg Mulholland: The problem is precisely that tenants are not benefiting—indeed, they are failing—but that has no impact on the pub company’s bottom line. The relationship that my hon. Friend describes therefore simply no longer exists.
Lorely Burt: I would disagree with my hon. Friend in that the failure of any pub must be a failure for the pub company, as well as a cost to it. However, I take his point and I am trying to be fair in dealing with the question of equality between the two groups.
On the lease, there is the longer-term benefit to the lessee, as well as greater security of tenure. There is also the tie on the beer, but the lessee is responsible for the building and for maintenance. There are also the benefits of assignment, which are one of the major issues on which tenants want greater security. Those benefits have largely been lost in recent years. Finally, industry representatives tell me that much of the pressure over the problems of the tie is coming from lessees rather than tied managers.
The Fair Pint campaign opposed the tie and wants pubs to be sold to licensees at fair prices. Could tenants afford £250,000 or £1 million to buy a pub? If not, rents would have to increase. Such proposals would also mean pubcos being split into the wholesaling and property businesses, and we have heard extensively about pubcos’ problems with property, which are putting pressure on their relationship with tenants. The proposals would also mean that landlords could buy beer on the free market, but the pubcos say that their big purchasing power would be lost. They also say that international brewers would benefit and fill the gap when UK brewers did not satisfy demand, but I am not entirely sure that I buy that argument. Who buys the brewers’ beer now? Surely, our existing market would be able to satisfy a differently structured pub sector. Finally, the chair of the all-party group on beer has talked about smaller breweries benefiting from the tie.
The problem is the imbalance in power, and I want to make a few suggestions about what could be done. A lot of the problem is the result of unskilled people moving into pubs without necessarily understanding what they are letting themselves in for. The pubcos should give people far more than the typical one week’s training, which is totally insufficient. It is in the interests of both parties that much more aware and trained people take on pub leases.
The Department for Business, Enterprise and Regulatory Reform has talked about ending upward-only rent reviews, and I understand that that is now in the code of practice and is being implemented. I hope that somebody has told the tenants, although I do not know whether they have. There should be transparent contracts, and small print should be outlawed. The code of conduct needs to ensure that that happens by providing for some form of due diligence.
The practice of restrictive covenants, which my hon. Friend the Member for Southport mentioned, must stop. The code of practice now gives a greater number of successful tenants the right to buy their pubs. Where a pub is being sold or closed, the tenant should have first right to buy.
We are in difficult economic times. We have the credit crunch, the beer tax, smoking and supermarkets: we can do something about supermarket under-pricing with a minimum pricing system. We are living in tough times. With the pubcos in so much property debt perhaps it is time to change the model; but that model will work only if both parties benefit.
12.10 pm
Mr. Jonathan Djanogly (Huntingdon) (Con): There are more than 58,000 pubs in the UK, directly employing 600,000 people. The sector contributes approximately £28 billion to the UK economy. In addition to their economic importance, as the hon. Members for Southport (Dr. Pugh), for Selby (Mr. Grogan), for Leeds, North-West (Greg Mulholland) and for Cheltenham (Martin Horwood), my right hon. Friend the Member for North-West Hampshire (Sir George Young) and my hon. Friend the Member for Tewkesbury (Mr. Robertson) said in their own ways, pubs are often the centre of their communities. A third of UK adults socialise in a pub at least once a week and following the wholesale closure of our post offices in the past decade they are sometimes the last remaining amenity in small communities. All in all, the pub trade is very valuable to our country, so I congratulate the hon. Member for Southport on obtaining the debate.
In spite of the facts that I have just outlined, as the hon. Member for Selby and other hon. Members said, the number of operational pubs in the UK is in steep decline. The British Beer and Pub Association estimates that 39 close each week. If that trend continues, more than 7,500 pubs will shut by the end of 2012. That is one in eight British pubs. In the past 12 months alone more than 2,000 pubs have closed, with the loss of 20,000 jobs. Unsurprisingly the brewing industry is suffering too. Since 1997 there have been 37 major brewery closures and more than 5,000 job losses. That amounts to more than 25 per cent. of all brewing sector employees. I have just heard that in the last quarter beer sales were 8 per cent. down overall. That is 6.3 per cent. down in pubs and 11 per cent. down in supermarkets. In recent months the Conservatives have launched a campaign in support of the great British pub. Responsible pubs and considerate, informed, socially aware drinkers have a positive role to play in communities throughout the country, and our nation would be a great deal worse off without them.
Landlords, brewers and beer drinkers each have a slightly different view of what is driving the decline, but common issues frequently crop up. One of the most controversial, as the hon. Member for Southport pointed out, is the supply tie or beer tie. Approximately 30,000 British pubs are subject to some form of tie, and a further 9,000 are directly managed by, for instance, a retail chain. The remaining 18,000 are free houses. Pubcos and the BBPA are adamant that supply ties are fit for purpose. They argue that rents are often lower for tied tenants than for those operating a free house; that property maintenance usually remains the responsibility of the freeholder; and that taking on a tied pub offers a low-cost entry to a self-employed business. They also state that when a tie is in operation the pubco has a vested interest in the success of the pub.
Many tenants and campaigning organisations such as the Campaign for Real Ale argue the opposite, however. They believe that the large pubcos are so
saddled with debt from freehold acquisitions of the past two decades that simply servicing it dictates that they place tremendous burdens on their tied tenants. The hon. Member for Leeds, North-West made that point very well in his call for more community holding of pubs. I should appreciate the Minister’s view on the anti-competitive practice of imposing restrictive covenants on pubs when the freehold is disposed of.
As several hon. Members stated in the debate, in 2004 the then Select Committee on Trade and Industry recommended that exclusive purchasing agreements—ties—are desirable only if, in broad terms, the benefits equal or outweigh the costs. To me that seems a sensible business proposition, but one that is very much determined by the individual tenant and lease. The hon. Member for Southport does a significant disservice to the innovation and competition brought into the sector by the previous Conservative Government, as my right hon. Friend the Member for North-West Hampshire explained. In 2000 the Office of Fair Trading undertook a review of the pub and brewing industry and decided that the market had undergone significant structural changes, with only about 15 per cent. of pubs now owned by brewers and large independent owners making substantial inroads into the market.
Dr. Pugh: I understand what the hon. Gentleman is saying, but the point I was trying to make was that at that point—and it was not to be anticipated, but was an unintended consequence—because the purchasers were private equity houses, which borrowed the money, there was a huge dead weight cost on the industry, which had not been there before 2000.
Mr. Djanogly: I understand the hon. Gentleman’s point, but he will also appreciate that markets and models change. Big debt structures are not exactly flavour of the month in the City, so he will probably not see too many of them in the near future.
The review led to the repeal of the beer orders that regulated the ties. In 2005, the Competition Commission suggested that the OFT revisit the pub and brewery market and focus particularly on the impact of pubcos rather than just breweries, but after conducting a preliminary study, the OFT decided not to proceed with an investigation. Clearly, it is a matter for the OFT and the Competition Commission. At this stage, we should respect their judgment on the matter. As we have said on many occasions, legislation should be a last resort, not a first resort, especially when it has the potential to create a regulatory burden on business. The current economic situation renders that a particularly salient issue.
Equally, where it exists, uncompetitive practice is not sustainable in the long term. We are hopeful that the market will develop in a transparent and competitive manner and that pubcos and breweries will work hard to ensure that, when a tie forms part of a lease, it is appropriate, and that the tenant as well as the freeholder derives benefit from it. The hon. Member for Selby made a solid case on the issue, but I also accept that if regulation becomes necessary, we should act, as my right hon. Friend the Member for North-West Hampshire said. My hon. Friend the Member for Tewkesbury suggested a similarly cautious approach.
Modern pubs, whether tied or not, face other challenges. As my hon. Friend made clear, one such challenge is the Government alcohol taxation and the growing disparity between the price paid for a pint at the bar and the price paid at the checkout. According to the BBPA, 84 per cent. of pubs are small, family-run businesses. They may be owned by a parent firm, but their operation and cash flow is managed day to day by the publican and several staff. The BBPA argues that those small operations cannot simply absorb increasing tax and regulatory costs and that they must pass them on to consumers. By contrast, as my right hon. Friend the Member for North-West Hampshire pointed out, supermarkets are simply not burdened in the same way. Alcohol is frequently used as a loss leader to encourage consumers into stores.
It is wrong to pretend that the market for alcohol is entirely price dependent and that cost is the sole factor operating in the mind of a consumer when they decide whether to drink at the local pub or at home, but it is equally wrong to suggest that the price of alcohol has no impact on such decisions. We believe that setting a minimum price per unit of alcohol is not the way forward on the issue—at least not at this stage. It is too much of a blunt instrument. We should avoid penalising every responsible adult who simply likes the occasional quiet drink by inflating the price of all alcoholic products. That is why we propose using the tax system to help pubs and to target binge drinking. We are pressing for a revenue-neutral package of changes to alcohol taxation. The proposals would mean that tax would fall on some drinks, such as moderate strength beer, and that it would rise on some problem products, such as high-alcohol cider and alcopops.
We would also deal with irresponsible drinkers and premises by enforcing existing laws with greater energy and zeal and by encouraging more voluntary schemes. That would not only make our streets more pleasant, but result in lower costs for responsible pubs, whose insurance and security costs are high because of the behaviour of other establishments.
Unfortunately, the only Government response to the plight of pubs and alcohol-related disorder was to increase alcohol duty by 2 per cent. in the Budget last week. As the hon. Member for Southport said, tax increased significantly last year but, as the Government must realise, tax revenue fell by £17 million. There is certainly more to the issue than tax. However, that was just one component of Labour’s dishonest Budget. I challenge the Minister to deny that it is a tax on the many, not the few.
12.19 pm
The Minister for Trade, Development and Consumer Affairs (Mr. Gareth Thomas): I congratulate the hon. Member for Southport (Dr. Pugh) on securing parliamentary time for the debate. I also congratulate my hon. Friends the Members for Selby (Mr. Grogan), for Stroud (Mr. Drew) and for North-West Leicestershire (David Taylor); the right hon. Member for North-West Hampshire (Sir George Young); and the hon. Members for Tewkesbury (Mr. Robertson), for Leeds, North-West (Greg Mulholland), for Cheltenham (Martin Horwood), for Castle Point (Bob Spink), for Solihull (Lorely Burt) and for Huntingdon (Mr. Djanogly) on their remarks.
The hon. Member for Huntingdon, in peddling the usual line from the Conservative Front Bench, once again failed to say what he and his party would do about taxation. If he is concerned about the increase in drinking duty levied in this Budget, how would he find the additional revenues?
Mr. Djanogly: I have to say that I did not exactly say what we would do in terms of tax, which is to reduce the tax on low-alcohol products and increase it on the higher-alcohol products.
Mr. Thomas: Interestingly, the hon. Gentleman did not acknowledge what the revenue impact of the particular package—
Mr. Djanogly: Will the Minister give way?
Mr. Thomas: Let me just say that the hon. Gentleman claimed that his package would be neutral, yet in the same breath he attacked the Government for increasing the duty by 2p. I recognise that he has his get-out clause. I hope that he will recognise that he has not been clear with the House about where the additional revenues would come from if he and his Front-Bench colleagues reduced the duty.
A previous debate on the subject was secured by the hon. Member for Tewkesbury, and the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Bradford, South (Mr. Sutcliffe), who is in his place ready for the next debate, replied for the Government on that occasion. Some of the issues considered in that debate have been raised again today. I accept, as do all parts of Government, that pubs have traditionally been at the heart of communities as places to meet and as the focal point for many local groups and activities, and that they are a hugely important source of employment.
I should mention the experience in my constituency, where a series of pubs have closed. Before the recession, pubs such as the Railway Inn, the Rayners and Matrix closed, perhaps, as the hon. Member for Cheltenham mentioned, because their landlords sought increased value and alternative uses for the sites.
Martin Horwood: I would like to make it clear that in referring to the landlord, we are talking about the owner of the property, not the landlord of the pub.
Mr. Thomas: Let me mention something that the right hon. Member for North-West Hampshire referenced: the meeting that took place on 4 March between five of my ministerial colleagues and Members of Parliament to hear concerns about the future of the pub trade. I would like to make it clear that the drinks industry also met my noble Friend Lord Mandelson and the Chancellor in the run-up to the Budget.
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