1 Introduction
Developments since publication
of our last Report
1. On 13 May 2009 we published our Report on
Pub Companies (the 2009 Report).[1]
This Report revisited a number of the issues raised in the then
Trade and Industry Committee's Report of 2004 (the 2004 Report).[2]
The main thrust of the 2009 Report was that the relationship between
pub companies and their lessees was both unhealthy and unbalanced.
Some of the reaction to our Report confirmed the impression we
gained that the pub companies had failed to engage in meaningful
efforts to reform that relationship, and that both sides were
caught up in a vicious cycle of distrust and confrontation.
2. In the light of the strong reaction to the
2009 Report, continued interest in its recommendations and a number
of subsequent developments, which are set out below, we decided
to hold a follow-up evidence session with the Royal Institution
of Chartered Surveyors (RICS),[3]
British Beer and Pub Association (BBPA)[4]
and Independent Pub Confederation (IPC)[5]
to test responses to the recommendations contained in our 2009
Report. Witnesses were invited to submit evidence on the following
points:
i. RICS' Pub Industry Forum Report and Recommendations;
ii. BBPA's agreement with BII[6]
and FLVA[7] to revise its
Framework Code of Practice on the Granting of Tenancies and Leases;
iii. The Pubs Independent Rent Review Scheme
(PIRRS); and
iv. The formation of the Independent Pub Confederation
(IPC).
3. This has not been a straightforward Committee
inquiry. The issue of the relationship between lessees and pub
companies has a very active and committed audience. Press notices,
new announcements and statements are issued on an almost daily
basis by both sides. Therefore our inquiries have been conducted
in the context of a fluid and complex environment. Of necessity
many of our recommendations are directed mainly at the industry
but our purpose in doing so is to direct Government policy towards
the sector.
4. We sought to conduct our work in a considered
and accommodating manner. With our encouragement and agreement
the Government did not respond to the 2009 Report to allow us
to receive a response from industry first. For this follow-up
inquiry we introduced a delay between the evidence session and
the publication of the Report to allow the key players time to
address the concerns raised and for publication of the final text
of the BBPA's Framework Code of Practice. While this meant that
the publication of this Report has taken longer than expected,
it is clear that it has enabled the various sides to consider
their positions and react accordingly.
5. We wish to make it absolutely clear that,
while we deprecate many of the actions of the pub companies in
recent years, many of the problems the sector faces are completely
unrelated to the tie. In particular, we acknowledge that changes
in society and the economy do mean that there may be too many
pubs in certain locations and that some closures are inevitable,
whether or not the industry embraces the changes it has undertaken
to make, which we analyse in this Report.
6. However, we reiterate our concern in the 2009
Report that such closures should be determined by the market and
not by the imposition of restrictive covenants on particular pub
properties. The pub companies may need to close some pubs, but
they should not determine the fate of individual premises.
7. We also wish to emphasise that not all the
complaints made in public about pub companies will be well-founded.
There are lessees whose poor stewardship of their pub is the primary
cause of their problems. Of course, this will often prompt the
question as to why the pub companies allowed such lessees to take
over the lease in the first place, or why they have not intervened
to assist the failing lessees, but we acknowledge this will often,
in practice, be difficult. We also emphasise that our 2009 Report
was not based on anecdotes from individual lessees but on solid
quantitative research which demonstrated systemic problems in
the relationship between pub companies and lessees.
8. So we stand fully behind all the recommendations
in the 2009 Report. We still believe that a Competition Commission
reference may be necessary, but we acknowledge the real possibility
that the developments prompted by our Report may, taken together,
correct the serious imbalance of power in the commercial relationship
between pub companies and lessees. We would be more confident
of such an outcome if the record of the pub companies in addressing
issues of legitimate concern was better than it is. All the recommendations
and conclusions in this new Report should be set against this
general background. We have
grave doubts about the industry's willingness to do enough voluntarily
to prevent statutory or regulatory intervention. We urge all the
players to work together constructively to achieve this outcome.
9. The BBPA told us that it worked successfully
in co-operation with a variety of industry bodies and that it
would continue to do so wherever possible. However, this co-operation
has not been extended to the IPC. The BBPA asserted that "the
wide ranging and fixed positions held by members of the IPC makes
it difficult to reach further agreement on issues that would damage
the economic success of our members and, in our view, the business
of many tenants and lessees".[8]
10. The IPC told us that it was more than willing
to have a dialogue with the BBPA but that the BBPA had refused
to enter into discussions. The ALMR told us that while the BBPA
had expressed its willingness to meet with the ALMR, it was "disinclined"
to meet the IPC.[9] Mrs
Nicholls confirmed that there was "no dialogue at all between
the BBPA and IPC."[10]
11. We deprecate the fact that
the BBPA refuses to enter into dialogue with the IPC. The BBPA
needs to work with the lessee groups and representatives towards
a consensus on the issues raised in both this Report and the 2009
Report. We expect the BBPA to engage with the IPC as a matter
of urgency.
Mediation talks
12. On 10 June, the Association of Licensed Multiple
Retailers (ALMR) told us of its intention to instigate mediation
with a wide range of industry organisations, associations and
pressure groups comprising the ALMR, British Beer and Pub Association
(BBPA), British Institute of Innkeeping (BII), Campaign for Real
Ale (CAMRA), Fair Pint Campaign, Federation of Licensed Victuallers
Association (FLVA), Guild of Master Victuallers, Justice for Licensees,
Federation of Small Businesses (FSB), Punch Taverns Plc, Society
of Independent Brewers (SIBA) and Unite the Union. The ALMR employed
a professional mediator to facilitate the meetings. The Morning
Advertiser[11] reported
that the mediator's role would be:
to find common ground and, hopefully, reach an agreement
about an achievable outcome for reform. It's intended that a negotiated
agreement - or, to borrow the language of international diplomacy,
a road map - should be reached by October 2009. […] The hope
is that [Peter] Luff and Business Secretary Peter Mandelson will
recognise the industry has a concrete plan for self-reform, so
there is no need for a Competition Commission investigation.[12]
13. However, on 14 October 2009 it was announced
that the mediation had "not resulted in an agreement between
all the parties and, therefore, under the provisions of the Mediation
Agreement, the Mediators have terminated the mediation".[13]
CAMRA argued that "pub owning companies did not enter mediation
with any intention of agreeing meaningful substantive change"[14]
while the BBPA believed mediation failed because of the "wide
disparity of interests held by various other parties involved."[15]
BBPA pointed out that the mediation process was largely
funded by them at a cost to the Association of £142,000.[16]
14. Despite the failure of the mediation talks
to deliver reform, it proved to be the catalyst for a number of
positive developments, all of which we welcome and are confident
would not have occurred had we not published our 2009 Report.
15. Firstly, following mediation the BBPA, FLVA
and BII published a binding agreement of commitments relating
to the operation of leased and tenanted pub agreements.[17]
Brigid Simmonds, Chief Executive of the BBPA, described these
commitments as providing "a solid foundation for both licensees
and pub owning companies to move forward on a positive agenda
of improved understanding about the expectations, roles and responsibilities
within their business relationship".[18]
16. Secondly, the BBPA published its new Framework
Code of Practice on the Granting of Tenancies and Leases
in January 2010. Members of the BBPA have until June to revise
their company Codes of Practice in line with the new Framework
Code. We consider the new Code in Chapter 2 of this Report.
17. A third development to come out of the mediation
talks was formation of the Independent Pub Confederation (IPC)
which comprises the Association of Licensed Multiple Retailers
(ALMR), Fair Pint Campaign, Federation of Small Businesses (FSB),
Guild of Master Victuallers, Justice for Licensees, CAMRA, Society
of Independent Brewers (SIBA) and Unite the Union. The IPC is
also supported and endorsed by BII and FLVA.[19]
The Confederation acts as an umbrella organisation representing
the interests of the lessees, consumers and others; interests
which too often in the past, have spoken with a discordant voice.
18. Another development, though not related to
the mediation talks, was the establishment of a forum by the Royal
Institution of Chartered Surveyors (RICS) to review RICS guidance
on pub rental valuations in light of the criticisms made in our
2009 Report. We consider the Forum's report and recommendations
in Chapter 4 of this Report.
Super-complaint by CAMRA
19. In addition to these developments, in July
2009 CAMRA submitted a super-complaint[20]
to the Office of Fair Trading (OFT) in relation to the uncompetitive
behaviour of pub companies. On 22 October the complaint was dismissed.
The OFT found that:
there is generally effective competition between
pubs and [the OFT] does not consider that supply ties are resulting
in competition problems that are having an adverse impact on consumers.[21]
20. CAMRA has since appealed to the Competition
Appeals Tribunal and the OFT have agreed to re-open their investigations.
Given that this case is ongoing we do not comment on it in this
Report.
1 Business and Enterprise Committee, Seventh Report
of Session 2008-09, Pub Companies, HC 26-I Back
2
Trade and Industry Committee, Second Report of Session 2004-04,
Pub Companies, HC128 Back
3
RICS is the world's leading professional body for qualifications
and standards in land, property and construction. Back
4
BBPA is a membership organisation made up of major pub operators;
vertically integrated brewers and pub operators; and minor pub
operators Back
5
The IPC was formed in the Autumn of 2009 and is an umbrella organisation
made up from Association of Licensed Multiple Retailers, Fair
Pint Campaign, Federation of Small Businesses, Guild of Master
Victuallers, Justice for Licensees, CAMRA, Society of Independent
Brewers and Unite the Union. The IPC is also supported and endorsed
by BII and FLVA. Back
6 BII
(British Institute of Innkeeping) is the professional body for
the licensed retail sector and the industry's leading membership
organisation reflecting the views of 1000s of individual members
across the UK
Back
7
FLVA (Federation of Licensed Victuallers Associations) is a members'
organisation looking after the business interests of self-employed
licensees in the licensed trade. Back
8
Ev 38 Back
9
Ev 29 Back
10
Q 219 Back
11
A pub industry trade journal Back
12
"Meet the man who can help us help ourselves", Morning
Advertiser, 17 July 2009 Back
13
Leased Pub Industry Mediation Press Release, Lester Aldridge LLP,
14 October 2009 Back
14
Ev 57 Back
15
Ev 33 Back
16
Ev 33 Back
17
Agreement on the operation of leased and tenanted pub agreements
containing purchase obligations (i.e. tied pubs) BBPA, BII and
FLVA, October 2009 Back
18 "BBPA
announces agreement on BEC and Code of Practice", BBPA press
notice 14 October 2009 Back
19
Ev 100 Back
20
A super-complaint is defined under section 11(1) of the Enterprise
Act 2002, as a complaint submitted by a designated consumer body
that 'any feature, or combination of features, of a market in
the United Kingdom for goods or services is or appears to be significantly
harming the interests of consumers'. CAMRA is a designated consumer
body. Back
21
"OFT publishes response to CAMRA super-complaint", OFT
Press Release 22 Oct 2009 Back
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