Conclusions and recommendations
BBPA Code of Practice
1. 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.
(Paragraph 8)
2. 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. (Paragraph 11)
3. We do not believe
previous BBPA and pub company Codes of Practice have been sufficiently
robust. Nor do we believe the pub companies have properly complied
with them. This history of evasiveness and the demonstrable consequences
for lessees inevitably requires a critical response to the new
Framework Code. (Paragraph 26)
4. We are disappointed
that it took until the end of January 2010 to publish the new
BBPA Framework Code of Practice. We were given sight of a draft
Code ahead of the evidence session in December 2009 and the difference
between the draft and the published Codes appears to be minimal.
This delay put back publication of our Report as it was only fair
to let other groups respond to it. (Paragraph 32)
Assignment of leases
5. The
clauses in the Framework Code of Practice regarding the assignment
of leases are an attempt to address our and our predecessor Committee's
concerns. We note the concerns expressed by lessees about the
obligations it would place upon them but we believe that the new
Code represents a step in the right direction. However, lessees'
existing right to assign their leases needs to be treated with
the upmost consideration. (Paragraph 39)
6. The BBPA and the
lessee organisations need to work together to develop processes
in a way which are mutually beneficial. Both sides must ensure
that the history of lack of trust and intimidating behaviour by
pub companies does not magnify disagreements on this issue and
undermine the Framework Code. (Paragraph 40)
Training and professional advice
7. We
welcome the inclusion of the clauses on training and professional
advice in the Framework Code which will greatly assist newcomers
to the industry. We also agree that experienced publicans should
not have to undertake basic training when taking on a new lease.
We therefore understand why a waiver has been included in the
training clause of the Framework Code of Practice. It is vital
that both of these clauses are applied rigourasly. We will expect
the BBPA to introduce a system to monitor use of the waiver and
publish clear guidelines on its use by the end of August 2010.
(Paragraph 45)
Regional and family brewers
8. We
welcome the fact that the BII will work to help and advise smaller
pub companies and family brewers on the new Framework Code and
the subsequent accreditation process. We recommend that the BII
monitor closely compliance costs for regional and family brewers
to ensure that these costs remain reasonable. (Paragraph 47)
9. We recommend that
where leases have upward-only rent review clauses they should
be removed by a deed of variation, the cost of which should be
borne by the pub companies. This would also have the benefit of
being binding on a pub company's successor in title. (Paragraph
50)
AWP machines
10. Removal
of the AWP income from the divisible balance is a belated step
in the right direction. It should never have been included in
the divisible balance in the first place. To take 50% of profit
as part of the machine tie and then 50% of the remaining profit
as part of the divisible balance is totally unacceptable. (Paragraph
54)
11. It is unacceptable
that pub companies have again failed to address the AWP tie or
to seriously offer free of tie options. If the AWP tie offers
the benefits claimed for it, offering such a choice on an informed
basis would demonstrate goodwill at little if any cost to the
pub companies as lessees will freely chose to retain the tied
machines. (Paragraph 57)
Flow monitoring equipment
12. We
welcome the inclusion in the Framework Code of the need for additional
evidence above and beyond the data from flow monitoring equipment
in any accusation of buying outside of the tie. However, such
evidence must be physical evidence and not merely a signed 'confession'
by the lessee. In relation to fines being taken by direct debit,
without the authorisation of lessees, the BBPA must give public
and unambiguous direction to its members that such a practice
is incompatible with BBPA membership. (Paragraph 65)
13. The accuracy of
data from flow monitoring equipment and the analysis of that data
are highly contentious issues. Flow monitoring equipment could
be a helpful tool, for both pub companies and lessees but only
if it is reliable and has the confidence of both sides. Clearly
this is not the case at the moment. We recommend that the Government,
through the National Measurement Office, urgently clarifies the
position of beer flow monitoring equipment in relation to the
Weights and Measures Act 1985. Such equipment must be included
under the Act for calibration and verification purposes. (Paragraph
69)
Conclusion on the Framework Code
14. The
new Framework Code of Practice appears to be a modest step in
the right direction. Of necessity it provides a framework for
companies of all sizes. We expect the major pub companies to treat
it as an absolute de-minimus requirement and to significantly
build on it with their own Codes. Only by doing so will pub companies
be able to demonstrate that they are committed to reform. We recommend
that our successor committee, at an early opportunity in the next
Parliament, assess the extent to which pub companies have built
on what is a bare minimum of a Framework Code; and evaluate how
effective the new Code has been in improving the relationship
between lessees and pub companies. Previous codes have been weaker
and not fully observed by the pub companies. We will need to see
compelling and continuing evidence by June 2011 that the new codes
are being observed and enforced if our successor committee is
not to recommend statutory intervention. (Paragraph 70)
The role of the BII in policing the Codes
15. The
BBPA must do more to highlight the importance to prospective lessees
of choosing a pub company with BBPA membership and a BII accredited
Code of Practice. (Paragraph 81)
16. We believe that
real impartiality rather than notional independence is the essential
quality required of the BII. Any body set up to administer the
accreditation of Codes or monitor compliance would be bound to
be partially funded by pub companies as they own so many pubs.
Furthermore, we do not believe the complaints procedure should
be funded by the taxpayer. The BII must act impartially and be
seen to do so. They are in the best position to administer accreditation
of codes and to oversee and monitor compliance. The success of
all of the reforms proposed by the industry hinges on the credibility
and effectiveness of the BII. (Paragraph 87)
17. We therefore give
a cautious welcome to the BII's role in policing the Codes of
Practice and its intention to publicise complaints and breaches
on its website. We encourage the BII to do all in its power to
publicise breaches widely. Although the sanctions available to
the BII are limited and it has no power to fine, we have been
told that the impact on a pub company of a decision by the BII
to withdraw accreditation of a code would be extremely serious
for that company. (Paragraph 88)
18. We need to see
clear evidence by June 2011 that, in practice, the BII has the
necessary authority and impartiality to be effective as a policeman
for the industry. If it fails to demonstrate such qualities, the
case for regulatory intervention by the Government, for example
the establishment of an Ombudsman or intervention by the competition
authorities, will be very strong. (Paragraph 89)
Enforceability of the Codes
19. The
BBPA's assertion that Company Codes of Practice will be legally
enforceable has yet to be proved and we are not in a position
to reach a view on this issue; case law will determine this. Unless
the BBPA can prove beyond doubt that the Codes of Practice are
legally binding, incorporating the Code into the lease would be
the only remaining option. We urge our successor committee to
keep this issue under review and to return to it if evidence emerges
of the unenforceability of the Codes. (Paragraph 97)
Timings for change
20.
The Codes of Practice are moving in the right direction, but they
are not yet in place. We will hold the BBPA to its timetable for
implementation for the larger pub companies. Any delay beyond
June 2010 which is not accompanied with a justifiable reason,
will not be acceptable. Furthermore, after the assurances it has
given to the Committee, the BBPA not individual pub companies
will be held responsible if delays and slippages occur. (Paragraph
101)
21. We recommend that
the industry produces a project plan for change with key stages
at which it can be marked against achievement. This would make
it easier for the industry to see how it is progressing and for
our Committee, our successor Committee and the Government to be
confident that real change is happening. If slippage in the project
plan occurs the Committee and Government must be provided with
explanations and industry plans for action to get the timetable
back on course. (Paragraph 102)
RICS guidance on pub rental evaluations
22. We
welcome the fact that RICS has invited lessee representatives
onto its working group to consider the revised RICS guidance.
We expect their input to be as valued by RICS as that of industry
representatives. (Paragraph 108)
23. We welcome the
progress being made by RICS to address the shortcomings of its
existing guidance, and we expect the BBPA to deliver on its undertaking
to "completely abide" by the new guidance when it is
published. However, the acid test of its success will be the extent
to which the new guidance provides clarity on valuations and the
principle that a tied tenant should be no worse off than a free
of tie tenant. This should facilitate clearer discussion on what
constitutes a countervailing benefit. If it does, then the guidance
will represent a significant step forward in resolving a number
of our concerns. (Paragraph 113)
24. We await with
interest how RICS guidance will assess risks and rewards in light
of the recent court ruling on the divisible balance. (Paragraph
115)
Benchmarking
25. We
welcome the ALMR's decision to open up its benchmarking survey
to the whole of the pub sector, the work it is doing to encourage
other companies to provide data and the fact that it has undertaken
to 'gift' the survey to the industry. We further welcome the undertaking
by RICS to pursue the objective of a more open and transparent
method of comparing and assessing rents. The same cannot be said
of the BBPA which has appeared to resort to resistance, obfuscation
and hostility. We appreciate the fact that there are 'complexities'
in the pub sector but the BBPA has had long enough to overcome
these problems. (Paragraph 125)
26. We believe that
the publication of industry data on the costs of running a pub,
such as that available in the ALMR's benchmarking survey, represent
a significant step forward in increasing transparency in the industry.
(Paragraph 126)
27. We invite an update
from RICS about the scope and progress of the national database
of trading information by June 2010. We hope that it has greater
success in its discussions with the BBPA than the ALMR had achieved.
(Paragraph 128)
RICS Code of Practice
28. We
expect the BBPA and its constituent members to endorse the RICS
Code of Practice for valuing pubs and to enshrine it into the
BBPA Framework Code of Practice and individual company codes.
(Paragraph 132)
General dispute mechanism
29. We
remain profoundly concerned that no effort has been made to create
an independent dispute mechanism for general complaints about
pub companies. The system still relies on complaints being made
to managers within a company. This is a wholly inadequate response
to a pressing need. Urgent consideration should be given to extending
the work of the BII and PIRRS to cover this role. We recommend
that the BII be recognised in the Company Codes of Practice as
an independent dispute body and clear details of how a lessee
can apply to the BII for help must be provided by the pub companies.
The absence of such a mechanism may yet trigger regulatory intervention.
(Paragraph 147)
Choice to go free of tie
30. We
remain convinced that over a period of time offering lessees the
option of being tied or being free of the tie is the only way
to judge properly the fairness of the tie. In the meantime, we
recommend that the BII website makes clear for potential lessees
what options are available to them, and sets out the benefits
and disbenefits of being tied. This will ensure that both current
and potential lessees are empowered by greater knowledge, so bringing
more equal power to both sides in any commercial negotiation.
(Paragraph 153)
31. In the absence
of pub companies offering their lessees a free of tie option with
a full rent review we recommend that the BII, as part of its new
website, list the prices pub companies charge for their tied products
and the discounts available with comparisons to the free trade.
The website should also contain information on the business support
available from the various pub companies presented in an easily
comparable way. This provides lessees entering the trade information
on the best 'deals' but also brings to the attention of current
lessees whether they are getting the best out of their pub company.
We also recommend that the Office of Fair Trading monitors the
pricing of products being offered to lessees to keep a check on
unsubstantiated price rises. (Paragraph 156)
Conclusion
32. The
industry must be aware that this is its last opportunity for self-regulated
reform. If it cannot deliver this time, then government intervention
will be necessary. We do not advocate such intervention at this
stage, but remain committed to a resolution to all the problems
discussed in this Report and those of the 2004 and 2009 Reports.
Should those problems persist beyond June 2011, we will not hesitate
to recommend that legislation to provide statutory regulation
be introduced. (Paragraph 158)
33. We urge the Government
to monitor the success or otherwise of industry initiatives for
reform and to keep the possibility of a reference to the Competition
Commission firmly on the agenda. We also urge the Office of Fair
Trading to look more carefully at the issues involved as it responds
to CAMRA's super-complaint for the second time. The serious imbalance
in power between pub companies and lessees that has prompted this
Report and the two earlier ones must be a matter of deep concern
to policy makers who are working to ensure that markets work fairly
to the benefit of consumers. (Paragraph 160)
34. The pub industry
has been found wanting now on two occasions by committees of the
House of Commons. If it fails to deliver on its promises by June
2011, it should be in no doubt what the reaction will be. (Paragraph
161)
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