Pub companies: follow-up - Business, Innovation and Skills Committee Contents

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)


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)


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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