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

Supplementary memorandum submitted by Phil Liddell

  Considering other parties are being allowed to present further evidence to the Committee, I feel compelled to register my thoughts and views, and evidence should it be required. As a struggling current lessee with Admiral Taverns, I urge the Committee to be very cautious in accepting the notion that the Pub Companies are clamouring to change their ways. The codes of practices being formulated by the likes of the BBPA are very gracious, but do nothing to repair the damage done by the Pub Companies over the past 20 years to the tenants they have maliciously "churned", those left homeless, or stripped of their pension fund. Nor do they attempt to redress the totally one sided business arrangement that is the working of the modern "tied" lease. Nor do they help the businesses that are struggling right now—which is the majority of tied leases and tenancies. Don't be fooled, the Pub Companies are wolves in sheep's clothing. They have had numerous raps on the knuckles by inquiries in the past—and have treated the findings and recommendations of these learned committees with utter contempt. Only now, as they see individual tenants beginning to work together, with the formation of the IPC and the GMB backed Pub Revolution group, with the threat of mounting a serious challenge to their bully boy tactics, do they pretend to show reconciliation. However, as has been proved before, it is a sham, a guise to get them off the hook again.

  The same problems in the industry remain as they did in 2004 as documented in the TISC inquiry, and certainly haven't changed since the first sitting of your Committee in 2008. In fact, the situation has deteriorated further. Just look at the evidence of pub closures. Don't rely on the BBPA/Pub Co closure figures—check out your local town for all the boarded pubs and the "lease for sale" signs—people desperate to leave this doomed trade, but unable to sell their business because the business has become worthless due to the "fire sale" of their landlords. The Pub Companies have devalued their own leased businesses by flooding the market with "business opportunities" available at nil premium. These are pubs in which the previous tenants (and sometimes a number before) have failed to stay solvent, but are now offered with "deals" that make them viable - if only for the short term. Many pubs currently avoiding the closed status are operating under temporary management—just to mask closure and prevent decay. These do not reflect the true picture of the tenanted and leased sector which you are attempting to investigate. Don't let manipulated figures of freehouse closures mask the fact that freehouses are many times more likely to survive in the current economic climate - or any other for that matter. The pubs closed by the Pub Companies are sold as freehouses, hence distorting the figures of true freehouses for sale. Highly respected property agent Fleurets issued a press release in November 2009, stating that 70% of it's sales were freeholds for Pub Cos, and that "the leasehold market has been decimated over the last 12 months—fewer assignments sold at prices 50% less than those pertained over the past 15 years". Instead of accepting the tampered figures that the Pub Companies and their lapdogs, the BBPA, produce, take a look yourselves in your constituencies, listen to your colleagues—(my MP Ian Lucas instigated a tenant survey which I have attached (not printed here), similar to your own which highlighted many of the same problems). Speak to tenants, listen to accounts of their living hell. For all of the tenants currently operating, there is probable three times that number who have had their fingers burnt by the vicious practices of the Pub Companies. Some will have only themselves to blame, but many will have been ruthlessly exploited. The current deals being offered to new tenants and lessees are infinitely more attractive than existing tenancy arrangements, but are only a temporary fix—short term agreements which will be ripped up after a set time. They are currently viable, but will be unsustainable when they revert to the Pub Cos preferred terms. It'll be a case of like it or lump it for the tenant—most will become another churn statistic.

  To enforce my point—look at the issues addressed in your first report and the help offered to me since its publication.

    — Has the balance of risk between the tenant and landlord altered in this time. No

    — Have the rewards of such a risk been adjusted in the favour of the tenant. Absolutely not. The rewards have diminished further as a result of the economic climate, and the refusal of the landlord to offer worthwhile help or incentives to allow the tenant to compete in a very difficult market, and its blinkered policy of screwing its tenants in order to keep the cash flowing to service its toxic debts.

    — Have lessees earnings increased—No chance.

  They've probably been eroded further.

    — Have the major Pub Cos addressed the machine "tie"? No

  My pub company has been trying to grab the profits from my newly installed prize and gaming machines for themselves—despite my lease having no provision for such terms.

    — Is the tied tenant worse off than one free of tie. Of course they are.

  This is a fundamental problem with the present system, and is why CAMRA were persuaded into issuing an objection to the OFT's first enquiry. The fact that the tied tenant has to pay up to double the open market rate for his beers is evidence enough. The figures in my case are:

    Local Brewer Plassey, Fusilier Bitter 9g, 4.5%—retails at £58 plus VAT Free of Tie.

    Through SIBA DDS scheme—I pay £90.29, the brewer gets well below list price of £58 (price dependent on Pub Company). SIBA take an admin fee, but do all the invoicing, payments etc, and the brewer delivers directly to the pub. The brewer also has to pay SIBA a joining and an annual fee.

    Equivalent 4.5% bitter—say Marstons Pedigree, 9g through Admiral £98.31.

    Carlsberg 11g—Admiral—£122.61 with current £50 brewers barrel discount—£107.33 plus VAT.

    Bookers for six weeks around Christmas, £65.

    >Wholesalers non—discounted price—£88.11.

    Direct from Carlsberg, much better deals can be agreed.

    — Buildings Insurance: I challenged my Pub Company as to their Buildings Insurance policy details following an abortive claim. The excess was said to be £1,000 on all claims, and because mine was under that figure, I was unable to claim. The policy had never been sighted by myself, and I suspended payment until the document was produced this month. I also requested that I was allowed to source an alternative policy. Admiral refused. I have now resumed payments, but feel I am paying over the odds for an inferior policy to one offered on open market.

    — Rent concessions, transparency and help: non existant, or available with strings attached.

    — Rent concessions were sought by myself considering the current economic climate—although I have been able to pay the rent and pay most of my suppliers, it has been at the expense of my own wage. Considering my current turnover of just over £100K annum, and a profit of virtually zero, the current rent of £14,443, is excessive. Even considering our previous years turnover of approx £215K, the rent is excessive if you remove my drawings from the net profit. Net profit has never exceeded £18K. My lease is on an upward only RPI linked rent. Admiral and its predecessor Pyramid Pub Company, had failed to instigate this RPI clause since the commencement of the lease. Having discovered this oversight in 2007 Admiral issued me with a demand for 12 years back rent and increased the rent by over £4,000 per annum. Despite my solicitor negotiating a more affordable settlement, I am still struggling to pay the arrears.

  The RICS formulas for rent calculations are flawed, and in need a serious overhaul. Considering Local Authority Business Rateable Values are based on the RICS formula, it brings into question the setting of these figures. Mine has increased from £2,500 to £18,500, based on 2008 turnover. This, amongst the many other factors, will undoubtedly bankrupt me in the coming year, unless it is drastically changed. However, considering the far reaching consequences of such amendments to these calculations, I doubt if the RICS will ever own up to their mistakes, nor adjust the formulas.

   For the past four months I have been earning approximately £200 a month. This is not sustainable in the long term. For approx 16 months previous to that I had earned a good wage away from the pub, as had my wife, having realised that the pub couldn't sustain a decent wage for the pair of us, and we couldn't afford a holiday. It also ensured that our cash flow would be maintained and we would remain solvent. I was working 40 odd hours outside of the pub and putting in 30  40 hours at the pub. During this time we took absolutely minimal wages/drawings, and registered a break-even/loss on the accounts. However, my work dried up in September 2009, furthermore, it was debateable how long I could sustain a 80 hour week without risking my health. My wife continues to work outside the pub, helping occasionally, and is subsidising my wage. I am unable to run a car through the business, and there are no other perks that I can think of. My wife became so disillusioned with the pub and business that she moved out last year into a private house, so the accommodation is hardly a perk, and sub-letting is prohibited in the lease. For the first five years tenure, I have earned on average £2.60 an hour, my wife similar in the time she has worked. Currently I am working for approx £1 hour. We are unlikely to recoup our investment of £30,000 in the business, as in the unlikely case of the business selling, most will be paid in fees and debts. The Pub Company will demand around £800 for dilapidations survey, around £1,000 solicitors fees (theirs), plus the costs of dilapidations repairs. My costs will be £1,000 solicitors fees, £700 EPC report: to creditors; £12,000 Barclays bank loan repayment, £5,000 back rent to Admiral, £6,000 fee if an agent secures a sale.

  I currently have an uneasy relationship with my landlord. I have had a recent visit from my BDM, who was unable to offer any concessions or financial help. He did offer "free glasses and t-shirts as some sort of "olive branch" which I'm sure will constitute a 'financial help package' in the eyes of Admiral, and can be presented to you as the caring side of the Pub Co. It's only window dressing though, as I hope you realise. Maybe they want to counter my claim's, through various media (including BBC Radio Wales recently) that they are unwilling to help their "business partners", and are more concerned with their fat bonuses, on par and just as immoral as the failed bankers bonuses. The cellar Inspector appeared last week—suspicious that falling orders through Admiral constituted "buying out" in his eyes, rather than falling sales due to the January "slump". I object to paying his and his colleagues wages through my inflated charges and hefty rent. I also object to financing a BDM who cannot offer anything more constructive than "raise your prices to increase your profit levels" as business advice. As Wetherspoons have proven, value for money goods are attractive to the customer especially in time of recession. This is a company who are continuing to expand, continuing to post decent profits, despite the current economic climate. I also object to indirectly financing my landlord, as should members of the Committee. Admiral have recently been "bailed out" by Lloyds (who took on HBOS toxic debt), to the tune of £850 million. However, the Company infrastructure remains, the same managers and operations personnel are running the business, the same failed business model is unaltered, the same gross incompetence repeated, yet as a taxpayer enlisted without choice, we are bank rolling Lloyds/Admirals financial failings. This is a National disgrace.

  I am striving to instigate initiatives to maintain and improve business, the pub is as busy as it can be, and I have made many financial adjustments, tried many different concepts. In September I decided to finish with our highly popular pub meals. The overheads had become too onerous, energy bills, wages, repairs and raw materials had made it unviable. We have looked to economise in every way, bills are down drastically, staff numbers have been more than halved, and ironically, it's the IR and VAT bills which have reduced most. I no longer pay the Revenue and Customs up to £5,000 a quarter in VAT, Tax and NI contributions. The general economy suffers as a result of these forced actions, as does the local economy in reduced staffing and the suspension of purchases of local produce. However, despite all of my efforts, these measures do not hide the fact that we are fighting a loosing battle given my financial and operating constraints and it is only a matter of time before I "call time" for the last time.

  There is an ongoing systematic abuse of the system, the exploitation of tenants and lessees under the tied model which has been going on for many, many years. It's about time that someone had the "balls" to do something about it, and to do it immediately, before more lives are tainted, before more of our National Heritage is destroyed forever, before we loose the hub of our communities. I hope this Committee has the foresight and courage to tackle the problem full on, rather than compromise and pussyfoot around. I somewhat doubt that anything will happen before a General Election, with most of you toeing the party line, and accommodating the do-gooders. But please consider the lives that are being ruined by this corporate exploitation, and the position you are in to change that. Please have the courage of your convictions.

1 February 2010

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