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

Examination of Witness (Question Numbers 60-79)



  Q60  Chairman: Obviously, I am encouraged to hear you say that; it is what I want you to say, but the fact remains that on 29 September our report was described by Enterprise as "ill-informed and based upon hearsay rather than evidence". Therefore, I am not filled with confidence that the optimism you express will be translated into practice.

  Mr Darby: I understand that. Equally, I ask you to understand that in response I have had some fairly strong words with my colleagues at Enterprise. You are right. If you are trying to win trust and confidence in the industry you have to behave with decorum and I think that message is very clearly understood by my colleagues in Enterprise which was a very active member of the working party.

  Q61  Ian Stewart: For 20 years I was regional secretary of the Transport & General Workers Union for the food and drink industry. I dealt with most of the breweries. That is the interest I declare. When you made your statement you presented it as though the relationship between your organisations and customers was all sweetness and light and completely equitable and acceptable. Is it not the case that your organisations have more power than your customers and what you do is push customers to the edge of acceptability and sometimes they go over the edge?

  Mr Darby: As you would expect I disagree with that.

  Q62  Chairman: Are you talking about from your personal perspective or Marston's?

  Mr Darby: I was going to ask whether you wanted me to respond in terms of Marston's Pub Company or as an industry?

  Q63  Ian Stewart: Both.

  Mr Darby: As an industry I would make the point that fundamentally we will have successful pub businesses in the long term if tenants and lessees can make a decent living out of pubs. You know as well as I do that if tenant or lessees across the business cannot make an acceptable living there will be business failures, churn and dissatisfied relationships and also in the short and medium term the business will under-perform. That is not good business. It is no different from when I dealt with Sainsbury, Morrison and Waitrose. I knew that if they were not happy with the terms provided when I was with the beer company sooner rather than later there would be a problem.

  Ian Stewart: Do you not accept that in the relationship you describe customers of Sainsbury and Waitrose have more power than publicans?

  Q64  Chairman: For me the crucial issue here is the revelation of the power exercised by big businesses in relation to small ones.

  Mrs Simmonds: This independent review system, which has clear accreditation by BII which will go out and seek the views of licensees and name and shame companies and eventually take away the accreditation of those company codes if they are not followed, gives much more information and power to the individual lessee to take it up with the BII if it is believed the code is not being followed.

  Q65  Mr Hoyle: Pub beer used to be twice as expensive as supermarket beer. The fact is that now it is four and a half times as expensive in pubs as in supermarkets. That tells me that the supermarkets have the power over you at the same time that you have power over the publicans and that is what has gone wrong in the industry.

  Mr Darby: I could probably speak for hours on end about what is going on with alcohol in supermarkets. I have worked in this trade and we are not comparing apples with apples. In particular in the case of supermarkets alcohol is one of the few product groups that can be promoted in a store to build traffic. A shopper will change his or her decision as to which supermarket to use, so there is a different dynamic going on in supermarkets. The point I am trying to make—forgive me if I did not get to it quicker—is that if our tenants and lessees cannot make a long-term sustainable good living from their pubs, they know how to from the start because they are given a very clear explanation of what we think the pub is capable of doing.

  Q66  Chairman: That has not been so in the past.

  Mr Darby: Absolutely. The whole point about the BBPA revised code is that it will be an absolute obligation for us to make that information clear; indeed, we will recognise it as a success if a prospective tenant or lessee with a particular interest in running a pub that is local to him—perhaps he has drunk in it in his youth—sees the figures and says it is not a business he wishes to run. If he walks away then the code will have worked admirably. We must get to a situation—this code does it—where a new tenant or lessee coming into the industry never says after the event that he did not know what he was signing up to. I appreciate that that has been an issue and it underpins a lot of the trouble we have had over the past year or two.

  Q67  Chairman: Perhaps I may deal in parenthesis with assignments of leases.

  Mrs Simmonds: There will be a requirement on the assignor to have as much information as is provided to the lessee. That information must be provided and the pub company must be satisfied that whoever the lease is assigned to has that information. There is no doubt that that has created problems up to now. Just as negative equity occurred in housing a lot of people have bought leases at prices which are different from what they are now worth.

  Q68  Chairman: Enforceability is really the key. What happens if the pub company breaks the code? The old code was broken or ignored by pub companies. What happens now?

  Mrs Simmonds: If the pub company breaks its code the BII will be undertaking telephone and online surveys so that complaints can be registered. Those complainants will remain confidential. A summary of the information will be reported to the individual pub company and feedback will be given. If there is a persistent code breach it will result in the removal of accreditation.

  Q69  Chairman: What is "persistent"?

  Mrs Simmonds: Measurement will be by repetition of a particular non-compliant practice or a cumulative picture, so it is up to the BII and the board, which has on it representatives of lessees as well as members of the BII, to deal with it. They will be able to pick it up eventually and take it away. There is absolutely no doubt that these codes will be dealt with by a court of law.

  Q70  Chairman: This is a very important point. Explain that to me at greater length.

  Mrs Simmonds: The individual agreement will be signed by both the pub company and lessee. If the pub company then breaks the code and it ultimately goes to the court there is absolutely no doubt that the court will take into account the fact that the agreement was signed by both parties. As far as we are concerned in any dispute it is absolutely essential that a breach of the code is taken into account by a court of law.

  Q71  Chairman: Because the code becomes part of the contract between the landlord and lessee it is actionable in civil law?

  Mrs Simmonds: Yes.

  Miss Kirkbride: That we welcome. On the other hand, why not consider having a scheme whereby there is a code under which when there is a disagreement the BII has its own body to adjudicate upon it and decide who is right and who is wrong? One of the problems facing lessees is the cost of going to court and the difficulty it creates with the landlord, whereas with an inhouse mandatory process the decision is one that sticks.

  Q72  Chairman: But mediation did break down in this area.

  Mrs Simmonds: Yes. That is exactly how the new scheme works. For the lessees themselves there would be a cost; it is £1,000 to £1,500 depending on where it is. That will take one to the arbitration system to deal with rent review which is run by BII.

  Q73  Chairman: That is purely to do with rents?

  Mrs Simmonds: Yes.

  Q74  Chairman: We will deal with PIRRS later. We are talking about a broader range of issues.

  Mr Darby: The code also mandates any BBPA member in their own individual company code to make absolutely crystal clear what their dispute resolution process is effectively at no cost. There should be a process where nobody incurs fees to confront a dispute and therefore there should be an escalation process that must be explained in each company's code of conduct. That should be designed to ensure that both parties can resolve any disputes as far as possible without incurring any costs by following a very clear dispute code. That is no different from an employee grievance process, for example, that all companies would have.

  Q75  Miss Kirkbride: Why do you say "as far as possible"? If adjudication of the code is a mandatory part of the process why should it ever end up in court? What is the endgame that means it ends up in court if there is a mandatory process that falls short of court?

  Mrs Simmonds: There are two sides to the BII: first, there is PIRRS which deals with rent reviews; second, BII is also responsible for accrediting the codes, full stop. It has a system whereby it will be able to remove accreditation. It is not just to do with rent; it covers all the issues encompassed in the code.

  Q76  Chairman: But BII is in part funded by the pubcos and some lessees become uncomfortable with that arrangement.

  Mrs Simmonds: We are very lucky in our industry that we have a professional body in BII. We should make greater use of it. We are one of the few industries with a professional institute that is so interested in raising standards. As far as I am concerned it would be considered to be independent by all parts of the industry. Indeed, the individuals on the board that is to be set up will not be members of pubcos; they will be individual licensees and other representatives.

  Q77  Chairman: Enterprise Inns has said it is in favour of an independent body to provide "business advice, legal support and representation" and apparently is willing to provide financial support for such a body. Why has that idea not been taken forward?

  Mrs Simmonds: It made that offer to the FLVA. We consider that the FLVA and BII between them represent about 9,000 licensees. They would be happy to provide more funding for that mechanism through those two bodies.

  Mr Darby: In order that we do not effectively have the same problem again it is important that any such body is created arguably without the impetus of the pub companies. The danger is that if we are involved in the creation of an independent body that reviews disputes we shall be accused of again being the paymasters of that organisation. The key to the point made by Enterprise is that if an organisation came forward with such an arbitration process, such as the FLVA or others, it would be keen to support it as I am sure would other organisations in the BBPA, but for that arbitration process to be considered independent of the pub companies it must be those organisations that come forward with the proposal; otherwise, we will come back in the same loop.

  Mrs Simmonds: Just as we make the point that we have many codes of practice we do not need yet another organisation. We have lots of organisations. I believe that FLVA and BII adequately represent them.

  Mr Clapham: RICS stated that it was encouraged by the work you were doing. If we are to have a mandatory code it must be one that is acceptable right across the industry. To a large degree RICS is independent but at the same time I recognise the connection. It seems to me that the mandatory code ought to come from the independent input. From what we hear perhaps there is now an opportunity to introduce a code that really can be mandatory.

  Q78  Chairman: That is the theme of the questions Mr Wright intends to put later, so perhaps that can be banked because we will return to it. If there is a great threat of being chucked out of the BBPA, Greene King is walking out of it but it does not appear to have suffered any damage to its reputation and it believes it is better off outside. We shall be meeting Greene King later to discuss the background to its position in greater detail. Therefore, the great sanction you have is one that is being willingly embraced. Is Wetherspoons a member of the BBPA?

  Mrs Simmonds: Wetherspoons operates only managed sites. Greene King continues to be a member of the BBPA for the next year. It has announced its intention to leave the BBPA in September next year. It has assured us—I am sure it will also assure you later—that it has every intention of having its code accredited and will make its contributions to PIRRS because it is industry-funded and it will abide by any sanctions.

  Q79  Chairman: I appreciate that Wetherspoons does not have lessees but it feels it does not need the imprimatur of BBPA to be a reputable pub operator. If a pub company is not happy with an adjudication it can just give a year's notice and leave BBPA.

  Mrs Simmonds: To be fair, I have been the chief executive of BBPA for only three months. I would hope to have a good conversation with both Wetherspoons and other potential members of the BBPA out there and encourage them to become members. I believe this will set a standard. This is about raising standards of training, the information that is made available to everybody and transparency.

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