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

Examination of Witness (Question Numbers 200-219)



  Q200  Mr Hoyle: And the equipment is questionable?

  Mr Clarke: I had Brulines' calibration two weeks ago in my pub, The Eagle. Obviously, you have had plenty of evidence about my pub before. It was a Brulines technician who undertook the calibration test. He dispensed 14 pints from eight of our pumps, I believe, and all the time it was going on the proceedings were live with HQ and an analyst sat in front of a screen and said that, yes, he had just pulled half a pint through a particular pump. When we got the final report three days later the system failed to record five of the 14 pints they had pulled. Bear in mind that this was when the pub was closed and other than us there was nobody else to interfere with the dispensing or anything like that. Their own technician and analyst were totally unhindered; we gave them free rein to do what they considered to be their job. The result was a 33% or 40% inaccuracy.

  Q201  Chairman: That is why you have so much beer in your cellar?

  Mr Clarke: We still have 2,000 gallons sloshing around in the cellar.

  Q202  Mr Hoyle: Is it fair to say there is absolutely no faith in the Brulines equipment and you have proved it has been totally discredited?

  Mr Clarke: As far as I am concerned it is an utter joke.

  Chairman: I should warn Mr Hoyle that Brulines is as litigious as Ted Tuppen.

  Q203  Mr Hoyle: But we are only repeating the evidence we have received. There is something wrong here. Surely, even Brulines would hold up their hands and say they ought to look at it because there is something seriously amiss.

  Mr Clarke: We have put evidence to the Committee. We have had anomalies in our records. I have queried them and at the flick of a switch they convert what they have down as a water allowance into beer and what they have had down as beer is possibly some gas in the pipe that has turned round the meter and therefore it has registered a half-pint.

  Mr Harrison: In relation to Brulines the argument is that something is needed to police the beer tie. If there was flexibility, fairness and freedom of choice as IPC advocate then as in the free of tie sector the need to police the system might not exist. Having said that, if you are to police any system in a time when we are used to things being extremely accurate—all of us have satnavs in our cars that can place us to within a metre of any point on the globe—a 40% degree of inaccuracy on the part of a company that makes millions of pounds in profits a year is completely unacceptable. If they want to put it on the market they should make proper investment in it to make it work.

  Q204  Mr Hoyle: Let me put the reverse of that: is there any benefit to you of having the flow monitoring equipment?

  Mr Clarke: There is no benefit to me whatsoever. I suppose they would use the argument if I had a number of pubs that I could oversee dispensing, but in my case I am behind the bar for 35 to 40 hours a week. I know when I am busy; I do not need them to tell me that a week later. It is of no benefit to me whatsoever. Only two weeks ago I was in a Punch-managed pub, of which there are 1,000. They do not have this system fitted in that managed pub. It might be in some but not that one.

  Q205  Mr Hoyle: Therefore, the flow monitoring equipment is about as effective as European fish quotas, in which case we are looking for a new system. Consideration has been given to installing video cameras on every fishing boat so everything is recorded and can be viewed at any time. Do you think that may be a way forward for everyone?

  Mr Clarke: I suppose it is an option.

  Q206  Mr Hoyle: I presume it is better than the one you have now?

  Mr Clarke: I do not believe that is an option. As Mr Harrison put it very eloquently, if there were no tie there would be no necessity to try to police it.

  Q207  Miss Kirkbride: Although I am aware this point was made in our report, I just want to satisfy my own mind why it is fair to insist that pubcos offer choice of tie or free of tie. I completely sympathise with you about the way pubcos have behaved badly in that you cannot properly enforce your leases and all the stuff we have just been hearing. I suppose that in terms of being obliged to offer a choice their argument would be that this is their business and their property; they have a business model in which they offer these services in return to landlords and it undermines that business model if they do not achieve the scale over all their properties; further, we do not go after other people's private business practices. In a way it looks slightly vindictive—I understand why given the way they have behaved in the past—to say that not only should they have more enforceable leases but they should also be required to change their business in a way that could undermine it. Tell me why it is fair and then I will be happier.

  Mrs Nicholls: First, we are not asking them to change their business model. If one did that one would be saying that it was no longer legal for them to tie. You are not saying that; we are not saying that. We say that if you want a tie it confers on you a duty of care to ensure fairness to the people on whom you impose the restriction. If you genuinely offer benefits and the tie is of value those lessees will not exercise that choice.

  Q208  Miss Kirkbride: But on the basis that they properly did what you have just said why is it fair and right to go further and say that they must also offer this alternative business? If they do what you have just said why do we have to go further and strip them of the right to insist on having the tie?

  Mrs Nicholls: Because there are people who do not offer fairness, flexibility and freedom of choice; they impose onerous conditions and arguably the tie does not work in that model or on those premises. Therefore, the lessee should be given the choice. They would still have a business model; they would still own the property and get dry rent. The balance of risk would change.

  Miss Kirkbride: But if they dealt with the first bit they would not have to deal with the second bit?

  Chairman: This is the old Irish question: we should not be starting from here.

  Q209  Ian Stewart: I have been asked to press you on the AWP tie. On behalf of the BBPA we heard Alistair Darby give what appeared to be compelling evidence that the AWP tie benefits publicans. The Committee has been concerned about the abuse of that system. Can you say how the AWP tie can be made fairer? Does the suggestion by the BBPA go far enough?

  Mrs Nicholls: The Select Committee's recommendation in 2004 was very clear. The benefits of the tie are not outweighed by the restrictions imposed as a result of it. The BBPA suggestion does not go far enough because it does not meet the fundamental recommendation that the AWP tie should go. Whatever one thinks of the OFT's recent report on CAMRA's complaint, it found that lessees were £3,000 a year worse off as a result of the AWP tie. That is the answer to whether or not it benefits a lessee. The OFT says the lessee is £3,000 worse off.

  Mr Mallen: In 2004 there was a request that it be removed; in 2008-09 that request was repeated. As Mr Harrison said yesterday, this was mooted as low-hanging fruit. It appears to have risen to the top of the tree. The BBPA appear to suggest that the lessee can operate his business but he is not capable of managing his own machines. Perhaps if they provided managers we would all be better off; we could sit back and take a share of the profit. In my view and presumably that of the IPC the publican should be entitled to manage his own business. For years they have taken upfront access payments; they have refused to allow machine operators onto their list unless they pay their weekly rents; they have taken a disproportionate amount of the machine income over four years. I do not believe we can leave the BBPA to manage these machines on our behalf.

  Q210  Ian Stewart: Do the other witnesses take that view?

  Mr Clarke: I do not have machines because I do not recognise any value in them.

  Mr Harrison: I listened carefully to what Mr Darby said, but his theory that one's income falls if one manages the machine oneself means that one needs 200% income once one has given him the 50% split in order to stand still. I have information here from one of the major pubcos. We are told that this is becoming fairer and fairer, but let me read it to you: "On AWP terms, if the net take is insufficient to pay the rental this is deducted from the tenant's share. If the tenant's share reduces to zero any outstanding balance is paid by Enterprise Inns." Therefore, in that particular case the tenant has to lose all his money from the failure of the machine which is in the management of the pubco before the latter chips in and pays anything towards it. That is not our experience; we do not see it becoming fairer. It is a lucrative form of income for the pubco.

  Ian Stewart: What about the 331/3-331/3-331/3 system?

  Q211  Chairman: The machine owner, the pubco and the publican each get a third?

  Mr Harrison: It comes back to choice, does it not? Why can we not be offered a range of choices? Some publicans will feel more comfortable perhaps with that arrangement; others will want to manage their own machines because they are very good at it, but at the moment the choice is not there.

  Q212  Chairman: I want to rattle through a few questions before we end. I refer to the repeal of the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 and the EU block exemption. It sounds immensely technical—one almost falls asleep at the mention of it—but it is probably rather important, is it not?

  Mrs Nicholls: I would not want to overstate its importance, but it is a sensible and pragmatic step forward. If you will pardon the pun, it is a hangover from the previous competition regime and basically is used to exempt vertical agreements and leasing agreements from the provisions of the Competition Act 1998. Basically, it creates an anomaly between European and UK law which is one that the Competition Commission and now government appear to recognise. Under the EU block exemption the EU Commission's guidelines are clear. Even if one falls within the scope of it one should individually scrutinise oneself and one's agreements to ensure one satisfies the criteria for exemption. The land agreements exclusion order rides roughshod over that and says that basically there is a blanket exemption and you can forget about the need to self-assess and ensure the specific criteria apply; you are automatically covered. Because of it we have seen the creeping extension of exclusive purchase agreements and restrictions, longer terms, upfront access payments and the extension of the beer tie to other products. Therefore, the two go hand in hand entirely. The land agreements exclusion order would simply bring us back into line with Europe and require companies to scrutinise themselves on an annual basis and self-assess whether or not they comply with competition law. The government is minded to rescind it. We support that. The only thing we disagree with is that April 2011 sounds a long time away. As to the EU block exemption, we are happy to provide you with the details of what we have been doing in Europe at that level, but obviously there is an issue there. Both of those issues are extremely important.

  Q213  Chairman: As to the EU block exemption the de minimis level would again be the idea, would it not?

  Mrs Nicholls: Exactly. At the present those levels are set far too high, particularly where there is a network of parallel agreements.

  Q214  Chairman: Is it right that the EU block exemption is 5%?

  Mrs Nicholls: Yes. Both of them are important issues but they do not obviate the need for a market investigation as per the Committee's recommendation.

  Q215  Chairman: It is useful but not world-changing?

  Mrs Nicholls: Yes.

  Q216  Chairman: The last question is about restrictive covenants. There is some speculation that Punch, Enterprise and Marston's have ceased to use restrictive covenants, at least for the time being. Is that the case? How long will it last? What effect has it had?

  Mrs Nicholls: We have no particular information about that. I am aware that warm intentions have been expressed. It is not an issue on which the IPC is currently focusing. It is an issue for our member CAMRA and they are pursuing it independently.

  Q217  Chairman: Should we stick to our call for a ban on all restrictive covenants in the future use of pubs or should we say instead that consultation with local communities and local authorities before covenants are imposed would be acceptable?

  Mr Clarke: The important point is that overall the IPC does not have a common voice on that. If you want to know what the individual parties think then we can safely say that Fair Pint very much backs that recommendation and certainly CAMRA's initiative.

  Q218  Chairman: The reason I think it is important—I do not know whether the Committee agrees with me—is that it is just another manifestation of the way the market is not being allowed to speak in your sector. Recently I was asked by a brewer about my vision of the industry in 20 years' time. I said that it was one in which the market operated freely and fairly, nothing more than that, and we must strive to reach that position. I was interested by your suggestion that pressure might be applied by the BBPA and others. Does the BBPA talk to you individually and collectively? What is your relationship?

  Mrs Nicholls: BBPA talks to us individually. There is a dialogue between ALMR and BBPA as recognised national trade bodies. I have not been put under pressure by the BBPA but references have been made by individual member companies to ALMR. There is no dialogue at all between the BBPA and IPC.

  Q219  Chairman: To ask a silly question, would it be a good thing to have such a dialogue?

  Mrs Nicholls: Absolutely. We are more than willing to have a dialogue. When ALMR first said back in June that we ought to have mediation to try to sort it out ourselves that was the whole purpose of it. We are willing to talk to anybody at any time in order to pursue the objectives we have outlined.

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