Pub Companies - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Question Numbers 117-235)

Brigid Simmonds OBE, Ted Tuppen CBE, Roger Whiteside, Alistair Darby, Paul Wells and Simon Longbottom

7 July 2011

Q117   Chair: Good morning, and thanks very much for agreeing to come before the Committee. Just before we start the formal session of questioning, can I just run through a few ground rules? First of all, of course, there are six of you, an unusually large number to interview at one particular time. I am conscious of the fact that we only have an hour and a quarter. We have a lot of questions that we want to ask you, so can I ask you to keep your responses as brief and to the point as possible? I will also ask my Committee members to keep their questions the same. If at the end of the session I do not feel that we have covered all the issues that we need to, I will hold another session at a time in the very near future, because given the length of time the issues that we are talking about have been running, I think it is important that we ask all the questions that are necessary and get all the answers that are necessary this time so that we can remove any need to have a further inquiry in future. Can I just, for voice transcription purposes, invite members of the panel to introduce themselves and their organisation before we start with the questions? I will start with Simon Longbottom.

Simon Longbottom: Simon Longbottom, I am representing Greene King. We have been a brewer and pub retailer for a couple of hundred years. I have not quite got that level of service; I only joined the company last February, although I have held positions as business development manager and licensee in the industry over the last 20 years.

Ted Tuppen: I am Ted Tuppen. I founded Enterprise Inns 20 years ago. I am still the Chief Executive.

Brigid Simmonds: I am Brigid Simmonds; I am the Chief Executive of the British Beer and Pub Association.

Roger Whiteside: Roger Whiteside from Punch Taverns; I run the leased and tenanted division.

Alistair Darby: Alistair Darby, Managing Director, Marston's Pub Company.

Paul Wells: Paul Wells, Chief Exec of Charles Wells, and also representing the 29 family brewers.

Q118   Chair: Thank you. Can I just start with a question to Brigid Simmonds? June 2010 was the deadline for pub companies to have their codes accredited. I understand that only seven companies made that deadline, and we still have a situation where three companies are yet to do so. Is this correct?

Brigid Simmonds: I wrote to you on 19 July 2010. By that stage we had 10 companies that were accredited, but they represented 90% of the pubs in the leased and tenanted sector. All the big companies had their accreditation in before June 2010; not all were accredited by that time. We always knew that smaller companies would want to wait and see how the larger companies fared and learn from them, and that has happened. I am delighted to say that all companies have now put forward for accreditation to BII, but as you rightly say, there are five that still have not been finalised through the process. I wrote to you again in October last year, and I have also had some discussions with the Minister at BIS about the progress that we have made.

Q119   Chair: What was the problem? What was the reason for the delay?

Brigid Simmonds: It cost £2.6 million for companies just to get to that stage. I think we wanted to do it properly and there was a lot of work to be done. It took time, and I am sure my colleagues around the table can talk about the process they have gone through and the size of the codes they have produced.

Q120   Chair: I do not really want to spend a lot of time going in to all the processes, but Marston's, I believe, was not until mid-July, so well after the deadline. Was there any particular reason? Alistair Darby, as the representative of Marston's, can you clarify?

Alistair Darby: We went for our first accreditation hearing during June. There was a queue of companies waiting to be accredited or for their codes to be reviewed. We had a long four-hour meeting with the BII, which resulted in some suggested amendments and changes to our code to improve clarification. We submitted those after that meeting, towards the end of June, and got official accreditation in July. The reason for the delay was purely the process, and making sure that the codes were as clear as they possibly could be in the eyes of BIIBAS, the accreditation panel.

Q121   Chair: Coming back to Brigid: Admiral Taverns, which is a big pub company, did not have its code accredited until November 2010. What was the reason for that?

Brigid Simmonds: I am afraid I cannot tell you about individual companies, but I can say, and Alistair has just demonstrated it, that there was a queue before BII to have them all looked at. That was the process. It did take time. I thought it was important that we get it right. I am very clear to come in front of the Committee today and say that we have made progress, I think there is a positive force, but there is still work to do. But we do have the big companies, as I said, covering 90% of pubs in the leased and tenanted sector, who have now had their codes in place for over a year.

Q122   Chair: We did say that we would hold your organisation responsible for any slippage in the timetable, and there quite clearly has been slippage. You have answered in very vague terms about process and getting things right, which is obviously absolutely correct. In your submission to us for this inquiry you did not even mention this slippage. Why?

Brigid Simmonds: Because we wrote to you on two previous occasions with information, on 19 July and 4 October. We offered to have meetings with you. I wrote to you when you were appointed to be Chairman, and offered to have a meeting. We followed it up with the clerk; we have not been called to have any further discussions, so we assumed that you did not have any further questions. But I have copies of both of those reports with me if you would like to see them.

Q123   Chair: At the end of the day, it should not require us to have a meeting for you to conform to a timetable that was quite clearly set out. I do not see why it was necessary for us to have a meeting when you could have submitted that evidence in written form. If we do not get the evidence in written form, I am not quite clear what the benefit of having a meeting is.

Brigid Simmonds: We did submit in a written form. We wrote to you with a written report. Both of those are written reports that said quite clearly how many companies had been accredited by certain dates.

Q124   Chair: Yes, but that did not explain why many had not been accredited by the time they were supposed to.

Brigid Simmonds: The Committee the last time was quite clear that, particularly for smaller members, that was not the focus, that the focus was about the big companies, and we were quite clear that the big companies had made substantial progress during that time, but I apologise to the Committee if we did not provide you with the right information that you were expecting.

Q125   Chair: Did you use any sanctions against BBPA members who failed to have their codes accredited?

Brigid Simmonds: We would take sanctions and we would suspend their membership if they had not had their codes accredited, of if they had not submitted their codes for accreditation, by the time we came before this Committee. The only sanction we have as a trade association would be revoking membership, and I do not think it is removal of membership from the BBPA that is the issue. The issue is the reputational risk to the companies concerned: why would you as a lessee and tenant want to look at a member whose code had either not been accredited or had been seen to be at fault by the BIIBAS committee? To me, that is a far greater sanction, frankly, than removal of membership from the BBPA.

Q126   Chair: Our predecessor Committee recommended that your organisation produce a project plan and update the Committee against its achievements at key stages. You did provide the predecessor Committee with what was admittedly a rather basic project plan. We have not had any updates on performance. I have a copy of the project plan at the back, which I must say was a sort of model of non­information. Why have there been slippages, if indeed there have been slippages, and have you written to the Government, as suggested, to explain them?

Brigid Simmonds: Chairman, we did write to you with a full report on both 19 July and 4 October. We also wrote to the Government with copies of that report. I had a meeting with Ed Davey, the Minister. I have written to him twice to answer questions that he put to me, and that has been provided to the Department.

Q127   Chair: We have no evidence of that. We will obviously investigate that, and the contents of the letter. Have you got any details there?

Brigid Simmonds: I have got the details in my briefcase. I am very happy to write to you afterwards and send you copies of all the correspondence.

Q128   Nadhim Zahawi: My question is really to Mr Whiteside and Mr Tuppen. The information that we received from the BII is that Punch has had the most upheld complaints of code breaking—three breaches. Enterprise has one that is yet to be resolved. Can you give us details on those cases?

Roger Whiteside: As I have the majority of those I can answer that first. There were three cases I think that were upheld. All three I have looked at in detail. They represent technical breaches of promises we made in our code that we did not live up to. The first was where we had provided a detailed breakdown of a shadow P&L, as required by the code, and a rent evaluation. The standard we provided was a higher level of disclosure than what we had first entered in our code, because we are seeking to improve the whole time. Therefore it was judged a technical breach because it went beyond what we had already promised. Since then we have updated the code and we now include the more detailed shadow P&L. I am satisfied that we have resolved that appropriately.

The other two regarded us failing to meet our own timescales that we declared in the code. These timescales were not required by the framework code, but something that we wanted to do to go further to improve service to our partners, and in one instance we failed to give sufficient notice of a rent review forthcoming to the timescale that we specified. That matter has been resolved. The other was where a partner had given notice during a cooling-off period—which is part of the legal contract—and we had failed to acknowledge it in writing. That again was quickly resolved, and the individual who had not acknowledged it was made aware of the shortcoming.

Q129   Nadhim Zahawi: And you think you have systems in place now for those not to occur again?

Roger Whiteside: Yes, we have reviewed our systems, and obviously the code is what we seek to live by, and it goes beyond the minimum requirements that were set out in the framework by trying to set in place service standards. If you set high standards you expect to live by them, and we seek to drive behaviour in that way.

Q130   Nadhim Zahawi: Mr Tuppen, your case.

Ted Tuppen: We had one minor technical breach; we obviously responded very quickly to this. It was about the positioning of something in our P&L accounts and the way that was described in the body of the code of Practice, I believe. That has now been resolved to everyone's satisfaction. I would make the point that we put a huge amount of work into this.

Q131   Nadhim Zahawi: What was that something in the P&L?

Ted Tuppen: It was to do with the technical positioning of machine income. This was nothing to do with the share thereof or anything like that; it was just where it appeared in the document. We have resolved that with BIIBAS now. I am very comfortable that that has been covered. As you know, we take this code of Practice very seriously, and we have appointed a full-time Compliance Officer, whose sole job is to make sure that we do not make those slip-ups. There are some new processes, and it is not surprising, I guess, that from time to time we have spotted things that we could be doing better, and we have got this chap specifically looking at that. We are comfortable moving forward. You say there has been one further claim, which I believe was made about four weeks ago. The BIIBAS process is now working. The complaint has been raised with us. We have already provided the first set of information.

Q132   Nadhim Zahawi: What was that complaint about?

Ted Tuppen: It is a relatively complex case, and I believe it is brought by Simon Clarke of Fair Pint, and it is about the calculation of rent. It is rather fundamental. Our position is that he has a point of view with which we disagree, and we are delighted that we have BIIBAS there to resolve this.

Q133   Nadhim Zahawi: Can you show us what you disagree with?

Ted Tuppen: As the Chairman said, we are relatively short of time. I would be very happy within seven days to provide you full details of the claim that is being made of our non­compliance and our response to it.

Q134   Nadhim Zahawi: You cannot share with us now just very quickly what that complaint is about? The disagreement only.

Ted Tuppen: It is to do with the fundamental basis on which rent is calculated.

Q135   Nadhim Zahawi: That is my point: if it is fundamental we would like to air it today, rather than you writing to us later on.

Ted Tuppen: I feel that I would hate to mislead you, and I would therefore much prefer to get in touch with you, and if you would like it within 24 hours, I can certainly do that.

Q136   Nadhim Zahawi: My concern is you mention it is fundamental, and therefore you must have given it some thought if it is that fundamental to your business, and therefore all I would ask is for you to explain what that is today.

Ted Tuppen: I would prefer to submit it to you within 24 hours.

Q137   Nadhim Zahawi: Why? Why can you not just explain it?

Ted Tuppen: Because I would be very fearful that I may say something that, whilst a minor technical point, might be taken as me seeking to lead you off in the wrong direction.

Q138   Nadhim Zahawi: You can imagine the Committee now is completely puzzled. I sit here now wondering what this fundamental thing is that you are not willing to air in this evidence session.

Ted Tuppen: It is not through a willingness to air it or not; it is a great desire not to get it wrong. It is a matter to do with the RICS calculation of rent and it is very complex.

Q139   Nadhim Zahawi: Is that the market rent? Is that what you are talking about: RICS calculation of market rent?

Ted Tuppen: The way in which RICS recommends that rent is calculated is set out very clearly in the RICS guidelines. Those RICS guidelines, as you know, are not a roadmap for the uninformed. They are a technical document for use by RICS members, by people who are qualified chartered surveyors. We are not looking at a handy guide for us to talk through the rent process. I just would not want to in any way prejudice the outcome of the BIIBAS investigation.

Q140   Nadhim Zahawi: Is that the fundamental thing you disagree with, i.e. how RICS calculate market rent?

Ted Tuppen: No, not at all; I agree absolutely with how RICS deals with this. I believe that the interpretation being put forward by Fair Pint is incorrect. Perhaps what I can do to give you some flavour on this is to forward to you the business plan submitted by Simon Clarke when he took on the Eagle Alehouse back in 2006. That business plan, which I have with me, showed a turnover of about £7,000 a week and a profit after a rent of £51,000, interest costs on the loan that he had taken out to buy that lease at £16,000, a post­rent, pre­interest profit of about £40,000. That business plan was presented to us so that we were encouraged to approve the lease. It was presented to his banks, so that they were encouraged to lend him £90,000. He showed something making £40,000 profit after a rent of £51,778. His proposal is now that the rent for the Eagle Alehouse, based on his submission to BIIBAS, should be zero. That is quite fundamental, and he has a logic that he believes interprets that put forward in the RICS guidance, which would lead to any sensible person following RICS guidelines to reduce the rent from the £52,000 he agreed with back in 2006 to zero. The rent is still, by the way, £51,334. The rent we are proposing, given difficult times, is £45,000, which is pretty well in line with what has happened to our rents over the last two or three years. As we have shared the pain with our licensees, our average rents have come down by about 10%. We feel that we follow RICS guidelines; we have RICS-qualified licensed-trade valuers, as we call them, who evaluate in detail every single rent bid. There is not a rent bid that hits the market without being reviewed by our RICS valuers. We think that £45,000 is probably fair.

Q141   Nadhim Zahawi: Does RICS think it is fair? If RICS would do a rental evaluation independent of you, would they agree with you?

Ted Tuppen: As I say, our three senior licensed-trade valuers are all fully qualified chartered surveyors and members of RICS. They have approved this proposal from us that the rent should be £45,000. I cannot speak for RICS themselves, but these are RICS members who believe we have followed to the letter the instructions for guidance that is set out, and they come to that figure. I think that a rent of £45,000 six years on from a rent that was put in a business plan by Mr Clarke, suggesting that he could afford his loan and he could make pre­interest profit of—

Chair: Can I say that we are getting into a level of detail I really do not want.

Ted Tuppen: I apologise, Chairman.

Chair: Brian, you had a very quick supplementary.

Q142   Mr Binley: I was delighted to hear that you would hate to mislead, because the truth is I think you have been misleading incoming tenants for a very long time. Now let me move on to the specific. We got evidence last week—and you will have read that evidence I am sure—that the latest interim accounts of Enterprise Inns show operating costs of 35% in their example. In their very own survey they showed costs of between 42% and 51%. Why?

Ted Tuppen: I think I can answer that very clearly. You are referring to the evidence that was given by Garry Mallen, and I did see that he made reference—completely incorrectly—to the survey of 700 pubs that we had carried out. He compared the estimate that appeared in our interim accounts with a survey carried out independently covering 701 pubs, only 137 of which were Enterprise Inn pubs.

Q143   Mr Binley: Mr Tuppen, let me stop you because time is limited. I am referring to the evidence of many of your tenants, who tell me consistently, and I have seen the ingoing estimation given by your so­called experts, that on every occasion they quoted around 35% and on every occasion the actual costs were sizably higher. I can read the letters out if you want, but I think they would embarrass you. Let's be straight here: you have a business model that is difficult to handle, particularly in a recession. You were over-leveraged. You are applying enormous pressure on your tenants, and you are misleading them when they go into pubs. Is that not the case? We have evidence that it is, so be careful how you answer.

Ted Tuppen: Mr Binley, you have eight of our pubs in your constituency.

Q144   Mr Binley: I am not talking about pubs in my constituency, Mr Tuppen.

Ted Tuppen: Okay. Let me deal with those points. It is your view that we mislead our tenants.

Q145   Mr Binley: Tenants' views; I have said that. Let's get the facts right.

Ted Tuppen: Okay; it is the view of some tenants who have contacted you that we mislead our tenants. I would put it to you that they may well be tenants who, having taken on a business plan in good faith, with good faith operated by both sides, by themselves and by our BDMs, regional managers as we call them—

Q146   Chair: We will come to those.

Ted Tuppen: Okay. I disagree completely that we have misled tenants. You can read the letters out, but what I would like to suggest is that, if you have these letters, if you would let me have copies of them I undertake absolutely to give you a full report on every single incident within seven days.

Q147   Mr Binley: I am sure you will, and therein lies the trouble, because I am sure you will justify it by your own means. The truth of the matter is that on every occasion tenants went in on a promise of return that never ever materialised, and nor—as adjudged by experts—could it have materialised, because your people, your middle management, gave the wrong information. That is the fact of the matter again and again and again, and the sooner you come clean on that and say you are going to straighten up your act, the better we will be pleased.

Ted Tuppen: As I say, I reserve the right to fundamentally disagree with you, which I do. I would point out that over the last three or four years, where trade has been exceedingly difficult, in order to help our tenants we have given discretionary support that has exceeded £50 million. That was not something we had to do, and I can assure you it is not done out of the generosity of our hearts. It is a sensible, pragmatic approach to supporting good-quality tenants. What I would also point out is that—and I am happy to provide you full details of this—during the last two years, the average rent that we charge on a like-for-like basis for the pubs that we currently have—

Chair: Can I stop you there: we are going to come into rents later, and I think we have seen the evidence.

Q148   Nadhim Zahawi: Ms Simmonds, what sanctions do you have against a pub company that does not comply with this code of practice?

Brigid Simmonds: They can be asked to leave the BBPA. As I said before, I do not think necessarily that that is the issue. The issue is the reputational risk to that company if they are asked to leave and the ability then to attract new tenants and lessees to take on their own pubs.

Q149   Nadhim Zahawi: Is 24 major unresolved breaches before anything is done about it a bit of a joke? Mr Robertson told us last week that potentially that is 24 families where their lives have been ruined by a pub company without any sanctions whatsoever.

Brigid Simmonds: The sanction—and I think where you have a situation that you have here, where you have self­regulation—is with BII, and I think BIIBAS—and I am sure my colleagues would agree with me—have done a great job in trying to raise the standards in this particular area. We have 30,000 leased and tenanted pubs in this country.

Q150   Nadhim Zahawi: So 24 cases that are serious is fine?

Brigid Simmonds: 24 cases is very serious.

Q151   Nadhim Zahawi: But is that fine?

Brigid Simmonds: No, it is not fine. I think the BII have done a fantastic job in coming to us, in working with the industry, in working with the IPC to try to resolve and bring these forward. I was very clear at the beginning that this was work in progress, and at the end of our submission we gave a clear list of further work we would like to undertake.

Q152   Nadhim Zahawi: Do you think you should be able to fine those who do not comply with their codes, even after one unresolved breach?

Brigid Simmonds: I have to be honest and say I do not think that is the role of the trade association, and no, I do not think we should be able to fine our members. I think the only thing we can do to our members is, as I said, suspend their membership.

Q153   Nadhim Zahawi: Thank you for that. Mr Longbottom, as a pub company that is no longer a member of the BBPA, what sanctions can be used against you when you break the code?

Simon Longbottom: As Ms Simmonds has said, I am very clear that our relationship is with BII and with BIIBAS, and loss of accreditation for us—I think we are at the 20 mark, not the 25—

Nadhim Zahawi: Is that enough of a threat?

Simon Longbottom: —is extremely significant. At the moment, we have no breaches, we have no cases in PIRRS reviews. We have used the mediation system I think once in the period of time since our code was accredited. I am in complete agreement again with Ms Simmonds: reputationally, for us to lose accreditation would be a disaster in trying to attract quality licensees to our business.

Q154   Nadhim Zahawi: Why did you leave the BBPA?

Simon Longbottom: Very much a corporate decision. Divorced very much from the predecessor Committee's findings, we decided we were going to put our efforts into a smaller number of areas in terms of dialogue with officials. We were going to work with the tie, we were going to work with social responsibility and duty, rather than a disparate range of issues.

Q155   Chair: Could I just ask you, do you feel that by leaving the BBPA you have suffered any reputational damage?

Simon Longbottom: I do not believe that to be the case, Mr Chairman.

Q156   Chair: That rather undermines the sanction that BBPA says they can invoke, or will be invoked.

Brigid Simmonds: I said the reputational risk was the loss of accreditation, which is what Simon Longbottom has just repeated.

Chair: It is obvious that Greene King did not think the risk was very great.

Q157   Nadhim Zahawi: Have you had lessees approaching you to take on your pubs?

Simon Longbottom: The Select Committee findings were for pub codes. The BBPA was a conduit. We were part of the committee that put together the draft recommendations, so we were very much involved in that process. As I say, our relationship is now with BIIBAS, and it is our reputation that would suffer if we were to lose that accreditation.

Q158   Nadhim Zahawi: Ms Simmonds, can you give us a definitive statement on whether the codes are legally enforceable?

Brigid Simmonds: I think if we reached a situation where we went to a court of law, there is no doubt that these codes would be taken into account by that court. In that sense yes, they are absolutely enforceable, and they are like many other codes of practice that exist, which a court will take into account. So yes, they are.

Q159   Nadhim Zahawi: And you would not need for Government to put them on a statutory footing?

Brigid Simmonds: I do not think it would help for Government to put them on a statutory footing.

Q160   Ian Murray: Just before I start, can I refer the Committee to my register of interest, but also add that I was a former lessee of Enterprise Inns, a former lessee of Greene King, and a former lessee of the G1 Group, and I am a contemporary customer of Wadworth, who are also accredited. With that, can I ask, Ms Simmonds, if the codes are not legally enforceable in their current state, why should we not put them on a statutory footing? We have heard already that the only sanction available is to leave the association, and we have heard from Greene King that leaving the association has not given any commercial disadvantage to Greene King. Should we put it on a statutory footing in order for it have some teeth?

Brigid Simmonds: Personally I do not think something being statutory helps it. I think there is far more benefit seen by a company if they do something that is voluntary and self­regulation than they do when it is statutory. I can give you the example of Challenge 21; Challenge 21 was something BBPA introduced for all our members. Many of them took it up. The Government then introduced it on a statutory footing and it became Challenge 18, because that was the only way that law works. If you are going to have a statutory code you also then have to have a system of how that statutory code is enforced. I think the cost and the share and putting the whole thing in place would not be a cost benefit to the industry or the tenants.

Q161   Ian Murray: We are talking about multi-billion pound businesses here, and you are honestly telling the Committee that breaches of code, if they were not on a statutory basis, the reputational harm to those multi-billion pound businesses would be so much that they will not break the codes?

Brigid Simmonds: The reputational risk would be to the tenants or lessee taking on those businesses. Tenants and lessees read a lot of information. We now know that the vast majority of them going into this trade take up the pre­entry training, which is absolutely mandatory. They know a lot about the industry. If you have companies with outstanding black marks against them, why would you take a lease with that particular company?

Q162   Ian Murray: Can I give you an example? Punch taverns, in their recent court case, referred to the code and said it was "only a consumer-friendly document with no contractual effect". They used it in court against a court judgement in terms of it not being legally enforceable. What would your comments be on that?

Brigid Simmonds: I do not think I could comment. Roger?

Roger Whiteside: I am not familiar with the specifics of the case, so I would have to go away and examine quite what the case involved and why we would have made that claim.

Q163   Ian Murray: But doesn't it just highlight, though, that when there is a material breach of a code that is not legally enforceable, and the only sanction is reputational value, companies could use them against lessees and tenants in a court of law and say they have no contractual effect?

Roger Whiteside: If I can answer on behalf of Punch, we have laid out in the foreword of the code, which I wrote myself, that the licensee is able to rely on this code if they believe that we have in some way misrepresented what it was that they were signing in taking on the contract. We certainly envisage that our licensee can rely on their date­stamped version of this code in a court of law. I am struggling to understand that particular case that you have highlighted. It could be that that is somebody seeking to claim reliance on the code prior to the code's existence. In other words, they signed the contract before we had created the code, in which case they could not rely on it. That is made clear in the foreword as well.

Q164   Ian Murray: If we provide you with the information, it would be very useful if you could write to the Committee.

Roger Whiteside: I will do that very quickly.

Q165   Chair: Just before we move on to the next questions with Brian Binley, if I could just ask the BBPA: the Government in another area is looking at introducing an adjudicator. I am talking about the grocery codes adjudicator to, if you like, carry out investigations into breach of code between suppliers and retailers. Given the fact that you are opposed to making the code legally binding, what would your opinion be on the appointment on, in effect, a pub code adjudicator to mediate?

Brigid Simmonds: I would say to the Government that they would have to be absolutely clear that that was justified in the circumstances. We agreed that we would carry out a survey with the IPC, which we have done. We found that 93% of lessees, particularly new lessees, were satisfied with what we put in place. I think we have a very good self­regulatory system, and I think you heard from BIIBAS last week exactly how they are enforcing that system. My view would be that because of the cost of that—at a time when we are still closing 25 pubs a week—I would rather the Government concentrated on other things.

Q166   Chair: Basically you are against it?

Brigid Simmonds: Basically I would be against it, but it would obviously be up to the Government to make that decision.

Chair: That is not altogether surprising, but can I now go on to Brian Binley?

Q167   Mr Binley: You will know that we heard last week that the new RICS guidance is generally recognised as being very good guidance indeed but is not being followed, because most of the people—middle management, BDMs—assessing rents are not trained in the code. They are neither trained valuers nor members of RICS—neither should they be necessarily—but we are told that most of them that they come across do not know about the code and do not understand about rent reviews. They are therefore not bound by RICS because they are not members. Can you confirm that this is the case, and can you tell me what training you give your BDMs in terms of proper rent negotiations? I have had meetings with BDMs where their knowledge of rents is almost non­existent. You first Mr Tuppen.

Ted Tuppen: Would you like me to answer that? We take training very seriously, and you may or may not know that we have the highest possible award of Investors in People on the basis of the training that we give. Turning to the specific point of the RICS guidance, within our business we do in fact have—and I checked yesterday—30 RICS-qualified people, so about 7% or 8% of our workforce. Many of those are surveyors and the like. There is plenty of RICS knowledge and experience. When we look at the RICS guidance—which, frankly, was clarification rather than major change—I would like to take you through the process.

Mr Binley: No, I understand it; let's move on.

Chair: Yes, I do not want to go into this sort of detail.

Mr Binley: I understand it; do carry on.

Ted Tuppen: All of our new regional managers have a full two days of their induction given over to rent calculations.

Q168   Mr Binley: Then why did RICS say it is not being followed by most people assessing rents? Are you saying that RICS are not telling us the truth?

Ted Tuppen: I am not sure that I recognise the quote.

Q169   Mr Binley: It was the information we heard last week. I was here. So do accept it; do not question everybody as though they were not telling the truth.

Ted Tuppen: I have a letter from RICS saying that they have absolutely no evidence that we are not following the code.

Q170   Mr Binley: Perhaps you could show us that letter.

Ted Tuppen: I have it with me, and I would be very happy to show it to you.

Q171   Mr Binley: If you would hand it over afterwards we would be very grateful, because it is totally contrary to the evidence we received last week.

Ted Tuppen: If you are talking about what Mr Mallen said to you about our RMs not being qualified—and of course Mr Mallen himself is neither RICS qualified nor a member of RICS—then I did—

Q172   Mr Binley: So Mr Mallen is a liar, then?

Ted Tuppen: No, I do not believe he is a liar at all.

Q173   Mr Binley: I just wonder where we are with all of this.

Ted Tuppen: He is currently investigating, as an unqualified rent assessor—because he is not a member of RICS—seven cases where he is representing tenants in cases against us. That is absolutely fine. The regional manager in our business is responsible for his pub, and in the first instance sets what he believes to be the rent. That rent goes no further at all until it is signed off by his boss—our divisional director—and does not go any further beyond that without being signed off by our licensed-trade valuer. We have three of them who look at every single P&L account and every single rent bid to ensure that it complies with RICS guidance.

Q174   Chair: Could I ask how many of your BDMs are RICS members?

Ted Tuppen: Very few; that is not their key skill, and because they are not RICS members, we have introduced a rigorous and—I have to say—expensive process to ensure that every single P&L account, every single rent bid, is reviewed by our licensed-trade valuers, one of whom is known to you, Rob May, and the two others who work with him are also RICS-qualified specialists, and their sole job within the organisation is to—

Q175   Chair: Can I just intervene? Rob May declined the opportunity to come and be interviewed by us. Did you tell him not to?

Ted Tuppen: Perhaps I could put the record straight on that. As you know, Rob was initially invited for today, and worked very hard to move his diary so that he could attend. When the dates were changed around—nothing to do with Rob—he was then given relatively short notice to appear on the 30th. I am afraid—and he was disappointed not to be here—that he had a pre­booked engagement that was in fact a family holiday that meant that he was not able to be here.

Q176   Chair: We changed the date so that Brigid Simmonds could attend. That is the reason.

Brigid Simmonds: I think it was so Neil Robertson could attend.

Ted Tuppen: I honestly do not think that you can even imply any wrongdoing by Rob.

Q177   Chair: Can we get back to what is the central issue, and that is the level of training and RICS accreditation if you like amongst your RMs.

Ted Tuppen: I am very happy indeed. As I say, every single rent bid, every single P&L account is reviewed and signed off by a fully qualified licensed trade valuer.

Q178   Chair: RICS accredited?

Ted Tuppen: RICS accredited, fully qualified, chartered surveyor members of RICS. Every single agreement is subject to that stress. That same group of people run regular training courses, workshops for our BDMs, they visit every divisional business unit—which is 400 or 500 pubs—every six weeks to bring people up to date with any latest developments that they feel are necessary, and during that period they conduct workshops where necessary. I am very happy to share with you the detailed training programme that we put in place. We do honestly take this very seriously.

Q179   Mr Binley: I just wonder when you put this wonderful, all-embracing scheme into effect, Mr Tuppen?

Ted Tuppen: As I say, we have been Investors in People champion for a couple of years.

Q180   Mr Binley: When I ask you a specific question, if you could give me the specific answer, because I find your answers really quite prevaricating. When specifically did you put this particular system you are talking about into effect? It is a date: when?

Ted Tuppen: September 2010, just before the RICS guidance came out in November.

Q181   Mr Binley: We have that, thank you very much. Then why do so many of your tenants not believe that you are abiding by the code, that you are giving them misleading information, and why don't you, as the very boss of a company, want to get down there and talk to them and find out what those particular tenants, whom you have had letters from, are saying?

Ted Tuppen: As you will know from previous evidence, I make a commitment to reply to any letter that I receive within 48 hours, and I do not think you will find any evidence that I have not done that.

Mr Binley: No, that was not the question Mr Tuppen

Ted Tuppen: My reply, if you will let me finish, is that clearly this is a detailed case, and I undertake to have it properly investigated, and I will make sure that the outcome of that investigation is thorough.

Q182   Mr Binley: I believe that you are prevaricating because you want to put off further questions, so let's get to the point. The point I asked was why have you not talked to those tenants who are, many of them, distraught, a number of them whom I have met, many of them sunk their whole life savings into a pub on false information, and yet you have not even gone to talk to them. Why is that? I would do in my company.

Ted Tuppen: You have just made a claim that they have gone into their pub based on false information.

Q183   Mr Binley: I have seen the information. I am sensible enough to know that. Let's take what I believe as being the case at this moment and answer the question why you have not talked to those tenants.

Ted Tuppen: What I would like to see is the evidence that you have that I have—

Q184   Mr Binley: I will show you the evidence: why have you not talked to the tenants?

Ted Tuppen: I have talked to tenants.

Mr Binley: They are telling me you have not.

Chair: Okay, I do not want to—

Q185   Mr Binley: We will go on. I think the prevarication here is becoming clearer and clearer. We also heard that your chief rent controller is a member of RICS, and therefore everybody who works for him should be following RICS guidance. You know that, don't you? And yet many of your BDMs who are not members are not following RICS guidance. Is there a risk that you could be struck off RICS if it is the case that your BDMs are not following that RICS guidance?

Ted Tuppen: You perhaps did not hear my last answer, which is that every single profit and loss account and every single rent bid is reviewed and signed off by a RICS-qualified licensed trade valuer.

Q186   Mr Binley: That is not the question I asked. I said to you, and you admitted, that your BDMs were not members of RICS, many of them are not knowledgeable in rent and they are doing the rent negotiations. The fact that somebody signs them off up the line without having a personal contact with your tenant does not answer the question. It is the BDMs that have the contact with the tenant; they are not members of RICS; they are not following the guidance. Does that disturb you?

Ted Tuppen: Not in the least.

Mr Binley: Well it ought to, Sir. It ought to.

Ted Tuppen: The job of the BDM—

Mr Binley: It ought to.

Ted Tuppen: —is many and varied, and it is the importance of RICS that means we will not allow a single P&L account, a single rent bid, to be negotiated until it has been fully approved, signed off, by a RICS-qualified chartered surveyor.

Q187   Mr Binley: I think we have the answer.

Ted Tuppen: I think you do have the answer.

Mr Binley: I think I have, Sir.

Q188   Chair: The key to this is: can you sit here and guarantee that every rent agreement you sign off has been arrived at in accordance with RICS guidance?

Ted Tuppen: Yes.

Chair: You can. We have had contrary evidence from Garry Mallen; you have effectively repudiated that. We will obviously make an assessment of that when we come to our conclusions.

Q189   Ian Murray: Mr Tuppen, you gave us a very useful example earlier on of a tenant who had gone into a property based on a business plan at various levels. What would happen with that rent at £51,000 that has been reduced to £45,000? Could you have that rent independently tested for us to see if that would be an adequate rent to charge on that turnover, given the current market?

Ted Tuppen: That is one of the great benefits of the process we have been through over the last few years. For that rent to be tested, before the introduction of PIRRS. might have cost, say, £20,000 through arbitration. As an example of just how carefully the industry has listened, and indeed how many benefits this Committee has brought to the industry as a whole, we now have PIRRS. The rent can be challenged and will be adjudicated on by an independent assessor. We believe currently—because we are in negotiation—that the correct rent for that pub should reduce from £51,000 to £45,000.

Chair: We will be talking about mediation later, and this particular area.

Q190   Mr Ward: We have had some evidence about the updating of new leases automatically for RPI. Is that common practice, and how does that fit in with this independent assessment that has allegedly been carried out on tenancy agreements?

Ted Tuppen: Would you like me to answer? I have a very quick answer. RPI is not new. 62% of our agreements currently have RPI clauses. Back in 2008 56% of them had RPI clauses. RPI indexation has been around the industry for a very long time.

Q191   Mr Ward: It was really in response to your comment about "sharing the pain", that was all, and if the RPI is simply one element in looking at a rent, I just wondered how that fitted in with an automatic up-rating because of RPI.

Ted Tuppen: Where the automatic up-rating is appropriate then it works, and I think the majority of tenants rather like that process as opposed to a five-yearly rent review. As I said earlier, our actual rents charged have fallen by 10% over the last two years, and our discounts given to tenants have increased by 50% over the last two years. The average discount we used to give was £42 a barrel; the average is now £63. Where a pub is working, where a pub is successful despite the very difficult environment, the RPI may well be appropriate, and of course it can go down as well as up.

Q192   Mr Ward: Just one other point, is it Ian Dyson who is currently the chief exec?

Chair: David, I really need to bring in Simon.

Mr Ward: Is that true? Is it Ian Dyson who is currently chief executive at Punch? I just have a question later on on that.

Q193   Simon Kirby: To Enterprise Inns: you mentioned the Pubs Independent Rent Review Scheme. As far as I understand, of the 27 cases, 21 to date have been Enterprise Inn lessees. Why is that, and is that a positive or a negative thing for your company?

Ted Tuppen: I think it is really positive, and the reason is that since October 2010 we have conducted 497 rent reviews. Five have been settled through PIRRS, and four have been settled at arbitration. I think following the spirit of the code, when we enter a negotiation, we, perhaps more than any other company, make it very clear to our tenant that if this is not working they have a very cheap route through PIRRS, a well respected cheap route, that they can follow. Whereas it could be interpreted that we are the most difficult, I would like to interpret it, and believe it to be true, that we are the most open. If I could talk you through the 21 referrals—

Chair: No, please do not; we have not got time for that.

Q194   Simon Kirby: Okay, thank you for that. If I may move on, I will ask you, but it could apply to everyone I suppose: do you accept fully the principle that a tied tenant should be no worse off than free-of-tie tenant?

Ted Tuppen: I am happy to have first go at that. That is not referred to anywhere in the RICS guidance; in fact, on the contrary, the RICS guidance said that comparisons between tied tenants and free-of-tie tenants are about as relevant as between tied tenants and fish-and-chip shops. They are different businesses, and the comparisons should be made between businesses of a similar type. The only comfort I can give to those who seek that principle is that, after a detailed review twice by the OFT following the CAMRA super­complaint, the OFT concluded that, based on the evidence that they had looked at, they saw that there happened to be no material difference. But the RICS guidance makes no reference to tied tenants being no worse off, as far as I can see.

Q195   Simon Kirby: And you see no reason why it should, in answer to my question?

Ted Tuppen: I honestly believe they are very different things. We are negotiating free-of-tie deals with people as we speak, and in an open market. If somebody wants to take a pub from us free of tie, they will have a business plan, they will have a rent that they believe is correct and they will make that rent bid. That is in that particular market. They will have a particular business that they feel is most suited to being free of tie. We are also negotiating tied deals with a wide range of different rental and discount structures, and the same people are making those decisions. If they want the pub and they believe their business plan supports a certain structure, then it is up to them to make their rent bid. I think the open market works very well, and again, I believe the torch that the Committee has shone into our industry over the last few years has led to far greater competition, so I am fighting very hard to get the best tenants.

Q196   Chair: So you think everything we have done has been helpful to you?

Ted Tuppen: Some of the things you have done to me personally might not have been particularly helpful, but I think the issues raised by the Committee have moved the industry forward. I do think we now have an industry where there is greater choice and competition.

Q197   Chair: Okay, I can assure you that we will be continuing this process. Simon, have you finished your question?

Roger Whiteside: Could I try to add something to the point about the free-of-tie and tied-tenant comparison? It is my understanding that the RICS panel that were formed to come up with the revised guidance tackled that question specifically, and have provided their answer to that in the guidance. What we have all done is committed to executing our rent valuations following that guidance, and therefore—to the extent that the answers provided are there, obviously—that is what we will seek to do.

Q198   Simon Kirby: If I may press you on that, I am not sure if that is a very clear answer or not, because if I approach Mr Tuppen with two separate business plans, one for a tied lease and one for a free-of-tie lease, as a business you are going to assess which is more beneficial to you, because it is an agreement between the two parties and you will have a view whatever my view is. Presumably you are only going to go down the free-of-tie route if it is financially advantageous for you to do so. I am saying that there is a direct comparison between the two concepts, whether it appears in the guidance or not.

Roger Whiteside: The question is not presented in that way though.

Q199   Simon Kirby: No, but what I am trying to establish is, if I am an individual and I want to run a pub, should my outgoings be more for a tied lease or a free-of-tie lease? I am not sure whether they should.

Ted Tuppen: I suppose my answer will be that you will have your business plan. There are an infinite number of models under which a pub can be run, be it wet led, food led, accommodation, high quality, average quality, whatever—different pricing structures. No business plan will be the same. I would like to make a point here: we are all trying to ensure that the tenant does not make the mistakes that have been evident in some cases. At the end of this process we insist, before anyone can take a lease with Enterprise Inns, that their business plan and cash flows have to be signed off by a professionally qualified trade accountant, and we provide a list of names from which they can choose. If they choose someone from that list who we are currently trying to get accredited, we even pay for that process. Business plans are very varied, and with the complexity of deals that are now on offer it is vital that tenants have the best advice. We made a commitment some time ago that we would pay for that advice to the extent now that it is impossible to get an agreement with Enterprise—

Chair: We are making hard work of this. I accept that these business plans are signed off; the issue is really who is the major beneficiary: the pubco or the tenant? Brian has just got an example, and then I will come back to you Simon.

Q200   Mr Binley: Sorry Simon. I want to get this on the record, and it is from a lady who owns the Royal Oak at Blisworth, and you may look into it. "A little over three years ago my husband and I bought the Royal Oak in Northampton. I was a nurse; he was a soldier. We did not know much about the pub trade, but we were keen to learn. The pub is owned by Enterprise Inns. The rents were £48,000 a year, which did seem high, but the turnover figures that were given, rubberstamped by Enterprise in our business plan, showed that with a lot of graft the business would work. It did not take long to realise we had been conned into taking on an impossible liability." That was three years ago. That sort of story—and this is a soldier and a nurse, people who you would think were good, upright people, and I know they are—

Chair: Okay Brian, I think we understand the message.

Mr Binley: Just one question: there are many more like it, and I just want you to know, Mr Tuppen, what sort of suffering is going on in your trade, in your pubs.

Ted Tuppen: Do I have a right to reply to that?

Q201   Chair: Yes, I will give you a right to reply.

Ted Tuppen: Thank you very much. I know the case in point. I am acutely aware of that case, and I find it as difficult as you do to understand things like that. You will also know that the couple concerned—for whom I have sympathy, please believe me—paid the outgoing tenant a premium of £62,500, of their own free choice, to take on that pub business. We did not con them. They took on that business on assignment.

Chair: The point is that the processes that you have obviously do not always work to even a reasonable satisfaction of the tenant. I do not want to get too bogged down into this one particular issue. That is the key point.

Q202   Simon Kirby: Yes, just a question: if, as I believe to be correct, that your earnings, Mr Tuppen, last year were some £1,223,000, can you explain to me how everyone is "sharing the pain", to use your expression.

Ted Tuppen: Thank you for raising that. You will know that my salary is part of that, and my salary has been frozen for the last three years, and will indeed be frozen for the coming year. The balance of that was my bonus for last year, which in the opinion of the board and my shareholders, who voted in favour of it, amounted to quite a lot of money. I accept that I am very fortunate to earn that amount, and I hope it will reassure you that I am a UK resident and I pay full tax under the PAYE system.

Chair: We don't want to go into tax. Can I now bring in David Ward on the RICS national database and the ALMR benchmarking?

Q203   Mr Ward: One of the ways of dealing with many of the issues that we have been discussing is to have comparability, and it was mentioned, I think, last week that the pubco has all the detail of the comparable evidence and the tenant has access to none. A way of dealing with this was through the national data. We were told by ALMR that attempts had been made to engage with BBPA to develop the benchmarking survey into a genuine industry database, along the lines recommended by the Committee. These have been fruitless. I was just wondering what your comments were on that.

Brigid Simmonds: I am very happy to comment there. I think there are two parts to this in terms of a database. First of all, RICS are talking about rents and average rents across the country. I have talked to the RICS since they came in front of this Committee.

Q204   Mr Ward: And business costs?

Brigid Simmonds: And business costs, but average rents is where the RICS would be coming from. They have tried to engage with a commercial supplier. It has proved to be too expensive and has not worked out. All our members—and we have discussed this—would be very happy to contribute towards their business research unit in producing such data and in bands and in the way the Committee would like to do it.

In the case of ALMR and some additional information, that is purely about costs. The issue with ALMR data is much of it is about managed houses. We have tried, but it is obviously not the actual tenants that are members of the BBPA, to get more information from actual tenants. We are quite close to having information. We will very clearly share that with ALMR. We talk to them and work with them on a number of other areas, and indeed all our members recommend to tenants who take on their pubs that they should look at the ALMR database. There is a bit more work to do, and I am sorry we have not been able to produce that information to you as yet, but we are certainly working on it.

Q205   Mr Ward: There has been a suggestion that pub companies were unhappy about releasing presumably commercially sensitive information. Has that been an issue?

Brigid Simmonds: As I have already said, I think—the companies can answer for themselves—they are very happy to share with the RICS information on rents if that would make it easier. One of the difficulties, of course, is that so many pubs are run on different bases. You can be food led, wet led, so getting actual averages is difficult.

Roger Whiteside: I personally took part in two or three meetings with RICS and the third party they had engaged to try to make progress with this, and we quite quickly hit difficulties because of the complexities involved and the varying styles of agreement on offer. Therefore to try to come up with a realistic database that would be of use to qualified surveyors out in the field in coming up with accurate rent evaluations proved quite difficult. That does not mean that we have given up, and we are currently working with the RICS business research unit—I think that is what they call themselves—to create a simple database that will reflect—in the way I think the Committee described last week—simple bandings, if you like, of types of discount alongside rent. Because of the complexities, you cannot use it in isolation; you will need to be a fully qualified individual to be able to interpret that data alongside the other, normal comparables you would typically use in coming up with a rent evaluation. But I think it could prove helpful and we are willing to cooperate. I think we can make progress with it; we failed at the first attempt.

Q206   Mr Ward: What is the motivation then? Presumably the purpose of this would be for the benefit of the lessees.

Roger Whiteside: No, we see it as a benefit to the market. In other words, we want the market to operate effectively. It is the market that determines rent, and therefore if the market has better information it will help the market to work more efficiently. As a result of that, we will end up with accurate rents.

Q207   Mr Ward: But it is unlikely that this comparability that will result from this survey will result in increased rents.

Roger Whiteside: It could do; it depends on how the market moves. If the market strengthens, then obviously rents will rise, won't they? Over the last three years, as a consequence of the smoking ban first and then, subsequently, the recession, the market has quite definitely fallen. As a result you have heard Ted already report on falling rents in his business. In our business, rents have fallen 17% over the last four years. I am hoping one day those rents will begin to stabilise, but right now the market remains very difficult and rents continue to fall.

Q208   Mr Ward: I just have one more for the BBPA, because we heard from the ALMR that the BBPA had refused to work with the benchmarking survey. Why would they make that comment?

Brigid Simmonds: We have not refused to work with the benchmarking survey. The ALMR have a well-established survey. I think this is the third year that they have produced their survey. It is mainly from their members, although I know Punch contributes to it, but it is mainly about managed information. We are very happy to work with them. I apologise to the Committee that we have not made as much progress as we should have done on getting the information about costs that are based on the tenanted lease model, but we are very happy to work with them going forward.

Q209   Mr Ward: So they are simply wrong?

Brigid Simmonds: No; we are not refusing to work with them on it, and every code recommends that would-be lessees look at the ALMR benchmarking. There is no problem about that.

Q210   Chair: Can I get absolute clarity on this? ALMR effectively says that you refused to work with them on it. RICS said it was difficult to get the data necessary to do this benchmarking exercise. My interpretation of what you have said is that in fact you are willing to get this exercise and publish it in a banded form. Is my interpretation correct, and if so, when will you publish it?

Brigid Simmonds: I think we are talking about two different things. We are willing to work with RICS to produce rent information, which could be published in a banded form. That is not something the BBPA could do. In terms of costs that would help with the ALMR survey, which is what their survey is about, we have some information on that, we will share it with the ALMR, and yes, we will publish it.

Q211   Chair: Have you any idea when you could do that?

Brigid Simmonds: I am being told that we have a meeting already arranged with Kate Nicholls and we will do it in the next few months.

Q212   Dan Jarvis: My question is to Ms Simmonds. The Committee asked BII to provide details of all agreements and discounts available, and they have not done this. Can I ask you how easy you think it would be for your members to provide this detail?

Brigid Simmonds: I think it would be possible. I think, as BII said last week, it is hugely complicated, because—and you have heard from both Ted and Roger—we have such a range of different agreements available, and it is everything from franchise to free-of-tie pricing. You would have to get that range. It would not be impossible. I do not know if any of my colleagues would like to add to that?

Roger Whiteside: We would certainly be willing to provide it, but I would not envy the person whose job it is to pull that together and keep it up to date, because we are in competition, so we are constantly changing our agreements. To be honest with you, as a result of the difficulties in the marketplace over the past few years, the agreements have exploded in variety, and we have all kinds of agreements out there, varying types, seeking to provide genuine transparent choices to new entrants to the business looking to run a pub successfully. It is not impossible, but no­one has put their hand up to do it because of the complexity involved.

Q213   Dan Jarvis: But in principle you would have no reason why not?

Roger Whiteside: Absolutely; it would be another window for us to advertise our wares. Obviously ours are available on our website.

Q214   Mr Binley: Can I ask you a supplementary question there? Have you ever been asked to help compile such a database?

Roger Whiteside: No, not to my knowledge.

Ted Tuppen: I share everyone's willingness to take part in this. I do genuinely believe that there are practical difficulties. We will go as far as anyone asks us to go to provide that information. I just wonder whether the Committee might not consider what we do, which is to accept that any sort of database is going to be complex and difficult to understand for the average publican taking on a pub.

Q215   Chair: But surely it is your job to ensure that a database is presented to a would­be publican in a form that is readily understandable.

Ted Tuppen: This is where I think our approach of insisting that an incoming tenant takes professional advice should perhaps be something that the Committee pursues, and, in our own case, we already contribute to the cost of that. I am concerned that the database is not an end in itself; there will still be chances for people to misunderstand it because it will be horribly complex. If that database is available and is used by a professional, fully trained trade accountant then I think it moves from being data to being useful information, and I make this absolute commitment from Enterprise that we will always insist that everyone has their business plan reviewed by a trade accountant and we will continue to contribute towards that cost in a meaningful way.

Q216   Dan Jarvis: Okay, thank you. Ms Simmonds, can I come back to you, please? On average, how much of the discount that the pub company receives from the brewery gets passed on to the lessee? Is it shared 50/50 as it was traditionally, and if not, what is the current share?

Brigid Simmonds: I have to be honest, I could not possibly answer that question. It is up to individual companies competing among themselves how much discount to pass on. I would have to ask my colleagues to answer that.

Alistair Darby: I do not have the figure. Equally, that is a commercially confidential matter, because in the end we are not just a pub company. We own breweries, we own managed houses, and we use our buying scale to get good terms from our suppliers, and we do our very best to share those good terms with our tenants. For example, in the spring of this year we enacted a significantly below inflation price increase, 1% weighted average in a market where RPI was running at 4.5%. That is us sharing our buying power with our tenants. That is a source of competitive advantage, and it is in my interest to not reveal how much of my buying power I am sharing with my tenants, because I consider that to be a point of attraction for a tenant to take a pub with Marston's pub company versus my competitors. I think there is also quite a risk here in that we need to be very careful about to the extent to which transparency of pricing, all the way through from the point of the pub company purchasing, is shared, because there is risk here that we are going to be accused of price collusion. Under advice, I think we just need to be quite careful on this one, because this is a very dangerous area, and I am very keen that I maintain my competitive advantage.

Q217   Mr Binley: Excuse me, Mr Chairman. This was asked of you a year ago. Have you written to us to make that particular point? Every pub was given a year before this second review to work the new code. That new code had within it a recommendation that there was a database of this kind.

Alistair Darby: Sorry, a database of what kind, Mr Binley?

Q218   Mr Binley: Of a banded kind, giving an idea of where costs lay and how the business worked to potentially incoming tenants. That was said a year ago.

Alistair Darby: Mr Binley, our code—

Q219   Mr Binley: No, let me ask the question. Have you written to us in the interceding year to tell us your concerns?

Alistair Darby: The concern about pricing specifically and sharing of—

Q220   Mr Binley: You mean discounts?

Alistair Darby: Discounts. The concern regarding that particular issue—because there are a number of issues here—has been very clearly laid out, and indeed we made it very clear last year when we presented that, for the BBPA, the issue of consolidating price information was impossible because it contravened competition law, and we were very clear on that. As far as I am aware, competition law has not changed in the prevailing year. As far as costs are concerned, the benchmarking, our code, just as I am sure everybody else's does, makes very clear that there are benchmarking surveys available, of which in our code we detail the principal one that is available at the present time is the ALMR benchmarking code, and people should take advantage of that. We also indicate in our code—as I am sure my colleagues do—that if further benchmarking surveys become available, we will draw those to the attention of our tenants in order for them to make a meaningful decision on their pub.

What I would say, Mr Binley, is the key test for all of us, if these codes are really working, is that no tenant should sign up to an agreement and after the event say, "I did not enter this agreement eyes wide open." If they go in eyes wide open, then the codes have achieved what they are supposed to achieve, and I think enormous progress has been made on that front.

Q221   Mr Binley: Can I welcome that comment, and can I say that I have never had one comment from a Marston's tenant, which might please you. I still go back to saying that you did raise the point about business confidentiality, and I understand that point totally. Banding would deal with that, so that we are talking about a mean, an average. I just wonder whether you have come back to us on that basis since the initial code was issued about a year ago.

Alistair Darby: Every single rent proposal we put to a tenant lays out, side by side, absolute details of every single option that is available to them, including behind it a price list that shows the prevailing beer prices available on every single agreement. We are absolutely transparent about the combination between rent, on each agreement, and the price that you can provide beer, as laid out in the code. As far as I am concerned we are meeting that information transparency.

What I have not come back to you on—because I was not aware that it was needed—is to further confirm that we are not going to share the full discount stream information with you, because I consider that to be both commercially sensitive and also, under advice, puts me in an extremely difficult legal position, because essentially if I was to put the discounts we are earning into the public domain: one, I would be releasing exceedingly confidential company information, which I think we have spent a lot of time working on and put a lot of intellectual capital into—

Chair: I think we have got the message.

Alistair Darby: I think this is important, because this is a competition issue, and I do not want to be in a position where we get a letter from the OFT suggesting that we have embarked upon dangerous ground.

Q222   Mr Binley: I think we buy that. Could you send us the way you lay your stuff out? I think that would be very useful.

Alistair Darby: With pleasure, and it has been available through BII.

Mr Binley: And if everybody else could do the same that would give us an overview of where we are in this respect.

Chair: Can I come back to Dan Jarvis?

Q223   Dan Jarvis: Thank you Chair, one final quick question to Mr Wells; you have been sitting there very patiently. Can I ask you whether Punch and Enterprise pubs sell your beer? Can I also ask you how easy is it for a small brewer to get on the pubco supply list, and if you do get on the list, how much discount you have to give to the companies?

Paul Wells: The answer is yes, we do sell our beer to Punch and Enterprise, and like a lot of the family brewers we are varyingly active in the free trade as well as the pubs that we own. Not all family brewers are as active in brand building as others. Just to quickly say, in terms of pub operations, our business model is rather different to the lease model that you have heard a lot about. What we tend to do is operate brewery tenancy agreements—eight out of 10 agreements in the IFBB are those—and the rest are largely managed, and one or two lease pubs have been purchased over the years. In our case, when we have bought a lease pub we have taken out the RPI clause and all that sort of thing. The big difference is that we maintain and insure and we improve our properties so they are not FRI leases, and we want to make sure that landlord and tenant protection is offered to those tenancies.

Turning to the free trade, it is a difficult market. It takes years and years to build up a presence. The job in manufacturing at the moment is not easy: utility costs are climbing; raw materials are climbing. You will hear a lot later on this year about the barley harvest having been a catastrophe, particularly in East Anglia —

Chair: Would you bring your comments to a—?

Paul Wells: It is a competitive world, but the pub companies have offered access to smaller brewers, and we have seen a lot more microbrewers growing up. They get the benefit of progressive beer duty, which gives them an extra competitive edge over our smaller breweries, but in general there is better choice for consumers than we have had before.

Chair: Can I bring in Rebecca Harris on mediation?

Q224   Rebecca Harris: Have any of you yet experienced the BII mediation service, and what views do you have on it?

Roger Whiteside: It is my understanding that the service has just opened and is just beginning to create a formal channel for mediation to take place. There have always been attempts in the sector to have informal mediation, where individuals seek to bridge the gap between one disputing licensee and the pub company, and we welcome the fact that the BII is seeking to develop a more formalised channel for licensees to be able to appeal to a higher authority than ultimately me, because it comes to me in the end in our business. Once they have gone up the line they can appeal to me, and if they are still not satisfied with my response then there comes a place they can go outside. That would be very welcome, and certainly I hope it develops and we are able to take advantage of it.

Ted Tuppen: I completely agree. I think BII have done an outstanding job with PIRRS, both the implementation of it and the process since then, and I think it has made a huge difference for good within our industry. I think a similar mediation service can only be good for us, and we wholeheartedly support it.

Q225   Rebecca Harris: And you accept their proposals for a more formal service?

Ted Tuppen: Absolutely.

Simon Longbottom: I think we heard Phil Dixon last week talk about a particular Greene King case, so we are not complacent. We have not had breaches to date, but we have had one case where Phil helped us in a situation where a relationship had broken down. The service worked excellently, so I would support it fully.

Q226   Rebecca Harris: And how genuinely independent would you say it was as a mediation service?

Alistair Darby: We have been through one mediation with BII, and I would say it is very independent, and we fully expect, when the BII get involved, to get scrutinised very deeply and very pressingly. Mr Binley, you have good competition in Mr Dixon.

Mr Binley: I am delighted.

Brigid Simmonds: I think the Committee, having heard from BII and Phil Dixon, can have no doubt about how committed they are to raising the standards of the industry, and yes, of course some of their members are funded by the industry, but I think in the mediation service they act very independently.

Roger Whiteside: Some of this is supported, though. The FLVA, for example, often involve themselves in trying to intermediate between the pub companies and the licensees, and we have a longstanding and good relationship with them in seeking to make progress in dispute cases.

Q227   Rebecca Harris: The Committee also heard last week from Mr Robinson, who said that he felt that some of the business development managers used "an overly muscular approach" with the lessees. Would any of you accept that criticism, and what could be done to prevent that?

Simon Longbottom: I would simply say we have 34 BDMs in the Greene King business. We have a very flat structure in terms of the operations directors that manage them and performance manage them. We are very proud of our training, which we have written to you separately about: twice-yearly appraisals, several one­on­one meetings with which to manage the BDM competence. In addition, we have also written about the BDM training that we do, which now leads to a diploma in multi­site retailing, where we are working with Birmingham City University, that we are immensely proud of. We think that is the top qualification a BDM could gain in our sector. We take that very seriously, and we look to improve our BDMs. We have recently made a couple of changes in our team to demonstrate again that we are not complacent about the ability levels.

Chair: I have David Ward and then Simon Kirby to come in with quick questions, and then I will conclude.

Q228   Mr Ward: The Secretary of State recently referred to pubcos as being on probation, and if you look at the inquiry a year or so ago, when it was seeking some evidence of the genuinely free-of-tie option, the open market review and guest beer being introduced and so on, how would you score yourself out of 10? Of course the probationary period would have led, if unsatisfactorily, to legislation being involved.

Ted Tuppen: I would not want to give myself a score, because I know that I have not quite reached 10 yet.

Chair: Just give yourself a number, will you, so that we can get on.

Ted Tuppen: Roger, I will pass over to you.

Roger Whiteside: Thanks Ted. We put it at the heart of business change programme. We have had a change of leadership at Punch. We think we are making good progress and we are probably seven out of 10.

Q229   Mr Ward: Just in terms of the change of leadership, it was Ian Dyson who I believe carried out a review and said that the business is not sustainable and requires structural change.

Roger Whiteside: We have announced as a result of a strategic review in March, which we have formalised this morning in fact, that we believe the business needs to change its structure, and as a consequence of that are demerging the business, separating the managed business from the leased and tenanted arm, and I will continue as the Chief Executive of the leased and tenanted arm, and the separate managed business—provided we get shareholder approval—will be a separate listed business as of the end of this month.

Brigid Simmonds: At the end of the day we have improved transparency, a positive force. We are on a journey, but we are certainly not there yet.

Q230   Simon Kirby: Isn't that demerging of the business an admission that the business model that was perhaps applicable 10 or 20 years ago—and the asset values that underlie your big businesses' business model, providing the cement that holds it all together—has changed so much that it is no longer sustainable?

Roger Whiteside: I should answer as we are the business that is demerging.

Ted Tuppen: We are not doing anything like that.

Q231   Simon Kirby: No, but your assets, for instance—and you have lots of borrowing based on that asset valuation—surely, because of the change in business environment and pubs finding it more difficult on an individual basis to pay their rent, and rents in some cases going down not up, mean that your business model, with its large borrowing, is not sustainable?

Ted Tuppen: Would you like me to answer that first?

Simon Kirby: I would like both of you to answer that, please.

Ted Tuppen: Let me go first. I believe that our business model has worked very well for the benefit of the industry over the past four years. Despite all of the difficulties faced since the smoking ban—the 35% increase in beer duty, 23% increase in utility cost—we are still very much in existence. We have an amount of debt that is completely under control and sustainable. The average interest cost per pub has reduced over the last two or three years. We have not had to go to our shareholders for a rights issue. We will not have to go to our bond holders or our bankers for any restructuring. We have a very sound business, despite the fact—and I keep trying to say this—that our rents have come down indeed by 10% over the last two years.

Chair: You have said it before. I think it is understood.

Ted Tuppen: I do feel that we have shared the pain. We have taken substantial drop in our profitability; we have written 10%, roughly, off the—

Chair: I think we are really repeating what was said before.

Ted Tuppen: And we think the business is still sustainable.

Roger Whiteside: Did you want an answer from Punch?

Q232   Chair: Yes please.

Roger Whiteside: Clearly we are a completely different business from Enterprise, in that we mix two business models. We have an arm that is fully managed, and we have an arm that is like Enterprise: leased and tenanted. The two businesses are very strong and profitable businesses. They have been caught out in these past three years because of a recession that nobody predicted. As a result of that, when we built the business we took out a mortgage to build that business that is now too high, and the businesses are separating in order to focus management teams on driving value for all stakeholders as separate businesses because they can be best executed in that way.

Q233   Simon Kirby: That is a partial yes, then.

Roger Whiteside: That is not a partial yes. These are very strong businesses.

Simon Kirby: Thank you.

Q234   Chair: Just before we conclude, I shall pick up on comments arising from my initial questions to Brigid. You did say that you sent us information; yes you did, and we have published it. The problem was it did not convey any reasons why there were slippages.

Brigid Simmonds: I apologise if that is the case. I hope that we have explained today why we are in that position. I do think at the end of this process, we are on a journey and we are making progress, and I do think that if a number of these businesses had been shops they would have closed much before this sort of stage that we are in now, and that the support that has been given—£265 million in 2010—to leased and tenanted pubs is significant.

Q235   Chair: Okay, can I assure you that I am delighted that you think that progress has been made, and I can assure you that this report will continue that progress. I am conscious I had to, shall we say, cut one or two people off in order to keep within the timescale available, so I would emphasise to you that, if you feel that you have additional information that you would like to give us in response to any of the questions that we have asked you to which you have not had the opportunity to put the full case, we would be very willing to receive that information in writing. It is not the purpose of the Committee to prevent anybody from developing a case that they have in response to a question. Similarly, if you feel there is evidence that you have not been able to bring out from the questions we have asked you, please feel free to submit that in written form as well. Thank you very much.

Alistair Darby: Mr Chairman, just for clarification, when is the deadline for you to receive that information?

Chair: End of July.

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Prepared 20 September 2011