Conclusions and recommendations
Past inquiries
1. We thank the Secretary of State for his clear undertaking that, should we conclude that there is a need for statutory intervention, then his Department will act in accordance with the commitment given by the previous Government
(Paragraph 5)
Implementation of the new Codes of Practice
2. The BBPA's failure to supply the Committee with information requested by our predecessor Committee on slippages yet again demonstrates the industry's failure to be transparent and to engage in the process. Just simply glossing over major slippages in their own target without providing any information smacks of complacency and demonstrates an inability to deliver meaningful reform.
(Paragraph 28)
The Framework Code and company codes
3. We are worried by the results of both the BBPA/IPC and the IPPR surveys regarding the availability of pub company codes to their lessees. The fact that approximately a third of lessees in both surveys had not even seen a copy of their companies' codes is extremely concerning and runs contrary to what we had been told by the BBPA and its members. In addition, the results from the IPPR that only 17% of lessees that had seen their company's code of practice thought that it would benefit them should be of extreme concern to those in the industry that believe updated codes would be the cornerstone to rebuilding trust between pub companies and their lessees.
(Paragraph 34)
Pre-Entry Requirements
4. We welcome the Pre Entrance Awareness Training which should better prepare potential new lessees taking on a pub. We also agree that a waiver is necessary to avoid unnecessary training for lessees with prior industry experience. However, the training is inadequate. In addition, we have concerns over the creeping informality of the granting of waivers. This is not what we would have wished to see and it needs swift remedial action to ensure that waivers are only granted on a formal and recorded basis.
(Paragraph 40)
5. We welcome the inclusion in the Framework Code of a requirement on a new lessee to take professional advice. However, survey data indicates some new lessees continue to enter the industry without fulfilling this requirement. BBPA/IPC survey data indicates that pub companies are not requesting proof that such advice has been taken. This fundamentally undermines a key requirement in the Framework Code.
(Paragraph 45)
Terms of Business
6. There is obviously still a dispute over flow monitoring equipment and its use in accusations of buying-out which the Framework Code has failed to address. In addition, there is still confusion over whether it can be proved to be 'in use for trade' and therefore covered by Weights and Measures Act 1985. Unfortunately, it is clear that little, if any, progress has been made in resolving this problem. We conclude that the Code does not address this in a satisfactory manner and does not meet our predecessor's recommendation.
(Paragraph 55)
Rent Assessment
7. The improved RICS guidance was one of the few positive messages to come out of the 2010 Report on Pub Companies. The continued disagreements between lessees and the pub companies on the level of adherence to that guidance is therefore a major point of concern. RICS must investigate as a matter of urgency whether its members are signing off rent reviews which have been prepared without clear application of its RICS guidance or benchmarked costs and to report back its findings to us. In addition, to ensure that RICS guidance is being followed it is paramount that both those assessing rent and those whose rent is being assessed are aware of the guidance. RICS, BII and the BBPA have shown themselves unable to enforce adherence to the guidance.
(Paragraph 64)
8. It is deeply frustrating that within the industry there is still confusion over the status and interpretation of the principle that a tied tenant should be no worse off than a free of tie tenant when assessing rental valuations. This was a specific recommendation made to RICS. The on-going debate on whether this is being done and how the guidance is being interpreted is a demonstrable failure of RICS guidance. It also highlights the lack of willingness on both sides to resolve the matter to the benefit of the industry.
(Paragraph 68)
AWP machine tie
9. The AWP tie is still in existence seven years after our predecessor's initial recommendation to dispose of this tie and despite two follow-up Reports endorsing that recommendation. It is deeply frustrating that the industry has chosen to ignore this as it is a relatively easy area for pub companies to show willing. The industry should have acted on this recommendation. The fact that they did not is another clear illustration of its refusal to engage in meaningful reform.
(Paragraph 76)
Disclosure and Transparency
10. Often 'shadow' profit and loss accounts do not provide the lessees with the necessary level of information to make an informed business decision. As the Business and Enterprise's 2009 Report concluded:
We accept that in many cases pubcos do not have access
to their lessees' books. However, they have access to a substantial
amount of information about the business of a particular pub,
and are likely to have extensive information if a business is
in difficulties. Pubcos entering a commercial relationship with
a new lessee should be required to share all their information
on a pub's trading history with them.
We endorse that recommendation. (Paragraph 83)
11. The lack of engagement with the ALMR's benchmarking survey is another example of the industry failing to follow one of our predecessors' recommendations to increase transparency in the industry. While we acknowledge the BBPA's recent undertakings to engage with the ALMR's benchmarking survey the BBPA's consistent failure to deliver on the important issue of transparency on costs leaves us sceptical.
(Paragraph 93)
12. A database of national rents was first recommended by the Trade and Industry Committee in 2004. Despite the BBPA's assertion that its members 'would be happy to contribute' to the database with banded financial information, RICS and the pub companies have consistently failed to produce a database of national rents. As Mr Rusholme, Chair of the Trade Valuation Group, RICS stated the creation of a database is not "rocket science". Unless the pub companies deliver, and swiftly, we will have to conclude that, again, they are unwilling to deliver on their promises.
(Paragraph 100)
Pub Independent Rent Review Scheme
13. Early evidence suggests that Pub Independent Rent Review Scheme (PIRRS) is a positive development in the industry and one that is being used for mutual benefit. As a good news story for the industry we would have expected this to be widely promoted. The fact that this genuinely successful reform was not, highlights the malaise at the heart of the industry.
(Paragraph 108)
Business Relationship/Development Managers
14. The actions and behaviour of some Business Development Managers (BDMs) has been an issue that the previous Committees have noted and highlighted. Such is the deep-seated culture of poor relations between pub companies and lessees that BDM training should have been considered a priority. Individually, some pub companies are beginning to address this failing but we are still hearing far too many unpleasant reports across the industry of bullying and intimidation towards lessees.
(Paragraph 117)
Disputes
15. We welcome the piloting of a new mediation service which appears to have the goodwill of pub companies. However, the need of such a service was highlighted by our predecessors with no resultant action until now.
(Paragraph 126)
Compliance, policing and enforcement of the codes
of practice
16. It is clear that losing BBPA membership is no sanction for a pub company for failing to have its codes accredited or for losing accreditation through poor performance with its lessees. Some BBPA members have yet to have their codes accredited and they have not lost BBPA membership. Equally, Greene King has left the BBPA voluntarily and still attracts lessees. (Paragraph
139)
17. What is seen to be the 'real' sanction is losing BII accreditation. The BBPA through its website and the BII through Pre Entry Awareness Training have tried to bring to the attention of potential lessees the importance of entering into a contract with an accredited pub company but we are not convinced this is enough. (Paragraph
140)
18. The fact, highlighted both by our predecessor's survey and the recent BBPA/IPC survey, that most lessees chose a particular pub not a particular pub company or business model brings into serious question the claims by the BBPA and the BII that making available breaches of codes to perspective lessees acts as a serious deterrent to pub companies. We are not convinced that publicising breaches and the removal of accreditation is a sufficient sanction in this context. A more meaningful suite of sanctions is necessary to balance the detrimental effect of code breaches by pub companies on individual lessees.
(Paragraph 141)
19. The legal status of the companies codes of practice is untested. We had expected a definitive view from the BBPA and its members but all we received was contradictory advice. The inability to provide us with the necessary legal clarity is deeply concerning.
(Paragraph 146)
The Beer Tie
20. Our predecessor's recommendation clearly stated that over a period of time all existing lessees and all new lessees should be offered a free of tie lease with an open market rent review based on RICS guidance. This recommendation was endorsed by the then Government. Despite this clear instruction, the BBPA/IPC survey has shown that only 16% of new lessees and only 9% of current lessees had been offered a free-of-tie lease. Furthermore, it is open to question whether the free of tie agreements which have been offered are 'genuine' free of tie and accompanied by a full open market rent review. Again we conclude that the industry has shown itself unable or unwilling to deliver meaningful reform.
(Paragraph 153)
Conclusion
21. The purpose of this inquiry into pub companies was to assess whether or not the industry had delivered on its promise of meaningful reform. As with previous inquiries, modest improvements have been made. However, the fact that it has taken a number of select committee inquiries to prompt these improvements demonstrates the deep-seated problems which lie at the heart of the industry. While the new codes of practice are a step in the right direction, they only address a limited number of areas. In many areas we do not believe that there has been a genuine commitment to reform. Many of the potential benefits of the new code, which were identified by our predecessor committees, have been undermined by a process of implementation which can only be described as half-hearted.
(Paragraph 154)
22. The BBPA has shown itself to be impotent in enforcing its own timetable for reform and the supposed threat of removing the membership of pub companies who did not deliver was hollow. The voluntary withdrawal from the BBPA by Greene King, which has suffered no reputational loss as a result, clearly demonstrates that fact. Furthermore, while the BII may be seen to have done an adequate job in accrediting the new codes of practice, it is clear to us that its enforcement role is fundamentally undermined by a lack of meaningful sanctions for non-compliance. Given the high number of breaches allowed before sanctions would be applied we believe that "naming and shaming" and subsequent withdrawal of BII accreditation is insufficient.
(Paragraph 155)
23. Intransigence on both sides remains at the heart of the matter and is highlighted by the lack of real progress, over a wide range of issues, highlighted in this Report. The Business, Innovation and Skills Committee's 2010 Report gave the industry a final opportunity to address these issues. It is an opportunity that has been wasted. Reform has proceeded at a glacial pace and only as a result of dogged scrutiny by Parliamentary Committees. This latest attempt at reform has failed and we neither have the time nor the patience to continue along this path. We therefore conclude that the reforms do not meet the test set by our predecessor committee. (Paragraph
156)
24. The position of the previous Government—endorsed by the current Government—was that if we so recommended, it would consult on how to put the Code on a statutory footing. It is now time for the Government to act on that undertaking. In its response to our Report, the Government has to set out the timetable for that consultation and begin the process as a matter of urgency. We further recommend that the consultation includes proposals for a statutory Code Adjudicator armed with a full suite of sanctions. Considering the amount of evidence gathered by us and our predecessor Committees this should not be a lengthy process; and given the Government's undertaking to us we do not anticipate any meaningful delay. Furthermore, we caution the Government that offering a compromise of non-statutory intervention would be a departure from its undertaking to us and would not bring about the meaningful reform that is needed. (Paragraph
157)
25. We have not come to this decision lightly and we are firmly of the view that statutory regulation should only be used as a last resort. However, our hand has been forced and we see no other alternative for an industry which has for too long failed to put its own house in order.
(Paragraph 158)
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