Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence submitted by the All-Party Parliamentary Save the Pub Group

BACKGROUND

The All-Party Parliamentary Save the Pub group was established in February 2009 with the aim of bringing together MPs and peers to help protect pubs. Since its formation it has held a number of successful meetings in Parliament discussing all the issues affecting the pub trade and engaged in constructive dialogue with ministers. The group's membership includes 118 MPs and peers from all parties. The group made submissions to previous committee inquires, in March 2009 and February 2010.

1.1  The BBPA and IPC - are they in dialogue and, if so, how is this progressing

The group is not convinced that the BBPA has made a significant attempt to engage in sustained and effective dialogue with the IPC, based on the evidence available. Since reports in the trade press of an initial meeting in May last year, little has been heard of dialogue between the two groups. The only evidence recently of the groups working together was the publication of a survey, conducted by research group CGA, on tenants' and lessees' attitudes towards the pubcos and new codes of practices.

Despite the survey being jointly commissioned by the BBPA and IPC, members of the IPC subsequently expressed frustration that the survey did not address the group's key concerns, such as tenant profitability.

1.2  Whether the Pub Companies' individual codes of practice are robust enough and whether the major pub companies have built upon the de-minimus requirements of the BBPA's Framework Code

The group is concerned about the robustness and effectiveness of the codes of practice and has no evidence they have gone beyond the minimum requirement. Speaking at a meeting of the Save the Pub group this month (June 2011), Nigel Williams, president of the only licensee group to sign up to the Framework Code of Practice, the Federation of Licensed Victuallers Associations (FLVA), said:

"The framework code is a start - but we do not see anywhere that the codes have gone further than they need to go. They have gone at best, just about far enough. They haven't addressed overall tenant profitability."

The key point of course is that the BBPA's Framework Code, upon which all other codes are based, does not in itself go as far as the Committee expected. On a guest beer right for example, the Framework Code simply states that individual companies must stipulate whether or not they are offered - and does not require this option to be offered. Despite this weak requirement, both Marston's and Scottish & Newcastle's codes make no mention of any guest beer options offered to licensees.

1.3  Are the Codes of Practice being complied with?

In March 2011 it was reported by the trade press that 21 serious complaints had been received by BIIBAS from licensees over operation of the codes. A report from BIIBAS stated:

"BIIBAS has seen an increase in the number of enquiries from licensees who feel that they are not receiving the level of service expected by the codes.

"Complaints received are often complex and involve several areas of business. BIIBAS has received a number of complaints from licensees whose experiences fall outside of the remit of the current codes of practice."

BII chief executive Neil Robertson reported to the Save the Pub Group at the June 2011 meeting that 25 serious complaints had now been received and five breaches of the code had been found.

1.4  How the BII is policing the codes and whether this is effective

We acknowledge that the BII has invested significant time and effort in establishing a system to police the codes through the BIIBAS scheme. However, the group is concerned about the impartiality of the BII in this matter, bearing in mind the funding it receives from its corporate members - including the major pub companies. Although BIIBAS reported five breaches of the code, only one of these was since the codes have been updated. This seems a very small number and raises questions over how well the codes are being policed and whether BIIBAS has the teeth to effectively police the codes.

Neil Robertson, the BII's Chief Executive also admitted to the Save the Pub group at the June 2011 meeting that new tenants' understanding of the business model is still poor, despite the codes. He said:

"I am despondent in that…I suspect we are now back at four or five (out of 10) not fully understanding the business model…but that is the complication of the industry and we will work hard to improve that further."

1.5  The enforceability of the codes

Again, with the industry effectively self-policing itself there is no deterrent for a code breach. The group therefore believes that a statutory code is the only effective and reliable way to police the industry. The BBPA's Brigid Simmonds told the group at the June 2011 meeting:

"There are areas around the tie that could not be in the framework code because of the competition issues that offers up - all we can do as an association is to encourage our members to do more and to offer more to their tenants - and we set the framework up to do just that."

The Save the Pub Group does not accept this assertion and believes that any Code must cover the substantive issues (a genuine free of tie option and guest beer right) for it to be effective. Should the BBPA's claims be proved, this further demonstrates the need for a statutory code.

1.6  If AWP machines are now being treated more fairly and tenants are being given a genuinely free of tie option

The Committee's previous report branded the practice by pubcos of taking 50% of the machine income and then 50% of the remaining profit as part of the divisible balance for rent as "totally unacceptable".

However despite this strong view, we remain concerned that pubcos are taking into account licensees' AWP income as part of rental negotiations. BII chief executive Neil Robertson was reported on The Publican's Morning Advertiser website on June 2, 2011, as saying:

"All landlords have completely removed shared machine income from their rental calculation. However, some may still take into consideration the tenant's share of machine income when making their rental bid."

"We advise you to ensure you understand how the landlord has arrived at their rental bid and whether it has been materially influenced by the tenant's share of income."

Many pubcos are only offering a free of tie option on AWP machines in exchange for a penalty fee (described by Marstons, Admiral and Enterprise as a "charge"/"increased rent"/"annual release fee" respectively). Scottish & Newcastle does not offer free of tie AWP option at all. The CGA survey found that 44% of existing businesses and 42% of new entrants are still tied for AWPs.

1.7  The treatment of flow monitoring equipment

The group still has concerns about the accuracy of Brulines equipment, as noted in previous committee reports. The group notes that the National Measurement Office (NMO) refused to substantiate claims by Brulines that its equipment was "fit for purpose", after tests by the NMO. Paul Dixon of the NMO told The Publican magazine:

"We've given no approval of the systems tested, or commented on its suitability for the purpose for which it is intended."

"We haven't given any opinion on whether the technology is good, bad or indifferent."

"We have just performed a range of tests and reported our findings. Because this technology is not prescribed under legislation there are no error limits."

1.8  The effectiveness of the new RICS guidance on pub rental valuations and whether it provides clarity on the principle that a tied tenant should be no worse off than a free of tie tenant by defining what constitutes a countervailing benefit

The group has seen no evidence that the RICS guidance is effective in offering clarity on the principle that a tied tenant should be no worse off than a free-of-tie tenant. Indeed, the group notes that the long-delayed 20-page guidance published by RICS in December 2010 contained no direct reference to this principle. RICS also stressed at the time of publication that the paper was "guidance" and not "legally binding". RICS also said its members "are not required to follow the advice and recommendations contained in the paper" (thepublican.com, December 22, 2010).

2.1  The availability and effectiveness of complaints procedures and an independent disputes mechanism

The group acknowledges the work of the Pubs Independent Rent Review Scheme (PIRRS) to settle disputes. However, the CGA survey suggests a major lack of awareness among licensees of the scheme. Well over half (56%) of existing and new licensees said they unaware of PIRRS.

The first PIRRS annual report found that only five dispute cases had been resolved by the scheme. The report notes that concerns had been raised as to the "accuracy of the information that is supplied by the independent experts" based on the independent experts' "listed conflicts of interest on the website".

2.2  The availability of genuine free of tie options ie an open market rent review under RICS new guidelines, ability to buy beer from any source

At the June 2011 meeting, the group was given clear and unequivocal evidence from Enterprise Inns and Punch Taverns that neither offered complete free-of-tie options with an open market rent review. This is a cause of serious concern for the Save the Pub group.

Simon Townsend, Enterprise's chief operating officer, told the group:

"I will go straight to the nub of the issue. We have not included the availability of a completely free-of-tie option within our code of practice"

Roger Whiteside, Punch's leased division managing director, said:

"We have stopped short in one respect…if we were to offer them (licensees) a completely free-of-tie option then we would be giving up the additional benefit we gain through our scale and not available to them as independent licensees. If we had to give that up, then that would jeopardise the business model."

There is also evidence of a glaring lack of willingness by the pubcos to actually offer a free-of-tie option. The CGA survey revealed that only 16% of new licensees had been offered a free-of-tie agreement by their landlord. In addition only 9% of current licensees have been offered changes to their agreement, the survey showed.

It is clear that the pub companies have not done what they have clearly been asked by the select committee (and Government) to do and it is clear that all the different leases on offer still involve the pub company dictating the rent and what this means is that the pubco would still be taking more from pub turnover than is fair, reasonable or sustainable. If the "tie" is as attractive as pubcos suggest it is, then should have the courage to offer a genuine free-of-tie option alongside it (in this model the pubco gets the rent only at a fair independent level - paying more for product should then lead to lower) rent, which is not what is being offered).

The Group is deeply concerned that some companies are using the term "free of tie pricing" for leases that are patently not free of tie and simply involve a different set of tied prices and believe this is deliberately misleading and they should be asked to cease doing so.

2.3  The guidance from BII on the type of pub leases available and what the options mean in reality to prospective lessees. This includes free of tie, tied pricing and discounts as well as the business support countervailing benefits available

The group is aware of the Pre-entry Awareness training course that the BII operates. However the group notes that more than a fifth (22%) of new licensees were not required by their pubco to take the course in order to take on a pub.

CONCLUSION

The group is concerned that despite successive Parliamentary investigations over the course of seven years issues still remain and around 25 pubs a week continue to close, meaning vital community assets are lost. An average pub employs around 10 staff, which reveals the human cost of a pub closure as well as adding to the difficult overall economic situation.

On a specific point, the Save the Pub Group wishes to point out that oft quoted statistics that free of tie pubs close in greater numbers than tied pubs is both misleading and also seriously dubious. Apart from the fact that these statistics are collected by the BBPA and paid for by the pub companies (and cannot therefore be regarded as impartial) they are misleading as they do not include temporary closure and the rate of business failure for tied pubs is many many more times that what it is for free houses; dubious because of the deliberate practice of selling tied pubs to developers who only close the pub after the sale, once the pub can be declared as a "free of tie" pub even though it has only traded as such for a short time (with the closure already planned). There is considerable evidence of this. Sometimes the pub may not even open again but is offered on a free of tie basis, which means that again, when it is closed permanently (not the same thing as the doors closing) it is reported as being free of tie even though it never traded as such! This is a scandal and needs to be exposed and the CGA figures rejected accordingly,

One of the key aims of the Save the Pub group when it was established was reform of the beer tie model. The group believed then, and still does, that the model makes it impossible for some licensees to make a living and leads to pub closures. This is due to the lack of a genuine free-of-tie option along with an open market rent review.

The group believes the pub companies have failed to meet the full recommendations from previous committees and therefore a statutory code of practice is required for the industry together with an independent ombudsman, funded by the pubcos.

The group therefore believes it's now time for the government to legislate to force companies to offer a free-of-tie option with an open market rent review and a guest beer option.

June 2011



 
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Prepared 6 October 2011