Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence submitted by the Federation of Small Businesses (FSB)

The Federation of Small Businesses (FSB) welcomes the opportunity to respond to the above named consultation.

The FSB is the UK's leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party political, and with in excess of 200,000 members, it is also the largest organisation representing micro and small sized businesses in the UK.

Small businesses make up 99.3% of all businesses in the UK, and make a huge contribution to the UK economy. They contribute 51% of the GDP and employ 58% of the private sector workforce.

Pubs make up the heart of our communities, yet they are shutting their doors at the rate of 25 a week across Britain. This is extremely worrying given the Government's growth agenda with its small business focus, its focus on generating employment opportunities and the survival of the high street as recently highlighted by the Mary Portas Review.

The FSB represents 4,213 publicans. Around 62% are tied and 38% are untied. We are disappointed to say that, seven years on from the Committee's initial inquiry, tied tenants are still getting an unfair deal and consumer choice remains limited due to a lack of competition.

The problem with the situation as it stands is important for both consumers and small business growth. The current set-up does not enable tied tenants, who are at the same time small businesses, to compete fairly in the marketplace. Tenants are immediately put at a disadvantage by the costs of the tie, rental costs and other financial demands put upon them by their pubco. At the same time, consumers suffer as their local pubs are forced to close and they have a smaller range of beers to choose from.

Our response is focused on the full results of a survey of our publican members undertaken earlier this year. It complements the submission to this inquiry from the Independent Pub Confederation (IPC), of which the FSB is proud to be a founder member and those of the IPC's members. Other members are: the Association of Licensed Multiple Retailers, the Guild of Master Victuallers, the Fair Pint Campaign, Justice for Licensees, Unite the Union, the Campaign for Real Ale and the Society of Independent Brewers. The FSB fully supports the IPC's Charter.

Our evidence speaks for itself. We consistently remain of the view that a statutory code of practice written by an independent body must now be put in place, which: provides tied tenants with the option to become free of the tie; an open market rent review; and an option for selling a guest beer for those who choose to stay tied. An independent ombudsman must also be established to monitor compliance with the code.

It is imperative that action is now taken by Government to resolve the situation.

As one respondent to our survey said:

"Like many tied tenants I would like the opportunity to go free of tie and shop around for the best deals for myself and my customers. I believe that given this freedom I would be in a position where I could shop around for the best deals allowing me to be more competitive. The pub companies seem to want the best of both worlds by restricting our purchases like we own a franchise, whilst expecting us to maintain their properties and run the rest of our business like an independent."

We trust that you will find our comments helpful and that they will be taken into consideration.

20 June 2011

SUBMISSION

1.  The FSB surveyed its publican members earlier this year.[25] The survey was undertaken in anticipation of the Committee's inquiry. Topline results were used in recent media work and also as part of our evidence to the All Party Save the Pub Group in June this year.

2.  53% of respondents were leased or tenanted tied pubs, 11% were leased or tenanted free of tie pubs and 37% were freehold. 26% had been tied for over 10 years. 37% are tied for beer only, 18% are tied for beer, wine, spirits and soft drinks including minerals, with nearly 30% being tied for either of the above plus Amusement with Prizes (AWP) machines.

Overview of the tie

3.  When asked the question: Do you feel that your pubco tie arrangement enables you to compete effectively in the marketplace? 84% of the FSB's tied publican membership responded in the negative. A slightly higher proportion (90%) do not feel that their pubco tie arrangement allows them to make a fair profit, with nearly 95% indicating that they would like the opportunity to shop around for better beer prices. Furthermore, 87% indicated that they would like to be free of the tie.

4.  These figures are consistent with previous surveys undertaken by the FSB. They reinforce our view that very little progress has been made and that tied tenants are operating on an uneven playing field vis-a-vis their non-tied peers. As stated in our covering letter, this also impacts on consumer choice.

Code of Practice

5.  The FSB survey specifically asked questions in relation to the development of the British Beer and Pub Association's (BBPA) new Framework Code and its interpretation by the pubcos when developing their company codes.

6.  Our survey clearly shows that the spirit and sentiment of the Code as envisaged by the Committee has not been adopted by the BBPA, its pubco membership, or the British Institute of Innkeeping who have responsibility for accrediting the code. Nearly 70% of tied tenants responding to our survey indicated that they had received (between October 2010 and March 2011) a copy of their pubco's code of practice. Yet only 62% indicated that they had signed up to the code. Perhaps more importantly exactly half thought that the code of practice they received was intended to be legally binding for both tenant and pubco, yet only 19% were advised to take legal advice before signing. Nearly 31% did not know whether the code they received was intended to be legally binding or not.

7.  These statistics suggest an acute lack of transparency and honesty in the process. Future problems would be avoided if, as outlined above, the Framework Code were put onto a statutory footing, clarifying the situation for all parties and allowing independent scrutiny.

8.  The problems experienced by small businesses with the new codes became evident when we asked the question: Is your companies' new code of conduct likely to improve the business partnership between yourself and your pub company? In response nearly 70% said "no". The FSB is of the view that this statistic alone is strong enough to show that the system in place is not working and that reform is required.

Flow measurement

9.  Our survey indicated that 83% of tied members used Brulines to measure flow. The FSB is of the view that there remain problems with the way flow is measured and monitored.

10.  Comments surrounding the installation of flow monitoring equipment included:

—  (A)  "Frequently seems to give the wrong readings, stating I am buying beer out of tie, when I don't."

—  (B)  "Not accurate enough and I have to wait nearly 14 days for information to be updated. Hardly a tool I can use. The Pubco have access to the information almost immediately."

—  (C)  "Beer flow monitors do not distinguish between water and froth."

The FSB is concerned that pubcos are threatening to penalise tenants for buying beer outside of their tie when they are not, by writing the use of flow monitoring equipment into their codes of practice.

Rent

11.  41% of members estimated that rental costs were between 10% and 15% of their turnover. 22% indicated that they were between 15% and 20% of their turnover. Perhaps most importantly nearly 40% said that rental costs were not lower than non-tied pubs in their area (50% of respondents did not know the answer). The FSB concludes from these statistics that higher rental costs are prohibiting tied tenants from operating in a fair and competitive market place.

Competition

12.  The FSB is of the view that the competition regime to date has not been as favourable to small businesses as it appears to be to big businesses. We especially feel that the Office of Fair Trading (OFT) has not been sufficiently effective in enabling consumers to benefit from the small business market.

Over the last year, the FSB has been disappointed that some competition issues have not been addressed, to the detriment of the consumer. There is a perception amongst the small business community that whilst consumers are receiving a good level of choice overall, they could be receiving an excellent level of choice—potentially at a lower price—if small business concerns were addressed. The OFT's response to the super-complaint from the Campaign for Real Ale (CAMRA) on the beer tie notably neglected to address this.

13.  Government is consulting on a proposal to merge the competition functions of the OFT and the Competition Commission. This is welcome however the new body must have a dedicated unit looking at the issues affecting small businesses.

14.  As we said in our response to the recent Government consultation on A Competition Regime for Growth: Consultation on options for Reform, we welcome in principle the Government's proposal to extend the super-complaint system to SME bodies. We feel that this would be an excellent opportunity for issues affecting small businesses, such as the beer tie to be thoroughly investigated.

Supermarkets

15.  Whilst not directly relevant to the Committee's inquiry, we feel it is useful here to highlight the impact of supermarkets on pubs. Our survey asked tied, free of tie and freehold pubs about the impact of the off-trade on pubs. 77% indicated that this had a negative impact upon their business in the past two years.

16.  It is also worth mentioning here that 84% of all publicans said that VAT and Duty had had a negative impact upon their business in the past two years.

Conclusion

17.  As indicated above, the evidence given in this response is not exclusive and will complement that provided by the IPC and its members.

18.  In March 2010, the Business, Innovation and Skills Committee stated that this was the last opportunity for self-regulated reform. It said that if industry could not deliver by June 2011, then Government intervention would be necessary. The previous Government accepted that it would take action if problems remained. The current Secretary of State for Business, Innovation and Skills, Vince Cable confirmed to the Committee in July 2010 that if a satisfactory arrangement had not been delivered, then there would have to be legislative action.

19.  The FSB has been involved in the process since the beginning. Our evidence has been regular and constant since 2004 stating that little progress has been made.

20.  We do not believe that significant improvement is likely via a voluntary mechanism. Therefore, the only solution would be the immediate implementation of a statutory code of practice written by an independent body, which: provides tied tenants with the option to become free of the tie; an open market rent review; and an option for selling a guest beer for those who choose to stay tied. An independent ombudsman must also be established to monitor compliance with the code.



25   The FSB surveyed 163 pub owners from 7 February to 21 March 2011 and received 74 responses. Back


 
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