1 Introduction
Introduction
1. Over the past ten years, the Business, Innovation
and Skills Committee has published a series of Reports on the
problems in the pub sector.[1]
The dominant theme in these Reports has been the relationship
between pub companies and their tenants. Each of these Reports
recommended significant reform to working and contractual practices
in the industry. Despite undertakings to do so, on each occasion
the industry failed to deliver.
The Government's undertaking to
act
2. In 2010 our predecessors gave the industry a final
opportunity to deliver meaningful reform:
Past Committee inquiries into these issues have
proved that proposals for reform mean nothing if they are not
carried through. This Report makes clear that this is the industry's
last opportunity for self-regulated reform. If it does not deliver
on its reforms by June 2011, then government intervention will
be necessary. We do not advocate such intervention at this stage,
but remain committed to a resolution to all the problems discussed
in this Report and those of the 2004 and 2009 Reports. We conclude
that if real reform is not delivered legislation to provide statutory
regulation should be recommended. Furthermore, we remain of the
view that a reference to the Competition Commission may yet be
necessary to resolve these long-standing issues.[2]
3. The Government's Response, published on 19 March
2010, endorsed the recommendations and gave the Committee a key
role in the formation of future Government policy in this area:
Government gives the industry until June 2011
to improve. If the Business, Innovation and Skills Committee concludes
by then that the Code is not working as well as it should we will
consult on putting the Code on a statutory basis with effective
enforcement. The Code of Practice should also incorporate a beer/non-beer
tie option for tenants with a commitment that the Government will
act if the industry does not. In addition the industry should
introduce voluntary provision for tenants to offer a guest beer
outside the traditional beer tie as part of the code with Government
action to introduce an order if industry fails to act.[3]
4. The 2010 General Election delivered a different
Government to the one which gave that undertaking. However, the
Secretary of State, Rt Hon Vince Cable confirmed that it would
be upheld by the Coalition Government.[4]
5. In September 2011 we reported on the progress
made by the industry. We concluded that the industry had again
fallen short of what was expected:
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.[5]
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.[6]
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.[7]
The Government's proposals for
enhanced self-Regulation
6. The Government Response was published as a Command
Paper on Thursday 24 November 2011. The main thrust of the Response
was that the Government would not introduce a statutory code,
but would act to make the existing codes legally binding. It also
asserted that the package would include a series of measures to
enhance the existing framework of self-regulation.[8]
7. In evidence to the Committee, Ed Davey MP, the
then BIS Minister with responsibility for pubs, set out the rationale
behind the Government's decision:
I personally believe that, through the self-regulatory
package we have got together, we have addressed the issues that
the Committee put to the Government, and we have been able to
do so far more quickly. We will have all the pubcos—those
that have more than 500 tenants or lessees—signed up to
have made the code legally binding by Christmas (2011). If we
had gone down the statutory intervention route, it would have
taken a long time.[9]
8. According to Mr Davey, a further reason for not
putting the Framework Code on a statutory footing lay with a Report
from the Office of Fair Trading in response to a super-complaint
by CAMRA. The OFT Report found that there were no competition
issues in the sector. He asserted that our Report contained a
"major omission" in that it did not take that Report
into account.[10] However,
as was made clear to him during the evidence session, the Committee
advocated statutory intervention not on the basis of competition
but of an inequitable relationship between the pub companies and
their lessees.[11]
9. In its Annual Report, published in 2012, the Department
highlighted pub companies as a successful area in which the Department
had found solutions to problems without the need for new regulation:
BIS worked with pub companies to strengthen an
existing code of practice rather than introduce new regulation.
The code will bring about immediate improvements in rent, insurance,
training and dilapidations. The package of measures includes a
Pubs Independent Conciliation and Arbitration Service and an independent
Pubs Advisory Service.4
10. When we asked the Secretary of State to provide
us with evidence of those "immediate improvements" he
gave a more pessimistic assessment:
We do not have any evidence, because, disappointingly,
as I understand it, that strengthened code of practice has not
yet appeared or been agreed. That is a considerable disappointment.5
He went on to state that:
As I understand it, there is a code of conduct
for the industry that is under negotiation but has not yet appeared.
That is the complaint that I have had from people representing
pubs: they were waiting to see the impact of this code of conduct
and they have not seen the impact of it yet.[12]
We reassured [the Committee] that it would be
pursued through the voluntary route. I continue to get very negative
feedback. I asked recently what progress had been made, and the
answer was, "Not very much". As it happens, I am in
the process of writing to the people involved in the code of practice
to ask what on earth is going on.[13]
11. The Secretary of State undertook to update us
once he had consulted the industry.
On 19 December 2012, he wrote to the Chair with an update[14]
and on 7 January 2013, the
Secretary of State wrote again to inform us that
he had decided to:
Consult on establishing a statutory Code and
Adjudicator to oversee the relationship between pub companies
and licensees, in line with your Committee's recommendations of
September 2010.[15]
12. Contrary to the assertion made by Mr Davey in
2011, the Executive Summary of the Consultation Document[16]
makes clear that OFT Review had no bearing on the decision to
consult:
The Government would like to be clear that this
is not a competition issue. In 2010, the Office of Fair Trading
(OFT) found that "At a national, regional and local level,
the evidence indicates that there is a large number of competing
pub outlets owned by different operators and that there is competition
and a choice between different pubs.
Given that we have found that consumers are benefiting
from a significant degree of competition and choice between pubs,
we do not consider that issues relating to the negotiation process
between pub companies and lessees can generally be expected to
result in consumer detriment."
The Government is therefore intervening not on
grounds of competition, but on grounds of fairness for tenants.
Although it is clear that the tie can be a good business model
when operated responsibly, abuse of the tie can cause serious
hardship.[17]
13. We welcome the fact that the Government is
now consulting on a Statutory Code of Practice for the pub industry.
We also welcome the fact that the Government now agrees with the
Committee that the OFT's response to the CAMRA super-complaint
is no bar to statutory intervention. Having previously agreed
to act, it is regrettable that the Government has taken over a
year to come to this decision.
1 Trade and Industry Committee, Second Report of Session
2004-05, Pub Companies, HC 128; Business and Enterprise
Committee, Seventh Report of Session 2008-09, Pub Companies,
HC 26; Business, Innovation and Skills Committee, Fifth Report
of Session 2009-10, Pub Companies: follow-up, HC 138; Business,
Innovation and Skills Committee, Eighth Report of Session 2009-10,
Pub Companies: follow-up: Government Response to the Committee's
Fifth Report of Session 2009-10, HC 503 and Business Innovation
and Skills Committee, Tenth Report of Session 2010-12, Pub
Companies, HC 1369. Back
2
HC (2009-10) 138, page 4 Back
3
HC (2009-10) 503, page 6 Back
4
Minutes of Evidence taken before the Business, Innovation and
Skills Committee, The Work of the Department for Business,
Innovation and Skills, Session 2010-12, HC 384, Q37 Back
5
HC (2010-12) 1369, para 156 Back
6
HC (2010-12) 1369, para 157 Back
7
HC (2010-12) 1369, para 158 Back
8
Government Response to the House of Commons Business, Innovation
and Skills Committee's Tenth Report of Session 2010-2012: Pub
Companies, Cm 8222 Back
9
Oral evidence taken before the Business, Innovation and Committee
on 6 December 2011, HC (2010-12) 1690-i, Q32 Back
10
Ibid., Q17 Back
11
Ibid., Q18 Back
12
Oral evidence taken before the Business, Innovation and Committee
on 30 October 2012, HC (2012-13) 702, Q118 Back
13
Oral evidence taken before the Business, Innovation and Committee
on 30 October 2012, HC (2012-13) 702, Q120 Back
14
Annex 1 Back
15
Annex 2 Back
16
www.gov.uk/government/uploads/system/uploads/attachment_data/file/193711/13-718-pub-companies-and-tenants-consultation.pdf(referred
to as the Consultation Document) Back
17
Consultation Document, paras 3.9 to 3.10 Back
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