Annex 2: Letter from the Secretary of
State, 7 January 2013
Following my letter of 19 December 2012, I am writing
to inform you that, following the recent call for evidence. I
have 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 2011.
I recognise that over the few past years, there have
been serious concerns surrounding the pubs industry, particularly
focusing on the relationship between large pub companies and their
licensees. The self regulatory approach, which was announced by
the Government in November 2011, has not been sufficiently far-reaching
and does not appear to have engendered the culture change that
is required, with many individual publicans continuing to face
significant hardships and difficulties. Therefore, further government
action is required in order to maintain a level playing field
in the business environment.
Although many pub companies behave well, the evidence
I have received makes it clear that in too many cases licensees
are being exploited and squeezed, through a combination of unfair
practices, lack of transparency and a focus on short-termism at
the expense of the long-term sustainability of the sector. This
behaviour, especially alongside the many other challenges facing
the sector, risks damaging the British pub industry, which not
only consists of small businesses employing hundreds of thousands
of people across the country but also contributes substantially
to community spirit and cohesion.
After considering the various options, I have therefore
decided to consult on establishing a Statutory Code and an independent
Adjudicator for the pubs sector to govern the relationship between
large pub companies and their licensees. I intend to publish the
formal consultation in spring; however, I will outline the broad
framework of the proposed policy below.
The proposed Code will be based on the existing Industry
Framework Code, but it will be strengthened to include both an
overarching fair dealing provision and also the fundamental principle
that 'a tied licensee should be no worse off than a free-of-tie-licensee.'
This will have particular significance with regards to rents,
as the consultation will propose that guidance issued by the Royal
Institute of Chartered Surveyors must be interpreted in the light
of that principle. This will help protect small businesses—the
many thousands of publicans across the country—who may currently
be disadvantaged.
The proposed Adjudicator will be based on the model
of the widely-welcomed Groceries Code Adjudicator, and will have
the power and function to:
- arbitrate individual disputes
between large pub companies and their licensees, including about
whether or not a rent review has genuinely been conducted on an
'open market' basis, in accordance with the new statutory Code;
- carry out investigations based on complaints
that have been received, and have wide-ranging powers to require
information from pub companies during an investigation;
- where an investigation finds that a pub company
has breached the Code, impose sanctions—including, in the
case of severe breaches, financial penalties—on that company;
- Publish guidance on when and how investigations
will proceed and how these enforcement powers will be used;
- Advise pub companies and licensees on the Code;
- Report annually on his or her work;
- Recommend changes to the Code.
In order to place the most proportionate burden on
business, I currently consider that it would be most appropriate
for this new regulatory regime should apply to all pub companies
with a tied estate of more than 500 tied leases, thereby targeting
the companies with the greatest market power and exempting smaller
companies, about whom very few complaints have been received and
who, from the evidence received thus far, are widely recognised
as behaving responsibly. I am therefore intending to consult on
that basis.
I would also like to be clear that I am not proposing
to abolish the beer tie. The evidence strongly suggests that the
tie, per se, is not the issue: when operated as envisaged and
fairly, it is a valid business model being used responsibly by
companies both large and small and, were it to be removed, the
British brewing industry could be significantly disadvantaged.
What is clear is that it is the abuse of the tie, like the abuse
of rent calculations and other factors, that is causing problems
in certain circumstances. Accordingly, the Government's proposals
would address abuses of the tie, through enshrining the principle
that 'a tied licensee should be no worse off than a free of tie
licensee' in the Code, whilst not impinging on the business practices
of companies that are using the tie responsibly. The challenge
is to do this and we will be consulting on how to do this.
I trust that you and your Committee will welcome
these proposals which have the potential to make a significant
difference for publicans, the pub industry and community pubs
all over the country. I would like to thank you for the pivotal
contribution you and your Committee have made to the development
of this policy and look forward to receiving your input into the
coming consultation.
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