Small Business, Enterprise and Employment Bill
The Committee consisted of the following Members:
Fergus Reid, Committee Clerk
† attended the Committee
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson): It is a pleasure to serve under your chairmanship, Mr Robertson. I am delighted that we now come to the issue of pub companies, about which there has been much discussion in Parliament over the past 10 years, particularly by the Business, Innovation and Skills Committee.
Clause 35 is very straightforward. It establishes a pubs code adjudicator and introduces schedule 1, which sets out the detail of these arrangements. Committee members will be well aware of the history of this. There have been four investigations by the Business, Innovation and Skills Committee into the relationship between pub-owning businesses and their tenants, and whether the tied model is at the root of unfairness in that relationship. The Government continue to receive a large amount of correspondence from tenants about problems in their relationship with their pub-owning business, as well as from many Members writing on behalf of their constituents.
I pay tribute to the many individuals who have campaigned, argued and worked tirelessly for many years—both within the House and outside it—for a statutory pubs code enforced by an independent pubs code adjudicator. In particular, the Business, Innovation and Skills Committee and the all-party Save the Pub group have done crucial work to raise awareness over the years. The extensive evidence presented to that Committee contributed to the cumulative evidence base that led the Government to consult last year on the establishment of a statutory code enforced by an independent adjudicator. The Committee has since welcomed our proposals.
Establishing the adjudicator is the purpose of the clause and its accompanying schedule. The adjudicator will enforce the statutory code that we will come to in clause 36. These measures represent a significant step for the sector. They are a proportionate and targeted response to the long-standing problems in the pub industry. For the first time, tied tenants will have a statutory code that they can rely on, with an independent adjudicator to enforce it who has real sanctions at their disposal. Schedule 1 deals with the adjudicator’s status, appointment and other procedural matters, as well as the adjudicator’s information powers and amendments to legislation.
The adjudicator will be a corporation sole who carries out functions on behalf of the Crown. This means that they can act formally as an office holder rather than an individual when entering into contracts and when suing or being sued. There should therefore be continuity when there is a change in the individual who happens to hold the office at any given time. The adjudicator will be appointed by the Secretary of State, who may also appoint a deputy adjudicator. The adjudicator may be appointed for up to four years initially and may have a further one or two terms of up to three years each. The Secretary of State may dismiss an adjudicator if they are satisfied that the adjudicator is unable, unwilling or unfit to perform their functions. The Secretary of State will determine the adjudicator’s eligibility for remuneration and related allowances, as well as the amounts of those payments. The adjudicator will be able to recruit and appoint secondees from the public sector and pay their remuneration.
Paragraphs 10 and 11 of the schedule deal with conflicts of interest. I appreciate that this issue will be covered in our debate on later amendments. The adjudicator has wide-ranging functions within the pubs sector, including providing advice and guidance as well as arbitrating and investigating. It is therefore important that we prepare for potential conflicts of interest. The adjudicator will be required to publish their arrangements for avoiding conflicts of interest, and they may require the Secretary of State to appoint an acting deputy if both the adjudicator and their deputy are unable to act due to a conflict of interest.
As clause 39(6) already enables a different person to be appointed as an arbitrator, that would be more likely for an investigation. We think it will be quite unusual for that to be needed but it is important to have the provision. The adjudicator will be required to keep proper accounts and related records, and to send an annual statement of accounts to the Secretary of State and to the Comptroller and Auditor General for certification. The Secretary of State must lay before Parliament the certified statement and the Comptroller and Auditor General’s report on it.
Jo Swinson: Paragraph 18 of part 1 of the schedule creates an exemption from liability for damages when actions are taken or omitted in the exercise or purported exercise of the functions of the adjudicator, deputy adjudicator, acting deputy adjudicator or adjudicator’s staff. Of course, sub-paragraph (2) places a limitation on this, specifying that it does not apply if the act or omission is in bad faith, or if the award of damages is made because the act or omission was unlawful because it was incompatible with a convention right as defined in the Human Rights Act.
Part 2 of the schedule is concerned with a core function of the adjudicator: to investigate potential breaches of the pubs code. To do this effectively, the adjudicator must have robust powers to require information, which are provided in part 2. The exercise of these powers is clearly limited to information that the adjudicator requires for the purposes of an investigation; to monitor whether a previous recommendation has been followed; or which relates to the provision of parallel rent assessments
Part 3 of schedule 1 makes amendments to other legislation to reflect the introduction of the adjudicator. These will ensure that the adjudicator is open to investigation under the Parliamentary Commissioner Act 1967; that anyone holding the post of adjudicator or deputy adjudicator is disqualified from membership of the House of Commons; and that the adjudicator is subject to freedom of information requests.
There is clearly a great deal of cross-party agreement that an adjudicator should be established. Clause 35 is absolutely essential to achieving that. Schedule 1 sets out the details of how the adjudicator will function, and deals with a variety of important details involved with the carrying out of the adjudicator’s functions. I know that we will discuss many aspects of this while dealing with today’s amendments.
Toby Perkins (Chesterfield) (Lab): It is with great pleasure that I robustly support clause 35 today. At the start of this important series of clauses, it is worth taking a moment to consider the really significant step that the Bill and the Government are taking today. Many new institutions and legislative changes seem like a huge step when they are introduced, but several years later we may find it hard to believe that we ever did not have them. I suspect that a pubs code is one such case. It is a momentous day for many people who, in all kinds of different ways, are involved in our pub industry and have its best interests at heart—those who have been calling for an adjudicator, as proposed in clause 35, and those who have taken a different view over the course of the legislation and might choose that it did rather less. I hope we get the opportunity to debate those issues today. As I say, this is an historic day—a day that we will look back on in one way or another for many years to come, reflecting on what we did that day. Hopefully, we will do so with pride and with a sense that what we achieved has made a real difference.
Today is not only a victorious day or a day of real pleasure for the Opposition. How often are measures that the Opposition have been demanding for 30 months, and which have been resisted at every turn by the Government, turned into legislation that is brought forward by the Government? I took a moment yesterday evening to visit the estimable website theyworkforyou and carry out a search for my own speeches, which I think may be one of the main functions of the website. I suggest that they change the name to “I Work for You”. I searched my own speeches to see how many times over the course of this Parliament I had used the words “pub companies” or “pubs” in speeches, questions and other parliamentary interventions. I discovered 39 different occasions in which I had raised the subject of pub companies and 62 separate debates or questions in which I had raised the issue of pubs.
As the Minister was absolutely right to acknowledge, it is a special day not just for Her Majesty’s Opposition but, much more importantly, for Parliament. This is an issue that has united much of the House throughout those 30 months. It is Parliament, through the Business, Innovation and Skills Committee, that has been pushing this course, not just for 30 months but for between five and 10 years.
Andrew Griffiths (Burton) (Con): I absolutely agree with the hon. Gentleman that this is a momentous day. Will he join me in praising the coalition Government for being the first Government ever to bring forward a statutory code and regulation to protect tenants and the pub trade?
Toby Perkins: I will to an extent, but anyone who listened to that contribution might believe that the hon. Gentleman was not, through much of those 30 months, the person standing in front of the truck trying to stop this legislation from happening. If he is suggesting that he is now on board and believes that this is a really positive step for the industry, then that is a damascene conversion. If the Government have managed to get the hon. Gentleman on side, the coalition has achieved more than anyone could have imagined.
Toby Perkins: Indeed, but judging by some of the amendments the hon. Gentleman has proposed—he has his name signed to a significant number—he would like to reduce the impact of the code. I look forward to hearing his contribution with great interest.
It is important to remind ourselves of the history of the clause and how we got here. The BIS Committee reported on this in 2004, 2009, 2010 and 2011. The 2004 report identified many problems with the industry. Some of its headings were very interesting. It looked at the
No debate on the impact of pub companies can ever overlook the impact of previous legislation on beer orders. I know that the hon. Member for Burton has referred to that in the past. The contents also included the complaint from the Federation of Small Businesses, which is not an organisation that, in general terms, calls for more regulation. However, in this case it spoke up for its members and said that the relationship had to be on a fair basis; if the industry was not capable of doing that, it said, Government regulation might be something that would have to be considered.
so right back in 2004 many of the issues that we will debate today and which have been debated in recent years were identified as significant issues. Finally, under the conclusion section, the BIS Committee wrote:
“At this stage we do not think a legally binding code of practice necessary, but if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it.”
“the results of our survey are disturbing. We recognise that landlords are rarely, if ever, popular with their lessees, but the results are often startlingly clear, this combined with the evidence submitted to the inquiry, suggests that, the imbalance of bargaining power and information between pubcos and their lessees has produced a system which is biased against lessees, and needs to be examined in depth.”
“The FSB carried out a survey of its members, following the call for evidence by the Committee, and found that 99% of the 156 members who responded felt their situation in relation to their pubco had not improved since 2004.”
“It may be that the beer tie should be prohibited. The OFT has failed to examine this market properly; the Government should now assume responsibility, to ensure both that competition issues are properly investigated and that the wider legal framework is adequate.”
“Our most recent Report set a June 2011 deadline for the industry—a year after the codes are due to be implemented—to prove that it has delivered on its proposals for reform and to demonstrate that those reforms are working effectively. That deadline has now also been taken up by the Government. In its Response the Government makes the following commitment: ‘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.’”
“We are grateful to the Government for its acknowledgement of the central role that we have played in driving forward reform of the industry. This commitment sends to the pub industry an unambiguous message that, should our successor Committee not be satisfied with the industry’s measures in 2011, the Government will not hesitate to intervene.”
So let us be absolutely clear about two things. Between 2004 and 2010, the Select Committee never, at any point, reached the conclusion that the time for statutory regulation had been reached, but a clear commitment was in place that left the Select Committee in the position of arbiters of the progress being made by the industry and a commitment by the then Government to regulate if the industry did not get its house in order by June 2011.
On assuming office in 2010, the Secretary of State confirmed to the BIS Committee that he would abide by the policy position taken by the previous Government. The BIS Committee’s September 2011 report concluded:
“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.”
“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.”
So—this is very important in understanding the history of the issue—it was only in that September 2011 report, which was seven years after the first inquiry, that the Select Committee finally reached the conclusion that a statutory code was needed. From that moment on, Parliament and Her Majesty’s Opposition have been at some pains to get the Government to deliver on that promise, but let nobody suggest that Parliament has not attempted everything in its power to prevent having to regulate within the industry or that it has rushed to judgment.
However, despite Parliament’s patience on the issue and the expectation that the September 2011 report—more than three years ago—would be the call to action required, the fight was not over. We had interminable vacillation and procrastination from the right hon. Member for Kingston and Surbiton (Mr Davey) when he was in the role now held by the hon. Member for East Dunbartonshire, which reached its nadir in the 2012 Back-Bench debate, in which he attempted to argue, in the face of overwhelming evidence to the contrary, that his voluntary code was delivering on the Government’s commitment. That debate was important, because it took place in the days before the Government came to the conclusion that they can lose Back-Bench debates and ignore the motions.
“That this House believes that the Department for Business, Innovation and Skills’ proposals for reform of the pub industry fall short of the undertaking given to the Business, Innovation and Skills Committee in July 2010 and that only a statutory code of practice which includes a free-of-tie option with an open market rent review and an independent adjudicator will resolve the contractual problems between the pub companies and their lessees; and calls on the Government to commission a review of self-regulation of the pub industry in the Autumn of 2012 to be conducted by an independent body approved by the Business, Innovation and Skills Committee.”—[Official Report, 12 January 2012; Vol. 538, c. 400.]
That was in response to the voluntary process set up by the Government. It put clearly on the record the view of this House that the Government’s proposed measures
We then had the brief tenure of the hon. Member for North West Norfolk (Mr Bellingham), although I do not think his heart was ever really in it. But at every stage, we have felt that unless we pushed this issue, nothing would happen. The Government announcement of a review of the success of the voluntary code came just a couple of days before the Secretary of State was due to come to the House to answer questions on it. The January 2013 announcement that the Government had concluded that voluntary regulation had not worked, and that the code needed to be put on a statutory footing, was rushed out the very day before an Opposition day debate on the subject, and there was no sign of any plans in the 2013 Queen’s Speech. In January 2014—four months after we expected a response to the BIS consultation—the Labour party secured another Opposition day debate to push for a response. Finally, here we are in October 2014 with the Bill before us, imperfect though it may be—it may expect too much of the family brewers and too little of the pub companies—but it is here, and it is an historic day and we should celebrate it.
Andrew Griffiths: I have been listening with interest to the hon. Gentleman’s welcome for the Bill and his allusion to the Opposition’s constant pushing on the statutory code and regulation. He mentioned the BIS Committee, which has published reports on this subject for some 10 years, but will he enlighten the Committee about why his party, when it was in government, did not introduce regulations or legislation on this issue?
Toby Perkins: I am somewhat disappointed with the hon. Gentleman. My speech answered that question, so I am surprised he felt the need to ask it. The case that I have been making is that the BIS Committee and the previous Government took a variety of steps to say, “There is a significant issue. The Government do not want to rush into regulating this industry differently from all other industries unless there is no alternative, but the industry must understand that the BIS Committee and the Government take the matter seriously, and that if steps are not put in place to deliver on these principles, the Government will legislate.” Precisely because there was a desire not to rush to judgment, the BIS Committee made every effort in 2004, 2009 and 2010 to find alternative ways of resolving this issue. The BIS Committee first called for statutory regulation only in September 2011, which was the moment at which the Labour party made that our position.
The previous Government rightly did everything in their power to work with the industry to keep things on a voluntary footing, but, eventually, they came to the conclusion that enough is enough. The damage that the pubco model was doing to the industry was so significant that the unprecedented step of regulating this industry, as opposed to many others, was taken.
The huge majority of responsible pub-owning companies will bitterly regret that the various Select Committee reports and stays of execution given the industry regarding a statutory code were never enough to deliver the fairness that the House agreed was needed. I am bound to say that if the industry and its representative body, with the support of the hon. Member for Burton, had not worked so hard to close ranks to protect those whose practices
Sheryll Murray (South East Cornwall) (Con): Does the hon. Gentleman agree that there is a clear distinction between the small family brewers that have tenants and the six large pub companies? Does he also agree that we need to differentiate between the different sectors of pub-owning companies?
Toby Perkins: I agree absolutely. The hon. Lady will be aware of the amendments we have tabled to increase that distinction. The code as laid out does create that distinction, but in our view, which I suspect the Committee shares, the different expectations on the family brewers, some of which are quite large, and the pub companies are such that it is too narrow and additional steps should be taken. I will not pursue that point further, because we are to have that debate shortly, but we absolutely agree with the central premise raised by the hon. Lady.
If that distinction had been drawn a little more powerfully in the past, we might have avoided the industry closing ranks to such an extent, even though in private many of the small family brewers would admit that the way certain major companies were operating was not in the best interests of the industry. If people had spoken out more powerfully on the difference between those models, rather than trying to encourage Government to look in the other direction, we might not have arrived at the point we are today.
Let us not forget that CAMRA’s research, which powerfully underlines the hon. Lady’s point, indicates that the majority of pubco licensees earn less than £10,000 a year, compared with just 25% of free-of-tie lessees. That is very relevant during a cost of living crisis, when the pressure on wages exercises all of us in the political sphere.
Last year I carried out a survey of every pub in my constituency, regrettably by post rather than in person. The results backed up the national evidence that tied pubs are struggling: 57% of tied pubs that responded to the Chesterfield pub survey cited pubcos increasing the price of beer disproportionately to the cost as one of the most serious negative influences on their businesses; 43% claimed to have sought a renegotiation of the terms of the tenancy agreement; and 96% had seen a drop in profits during the past year. Crucially, tied and managed pubs saw their profits drop to a greater degree than free houses.
Doing nothing is not an option and I welcome the historic step that the Government are taking. Ensuring that tied licensees are just as able to earn a good living if they run their pub with vision, endeavour and enterprise as their non-tied equivalents is an important commitment for this House to support. Today will be a transformational day for this vital industry, which so many of us feel so passionately about, if we get this legislation right. That is what we all want.
I hope that all hon. Members will ensure, on behalf of the hundreds who sit at home having been bankrupted by a business model that worked against them and knowing that this legislation came too late for them, that the Committee will honour its debt to them. We
Jo Swinson: I welcome the Opposition’s welcome for the measures. MPs of all parties have campaigned hard for these changes, and I am glad that the hon. Gentleman recognised that it is to the Government’s credit that we have brought forward these proposals. I note that it prompted our Whip to remark, “This is the best speech to date.” That is one way to get praise and approval. We were all intrigued by the hon. Gentleman’s search for himself on TheyWorkForYou.com. This self-searching for terms on online tools seems to be a habit for Opposition Members, after the infamous Ed Balls on Twitter. None the less, the hon. Gentleman makes an important point about the history of these discussions.
The hon. Gentleman made the important point that this subject has been well debated by the House and set out the history over many years. There has been some to-ing and fro-ing over the precise point at which legislation could have been introduced, but the important thing is that we now have legislation which we can all support to provide some much needed protection for pub tenants. He said that it is a good day for Parliament; I argue that it is a very good day for pub tenants in constituencies up and down the country.
“(2A) The adjudicator must not—
(a) be an employee of a large pub-owning business as defined in section 60 of this Act,
(b) be a shareholder of a large pub-owning business as defined in section 60 of this Act,
(c) have been an employee of a large pub-owning business, as defined in section 60 of this Act within the twelve month period prior to the commencement of their appointment as Adjudicator.”
(c) the basis and reasoning behind the decision to impose a penalty.”
Toby Perkins: Amendments 195 and 196 are very important. The principle of a pubs code now appears to be accepted—on Second Reading it was hard to find anyone who disagreed with the introduction of a pubs code; even the hon. Member for Burton welcomed it. However, it was also very clear that there was considerable debate still to be had about exactly what the code should include. Schedule 1, which deals with the creation of the adjudicator, is a very important part of that debate.
One of the reasons we are supporting a statutory code today is that, in many cases, landlords’ faith in the self-regulatory model has completely broken down, so that even those landlords with legitimate grievances and complaints are reluctant to bring them forward through the proper channels, or by the time they do so it is too late for them to have any hope of saving their business. Interestingly, the very first people to report to the voluntarily created adjudicator won their case but lost the pub. The financial damage that they had suffered in the period leading up to the adjudication was so great that the business was not able to survive, even though they had their day before the adjudicator and actually won their case. The new statutory code must overcome those problems and recognise that licensees should not be punished for honest mistakes.
The concern that led me to table amendments 195 and 196 is to remove any disincentive for tenants to file complaints against the pub company or landlord that owns their pub. Amendment 196 addresses who should be the adjudicator, and amendment 195 would remove the words “without merit” from clause 50. We are worried that those words will create a situation in which tenants are disinclined to pursue adjudication. As drafted, the adjudicator can pass on the costs of an investigation to an individual landlord or licensee, if they deem that a complaint is vexatious or without merit. Obviously, if the adjudicator finds that a claim is vexatious, or if the adjudicator finds positive evidence that a complaint was caused by a grudge against the landlord, people would not want the adjudicator to be used in that way.
Unlikely as it seems, if people were to bring vexatious claims, I am willing to accept that the costs may be attached to those people. But if we also include claims that the adjudicator finds are without merit—going right back to the evidence that we heard in 2004, this debate has been about tenants often having tremendously less information about their own circumstances than is held by the pub companies—and given that tenants have a real lack of clarity on what is a fair rent or a fair beer price, having a clause that says, “We can charge you if we consider that your claim is without merit,” is
Amendment 195 would simply remove the term “without merit”. In no way do I want to support people who are making mendacious complaints, but where people are making an honest complaint in good faith on which the adjudicator, after looking at the figures, sides with the landlord and finds that there is no merit in the case, I think that saying, “In those circumstances, you can be charged,” would have the opposite effect to what the Minister intends.
Although amendment 195 would remove “without merit” from clause 50, amendments 62 and 64, which were tabled by the hon. Member for Burton, would go even further and increase the number of cases in which a tenant may be charged for the cost of a hearing. He believes that the tenant should be charged if their case was unsubstantiated, which is very concerning.
Andy McDonald (Middlesbrough) (Lab): There is a principle running through all our legal environments that penalties can apply where someone conducts themselves in a vexatious or pernicious way. However, that principle does not extend to the civil or employment tribunal arena, where people are necessarily non-meritorious if their claims fail because they did not win the battle on its merits. It would be entirely wrong for them to be punished further with adverse costs orders. Does my hon. Friend agree?
Toby Perkins: My hon. Friend speaks with great knowledge of the subject. He is, of course, entirely right. Let us think about what the hon. Member for Burton proposes with his amendment. Tenants who go in front of the adjudicator and challenge their relationship with their landlord are often at a desperate point in their business cycle or at their wits’ end. They will have to worry about whether that will further damage their relationship with a landlord on whom they are often dependent. For them to take that step and then be told, “Not only could you potentially be paying the costs if the case is found to be without merit, but you could be hit with the costs even if it is unsubstantiated,” would be a very damaging principle in their circumstances. It would be introduced by a Government who have been responsible for a number of damaging principles when it comes to people’s legal rights to take action.
Andy McDonald: Given that so many of these landlords earn the equivalent of less than the minimum wage, that sort of fear and prohibition would completely block them in any attempt to seek redress. Would my hon. Friend agree?
Toby Perkins: I absolutely would. This is far too broad a term. It could lead to the adjudicator falling back on the victim who made the complaint when they are not able to gather enough evidence for proof beyond
Ian Murray (Edinburgh South) (Lab): My hon. Friend mentioned this Government’s track record on access to justice. We have seen with employment tribunal fees that the number of people taking legitimate cases to employment tribunals has dropped by 80%. The danger is that we create a strong adjudicator but make it completely toothless, because no one will use the service.
Toby Perkins: Absolutely. If Mr Robertson will allow it, I would like to pursue that argument at greater length. None of us in this place want vexatious claims to be brought against either pub-owning companies or employers. However, setting out to prevent claims and prevent people from seeking justice would be an odd position for a Government with any pretence of introducing socially just measures to take.
Amendment 195 would still offer pub-owning companies the protection that, in the event of vexatious claims, there would be an opportunity to offer costs, but would remove the phrase “without merit” that might result in many tenants not taking the opportunity to use the adjudicator.
There is currently an adjudicator—the Pubs Independent Conciliation and Arbitration Service—set up on a voluntary basis by the industry under the changes that the Government made in 2011. PICAS has had nine cases in the past year, at a time when around 30 pubs a week are closing and many pub company tenants, in response to our survey, suggest that the pub company is the reason that they have been unable to make their business succeed. That shows that having too much expectation that people who are in desperate straits will go to the adjudicator in the first place is probably unrealistic, so for the Bill to put in place measures that would further discourage people is a step too far. I hope that the Government will support that minor amendment, which leaves in place the safeguard that they want to create, but prevents there being an added disincentive for desperate tenants to go to the adjudicator.
The question on amendment 196 is very significant. No one would expect the chief executive of EDF to chair Ofgem, and no one would expect the chairman of Severn Trent Water to run Ofwat. The principle that those subject to statutory regulation should not be in charge of that regulation is clear. However, the Bill currently contains no provisions to prevent a senior pubco employee, a placeman who was previously at one of the big pub companies, or a pub company shareholder from becoming the new adjudicator.
We need a system that has the confidence of individual licensees up and down the land, which is why the new statutory code is being brought forward in the first place. To ensure that there are no misunderstandings or
One reason that some licensees do not have the faith in PICAS that we had hoped they would, is that its chair was recruited from the ranks of the pubcos and their lobby body, the British Beer and Pub Association. For too long the pubcos have held sway over how they are regulated; in January 2012, a freedom of information request tabled by the all-party parliamentary Save the Pub group even revealed that some of the Government’s response to a BIS Committee report on pubco regulation was written by the pubcos themselves. So the Government are sat there, apparently as neutral arbiter, cutting and pasting evidence from the pub companies and putting it out as though it was their view.
in the previous 12 months; that is entirely sensible. The amendment may well fit absolutely with what the Government were thinking they would put in secondary legislation on the conflict of interest clause, but if it was in the primary legislation, people would have a great deal more confidence in it.
Finally, I turn to amendment 63, tabled by the hon. Member for Burton, which would give pubcos the right to challenge the entire basis on which the adjudicator comes to a decision. We believe that would be incompatible with the very purpose of having a statutory regulator as imposed by the Bill. The rights of the adjudicator to make such decisions are clearly set out elsewhere in the Bill so we are unclear how the amendment can work alongside the rest of part 4. I look forward to hearing what he has to say. If he is attempting to weaken the Bill at every turn, people—even those who might agree with some of the principles he is outlining—will question why, and might come to the conclusion that he is attempting to undermine the capacity and ability of the Bill to deliver on the principles that the Government have set out.
I am delighted to welcome the Bill and support its aims. It is to the credit of everyone concerned that, for the first time, we have a statutory code that will give confidence to tenants and, I hope, give certainty to businesses involved in this industry. This is a hugely important industry, not just for our communities—for the community pubs where people drink, enjoy a pint, socialise and have all the social benefits that come from the pub—but for the economic benefits that come from
I do not wish to take up too much of the Committee’s time on this. I want to clarify to the hon. Member for Chesterfield that I absolutely want this to work. I want the Bill and the adjudicator to be a success. I want the statutory code to work for the businesses and for the tenants concerned. However, to do that we have to have a system that can cope with and is reactive to the needs of the companies and the tenants. Given that the Bill has had a gestation period longer than an elephant’s, it is a disappointment that the draft code has still not been published. It is a disappointment that we do not have as much information as we would like. A great deal of uncertainty still remains, not about the broad aims and thrust of the Bill, but about the detail: how it will work in practice, the impact that it will have on pubs, and the impact that it will have on the businesses in this industry.
It is for that reason I have tabled a number of amendments: to try to tease out the Minister’s intention, the Government’s intention and what the code and the adjudicator will look like when they are completed. I strongly believe that we need to get this in place as soon as possible. I do not wish to delay it or postpone it; I want to see it up and running. However, I also want certainty. I do not think that we need to make this any more of a political football than it has already become. I tabled my amendments because I have great concerns about the adjudicator’s ability to cope with the potential number of cases that it might have to deal with. I do not want it to collapse under the sheer work load of cases put before it.
The hon. Gentleman alluded to the issue of family law and the changes that the Government have made. There has been a thread running through all the Government’s approaches to these kinds of disputes that we want to do all we can to avoid getting to the point of an expensive legislation—an expensive government—option. I am concerned that, as the legislation currently stands, it is all too easy to reach for the adjudicator as the first option rather than the last option in resolving a dispute.
Toby Perkins: As I said previously, the hon. Gentleman will be aware that for much of this debate it has been his view that voluntary regulation was basically working and should be given more time, and that it was effectively a dark day if the Government brought in a pubs code. Perhaps he could clarify whether he is still of the view that voluntary regulation is working and it is a mistake to put this on a statutory footing, or whether he now thinks that statutory regulation is a good idea.
Andrew Griffiths: Thank you for that very sound advice, Mr Robertson. I am sorry that the hon. Member for Chesterfield must have missed my speech when the conclusion to the consultation was announced, and he obviously cannot have been present on Second Reading when I made a contribution. It was an invaluable contribution, and I will send the hon. Gentleman a
I was convinced of the argument that a statutory code would draw a line under that, and give some certainty to the businesses and some protection to the tenants. That would prevent what we have seen taking place in Committee Rooms such as this throughout Parliament for 10 years or more. That is a debilitating debate where pub companies and tenants are more focused on arguing the toss here in a Committee Room than getting on and running good pubs, selling good beer and serving their customers.
Toby Perkins: I am grateful to the hon. Gentleman for putting his change of heart on the record and explaining why he has come to that conclusion. The industry needs to move on and to have confidence. Does he not then understand that anything that creates an additional sense among tenants that there are risks to pursuing the adjudicator—which actually undermines the new powers that we are giving to tenants—would be damaging for the principles that he lays out? Does he not therefore see why it would be very much in the best interests of the good spirit in which we are pursuing the Bill for him not to press amendments 62 and 64 to a vote?
Andrew Griffiths: I listened to the point made by the hon. Gentleman, but I remain concerned because there are currently some 22,000 tied pubs in this country. That is 22,000 small businesses that will all have access to redress from the adjudicator. At the moment, most of those cases are dealt with by a discussion between the tenant, the publican and the pub company. That is exactly what we wanted to see, with the adjudicator as backstop.
I am concerned that as the code stands there is absolutely no risk in relation to reaching for the adjudicator. We do not do this for anything else. The hon. Member for Middlesbrough talked about the industrial tribunal, where we have now said that we want to see people who are pursuing a case have a stake in that case and a cost in the case, to prevent cases from being taken on a whim. In family law, we are now doing all we can to find a resolution before we get to the point of needing to go to court and see a judge.
Ian Murray: I appreciate that the hon. Gentleman is trying to develop the case for his amendments, but I ask him to reflect on the fact that a pregnant woman who has been discriminated against at work now has to pay £1,200 to go to an employment tribunal. Does he think that is fair?
Andrew Griffiths: Obviously, I would not want us to discuss something that was not within the scope of the Bill. However, I absolutely support this Government’s initiative and their determination to support businesses and make sure that they are not tied up in vexatious complaints. That is extremely important. It is interesting
Andy McDonald: The hon. Gentleman has perhaps answered my question already. He used the word “unsubstantiated”, but what he is saying is that if the case is ultimately deemed to be non-meritorious or is unsuccessful, the cost will follow the event. If that is the case, does he accept that that will be a bar that will put people off? Does he think that the code will be undermined if people think they cannot access it?
Andrew Griffiths: If we look at the Bill as drafted, we are talking about, for example, a publican being charged £200 for a parallel rent assessment. When we consider the amounts of money that arise in relation to disputes about pub tenancies, I do not think it is unreasonable that when a person uses the adjudicator for statutory help and support, we levy a charge that is returned to the claimant if their case is upheld. I cannot think of many instances—perhaps the hon. Member for Chesterfield can give me a few—in which a person has recourse to an adjudicator in such a way without there being some sort of a charge.
Toby Perkins: I was going to pursue that very point. For the sake of the Committee, will the hon. Gentleman talk about the way that PICAS works and the charges that are attached to it? Did the way in which that system was set up lead to a huge raft of unsubstantiated claims?
Andrew Griffiths: The charge to go to PICAS is £200, which I do not think unreasonable. It is not unreasonable to expect a business person—let us be honest: these tenants are business people, although some of them may make wrong decisions—who seeks help and advice in that way to have a stake in their complaint.
Toby Perkins: The Bill as drafted is about awarding costs at the end of the claim if it is pushed and is found to be without merit. There will be no charge to use the service, but the costs of the hearing will fall on the person whose case was found to be without merit. Those costs would be considerably more than £200, would they not?
Andrew Griffiths: I understand the hon. Gentleman’s point, but perhaps he is misinterpreting my amendment. I am concerned that there will be no risk to a person’s taking a punt with the adjudicator. If they are in a rent negotiation with a pubco, why not flip a coin and see what the adjudicator says? I want to see the adjudicator work, but none of us is naive enough to think that a person will not use a lever that offers them a way to get
I seek clarification from the Minister on that issue, because there is a great deal of meat to be put on the bones of the Bill. Many of these amendments are probing amendments, so I do not intend to press them. However, I seek, either today or later, precise detail about how the adjudicator will operate. I seek clear and precise clarification from the Minister that he does not think there will be thousands upon thousands of claims that will not only tie the pubs code adjudicator in knots but turn it into an expensive and cumbersome quango. None of us wants to see that.
I am grateful for your advice on the amendments, Mr Robertson. I do not intend to press them to a vote. I am keen for the Minister to give us a clear idea and assurances that this will not end up as an expensive quango.
Jo Swinson: Mr Robertson, it is good to have the opportunity to get into more detailed discussion of this part of the Bill. To avoid confusion, it might be helpful to provide information for the Committee. My hon. Friend the Member for Burton expressed concern that the draft code had not been published. The Government response to the consultation on pub companies and tenants was published on Tuesday 3 June. On page 130 at annex F is the draft code for pubs, as has already been published. That is obviously available for hon. Members to read.
I wrote to Committee Members on Friday to set out how, as a result of the evidence sessions and discussions with hon. Members, I was already minded to make some revisions to the published draft code. I will also listen further to the Committee’s views during our deliberations and publish a revised code before Report.
The Government have always intended, for the sensible reason that the final code has to reflect the final form of the Bill, that the final code will be published after Royal Assent. After Royal Assent, the Government will quickly consult on the specifics of the code with a view to its being in place shortly afterwards. The point of publishing the draft code and a revised code is to enable as much discussion as possible to be done in advance.
Sheryll Murray: Can the Minister give us any indication whether she will make available to the Committee the clearly amended draft code to date? It seems bizarre that we are to discuss and pass a Bill without seeing the content of the final draft code, which cannot be amended after the Bill receives Royal Assent. That seems to be putting the cart before the horse.
Jo Swinson: I will happily clarify for my hon. Friend. The letter I sent on Friday set out the changes I have already suggested. I have also set out that I intend to publish a revised draft code before Report, which will be before the Bill is passed. It is also the case that the final code will have to be passed through statutory instrument by the affirmative resolution, so Parliament will have the final say on the draft code, which will be
Andrew Griffiths: I thank the Minister for clarifying that. I clearly misunderstood in our conversations last week when she said that there was a new draft code imminent. I did not realise that that imminent new draft code would not be forthcoming in time for this Committee to consider it.
However, there is concern. This is a consultation and a process that has been going on for a decade. We have had four BIS Committee reports and a consultation with thousands of consultees that lasted 18 months. We are a long way down the track. It worries me that we have to take on trust the contents of a draft code that will not be amendable by the House. I accept there will be an affirmative resolution. There is concern that the Department does not have this nailed down, given how long the consultation has been taking place.
Jo Swinson: The hon. Gentleman on the one hand wants changes to the Government’s proposal and on the other wants us to nail it down and not make any change at all. I think the best way for Government to operate is to respond to views expressed in Parliament. We have already published a draft code, and instead of publishing a finalised code and saying, “No matter what is discussed in Committee we will not change one iota, and no ‘t’ or ‘i’ will be crossed or dotted,” we are adopting a more constructive approach.
We are saying we will take the Committee discussions into account, with a view to publishing a revised draft code. That will then receive further scrutiny on Report. After Royal Assent there will be public consultation on the code, before the House gets to vote on it. I take the point that the vote in the Statutory Instrument Committee will be on whether the code, as presented, should come into force; but that will be after further consultation, when hon. Members and members of the public, and other stakeholders, will be able to have a say.
Stephen Gilbert (St Austell and Newquay) (LD): The Committee cannot have it both ways—seeking such constructive meetings as those that my hon. Friends the Members for Burton and for South East Cornwall and I, among others, have had about the code in the past few weeks, to try to influence the outcome at this late stage, and yet also telling the Government that they should have locked the code down, done and dusted, and sealed in an unchanging format. I, for one, welcome the constructive approach that both Ministers have taken in engaging with colleagues on the matter.
Jo Swinson: I thank my hon. Friend for his constructive approach. He, like other hon. Members, has a constituency interest in the issue, and it is right that Members put their case about things that affect their constituencies. His welcome for the Government’s approach to consultation echoes the response that we have had from stakeholders, pub companies and all those involved who are keen to
Toby Perkins: I think there is some legitimacy to the point raised by the hon. Member for Burton that of course, going through the process, amendments will be proposed—and some may be agreed—to relatively minor aspects of the code. However, what ends up in the code will be the key detail, in terms of the effectiveness of the Bill. We are effectively being asked to give our support on the basis of a draft code that already appears likely to change considerably, before our eyes. Will the Minister clarify whether, after Royal Assent, it would be possible for a future Government simply to change the draft code without needing to come back to the House? What would the process be if a future Government wanted to change it?
Jo Swinson: It is a good question, and it is certainly helpful for the Committee to be clear about it. The point of the code being established through secondary legislation is that things can change; if that happens it may be helpful in future to be able to amend the code. Industry may recommend that, and be keen for it to happen. We want the Government to be able to respond to such future changes in the situation in the industry.
The hon. Gentleman’s point about parliamentary approval is important, however; we hope that the Bill will be passed by Parliament, and therefore we need to make sure that there will be parliamentary process. Any amendments to the code in future will require parliamentary approval through the affirmative process. I think that that is right for something of such importance. Therefore, there would be an opportunity in future for Parliament to discuss the matter and have the final say.
Toby Perkins: To clarify that—I may not be at my sharpest today—does the Minister, in talking about the affirmative process, mean that a statutory instrument would be considered in Committee, with a view to approving any changes?
Jo Swinson: Absolutely. I apologise if that was not clear. If a change was intended, it would clearly be best practice for the Government to consult on the proposed change rather than to present a fait accompli; that is the way that the Government tend to operate. Following such a consultation process, a statutory instrument would be presented for debate and a vote in the House. That will give some reassurance, I hope, to the Committee that Parliament will be very much involved in the process on the code in future.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I have found this debate incredibly useful and thank those who enabled us to have it. What impact will the measures have on micro-breweries? I have some in my constituency, so I want to understand how the measures might work in that regard.
Jo Swinson: The hon. Gentleman raises a good point. Micro-breweries are popular and are a real success story for many of our local economies. We already have the voluntary code, which many micro-breweries will be
As for micro-breweries, because of our general moratorium on any regulation on very small businesses, the situation will depend on the exact size of the micro-brewery, so if very micro breweries have fewer than 10 employees, they will be exempt from the code. Whether breweries will have to comply with the basic statutory code, as set out, will depend on their size.
Some amendments in this group deal with the pubs code adjudicator’s ability to award costs following arbitration or investigations; others seek to put measures in the Bill to prevent potential conflicts of interest. My hon. Friend the Member for Burton has outlined his concerns about the burdens that the requirements of the code could impose on pub-owning companies. He is representing his constituency, where two large pub-owning companies—Punch Taverns and Marston’s—are based. Opposition Members have highlighted the challenge of making sure that the adjudicator can properly protect the rights of tied tenants, raising concerns about whether that will be the case.
Amendment 196 deals with conflicts of interest and would prohibit a current employee of a large pub-owning company, or a person who has been such an employee in the past year, from holding the post of adjudicator. It would also prevent the adjudicator from holding shares in a large pub-owning company. All members of the Committee would agree that it is crucial that the adjudicator is, and is seen to be, independent; the very success of the post depends upon that fact. The appointment will be made in an open recruitment exercise, in line with the standard code of practice for ministerial appointments to public bodies. Candidates will be expected to demonstrate high standards of integrity and objectivity, and to show that they are free from bias and can act independently.
I sympathise with the intention behind the amendment—I am sure all members of the Committee do—of making sure that such an individual is truly independent, but the processes already in place through the code of practice for ministerial appointments to public bodies give us the clarity and assurance we need, without adding an additional hurdle in the primary legislation.
Toby Perkins: I understand from what the Minister says that she, like us, would think that somebody who failed to meet one of the conditions that we have put in amendment 196 would not be perceived to be objective, even though they could be a person of huge integrity. What problem does she think would be caused by supporting the amendment? Since it clarifies some of the principles she sets out, why not have it in the Bill?
Jo Swinson: Part of the problem is about putting something in primary legislation that is covered by existing practices. It would also highlight one particular set of conflicts of interest that might be a problem. If we put that in the Bill, we could put in all sorts of other provisos as well. Rather than be over-prescriptive, it is better to recognise that we have a well respected and credible process for making sure that any public appointments are made in such a way that those appointed are independent and able to do the job, and that those who make the appointment following the existing guidance on how that is to be done are able look at the facts of the case and come to a judgment. If we are going to put this in the Bill when we already have a perfectly serviceable system for making sure that conflicts of interest and independence in public appointment are dealt with, how many other things could we put in,?
Toby Perkins: One might describe the principle the hon. Lady lays out as the Fiona Woolf principle; it demonstrates the point I am trying to make. I take it that she is saying that she cannot imagine a circumstance in which it would be appropriate for an employee or recent past employee of a big pub company to be the independent adjudicator. There is a raft of examples in the Bill; they are not exhaustive but they are specific examples of the kind of thing that might happen. Does she not see that our amendment would be a really useful step in building confidence in the Bill, enabling us to say that this is different and this is an independent adjudicator?
Jo Swinson: I have sympathy with the amendment because I understand his concern about the difficulties there would be if, for example, the person who was appointed as an independent adjudicator was employed by someone they might be adjudicating on. I am not suggesting that that situation would or should arise; I am saying that we have procedures in place for ensuring that the independence of whoever is appointed to this position, or any public appointment, is taken into account. We should not write unnecessary additional hurdles into primary legislation. We could have a scenario in which somebody who had worked 11 months ago, possibly for a short time, for such a company might be an ideal candidate for the position and there might be no problem or apparent conflict. We would do better to trust the existing proper appointment processes than to be over-restrictive. None the less, I hope that can reassure the hon. Gentleman that it is not our intention that someone should be appointed who is clearly not seen to be independent. Making sure that appointments are got right will be a key challenge and an important job for Ministers, after a proper recruitment process.
Toby Perkins: Will the Minister clarify that as the adjudicator needs to have reasonable knowledge of the industry, there will always be a question about their independence, whether they be a former CAMRA worker or a former pub company representative? How can people be confident about that when the Government are not willing to support something that is straightforward and gives certainty about that regulator?
The hon. Gentleman makes an important point. Good candidates for this position may be people who have experience within the industry, because it is an often complex industry and such understanding could be hugely beneficial to their ability to undertake the role and, indeed, to build confidence on both sides. Being unnecessarily prescriptive may not be the best approach, particularly in primary legislation. There might be an individual with experience as a tenant who worked for a pub company 11 months previously, who is ideally placed to do the job and who has the confidence of the whole industry, but the hon. Gentleman’s amendment would mean that that person is not eligible to do the job, even though all the processes find that they are ideally placed. We must ensure that the processes are trusted.
Toby Perkins: Is the Minister saying that, from her experience, she cannot imagine circumstances in which someone working for a pub company or someone who was recently closely associated as a long-standing employee of a pub company would be appointed as the adjudicator?
Jo Swinson: I certainly think there would be an issue if the adjudicator’s independence were to be questioned. A Minister making an appointment where the independence is likely to be questioned would want to be absolutely satisfied that the person is right for the job. Who knows who will be making the decision? I assure the hon. Gentleman that I would give careful consideration to all those elements. I reiterate that there will be much scrutiny of the position, so if people think that the decision has been made wrongly, there will be plenty of opportunities for the responsible Minister to be held to account. I am sure that will be in the mind of the person making the appointment.
The other amendments address the costs of both arbitration and investigation. Amendment 62, tabled by my hon. Friend the Member for Burton, would exempt pub-owning businesses from paying the costs of the arbitrator when the tenant has referred a complaint that is found to be unsubstantiated. Similarly, amendment 64 would give the adjudicator discretion to recover some or all of the costs of an investigation from a complainant if their complaint is unsubstantiated. Amendment 195 also addresses costs, but not in relation to arbitration; the amendment addresses only the cost of investigations. The amendment would remove the adjudicator’s power to recover some or all of the costs of an investigation from a complainant if the adjudicator finds their complaint to be wholly without merit.
On the arbitrations side, as the Committee is aware, these are individual disputes about alleged breaches of the code. As has already been discussed, a tenant will already be required to pay a £200 fee for arbitration, which is designed to deter frivolous requests without preventing tenants from referring a valid case. The hon.
Unlike the Arbitration Act 1996 and the Groceries Code Adjudicator, the Bill does not provide for costs to be assigned to the tenant if they bring an arbitration case that is without merit. That is precisely for the reason that I outlined; tenants might not have significant resources or be well versed in the law and therefore able to assess whether an arbitration case has legal merit. However, if they feel that there is a concern, they can take that to arbitration. That is quite different from a vexatious case, in which an arbitrator may assign costs to the tenant. For that very reason—the risk that facing a costs award will dissuade tenants with genuine cases from going to the adjudicator—we will resist the amendment which suggests that unsubstantiated cases should risk that costs award. We have that protection for vexatious cases, which is important.
Toby Perkins: Will the Minister lay out the kinds of cost she would envisage a tenant might have to meet in the event of their case being seen to be wholly without merit? What would the cost be of an investigation that might then fall upon the tenant?
Jo Swinson: If the hon. Gentleman will permit me, I will deal with the amendments on arbitrations first and then come to the issue of investigations and cases which are wholly without merit. It is important to recognise that we have a different regime for arbitrations and investigations. Arbitration is about the individual disputes. We do not want tenants who feel they have a genuine case to feel in any way encumbered about asking for arbitration on their case. The opposite side of that argument was put forward by my hon. Friend the Member for Burton, who expressed his concern that the adjudicator would be swamped with rent disputes and cases being taken on a whim. The cost of £200 does deter frivolous cases. He made the point that, in the grand scheme of what is at stake, £200 is not a huge sum. None the less, it is a significant sum to make someone think twice before doing something on a whim.
The evidence we heard suggested that swamping will not happen. Kate Nicholls, from the Association of Licensed Multiple Retailers, set out that there is no reason for the adjudicator to be swamped by rent assessment claims if the industry acts fairly. Pub companies have told us that around three quarters of their tied tenants agree the rent on the basis of the first rent proposal made by the pub company. As such, it would be pretty unlikely for those cases to go to the adjudicator at all.
Andrew Griffiths: I may have misread the Bill or missed something, but the only reference to a charge I can find is the £200 for a parallel rent assessment. I cannot find any other reference to a charge for access to the adjudicator. Will the Minister clarify whether that is the case?
Jo Swinson: We have set out in the code that there would be a £200 charge for a parallel rent assessment and a £200 fee to refer an alleged breach of the code for arbitration. I think that helps to deal with the hon. Gentleman’s concern.
The hon. Gentleman also suggested that tenants would go to the adjudicator as a negotiating tactic. Clause 40 (2) will hopefully provide him with some reassurance on that. Subsection (2) requires that 21 days must have expired from the day the tenant notifies the pub company of the alleged breach before they go to the adjudicator. If a tenant is concerned that the code has been breached, they have to tell the pub company and there is then three weeks before they can go to arbitration. That gives the pub company plenty of time to engage with the tenant, explain why they think they have not breached the code, or look again and make a change if they have inadvertently done something that is not within the spirit of the code. That is designed to try to encourage the two sides to have a discussion and ensure they can come to an agreement. That will obviously not be possible in some cases, which is when arbitration will be the option to proceed with.
The very existence of the adjudicator may make pub companies consider what proposals they put forward in their rent negotiations. That is the intention of the Bill. We want to ensure, in an industry where there has been a power imbalance and individuals have been getting a very raw deal, that the people putting forward the rent reviews do so with a little more care. I hope the Committee welcomes that.
Jo Swinson: I do not see the Government having a role in that at all. In cases where pub companies do not comply with the code and the dispute is referred to arbitration, clearly the adjudicator will have powers at its disposal, which could include deciding what a fair rent would be. As far as is possible, the intention is that the industry will take seriously the very fact that the adjudicator exists, and that where there has already been pretty shabby behaviour in the treatment of tenants, that will be nipped in the bud rather than go to arbitration or investigation. The very presence of the adjudicator will act as a useful reminder for good behaviour and compliance with the code in the industry.
It does not say anything about referrals that are wholly without merit, simply those that are “vexatious”. However,
I hope I have dealt with arbitrations; I now move on to investigations. The hon. Gentleman says that the two tests for how costs should be awarded are inconsistent. It is true that they are not entirely consistent, but that is because arbitration and investigation are not the same thing. As a result, we think they deserve to be treated differently. Investigations are about dealing with wider systemic breaches of the code, so typically not just an individual circumstance where a tenant has been badly treated, which can be dealt with by arbitration. Investigations are much more likely to look at a pattern of behaviour affecting lots of different tenants, perhaps by one or more pub companies. Investigation would be the tool reached for in those cases.
There are two different amendments trying to change, in opposite directions, the test that we have set out. Amendment 64 is similar to the proposed amendment on arbitrations set out by the hon. Member for Burton and enables the adjudicator to have discretion to recover the costs if an investigation of a complaint is “unsubstantiated”, whereas amendment 195, in the name of the hon. Member for Chesterfield, would remove the adjudicator’s power to recover costs if the complaint is wholly without merit. That tension between the two issues—calls to go further in one direction and calls to go further in the other—may show that we have got the right balance between deterring complaints that are vexatious and wholly without merit, and not preventing tenants from voicing their valid concerns.
There is a different test for the adjudicator to start an investigation; there is a need for reasonable grounds to think that the code has been breached. With that test, before anything happens, it would be pretty unlikely for an unsubstantiated claim to be investigated at all—to deal with the point made by the hon. Member for Burton. I think that that fact gives some reassurance and protection.
If enough evidence were presented to convince the adjudicator that there were reasonable grounds to suspect the code had been breached, but the claim turned out to be wholly without merit, that would suggest that something untoward had gone on. Quite a significant weight of evidence would have fallen apart on further investigation and scrutiny. Perhaps such circumstances would mean that the adjudicator had been misled to start with about the grounds for opening an investigation. That is the reason for the phrase “wholly without merit” in addition to “vexatious” for the test in question. We do not want campaign groups to go on fishing expeditions. We want investigations to happen when there is good reason to suspect a problem. The adjudicator will be able to decide whether there are reasonable grounds based on the evidence presented.
Toby Perkins: I entirely accept what the Minister says about not wanting fishing expeditions, but surely the argument she used about why it would be unlikely for an unsubstantiated investigation to be pursued is the same as the point about why it would be unlikely for an investigation to be pursued if it were “wholly without merit”. If she is talking about someone misleading the adjudicator into carrying out an investigation that they then wished they had not done, that sounds like a vexatious claim, which would still be covered. However, I worry that the argument she used, very successfully, to demolish the case for “unsubstantiated” also demolishes her own point.
Jo Swinson: I do not agree. We are getting slightly into semantics. There could be circumstances in which a volume of potential complaints could be wholly without merit, but could not be defined as vexatious. In that circumstance it should be possible for the adjudicator to do something.
It is also important for the Committee to recognise that there would be discretion: the adjudicator would not have to award costs. They could take a view, if there had been a vexatious claim, or if an investigation that was wholly without merit had been started, and could impose some or all of the costs of the investigation on the person who brought the matter to their attention and encouraged them to start it.
I want to reassure the Committee that complaints that are genuine but turn out not to involve a breach of the code will not be penalised. We want people to be able to make such complaints. However, we need a deterrent against false or fictitious complaints, and for those reasons the amendment would not be a wise one.
Amendment 63 would give pub-owning companies the right to appeal against the reasoning behind an adjudicator’s decision to impose a financial penalty. I expect financial penalties to be reserved for only the most serious and persistent breaches of the code. Penalties can be used only following an investigation. If the adjudicator found that there had been a serious breach and decided that a financial penalty was the most appropriate sanction, they would have to write to the pub-owning company specifying the amount, and the grounds for imposing it.
The adjudicator’s finding that a company had breached the code would be final, but the Bill already enables companies to appeal to the High Court against a penalty or the amount of the penalty. An appeal mechanism is already built in. Because we already have that mechanism, which delivers the intention behind amendment 62, there is no need for the amendment. I hope that reassurance is welcomed by the hon. Member for Burton. I hope I have dealt with the genuine and varied points that have been raised, and that hon. Members will withdraw their amendments.
Toby Perkins: The hon. Member for Burton said in support of his amendments—although he explained that he does not intend to press them to a vote—that he did not think there should be a process in which there was no risk for tenants. He effectively saw the adjudicator being used as a first rather than a last resort. It is unlikely that that will be the outcome; there is already a cost. Let us be serious about this: pub tenants work
It is extremely unlikely that pub tenants have the time—in between serving their customers and trying to come up with new and imaginative ways to get people into their pub—to make some improbable attempt to use the adjudicator as part of a basic negotiation. It is also very unlikely that this would become a regular feature, or that people would go to the adjudicator in advance even of signing up to the tenancy. To suggest that this would happen regularly is somewhat offensive to those who have been the victims of measures we are seeking to prevent in the future. They often feel that they have been through a process that has wasted their time. They are the ones who have been misled or sold a false prospectus. The idea that suddenly, they will start exploiting the adjudicator in order to get an unfair deal at the hands of their pub company is entirely wrong.
The hon. Member for Burton also said that we would expect people first to have exhausted the pub company’s internal procedures. That few cases have reached PICAS shows that adjudication is very much being used as a last resort by tenants. Adjudication brings tenants into dispute with their pub company, their relationship with which is absolutely central to the success of their business. I firmly believe that tenants do not want to go through a quasi-legal process with their pub company unless they absolutely have to. I want to send out a strong message that of course we think that people should attempt to pursue the internal procedures before racing off to the adjudicator. However, nothing we have heard in this debate has convinced me that people would stop doing that. Tenants who go to adjudication—for arbitration and to start a broader investigation—often do so with a sense of absolute desperation, rather than a malicious intention to get their relationship with their pub company on to a controversial footing.
Many pub companies have business development managers who have a regular relationship with their tenants. The success of that support is a matter of debate and dispute, depending on the tenant and the pub company. The central principle of the tie is a body of support from a major company to a small business person—something they would not get as a free-of-tie tenant. Breaching that relationship of trust is a big step for a tenant. We should recognise that a tenant taking their pub company to tribunal is a significant step, just as it is for an employee to take an employer to tribunal, with all the inherent risks on both sides. The idea that there is no risk to tenants in this process as laid out is wrong.
We have had considerable discussion of whether it is sufficient for a draft code to be laid out when it will be subject to significant change, or whether it would be sensible to go through all the stages and say the draft code would follow once agreed. The hon. Member for Burton had a point when he said that what was in the code will be by far the most important aspect of the legislation’s success. We all want to offer certainty to the industry. Yes, we want to have something up our sleeve to ensure that industry delivers its side of the bargain. However, it is also necessary to offer the industry, which has been through significant upheaval recently, some certainty.
The draft code remains a matter of debate and something to be consulted on. As the hon. Member for Burton rightly said it has already been subjected to 18 months of consultation. To arrive at this point and say that substantial changes could be coming down the line—not just a line or a word here or there—without a code in front of the Committee and potentially not until Report, is a significant omission. If people felt that the code had moved on, so that in broad terms they could understand what they were signing up to, that would give greater reassurance, although we acknowledge that it might be open to minor changes during the progress of the Bill.
The Minister’s point that the Statutory Instruments Committee is a safety net to ensure that the code is subject to affirmative resolution procedure will not convince some people. There will be a huge body of work. I have been a Member of the Statutory Instruments Committee, chaired by my hon. Friend the Member for Leeds East (Mr Mudie). The speed with which he is able to get that Committee started and finished is a wonder to behold. I have no doubt that there are events at which measures are looked at in considerable detail.
We have had so much debate on the substantial matter of the pubs code in Select Committees and three parliamentary debates. To say that the Statutory Instruments Committee will look at the draft code, which is going to be the major factor, and that that should reassure us—I can understand why people might be a little concerned about that.
Sheryll Murray: Does the hon. Gentleman agree that there has been so much interest in the matter for so long that to deny all Members who have an interest the opportunity to discuss the code and have input almost looks as if the process is not open and transparent?
Toby Perkins: The Minister is gesturing her prop. I assume that is not a request to intervene. The draft code exists, it existed on Second Reading and it will exist on Report and at other stages. It would be preferable if we could have a little more—if not in absolute black and white—of the sense of what Members are signing up to before Report. I will press the Minister on that.
Jo Swinson: The subject has been a matter of some debate in Committee. The draft is available for discussion. We could resolve the concerns that are being raised by putting the code into primary legislation but I hope that the Committee agrees that that would be a rigid way of
Toby Perkins: The Government have put several examples of such regulation in the Bill, so it is not entirely without precedent, but I agree with the Minister. She will note that, with two or three exceptions, we have not elected to put the code into primary legislation. That is not what I am calling for, but we have a draft code that was published some time ago in response to the consultation. I think the Minister described it as the basis for the consultation to start. Given how central the draft code is to the success of the entire legislation, she could take steps that are in between putting it in primary legislation now and perhaps having a second copy of the draft code that responds to many of the points that have been made in subsequent consultations in evidence sessions and, indeed, in Committee. She could, and I hope she will, take such steps between now and the end of the process to give people more certainty about what they are signing up to.
The Minister agreed with the principle of amendment 196 and said that she agreed that someone who is currently working for, has shares in, or has recently been employed by a large pub-owning company and is seen as someone who has the pub company in his blood, is unlikely to be viewed by a Minister as sufficiently independent to be the independent adjudicator. Being prescriptive about the nature of the appointment in the schedule is not an ideal way of proposing this; however, it was really important that that debate was had and placed on the record. With the leave of the Committee I shall withdraw amendment 196, but I would like to test the will of the Committee on amendment 195. In discussing amendment 195, the Minister said we were getting into semantics, which is the problem with the line-by-line study of a Bill. Words are important.
I fear that—notwithstanding that we do not want vexatious claims being brought and that, if people are bringing vexatious claims, they should be liable for some costs—the safeguards that the Minister offered to the hon. Member for Burton about why unsubstantiated claims are unlikely to be the subject of an investigation also holds true about a claim that is wholly without merit: it is very unlikely that such a claim would be the subject of an investigation. It would, however, leave doubt in a tenant’s mind that, not only have they got the upfront cost to bring a case to arbitration and potentially the costs attached to asking for a parallel free-of-tie rent assessment, they are also potentially liable to significant costs if their claim is found to be wholly without merit.
The Minister may well say, “Do not worry, unless they are doing something really wrong that will not happen,” but the message that will be heard by tenants, who are already at the last resort and absolutely desperate—often having run out of money and having to borrow from next week to pay for this week’s bills—is that they could be hit by substantial costs if their claim
“(g) require large pub-owning companies as defined in section 60 of this Act to provide a list to their tenants of any products and services they provide to tied tenants which such a company considers to have a monetary value; and a statement of what that amount is and how it was calculated; and the Secretary of State or any tied tenant may refer that amount to the adjudicator for an assessment of the accuracy of any estimate or the reasonableness of any assumption in relation to each amount.”.
‘(5A) Changes to the Pubs Code pursuant to section 37 shall be made by order. Such an order is subject to affirmative resolution procedure.”.
“(d) which purport to give only the pub-owning company the right to break a tie agreement.”.
Sheryll Murray: I am a little confused by the content of subsection (4). This is a probing amendment and I hope that the Minister will be able to reassure me. Small family brewers running traditional tied pubs have been led to believe that they will not be subject to any legislation, as self-regulation works effectively for their estates. They have operated the tied tenancy model for decades—in many cases, for hundreds of years—they have developed their own practices within their company codes and they abide by the spirit of self-regulation.
Toby Perkins: I want to speak about amendments 193 and 194. Now that the existence of the code has been agreed to, we are turning our minds to what should be in it, who should be covered by it and to whom each individual bit should apply. We are also debating clause 36, on the creation of the pubs code.
This series of amendments pertains to what the statutory code does. Our amendments seek to tease out how Government will deliver on the principle of a tied tenant being no worse off than a free-of-tie tenant. We want to give hope to the landlords and land licensees in my constituency and across the country who are struggling to make a living and are watching us today in the desperate hope that something will change for the better. We understand that whatever comes out of this Bill Committee will not be a magic solution that overcomes all the problems facing the pub industry. Pubs are ultimately private businesses, and the tenants who run them are small business owners who are often setting out to live their dream of owning their own business—in particular, their own pub—but many of the licensees who attempt to get a pub business going do so with very little knowledge of what they are getting themselves into.
Many of us who have been involved in this issue over the past four and a half years have met tenants who say, “I had no idea, at the point that I became a tenant, what I was getting myself into.” The previous Business, Innovation and Skills Committee reports give numerous examples of the disconnect between the pub companies’ understanding of what their tenants were signing up to and the level of knowledge and the expertise they gave to their tenants in advance of that process, and the tenant’s understanding of what they were getting themselves into and what their expectation should have been.
Andrew Griffiths: I absolutely understand the hon. Gentleman’s point. It is essential that small business people who take on a pub understand exactly what they are taking on and the implications of the contract. I could not agree more. With that in mind, will the hon. Gentleman explain the due diligence process that would have to be followed by anybody who wanted to take on a tied pub?
Toby Perkins: I am grateful to the hon. Gentleman, but he knows that in many cases, the level of knowledge that RICS and the pub companies deem correct for a tenant to have is very different from their actual level of knowledge. Pub companies claim that in many cases where things go wrong, a tenant has bought the tenancy not directly from the pub company but effectively second hand from the previous tenant.
Toby Perkins: I thank the hon. Lady for setting the record straight. Many of the people whom I have met who were unhappy about the deal that they signed up to had assigned leases. I met someone in my constituency just this weekend who had taken on a tenancy on that basis. Even under those circumstances, there is a duty of care on the pub company, and the pub company met her. I think that there is still reasonable cause to expect that a tenant should be properly aware of what they are letting themselves in for.
I accept that the entire debate can become bogged down by pub companies saying, “Here are our terms and conditions and code of practice,” and individuals saying, “Here is my personal experience.” In an industry in which there are 22,000 people operating under the pub company model and in the region of 50,000 pub owners or licensees, there will always be individual cases in which things go wrong. Having said that, the number of such cases speaks to the broader problem, which is why the Government have been persuaded to introduce the legislation. Many other businesses have suffered shrinking pains over the past few years. There has been a huge reduction in the number of petrol stations and convenience stores, for example, but in this case there has not been the same sense of an industry rising up and saying, “It’s market forces or changes in culture and buying habits that has led to my business going bust.” It is very specifically saying that it is the role of the pub company. There may well have been a number of other factors in the fact that the industry is struggling, but the industry has specifically said that the pub company holds responsibility for some of this failure.
Andrew Griffiths: I understand the important point that the hon. Gentleman is making, and I have two related questions. First, if the pub company has provided prospective tenants with all the information—a business plan, a financial adviser, an accountant, and a valuer, so that they know how much they will pay for their beer, rent, wine and spirits—and those people choose to sign the contracts, what more can the pub company do? Secondly, if he has a particular concern about assignments—where a tenancy is transferred to someone else without any recourse to the pub company—why has he not tabled an amendment to outlaw assignments in the pub industry?
Toby Perkins: I will answer the hon. Gentleman’s second point first. We have said, throughout this process, that there are models that work but with which there are often problems. We have not gone down the route of attempting to outlaw assignments, but there are a whole variety of things that we could have attempted to outlaw if we had a very interventionist approach. We have attempted to fight shy of that. There is a problem with assignments, but that is not the nub of the issue or, indeed, the substantial part of it. I am aware that the big pub companies would often refer us back to assignments and say, “Actually, that is why people were misled.”
The hon. Gentleman asked what more pub companies could do if they had done all the things that they said they had. If they had done all the things they said they had, why are all these people not saying, “It’s because of changes in buying habits and supermarkets,” or pointing to any other factors to explain why their business has gone under? Why are they specifically pointing their finger at the pub company and saying, “I don’t feel we were in it together. They had a model that enabled them to continue succeeding even when I failed”?
That is why the Government have arrived at a point where the statutory code is the correct course of action. When the hon. Gentleman was speaking—he might want to respond to this—I detected a sense that he still thinks there is not a lot wrong with this model but is persuaded that the industry will not move on until we get some sort of regulation and so, in the interests of the industry, he is supporting the regulations because we are all sick of talking about it, even though the model itself is not really broken.
Andrew Griffiths: I will tell the hon. Gentleman exactly why I support the Bill as it stands: it guarantees that the pub companies have to do what they say they are doing. There is a lot of back and forth; the pub company says one thing and the tenant says another. This will guarantee that pub companies act as they say they do or face the consequences. What I like about the Bill as originally outlined is that it is based on behaviour. If the pub companies behave properly and reputably, and look after their tenants, they have nothing to fear. If they do not behave reputably, tenants can have recourse to the Bill. I want legislation that is based on behaviour, not intervention in the marketplace of the kind seen in Soviet Russia.
Toby Perkins: I am grateful for that guidance, Mr Robertson; I think I might have slightly asked for it. The hon. Gentleman made the point that we are always wise to be mindful of the strengths and limitations of intervention in markets. It is wise to be cautious about any intervention. To return to his earlier question of why we did not do all this a couple of years after we first spotted the issue, it was precisely for that reason: we wanted to do everything we possibly could to ensure that the industry had an opportunity prior to intervention.
There are a number of important reasons why the industry, after a number of different interventions of different kinds from successive Governments, is still struggling. Despite the fact that there are many successful pubs, the continuing scale of pub closures should be a cause of real concern for us all. We know that every time a pub closes it leads to a loss of about £100,000 to the Treasury, and a loss of an average of 10 jobs. We know that the pub industry employs young people and women in particular—two groups that have found the job market particularly difficult under this Government. It is an important industry to support.
The industry has faced a number of issues, which include, in no particular order: the general cost of living crisis and flatness of wages over the past six or seven years; the fact that people have less money in their pockets; and the fact that supermarkets now see alcohol sales as a central driver in getting people through their door. That has had a huge impact on the pub industry. The smoking ban has also had an impact on a certain kind of pub. A whole variety of different measures and things that have happened have been the cause of a number of the pressures on the industry. It is absolutely our view that the Government are right to say that the relationship between tenants and their pub companies is another factors.
The series of amendments that we are discussing relates to what the statutory code does. Our amendments attempt to understand how the Government will deliver the principle of a tied tenant being no worse off than a free-of-tie tenant.
First, I reinforce that the Labour party is not opposed to the principle of the beer tie, despite much of what we have placed on record about how the tie works in certain cases. In many circumstances it works well, particularly for rural and isolated pubs that might find it difficult to access and to have delivered products from the open market. Much more widely, the vast majority of pub-owning companies have used the tie responsibly. They are ostensibly what are usually described as family brewers and smaller pub-owning companies. Those businesses do not have a dominant market position. They are in a very competitive market for tenants. They will be unable to attract them if their deal and the way that they operate is not strong enough. The tie allows those brewers to establish a relatively guaranteed outlet for the produce that they brew, and it has survived throughout the years because of the patrician approach of the brewers.
There is no doubt that if the entire industry had taken the approach of the vast majority to the tie, we would not feel the need to discuss it. It is important to put on the record that this debate and any future amendments to the Bill at further stages are not about
Companies such as Wetherspoons work with a managed model, which is successful for the pubs that they own, which tend to be pretty large and predominantly in town centres or busy locations. That model has not been used in anything like the same way in smaller community pubs, which have often been particularly under pressure. In those pubs, people run their own business and, frankly, are willing to work 60, 70 or 80 hours a week to keep it going; that is the model that the industry has fallen back on. The Labour party, in opposition, could legitimately question whether a business model that relies on people working 60 or 70 hours to make the business a success is a strong model for us to defend. None the less, the tie has allowed brewers to establish an outlet for their beer. The brewing industry, like the pub industry, is incredibly important for our economy, and we all hold it dear and want it to continue to survive and thrive.
Sheryll Murray: I am grateful to the hon. Gentleman for generously giving way again. Does he believe that there is a difference between various pub-owning companies? Does he think that independent family brewers operate in a different way from larger pub companies, and could he expand on the difference?
The hon. Member for Burton spoke at some length about the fact that no one can understand the debate we are having today without understanding the impact of the beer orders and going back to changes made in the late 1980s. Many family brewers operate in pubs that they have been in for dozens of years. During the recent Heywood and Middleton by-election, I was pleased to go with my right hon. Friend the shadow Chancellor to the Lees brewery in Middleton where he, with no little aplomb, pulled a pint of best, and we had an opportunity to discuss the business model that that brewery has owned for more than 180 years. We should recognise that many independent brewers have operated in a different way, and that pressures on them were often different. We cannot get away from the fact that a central feature of the whole debate is based on the time at which the pub-owning companies—