Small Business, Enterprise and Employment Bill

Written evidence submitted by James Watson (SB 57)

Introduction

1. I am a professional engineer and lifelong lover of British Pubs. I represent a community association in East London, which has suffered for the last two years at the hands of a rapacious developer who is attempting to turn our historic local pub into flats. Through fighting this developer, in conjunction with our local Council, I have learned a huge amount about the history and evolution of the British Pub, and about the corporate scandal which is the tied pub company business model.

2. I am commenting on the provisions within Part 4 which aim to deliver a fair deal for pub landlords through the introduction of a statutory code and an adjudicator. Whilst I welcome the inclusion of such provisions, which are long overdue, this is an example of legislation and reform which is too little, too late.

3. The indebted pub-owning companies (Pubcos) and the so-called family brewers have controlled the majority of the nation’s pubs since the Beer Orders of 1989. We have seen a gradual shift away from community champions and responsible custodians of our heritage and culture to greed-driven property speculators. The years since the Beer Orders have seen a 25% reduction in the total pub stock in Great Britain.

4. The Pubcos are shamefully asset stripping and destroying historic pubs which they acquired during a reckless spending spree on false credit, based on over-inflated valuations of their burgeoning estates during the boom years in which Punch and Enterprise publicly ‘raced’ each other towards a target of 10,000 pubs. Their credit binge caught up with them and we are now witnessing the wanton disposal of treasured community facilities to supermarkets, property developers and pawn brokers.

5. Ordinary people, who rely on their pubs for daily social interaction, are suffering as a result of corporate irresponsibility. The weak planning system and Pubco greed are the two principal reasons for the appalling rate of pub closures, which stands at 31 per week.

The Need for Market Rent Only (MRO)

6. The proposed provisions in the bill do not go far enough. In order to ensure the survival and sustainability of the Great British Pub, the shameful corporate scandal of the grossly unfair and exploitative tied pub model must end.

7. Market Rent Only is the one essential measure that is missing!

8. The evidence submitted by CAMRA, Fair Deal for Your Local and Licensees Supporting Licensees is compelling. Indeed, government select committees have recommended Market Rent Only four times.

9. The key relevant principle of Part 4 of the Bill, "that a tied tenant should not be worse off than one free of tie" is outlined in Section 36 (4) The Secretary of State for Business in addressing CAMRA, at a parliamentary reception which I attended, and during which I spoke to him personally, outlined his commitment that the bill, "whilst much longer in coming than we all expected, will ensure a fairer balance of risk and reward between pub company and tenant".

10. This bill will fail to deliver any real improvement to the pub industry unless it contains Market Rent Only (MRO). The legislation is pointless and ineffective without MRO.

11. I spend a large amount of my life within the treasured institution of the British Pub. I have spoken to thousands of publicans, Pubco employees, brewers, campaigners, politicians, and ordinary honest drinkers. In my home town of London we are drowning in a sea of closed and threatened pubs. MRO is a vital and simple measure that would assist in saving countless.

12. The established practices of the Pubcos (and some of the family brewers, who really ought to behave better) are destroying pubs by exploitation of the tie, right under our noses. It is amazing to those lay observers that they have got away with it for so long. Indeed, many people struggle to believe that such a business practice can even be lawful in modern Britain.

13. Two very recent examples:

a. Turner’s Old Star in Wapping, E1W

I. This conservation area pub in the historic core of Wapping was acquired by Punch Taverns from Ind Coope in the 1990s. The existing tied tenants have two years remaining on their lease. In the summer of 2014, Punch sold the pub, valued at around £300,000 as a public house, to a private property investment company based in the British Virgin Islands. The sale price was £1.2m – 4 times the market value. The tenant was not even aware of the sale until the new freeholder introduced himself in the pub. The tenant found out that their so-called ‘business partner’ had sold their livelihood, and their home, to an offshore shell company, without their knowledge.

II. Since the new owners have inherited a tied lease, they can make the tenant’s position totally unviable, simply be restricting beer choice or raising beer prices to an unsustainable level or both. The owner has made it clear that his intention is to demolish the pub and replace with flats. 150 years of culture, heritage and community social capital, sold to the highest bidder to pay off Punch’s debts.

III. A planning battle is to be fought over the future of the pub but the developer will be in a strong position if he is able to bully the tenants into quitting. He can then present an empty building, with false arguments of "non viability" to the planners. The apparent non viability has been brought about entirely by the tied lease Pubco model.

IV. MRO would ensure the future survival of Turner’s Old Star.

V. MRO would give the hardworking tenants a chance to keep the business they have built up. It would allow them to continue to employ people and pay taxes and rates, and it would allow them to remain in their family home.

VI. MRO would save the pub!

b. The Duke of Wellington in Spitalfields, E1

I. The Duke of Wellington is a rare survival of a typical back-street East End pub, popular with market traders and city workers as well as local residents on account of its simple, fuss-free, down to earth feel and basic affordable food and drink offer. It still retains a dart board, two bars, competitively priced pizzas, and a collection of regulars who know each other by name. It is a true community pub that London’s neighbourhoods are renowned for.

II. Punch Taverns sold the freehold to an investment company according to the all too familiar pattern, again without the tenant’s knowledge.

III. The tenant has personally advised me that the new owners, exploiting the terms of the tied lease, have increased the price at which he can buy an 11 gallon keg of Guinness from £144 + VAT to £215 + VAT. In order to maintain the same level of gross profit, the tenant would be forced to sell Guinness at £5.97 a pint, as opposed to the present £4.00 a pint. The Wetherspoon Freehouse around the corner can sell the same Guinness at £3.25 a pint.

IV. By forcing the tenant to buy beer and wine from the new owner, according to the terms of his tied lease, pub freeholders, with no interest at all in continuing to operate their premises as pubs, can force a tenant to quit in a matter of weeks, by making them homeless and bankrupt.

V. This shameful destruction of perfectly viable businesses is leading to homelessness, a burden on the benefit system, an unnecessarily high level of working family and child tax credits and is harming our economic recovery.

VI. The committee will be well aware of the fact that 57% of tied tenants earn less than £10,000 a year. Running a tied pub is no route to a rich retirement; it is most certainly a labour of love.

VII. Once again, MRO would allow the tenant at the Duke of Wellington to continue to serve his community.

VIII. MRO would also allow him to invest in the pub, expand the food and drink offer and employ more people by growing his business.

IX. MRO would ensure this precious pub is retained in the use class for which it was designed. Without MRO, it is likely the weak planning system will allow the demolition of the Duke of Wellington and replacement with yet more unaffordable flats for private investors.

X. The destruction of our community pubs is ruining British society. MRO is your opportunity to right these wrongs.

14. Thank you for reading my submission. Please accept the proposed amendments for MRO.

October 2014

Prepared 31st October 2014