Small Business, Enterprise and Employment Bill

Written evidence submitted by Gareth Epps (SB 58)

Summary

My remarks focus on Part 4 of the Bill which proposes a Statutory Code for the regulation of the tied pub sector. The measures are welcome and will help to correct years of abusive and anti-competitive practice by a small number of rogue companies. They are proportionate. However, the key aspect which would give the Bill the power it needs to root out the widely-documented abuses by the rogue pub companies – the Market Rent Only [MRO] option – is missing, and without it the Bill can never be as effective as it should be.

Detail

1. My name is Gareth Epps. I am a campaigner and member of the Campaign for Real Ale. I am a member of CAMRA's Public Affairs Committee. I am Branch Public Affairs Officer for Reading & Mid-Berks CAMRA. Formerly a councillor for ten years, I have a direct interest in issues relating to the closure or otherwise of local pubs and in particular community pubs. Having become more active in this area in recent years I am now a member of the steering group for the Fair Deal for your Local campaign coalition. I write in a personal capacity.

2. In general terms while I welcome the provisions of the Bill with regard to regulation of the pub owning companies, in overall terms its contents is disappointing as the vital element of reform is missing. I refer to the opportunity for the lessee to consider a Market Rent Only [MRO] option.

3. To start on a positive note, there are a number of welcome aspects of the Bill that should be retained. First, the provision of a basic Code covering tenants of those companies owning fewer than 500 pubs. While some sort of de minimis provision - say 20 pubs owned - may be proportionate, there is growing evidence to suggest that the bad habits of the largest pubcos have affected members of the 'Independent Family Brewers' in particular. I am aware of a number of cases where Fullers - a company currently rapidly acquiring pubs in central London - has resorted to abusive practices to try and kick sitting tenants out. Around the corner from where I live, Wadworths - a traditional family brewer evocative of bucolic Middle England - has closed the Eldon Arms after a rapid breakdown in relations of tenants of barely six months' standing: principally due to Wadworths failing to discharge responsibilities for maintenance that led to the pub ceasing to supply food and adverse attention from the council’s Environmental Health department.

4. It is also important that franchises of pubs (and only of pubs) should come within the scope of this legislation. In the final week of March 2014 I walked into a Marstons premises in Streatley, West Berkshire, to find purely by chance that the landlady was announcing to regulars that she was being forced out of the pub. The only reason I had visited was because of the good reviews of the pub and the significant improvement it had undergone under this publican. Installed on a ‘rescue’ franchise that included a reasonable share of gross profit, the pubco was removing her because she was making too much money. She was to be replaced by a ‘retail’ franchisee, with no job security and far less incentive to make the premises succeed. This is an unsustainable position given that pubs are recognised by the Government as community assets (in the National Planning Policy Framework and elsewhere) and need to be well-maintained as well as well-run. They are not the same as a retail unit.

5. Where the scope of the legislation is at present flawed is that it gives loopholes to an industry whose worst elements have already explicitly stated their intent to avoid or evade statutory action. I refer to the enhanced code only covering pubcos with 500 tenanted pubs or more. Already we see a number of pubcos switching premises from the tied to the managed model. Fuller’s – who have a poor reputation among some tenant bodies – are in rapid acquisition mode and are approaching the 500 threshold, but have a number of managed pubs. Why should their tied estate be excluded, when the arguments of proportionateness around compliance costs do not apply?

6. As I stated in my response to last year’s BIS consultation, the tied sector is the most recent Annual Report for Enterprise Inns for which figures are available makes it clear that they are struggling to attract lessees under the current arrangements; a little over one-quarter of current tenants in their lease estate are on transitory management arrangements on temporary leases or similar. There is much dispute about the extent to which pubcos are responsible for pub closures in the UK. Reading & Mid-Berks CAMRA has extensive records covering the whole branch and has documented every closure. During the period 2008-12 some 61 per cent of our closures came from the tied sector, with only around 20 per cent being free houses. [Ownership of the remainder was unclear.] What is not in dispute is the statistic that most tied publicans earn less than the national minimum wage, creating pressure on the State for in-work benefits such as tax credits and making clear that this is a case of market failure.

7. It is also essential that the Adjudicator be given adequate funding and robust powers to do the job s/he is appointed to do. It is essential the appointee and all other staff are thoroughly independent of trade interests but have appropriate experience.

8. The central tenet of Part 4 of the Bill – that a tied tenant should not be worse off than one free of tie – enshrined in Section 36 (4) is fundamental and it is deplorable that pubco industry vested interests should seek to have this struck from the face of the Bill. Without it, there might as well be no Statutory Code at all as it would be meaningless and unenforceable. Of course, this is exactly why the pubco industry and its allies wish it to be removed. The Secretary of State for Business has made clear throughout the consultation process and since that to a considerable degree his objective is to ensure a fairer balance of risk and reward between pub company and tenant; strike the ‘no worse off’ clause from the Bill and that objective is fatally undermined.

9. However, the provisions to enact this ‘no worse off’ principle are ineffective in their current form. A parallel rent assessment will attempt to quantify the purported benefits that the proponents of tied agreements advocate. Rather like banks mis-selling Payment Protection Insurance, the pubcos and their lobbyists in the British Beer & Pub Association [BBPA] – which does not represent more than a small number of large companies – will attempt to inflate the value of what they call SCORFA. Typically the seller of a lease will place a high value on items of little practical value. The Adjudicator would have to place some sort of guide value on these items.

10. Without the clear alternative of a Market Rent Only option, cases being taken through the parallel rent assessment process are likely to be protracted. This is unhelpful to business owners, to customers whose pubs may well have failed while dispute continues – and certainly to publicans themselves. Unless clear timescales are set out as part of the process, many publicans approaching the Adjudicator may have been bankrupted by the pubco before a decision is reached. To not stipulate clear timescales would skew the process in favour of pubco. Furthermore, whereas under MRO a publican could opt for the market rent and be able to trade relatively unfettered [the pubco retaining ultimate control over the tenant’s longevity of tenure], without it the pubco can [as Wadworth did in the case of the Eldon Arms above] restrict product choice or increase price without any kind of restraint. If they want them out in a couple of weeks, they’ll find a way to do it.

11. For the above reasons, the parallel rent assessment process alone will not secure the Government principle of fairness nor that of ‘no worse off’. Only MRO will achieve that.

12. A good case study of why this is needed is the Reading pub that has most consistently featured in the CAMRA Good Beer Guide over the last 40 years: The Retreat on St John’s Street. It is a wet sales-only, backstreet local owned by Admiral Taverns, formerly by Enterprise Inns.

a. From late 2002 after a period of uncertainty over the pub’s future a couple, Jane and Bernie, took on a 10-year lease. Due to the actions of a previous licensee the living quarters were uninhabitable when they arrived. The couple were ‘locals’ and evidently cared about the premises considerably; and the pub quickly regained its reputation for good quality beer with occasional music events.

b. From a point midway through their lease it was evident that there were frustrations with the pubco. In particular the Business Development Manager was unresponsive to calls. It had also become evident that on what was a fully-repairing lease, the amount of work needing to be done to even keep open a building that had seen little investment in decades was considerable. Nonetheless, the pub’s reputation grew to such an extent that a book was produced, entitled simply: ‘The Retreat: The Jane & Bernie Years’.

c. Another Reading pub, the Nags Head (winner of CAMRA awards) had rarely been able to negotiate a free-of-tie lease: enabling it to mount a phenomenal offer as a specialist real ale bar which would have been impossible under the inflated wholesale beer prices charged by Admiral and other pubcos. Jane and Bernie asked for a similar lease on similar terms, stating they were prepared to negotiate. However, Admiral refused to entertain any discussion of a free of tie lease.

d. As a result, relations between pubco and lessee had completely broken down. Having decided not to renew the lease despite the popularity of the pub, Admiral set out to make their life as difficult as possible, in particular exploiting the absence of a survey from 2002 to demand a significant five-figure sum for dilapidations. A huge amount of works were done by the licensees and regulars amid significant publicity. After their departure a series of tenancies at will were created, with a sub-lease handed to a holding company that left the pub open but without beer on numerous occasions. The effect on trade was predictable. Had a MRO lease been offered, Jane and Bernie would have stayed and the pub continued to thrive.

13. For these reasons i t is essential that licensees are able to request an open market rent review according to the MRO option set out by the All-Party Save The Pub Group and the Fair Deal For Your Local coalition that includes 11 organisations including CAMRA – Britain’s biggest consumer group; trade unions, and the Federation of Small Businesses and Forum of Private Business.

October 2014