Small Business, Enterprise and Employment Bill

Written evidence submitted by Luke Howell (SB 66)

Introduction

As a professional in the hospitality industry, having worked across Europe and in America managing restaurants, bars and hotels, I am grateful for the opportunity to submit information relevant the small business committee. Returning home to Great Britain to fulfill my dream of running a country inn and set up my own business I became a tied tenant in the South East. Entering into a business partnership which I soon found out was wholly one sided and verging on criminal. I helped produce a publication that can be found here; innmyhonestopinion.weebly.com/publications.html, that takes many of the facts and figures produced by the London Economics report and interprets them as they should, and not with the spin used in the Cheers 2014 report from the BBPA. Here, I touch on many of the issues again, but supplying more personnel evidence.

1. The Market rent only (MRO) would be a major boost to local economies. The untied pub would be free to develop more local contracts with brewers and wine merchants allowing finances to remain in the local area rather than being centralised and servicing share dividends. In my case, MRO and the parallel rent assessment would result in the village pub being almost 25k better off. This would allow greater investment in the site (at present I cannot get the brewer to fulfill its contractual obligations, never mind any investment) to increase profit, employ staff members from the community (at present I work 80 plus hours a week and would still be eligible for tax credits) and compete competitively with the free houses in the area.

2. The present micro brewery explosion is very exciting for the future of the trade and demonstrates the strength of the trade, with only half the market open and free. Managed properly, giving the option of doing business with these entrepreneurs, the industry will be able to balance itself and remain strong. At present, with half the pubs tied, it drastically limits the success of these small businesses. Many will begin to struggle rather than expand. SIBA and the pubcos will force the small brewer to sell their cask ale at a much lower price, limiting profit and ability to expand and employ more people all for the gains of the pubco/family brewer. MRO will enhance the trade, not merely protect the leasee.

3. The fears that the family brewers would need to close are unfounded and blatant scaremongering. If the likes of Greene King, Shepherd Neame etc. produce a product competitive in price and quality delivered with competitive service by a company that maintains a good image then they will have no fears in a world where MRO exists. Many come to my site due to the quality of my cellar and how it makes a staple family brewers beer taste wonderful. If I could purchase that at a competitive price I most certainly would continue to. What the industry fears is natural competition that exists in almost every other trade. The family brewer could in fact benefit, being able to sell their products direct to free of tie houses, for more than they sell them to their Pubco partners. What the Pubco/Family Brewer fears is the fact they will not be able to profiteer from their tenants any longer, they will have to work closer with them, forge stronger relationships and more credible business partnerships.

4. Many of those responsible for the abuse of the beer tie will feel a little safer due to the ‘500 rule’. In my opinion this is absurd, many family brewers already operate unique relationships, Mr Neame being heavily involved with both St Austell and Shepherd Neame. This allows him to have influence and benefit from businesses of over 500 sites. Family brewers often pass their own products onto their tenants at higher prices then Enterprise or Punch Taverns sell the same product to theirs for. This is huge profiteering and SCORFA is certainly not adhered to. I had to virtually close my restaurant down due to the water damage and mould problems we were experiencing for over seven months to name but one of many issues.

5. Had the Tie been operated in a fair and moral manner, had self-regulation been taken seriously we would not still be having these discussions. The very fact these issues are discussed time and time again is proof enough that action must be taken and drastic action at that before these companies bankrupt more of their business partners with no concern for their well being.

6. Having been the victim of being misled by representatives of my family brewer on numerous occasions, it is now second nature to record every meeting, every discussion and follow it up with emails. There is no doubt in my mind that everything should be recorded between tenant and representatives of the Pubcos/Family brewers. Again, had business been operated honestly, openly and morally, there would be no call for this. The fact there is shows real concern about the operations ongoing in the industry.

7. Neglect in the maintenance of many tied sites is worrying in itself. On a traditional 3 year brewer’s tenancy, the family brewer is responsible for the up keep of the structure to the building. When I am put in a situation where I need to cut off electrics to parts of the building due water coming through the roof. It takes twenty minutes to access my fuse board. Thick mould growing on the restaurant walls. At one point we had no gas shut off in the kitchen, yet we were told by the brewer that we should cook anyway. This shows a complete disdain for the safety of the tenant and the building (a grade II listed I might add). It demonstrates the lack of willingness these companies have to construct a healthy business relationship within the trade.

8. The BBPA seem to complain such moves are against ECHR. However, to maintain such and closed artificial market allowing the few to profiteer is much more a violation of ECHR. The tie is against article 81 of the EC treaty, the benefits simply are not what the Pubco/family brewer claims them to be. Our Government decrees the tie is acceptable here; this has to change as the evidence against it is now staggering.

9. CAMRA stats that shows 57% publicans earn less than 10k and year, and 80% earn less than 15k whilst Family Brewers accounts show record profits year on year, even in times of a recession is solid proof that the structure of the industry needs addressing. The pub sector is sick, but it can be cured with the correct measures. My pub isn’t owned by the brewer, it is owned by a local lord. If I was paying rent half way between what the Family Brewer pays them and I what I pay the Family Brewer, plus being free of tie this small pub would be almost 30k better off since the 1st January this year. 30k is a massive amount of money to be taking from a small village pub with very little in return.

10. A churn of 5000 tenants a year speaks volumes in itself. These Pubcos and Family Brewers lure publicans into ‘low cost entry’ sites where they service the bills and offer up their savings. Price increases incompatible with inflation and free trade increases result in even the best worked financial plan failing. To the new comer in the trade, the blatant misrepresentation of the price lists offer by my Family Brewer is disgraceful. They offer a price guide to achieve a certain GP that claims you get 72 pints out of a firkin. Those in the trade will be aware that you get at best 69 pints and GP should be worked out on 66 pints, resulting in the GP advised by the Family Brewer being impossible to achieve. Add that to the many promises that are made and never fulfilled (I shall refer you back to the water coming in from the roof and guttering, repairing that was part of our offer letter when we signed over two years ago, that letter included repairing the 100 broken windows in the building, work is still to be completed). It is time to regulate the Pubco/Family Brewer and put a stop to the havoc they have been allowed to reap on our beloved industry.

Conclusion

The aim of this bill is "…to help make the United Kingdom the most attractive place to start, finance and grow a business". This bill can achieve that aim by following the recommendations for MRO. As an individual who returned to this country to start, finance and grow a business, it is now something I fully regret. MRO is merely an option; if being tied is truly better the tenant would not wish to enact this option. Enforcing this option will protect the entrepreneurs, help publicans and small businesses expand and offer employment and sustainability in a free and open market. The right decision here will result in increased investment, a reduction in those on tax credits, a boom in the industry and those it supports, more employment across the industry, protect the micro brewery boom as well as the tenant and entrepreneur. The list goes on; the committee cannot ignore the overwhelming evidence that the only way forward is the Market Rent Only option.

October 2014