Small Business, Enterprise and Employment Bill

Written evidence submitted by Paul Davies (SB 77)

1. INTRODUCTION

2. I write this in the vain hope that action will be taken against the scam operated by the Pub Companies to transfer wealth from a leaseholder to the company, it’s executives and shareholders. A scam that can be easily stopped by offering a Market Rent Only option in this legislation.

3. Together with my Partner, Stephanie Law, we have run The Cricketers Arms, a Punch owned pub, taking the tenancy on the 26th April 2003 and subsequently transferring to a lease on 15th March 2006. We are well respected licensees by the authorities. We are recent victims of these questionable and possibly criminal practices. We have lost all our investment and are currently awaiting eviction.

4. In this submission I will highlight some of these practices used by Punch to increase their share of the pubs profit at our expense and how they forced us to cease trading and break the terms of our lease.

5. EXAMPLE 1

6. Punch Taverns Rental calculations are based on Fair Maintainable Trade (FMT). This involves comparing the trade of similar pubs to arrive at a figure a Reasonably Efficient Operator can achieve.

7. The expected % Gross Profit (GP) is calculated on beer and other sales and this expected profit is divided by two. This profit is known as the divisible balance and is shared 50-50 with the licensee and Punch Taverns. An example of such a calculation is given in Appendix 1.

8. Recent information has come to light that in these calculations, Punch assume the full contents of a cask of real ale is available to the tenant to achieve this profit. This is not true. It also assumes that this figure of 72 pints is available when doing comparisons to arrive at the FMT figure. Again not true.

9. In agreements with HMRC brewers are able to declare a proportion of the contents of a cask of real ale as unusable and unsaleable. Duty is not paid on this declared volume.

10. The Brewers’ declaration of the useable, saleable quantity in a firkin (9gallons) of cask ale varies but is never the 72 pints assumed for the calculation of divisible balance used to arrive at a rental figure. Also Brewers are allowed to under fill a container by 2% (1.4 pints for a firkin), this is an arrangement made between the BBPA and Weights and Measures.

10. Sharpe’s Brewery, the brewers of Doombar the UK’s most popular cask ale, do not declare a duty paid volume on their casks, but they declare to HMRC there is 1.9 litres of unmarketable beer. This leaves a marketable quantity of 68.6 pints. They say that they brim fill their casks, but only to 41 litres, the nominal capacity of the cask which is 72.2 pints.

11. From analysing the declared saleable quantity from various brewers and the potential legal under fill, the average volume for the purposes of calculating the %GP, the divisible balance and therefore the rental for the property should be 67 pints or less and not 72 pints.

12. HMRC state that the customer should be made aware of this declared volume of unusable beer on the cask label, price list or delivery note. But the lessee of a pubco tied pub is not the direct customer of a brewer and this vital piece of information to determine accurate profitability and calculate accurate %Gross Profit is conveniently not passed on.

13. The convenient exclusion of this information and deliberate deceit has resulted in us paying approximately £2000 per annum more in rent for over 11 years. This explains, in part, why we have never achieved greater than 43%GP when we have been aiming for 50%GP on cask ale sales. When you add this to the acknowledged losses for serving cask ale we were left in the position of having nearly £10000 less than the expected profit to pay £2000 in overcharged rent.

14. Add to this the high tied price for cask ale, which can be double that which can be found on the open market for the same beer, it is no wonder pub operators such as ourselves are being forced out of business.

15. EXAMPLE 2

16. As part of the efforts of Punch Taverns to ensure a lessees adherence to the purchasing obligations contained within the lease, they install beer flow monitoring equipment to compare dispense and delivery volumes to ensure compliance. A comparison that is prone to error due to delivery volumes not being equivalent to container size.

17. This equipment comprises of a simple turbine flow meter installed in each beer line. These are then connected to a data recorder which transmits the collected data to the headquarters of Vianet, the company contracted to supply and operate this equipment.

18. Punch distribute a leaflet titled ‘Brulines Benefits’ (Brulines now go under the name Vianet) extolling the virtues of flow monitoring as an excellent tool for the lessee.

19. I applied my knowledge as a degree qualified electronic engineer with extensive experience of measurement systems to further explain the high wastage figures associated with serving cask ale.

20. Due to the way cask ale is dispensed with a suction pump, called a beer engine, I concluded that the extra suction required overcome the resistance of the flow meter might be a cause for excess fobbing, the generation of a foam head on beer.

21. This excess fobbing causes beer to be wasted and collected in the drip tray to ensure compliance with the weights and measures definition that a pint of beer should contain no more that 5% head.

22. To test the validity of this theory a simple trial was conducted at The Cricketers Arms. The report compiled concluded there was a measurable effect of statistical significance on fobbing. More testing would be required to quantify this effect more accurately.

23. The results of this initial testing suggested that the flow meter installed in the beer line is responsible for an extra 2.2% in wastage. Wastage that results in a further loss of profit to us of up to £1000.

24. Far from being a useful tool to the lessee, Punch’s effort to ensure adherence to the obligation to only purchase beer through Punch, results in extra losses to the leaseholder. Losses that again are not taken into account when calculating and setting rental levels, losses that the lessee has no control over and has to bear the full cost of..

25. EXAMPLE 3

26. The beer flow monitoring equipment is also the subject of an anti-tamper clause within our lease. This means that the beer dispense equipment cannot be touched by us the lessee.

27. A well documented and accepted cause of excess fobbing and beer waste is the build up of yeasts and bacteria in the beer line. To keep this to a minimum a rigorous cleaning schedule should be adhered to. In the case of a tied public house this cleaning can only be achieved by chemical means, the ability to strip down and manually clean all components having been removed by anti-tamper seals and clause.

28. This raises a question on whether the lessee is able to fully comply with legislation with regards to their obligations to serve safe food. Beer for the purposes of Environmental Health and legislation is classed as food.

29. Preliminary testing of a fob detector removed from a public house showed alarming levels of contamination both yeast and bacterial.

30. Resources have prevented further testing of the build up of yeast within the dispense components and to identify the bacteria types, so the effect cannot be quantified on beer wastage or customer satisfaction, but it is an accepted cause of waste and customer dissatisfaction by all the major brewers, even Punch Taverns actively encourage weekly chemical cleaning. Cleaning losses are again ignored by Punch in their rent calculations and profit expectation and are born solely by the lessee.

31. EXAMPLE 4

32. Furthermore, as the leaseholder of The Cricketers Arms, it was my responsibility for adherence to Health and Safety legislation and to prepare risk assessments for all aspects Health and Safety as laid down by the various legislations.

33. During my duties in preparing a risk assessment I questioned the contents of the Vianet data collection box fitted to the wall of the cellar. The unit carries a CE mark although no declaration of conformity is supplied. My professional experience as an electronic engineer, the CE mark is a self issue mark and is open to misuse and should be accompanied by a declaration of conformity to the relevant EU directives to confirm correct issue.

34. In an effort to exercise due diligence, I contacted Punch by letter for a declaration of conformity and a list of the contents that may require me to hold a copy of the safety data sheet to comply with the Control Of Substances Hazardous to Health (COSHH) legislation.

35. The reply I received along with a declaration of conformity stated that ‘As the dispense monitoring equipment doesn’t contain any substances needing COSHH documenta tion there is none to provide.’

36. The declaration of conformity lists a backup lead acid battery. A piece of equipment that does require a safety data sheet to comply with COSHH. Sulphuric acid, even in gel form requires a safety data sheet.

37. The inclusion of a lead acid battery on constant trickle charge in a sealed container has further safety implications with the possibility of a n Hydrogen build up should a fault in either the battery or power supply occur . This was confirmed by an email received from Yuasa, a world leading manufacturer of this type of battery .

38. It would appear that neither Punch Taverns nor Vianet are adhering to the British Beer and Pub Association (BBPA) code of practice for electrical safety in beer dispense equipment an organisation of which Punch Taverns is a member.

39. This is an example of Punch deliberately mislead ing with untruth about benefits and withholding information on the safety of this equipment which is forcibly installed upon the leased premises.

40. PUNCH TACTICS

41. During our time at The Cricketers Arms, we did not earn more than £20000 between us in any year. The profit was so small that any change in trading would affect us hugely. This change came in 2011 in the form of increased competition. A fact that Punch chose to ignore.

42. Punch make full use of the beer tie to cause the most damage to a n already fragile existence. Their first step was to stop credit for our beer order insisting on cash with order. This ha d a negative effect on our cash flow making a precarious financial position even worse.

43. Withholding credit for our beer order allowed Punch to tie the beer order to the rent. If the rent was not paid in full, the beer order , paid for in advance, would not be released putting us in a viscous circle. No beer, no profit for rent , no rent, no beer to sell, it just goes on .

44. This behaviour gave us little option, break the conditions of the tie and buy beer elsewhere or close and stop paying rent. Either way we were put out of business so we chose to close.

4 5 . CONCLUSION

46. I have for many years been vocal about the inaccuracies and misuse of beer flow monitoring equipment. I have also been active in Fair Pint and Fair Deal For Your Local in campaigning for a better deal for tied lessees especially those tied to the large money grabbing pubcos.

47. I am convinced Punch have taken this opportunity to make life as difficult as possible to remove me from The Cricketers Arms in an effort to silence me and my criticisms.

48. Punch deliberately withholds vital information for a lessee to establish fair treatment. Punch are deceitful to protect the ir beer monitoring equipment playing loose with the lessees safety and legal obligations under Environmental and Health and Safety legislation .

49. Punch partner trading rules make very little business sense until you realise their eventual aim. That aim is to relieve the lessee of all their money, throw them out and start again with a new ‘victim’. And if they cannot find a new victim , declare the pub unviable and sell the Public House for other uses.

50. A dictionary definition of a partnership is

a contractual relationship between two or more persons carrying on a joint business venture with a view to profit, each incurring liability for losses and the right to share in the profits

Punch call us ‘Partners’ in a ‘Partnership’ and conveniently ignore the liability for losses and contrive that their share of the profit is much greater than their partner.

51 . If legislation with an MRO option had been implemented at any time in the 10 years or more that this inequality has existed and been debated, we would still be in business running The Cricketers Arms. We firmly believe the inexcusable delay by successive Governments have contributed to our financial demise along with the disgraceful behaviour of our landlords , Punch Partnerships.

52 . For this to stop the only logical step left to Government, bearing in mind the total failure of the previous initiatives, is to legislate and include a MARKET RENT ONLY OPTION .

November 2014

Prepared 6th November 2014