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Lord Addington: My Lords, I can be a little more enthusiastic than the noble Lord, Lord Hodgson. I was under the impression that there would be consultation, so he may have been a little unfair. I agree that consultation should have taken place a while ago, but in Parliament I have given up worrying about what should have been done. As long as matters are conducted in time, I usually say that that is good enough.

This is an old friend. One or two years ago I remember saying that this was a good idea. The whole package covers next year as well as this year, which is sensible if the Licensing Bill is not enacted. When I first picked up the documents I assumed that the Licensing Bill would cover next year. This procedure appears to work and appears to cut down on disturbance. I recommend that we get the Licensing Bill in better shape so that we do not have to worry about such a situation again.

Baroness Blackstone: My Lords, I do not feel particularly strongly about the title of the order. What matters is that it does the job properly. I believe that the reason that it is called the Regulatory Reform (Special Occasions Licensing) Order 2002 is that it is an amending order to last year's order, which was for special occasions because it covered the Golden Jubilee.

The noble Lord, Lord Hodgson, asked about off-licences. The order does not affect off-licences.

On timing, I accept that the order is late for which I apologise. The process of policy development and the statutory timetable described by the Regulatory Reform Act 2001 normally requires well over a year. On this occasion we have had the added burden of completing a thorough review of New Year's Eve 2001, which meant that the order had to be completed in the year between last New Year's Eve and this New Year's Eve. I hope that that explains to the noble Lord, Lord Hodgson, why we are in this position. That has never been done before.

I am grateful for what the noble Lord, Lord Addington, said, and for his welcome of the order. I believe that it has been widely welcomed. I am sorry that the noble Lord, Lord Hodgson, was not able to be a little more welcoming. I do not believe that it is a limping, half-effective order. It was widely anticipated and the licensing trade knew that it was likely to be passed.

On Question, Motion agreed to.

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Supply of Beer (Tied Estate) (Revocation) Order 2002

3.39 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville) rose to move, That the draft order laid before the House on 21st November be approved [3rd Report from the Joint Committee].

The noble Lord said: My Lords, we are here to consider the proposal to revoke one of the beer orders—the Supply of Beer (Tied Estate)(Revocation) Order. However, I should make clear at the outset that, in addition to the Supply of Beer (Tied Estate)(Revocation) Order, we intend to make a related order to revoke the other remaining beer order—the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order—which will be subject to the negative resolution procedure. While the parliamentary procedure for each is different, the two orders are linked and my speech will inevitably embrace both.

The central point I want to make straightaway is that the beer orders are simply no longer relevant to today's industry, so we are simply getting rid of unnecessary legislation.

The beer orders were radical and necessary in their time, but that was in 1989 when the landscape in the brewing and pubs industry was completely different. It may be helpful if I explain the history of the beer orders.

As long ago as 1986, the Monopolies and Mergers Commission was asked to investigate the possible existence of a monopoly situation in the supply of beer for retail sale on licensed premises in the UK.

As I said, in 1986 the structure of the brewing industry was completely different. At that time the industry was dominated by six major brewers which between them owned three-quarters of all tied public houses. The retail pub chains that populate our high streets these days had not even been thought of in 1986.

The MMC report described the stranglehold of the major breweries over the great majority of pubs in this country. Consumer choice was severely limited and independent producers and wholesalers were denied access to thousands of retail outlets. As a result, both wholesale and retail prices were higher than they needed to be.

The Government's response to the MMC's recommendations was the beer orders. There were two: the Supply of Beer (Tied Estates) Order 1989 and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989. The Government decided to require brewers owning more than 2,000 pubs to release from the tie half the surplus over 2,000, thus creating some 11,000 more free houses. Moreover, all national brewers had to allow their publicans complete freedom to buy non-beer drinks

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from any source and to sell at least one draught cask-conditioned "guest beer". The tied estate order was amended in 1997 to extend the guest beer provision to include one bottle-conditioned guest beer.

It is useful to say more about the guest beer provision because it is probably the only provision of the beer orders to have become lodged in the beer drinker's consciousness. It is important to consider it in context. It was one element of two statutory instruments whose overall impact was to widen the free trade by greatly increasing the number of retail outlets not tied to any brewer. They reduced the number of pubs controlled by the largest brewers, whether managed or tenanted. In the case of tenanted pubs, the guest beer provision further weakened the tie by empowering a particular category of publican to retail an additional beer from outside sources. In practice, the indirect beneficiaries proved to be the regional brewers and some independents and microbrewers who, for the first time, were able to offer their cask beers for sale within the tied estates of the larger brewers. The potential market for their products was widened considerably.

It is also interesting to note that, beyond the strict, legal provision requiring the large brewers to permit their tied tenants to purchase and sell a guest beer, the wider concept of offering a guest beer has been taken up voluntarily in other parts of the industry, for example, by the regional brewers and the retail pub companies. Since last year's sale of Whitbread's few remaining tied tenanted pubs, no pubs have had formal guest beer rights as defined in the beer orders. All guest beers currently on offer in British pubs are those being offered on a voluntary basis. I suspect that that is the reason for the general concept of guest beers being so firmly entrenched in the beer-drinking public's collective mind.

I return briefly to the opportunities which the guest beer provision of the beer orders offered to independent and microbrewers in 1989. While many independents withdrew from brewing, microbrewers have become more numerous, but, as with small businesses, they have both high start-up and failure rates, and their collective market share has only ever been tiny.

My honourable friend the Parliamentary Under-Secretary of State for Competition, Consumers and Markets was therefore pleased to announce on 19th February that the Government are keen to enhance the contribution made by the UK's small brewing industry to the diversity and competitiveness of the beer market. Actions speak louder than words, and my right honourable friend the Chancellor announced in Budget 2002 his intention to introduce reduced rates of duty on beer produced by smaller brewers from June this year. The small breweries relief scheme benefits over 370 breweries that produce around 2 per cent of beer for the UK market. The relief helps small breweries to compete more effectively with the larger breweries, and also benefits the wider economy, particularly in rural areas where many small breweries are located.

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The Director-General of Fair Trading's review of the beer orders in 2000 was long overdue in the sense that it had been clear for some time that the market had changed dramatically. There have been considerable structural changes in both the brewing and pub retailing sectors. There have also been a number of significant mergers among brewers. Retail pub chains have developed and now own more than a third of the UK's pubs, offering countervailing buyer power in relation to the large brewers.

The Director-General of Fair Trading found that the declining market for beer in the UK since 1989 had forced the consolidation of both larger brewers and regional and local brewers. Apart from micro-brewing, entry into UK brewing has been limited, and there continue to be significant barriers to entry or expansion.

However, the most significant changes have been to the structure of retail ownership. That has changed dramatically, with the emergence of retail pub chains. At the same time, the retail on-trade market has become significantly more differentiated with pubs increasingly competing alongside clubs, bars and, to some degree, restaurants. Retail competition has been manifest in higher levels of capital expenditure on amenity and greater service provision. At the same time, consumers have a greater choice of different price/amenity combinations with the emergence of low-priced retail pub chains.

Not surprisingly, the Director-General of Fair Trading concluded that the beer orders were complex. He noted that there were many ways to amend them against the background of the need to keep competition healthy in the market. But he decided that the industry in its current shape was not suited to regulation by the beer orders as they stood. He therefore recommended that all provisions of the orders should be revoked except for three provisions of the loan ties order. Those were the provisions dealing with loan tie agreements, the publication of wholesale prices and the refusal to supply beer for resale.

My right honourable friend the former Secretary of State for Trade and Industry announced on 1st December 2000 that he was minded to accept all the Director-General of Fair Trading's recommendations, except that he also wanted to retain the guest beer provision and the rules preventing brewers from imposing conditions when they sell a pub to stop its being used as a pub in the future.

My right honourable friend made his announcement on the basis that the Director-General of Fair Trading's report noted that some 1,700 Whitbread pubs still had formal guest beer rights under the beer orders and he rightly wished to preserve the consumer choice that such rights bestowed. But soon after his announcement, Whitbread sold those pubs, leaving no pubs with formal guest beer rights. That put a completely different complexion on the matter and it made sense to consider afresh the Director-General of Fair Trading's report.

In the light of the Whitbread development, there is no point in retaining the guest beer provision. More broadly, the problems that the beer orders were introduced to address—the situation in which brewers

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could prevent proper competition between pubs and restrict consumer choice—no longer exist. That is why we have decided that the beer orders have served their purpose and should be revoked in their entirety.

To conclude, I emphasise that even if competition problems arise following the revocation of the beer orders, the Director-General of Fair Trading now has much stronger powers under the Competition Act 1998 than he had under the Fair Trading Act 1973. He has assured us that he stands ready to use those powers whenever evidence of anti-competitive behaviour comes to light.

The revocation order is a useful and sensible piece of deregulation. I hope that it will command enthusiasm, and I commend it to the House.

Moved, That the draft order laid before the House on 21st November be approved [3rd Report from the Joint Committee].—(Lord Sainsbury of Turville.)

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