Sir George speaks out on pubs
28 Apr 2009
This is the text of a speech Sir George made in Westminster Hall

Sir George Young (North-West Hampshire) (Con): It is a pleasure to follow the hon. Member for Selby (Mr. Grogan), who is one of the world’s greatest experts on the subject that we are debating this morning. I congratulate the hon. Member for Southport (Dr. Pugh), who has a knack of choosing subjects for these debates that interest North-West Hampshire. His last one concerned further education colleges—indeed, both subjects are of great interest to students in my constituency.
Not all the problems that confront pubs are due to the tie. As hon. Members have mentioned, other factors include changing social and leisure patterns, the recession, the duty on alcohol, the regulatory burden, business rates and, crucially, competition from supermarkets, which also sell alcohol. Those broader issues were discussed at the beer summit, which I attended, on 4 March in Room 10. It was attended by an array of Ministers, who, as far as I can see, have so for been unable to respond to the issues debated there.
This debate is about the tie—ownership. I agree with the hon. Member for Selby that there are some benefits to the tie, in that those without the capital to buy a freehold can run a pub and have a stake in its success. There are many well run tenanted pubs with happy tenants and customers. There is not inevitably a tension between pubco and tenant, in that the more beer that is sold, for example, the better both parties do. It is also argued that the tie brings stability to the sector and to British brewing, although I am not as yet convinced of that argument.
If we are considering the case for radical reform, some philosophical issues need to be addressed, particularly by those in my party, before we advocate that Government should intervene in a private contract, freely entered into by the two parties, and, indeed, before we advocate that Government should actively restructure an industry. That appears to be the view of the present Government. In a written answer on 9 February, the Minister stated:
“I have not met with Pubcos to discuss beer pricing. This is a commercial matter for the businesses concerned.”—[Official Report, 9 February 2009; Vol. 487, c. 1677W.]
Let me address the role of Government. The Government have intervened in landlord-tenant relationships for a very long time, where they believe that there is an imbalance. In residential contracts—for example, assured tenancies—there are clauses that the Government have insisted be there. In enfranchisement proposals for leaseholders, the Government have intervened in the relationship between a freeholder and a tenant and given that tenant certain rights that are perhaps relevant to this debate. People who live on mobile home parks have been given contractual rights by the Government that they could not get from the owner. On more commercial matters, the Government consulted in 2004 on removing the upward-only rent review clause in commercial leases.
I therefore see nothing sacrosanct about the tie that precludes the Government from intervening, if the case is made. Of course, the Government intervened back in the 1990s, as we have heard, to alter the structure of the industry in the name of competition, but pubcos now have the same grip on the industry that the three biggest brewers had then. If it was right for my party to intervene then, it is difficult to argue that it is not right to intervene now, if the case is made.
Agencies of the Government, such as the Office of Fair Trading, have taken an interest in pubs. In 2002, the OFT concluded that the tie had no major negative effects on the pub industry. In its 2004 report, the then Select Committee on Trade and Industry said:
“There is considerable scope for eliminating the root causes of such disputes”,
which arose from the tie. It concluded that
“if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it.”
My views on the matter are subjective, and this is not something in which I specialise, but my understanding is that the root causes that the Select Committee mentioned in 2004 have not been eliminated and are still there.
I am influenced in that by two factors: a meeting that I attended earlier this month of licensees in Andover, nearly all of whom are pubco tenants; and what has happened to far too many pubs in my constituency, where a sequence of pubco tenants have simply been unable to make a go of their pub on the terms offered. On the first, I am grateful to Mr. Alex Gillies of the Station hotel in Andover for setting up the meeting. We covered a lot of ground, but there were two important concerns. One was the inability to buy beer as cheaply as people could buy it in supermarkets, after which they could consume it without supervision. Tenants are simply unable to compete effectively in the market for their prime products. Although I am not in favour of resale price maintenance, it is difficult for those of us who believe in competition, the marketplace and free trade to swallow such a significant restraint on trade.
The second issue is the uneven nature of the contract, which has been touched on. In one case, a tenant signed a lease on the basis of high turnover figures, without knowing that they had been preceded by a special offer. I will not repeat the points about the operation of the tie, but all the tenants whom I met had used solicitors, only subsequently to discover that small print in the contract was greatly to their disadvantage.
That brings me to my next point: I want to see greater stability in the industry. I see from the GMB union briefing that 32 per cent. of the Punch Taverns estate of 8,400 pubs changed hands in three years and that those that did changed hands twice on average. Too many tenanted village pubs in my constituency have a series of tenants, none of whom can make a go of the business. Tenants lose their savings, go bankrupt and become homeless or disappear, and the process starts all over again. Six months later, there is another failed business and another tenant. That is not good for the community or for the pubco.
I am interested in a more stable environment and a better business model. In the village of Ecchinswell, the villagers simply got fed up, and they bought the village pub, which is run by a not-for-profit company. I am a keen supporter of that solution, where the market has failed.
What should happen? I am not in favour of a ban on the tie, because that would be too dramatic, but it should be loosened, and we should move to a different business model over time. It would be better if we had more free houses where the publican owned the freehold, and I welcome the fact that the pubcos are selling, which shows that we are moving in the right direction. However, one licensee I talked to at the weekend said that his pub had been valued three years ago and that that was the value in the pubco books. He has offered a third of that price, which he believes is the pub’s going value. If his offer were accepted, it would have enormous consequences for the balance sheet of the pubco, whose asset values would fall.
We should encourage a change in the business model, as the hon. Member for Southport has suggested, because that would lead to a more stable and profitable industry. In an Adjournment debate on 26 March, which my hon. Friend the Member for Tewkesbury (Mr. Robertson) initiated, the Minister said:
“We need to consider the role of tied houses and other pub companies, which, through differential pricing and the rents charged, have an impact on landlords...I will discuss with colleagues in the Department for Business, Enterprise and Regulatory Reform how we can better understand the sector and provide help.”—[Official Report, 26 March 2009; Vol. 490, c. 551.]
We look forward to hearing at half-past 12 just what the Minister has been able to do.
As an interim measure, we should move towards obligatory clauses in leases, such as exist in other contracts. In the longer term, however, a combination of shareholder pressure on pubcos, pressure from the Select Committee, whose report we await, pressure from the House and the availability of finance to enable tenants to buy pubs might move us from where we are to a different structure and a more sustainable and stable pub industry.

 
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Copyright Sir George Young Bt. 2015