Pubs Code and the Adjudicator

Bill Esterson Excerpts

Thursday 14th April 2016 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr McCabe, as it was to see Sir David in the Chair earlier. I congratulate the hon. Members who applied to the Backbench Business Committee on securing this afternoon’s debate. It has been an excellent debate, and I want to mention the hon. Member for Leeds North West (Greg Mulholland) in particular. It is nearly 30 years since I attempted the Otley run, much of which is in his constituency. I was a Leeds student then, and cannot remember it very well. We can all guess some of the reasons why my memory is not what it was.

I value the country’s pubs, whether they are in Leeds North West or my constituency. Members of Parliament have a duty to look after them as much as possible, particularly the ones that are run by pub tenants, because this is about a fairer deal at our locals. At a time when pubs are closing at a rate that has not been seen in more than 100 years, there is an urgency about doing what we can to support the great British institution of the local pub. A fairer market would help local communities and economies as well.

The prearranged monopoly, which is what beer ties amount to, locks microbrewers out of almost a third of the market. The Society of Independent Brewers showed a 25% increase in the choice of cask beer available in the UK between 2012 and 2015. That is 4,000 cask ales—a huge industry with incredible potential for many small and micro businesses. Imagine the potential for sales and jobs in the industry if the market grew by up to 50%, and yet microbrewers are denied access to a third of pubs because of their ownership structures. I have three excellent new microbrewers in my constituency alone: Red Star, Neptune and Rock The Boat. Members will be able to sample some Red Star ale when it is on sale in the Strangers Bar in the week commencing 8 June. I encourage you to sample some as well, Mr McCabe.

[Mr Bailey]

Can I clarify whether my hon. Friend is offering to treat us?

[Bill Esterson]

I am not sure what the ethics of such a proposal would be, so I shall move on, but I would be happy to share a pint with my hon. Friend in that week.

There is real consumer appetite for quality, locally-produced real ale. The monopoly on beer sales for pub companies and the breweries they own really does not reflect what consumers want to buy. The landlords of pubs in my constituency, including the Corner Post, Stamps and the Freshfield, are seeing booming custom and will back me up because they are serving some of the beer that I mentioned from the breweries that have recently started up. We have heard many stories, not only today but over the years, about how pub tenants have been ruined or promises of investment have not materialised because of the actions of the pub-owning companies. That is why it is so important that we get this absolutely right.

Market rent-only is only an option. If the pub companies and brewers run a robust and positive business model, they have nothing to fear from the alternative. If pub companies feel that they are giving tied tenants the best option, they should be willing to put the options for their tenants on the table and convince them that beer ties are a sensible business decision.

We await the publication of the pubs code. When she responds, I hope the Minister will tell us when it is going to be published. It needs to be published soon, so that the industry has the time to analyse it properly and to address the weaknesses we have heard described today—I will come to some of those later—before it goes live on 1 June. Suspicion has often been raised about how the code has been handled and we need to see the final version to allay those concerns. Let us remember that it took an amendment tabled by the hon. Member for Leeds North West for the market rent-only option to be included in the Small Business, Enterprise and Employment Act 2015. That amendment received wide, cross-party support. To their credit, the Government accepted the will of MPs and peers and made the commitment to include market rent-only options and parallel rent assessment to go alongside them.

Parallel rent assessment matters because it offers a side-by-side comparison, so that pub tenants can determine whether to remain tied or to go free of tie. Pub tenants need parallel rent assessment so that they can make an informed decision, so having market rent-only without parallel rent assessment simply made no sense. That is why there was so much concern when the initial consultation that was published in autumn 2015 appeared to exclude parallel rent assessment. But, after a lot of fuss, including during exchanges with the Minister on the Floor of the House at BIS questions, the mistakes in the consultation were rectified. The Minister deserves some credit for her response on that occasion.

What a great pity, then, that doubts still remain about the effectiveness of the pubs code so close to its implementation. The Government say that the market rent-only options will be offered to landlords at rent review or lease renewal. They also say that the trigger will be the rent review or lease renewal itself, rather than, as seemed likely at one point, only in the event of an increase in rent. However, there are two interpretations as far as tied tenants are concerned. One is that the effective date for rent review is the date of implementation; the other is that it is the date on which the notice is issued and when the review process starts, which is six months earlier.

The market rent-only option will be enforceable only from 1 June this year. Only rent reviews or lease renewals made after that date will entitle a tied tenant to a market rent-only option. When she responds, will the Minister clarify whether renewal notices issued before 1 June will allow pub companies to avoid offering the market rent-only option, even when the reviews are agreed after 1 June?

Then there is the pubs code itself and the concerns raised by the British Pub Confederation and others. The draft code appears to allow pub companies to force tenants to surrender a long lease for a much shorter one in exchange for the market rent-only option. The problem with that is that a tenant who takes a short lease will face uncertainty about what will happen at the end of it. Running a business of any kind requires certainty, and when the building itself is so crucial to the business—in fact, in this case the building is the business—not knowing whether a lease will be renewed dramatically reduces the attractiveness of market rent-only. This approach certainly appears to be the very opposite of creating the level playing field that I think we are all trying to achieve.

The draft code also suggests a waiver of the right to the market rent-only option for prospective new tenants, so pub companies could decide to let pubs only to tenants who waive their rights. Our concern about the loopholes that have been discussed today is that the combined effect of the two proposals in the draft code could mean business as usual for the pub companies, because tenants who want the market rent-only option will not have their tenancies renewed, while only those who accept the tie will be allowed to take on leases. Will the Minister clear this up and say whether those provisions will be included and whether the loopholes will be removed from the final version of the code? If they are not, pub tenants might start to think that the pubs code is not actually going to change very much at all.

All that brings me to the appointment of the Pubs Code Adjudicator. Like other Members, I think the hon. Member for Peterborough (Mr Jackson) made an excellent speech. I agree with pretty much everything he said. He made the points that, for a free market to operate effectively, it needs to be a fair market—I agree wholeheartedly with that—and that unless the code is drafted correctly, it will be unworkable. He also talked about conflicts of interest, which I will come to shortly.

In a number of our exchanges, not least when my hon. Friend the Member for West Bromwich West (Mr Bailey) was on his feet, the point was raised about whether the newly appointed adjudicator, Mr Newby, had been involved in the drafting. I think the Minister was trying to clear that up. Mr Newby may well have been involved in setting up his office, which of course is entirely proper; the problem is that the Business Secretary’s letter to the British Pub Confederation says that

“he shared his professional insights”

when the draft pubs code was discussed with him. I do not know whether that counts as setting up his office or as helping to draft the pubs code, but there seems to be some blurring between where setting up an office ends and helping to draft a code begins. In the end, I am not sure we are much further forward on what his role has been so far.

On the point about conflicts of interest, the Fair Pint campaign’s submission to the Small Business, Enterprise and Employment Bill Committee was clear: do not appoint a surveyor to the post. Any surveyor with experience of the field will have potential conflicts of interest. They will have acted for the big pub-owning companies and will not be seen to be impartial in arbitrating as the adjudicator between pub companies and tenants.

[Anna Soubry]

My right hon. Friend the Secretary of State for the Department for Business, Innovation and Skills said in his letter:

“I can confirm that Mr Newby has not been involved in the drafting of any part of the Pubs Code. My officials met Mr Newby after his appointment to provide him with a high level briefing on Part 4 of the Act and some areas of the draft Pubs Code in order to familiarise him with the key aspects ahead of him taking up this important role. During the course of this briefing there was a discussion of some technical aspects of the MRO arbitration process—for example, the length of time it takes to appoint an independent expert—where he shared his professional insights.”

Does the hon. Gentleman agree that that is a correct reading of the full paragraph, which, I would suggest, he slightly misquoted?

--- Later in debate ---

[Bill Esterson]

I used the end of the quotation, which states that

“he shared his professional insights.”

I think it goes further than what the Minister said earlier about the work he carried out, because to me, if he is being asked to provide feedback on the code in a professional manner, that is very close to sounding like he is being involved in drafting the code.

[Anna Soubry]

To remind the hon. Gentleman:

“Mr Newby has not been involved in the drafting of any part of the Pubs Code…During the course of this briefing there was a discussion of some technical aspects of the MRO arbitration process—for example, the length of time it takes to appoint an independent expert—where he shared his professional insights.”

[Bill Esterson]

It seems to me that if he is sharing his professional insights, he is giving observations and helping to draft the code. We can split hairs over this all afternoon, but I am sure others will draw their own conclusions about what his involvement has been in preparing for his office.

[Greg Mulholland]

As has just been demonstrated, the Minister has contradicted herself. She suggested that Mr Newby’s only involvement was in setting up the office, but then she read from a departmental letter or memo, which clearly stated that it was more than that. Does the hon. Gentleman agree with me and many tenants that it is because of precisely this kind of confusion that people simply do not have confidence in the Pubs Code Adjudicator and, frankly, in the Department?

[Bill Esterson]

The hon. Gentleman described it earlier as a cock-up. Unfortunately, as with so many other aspects of the way the pubs code was drawn up and the way the level playing field was supposedly being created, the Government have not handled it well. There is clearly a contradiction between setting up an office and what the paragraph that the Minister read out states. As I said, others will make their own judgments about that.

I was talking about the Fair Pint campaign’s submission, which, by the way, was made before Mr Newby’s appointment was announced. It said that surveyors will have acted for the big pub-owning companies and will not be seen to be impartial in arbitrating as the adjudicator between pub companies and tenants. What is more, it also points out that Royal Institution of Chartered Surveyors members who deal with pub valuations depend on pub companies for a large portion of their fee income. That is a clear conflict of interest. That warning was made before the adjudicator’s appointment was announced by the Minister and her boss the Business Secretary.

In RICS’s response to the consultation on the adjudicator in 2013, it said:

“We also have concerns in relation to how the Adjudicator process might work on a practical level…It is likely that many such specialists will have a conflict of interest having advised one of the parties on a range of matters or as an Independent Expert or Arbitrator.”

So RICS made the same point, well in advance of the appointment, that a surveyor is almost certainly going to be conflicted. Si Clarke from the Fair Pint campaign told the Minister when he met her that appointing a surveyor would be “catastrophic”. As he told me this morning, having an independent adjudicator can only mean not appointing a surveyor. He and others made that point extremely clearly to officials and Ministers throughout.

It is important to stress that the concerns about the adjudicator’s appointment are not a reflection on one individual. Nobody is suggesting that surveyors act in anything other than a professional way, with the utmost integrity. The concerns about the appointment of Paul Newby are not about Mr Newby. His integrity is not in question in any way. That has been confirmed throughout our discussions today and previously, and the hon. Member for Peterborough (Mr Jackson) made that point extremely well.

[Mr Jackson]

The hon. Gentleman is making a powerful point. It is unfortunate that the Minister has to defend this situation, which is, as much as anything else, about governance in her Department—indeed, in all Departments. In the absence of a confirmation hearing, the decision to go by statutory instrument rather than Standing Order and therefore to restrict the level of oversight and scrutiny by Parliament is regrettable. I gently say that the Government should reflect on the fact that we will continue to have instances when people say, “Is it cock-up or conspiracy?” and question individuals if the system sets its face against proper scrutiny.

[Bill Esterson]

I agree and echo the hon. Gentleman’s call for such appointments to be subject to Select Committee appointment hearings. That is the right way to go. The way he phrased it is a good way of emphasising that this is not about any individual. We are not questioning anybody’s integrity. I am glad he made that point, because it is important that we continue to stress it.

The problem is the conflict between Mr Newby’s work for Fleurets and his representation of the big pub companies over many years, and his ability to gain the trust of pub tenants. It is no good to say, as the Minister did, that he acted for pub tenants. As RICS pointed out, having advised either a pub company or a pub tenant could be perceived to lead to a conflict of interest. In any case, in examining the claim about Mr Newby’s having represented pub tenants, it is important to understand what that really means. Mr Newby’s CV, dated 10 February 2012, shows that he acted for the following pub tenants, among others: Enterprise Inns, Marstons and Punch Taverns. In other words, the same large companies can be pub owners and pub tenants, which raises questions about why his more recent CVs omit such detail.

We have not been able to get an answer to how many pub tenants whom Mr Newby or Fleurets has represented are the tied tenants of a single pub or the small number of pubs that they run. After all, with fees of £300 an hour or more for a firm such as Fleurets, it is rather doubtful whether any tied pub tenant with an annual income of £15,000 or less—or those with no income or those making a loss—would be able to afford such services.

When the Minister wrote to me, she told me that the appointment panel had satisfied itself that Mr Newby had no conflicts of interest. That is rather odd, given the RICS assessment of the same topic. I suggest to the Minister that had she said to me that the panel had found conflicts of interest, but had decided that they would not affect Mr Newby’s ability to do the job, that might have been a rather better case for her to make.

The point about conflicts of interest is that, by definition, they have the ability to undermine impartiality, to influence and to create doubt among those involved. The example of the Groceries Code Adjudicator’s conflicts of interest policy was mentioned earlier by the hon. Member for Leeds North West. The policy comments in some detail, recommending a two-year period before conflicts of interest start to diminish. It also states that they have the potential to be a “disqualifying interest”. When setting up the pubs code, why was a similar approach not adopted from the outset? Why are such rules not already in place? The pubs code conduct policy will be developed in time, but it would have made more sense to have it in place earlier. Had it followed the same approach as that of the Groceries Code Adjudicator, I suggest that it would have ruled out the appointment of surveyors, including Mr Newby.

Another thing that did not help was that the Minister chose to announce Mr Newby’s appointment during an intervention in a speech being made by the hon. Member for Leeds North West in the Third Reading debate on the Enterprise Bill. The way in which that was done, I am afraid, raised suspicions that not all might be well. She could have made the announcement in a statement to the House—she was forced to come back the next day anyway, to answer an urgent question—or in the Enterprise Bill Committee. Why did the Secretary of State not make the announcement during his speech on Third Reading? Why in an intervention, of all things? That was an odd thing to do and it raised suspicions.

Given the way the pubs code was drawn up—with the exclusion of parallel rent assessment from the consultation; with the need, in the last Parliament, for amendments to the Small Business, Enterprise and Employment Bill to protect pub tenants; with real, ongoing concerns about the way MRO could be avoided; and with the appointment of a surveyor with clear conflicts of interest, despite the advice not to appoint a surveyor—it is no surprise that pub tenants and the members of the British Pub Confederation are still deeply concerned about what is going to happen when the pubs code is implemented. In reality, as things stand, there is a strong possibility that the lack of a level playing field will remain and that tied pub tenants will continue to be denied a fair deal.

The Minister needs to get a grip, to ensure that the loopholes in the pubs code are slammed shut, and to go away and take a long hard look at the appointment of the adjudicator. I believe the Minister wants a fair market in pubs and beer, but she has a lot of work to do to get there and little time in which to do it before the 1 June deadline. The hon. Member for Leeds North West made a point in his opening speech about the need for confidence in the pubs code and the adjudicator. I ask the Minister: please listen to what has been said by Members today and by pub tenants, to ensure that the new pubs code delivers.

--- Later in debate ---

[Anna Soubry]

I am very grateful to my hon. Friend for his wise words. I take objection to the idea that the civil servants, in the most difficult of circumstances—they really are up against the clock—have not acted with total integrity. They have done a great job. I think that we sometimes forget that civil servants are professionals and human beings. With few exceptions, they serve us extremely well and do a good job.

Make no mistake: I do not have any complaints about the rigour of this place’s questioning and probing, and I am grateful to my hon. Friend for his comments. I hope he knows that I always act with complete integrity and would weigh up all the matters in favour of and against the appointment of anyone to ensure that we get the right person. I do not know whether Mr Newby is a lovely person, but I do know that he brings the requisite skills, ability and experience, and I am confident that he will act with integrity and do a good and fair job.

As I made clear on 10 March, Mr Newby is an excellent candidate. He was appointed in accordance with the code of practice for ministerial appointments to public bodies. As I did then, I take exception to any allegation that I or, indeed, anyone else has acted improperly or with complicity, and I have no doubt that he has all the necessary skills and experience of the pubs trade.

[Bill Esterson]

Will the Minister give way?

[Christian Matheson]

Will the Minister give way?

[Anna Soubry]

I will in a minute. There has been a very positive response to the appointment of Paul Newby as the Pubs Code Adjudicator. I am grateful for the briefing supplied by the House of Commons Library and the comments on 16 March from the Royal Institution of Chartered Surveyors, which we have heard a lot about and heard some quotes from. Its statement regarding the appointment of Paul Newby as Pubs Code Adjudicator went as follows:

“By the very nature of the role, the adjudicator’s office will need someone with past experience in this field of valuation and Paul’s professional history has seen him represent both pubcos and tenants at various junctures in his career. As Paul Newby will no longer continue in his role with Fleurets, there should not be a risk of this posing a conflict of interest in his execution of his new post.

An RICS spokesman has said: ‘Chartered Surveyors are expected to demonstrate the highest professional standards and act within the RICS Code of Conduct at all times. We have no reason to believe that Paul Newby is failing to meet these standards. On the evidence that we have seen to date, this does not appear to be an issue of conflict.’”

[Bill Esterson]

Will the Minister give way?

[Greg Mulholland]

Will the Minister give way?

--- Later in debate ---

[Anna Soubry]

I shall continue.

[Bill Esterson]

rose—

[Anna Soubry]

Does the hon. Member for Sefton Central (Bill Esterson) want to intervene? Let me say a few words and then I will take an intervention.

As the Pubs Code Adjudicator, Mr Newby has a duty to set out arrangements to deal with any specific conflicts of interest. He will do so in the normal way and, as part of that, he will publish a register of interests. Contrary to the British Pub Confederation’s campaign, he has a wealth of experience on rents, rent reviews, lease renewals and landlord and tenant issues. It was that experience that I found particularly attractive in his CV and then when I met and interviewed him, as I did all three of the final candidates.

Mr Newby has also been involved in dispute resolution in those areas as an expert witness, arbitrator and independent expert for many years. In one case he represented a tenant who had significantly overpaid rent to a large pub company. That required sustained effort by Mr Newby to recover the overpaid rent. That is just an example of his work for tenants, certainly not of being in the pocket of large pub companies.

We have had reference to my former profession as a barrister. I do not want to fall out with the hon. Member for Leeds North West, but I do not think he quite remembered what was said. I was trying to make a point about professionals. The hon. Gentleman for—I have forgotten his constituency in Scotland; that is very rude of me.

--- Later in debate ---

[Anna Soubry]

I have some very good news for hon. Members, but if the hon. Gentleman wants to intervene, I will give way.

[Bill Esterson]

I thank the Minister for answering the question about when the regulations will be laid, but it would have been extremely helpful to have them in advance of the debate, so that we could discuss them today. Earlier, she said at least twice that serious allegations had been made about her having a conflict of interest in Mr Newby’s appointment. Will she say who made those allegations and what they have been? Using parliamentary privilege, she can name the person right here and now.