Draft Small Business, Enterprise and Employment Act 2015 and Pubs Code Etc. (Amendment) Regulations 2021

Bill Esterson Excerpts

Tuesday 11th January 2022 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to have you in the Chair, Mr Gray.

I am grateful for the Minister’s comprehensive explanation of the proposed amendments, and his analysis of some of the concerns. The Pubs Code was needed in the first place because of the lack of balance, and I agree with the Minister about how the industry should operate. I served on the Bill Committee and I know that there was a strong consensus on the creation of the Pubs Code. I am not going to stray from the topic of the instrument, but I remember very well the reasons why the behaviour of some of the pub-owning companies led to the need for a much more fair and balanced arrangement that gave pub tenants the opportunity to run their businesses under fair terms with pub-owning companies. The hon. Member for West Worcestershire referred to bad practice and I am afraid that there were many such examples prior to the creation of the Pubs Code.

The amendments under paragraph 5 of schedule 2 relate to the ability of the tenant to understand or analyse the cost of the market-rent-only option. That has been a cause of significant concern since the initiation of the Pubs Code. The Opposition support the move to give tenants the figures related to the MRO option. The other changes outlined by the Minister will also improve the current arrangements.

I noticed that most of the respondents to the Government’s consultation appeared to be—it was difficult to be absolutely sure—either pub-owning companies themselves or organisations that probably would be sympathetic to them. Some of those responses I therefore take with a slight pinch of salt. That brings me on to parallel rent assessment, which was referred to in the Government’s response to the consultation on amending the Pubs Code, but I do not believe the Minister referred to it today. Tenant representatives have said that having a parallel rent assessment would allow pub tenants, or their advisers, to make a judgment on the comparative costs and benefits of remaining a tied or a market-rent-only operation.

Paragraph 7 of the Government response to the consultation states the “consultation document”—I assume that means the original consultation document sent out to consultees—

“noted that such information could serve to confuse a person unfamiliar with the Code or running a tied pub”.

To me, that suggests that the Government already had a strong preference for not introducing parallel rent assessments. If we were in a court of law we might describe that as leading the witness, your honour. That concerns me. The consultation response says that the majority agreed with the assessment in paragraph 7, but, as I said, given that the majority of consultees appear to have been favourable to the pub-owning companies, that is hardly a big surprise. Perhaps the Minister can explain what is meant by

“confuse a person unfamiliar with the Code or running a tied pub”.

To put that in context, anyone who is investing in a business—precisely what a pub tenant is doing—would carry out their due diligence. They would therefore want as much information as possible when making the judgment between being a tied tenant or free of tie, or notional free of tie in terms of the market rent option. I hope that the Minister can provide an explanation. It makes sense for anyone going into business or already in business to be as informed as possible when deciding which business model would best support their investment and business future. The advantage of a parallel rent assessment is that it acts as a check to ensure that the Pubs Code meets its principle of ensuring that individual tied tenants are not worse off than they would be if free of tie. Is there a lack of information that prevents tenants or their advisers from making the necessary judgment and acting accordingly? That is my key question to the Minister.

We need to support our pubs. The pandemic has been brutally hard on pubs and pub tenants who were already struggling before it. They need as much support as possible. The local pub is a key part of our high streets and our communities, and our future prosperity, because it drives so much else in communities and brings business to fellow local businesses. Pubs are often the source of very good local activity.

The Opposition want good businesses to grow, not least our pubs. I hope that the Government will seriously consider our proposed reforms to business rates, which is a source of real concern to pubs.

[The Chair]

In context of this SI.

[Bill Esterson]

Indeed. The regulations we are considering this morning offer such support. I hope that the Minister will take note of my comments and offer some good answers particularly about parallel rent assessments and how they sit with the ability of pub tenants to make the decisions crucial to their future success.

--- Later in debate ---

[Paul Scully]

I will not tempt you to intervene.

I agree with the hon. Member for Sefton Central about the importance of pubs to our communities and the social value they offer, so it is really important that we get the balance right. I think the code was drafted in such a way that we can balance the rights and protections of tied tenants against the property rights of pub owners to ensure that they can operate the tied pub estate and secure rents on their investment while keeping the pubs in full flow for and on behalf of the community.

On parallel rent assessment, we share the aim to achieve informed decision making. I take the hon. Gentleman’s point about who actually responded to the consultation but stakeholders reinforced their concerns about additional complexity for tenants and the possible increased cost associated with providing a parallel rent assessment. Stakeholders provided valuable insight into the recruitment processes, the additional support provided particularly for tenants new to running a tied pub and the use of break clauses during the early stages of the tied agreement to enable the parties to end the commercial contract. We are working with the PCA on its tied tenants’ survey to find out more about tenants’ understanding of the terms. As the hon. Gentleman said, it is not only about people accessing the proper process in the first place, but their Pubs Code rights and what informed their decision to enter into a tied tenancy agreement in the first place.

[Bill Esterson]

My question about parallel rent assessments was trying to tease out how a tenant can make such a judgment call and what is the best way forward financially. What is the Minister’s answer to the question that many tenants pose about how they can make that judgment call without being given a parallel rent assessment, so that they can then compare between the tied and non-tied option?

[Paul Scully]

Doubts were expressed about the parallel rent assessment by tenant representatives as well, but I take the point that we must understand exactly what type of information prospective tenants need to enter into that relationship. That is why we will work with the PCA on its tenants’ survey to get to grips with that and achieve that understanding before we go further.

We believe that the amendments to the Pubs Code are proportionate in terms of improving the practical operation of the code. I appreciate the Opposition’s support for our pubs and achieving the right balance for all parties, notwithstanding the hon. Gentleman’s wish to go further on parallel rent assessments. We believe that the proposed changes improve things for tenants without placing undue constraints on pub-owning businesses, particularly at such a difficult time for the tied pubs and the hospitality sector. I am pleased to commend the measure to the Committee.

Question put and agreed to.