Pub Companies

Greg Mulholland Excerpts

Wednesday 9th January 2013 Commons Chamber

[Toby Perkins]

That is a valuable question and one of the things we will be investigating in more detail during the consultation. I think, however, that the costs will be minimal in comparison with the massive loss to the Government from revenue going out of the industry as all these pubs close. If we recognise—as many of us do—that the way in which pubcos have constituted their business model is having a dramatically damaging effect on the industry, we will see that the cost of those closures will dwarf any cost to the Government from such a transfer.

[Greg Mulholland (Leeds North West) (LD)]

The hon. Gentleman will be aware that many pubco lessees are receiving considerable amounts of tax credit because despite having a big turnover they are not earning enough. The taxpayer is currently subsidising the pub companies, which is outrageous.

[Toby Perkins]

That is a typically excellent and important point from the hon. Gentleman. Evidence shows that more than 50% of landlords with tied pubs earn less than £15,000 a year. That is shocking to many people who know the huge hours that many publicans put in.

I have already mentioned some challenges facing the industry, and although the health benefits of the smoking ban are widely accepted, we must recognise that it had an impact on many pubs. We have seen aggressive pricing from supermarkets as the off-trade increased its market share. As if that was not enough, the trade is now reeling from the news that I am on the wagon for January. I have not touched a drop for eight days, 13 hours and about 37 minutes.

As my right hon. Friend the Member for Wentworth and Dearne mentioned, pub companies have been the subject of four Select Committee hearings in seven years, and on each occasion the big pub company lobby said that this time the steps they would put in place would really make a difference. The scrutiny that the Committee has given the issue, and the tempered and responsible way in which it has attempted to work with the industry, demonstrates our Select Committee system at its very best.

The previous Government deserve tremendous credit for their empowerment of the Business, Innovation and Skills Committee on this issue. They recognised the expertise and diligent consideration that went into the reports and trusted the Committee to judge whether a statutory code was the answer. It is worth reminding ourselves that throughout Labour’s time in office, the Committee’s recommendation was to give self-regulation time to work. Its verdict that the final chance for self-regulation to work had passed came in summer 2011, but until that time it never called for regulation to be brought in. Therefore, any claim that this issue should have been dealt with years ago is unreasonable because the Government were working on a cross-party basis with the Committee and the all-party save the pub group. Everyone attempted to give the industry every possible opportunity to put its house in order before going down the route of regulation.

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[Vince Cable]

Yes, that is an extremely good, balanced statement of the factors we have to take into account here. The hon. Lady is right that we propose to deal with the larger pub companies—those with more than 500 pubs. We will be consulting on that, but that is the approach we intend to adopt.

[Greg Mulholland]

I congratulate my right hon. Friend warmly on this wonderful announcement for Britain’s pubs. I urge him to emphasise, however, that there are many small pub companies doing well, taking on pubs, employing people and expanding, which shows that the problem is not with the pubs or companies, but with the giant lease pub companies that have abused both the model and their position.

[Vince Cable]

Yes, my hon. Friend is absolutely right. I shall say more about this later, but the microbreweries and innovative breweries are a major growth industry, expanding well and offering a more varied service. They are a great success story and we do not want to do anything with this new approach that will undermine them.

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[Vince Cable]

My colleague is absolutely right to say that this is about power relationships and how we can prevent them from spilling over into abuse. As I have said, I have an open mind about the precise legal mechanisms that we shall use.

[Greg Mulholland]

Will my right hon. Friend look again at the Save the Pub document, which shows that the figures on pub closures are extremely misleading? He must recognise that they were paid for by the pubcos’ association, the British Beer and Pub Association. Many pubs have been reclassified on closure as being free of tie, having in some cases never operated as such. The figures clearly show that there are more free-of-tie pubs now than there were, and that tied business failure is huge—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. We must have brief interventions. Time is ticking on.

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[Greg Mulholland (Leeds North West) (LD)]

Yesterday was a great day for tied publicans, pub customers and the great British pub. The issue we are discussing is about business, community and justice. I pay tribute to my right hon. Friend the Secretary of State and the Minister, my hon. Friend the Member for East Dunbartonshire (Jo Swinson), for showing the leadership and courage to announce yesterday that they will introduce a statutory and strengthened code of practice for pub companies and an adjudicator.

I also pay a very warm tribute to the hon. Member for West Bromwich West (Mr Bailey), and all the members of his Select Committee and predecessor Select Committees, including the former Chair, the hon. Member for Mid Worcestershire (Peter Luff), for the professionalism and leadership they have shown on this issue. I am sure that the hon. Member for West Bromwich West will agree that we should pay tribute to the Select Committee staff, who have done a remarkable job in uncovering the evidence and ensuring that Parliament has the information at its fingertips to make this sort of decision. I also pay tribute to the Department for Business, Innovation and Skills officials who, in a short time, have conducted the review that Parliament called for and have now come forward with the right solution based on the evidence. That is to be warmly welcomed.

[Grahame M. Morris (Easington) (Lab)]

While welcoming the Secretary of State’s announcement, what is the hon. Gentleman’s view on the tie-free option with an open market rent review?

[Greg Mulholland]

I thank the hon. Gentleman for that intervention, and I pay tribute to him for his work as vice-chair of the all-party save the pub group. Our group should be very proud of what we have achieved; I tabled my first early-day motion five years ago, so I rather regret that I have only five minutes to go through this.

[Martin Horwood]

May I join my hon. Friend in paying tribute to the hon. Member for West Bromwich West (Mr Bailey)? I am sure that the announcement will have come as some compensation for the shock defeat of Cheltenham Town by Everton earlier this week. One of the best things about the Committee’s work has been its willingness to return repeatedly to this issue and to check on progress. Is that not a very good model for other Select Committees to follow on other similar issues?

[Greg Mulholland]

Indeed, it is an exemplary one and it shows the power of Select Committees.

Let us remind ourselves of the issue we are dealing with, because although it is often presented as complicated, it is a simple one: after years of self-regulation and twists and turns in this matter, the giant lease pub companies still continue to take far more than is fair or reasonable from pub profits. It is as simple as that; that is the issue that has to be dealt with. I will come on to address the point made by the vice-chair of the all-party save the pub group, the hon. Member for Easington (Grahame M. Morris), as to precisely how we should try to do that.

Let us remind ourselves of the incredible figure from the Select Committee survey: 67% of lessees with a turnover of more than £500,000 were earning only £15,000 a year or less—that is a 3% return. I know, as I am sure a lot of right hon. and hon. Members do, that some pubco tied licensees have a reasonable turnover yet are making nothing at all. That is a scandal and it is closing pubs. This is a Department for Business, Innovation and Skills debate, but we must also remember that between 2009 and 2011 Ted Tuppen, the chief executive officer of Enterprise Inns, gave himself an £848,000 bonus package over three years, at the same time as the value of his company collapsed by 80%. This is one of the worst examples of irresponsible capitalism that this country has ever seen, and yesterday must signal the end of it—I hope that it does.

We have recently seen the sale of Admiral Taverns. Has anyone noted that there has been a huge loss to the taxpayer, because of course that company had been bought by Lloyds TSB? The estimates of the loss to Lloyds, which is 43% owned by the taxpayer, are of up to £800 million. This is the economics of the madhouse.

Let us remind ourselves that the Association of Licensed Multiple Retailers survey said that for the first time tied rents overtook rents for free-of-tie leases. The whole basis of the tied system was supposed to be that where more was paid for the beer, a lower rent would be paid as a result. The Select Committee, the ALMR and others have shown that that is simply not the case and that licensees are being doubly ripped off, paying higher than reasonable rents as well as exorbitant beer prices. That is, simply, why they cannot make a living.

We need to be clear that the proposal being made is not red tape or bureaucracy; it is about freeing up the British pub sector. It is about freeing up small businesses to make the decisions to be able to succeed, and to get a reasonable living from their pub. It is notable that the proposal has had the full and professional support of the Federation of Small Businesses and the Forum of Private Business. I can name many examples of former pubco pubs around the country that have been taken on by smaller companies, by microbreweries and by individuals and are now succeeding. It has not been the pub that has not been viable; it has been the business model. Two such examples are the Horse and Farrier in Otley, a former Enterprise Inns pub that is now successful under the ownership of Market Town Taverns, an excellent Yorkshire-based pub company, and the Roebuck, just up the road, which is a pub that Enterprise Inns had run into the ground but is now a very successful pub run by local businessman Chris Payne. So it can be done and we want it to happen more. We want it to be a result of yesterday’s announcement.

The pub companies we are discussing are zombie companies; they are not contributing to the British economy. Our concern should not be what happens to them; it should be what happens to the individual small businesses, because there is a huge growth opportunity in this sector if we can free up those licensees to be able to succeed because they employ people and buy things locally.

The response to the announcement from the British Beer and Pub Association—the pubcos association—and from the pubcos has been extraordinary, if unsurprising. Amazingly, the BBPA has said that it is “disappointing” that self-regulation has not been given enough time “to work”. The reality is that the process has been as glacial as it had been when the Select Committee reported, the BBPA has been as impotent in getting self-regulation to work and there is still an impasse on those codes.

The final thing—the big challenge—is how the Government deliver the principle that the tied tenant should not be worse off than if they were free of tie. They are taking on a considerable challenge, but it is the right one. Whether or not this approach succeeds depends on the Government getting that right, because having a code and an adjudicator, on its own, will not change the fundamental issue if the code does not deal with that matter. I believe—the all-party save the pub group will continue to campaign on this—that the best and easiest way of doing that is through the free-of-tie option with an open rent review. If the Government have other ways of doing it, we look forward to listening to them. Either way, they have to stop the overcharging and they have to save the Great British pub.

[Mr Deputy Speaker (Mr Nigel Evans)]

I must call time on you, Mr Mulholland—appropriately.

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[Mr Spencer]

I thank my hon. Friend for his intervention. I do hope that that will be the case. As I said in my initial comments, it is important that people are able to drink in a social environment where someone is there to keep an eye on what happens. That is a much healthier way of drinking than sitting at home in front of the TV drinking cans of lager. We should ensure that we continue to support public houses and landlords.

Governments have not offered assistance to public houses with other pressures, such as their rateable value. Some of the larger pub companies have used the value of a public house to increase the rents and the price of beer in a deliberate ploy to push out landlords and realise the capital value of that property, in order to knock it down and build housing or retail premises. I can only imagine the pressure felt by landlords when they are exposed to a deliberate plan to push them out.

[Greg Mulholland]

My hon. Friend makes a hugely important point—asset stripping has been a big issue. Does he agree that we also need to consider increasing protection in planning law for pubs, so that asset stripping does not continue? There is a danger, now that the pubcos know the game is up, that they may seek to sell more.

[Mr Spencer]

It would be worth looking at that. Some of the older public houses are of great historic and architectural value, so perhaps somebody should be looking at ensuring that they are protected.

There are some good news stories as well. The tied pub system offers an opportunity for people to become self-employed and set out on the career path of working for themselves. When it works well, it works very well, but we need to tackle those who are abusing the system. There is some discussion about how many companies are doing so. I want the Minister to consider, as part of the consultation process, lowering the threshold for the number of pubs held before they are brought into the realm of the proposed legislation.