Pub Companies

Debate between Martin Horwood and Damian Hinds

Thursday 12th January 2012 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

The importance of this subject is clear from the number of Members present for this debate. That is unsurprising as pubs are an important part of being British; they are an important part of what holds us together and of what, literally, brings us together. This has been a difficult time for the licensed trade as a result of Sky TV costs and Performing Rights Society costs, as well as changing social habits leading to a decline in wet sales, combined with the underlying structural problem that prices go up by price inflation but the biggest cost, which is people, goes up by wage inflation. There are clearly far too many pubs closing in our towns and villages, and we need to find ways to stop that. Changing the tie arrangements is not the right way, however.

I should declare an interest: I used to work in the pubs and brewing business, but I no longer do so. The industry is built on partnerships between large companies and individual entrepreneurs. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, that brings many people into the business who otherwise would have no way in. However, whenever there are two businesses working together there is always potential for conflict, and this business certainly has its fair share of that. We should also make it clear that there are many happy tenants and lessees, however; not everybody is at loggerheads with their partners.

At its heart, the tie is a way of sharing risk between the real estate owner and the individual entrepreneur. Different sectors do that in different ways: they have franchise fees as a percentage of revenue, turnover-related rents or whatever it might be. In this sector, it just so happens that it is done primarily through the tie. Everything that I know about economics and business tells me that loading all cost on to fixed cost and de-variablising it would increase, not decrease, the number of business failures because of the increased operational gearing.

There is a somewhat false impression implicit in much of this debate—in the wider sense; not so much today—that, were the tie to go, everything else would stay the same, so nobody’s rent would go up. Of course, that is not true at all. There is a required return on every piece of real estate; the market expects a required return from quoted companies.

[Martin Horwood (Cheltenham) (LD)]

Does the hon. Gentleman not accept that hardly anybody in this debate has asked for the tie to go? We are talking about rebalancing the power relationship between lessees and pubcos, so that there is greater incentive for pubcos to provide a more generous arrangement for small businesses.

[Damian Hinds]

The motion does in fact specify a “free-of-tie option”. Many pub-owning companies would say that some sites are appropriate for leases—where the partner can build the value of the lease by building up the food business, for example—whereas others are more appropriate for a traditional tenancy-type business. The motion as stated would conflict with that approach.

In addition to that false implicit impression, there is a confusing conflation of tenants and lessees. On the one hand, we seem to be saying that this is only about very large pub companies that run leases; yet a number of those who have spoken in favour of that proposition have referred to the people in question as tenants. I am not entirely sure where the cut-off point of 500 sites comes from. It is possibly intended to target just a couple of companies, but frankly, coming up with a regulatory package for the whole industry is probably not the best way to do that. I fear that that would pull in a couple of other companies it is perhaps not intended to target.

Most importantly, there is little evidence that I know of that traditional, smaller, integrated brewers have any difficulty with the tie, which suggests to me that there is no problem with the tie per se.