Pubs Code 2016

Lord Harrington of Watford Excerpts

Wednesday 24th January 2018 Westminster Hall

[Toby Perkins (Chesterfield) (Lab)]

It is a pleasure, as always, to serve under your chairmanship, Mr Robertson. I congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey), who has been an incredibly important contributor to us getting as far as we have towards justice for pub tenants and a fully functioning, fair market in our pubs industry. My hon. Friend made his case in a typically impressive fashion and laid out many of the issues that face all those who want the pubs code to work in the way that Parliament originally intended.

I do not propose to repeat all the history that my hon. Friend laid out, but it is important to remember that Parliament, and subsequently the Government, took the fairly unprecedented step of intervening in a market—and despite the rhetoric, that has not been the Government’s modus operandi over the last few years—because of historic market failure. There was recognition that pub companies had failed to get their house in order, despite numerous opportunities to do so, and that there was an unfair imbalance in the relationship between powerful pub companies and tenants, who were individual small business people.

For that reason, hon. Members in all parts of the House voted to support the introduction of a market rent only option in the pubs code as part of the Small Business, Enterprise and Employment Act 2015. The support of Conservative and Liberal Democrat Members meant that the Government were defeated, and the market rent only option was put in. It is important for us all that that works, and that we deliver on the principles intended by the 2010 to 2015 Parliament.

I would like the Minister to clarify that he is responsible for the pubs code. I was under the impression that the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Burton (Andrew Griffiths), had taken over the role.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

I confirm that I have that portfolio. That has happened only in the last few days, but I am and will be responsible for pubs. I am listening eagerly to what the hon. Gentleman and other hon. Members are saying.

[Toby Perkins]

I thank the Minister. If that was not press released, he has just released it. I congratulate him on that important role. He may well know the history, but others may not.

One of the founding principles of the pubs code’s introduction, as laid out by the right hon. Member for Twickenham (Sir Vince Cable) when he was Secretary of State for Business, Innovation and Skills, was that there should be a rebalancing of the level of reward between pub companies and tenants. The Government’s intention was specifically that tenants should be better off as a result of the pubs code’s introduction.

My hon. Friend the Member for West Bromwich West referred to two key principles: that the market rent only option should be on a fair and reasonable basis, and that tenants who were tied should not be worse off than those who were free-of-tie. I will come back to that point.

Perverse and bizarre as it may sound, the introduction of the pubs code was simultaneously late to arrive and rushed. It had a short period of implementation and took a long time after the legislation was passed to be delivered. As a result, sufficient preparation was not done by Government, or by some companies, to get ready for its introduction.

The appointment of the Pubs Code Adjudicator was surrounded by controversy. My hon. Friend referenced the inordinate delays and some of the methods used to prevent landlords fulfilling their rights to go market rent only. It is important to remember that many tenants are in a perilous financial position when they seek to go free-of-tie. They are not in a position where inordinate delays, very substantial outlays of cash or huge legal costs are attainable.

If we want to deliver the opportunity—the right—for the tenant to assess an independent market rent and decide whether they want to have a landlord-tenant relationship, or whether they want to receive all the services from a pub company, it is important that the delays are not inordinate and that false additional charges are not put in to prevent them from being able to take up that right. That is one of the strategies that seem to be being used very deliberately.

Most tenants have a five-year contract period. If they come to the end of a contract and attempt to get a free-of-tie rent assessment, the clock is ticking on their next five-year contract. That delay is being put in there, but if they subsequently go free-of-tie or get an arbitration or adjudication award in their favour, there is no opportunity to backdate that to the start of their five years—all the more reason why the principle should be that the adjudicator carries out their role in the most timely fashion possible. Any tenant who manages to get an independent assessment and decides to take that up does not get that rent backdated. The code should be amended so that rent is backdated to the point of application. I ask the adjudicator to adjudicate on that and the Minister to clarify that in his remarks.

For many tenants, there is a narrow window in which they can take up the right to get an independent assessment. At the end of their contract, they have to let their pub company know. They are often waiting for a new assessment and under the impression that they are still part of a negotiation by the time that they realise that they have missed out on their opportunity to take advantage of it.

My hon. Friend referred to the conflict of interest that many people feel Mr Newby had when he took on this role. There are two important elements of that for tenants’ confidence in the process. We should be clear that many tenants would like the opportunity to take up their right, but have lost confidence in the process. They believe that if they try to take up that right, they will only take on additional cost, so they are not taking advantage of this. I am sure that that disturbs all hon. Members who wanted the legislation to be introduced.

There is a financial conflict. Mr Newby continues to hold shares and to be owed money by Fleurets, which has many leading pub companies as its customers. Whatever the questions about his history, it is absolutely wrong that he did not divest himself of that interest when he took on this role. We are talking about a relatively small sum—although significant for an individual —so given the importance of the industry and the legislation, it would have been far better for him to have divested himself of that.

The point about the Chartered Institute of Arbitrators ruling against the PCA’s arbitrating on four different cases is significant. The Chartered Institute of Arbitrators’ spokesman said that when a challenge was upheld, an arbitrator’s appointment in that dispute is “immediately terminated”, and they should not be involved in that case again. In response to that, a spokesperson on behalf of the Pubs Code Adjudicator said that because his responsibilities were established by an Act of Parliament, the PCA did

“not accept that the Chartered Institute of Arbitrators has any jurisdiction to appoint or remove an individual from the role of arbitrator in a pubs code arbitration.”

That is an important matter of law for the Government, and also a matter of direction.

I believe that as a matter of law, the PCA should have listened to the Chartered Institute of Arbitrators. Even if it is true that the institute does not have the power to remove him, a sensible arbitrator would say, “Given that an independent body says that I have a conflict of interest, it surely makes sense for me to stand down and appoint a truly independent arbitrator.” The question of the extent to which the Pubs Code Adjudicator is both an adjudicator and an arbitrator is significant, because arbitrations happen in private and adjudications happen in public.

What we have seen from the Pubs Code Adjudicator so far is that he is much more of an arbitrator than an adjudicator. Might the Government consider separating those roles? The role I envisage for the PCA as a spokesman for the code is undermined by the fact that so much of his dealings are done in private, so he has not taken on nearly enough of a forceful role, which is what I would like him to play. If he criticises some of the pub companies, as he does, that perhaps makes it more difficult for him to arbitrate in private with them, so there are real difficulties in all of that.

My hon. Friend the Member for West Bromwich West referred to the section 40 powers of the Small Business, Enterprise and Employment Act 2015, which impose a duty on the Pubs Code Adjudicator to notify the Secretary of State if he believes the code is being breached and not followed. It is clear from his public pronouncements that he believes the code is being breached, but I am under the impression that there has never been a section 40 notice given to the Secretary of State. If that is the case, will the Minister or the Secretary of State pursue that with the Pubs Code Adjudicator? If he is publicly saying that there is wrongdoing, why has he not written to the Secretary of State with suggestions about altering the code to clarify and strengthen his case, or made the report that he has a duty to make?

There are two or three key questions in the pubs code that it is important to clarify. One of them concerns market rent only. The right to market rent only is laid out in the Act, and that should not need any arbitration. It is a fact that if someone reaches one of the trigger points, they are entitled to ask for a market rent only option. The pub company has a right to make an offer, but if the tenant believes the offer is not fair, they have the right to go to an independent arbitrator. For some reason, the Pubs Code Adjudicator considers all the different applications to be arbitrations, but an independent assessment should not be a matter of arbitration. That is absolutely the principle of the clause in the Bill that we all approved.

On the market rent only option, the fact that someone would pay rent for the pub and not be tied on the drinks that are sold is absolutely accepted by the tenants and the pub companies. The question then arises: which of the other terms in the contract should also be a part of the contract? The pub companies would say a market rent only option means market rent only, and that is the basis of the entire relationship, whereas the tenants say that anything that is common in the industry that was part of the original contract should be part of the subsequent contract. Will the Minister clarify that?

Finally, to be positive, the appointment of the Deputy Pubs Code Adjudicator is welcome. We have seen a real difference since she was appointed. I would like to see her take an ever greater role. Some tenants are getting a better tied deal as a result of the threat of going free of tie. However, the question of deeds of variation is important. Will the Minister set out his view on that?

In conclusion, how many times, if at all, has the Pubs Code Adjudicator written to the Secretary of State to report failure to adhere to the spirit of the code? What is the Government’s view on whether terms that were in a previous tied contract should remain in free-of-tie contracts? Do the Government agree that Mr Newby should accept the verdict of the Chartered Institute of Arbitrators, and do they believe that the Chartered Institute of Arbitrators has a right to a view on those questions? It is important. The pubs code is a vital opportunity for the industry. It is important that we all make it work.

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[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Robertson, and I congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) on—yet again—securing a debate on this topic. I did not attend the debate on pubs last year, but I did attend the one before that. I am no longer the shadow pubs Minister; that is now my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Gill Furniss), but sadly she has the flu and has sent her apologies for today’s debate.

[Richard Harrington]

I hope she gets better quickly.

[Bill Esterson]

I will pass on that message from the Minister.

Given that I follow the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), I will point out that my constituency includes the oldest pub in Lancashire, the Scotch Piper Inn—there is a link there of some sort. We have three microbreweries and two micropubs, the Beer Station and the Corner Post. The hon. Member for Strangford (Jim Shannon) made a good point about the importance of pubs as community hubs, and I agree with his other comments about the need for accountability in the implementation of the code.

My hon. Friend the Member for West Bromwich West set out the key issues with his usual forensic accuracy, and he mentioned the concerns about the appointment and continuation in post of Mr Newby. I raised concerns about conflicts of interest in the debate two years ago, and such concerns have continued. Sadly, the predictions about Mr Newby’s difficulty in obtaining the trust of pub tenants have been all too well demonstrated. The cases against him by the Chartered Institute of Arbitrators—that he has continued to arbitrate and has not accepted the decision, and that he is in breach of the code of conduct for a body of which he is a member—have not helped, and they continue to give the impression that all is not well with the implementation of the pubs code.

My hon. Friend the Member for Chesterfield (Toby Perkins) was modest in not mentioning his role in securing cross-party agreement on amendments to the Small Business, Enterprise and Employment Bill in 2015. The cross-party agreement had a lot to do with his work, as well as that of Greg Mulholland and other Members across the House. We had the insertion of the market rent only option, but the delivery of that is missing, as is any assurance on the intention that tied tenants should not be worse off than they would be if they were free of tie. My hon. Friend made those points extremely well. As he said, it is vital that we make this work. That is why it is so important that we are having this debate.

I will go through three points for the Minister, who I welcome to his new role. His brief is interesting and exciting, and it is important for many people across the country. I hope he is able to get to grips with the real challenges and concerns that remain. Three questions have been brought to my attention in preparing for this debate. They have been covered, but I will attempt to summarise them. First, the Government may make the point that the code is complicated and will take time to bed in. That is true, but it is overly complicated and completely unnecessarily so. As other Members have said, that complexity has allowed pub companies to use their resources and their power in the relationship—my hon. Friend the Member for Chesterfield made this point—to make it difficult for pub tenants to challenge them and achieve the fair market approach that they should be entitled to. Because of the size of the legal bills, it is simply not possible for pub tenants who attempt to use the code to come up with the necessary resources.

The second point that the Government may make is that the Pubs Code Adjudicator, through the Government, was not prepared for the huge take-up. Few staff were in place at the start, and there was a delay in putting in place a deputy adjudicator, despite the overwhelming evidence of abuse. There were 15 years of inquiries by Select Committees, as my hon. Friend the Member for West Bromwich West set out in his opening speech. The system was not set up in the right way, and it should have been.

The third point that the Government may make is about whether there has been an improvement in the financial balance between the pub-owning companies and pub tenants. Ballpark figures suggested to me are that a pub company would typically earn £90,000 from an average pub, which possibly breaks down to £20,000 in rent and £70,000 from tied products. The tenant earns just £10,000. Because of the process, the delays and the inaction from the adjudicator, it is difficult to do anything about that; but for those who try, there has been something of a change, as my hon. Friend the Member for Chesterfield alluded to. There may be a slight improvement, with a £5,000 or £10,000 reduction in the rent and an increase in the tenant’s income to £15,000 or £20,000, but that is still not a realistic living wage for someone running a pub, and the pubco is still earning £80,000 or £85,000.

The point is that legislation was supposed to leave the tenant no worse off than they would be if they were free of tie, not marginally better off than poverty levels. That is the point being made by the campaigners. I pay tribute to all the campaigners who have lobbied so hard over the years—including for this debate—advocating for pub tenants. I include in that Liverpool CAMRA, which has been in contact with me a number of times over the years.

On their own, the three areas that I have set out are grounds for the Minister in his new role to make an early commitment, today or after he has considered the debate, to carry out a proper review of the application and implementation of the pubs code and how the adjudicator is operating. If he can address that and the other points made by my hon. Friends, we will make some real progress.

I am tempted to say—so I will—that the right hon. Member for Chipping Barnet (Theresa Villiers) demonstrated a certain failure by a Government of which she was a member for some years to support a pub in her constituency. I can assure her that the next Labour Government will stand up for pub tenants in a way that so far has not happened under this Government, and that will not happen unless they make the changes touched on in this debate. I was grateful to the hon. Member for Berwickshire, Roxburgh and Selkirk (John Lamont) for pointing out that in Scotland, Labour is at the forefront of introducing a pubs code north of the border.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

It is a pleasure to serve under your chairmanship, Mr Robertson. I very much thank all Members who have spoken, particularly the hon. Member for West Bromwich West (Mr Bailey). I make clear that I was gesticulating to the shadow Minister, the hon. Member for Sefton Central (Bill Esterson), simply because I wanted the time to be able to go through the points he was raising. His comments, like those of everyone else, were extremely useful. I will do my best in the time allocated, conscious of the fact that I need to give the last word to the hon. Member for West Bromwich West, who secured this debate on a serious matter.

I was made the Minister with responsibility for pubs just this week. One can never say in politics that something is not a temporary job, but pubs are part of my portfolio—I accept that the shadow Minister is here because of the sickness of his colleague, and he dealt with that extremely well, as he always does—and I want to learn. Today’s debate is part of the learning process. The Government remain fully committed to the pubs code, because we intend to ensure that tied tenants can operate in a fair environment that allows their businesses to thrive.

Many Members, but in particular my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont), went through what the Government are doing to support pubs. The announcements in Budget 2017—the freezing of alcohol duty and the extension for another year of business rate relief for pubs valued under £100,000—are important, but we are here to discuss the pubs code.

The pubs code regulates the relationship between more than 500 tied pubs in England and Wales and their tenants, and there are six pub-owning companies involved. In total, 11,500 tied pub tenants are covered by the pubs code, so it is quite a lot, given that it is comparatively new.

We all know the principles, which I do not have time to go through. The code was intended to ensure fair and lawful dealings by pub-owning companies in relation to their tied tenants, and that those tenants should be no worse off than if they were not subject to any tie. It is now 18 months old. The shadow Minister asked whether the Government would carry out a review. That was an important point, but the legislation makes it clear that the Secretary of State will carry out a review of the pubs code and the performance of the Pubs Code Adjudicator every three years, with the first review period running from July 2016 to March 2019. That does not mean that I am avoiding anything, but the law is very clear. We will not just ignore the situation until that time, and I am very conscious of the points the hon. Gentleman made.

The tenants are engaging with the Pubs Code Adjudicator, Mr Paul Newby, and his office. His role is very clearly to oversee the pubs code, and to encourage and monitor compliance by the businesses in scope. He has the enforcement powers to arbitrate individual disputes concerning the pubs code. It is still early days, but I can see that individual tenants do not have confidence in that approach, given the many people in the Gallery today and the comments that have been made by hon. Members, reflecting what they have been told by pubs in their constituencies.

I hope many people have confidence in the PCA’s decisions. Some tenants have reported publicly—I looked at the reports before the debate—that PCA decisions have left them better off. However, I would be very ignorant, blind and deaf to what has been said today if I said that everything is fine. I realise that there is a problem. Many hon. Members in the Chamber have spent a lot of time and effort getting the legislation to the stage that it is at today and monitoring its implementation. I do not intend just to say that everything is fine. I recognise the points made about the PCA’s performance.

As a result of today’s debate, I read the correspondence between the PCA and the hon. Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee, with whom I dealt many times when working on my previous portfolio and for whom I have a lot of respect. I read the letter that she wrote to the PCA last year. There are key concerns about the speed of the arbitration process. Clearly, the PCA’s office has faced far greater demand than predicted, and the number of referrals has been significantly greater than was foreseen. At the PCA’s request, we have taken action to build up the team. The appointment of a Deputy Pubs Code Adjudicator, Fiona Dickie, who started at the beginning of November last year, has been mentioned. She is supporting Mr Newby in enforcing the pubs code, including arbitrating individual disputes. If it is under-resourced, it is our job to ensure that that is not the case. The PCA seems to be very conscious of that matter, and has not as far as I know asked for resources that have not been given.

The statements of principle on clauses mentioned by my right hon. Friend the Member for Chipping Barnet (Theresa Villiers) seem to me a very good idea, and I will look into that straight away. Officials may tell me that it cannot be done for some reason, but it seems to me, on the face of it, to be a very good idea to look into.

I am very conscious of time, Mr Robertson, but on the arbitration point, the PCA has received 225 cases for arbitration and accepted 186 as valid referrals. Of the accepted cases, 165 related to the market rent only tenancies that have been mentioned today. The PCA has issued 93 final awards. The fact is that Parliament chose arbitration as the means to resolve such disputes under the pubs code. My right hon. Friend the Member for East Yorkshire (Sir Greg Knight) asked why it was always in confidence. Arbitration, by definition, is a confidential process—that point was made later in the debate. We do not see individual cases. It is not right that the Government should see such cases such as that of Gary Murphy, the constituent of my right hon. Friend the Member for Chipping Barnet, because that is not how an arbitration system works. That does not take away any comments about the merits of the case, but it is not right that we, as the Government, are in a position to second-guess the arbitrator’s result. That is just how the system of arbitration works, but hon. Members might feel that it is not the right system.

The PCA has already published 40 products on its website, which I looked at before the debate. It provides a lot of information and guidance on the pubs code and PCA activities. As has been mentioned, it published the result of a verification exercise to understand the tenant’s experience in applying for MROs. When that was published, the PCA undertook work with the pub companies to inform the development of a compliance handbook that was published just before Christmas, setting out minimum standards for pub companies to comply with the pubs code MRO requirements.

The point about the lack of enforcement was a valid one. Perhaps on another occasion I will be able to go into greater detail, when I have more time. The PCA has set out his approach to investigations and enforcement in statutory guidance, and stands ready to take further action.

On the conflicts of interest point that was made about Mr Newby, the Secretary of State explained to the BEIS Committee that the appointment process was in full accordance with the code of practice for ministerial appointments to public bodies. I cannot comment on this one in particular, because I was not involved in it, but I have seen that practice for many other appointments that I have been involved in as a Minister. The process is very thorough, and I cannot believe that things were not disclosed and not considered properly. The panel concluded that Mr Newby had no particular conflicts of interest that should call into question his ability to do the job. I know what hon. Members meant—they are being very graceful in not chuntering—but there were proper processes.

The Government support the pubs trade. In the short time remaining, I would like to say that I have never met Mr Newby. I intend to send him a copy of the Hansard report of today’s debate when it comes out tomorrow, and ask for a meeting with him—perhaps in two or three weeks, to give him a little time—where he can provide answers to the specific questions that have been raised. After that, it is my intention to speak again to the hon. Member for West Bromwich West, and ask him to attend a meeting with me to go through those responses.