Comment: This is how we save our pubs
We are losing the pubs at the heart of many of our communities because of their unfair ‘ties’ to big pub companies.
By Martin Horwood MP
We’re losing the traditional British pub at the rate of about 40 a week, thousands a year. The alarm bells have been ringing for years now. The time has come to act.
This week I introduced a ten minute rule bill into the Commons that would attack the problem. Ten minute rule bills don’t often make it onto the statute book – the last was an act in 2002 which forced taxis to accept guide dogs – but this is an unusually long parliamentary session and the bill has wide cross-party backing so I’m not without hope. Especially when the Campaign for Real Ale, the Fair Pint Campaign and the Federation of Small Businesses are standing by to mobilise support in the country.
My Cheltenham predecessor Nigel Jones told the Lords quite rightly in 2008: “A pub does not just sell beer. It is a social centre, providing meals and snacks, raising money for local charities and diversifying offerings all the time”. He might have added that they are places where national sports are watched and local sports teams are formed. Most importantly, they provide a social drinking environment, open to families and pensioners, to new drinkers and old regulars. It’s an environment personal enough to exert peer group pressure on those who might drink irresponsibly and in which those who really have had too much really are refused another, as they should be everywhere.
The British pub is a unique institution, a product of history that would be very difficult to recreate if we ever lost it.
So why are we losing so many?
The reasons for the decline are many and I know that they’re not all restricted to the tied public houses which are the subject of my bill. They include everything from happy hours to economic downturn, supermarkets and lifestyle changes.
But in 2004 the Federation of Small Businesses was so concerned about one particular factor that it asked what was then the trade and industry select committee to investigate. The issue was the profoundly unequal relationship between tenant and lessee landlords and the big new pub companies or ‘pubcos’.
At the heart of this relationship is the ‘tie’ – a strange addition to the normal landlord and tenant business relationship which is applied both to short-term tenants and longer-term lessees. Tenants and lessees have to pay a premium of 40% or more on the open market rate for beer – I’ve seen the invoices side-by-side for the same quantity of the same beer that support this. They also have to pay rents based not on the normal calculations of square footage but on the rather obscure and subjective judgement by the pub company of estimated earnings by a reasonably efficient operator. In effect, the pubco calculates the maximum amount it can extract from the business and charges it.
In return publicans may also get valuable business and marketing support from the pubco as well as advice on legal compliance and cashflow and financial management. In one of the pubcos’ codes of practice, the level of this kind of support is helpfully explained: it is given face-to-face typically for one and a half hours, once every 12 weeks. That adds up to less than one working day of face-to-face business support a year. In exchange for which the pubco could extract between £15,000 and £20,000 of value from the lessees’ business.
The first select committee inquiry was pretty gentle on the tie, weighing up the benefits and costs for publicans. They shied away from a legally binding code of practice but said that ‘government should not hesitate to impose a statutory code’ if matters did not improve.
The follow up report in 2008 was much more damning and included the select committee’s own commissioned research into the state of lessees’ businesses. This found that 78% of lessees were dissatisfied with the tie and that 67% of them were earning less than £15,000 per annum. Even when their pubs were turning over more than half a million pounds a year, 50% were still earning less than £15,000 per annum. The majority believed the tie with the pubco did not add value to their business.
The select committee concluded that “the imbalance of bargaining power persists” between pubco and publican: “The arrangements for assessing rents remain opaque. Rental assessments should be the basis for negotiation, but incumbent landlords often risk loss of their home as well as their business if they cannot reach agreement”. And this time the committee concluded that they had “no confidence that the advantages of the tie outweigh its drawbacks”.
Another follow-up report in 2009 reviewed the new British Beer & Pub Association framework code of practice and concluded that it represented only “modest progress”. Issues surrounding the tie had not been resolved. The committee suggested a deadline by which time self-regulation would have to give way to statutory regulation if things had not improved. “If it fails to deliver on its promises by June 2011,” they said, the pubco industry “should be in no doubt what the reaction will be”.
Well, June 2011 isn’t far away and, according to preliminary findings from new FSB research, the picture is still pretty gloomy. Ninety-one per cent of the FSB’s tied pub members do not think the tie allows them to make a fair profit, more than 85% believe it prevents them from competing effectively inthe marketplace and the same proportion would like to be free of the tie.
Meanwhile, we continue to lose the pubs at the heart of many of our communities.
My bill does not ban or abolish the tie but it does aim to introduce a statutory code of practice as recommended by the select committee and almost in time for their deadline. It will, of course, have a much better chance of succeeding with government support. The political and public outcry at the unfairness of the tie is only getting louder and ministers should be ready to join it.
Martin Horwood is the Liberal Democrat MP for Cheltenham.
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