Thursday, 10 January 2013

Better Late Than Never ...

8 years of select committee investigations, four detailed and comprehensive reports into the pub trade and finally a full-on Parliamentary debate has resulted in MPs voting for regulation of our industry and in particular the regulation of the larger pubcos. Game over, one might think, however the vote and its expression of the will of Parliament is only the sound of the last lap bell in this marathon to bring fairness to the world of pub.

Whilst the pub trade seem to be able to do little about the "externalities" of taxation and duty escalators, the smoking ban, predatory and irresponsible pricing by supermarkets for alcohol, the ludicrous way that business rates for pubs are calculated and the change in consumer behaviour that has led to the closure of so many pubs it can do something about how the up-coming consultation will frame the legislation that will regulate the pubcos.

The pubcos and larger brewery owned estates (those over the mooted ownership threshold of 500 pubs) will do everything in their power to minimise the impact of any regulation on their business model. Through its mouthpiece, the British Beer and Pub Association (a misnomer for sure, as it has precious little to do with helping individual pubs) the pubcos will make representations that their business model and more importantly how they implement that model should continue.

So, just to remind those who might now take an interest in our industry, beyond that of being customers, here are a few pertinent facts:

In evidence to the last Business, Industry and Skills Select Committee, in 2011, it was reported that 67% of tied tenants earn less than £15,000 a year

46% of tied tenants with turnovers in excess of £500,000 per annum, despite their own best efforts, still earn less than £15,000

To put these figures into perspective I published my own calculation of what this meant in terms of wage comparability when Daniel Thwaites so generously started allowing tenants to earn a floor or £15,000 from their tenancies and for many dedicated licensees this equates to about £3 an hour for a singleton licensee... halve that if you are a couple running a pub.

Set this against what two of the most notorious pubcos, Enterprise Inns and Punch Taverns, 'earn' from their pubs on average ... hardly that of the over-arching principle of a fair division of profit and the new mantra for Parliament and the industry that a tied tenant should be no worse off than a free of tie tenant.

The pubcos will argue that their slice of the pie reflects the "low cost entry" of taking on one of their leases, the countervailing benefits that being part of a large estate brings the tenant. They will try to justify their rent levels as being lower than those of a free of tie tenant, despite tied rents now outstripping free of tie rents; just as they will try to justify the routine price-gouging they indulge in for beer as being a 'wet rent' to make up for their so-called low rent levels and costs of entry.

Commenting on the move towards regulation Adrian Bailey, MP and chair of the BISC Select Committee, he says

“The relationship between pub companies and their lessees has been the subject of regular and sustained scrutiny by my Committee over recent years.

During this period, the industry time and again failed to address the areas of concern raised by us and deliver meaningful reform. Opportunities to put its house in order were squandered.

In our most recent report on the issue, frustrated by the glacial speed of progress, we asked to Government to keep to its undertaking to consult on establishing a statutory Code and Adjudicator, if we so recommended.

I am pleased the Government has now agreed to this and welcome the Secretary of State’s letter. I also welcome his acknowledgement of the pivotal role my Committee has played in the development of policy in this area.

The Secretary of State is expected to appear before the Committee in the near future. I look forward to that opportunity to discuss the consultation in more detail, including the proposed timetable.”

I'll be looking forward to that encounter too as this is a complete U-turn for the government, as David Cameron indicated that there were no plans for regulation after the committee published its last report in his letter to Adrian Bailey.

In its 2011 report, Pub Companies, published on 20 September 2011, the Committee stated:

"The position of the previous Government—endorsed by the current Government—was that if we so recommended, it would consult on how to put the Code on a statutory footing. It is now time for the Government to act on that undertaking. In its response to our Report, the Government has to set out the timetable for that consultation and begin the process as a matter of urgency. We further recommend that the consultation includes proposals for a statutory Code Adjudicator armed with a full suite of sanctions. Considering the amount of evidence gathered by us and our predecessor Committees this should not be a lengthy process; and given the Government’s undertaking to us we do not anticipate any meaningful delay. Furthermore, we caution the Government that offering a compromise of non-statutory intervention would be a departure from its undertaking to us and would not bring about the meaningful reform that is needed." [para 157]

I would usually say better late than never, but for many poor sods, the continuing abuse of the tied relationship by pubcos will have caused untold misery ... so when the government finally announces details of the consultation process I urge all stakeholders in the pub trade (but especially tenants of pubcos) to make a representation with as much detail as possible of how the pubco-tenant relationship has worked for them and what they want to see happen in terms of regulation, appointment of a truly independent adjudicator and the teeth that adjudicator needs to make these immoral and rapacious companies mend their ways.

Suffice it to say, this is a once in a generation chance to cure some of the ills besetting our industry and it behoves us to make sure this chance isn't squandered through apathy and by failing to counter pubco propaganda ... if we get this right then perhaps we can build on the current pro-pub momentum and tackle the other problems we face such as the duty escalator ... and finally at last someone has stated the bleeding obvious, on the Parliamentary record, that pubcos rip their tenants off (and in the process their respective customers too!)

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