Yesterday was unquestionably a good day for supporters of the Great British pub. An amendment to the Small Business, Enterprise & Employment Bill should change the relationship between ‘tied’ landlords and the large pub companies irrevocably, and for the better. The effect of this ‘tie’ has been investigated at length – including four times by the Parliamentary Business, Innovation & Skills’ Select Committee – and this Government (as well as the last) has promised action to address the problem.
The problem can be traced to the 1970s, when the then Government, through the Monopolies Commission, assailed a well-functioning market. At that time, the seven large breweries were forced to withdraw from their estates; as one who used to work for Courage, we had around seven thousand pubs. Sadly, the Monopolies Commission’s interference broke up a functional system, based on the breweries as paternal, patrician and benevolent towards their tenants. The consequence was a large number of pubs put up for sale, which were transferred into the ownership of all-too-clever financiers and speculators who believed there was an opportunity – provided the stability of the market could be guaranteed.
Sadly for them the crunch came in the first decade of this century, and the model was found to be unsustainable. These so-called entrepreneurs found that they would struggle to service the colossal debts that they had acquired, and launched a campaign to squeeze every possible penny out of their landlords. Punch Taverns operate around four thousand pubs, and have a net debt of more than £2.2 billion; Enterprise Inns operate more than five thousand pubs, with a net debt of £2.4 billion. That equates to around half-a-million pound for every Punch Tavern pub, and £450,000 for every Enterprise Inn pub as a measurement of net debt to pub ratio. Plainly, that is an unsustainable level of debt, and hints at a somewhat flawed business model. No wonder they’re squeezing their tenants
Anecdotally, it is clear that these large pub companies were vicious in their pursuit of making tenants pay. In addition to the ‘dry’ rent, landlords had to pay exorbitant prices for drinks, and were constrained by the ‘tie’ with the pub company to prevent them sourcing from elsewhere. I have seen landlords reduced to tears as a result of their efforts to make this flawed model work: the promise of a 35 per cent bottom line just couldn’t happen. As the large pub companies have increased the margins charged to their pubs, the breweries have benefitted from the need to deal with just a few large companies rather than thousands of individual pubs, and I understand why they feel aggrieved
Unsurprisingly, the success of the amendment in the House yesterday has inspired some squealing from those vested interests which stand to pay for their speculative folly. Allowing pubs to procure their drinks at a lower price should drive pub prices down; that can only be good for the customer and for the industry as a whole. It’s the speculators and financiers who don’t like the result of yesterday’s vote: but they have been trapped by the inadequacy of their own calculations. Their shouts and yelps sound very similar to those I remember when the resale price maintenance was abolished in this country back in 1964. It is not acceptable for consumers to be made to pay for the folly of big financiers and speculators, particularly when they do so by abusing thousands of small businesses trying to make a success of running their pub.
But there is another part of this saga which causes me alarm. The Select Committee on which I sit has produced four reports calling for a statutory code of practice, and various ministers have undertaken to do something to address what has been an acknowledged problem. It reflects badly on our democracy when ministers relegate Select Committees to mere exercises to occupy the time of backbench Parliamentarians. The Business, Innovation & Skills Select Committee has undertaken a very considerable amount of work on this issue – not least in investigating the issue, considering potential alternatives and building a cross-party consensus for action. Sadly, even yesterday, the Government did not embrace the opportunity to make the change which has been discussed for at least a decade.
As a Conservative, I am proud that Parliament has now stood up to large vested interests in favour of hard-working small businesses. If this Government does not have that as its philosophical base, then very many more questions will be asked about its suitability for office. Yesterday was a good day for pub landlords across the land, and for Parliament; I hope that the Government will now accept the amendment passed, and re-dedicate itself to stand up for small business, enterprise and employment – the very title of the Bill in which these measures are contained.