John Pugh (Southport, Liberal Democrat)

It is easy to become sentimental and emotional about the British pub—indeed, it is easy to become sentimental and emotional in the British pub—and get wrapped up in the images and clichés beloved of producers of soaps: the Rover's Return, the Queen Vic, "Heartbeat", the traditional village pub, and so on. Reality, though, is sometimes different. There are pubs and pubs: good pubs and others.

I recall a particularly sobering visit to a pub when out campaigning during a by-election in a constituency that shall remain nameless, but which, for the sake of argument, we will call Hodge Hill. Such was the intense demand for Lib-Dem literature on a hot day, my team felt it necessary to repair to a hostelry, parched and in need of refreshment. We identified a nearby pub, but we should have inferred something from the fact that the entrance had two swing doors, one with hardboard instead of glass and the other with neither glass nor hardboard. Our suspicions should have been confirmed by the sticking grip of the floorboards as we approached the bar and the baleful glance of the locals, which was somewhat reminiscent of "The League of Gentlemen". The barmaid smoking behind the bar dismissed the thought of food ever being present as ridiculous and we sat on rickety chairs at a less than clean table with a chipped ashtray on it. We will draw a veil over the state of the toilets.

Reality is more diverse than we tend to recognise. It is said sometimes that the pub is a community asset, which is certainly true and, in many places, that is exactly what it functions as. But I visited, with the Select Committee, a part of Manchester where the pub was moved, with regeneration money, from the heart of a difficult sink estate to a nearby main road, simply to catch the passing trade and ensure a more varied mix of customer, so that not all of them were from the community. We Campaign for Real Ale types praise the controlled drinking atmosphere of the pub, particularly when criticising supermarket cut-price sales. I know of pubs in some particularly tough urban environments where the controlled environment is less than obvious.

I say all this as a preamble, because I accept that the pub economy is in dire trouble and that we need action and progress, but any debate will achieve nothing unless it is grounded in hard reality and is truly engaged with all the interests, including the owners of the pubs, and is not simply a rehearsal of mantras, slogans and received wisdom. We have to get real about the state of pubs, because despite Select Committee and all-party reports, industry studies and previous debates and despite some wise, sensible recommendations, from the industry's point of view matters have got worse still. Pubs are continuing to close and sales are declining, whereas alcohol consumption is rocketing. The suggested causes are multiple and include supermarket competition, inappropriate taxation—there has been an emphasis on that recently in the run-up to the Budget—the smoking ban, which is mentioned by many publicans and the pub owners, the effects of economic recession and changing social habits. However, I want to concentrate primarily in my contribution on the industry's self-inflicted wounds, which are a major cause of decline.

The area that is the easiest to address, but also the thing that the industry is least inclined to talk about is the tie: the economic model of the British pub, or at any rate 50 per cent. of them. Most publicans that I have surveyed bring that up as the big issue. It is what the Fair Pint Campaign and the Save the Pub group were set up to address, and they make a considerable amount of noise about it. It is a big issue across the piece.

Let us look at some stats. Some 40 pubs a week are closing: the figures change and it might not be precisely 40, but that is the latest figure that I have seen. A current figures shows that, annually, 32 per cent. of the tenants working for the biggest companies give up doing that. Beer on-sales are down by 10 per cent. Some 50 per cent. of pubs are owned by the biggest companies that have their roots in private equity. That has severe consequences, because it means that they run with £20 billion of debt to service, quite apart from any dividends or generous salaries that they may wish to pay their chief executive officers. For the two biggest companies, the debt is equivalent to a repayment of £750 million a year or having to find £50,000 per pub per year. That is the situation that the owners of 50 per cent. of British pubs are in.

Bob Spink (Castle Point, Independent)

I am delighted that the hon. Gentleman has brought this subject to the House. It is important to many of our constituents and to the fabric of our communities and our society as we know them. But who is to blame for the demise of the pub? Is it the Government, with their 2p tax escalator each year till 2012, which will be unfair and unhelpful, or is it the pub landlord companies, through their high rent and beer charges, or is it a bit of both? What should we do about it? Today we saw Whitbread's profits go up considerably.

John Pugh (Southport, Liberal Democrat)

Clearly, taxation makes a difference. It is not the main subject of this debate, but were the taxation to be more benign, from the point of view of the companies, there is no guarantee that their saving would be passed on to the tenants and the industry as a whole and would not go on the repayment of outstanding loans.

David Taylor (North West Leicestershire, Labour)

I congratulate the hon. Gentleman on securing this debate. He will be aware of the Axe the Beer Tax campaign, about which I have had hundreds of e-mails and much of which I support. The point about taxation has to be read in context, because for the first 10 years or so of this Government the tax did not rise particularly in excess of inflation—I understand that that is not true of the last two to three years—but still pubs were closing at the present rate of perhaps 2,000 a year from a stock of 60,000 pubs. We shall lose the vast majority of our pubs in a generation if something is not done quickly.

John Pugh (Southport, Liberal Democrat)

That tends to reinforce my point, which is that taxation may not be the main issue. The evidence that the hon. Gentleman has put forward seems to underline that.

The repayment that the pub companies need to make to the people that they have originally borrowed from has to come from somewhere and it comes from high rents to tenants and from wholesale tied beer sales to tenants at extortionate prices—50 per cent. above the normal wholesale price. It also comes from other side-deals that are done and which saddle tenants, such as compulsory provision of other poor-value ancillary services, including accountancy and legal services. Examining that dispassionately as an economic model, it is unsustainable, unless we live in a time of buoyant increased leisure spending and in a world where people have few leisure choices but going to the pub. This analysis is not shared simply by people who care about or visit pubs, or by people who are passionately interested in beer, the social life of the pub or the pub tradition, but by hard-headed men of finance, be they teetotallers, drinkers or whatever, who see the current model as near suicidal in a strictly commercial sense. Talk in the boardroom is now coinciding with talk in the taproom.

My analysis is reinforced by my own experience, which I pick up anecdotally by talking to my local publicans. I meet really enterprising people, such as Adrian at The Falstaff in Southport, who struggled to escape a remote, unworkable accountancy arrangement that frankly profited no one, not even the owners of the pub, Scottish and Newcastle. Adrian would like to provide local beers, because he knows there is a demand for them. One of the Southport beers, Sands, has just won an award as the best beer in the north-west, but people have to leave Southport to get it, because Scottish and Newcastle forbid it to be provided in local hostelries. I meet people such as Darren Thomas and his wife Sharon, who tried to revive another pub called the Oasthouse, but were unsure as to brewery intentions. These stories are replicated across the piece. Tenants are struggling, not with taxation, per se, not with a lack of ideas and not always with the economic climate, but with the people who own the establishment that they are renting.

There is success in the pub industry in my neck of the woods, but it is more commonly found in the free houses, which seem to be doing reasonably well, and the chains, some of which are doing extremely well—managers are backed up with sound investment from the companies. Above all, I am seeing more and more enterprising, innovative tenants who are willing to take on the hard job of running a pub for relatively little reward but an extraordinary amount of energy and commitment. Those people are being hogtied by ridiculous wholesale charging and restrictive covenants that are ultimately in no one's interest. That is the point that I want to emphasise. They end up dealing with remote organisations that own the establishment and with which they do not always have a good dialogue. Trying to contact Scottish and Newcastle about a pub is extraordinarily convoluted. There are precious few contact numbers on its website.

That is the situation, but there is hope of improvement. I do not want the pubcos to treat this as simply the usual thing that people such as me say. I recognise that the pubco debt will not go away, but the pubcos should not just listen to the debate and take it on the chin, because they are as exposed as any tenant. Their route to safety is not the old recipe—take the money and run, pay off debts, pay a dividend, take the profit and do not invest—but dropping the bad, old, introverted private equity habits with which they came into the business, and linking the boardroom with the taproom, engaging properly with tenants, communities and MPs, backing and supporting tenants who are innovative, enterprising and hard-working—plenty are still coming forward— investing in people, loosening up the supply chain, and producing a model that works. There will still be failures, lack of demand, unsuitable tenants, predatory supermarkets and so on, but what other option is on the table other than presiding over a rapidly declining business?

I am not counting on pubcos' altruism or even good sense. I do not believe in my heart of hearts that they have as much freedom to act as I would like them to have. Private equity does not care about the village pub. It believes in the free market and cares about the bottom line—end of story. That is why the Government have a genuine role in the drama. They must act, and introduce new regulation, which is overdue. The Tories introduced the beer orders that got us into this fix and provided the opportunity for private equity to move in and take over the lion's share of the industry. Regulation can get us out of that.

In an era when even public servants must bid competitively to keep their jobs, why should an arcane institution such as the tie persist? Frankly, it should have gone out with the corn laws. The regulatory environment can and should be changed, because it matters. Equally, in shepherding the pubcos into making the right choices, we must ensure that the planning environment does not encourage them to cut losses and move on by selling off pubs for conversion to flats and so on. If the Government provided the right planning regulations and regulatory regime—they have both those levers at their disposal—and gave the pubcos the right options, they might choose them. That would benefit the pubcos, the tenants and the communities that they serve, and provide a solution to the problem.

John Grogan (Selby, Labour)

It is a great pleasure to make a brief contribution to this debate. I congratulate Dr. Pugh on initiating the debate and on presenting his case in such a measured way. I speak as chairman of the all-party beer group; it is a tough job, but someone must do it.

The only time that I appeared in the News of the World was when MPs' expenses were published for the first time and, for no apparent reason, there was an unflattering picture of me on an inside page with the headline "Hard to swallow". I think that I was illustrating all MPs' expenses rather than just mine. One of my mentors told me that MPs should never be photographed with a pint of beer in their hand, but as chairman of the all-party group, that is a stricture that I am pleased to have ignored over the years.

I want to address the hon. Gentleman's specific point about the structure of pub ownership and how it influences the market. He also alluded to many other issues, and it is worth putting on the record the fact that about half of our pubs are free houses or managed pubs, although the number is declining faster than the number of tenanted and leased pubs. It is worth mentioning in response to an intervention by my hon. Friend David Taylor that the rate of decline is increasing massively, and has been for the past two or three years. A few years ago, a handful of pubs closed every week, but 35 or 40 now close weekly. Whatever the reason, the decline has increased rapidly in recent years.

Other factors are also at work. Half our pubs do not operate under the tied model, and they should not be neglected. Supermarket prices, taxation and other issues affect them particularly.

David Taylor (North West Leicestershire, Labour)

Social change.

John Grogan (Selby, Labour)

As my hon. Friend says, social change is obviously one issue. It was interesting that although the hon. Member for Southport did not call for the tie to be outlawed, he came close and said that it was an anachronism. Some people in the Fair Pint campaign say that that is the prime, if not the only cause of pub closures. It is on record that the all-party group is funded by about 70 breweries and pub companies, which have different views about the tie. I listen to people in the Fair Pint campaign. Some have their own economic interest and are very successful entrepreneurs. Part of their frustration is that they would like to be even more successful and have even more pubs, which they believe is a proper view. I try to listen to all economic interests, including the Fair Pint campaign, pub companies and brewers, and then make up my own mind. On some issues, such as smoking and minimum pricing, my view is different from those of large sections of the industry. There are as many views of the tie in the all-party group as there are members. One vice-chairman of the group has signed a motion calling for the tie to be abolished, but I do not agree and will explain why.

According to the facts, figures and statistics, it is not true that tenanted and leased pubs are closing at a faster rate than free houses and managed pubs. Indeed, some evidence suggests that it is the other way round, although I accept the hon. Gentleman's point that that may mask a high turnover in many leased and tenanted pubs. According to industry analyst, A.C. Nielsen, last year's prices were much the same. In managed pubs, the average price of a pint was £2.56, and in leased, tenanted and independent pubs it was £2.66. That evidence must be borne in mind.

John Pugh (Southport, Liberal Democrat)

The crucial factor is the amount of profit that a tenant makes on those pints.

John Grogan (Selby, Labour)

I was about to say that the pricing figures do not reflect profitability. Nevertheless, it is important to consider those factors, if the contention is that the economic model is the main reason for the closure of pubs.

Another way of approaching the subject was reflected in the hon. Gentleman's opening comments. The economic arrangement of vertical integration in the market has been investigated 19 times since 1966, and receives exemption by the EU, although that is up for renewal next year. There could be an imbalance of power in that relationship.

David Taylor (North West Leicestershire, Labour)

I declare an interest as a treasurer of the all-party save the pub group, whose founder, Greg Mulholland, is here today. My hon. Friend Mr. Grogan is old enough to remember and perhaps to have been a drinker at the time of the Monopolies and Mergers Commission report in the early 1990s, which was blindly implemented by the then Conservative Government. Looking back, does he believe that that was a fundamental mistake that worsened the position? The Conservatives said that they would break up the monopolies of breweries, but in fact they passed over some of those monopolies to the pubcos.

John Grogan (Selby, Labour)

I want to explore that in my remarks. There were many unintended consequences of the beer orders, and I am anxious that there should not be other unintended consequences, if we ban the tie completely. I shall examine some of the proposals for reform of the tie. CAMRA, to which the hon. Member for Southport has referred, does not support the complete abolition of the tie, for reasons that I shall come to. However, it thinks, for example, that there should be rights for guest beers, and it has made a number of other proposals. I have suggested to CAMRA, because it has doubts about the market, that if the Select Committee on Business and Enterprise, which is currently considering the matter, recommends that this market be examined, CAMRA should make a super-complaint to the Office of Fair Trading, which it has a right to do under the Competition Act 1998, to have the matter examined for the 20th time. It would be a tragedy if for the next year or half year we were waiting for the Government to respond to the Select Committee's report, and many of the other issues that affect pubs were left on one side. That is one proposal.

The Association of Licensed Multiple Retailers has set up a committee to consider various clauses that could be inserted in the contracts between the pub companies and their lessees and tenants to make the situation fairer—to give long-term lessees the choice of paying a higher rent, which obviously would have to be determined in a fair way, and having a wider choice of supplies of beers, if they are willing to do that. That is another proposal. The Institute for Public Policy Research has reported to CAMRA and said that there should be a statutory code of conduct. A range of proposals are on the table and will be examined in the next year.

I do not want to take up too much time, because other hon. Members want to speak, but let me say why I do not think that the tie should be abolished and why I agree with the consumer body, CAMRA. First, the tie helps small brewers. I was once taken to the opera by a very big brewer. He took me to the opera for two reasons: to tell me that he certainly did not want minimum pricing and that he wanted the tie to go. Why did he want the tie to go? Many small, family brewers rely on the tie, because it gives them a guaranteed outlet for their beer supply and their markets. That is one reason why CAMRA does not want the tie to go. If we were completely to outlaw the tie as an economic model, an unintended consequence could be family brewers up and down the country going into liquidation and not being able to supply the pubs that they support. Sam Smith's in Tadcaster in my constituency—Tadcaster is now the only town in England with three brewers—is an example of a family brewer. There are many others.

Punch Taverns and Enterprise Inns come in for much criticism. They are big players in the market, and it is right that people should hold them to account, but they provide a market for some small beers. One of the big changes in the pub and brewing market in recent years has been the rise of the micro-brewers, the small brewers. On a day when my right hon. Friend the Prime Minister may need a little encouragement because not everything is going right for him, let me point out that he was responsible for small brewers relief and that he created a market. In fact, we made him beer drinker of the year for that. He has not yet accepted his award, but perhaps like his predecessor going to accept the congressional medal of honour after he stepped down, we can look forward to his accepting it sometime in the future. Some pub companies and pubs tied to brewers provide a market for small ales, and some of the small independent brewers certainly do not want the tie to go.

The long lease, which is characteristic of the arrangements made by pub companies, has to be examined. It has to be properly regulated, whether that is on a statutory or voluntary basis. Let us look back to the time of the beer orders, as my hon. Friend the Member for North-West Leicestershire has done. The complaint then was that there was no economic arrangement whereby someone with a small amount of capital—£25,000 or £30,000—could get a long lease, which potentially they could sell on if they grew the business in the meantime. The only leases available were short-term tenancies with the brewers. I would hate it if the only people who could go into the pub business were those who could raise perhaps £250,000 in capital to buy a pub outright. That has to be watched as well.

I have taken too much time already, but let me just say this. The hon. Member for Southport has said that it is possible to be too sentimental about pubs, and I think that it is. It is possible to forget that many of them are still dynamic businesses that give many people without much capital but with a bit of entrepreneurial initiative—regardless of sex, creed or colour, by the way—the chance to make an impact on our national life and to make a success of themselves. However, there should be a bit of room for sentimentality as well. That is why pubs always excite such passion in the House and why I and many members of the all-party beer group want to examine this issue and propose measures that will help not only tenanted, leased pubs, but all pubs. As Hilaire Belloc reminded us a long time ago:

"When you have lost your inns...you will have lost the last of England."

George Young (North West Hampshire, Conservative)

It is a pleasure to follow Mr. Grogan, who is one of the world's greatest experts on the subject that we are debating this morning. I congratulate Dr. Pugh, who has a knack of choosing subjects for these debates that interest North-West Hampshire. His last one concerned further education colleges—indeed, both subjects are of great interest to students in my constituency.

Not all the problems that confront pubs are due to the tie. As hon. Members have mentioned, other factors include changing social and leisure patterns, the recession, the duty on alcohol, the regulatory burden, business rates and, crucially, competition from supermarkets, which also sell alcohol. Those broader issues were discussed at the beer summit, which I attended, on 4 March in Room 10. It was attended by an array of Ministers, who, as far as I can see, have so for been unable to respond to the issues debated there.

This debate is about the tie—ownership. I agree with the hon. Member for Selby that there are some benefits to the tie, in that those without the capital to buy a freehold can run a pub and have a stake in its success. There are many well-run tenanted pubs with happy tenants and customers. There is not inevitably a tension between pubco and tenant, in that the more beer that is sold, for example, the better both parties do. It is also argued that the tie brings stability to the sector and to British brewing, although I am not as yet convinced of that argument.

If we are considering the case for radical reform, some philosophical issues need to be addressed, particularly by those in my party, before we advocate that Government should intervene in a private contract, freely entered into by the two parties, and, indeed, before we advocate that Government should actively restructure an industry. That appears to be the view of the present Government. In a written answer on 9 February, the Minister stated:

"I have not met with Pubcos to discuss beer pricing. This is a commercial matter for the businesses concerned."—[Hansard, 9 February 2009; Vol. 487, c. 1677W.]

Let me address the role of Government. The Government have intervened in landlord-tenant relationships for a very long time, where they believe that there is an imbalance. In residential contracts—for example, assured tenancies—there are clauses that the Government have insisted be there. In enfranchisement proposals for leaseholders, the Government have intervened in the relationship between a freeholder and a tenant and given that tenant certain rights that are perhaps relevant to this debate. People who live on mobile home parks have been given contractual rights by the Government that they could not get from the owner. On more commercial matters, the Government consulted in 2004 on removing the upward-only rent review clause in commercial leases.

I therefore see nothing sacrosanct about the tie that precludes the Government from intervening, if the case is made. Of course, the Government intervened back in the 1990s, as we have heard, to alter the structure of the industry in the name of competition, but pubcos now have the same grip on the industry that the three biggest brewers had then. If it was right for my party to intervene then, it is difficult to argue that it is not right to intervene now, if the case is made.

Agencies of the Government, such as the Office of Fair Trading, have taken an interest in pubs. In 2002, the OFT concluded that the tie had no major negative effects on the pub industry. In its 2004 report, the then Select Committee on Trade and Industry said:

"There is considerable scope for eliminating the root causes of such disputes",

which arose from the tie. It concluded that

"if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it."

My views on the matter are subjective, and this is not something in which I specialise, but my understanding is that the root causes that the Select Committee mentioned in 2004 have not been eliminated and are still there.

I am influenced in that by two factors: a meeting that I attended earlier this month of licensees in Andover, nearly all of whom are pubco tenants; and what has happened to far too many pubs in my constituency, where a sequence of pubco tenants have simply been unable to make a go of their pub on the terms offered. On the first, I am grateful to Mr. Alex Gillies of the Station hotel in Andover for setting up the meeting. We covered a lot of ground, but there were two important concerns. One was the inability to buy beer as cheaply as people could buy it in supermarkets, after which they could consume it without supervision. Tenants are simply unable to compete effectively in the market for their prime products. Although I am not in favour of resale price maintenance, it is difficult for those of us who believe in competition, the marketplace and free trade to swallow such a significant restraint on trade.

The second issue is the uneven nature of the contract, which has been touched on. In one case, a tenant signed a lease on the basis of high turnover figures, without knowing that they had been preceded by a special offer. I will not repeat the points about the operation of the tie, but all the tenants whom I met had used solicitors, only subsequently to discover that small print in the contract was greatly to their disadvantage.

That brings me to my next point: I want to see greater stability in the industry. I see from the GMB union briefing that 32 per cent. of the Punch Taverns estate of 8,400 pubs changed hands in three years and that those that did changed hands twice on average. Too many tenanted village pubs in my constituency have a series of tenants, none of whom can make a go of the business. Tenants lose their savings, go bankrupt and become homeless or disappear, and the process starts all over again. Six months later, there is another failed business and another tenant. That is not good for the community or for the pubco.

I am interested in a more stable environment and a better business model. In the village of Ecchinswell, the villagers simply got fed up, and they bought the village pub, which is run by a not-for-profit company. I am a keen supporter of that solution, where the market has failed.

What should happen? I am not in favour of a ban on the tie, because that would be too dramatic, but it should be loosened, and we should move to a different business model over time. It would be better if we had more free houses where the publican owned the freehold, and I welcome the fact that the pubcos are selling, which shows that we are moving in the right direction. However, one licensee I talked to at the weekend said that his pub had been valued three years ago and that that was the value in the pubco books. He has offered a third of that price, which he believes is the pub's going value. If his offer were accepted, it would have enormous consequences for the balance sheet of the pubco, whose asset values would fall.

We should encourage a change in the business model, as the hon. Member for Southport has suggested, because that would lead to a more stable and profitable industry. In an Adjournment debate on 26 March, which my hon. Friend Mr. Robertson initiated, the Minister said:

"We need to consider the role of tied houses and other pub companies, which, through differential pricing and the rents charged, have an impact on landlords...I will discuss with colleagues in the Department for Business, Enterprise and Regulatory Reform how we can better understand the sector and provide help."—[Hansard, 26 March 2009; Vol. 490, c. 551.]

We look forward to hearing at half-past 12 just what the Minister has been able to do.

As an interim measure, we should move towards obligatory clauses in leases, such as exist in other contracts. In the longer term, however, a combination of shareholder pressure on pubcos, pressure from the Select Committee, whose report we await, pressure from the House and the availability of finance to enable tenants to buy pubs might move us from where we are to a different structure and a more sustainable and stable pub industry.

Greg Mulholland (Leeds North West, Liberal Democrat)

I pay tribute to my hon. Friend Dr. Pugh for calling this important debate. He is one of the people who has been speaking out about issues affecting pubs, including today's subject. He has had the courage to speak out about something that many organisations do not want to have raised.

I want to start with a simple question: who owns the British pub? Morally the answer should surely be the community that it serves: the area or village, whether that is a rural village, town or suburb. Surely the moral ownership of a pub that might have been there for years—in some cases, indeed, hundreds of years—should be with the community, the area and the people living there. Legally, of course, apart from when a pub is the last one in a rural village, the community has virtually no say in the future of the pub.

What is the ideal pub? I echo the comments of Sir George Young that the ideal pub would surely be owned by the people who put in all the hours and run it to try to make it a success. It would also serve locally brewed beer, and, if it is a food pub, locally sourced food. There would be a genuine relationship between the business people and the people whom they serve in the community. A pub is much more than a business, but the sad reality is that in Britain today we could not be further from that situation.

David Taylor (North West Leicestershire, Labour)

The chairman of the new all-party save the pub group has presented an idealistic view, particularly with respect to rural areas. I represent a partly rural seat, and I believe that he represents a largely urban seat. When pubs are threatened, particularly in villages and sometimes on urban estates, does not a great deal of the welter of opposition and concern reaching MPs and others come from people who never go through the doorway of the pub in question? They have an emotional feeling that the pub should continue in their community, but they are not willing to sustain it in any commercial or social sense. Is that not the problem?

Greg Mulholland (Leeds North West, Liberal Democrat)

As the hon. Gentleman knows, one of the things that the save the pub group wants to do is encourage people to visit pubs. However, my answer to the hon. Gentleman is no; he has described a problem, but the problem that we are discussing today is ownership.

Who is closing pubs in this country? The bitter irony is that the vast majority of closures are being carried out by the very companies that protest loudly about the future of the British pub. I want to challenge a comment made by Mr. Grogan, for whom I have huge respect as the chairman of the all-party group on beer—I am proud to be an executive committee member of that group—because the simple reality is that fictitious figures are being circulated. In any town in the country, one can see "To let" boards hanging from pubs. It is what is called churn or turnover. When a licensee leaves a pub we are, I am afraid, talking in almost every case now about the failure of a small business. Often that is accompanied by a story of human misery—sometimes tragedy. We cannot ignore that, yet the big pub companies will not tell us about it. We are told, "Oh, they are temporary closures. They are not real closures."

We need to be clear that it is not free houses that are threatened. Of course, there are issues to be raised with respect to all pubs, and we all want to challenge the supermarkets on their low pricing and were disappointed by the duty decision last week. However, we must concentrate on the fact that, as has been said, the playing field is now, to an impossible extent, not level between the free houses and the tenanted pubs of some—I stress the word "some"—of the very large pub companies and the large and medium-sized brewers.

David Drew (Stroud, Labour)

I apologise for missing the early part of the debate. I commend the hon. Gentleman on the report that he submitted—I know that others helped—to the Select Committee on Business and Enterprise. It is a very good report.

I have a friend who is a publican. I feel strongly about the fact that publicans cannot know the context in which the pubcos work. It is a completely one-way negotiation. I have gone through with her some of the problems of trying to get clarity about what the pubco expects of her; it is the greatest unfairness. I know that that features in the report, and perhaps the hon. Gentleman will say something about it.

Greg Mulholland (Leeds North West, Liberal Democrat)

I thank the hon. Gentleman for his comments, which I agree with, and for his help with the submission, which will, of course, be published when the Committee publishes its final report.

The simple reality is that, even since the 1986 beer orders, the situation regarding the tie—we must not be lazy, because we are not talking about one thing or one model—has changed out of all recognition. We no longer have the old paternalistic breweries that supported their tenants; we now have property-owning companies—that is what they are—that, frankly, have little interest in what happens to pubs in each area. If anyone says otherwise, why are some of the large companies slapping restrictive covenants on pubs as they close them, simply to prevent the properties ever being pubs that serve the community again? That is a scandal. Will the Minister say when the Government will legislate to prevent that? He will not find a single Member of the House who thinks that that is acceptable behaviour.

What has changed since 1986? It is a little bit like the situation with the banks. When times were good, sales were allowed to billow, and I am afraid that we saw some extremely irresponsible business practice. The large pub companies have taken on £20 billion of debt. To feed that debt—this is what we should be talking about, rather than whether there should be a tie—those pub companies are having to extract money from their pubs through unreasonably high beer prices and unreasonably high rent. Those things are not balanced.

The two large pub companies, Punch Taverns and Enterprise Inns, pay approximately £750 million per annum to bondholders and banks, much of which goes abroad, which is entirely unsustainable. To give a simple figure, servicing the debt costs £55,000 per pub in this country. That is a profound reason why pubs are closing. As my hon. Friend the Member for Southport has said, the model has become skewed. Servicing debt is what is closing pubs.

We must send the message that we absolutely need reform. We simply cannot take the excuses that come from those in the pubcos who say that their pubs are not closing when we can all see it happening. We cannot believe that such an enormous and unsustainable debt is not a great threat to the British pub, because it blatantly is. We must have reform.

As Mr. Drew and the right hon. Member for North-West Hampshire have said, some of the contracts between companies and their tenants are outrageous. Every time somebody buys out—in other words, when they buy beer outside their contract—they are slapped with a huge, five-figure fine. Who polices that? The pub companies. Is there any right of appeal? No, there is not. Some contracts have clauses that force tenants to take on insurance. Although the upward-only rent reviews have gone—that was the only 2004 Select Committee recommendation that was acted on—we still have the retail prices index rent increases in annual agreements. There are countless examples. I am frankly amazed that some of the things in the contracts are legal in British and European law, and they need to be challenged. Will the Minister look at the matter closely? If those things are currently legal, they should not be.

There is no right of appeal for tenants in such situations and no right to independent arbitration. Those agreements must be changed in a series of ways, if they are not to continue leading to situations in which abuse takes place. That is a strong word, but people feel that they have been abused. Let me a quote a few of the many, many letters and e-mails that the all-party save the pub group has received. I will not name the pubs, because the large pub companies are astonishingly litigious. Those companies spit out solicitors' letters as soon as anyone dares to criticise them, and I do not want to get tenants into trouble.

I received this letter from a pub in Essex:

"Enterprise Inns are a debt-ridden company. They have to tie their pubs and charge extortionate prices for their ale. They do not have any understanding of our businesses nor do they care...Something needs to be done. We are a very viable business, but it is being undermined by Enterprise for its greed. They should be assisting tenants, not hindering them. The sad thing is all we can do is fight them or walk away."

A letter from a Punch pub in Watford said:

"Last week, a visiting publican, during a conversation, worked out that through my rent and beer purchases, Enterprise Inns makes over £260,000 a year out of my pub. He called it 'obscene'. As I said, I make a living...Enterprise Inns and the tax man can make the fortune my customers think I am making."

Here is a case from my own constituency:

"If I knew what Enterprise Inns were like, I would not have taken on one of their pubs and wasted all my life savings—it is disgusting."

I could go on. The save the pub group has had countless letters and e-mails from all over the country saying exactly the same thing.

Something must be done. CAMRA believes that something should be done, and it has made it explicitly clear that the system of pub ownership created by the pub orders is closing community pubs. It wants to see the issue referred to the Office of Fair Trading. However, that is no good, because time is running out for pubs in all our constituencies up and down the country. Unless we have real reform and soon, we will lose thousands of pounds because of this business model. That is the simple reality, and I challenge the Minister to go away and consider the issue. We were very disappointed by the beer duty decision last week, and we will carry on campaigning to try to have that reversed. Nevertheless, I ask the Minister to consider this issue and to come back with proposals to replace the existing model, which, as my hon. Friend the Member for Southport has said, no longer works for tenants, pub customers or the debt-ridden companies themselves.

What I am concerned about is that the situation is closing pubs. We must have fair rent, transparent and independent rent reviews and an end to the grossly excessive prices that are charged to tenanted pubs. For example, Enterprise Inns has raised prices above the level of inflation over the past few years, and yet it has said how concerned it is about beer tax—as we all are. We must have real and serious reform. Simply referring this desperately important matter to the Office of Fair Trading would be to kick it into the long grass.

My challenge to the Government is to go away and consider some of the proposals on the table. For example, they should look at making the operation of the tie subject to a time limit, so tenants have the chance to opt out in a review after three years. We would be saying to pub companies and breweries, "If it is such a good model for the tenants, as you say it is, surely they will continue with the operation of the tie."

Lorely Burt (Solihull, Liberal Democrat)

If there were an opt-out, as my hon. Friend has said, what would happen to the tenants who were not in a position to go ahead and buy the pub? What would happen to the model? Is he suggesting that we change the whole model and have a different type of tie, or is he suggesting that we abolish the tie all together?

Greg Mulholland (Leeds North West, Liberal Democrat)

I am suggesting that a tied relationship could have a maximum length of operation after which there would be an opt-out for both sides. We have seen people tied in for many years. Many have lost their life savings and houses and have been pursued incredibly aggressively by some companies. There is no question but that we need a mandatory code of practice. How on earth can those people who are closing pubs—in some cases, they are abusing their tenants—be the ones who are considering how the industry should operate? We need restrictive covenants. One concern is about what happens if a number of those companies go to the wall, which is not out of the question considering the level of debt. I appreciate that this is not the responsibility of the Minister present today, but if we are serious about the community pub, we must enshrine it in planning law and give every community a right over its future. We cannot have pubs being closed to service debt or to deal with shareholders and bondholders who are abroad, but that is what is happening.

David Taylor (North West Leicestershire, Labour)

I speak as a signatory of early-day motion 1272, which proposes outlawing the tie. The hon. Gentleman wants substantial reforms; perhaps one that he might consider and find attractive would be for pubcos to have a maximum of only 1 or 2 per cent. of British pubs within their ownership. That would give protection to the medium-sized regional breweries that are struggling. Such breweries have a great deal to offer and do not operate in the way that has been colourfully described with reference to pubcos.

Greg Mulholland (Leeds North West, Liberal Democrat)

I thank the hon. Gentleman for that intervention and for his contribution to the Select Committee. As he knows, I would advocate that measure, because the concentration of ownership in a few companies is a bad thing and is closing pubs. On its own, however, it would not change things, because the model itself is wrong. One unfairly treated or exploited tenant is also an issue, and we must look at that.

The final recommendation, which I wish the Minister to take seriously, is that of giving tenants the right to buy at market rate. The right hon. Member for North-West Hampshire has already mentioned the absurdity that the big companies purportedly offer their pubs to their tenants. I will give one example from Otley where I live. A pub valued independently at approximately £450,000 was offered to the tenant for £1.2 million. That is what is happening, and that is why people cannot buy their pubs and serve their communities. I advocate that communities should be given the right and opportunity to buy a pub before it is closed.

To conclude, if we are serious about saving the great British pub—let us not make any bones about it; that is the situation that we face—we must reform an entirely unsustainable business model that leads to a skewed relationship, which in some cases borders on abuse. We must put more power in the hands of communities. We want to see more pubs owned by people and landlords, but we will not get that unless we address the market and the way in which it operates. It is time to put the British pub back in the hands of the British people.

Joan Humble (Blackpool North & Fleetwood, Labour)

Order. I must call Front-Bench speakers at 12 noon. That leaves eight minutes and there are two hon. Members who wish to speak. I hope that they will show great forbearance in limiting their speeches so that I can call them both.

Laurence Robertson (Shadow Minister, Northern Ireland; Tewkesbury, Conservative)

As my neighbour in Gloucestershire, Martin Horwood, also wishes to speak, I would not dream of taking too long. I congratulate Dr. Pugh on securing this debate. It is a slight variation on the one that I secured before the Easter recess, which was about the future of pubs more generally. I requested that debate because of the figure of 39 pubs that are closing a week—I think that the hon. Gentleman said 40, but we shall not argue about that. Whichever number it is, it is very alarming. In that debate I tried to explore some of the reasons for the pub closures.

I will return to the pubco situation in a moment, but I do not think that we should let the Government off the hook as lightly as we seem willing to do. They have been well aware of the number of pubs that are closing. They increased the cost of alcohol last year and have done it again in the Budget. When they put VAT back up to 17.5 per cent.—as they surely will—the cost will go up yet again. They do not seem to be aware of what they are doing, and it is important to remember that. Then we have the supermarkets. I have nothing against supermarkets that sell alcohol as a loss leader. They sell it very cheaply and it is consumed very responsibly by some, and less responsibly by others. That is what the pubs must face. A number of other measures have caused the pubs to close on the back of that, and now that the Minister has returned I will say again that we should not let the Government off the hook. They are helping to close pubs and should not continue to do so through the taxation policy that they follow. They take almost £15 billion a year in taxation from the drinks industry, and they should not squeeze it any more than they already have.

Normally, when I stand up to speak in this place I have a particular point to make. I am not quite sure where I stand on pubcos, so one might ask, "Why bother speaking in the first place?" Well, in the couple of minutes that I have left, I want to say that we need to balance the debate a little more than it has been balanced today. I really come down on the side of my right hon. Friend Sir George Young, who says that we should probably look at this issue a little more cautiously. I want to see the conclusions that the Select Committee reaches when it publishes the results of its inquiry. At the moment, I would not rush into abolishing the tie.

I am a regular patron of pubs and I have listened to many pub landlords who say, "We have got to get rid of the pubcos". However, they all seem to rush towards the pubcos when they want to take the pubs on, and I wonder whether a strengthening of their position through their own actions might be a better way forward. I understand what my right hon. Friend says, which is that the Government can intervene in free markets, and he gave many examples where that has been the case; I understand that point. None the less, we really ought to be very careful on this issue. We all want to achieve the same thing, but I remember that the beer orders—I think that I am right in saying that they were introduced in 1989—did not achieve what they were meant to achieve. The last thing that I want to do is introduce further legislation—well-intended legislation, as most legislation is—and not solve the problem but actually make things worse. It is possible that we could do that.

We must look at all the considerations. For example, would it be better if companies simply rented out the premises and did not have an arrangement with regards to beer, or would that lead to rent being a lot higher than it is now? We have to consider all these elements before we rush to judgment on this issue.

I do not want to take up any more time; I know that the hon. Member for Cheltenham wishes to speak. However, I just want to urge a little caution about this issue. Yes, let us look at it extremely carefully. I am well aware of the complaints that are made against pubcos and I do not seek to represent pubcos at all. Nevertheless, I think that we should engage with pubcos to discuss the way forward.

I am a member of the all-party save the pub group and the all-party beer group. We have discussed these issues with licensees, but we should also discuss them with pubcos and see if there is not a better way forward before we rush towards introducing what could be inappropriate legislation.

Martin Horwood (Cheltenham, Liberal Democrat)

I want to congratulate my hon. Friends the Members for Southport (Dr. Pugh) and for Leeds, North-West (Greg Mulholland), both of whom are proving to be great champions of the traditional British pub. It is also a pleasure to follow my neighbouring MP, Mr. Robertson, and to see such good representation by Gloucestershire MPs from all three main parties in this debate.

We are losing 40 pubs a week in this country, or something of that order. That is a national crisis. It may not compare with climate change, global recession or even pandemic flu, but after we have spent all day contemplating those global catastrophes we need a pint and somewhere good to drink it in.