Rural Pubs

– in Westminster Hall at 11:00 am on 7th December 2005.

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Photo of Michael Wills Michael Wills Labour, North Swindon 11:00 am, 7th December 2005

Rural areas face problems with employment, housing, transport and health, but sustaining their communities can present them with particular challenges. Although my constituency is largely urban, it does have rural areas that suffer from all those problems, and I have constituents who want to see further progress made in tackling them.

This Government have done more than any previous Government to invest in sustainable rural development with a range of measures, including help for rural transport, rural post offices and rate relief. I secured this debate to ask the Government to continue that important work with further support for the institution that so often represents the beating heart of rural communities—the rural pub.

As the supermarkets tighten their grip on our shopping habits and as patterns of work and settlement keep changing, increasingly the village pub provides the main, and sometimes the only, focus for social activity in rural areas. Without such a focal point, the sense of community evaporates from rural areas, and that sense of community is essential for regeneration. Yet the rural pub is under threat. Some estimates suggest that six are closing every week. There are many reasons for that: drink driving regulations inhibit many people from driving out into the country for an evening at the pub as they might have done 30 or 40 years ago; the extremely competitive prices charged by supermarkets for beer are encouraging some to drink at home instead of going out to the pub; and the changing composition of villages means that more and more people are commuting in and out of them. All those things challenge the viability of many rural pubs.

Those problems are well known and a lot of good work has gone on to tackle them. The Campaign for Real Ale, for example, has been indefatigable in championing the cause of choice, and small breweries, to make all pubs more attractive to the discerning and committed consumer.

There are good examples of what can be achieved. Some pubs have been making themselves sustainable by diversifying into other areas, including prescription deliveries, DVD rentals, and even delicatessen and broadband facilities. There have been inspiring examples of villagers giving their pub a new sustainable financial basis by buying it as a co-operative.

When, as the Minister with responsibility for small business six years ago, I set up the Small Business Service, I wrote into its remit that it should encourage mutual enterprise as an instrument of regeneration. I believed then, and still do, that such co-operation and mutuality can be an invaluable instrument of community regeneration. It is encouraging to see rural communities putting that into practice by supporting their local pubs in that way, but more needs to be done. I hope that the Minister can reassure me that his officials and those in the Department for Trade and Industry will work with the Small Business Service to ensure everything possible is being done to provide support for villages that might want to form co-operatives to run their local pub.

The Minister will be aware of the role of the Pub is the Hub initiative, originated by Business in the Community, in spreading best practice. Again, I would welcome his reassurance that he and his officials, and those in the DTI, will work with Pub is the Hub to ensure that it receives the funding and other support to enable it to develop its work so all rural pubs can benefit from it. I should be grateful if the Minister could write to me by the end of March about the action that is under way in those areas, so I can reassure my constituents about the good work being done by the Government.

I would welcome reassurance from the Minister about how the fairness, equitability and sustainability of the commercial environment in which rural pubs operate can be ensured. He will know that in recent years ownership of pubs has become increasingly concentrated. The top six so-called pubcos control almost 40 per cent. of UK pubs. He will also know that a year ago the Select Committee on Trade and Industry conducted a thorough investigation of their relationships with their tenants. I do not intend to rehearse all those arguments today, but I have some concerns that I shall raise with the Minister. Before I do so, however, I stress that I have no quarrel with the Select Committee's balanced conclusions about the trade-off between the so-called dry rent and the wet rent charged by the pubcos—the profit they make from contractually exclusively supplying beer to their tenants.

I recognise that some pubcos have moved some way towards addressing concerns about their relationship with tenants. The largest have codes of conduct that stress that tenants should take professional advice before entering into any contract, and their websites offer clear and helpful accounts of different business models available to potential tenants.

However, there are still grounds for concern. Pubcos start from a strong position, first because there remains a strong demand for tenancies, not necessarily because a tenancy offers a viable living but because many people still dream of the rural idyll of running their own business in a pretty village. There are other attractions. The chief executive of Punch Taverns plc said earlier this year that taking on a lease with accommodation

"can appear a very attractive deal when house prices are so expensive".

Such a lease can also seem attractive because the entry costs into the business in that way are lower than taking on a free house.

However, such attractions must not be an excuse for abuse of a dominant position in a contractual relationship, and there is certainly a price to pay for the low cost of entry. For example, I have seen detailed figures prepared by a successful and experienced publican in the Swindon area, who is now a contented tenant of a local brewery, but was previously an unhappy tenant of a pubco. Those figures suggest, among other things, that the percentage of gross profit taken by rent will be less than 10 per cent for a free house but more than 20 per cent. for the lessee of a pubco.

The Trade and Industry Committee rehearsed the main complaints against alleged exploitation by pubcos a year ago, and some of the questions it raised have still not been properly answered. The Select Committee said that pubcos should insist

"as a condition of acceptance that tenants obtained all necessary professional advice. This should be one element of an industrywide code of practice."

The new code of practice is now out for consultation by the British Beer and Pub Association and goes a long way towards meeting that objective. That is important because Morgan Stanley, for example, found that 40 per cent. of prospective tenants took no legal advice before signing lease agreements, 42 per cent. said they were encouraged by the pubco to do so and 63 per cent. were not asked by the pubco whether they had done so.

Obtaining such advice should ensure that tenants understand better what they are getting into, but that does not guarantee that pubcos will alter objectionable clauses. There are often two or three potential tenants pursuing the same lease, which puts them in a difficult position. It is a seller's market and the pubcos hold most of the cards. Some of the clauses that they put in their contracts are worrying. One, from a contract issued by one of the largest pubcos, states:

"the tenant agrees to pay trading accounts and statements . . . on the dates specified by the Landlord".

That is followed in the same agreement, which ties the tenant to buying beer only from the pubco landlord, by the statement that

"the landlord shall on the signing of this lease and from time to time thereafter supply the tenant with a pricelist of beers".

In other words, there is no contractual fetter on the landlords to prevent them from raising prices as often as they want and as high as they want, and demanding payment as frequently as they want. Those clauses are not subject to any test of reasonableness or tied to any increase in the pubcos' charges from the brewery. In this case, the pubco seems able to charge whatever it wants, whenever it wants.

The pubcos frequently claim that their business model depends on their tenants prospering, and the argument is advanced that it would not be in their interest to bleed tenants dry. However, there is a difference between the extreme position of bleeding them dry and simply exploiting them by charging unreasonably high prices for the tied beer, secure in the knowledge that their tenants will often work extremely long hours to make the business pay, and swallow any disproportionate increases in costs.

It is hard to avoid the conclusion that such clauses leave pubcos in a position where they can use their dominant economic position to exploit their tenants. That does not mean that the tenants will necessarily go bankrupt. They may survive by working hours, and at a standard of living, that no pubco director would accept, but survival can be consistent with exploitation and nothing in the new code of practice issued by the British Beer and Pub Association will prevent that, as far as I can see.

The so-called wet rent, which is derived from the profit made on the exclusive supply of beer to tenants, is justified by the claim that it is partly offset against the rent charged for the premises so that such rent is competitive. However, I am also concerned about the so-called dry rent. The Trade and Industry Committee report stated:

"The industry could and should establish clear guidelines for the rent valuation process" with

"new national guidance for rent calculation . . . The profit assessment method of calculating rent should be carried out in accordance with national accounting standards".

However, the British Beer and Pub Association code of practice states that

"company codes of practice should, as far as reasonably practicable and possible, provide for the making available to the lessee of information relating to how the rent will be determined initially", which is not quite what the Select Committee recommended. It suggests that the fixing of rent and rent reviews will remain contentious, and, in the absence of the national standards suggested by the Select Committee, that there will still be scope for pubcos to exploit their tenants. Apart from anything else, the more vague and opaque the process, the more disputes over unjustifiably high rents and rent increases can be resolved only through litigation. How many tenants can afford to litigate against huge powerful pubcos?

Apart from the operation of the charges for tied beer and rent, I am also worried about the appropriate disclosure of information to tenants and potential tenants, which, again, was called for by the Select Committee. There are disturbing signs that the pubcos are not fully signed up to that. The Select Committee said that

"pubcos should advise their tenants of the average discount they receive" from brewers, and

"how this compares to the free market discounts available, and how much of this discount pubcos are passing onto their tenants".

Enterprise, which is one of the largest pubcos, said in response that that was

"entirely irrelevant to the tenant's decision-making process".

I am baffled by that response. It hardly suggests that pubcos view their tenants as partners. Of course such information helps tenants understand the business model of their competitors and, indeed, the strength or weakness of their position in relation to their landlords. As such, it seems to be highly relevant to tenants' decision-making processes. Of course, contracts with suppliers are subject to commercial confidentiality, but why could tenants not be bound by such clauses? It is not unreasonable to expect partners to share commercially important information.

At best, tenants will not be able to invest in improving their facilities for the community that they serve if they are squeezed too hard. At worst, they will go out of business. That could be a personal disaster for the tenant and could damage the rural community that they serve, but the pubco faces less risk. For them, there will always be the option of liquidating the asset and turning the pub into, for example, housing. That distorted balance of power must be worrying for rural communities that depend on their pub.

I recognise that the worries that I have expressed today may prove groundless. Pubcos may use the latitude in their contracts to behave fairly towards their tenants over the tied supply of beer, rent and other matters. They may consider that it is in their own interests to do so—but there is often no contractual imperative for them to do so.

There are many reasons why it is hard for tenants to fight their contractual corner. The pub can remain a hub of village life only if it is a sustainable business, but sustainability is damaged by unfair exploitative relationships between pubco and tenant. The survival of the rural pub is too important to village life for the Government to abandon this issue. I hope that the Minister agrees that it is important for pubcos to be aware that public scrutiny of their relationship with their tenants will not disappear with their response to the Trade and Industry Committee report a year ago. I would be grateful if he could confirm that his Department and the DTI will continue to monitor the situation, and, if the problems identified by the Select Committee, some of which I touched on today, persist, that they will take any action necessary, including introducing a statutory code of conduct, if appropriate.

Photo of Jim Knight Jim Knight Parliamentary Under-Secretary (Rural Affairs, Landscape and Biodiversity), Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Rural Affairs, Landscape and Biodiversity) 11:14 am, 7th December 2005

I congratulate my hon. Friend Mr. Wills on securing this important debate. It reinforces his reputation as an excellent campaigning Member of Parliament who consistently raises issues of concern to his constituents.

The future of pubs is of great public interest, nowhere more so than in rural settings where they not only perform the social function that they do anywhere else, but may be the only place in the community where the village can meet, trade, and, in one or two cases, even vote. I know from more than 10 years of living and working in Wiltshire that that county has a great many fantastic rural pubs. The north of the county, in particular, enjoys the beautiful setting of the landscapes that we associate with the Cotswolds.

Some pubs, such as "The Red Lion" in Castle Eaton in my hon. Friend's constituency, offer the chance to have a relaxed drink in a beer garden on the banks of the Thames. I am sure that the wise voters of Swindon not only enjoy the local pub, but take advantage of some of the wonderful countryside around and about for a walk at the weekend. What better way to round off a nice Sunday walk in the Cotswolds than to enjoy a nice lunch and a pint of Wiltshire's fine Wadworth 6X in a rural pub? I enjoy a similar experience in my constituency on a monthly basis when the Red Ramblers get together and enjoy a good walk, political discussion and a fine pint of Dorset Badger beer at the end.

Rural pubs play a crucial role in promoting local food and tourism. I was lucky enough to visit "The Three Fishes" in the Ribble valley this autumn. The owners not only served excellent food and drink in a quality environment, but positively celebrated the local sourcing of that food. The walls of the pub were decorated with photographs of the local farmers who supply the superb produce. That reconnection of consumers with producers is crucial to the future of rural areas as a whole. The work of "The Three Fishes" demonstrated the best practice in that regard.

For all those reasons, I share my hon. Friend's concerns about the economic viability of pubs. If they are to continue as important community centres, vital parts of the tourism industry and, as he described them, the beating heart of rural communities, they need to continue to be a viable part of the rural economy. Evidence of their state of health is not clear. I heard what he said about the number of closures. On the other hand, an analysis of the interdepartmental business register indicates that there were about 12,000 public houses in rural England in 2003, employing about 50,000 people. The same analysis suggests that the number of pubs in rural England increased by 3 per cent. from 2000 to 2003.

I would add the caution that, although the analysis has not been carried out in sufficient detail to be certain, the growth in rural pubs appears to be largely in those areas with higher numbers of visitors, and we know from the same work that the number of independent pubs has fallen by 8 per cent. I have studied the report from the Trade and Industry Committee that my hon. Friend referred to and I am aware of concerns about the functions of the relationship between a limited number of pubcos and their tenants. There may be a relationship between the fall in the number of independent pubs and the state of the sector in rural areas in general.

We live in a world of seemingly ever-increasing change. The changes affect every corner of life and inevitably have an impact on rural areas. Change can be viewed as a threat or an opportunity. The 2004 rural strategy sets out how the Government will support rural communities through the change. Both elements of the priority on social and economic regeneration are relevant to pubs in rural areas. At one level, rural pubs are simply businesses. They are important to the area of the economy that they serve. They operate in a free market and must respond to market forces, given the strengths and weaknesses that my hon. Friend describes. Government intervention should be a last resort and should deliver clearly defined public benefits.

The Government will support such businesses by ensuring that the business advice is tailored to meet local needs, including rural needs. I pay tribute to the work done in that regard by my hon. Friend when he was small business Minister. Officials from my Department work closely with the Small Business Service and representatives of the social enterprise sector to explore the best ways of meeting the objectives of the Department for Environment, Food and Rural Affairs. Yesterday, I talked to the Plunkett Foundation about some of these matters. Where appropriate, co-operatives should be encouraged in the running of pubs. I am happy to write to my hon. Friend to reassure him on that and the other points about which he wanted me to correspond with him.

The Government allow councils to reduce business rates by between 50 and 100 per cent. for pubs that are the last retail outlet in the village. The Government's new licensing rules also provide good business opportunities for pubs. Rural pubs know their customers better than anybody else and we are giving them the freedom to offer the services that their customers want in a single licence. They need only the one licence to cover a range of activities and no longer have to make trips to court to renew licences or apply for new ones. They no longer have to apply for a range of separate permissions if they want to open longer for special events, whether it be for St. George's day celebrations or for late-night viewing of sporting events.

As well as being businesses, rural pubs are often the focal point of village life— especially in those villages without a village hall or other centre. The Government want local communities to be empowered to control their own destiny. That includes keeping services that the communities consider important, including pubs as appropriate.

The Government support that social function. Public houses are explicitly recognised in planning policy statement 7 as one of a number of services and facilities with a role in sustaining village communities. Local authorities can refuse to grant permission for a change of use and thus provide an opportunity to keep a pub. The evidence suggests that this power has been successfully used on a number of occasions.

Beyond that basic protection, I am also interested in what more pubs can provide and are providing. Part of the challenge of running a business or providing a public service in rural areas is achieving a viable economy of scale. It is often achieved by diversifying a business and by co-locating services. Co-location can be good for the pub and good for the community.

I want to take this opportunity to pay tribute to the Pub is the Hub initiative, which my hon. Friend mentioned in his speech. Pub is the Hub is an initiative of His Royal Highness the Prince of Wales, president of Business in the Community, to encourage pub owners, licensees and local communities to support and maintain local services, and increase the viability of rural pubs. It was set up in 2001.

Pub is the Hub is an independent advisory trust, and it is assisted by the rural action team of BITC, together with the professional pub and drinks industries and other Government and statutory bodies interested in using pub or other rural properties for the support and supply of social enterprise services.

Pub is the Hub is a national body. It is able to co-ordinate activity, advice and industry training that requires pub experience, business aptitude and the raising of necessary funds to support adequately those activities, based upon the current six requests for help each week and more than 400 general inquiries each month via its website. I had a look at the website this morning, and it is very helpful.

Pub is the Hub is not a pub preservation group, but it seeks to encourage social enterprise and diversification where pubs can deliver commercial viability in supporting many rural services that are either under threat or may have recently ceased trading. The main aim is to encourage the co-location of other rural services, sharing overheads and costs, and thereby meeting the service needs of rural communities.

One excellent example of a Pub is the Hub pub is "The Beauchamp Arms" in Dymock in the very north of Gloucestershire, the county adjacent to Wiltshire. In that case, an enterprising parish council had the imagination to grasp an opportunity when the last pub in the village was put up for sale. The council took out a public board loan and purchased the pub, which is adjacent to the village hall. The pub is managed by a management company, and a successful lottery bid, with the excellent help of the Gloucestershire rural community council, has led to the extension of the hall, using the land acquired with the pub.

The community now literally owns the pub. Even during the outbreak of foot and mouth disease in 2001, the village rallied round and used the pub more to keep takings up. The Pub is the Hub website tells me that a number of community groups, such as the playgroup and the parents and teachers association hold meetings there, and there is a monthly lunch for Dymock's over-60s club. The landlord is keen to support other local businesses, and he sources as many of the bar meal ingredients as possible from local suppliers, including the local cheese maker and the butcher and baker from nearby villages.

Dymock is not alone. Already 200 post offices are located in pubs in rural areas; 80 rural shops, convenience stores or bakeries are located in pubs. Fifteen village communities have purchased their own pub, as Dymock has, either as a co-operative or part of a group. A village, Heskett Newmarket, has even bought a brewery.

Pub is the Hub is an excellent initiative. I am keen to work with it on expanding the concept and services like the co-location of post offices. A few months ago, one of my most senior officials spoke at its launch and has joined its national steering board. Its first meeting was on Monday of this week. I hope that that is a demonstration of DEFRA's support.

I come now to the worries of the Select Committee to which my hon. Friend referred. We will continue to monitor the relationship between pubcos and tenants. I will make sure that my colleagues in the Department of Trade and Industry are aware of my hon. Friend's comments. The issue affects pubs everywhere, not only in rural areas. Over the past few years, I have worked with the British Beer and Pub Association and have found it to be an effective and professional organisation. My hon. Friend said that it has agreed to develop a code of practice and that that will be published soon.

I am sure that my hon. Friend agrees that if we can urge the industry to resolve matters on a voluntary basis, that is better than the Government imposing a solution. I am equally sure that he, the Select Committee and the DTI will monitor events closely, as will I. I wanted to make that clear because the issue is important. I shall, in particular, be examining the problems of exploitation to which my hon. Friend referred in the working hours of publicans and the transparency of rents—the whole arrangement.

The debate has been worth while. I pay tribute to my hon. Friend for introducing it. It has given me a welcome opportunity to respond on something for which I am responsible. Usually in this Chamber, I am responding on behalf of my noble Friend, Lord Bach, on issues for which he responsible. I shall write to my hon. Friend about the issues about which he was particularly concerned during the time frame that he described. I am most grateful to have had the opportunity to focus on such a crucial bedrock of rural communities—the local pub. The Government are committed to working with the industry to ensure that the sector remains healthy and that the opportunities to embed local pubs in the community through social enterprise can be grasped.

Sitting suspended until half-past Two o'clock.