I beg to move,
That this House
has considered the application of the Pubs Code 2016.
It is a pleasure to serve under your chairmanship, Mr Robertson. I would like to say that it is a pleasure to speak in this debate, but I spoke in the equivalent debate in January last year and I hoped then that I would never have to speak in such a debate again. However, given the way things have evolved, it is obvious that I need to, so I am here yet again.
I am something of a veteran of this issue. The initial predecessor to the Select Committee on Business, Innovation and Skills did an inquiry into it in 2004, and subsequent inquiries were held in 2009, 2010 and 2011. I was a member of the Committee in 2009 and Chair of it in 2010 and 2011. Looking back, I remember that Ted Tuppen, the former chief executive of Enterprise Inns, described the MPs who were campaigning on pub companies as morons. I am proud to say that I am probably one of the last surviving morons—by that definition—in this House.
The issues have been standard and constant throughout the evolution of this debate and the subsequent legislation. They arise first around the tensions between the pub companies and their tenants—I know they are commonly described as pub operating businesses now.
I congratulate my hon. Friend on securing this debate and the way he has pursued this issue. Like him, I contributed to debates on it in the last Parliament. I was pleased, as were many colleagues, to see the pubs code at last, but does he agree that the key now is to see it implemented throughout?
Absolutely. My hon. Friend makes an important point. This has been pursued through Parliament for nearly 15 years. If, at the end of the day, we do not demonstrate that our pursuit of this issue and the implementation of the legislation is effective, we will have failed in our duty. I am dedicated to ensuring that it is successful.
The crux of the issue is the mismatch between the power of the pub companies and their tenants. With that mismatch in power comes a mismatch in rewards. Basically, many pubs were being driven into closure and tenants into bankruptcy by virtue of the fact that the pub company was taking a disproportionate amount of the income that they were raising through their services.
I congratulate the hon. Gentleman on initiating this debate. Does he agree that another problem is that the adjudicator has a tendency to make his decisions in private, thereby preventing a bank of knowledge from being built up by tenants, who could perhaps use some of the decisions as precedents?
I thank the right hon. Gentleman for that intervention. To a certain extent, I was going to cover that, but his precise point is a welcome addition, because transparency is the key. That would give guidance to tenants who were looking for the market rent only option. It would enable them to see how viable their application is and on what grounds they could challenge the pub company, if the pub company refused or obstructed it.
I will be writing to the Minister about my constituents’ experience of the pub code adjudicator following Paul Newby’s visit to York, at my invitation. Despite his commitments about expediency and communications, pubs such as the Golden Ball in York are still waiting 13 months later to hear what is happening about their case. How can that be fair, and how can it be right?
My hon. Friend raises an important point. I know that many tenants feel that this procrastination over resolution is playing into the hands of the pub companies, and that it is, in some cases, deliberately designed to drive up expenses and deter anybody from making such applications.
I congratulate my hon. Friend on securing this debate. I want to ask a question on behalf of the Nottingham branch of the Campaign for Real Ale and its pub protection officer, who wrote to me about this issue. The point they make is that the process of obtaining a market rent only option is massively complicated and virtually impossible for an unsupported tied tenant to use without expensive legal support. Does my hon. Friend agree that if the legislation is to be useful, it must be easily accessible?
My hon. Friend makes an important point. That is one of the complaints, and I will be discussing some of them in a few moments.
Prior to the implementation of the legislation, subsequent Committees sought the industry’s agreement on a voluntary code, but subsequent inquiries demonstrated that the pub companies, despite paying lip service to a voluntary code, were actually not conforming to it and not making any progress on it. It was then in exasperation—almost desperation—that the Select Committee decided that enough was enough, and that it was time to implement legislation. Subsequently, the legislation materialised.
The key issue, above all else, is tied tenancies and the market rent only option. The argument is that tied tenants have to pay a disproportionate amount of money for their stock and other services, and that, as a result, the pub company gets a disproportionate share of the income arising from the premises. If a tenant seeks to go free of tie, the pub company will implement conditions in the negotiations that remove any financial advantage from that course of action. The legislation, by giving tenants the option of applying for a market rent only option, is designed to overcome that handicap. The way in which the process is being implemented is a matter of huge concern, and it needs further consideration by the Pubs Code Adjudicator and the Government.
The Pubs Code Adjudicator report in July 2017—bearing in mind that the legislation came in one year earlier, in July 2016—said that there were two overarching principles in the code. The first was “fair and lawful” dealings in relation to tied tenants. The second, which I have touched on, was the “no worse off” principle, which sets out
“that individual tied tenants should not be worse off than they would be if they were free of the tie”.
Eighteen months after the introduction of the pubs code and the Pubs Code Adjudicator, it is time to take stock and assess whether the objectives set out in the pubs code—I just defined them—are being met, and, if not, what needs to be done.
Before I do that, I have to touch on the controversy that raged over the appointment of Paul Newby as the Pubs Code Adjudicator. I will not dwell on the whole catalogue of concerns, but it is well known that there are accusations of conflicts of interests arising from his past employment with the valuers and surveyors Fleurets, because it had extensive interests with the pub companies, and from his personal investment in it. I said in the debate last January that unless he divested himself of that particular investment, then in no way should he be the Pubs Code Adjudicator because he had an obvious and transparent conflict of interest. He has not done so. Given that confidence in his commitment and impartiality is crucial to earning the trust of pub tenants, that must be of huge concern. I will come back to this issue in a moment.
He has had opportunities over the past 18 months to demonstrate his effectiveness; however, looking at his performance, it is possibly a slight understatement to say that the implementation and the progress made under his supervision fall short of the level needed to achieve the legislative objectives. The first concern is the slowness of the adjudication process. Between July 2016 and March 2017, arbitration awards were made in only 15 of the 119 cases accepted for arbitration. In the cases specifically relating to the market rent only option, the figure was 12 out of 104. Later in the year, in August, the adjudicator published a market rent only verification exercise report, which demonstrates that of the total of 497 market rent only notices, only 11 were actually converted into agreed market rent only tenancies. Of the 130 arbitration cases listed on
Now I will come back to the point that I was making earlier. The slowness of arbitration is not the only issue; impartiality is also a problem. The Chartered Institute of Arbitrators has upheld four of the 12 challenges made by pub tenants to the adjudicator’s decisions. That demonstrates the lack of confidence of tenants in the industry in the robustness and impartiality of the way in which he is exercising the code. To have a one-third failure rate in such a key, sensitive position is absolutely unacceptable.
My hon. Friend is making a very solid case. A further conflict of interest in dragging out these cases is that doing so is economically disadvantaging tenants. Has he discovered the same fact?
Again, my hon. Friend makes an important point. The more we drill into this subject, the more comes out of it. Unfortunately, I am too constrained by time to go into every single issue that arises.
I am keen to intervene before my hon. Friend moves on from that point. As I understand it, in the four cases in which the Chartered Institute of Arbitrators found that there was a conflict of interest, Mr Newby has continued to arbitrate. He has not accepted the verdict of the Chartered Institute of Arbitrators. An important question for the Minister is whether he thinks that if the Chartered Institute of Arbitrators believes that there is a conflict of interest, Mr Newby should respect that verdict.
My hon. Friend raises another significant point. By continuing to act on the case, Mr Newby is acting in breach of the code of conduct of the professional institute of which he is a member.
It is also significant that successful negotiations between the pub companies and tenants were rare. Eight times as many cases were referred to the PCA for arbitration, and four times as many went to independent agreement, as decided by bilateral negotiations between the tenants and the pub companies. It is not difficult to understand why. There is now overwhelming evidence that the pub companies’ historic antagonism, intimidation and bullying has continued, and the confrontational culture has prevailed, deterring tenants from taking, seeking or achieving market rent only options as a result of bilateral negotiations with the pub companies.
That is confirmed by the market rent only verification exercise of August 2017. The report states:
“Almost without exception, tenants and tenant advisers reported that while the POBs are abiding by the letter of the Pubs Code, to varying degrees they are not acting within the spirit of the Code;
and that some are taking a legalistic approach to the Code.”
The second highest number of calls to the Pubs Code Adjudicator inquiry line related to the behaviour of pub companies, and they included accusations of intimidation, bullying and delay tactics. Those are not my words, but the words of the report.
I do not have time to examine every device used by the pub companies to frustrate negotiations and would pick out just a few. First, they include processes in their negotiations with tenants that are designed to push up costs, and include conditions not commonly found in tied tenancies or pre and non-code free-of-tie agreements.
Secondly, there is insistence by the pub companies for a brand new tenancy agreement, rather than a deed of variation to an existing tied tenancy. That enables pub companies to introduce new terms and requirements not historically found in a free-of-tie agreement, but that introduce substantial additional upfront costs.
Thirdly, deposits and advance rents are designed to make the market rent only option unaffordable. Lastly, there are unreasonable, unexpected and novel improvements of dilapidation requirements, including things such as a new roof, new pumps, resurfacing of car parks, cellar cladding, fire rules assessments and, I believe, patios as well. I would stress that those are only some of the strategies used by the pub companies to circumvent the spirit of the law.
Arising from a letter from my hon. Friend Rachel Reeves, the Chair of the Business, Energy and Industrial Strategy Committee, on
“that very few MRO notices served by tied pub tenants convert into MRO tenancies, and that bilateral negotiation and agreement between pub-owning businesses and tied pub tenants appear to be by exception.”
That is a formal confirmation from the Pubs Code Adjudicator that, in effect, it is not working. It is clear from the verification exercise that the pub companies are using their legal expertise and superior bargaining power to perpetuate the status quo and to thwart the intended objectives of the pubs code legislation.
In the same letter, the Pubs Code Adjudicator says that he is prepared to use his enforcement powers to ensure compliance if necessary. We have been operating with the code for 18 months, and there is overwhelming evidence that it is necessary and reasonable to ask why—given the evidence that has emerged in that period —he has not done it already. Instead, the adjudicator has published a compliance code for pub companies which, frankly, we would have expected to have been produced much earlier. Predictably, the pub companies have reacted with an antagonistic letter to him. I am afraid that, on the basis of earlier precedent, it is only the threat of legal action that will move the companies.
In the same letter, the adjudicator says that he will make recommendations to Ministers about business practices that he believes are unfair to tied pub tenants but are not breaches of the pubs code. Again, the evidence about that has been there for a long time, so why has he not done that before? I ask the Minister this question: if the recommendations from the adjudicator are forthcoming, or indeed even if they are not, will he make the appropriate changes to the legislation to ensure that it meets its objectives?
In his letter to my hon. Friend the Member for Leeds West, the Pubs Code Adjudicator asserts that his aim is to help to reshape the culture of the industry. To date, there has been absolutely no sign of that. The pub companies are intransigent and have enormous resources at their disposal. To change the prevailing culture, a much tougher approach is needed. The PCA is running out of time and it is time that the Government sought a replacement.
The Government need to make a couple of headline adjustments to the legislation or the code to ensure that the code is effective and the problems that I have outlined are overcome. Many such changes would do that, but there are two key ones. The first is to ensure that the definition of the market rent only option makes clear the right of a tenant to pay an independently assessed market rent, and only that rent, to the pub company. Secondly, the only changes to deeds of variation that should be allowed are the severing of tied terms and the rent being an independently assessed market rent. Those two alterations would go an enormous way to addressing some of the important grievances that have emerged so far, but many others could be made.
I will conclude by saying that, as I said earlier, I have been involved with this for a very long time—many Members from all parties in the House have been equally committed. I pay tribute to my predecessors as the Chair of the Business, Innovation and Skills Committee and its predecessor Committees, and the many campaigners in the many voluntary groups who have been so assiduous and dedicated to ensuring that we drag these companies kicking and screaming, by whatever legislation is necessary, to confront their responsibilities as operators of important community facilities that play an absolutely vital role in so many people’s lives, and in the lives of so many communities. I will not rest until that is done and I hope that other Members and the Government will work with me to ensure that we achieve that goal.
It is a pleasure, Mr Robertson, to serve under your chairmanship, and I congratulate Mr Bailey on securing a debate about an issue that, as he has just pointed out, is so important to so many of the pubs that are of such great value in our constituencies and our communities.
The Chipping Barnet area, which gives my constituency its name, was once famous for its pubs and coaching inns, serving people travelling on the Great North Road on their way to and from London. At the height of the coaching era, there were probably more than 30 pubs in a comparatively short stretch of road along Barnet Hill and Barnet High Street.
“crouching on the step…wondering at the great number of public-houses (every other house in Barnet was a tavern, large or small)”.
Further back, in 1667, Samuel Pepys also dined at the Red Lion in Barnet, enjoying what he described as
“some of the best cheese-cakes that ever I eat in my life”.
And in 1762 the traveller William Toldervy commented positively on various Barnet pubs, including the Red Lion and The Mitre.
Only a handful of Barnet’s old pubs survive to the present day and those that are still open for business face some difficult challenges and circumstances, including the Old Mitre Inne, which attracted that good write-up by Toldervy some 250 years ago. It is a great pub that is very popular with my constituents. Unlike many pubs, it is primarily dependent on what I gather are described as wet sales—in other words, it has not morphed into a restaurant, although it serves some really excellent food.
The pub is run by Gary Murphy, who has recently been granted a Pubs Code Adjudicator arbitration in relation to his dispute with his pub company. It has taken eight months of correspondence, legal advice and hassle to get to that stage which, as the hon. Member for West Bromwich West has already suggested, is a demonstration that this process moves too slowly. We need to find a way to ensure that the pubs code process and the adjudication process can move more swiftly to deliver fairer outcomes for people running these much-valued and much-appreciated pubs.
When Mr Murphy asked to exercise his right under the code to move to a market rent only arrangement, the pubco asserted that that required a new lease, which is costly to negotiate, with legal fees to pay and stamp duty and so on. Moreover, the pubco proposed onerous new terms, including payment of six months’ rent up front in advance, and the obligation to redecorate the premises completely, inside and out, every three years. My constituent believes that the MRO arrangement could and should be delivered via the cheaper and simpler mechanism of a deed of variation, which we have already heard some points about this afternoon. A second problem is that the pubco refuses to accept that any final MRO settlement should be backdated, in accordance with the relevant backdating clause in Mr Murphy’s existing lease.
Those two issues mean that it could cost Mr Murphy well over £100,000 to get his MRO. That has to be against the spirit of the pubs code and it sounds like it is against the letter of the code as well.
I understand the very serious concerns that have been expressed by the hon. Member for West Bromwich West, many of which are echoed by the Campaign for Real Ale in the very helpful briefing that it has provided for this debate. However, I take a somewhat more optimistic approach. With the establishment of the code, we have seen positive steps in the right direction and now need to build on the progress that has been made. Nevertheless, it is clear that more needs to be done to ensure that pub tenants are given the protection that was envisaged by Parliament when it adopted the legislation on the pubs code.
As we have heard, the Pubs Code Adjudicator has started to make decisions and a number of them appear to have been helpful. For example, I gather that there have been cases where the PCA has declared that the pubco must offer better terms to its tenant than those that had been originally proposed. That includes cases where the conclusion has been that a deed of variation can be used and a new lease is not required.
Welcome as those decisions are, however, waiting for individual cases to determine general points of principle is part of the reason why this process is slower than it should be in coming to the aid of our local pubs. It would be very helpful if the adjudicator were to issue further general statements on how he proposes to approach key aspects of the code, including those covering some of the issues that have already been raised this afternoon.
I believe that that would mean that disputes between tenants and pubcos could be settled more quickly, and with less cost and less stress, than they are currently. I very much hope that the adjudicator will consider publishing statements of principle, in particular in relation to the two problems that have arisen in The Mitre’s dispute, namely deeds of variation and backdating clauses.
In conclusion, the pubs code and the PCA are capable of delivering fairer outcomes for tenants. In doing so, they could be a lifeline to the local pubs that so many of our constituents value. A few relatively simple changes in approach could achieve a great deal to ensure that the system works more effectively and more quickly to deliver the outcomes intended by Parliament when it adopted the legislation. I hope the adjudicator and the Minister will carefully consider the points made in the debate about how that might happen in practice.
It is a pleasure to serve under your chairmanship as always, Mr Robertson. I congratulate my hon. Friend Mr Bailey, who has been an incredibly important contributor to us getting as far as we have towards justice for pub tenants and a fully functioning, fair market in our pubs industry. My hon. Friend made his case in a typically impressive fashion and laid out many of the issues that face all those who want the pubs code to work in the way that Parliament originally intended.
I do not propose to repeat all the history that my hon. Friend laid out, but it is important to remember that Parliament, and subsequently the Government, took the fairly unprecedented step of intervening in a market—and despite the rhetoric, that has not been the Government’s modus operandi over the last few years—because of historic market failure. There was recognition that pub companies had failed to get their house in order, despite numerous opportunities to do so, and that there was an unfair imbalance in the relationship between powerful pub companies and tenants, who were individual small business people.
For that reason, hon. Members in all parts of the House voted to support the introduction of a market rent only option in the pubs code as part of the Small Business, Enterprise and Employment Act 2015. The support of Conservative and Liberal Democrat Members meant that the Government were defeated, and the market rent only option was put in. It is important for us all that that works, and that we deliver on the principles intended by the 2010 to 2015 Parliament.
I would like the Minister to clarify that he is responsible for the pubs code. I was under the impression that the Under-Secretary of State for Business, Energy and Industrial Strategy, Andrew Griffiths, had taken over the role.
I confirm that I have that portfolio. That has happened only in the last few days, but I am and will be responsible for pubs. I am listening eagerly to what the hon. Gentleman and other hon. Members are saying.
I thank the Minister. If that was not press released, he has just released it. I congratulate him on that important role. He may well know the history, but others may not.
One of the founding principles of the pubs code’s introduction, as laid out by Sir Vince Cable when he was Secretary of State for Business, Innovation and Skills, was that there should be a rebalancing of the level of reward between pub companies and tenants. The Government’s intention was specifically that tenants should be better off as a result of the pubs code’s introduction.
My hon. Friend the Member for West Bromwich West referred to two key principles: that the market rent only option should be on a fair and reasonable basis, and that tenants who were tied should not be worse off than those who were free-of-tie. I will come back to that point.
Perverse and bizarre as it may sound, the introduction of the pubs code was simultaneously late to arrive and rushed. It had a short period of implementation and took a long time after the legislation was passed to be delivered. As a result, sufficient preparation was not done by Government, or by some companies, to get ready for its introduction.
The appointment of the Pubs Code Adjudicator was surrounded by controversy. My hon. Friend referenced the inordinate delays and some of the methods used to prevent landlords fulfilling their rights to go market rent only. It is important to remember that many tenants are in a perilous financial position when they seek to go free-of-tie. They are not in a position where inordinate delays, very substantial outlays of cash or huge legal costs are attainable.
If we want to deliver the opportunity—the right—for the tenant to assess an independent market rent and decide whether they want to have a landlord-tenant relationship, or whether they want to receive all the services from a pub company, it is important that the delays are not inordinate and that false additional charges are not put in to prevent them being able to take up that right. That is one of the strategies that seem to be being used very deliberately.
Most tenants have a five-year contract period. If they come to the end of a contract and attempt to get a free-of-tie rent assessment, the clock is ticking on their next five-year contract. That delay is being put in there, but if they subsequently go free-of-tie or get an arbitration or adjudication award in their favour, there is no opportunity to backdate that to the start of their five years—all the more reason why the principle should be that the adjudicator carries out their role in the most timely fashion possible. Any tenant who manages to get an independent assessment and decides to take that up does not get that rent backdated. The code should be amended so that rent is backdated to the point of application. I ask the adjudicator to adjudicate on that and the Minister to clarify that in his remarks.
For many tenants, there is a narrow window in which they can take up the right to get an independent assessment. At the end of their contract, they have to let their pub company know. They are often waiting for a new assessment and under the impression that they are still part of a negotiation by the time that they realise that they have missed out on their opportunity to take advantage of it.
My hon. Friend referred to the conflict of interest that many people feel Mr Newby had when he took on this role. There are two important elements of that for tenants’ confidence in the process. We should be clear that many tenants would like the opportunity to take up their right, but have lost confidence in the process. They believe that if they try to take up that right, they will only take on additional cost, so they are not taking advantage of this. I am sure that that disturbs all hon. Members who wanted the legislation to be introduced.
There is a financial conflict. Mr Newby continues to hold shares and to be owed money by Fleurets, which has many leading pub companies as its customers. Whatever the questions about his history, it is absolutely wrong that he did not divest himself of that interest when he took on this role. We are talking about a relatively small sum—although significant for an individual —so given the importance of the industry and the legislation, it would have been far better for him to have divested himself of that.
The point about the Chartered Institute of Arbitrators ruling against the PCA’s arbitrating on four different cases is significant. The Chartered Institute of Arbitrators’ spokesman said that when a challenge was upheld, an arbitrator’s appointment in that dispute is ‘immediately terminated”, and they should not be involved in that case again. In response to that, a spokesperson on behalf of the Pubs Code Adjudicator said that because his responsibilities were established by an Act of Parliament, the PCA did
“not accept that the Chartered Institute of Arbitrators has any jurisdiction to appoint or remove an individual from the role of arbitrator in a pubs code arbitration.”
That is an important matter of law for the Government, and also a matter of direction.
I believe that as a matter of law, the PCA should have listened to the Chartered Institute of Arbitrators. Even if it is true that the institute does not have the power to remove him, a sensible arbitrator would say, “Given that an independent body says that I have a conflict of interest, it surely makes sense for me to stand down and appoint a truly independent arbitrator.” The question of the extent to which the Pubs Code Adjudicator is both an adjudicator and an arbitrator is significant, because arbitrations happen in private and adjudications happen in public.
What we have seen from the Pubs Code Adjudicator so far is that he is much more of an arbitrator than an adjudicator. Might the Government consider separating those roles? The role I envisage for the PCA as a spokesman for the code is undermined by the fact that so much of his dealings are done in private, so he has not taken on nearly enough of a forceful role, which is what I would like him to play. If he criticises some of the pub companies, as he does, that perhaps makes it more difficult for him to arbitrate in private with them, so there are real difficulties in all of that.
My hon. Friend the Member for West Bromwich West referred to the section 40 powers of the Small Business, Enterprise and Employment Act 2015, which impose a duty on the Pubs Code Adjudicator to notify the Secretary of State if he believes the code is being breached and not followed. It is clear from his public pronouncements that he believes the code is being breached, but I am under the impression that there has never been a section 40 notice given to the Secretary of State. If that is the case, will the Minister or the Secretary of State pursue that with the Pubs Code Adjudicator? If he is publicly saying that there is wrongdoing, why has he not written to the Secretary of State with suggestions about altering the code to clarify and strengthen his case, or made the report that he has a duty to make?
There are two or three key questions in the pubs code that it is important to clarify. One of them concerns market rent only. The right to market rent only is laid out in the Act, and that should not need any arbitration. It is a fact that if someone reaches one of the trigger points, they are entitled to ask for a market rent only option. The pub company has a right to make an offer, but if the tenant believes the offer is not fair, they have the right to go to an independent arbitrator. For some reason, the Pubs Code Adjudicator considers all the different applications to be arbitrations, but an independent assessment should not be a matter of arbitration. That is absolutely the principle of the clause in the Bill that we all approved.
On the market rent only option, the fact that someone would pay rent for the pub and not be tied on the drinks that are sold is absolutely accepted by the tenants and the pub companies. The question then arises: which of the other terms in the contract should also be a part of the contract? The pub companies would say a market rent only option means market rent only, and that is the basis of the entire relationship, whereas the tenants say that anything that is common in the industry that was part of the original contract should be part of the subsequent contract. Will the Minister clarify that?
Finally, to be positive, the appointment of the Deputy Pubs Code Adjudicator is welcome. We have seen a real difference since she was appointed. I would like to see her take an ever greater role. Some tenants are getting a better tied deal as a result of the threat of going free of tie. However, the question of deeds of variation is important. Will the Minister set out his view on that?
In conclusion, how many times, if at all, has the Pubs Code Adjudicator written to the Secretary of State to report failure to adhere to the spirit of the code? What is the Government’s view on whether terms that were in a previous tied contract should remain in free of tie contracts? Do the Government agree that Mr Newby should accept the verdict of the Chartered Institute of Arbitrators, and do they believe that the Chartered Institute of Arbitrators has a right to a view on those questions? It is important. The pubs code is a vital opportunity for the industry. It is important that we all make it work.
It is a pleasure to serve under your chairmanship this afternoon, Mr Robertson. I congratulate Mr Bailey on securing this important debate.
As hon. and right hon. Members are aware, the pubs code does not apply to pubs in my Scottish constituency of Berwickshire, Roxburgh and Selkirk. However, that does not mean that this debate is not important to pub owners across Scotland. One of the real positives of devolution is our ability as legislators to learn from, improve on and replicate any legislation passed in other nations of our United Kingdom if it is shown to be effective. There are plans for a similar pubs code and adjudicator in Scotland in a private Member’s Bill promoted by Neil Bibby, a Labour Member of the Scottish Parliament. He believes that tied pubs in Scotland would
“'be subject to similar legislation, protection and opportunities as those in England and Wales” if his Bill became law.
Although not perfect, the protection now offered in England and Wales is perhaps evidence that Government intervention might be the answer to helping pubs thrive, and I am sympathetic to a cause that looks to make this equal across all of the United Kingdom. However, it is worth reminding hon. Members that the pub landscape in Scotland is very different to that in England and Wales. Most pubs in Scotland are independent free trades, whereas in England the majority are tenanted, so it remains unclear as to how effective the proposed Bill in Scotland would be. I look forward to hearing what my MSP colleagues in my party and others make of the legislation.
I am supportive of anything that can be done to help pubs across Scotland and the wider United Kingdom. It is no secret that, over the past few years, many have been shutting down at an alarming rate. I am sure hon. Members from rural constituencies like mine are particularly aware of this. None the less, all is not doom and gloom. The importance of pubs in our communities is profound. For hundreds of years people have been able to congregate in our pubs with friends, neighbours and family members. No doubt many of this country’s finest ideas and movements have been dreamt up at a night in the pub. This sentiment is truer today than on any other on the eve of our celebration of Robert Burns. The pubs’ practical role is clear, too. The great “Pub is the Hub” initiative helps publicans expand their offering into being the local newsagent, post office or village shop in communities that have lost those services, increasing the viability and integral value of a community pub.
In Berwickshire, Roxburgh and Selkirk alone, 800 jobs are supported by the pubs and drinks sector, and it is growing. Great pubs such as the Auld Cross Keys Inn in Denholm are regularly mentioned in CAMRA’s “Good Beer Guide”, and good pubs need good beer. In the Borders, those are supplied by the fantastic Born in the Borders and the award-winning Tempest brewery, to name just two. Thriving distillers are creating innovative gins and bringing whisky production back to the Borders for the first time since 1837.
I am very proud to highlight the innovation and achievements taking place in my constituency and across Scotland, but we must also consider the great work that the Government have done to help improve the livelihoods of publicans and the communities they serve. Freezing duty on wines, ciders, beers and spirits is one of the most prominent. That was something I was more than happy to call on the Chancellor to do because I know and understand the benefits that are felt in many rural communities in my area and across the United Kingdom. In addition, the pubs code, while by no means perfect, demonstrates that the Government have the long-term interest of pubs at heart. I look forward to hearing from the Minister how the Government plan to address the concerns that were raised about the pubs code and the adjudicator, and how the Government plan to support the pub sector across the United Kingdom.
I congratulate Mr Bailey on bringing the matter forward today. John Lamont said that it does not directly affect his constituency, and neither does it directly affect Northern Ireland, but that does not lessen our interest in the issue. I have spoken on it, and asked questions about it, before. I want to speak about the principle of the matter, although it is only England and Wales that are affected.
I have long held the view that we need to consider who audits the auditors and who holds to account those who hold the rest of us to account. I have been dismayed at times, when, trying to represent my constituents, I have requested information from accountability bodies. It would appear that the matter before us presents another example of the need for more accountability, as the hon. Member for West Bromwich West suggested.
I want to give credit to someone who is no longer in this House, and whom the hon. Member for West Bromwich West will well recall—Greg Mulholland, who represented Leeds North West. He fought the case in the Chamber whenever he had the opportunity. I was betwixt the two—the hon. Member for West Bromwich West, who sat behind me, and Greg Mulholland in front of me.
I am grateful to the hon. Gentleman for saying that. I wrote down the same point in my speech but failed to read it out, so I am grateful that he took the opportunity. He is right to say that Greg Mulholland was a principal actor in getting the measure into the draft.
I agree with my hon. Friend Toby Perkins. In fact I received a comprehensive brief from Greg Mulholland about an hour before I came into the Chamber. I had a feeling that somehow his beady eyes would be upon us today to ensure that we would articulate the viewpoint on which he has campaigned so effectively for many years.
I thank both hon. Gentlemen for their comments which, along with mine and others’, are a recognition of the tremendous work that the gentleman in question put in, in this Chamber. We all recognise that his efforts were one reason we have got so far forward.
Others have endeavoured to take us the extra mile through their efforts, and I was made aware of the details from the briefing that was most helpfully provided by the Library. We do not often say it, but I thank those researchers for their diligent work. They provide tremendously factual and detailed information to sharpen the memory a wee bit and help in recalling what is important—the briefings also provide a signpost to further excellent information.
I am aware of the importance of pubs in my constituency, as all hon. Members will be. In rural areas in my constituency, more often than not the pub is the central focus of attention for meeting, entertaining and eating—just somewhere to meet. The importance of pubs cannot be underlined too strongly. I think it was just a few weeks ago, perhaps just before Christmas, that there were pubs closing. The rate of pub closures across the United Kingdom of Great Britain and Northern Ireland is alarming. I think that the pubs code, and the Pubs Code Adjudicator, are part of a methodology to try to hold back the tide of closures, so it is important that that is in place.
There was a community project where a collective got together and used their own investments to restart their pub with a major refurbishment. They did so for a purpose. They recognised that the community had lost something important and they wanted to reinstate it. Pubs are important in contributing to the economy and providing jobs, and as focal points for leisure and meeting.
It seems to me that hon. Members stepped in to stop the monopoly that was affecting small pub tenants. The spirit of the law under the pubs code was to allow a tenant to request a quote from their pub-owning company for a rent only agreement when their tenancy was due for renewal. We also established a position whereby there could be arbitration and mediation to ensure that the spirit of the law was being followed. That job lies squarely in the hands of the Pubs Code Adjudicator. Members have outlined credible and legitimate concerns, and we look to the Minister, as we often do, for a comprehensive response. Questions have now been asked as to whether the adjudicator is impartially fulfilling the role. In a few cases, the professional arbitrators body has stepped in to ask for someone else to arbitrate. Sometimes we must ask why something is happening: is there a failure in the present system? Some Members have set out a case that there is. The Minister must deal with that in his response.
I believe that the spirit of what we strove for was giving the little man or woman a chance. That might not mean every case being granted, but it does mean every case being fairly considered. Perhaps that means that the involvement of a third person is needed. I stand by the bringing in of a deputy to take up the cases that are questionable or that need to be reviewed or looked at again. That is what the spirit of the law has been. No man in this world is infallible and we all understand that we must submit to allowing others to step in at some stage to give oversight to something if there is a different way of seeing it or a clearer way to understand it.
As an example of such a difficult issue, if a lady came to the constituency office for help with serious intimate problems she might prefer to speak to one of the girls in the office. Anyone would know what to do: set themselves aside so that they could do that. Why cannot that happen in the present difficult matter as well? I have no issue about handing such a case to one of my capable staff, who understand the issues very well. The best interest of the people in the case is most important. That is the view to take.
We must look at what we sought to achieve and find a way to bring that about practically. That is what I support today, and what other right hon. and hon. Members have argued for. Just as an auditor would be entitled to audit my affairs, they must be open to having what they do audited. That is true accountability. Each one of us is ultimately accountable to someone. That was the spirit of the pubs code—to help the little man or woman. Let us uphold that spirit today.
It is a pleasure to serve under your chairmanship, Mr Robertson. I congratulate Mr Bailey on bringing to the Chamber an important debate that affects many people’s lives.
Having managed bars during my career, I want to say a few words for the people who work in pubs and the hospitality industry. It can be a difficult and demanding job, but also very rewarding. All those people put in a shift and a half on many occasions, and do us proud, regardless of which nation of the UK they work in.
The hon. Member for West Bromwich West talked about difficulties with the adjudicator in England and Wales. He went into welcome detail about the challenges for operators—unfair expenses and difficulties in getting market rent. There were many things for the Minister to respond to. The impartiality of the operation is also an important factor to take on. The hon. Gentleman mentioned the onerous conditions placed on publicans, which I think will ring true for people who have been in such a difficult position.
Toby Perkins said that the imbalance between powerful pub companies and people who are trying to run pubs is an historic market failure, which it is.
Obviously, we have introduced the code of practice—the hon. Gentleman has heard about some of the issues with its implementation, which hopefully Scotland can learn from. He will be aware that in the 2010 to 2015 Parliament, SNP MPs voted for that code, because even though it was England-only legislation, they hoped that a similar provision might be introduced in Scotland. Will the SNP support the private Member’s Bill when it reaches the Scottish Parliament?
I intend to cover that point, and will answer it fully in a moment or two.
I congratulate the new Minister for pubs on his remit. If he listens today and is able to make the required changes, I am sure many people will raise a glass to toast his appointment. It is pleasing to be able to agree for a change with John Lamont. It is a rare occurrence. He mentioned a private Member’s Bill in Scotland—I will return to that—and rightly said that the pub landscape in Scotland is different from that in England and Wales. He mentioned the importance of pubs in the community, and again I agree. In areas where pubs are successful, they make a vibrant offering to the economy. He also mentioned Burns. As he will be aware
“gude ale comes and gude ale goes”— wise words indeed. Jim Shannon made an important point about who audits the auditors, which the Minister should address. He also made a point about community.
On the private Member’s Bill, there is cross-party support in Scotland for looking into a statutory code, and to back that up the Scottish Government commissioned a study to look at various pub models. Work on that is ongoing, but it is looking at whether pubs in the tied sector are more unfairly treated than those in other sectors. The conclusion of the initial investigation was that, as I said earlier, it is difficult to compare the market in England and Wales with that in Scotland, because they are so different due to Scotland’s independent free trade model. The Scottish Government are currently looking into whether such legislation is required, and I understand that discussions have been continuing right up to the minute about how to take that forward.
Since the Minister for pubs is here, I wish to underline that pubs need support. In Scotland, the SNP Government are working closely with public bodies and the industry to support jobs, infrastructure and the hospitality sector. Interestingly, the introduction of minimum unit pricing, which targets very cheap alcohol, could help the pub economy in Scotland because it will prevent people from buying cheap drinks in supermarkets, and allow them to spend more time in the controlled environment of a pub. The alcohol minimum pricing is set at 50p a unit. The CEO of the Scottish Licensed Trade Association, Paul Waterson, has said:
“Cheap priced alcohol has turned Scotland into a nation of stay-at-home drinkers. Some 72% of total alcohol sales in Scotland are off-sales;
80% of this total, is sold by supermarkets. When people drink in uncontrolled environments, alcohol-related problems increase significantly.”
The brewing and pub industry in my constituency has had considerable success. Cairngorm brewery is nearby, as is the Black Isle brewery. The oldest bar in Inverness is Gellions, which was formed in 1841, and the Best Bar None awards have just declared through their best bar scheme that 22 venues in Inverness have won awards for outstanding efforts in helping to create a safer environment for the public. Will the Minister look into the small business bonus that has operated successfully in Scotland? Two out of five pubs now pay zero or reduced rates thanks to that bonus, which helps their viability.
Does the hon. Gentleman recognise that, because of the reforms to business rates introduced by the Scottish Government, many pubs, including many in my constituency, have seen their business rates go through the roof? The basis on which rates are now calculated means that many businesses are paying much more than they were under the previous regime, yet they are not seeing any additional income and many pubs now face closure.
The hon. Gentleman is trying to make a point. He will also be aware that the Scottish Government have acted to restrict the increase in rates for the hospitality trade, and put measures in place to ensure that pubs and other small hotels and businesses, are not disproportionately affected.
In conclusion, the Minister has an opportunity to make a big difference to the pub industry and I hope he will listen to the points raised by hon. Members about the situation in England and Wales. I also hope that he will consider other measures to support the licensed trade, and ensure that the pubs in our communities are viable.
It is a pleasure to serve under your chairmanship, Mr Robertson, and I congratulate my hon. Friend Mr Bailey on—yet again—securing a debate on this topic. I did not attend the debate on pubs last year, but I did attend the one before that. I am no longer the shadow pubs Minister; that is now my hon. Friend Gill Furniss, but sadly she has the flu and has sent her apologies for today’s debate.
I will pass on that message from the Minister.
Given that I follow Drew Hendry I will point out that my constituency includes the oldest pub in Lancashire, the Scotch Piper Inn—there is a link there of some sort. We have three microbreweries and two micropubs, the Beer Station and the Corner Post. Jim Shannon made a good point about the importance of pubs as community hubs, and I agree with his other comments about the need for accountability in the implementation of the code.
My hon. Friend the Member for West Bromwich West set out the key issues with his usual forensic accuracy, and he mentioned the concerns about the appointment and continuation in post of Mr Newby. I raised concerns about conflicts of interest in the debate two years ago, and such concerns have continued. Sadly, the predictions about Mr Newby’s difficulty in obtaining the trust of pub tenants have been all too well demonstrated. The cases against him by the Chartered Institute of Arbitrators—that he has continued to arbitrate and has not accepted the decision, and that he is in breach of the code of conduct for a body of which he is a member—have not helped, and they continue to give the impression that all is not well with the implementation of the pubs code.
My hon. Friend Toby Perkins was modest in not mentioning his role in securing cross-party agreement on amendments to the Small Business, Enterprise and Employment Bill in 2015. The cross-party agreement had a lot to do with his work, as well as that of Greg Mulholland and other Members across the House. We had the insertion of the market rent only option, but the delivery of that is missing, as is any assurance on the intention that tied tenants should not be worse off than they would be if they were free of tie. My hon. Friend made those points extremely well. As he said, it is vital that we make this work. That is why it is so important that we are having this debate.
I will go through three points for the Minister, who I welcome to his new role. His brief is interesting and exciting, and it is important for many people across the country. I hope he is able to get to grips with the real challenges and concerns that remain. Three questions have been brought to my attention in preparing for this debate. They have been covered, but I will attempt to summarise them. First, the Government may make the point that the code is complicated and will take time to bed in. That is true, but it is overly complicated and completely unnecessarily so. As other Members have said, that complexity has allowed pub companies to use their resources and their power in the relationship—my hon. Friend the Member for Chesterfield made this point—to make it difficult for pub tenants to challenge them and achieve the fair market approach that they should be entitled to. Because of the size of the legal bills, it is simply not possible for pub tenants who attempt to use the code to come up with the necessary resources.
The second point that the Government may make is that the Pubs Code Adjudicator, through the Government, was not prepared for the huge take-up. Few staff were in place at the start, and there was a delay in putting in place a deputy adjudicator, despite the overwhelming evidence of abuse. There were 15 years of inquiries by Select Committees, as my hon. Friend the Member for West Bromwich West set out in his opening speech. The system was not set up in the right way, and it should have been.
The third point that the Government may make is about whether there has been an improvement in the financial balance between the pub-owning companies and pub tenants. Ballpark figures suggested to me are that a pub company would typically earn £90,000 from an average pub, which possibly breaks down to £20,000 in rent and £70,000 from tied products. The tenant earns just £10,000. Because of the process, the delays and the inaction from the adjudicator, it is difficult to do anything about that; but for those who try, there has been something of a change, as my hon. Friend the Member for Chesterfield alluded to. There may be a slight improvement, with a £5,000 or £10,000 reduction in the rent and an increase in the tenant’s income to £15,000 or £20,000, but that is still not a realistic living wage for someone running a pub, and the pubco is still earning £80,000 or £85,000.
The point is that legislation was supposed to leave the tenant no worse off than they would be if they were free of tie, not marginally better off than poverty levels. That is the point being made by the campaigners. I pay tribute to all the campaigners who have lobbied so hard over the years—including for this debate—advocating for pub tenants. I include in that Liverpool CAMRA, which has been in contact with me a number of times over the years.
On their own, the three areas that I have set out are grounds for the Minister in his new role to make an early commitment, today or after he has considered the debate, to carry out a proper review of the application and implementation of the pubs code and how the adjudicator is operating. If he can address that and the other points made by my hon. Friends, we will make some real progress.
I am tempted to say—so I will—that Theresa Villiers demonstrated a certain failure by a Government of which she was a member for some years to support a pub in her constituency. I can assure her that the next Labour Government will stand up for pub tenants in a way that so far has not happened under this Government, and that will not happen unless they make the changes touched on in this debate. I was grateful to John Lamont for pointing out that in Scotland, Labour is at the forefront of introducing a pubs code north of the border.
Well, there is a Scottish Government of one minority party. Perhaps they will learn from what has happened here and get the implementation right.
We want to hear from the Minister, so I will make only a few further remarks. Tenants’ experience has revealed the process to be drawn out and complicated. Many have to turn to professional legal support, which is expensive and time-consuming. Most worryingly, there have been suggestions that the pubcos are knowingly gaming the code to make it more difficult for tenants to achieve market rent only. That essential plank of the pubs code sought to redress the balance between pubcos and pub tenants.
The adjudicator’s own independent report into the allegations suggested that pub-owning businesses may be operating the code in a way that makes it hard for tied pub tenants to access their MRO rights. It revealed the shocking lengths to which some pubcos go to wear down tenants, including intimidation, bullying and antagonistic, delaying and frustrating behaviour. Tenants are often given terms that make MRO appear as unattractive as possible, such as being arbitrarily forced to provide six months of MRO rent up front. Some pubcos have refused to allow the deed of variation of lease, thus forcing tenants who want MRO to agree a new lease under unfavourable terms. That is pretty damning. I give credit to the adjudicator for carrying out that review, but it is what he does with it and how quickly he acts that matters.
There is identified failure in the full implementation of the code, and Parliament’s intentions have so far not been followed. I look forward to hearing what the Minister has to say, and I thank Members for their comments. I hope he can give us a proper assurance that there will be the action that is needed, and not just words.
It is a pleasure to serve under your chairmanship, Mr Robertson. I very much thank all Members who have spoken, particularly Mr Bailey. I make clear that I was gesticulating to the shadow Minister, Bill Esterson, simply because I wanted the time to be able to go through the points he was raising. His comments, like those of everyone else, were extremely useful. I will do my best in the time allocated, conscious of the fact that I need to give the last word to the hon. Member for West Bromwich West, who secured this debate on a serious matter.
I was made the Minister with responsibility for pubs just this week. One can never say in politics that something is not a temporary job, but pubs are part of my portfolio—I accept that the shadow Minister is here because of the sickness of his colleague, and he dealt with that extremely well, as he always does—and I want to learn. Today’s debate is part of the learning process. The Government remain fully committed to the pubs code, because we intend to ensure that tied tenants can operate in a fair environment that allows their businesses to thrive.
Many Members, but in particular my hon. Friend John Lamont, went through what the Government are doing to support pubs. The announcements in Budget 2017—the freezing of alcohol duty and the extension for another year of business rate relief for pubs valued under £100,000—are important, but we are here to discuss the pubs code.
The pubs code regulates the relationship between more than 500 tied pubs in England and Wales and their tenants, and there are six pub-owning companies involved. In total, 11,500 tied pub tenants are covered by the pubs code, so it is quite a lot, given that it is comparatively new.
We all know the principles, which I do not have time to go through. The code was intended to ensure fair and lawful dealings by pub-owning companies in relation to their tied tenants, and that those tenants should be no worse off than if they were not subject to any tie. It is now 18 months old. The shadow Minister asked whether the Government would carry out a review. That was an important point, but the legislation makes it clear that the Secretary of State will carry out a review of the pubs code and the performance of the pubs code adjudicator every three years, with the first review period running from July 2016 to March 2019. That does not mean that I am avoiding anything, but the law is very clear. We will not just ignore the situation until that time, and I am very conscious of the points the hon. Gentleman made.
The tenants are engaging with the pubs code adjudicator, Mr Paul Newby, and his office. His role is very clearly to oversee the pubs code, and to encourage and monitor compliance by the businesses in scope. He has the enforcement powers to arbitrate individual disputes concerning the pubs code. It is still early days, but I can see that individual tenants do not have confidence in that approach, given the many people in the Gallery today and the comments that have been made by hon. Members, reflecting what they have been told by pubs in their constituencies.
I hope many people have confidence in the PCA’s decisions. Some tenants have reported publicly—I looked at the reports before the debate—that PCA decisions have left them better off. However, I would be very ignorant, blind and deaf to what has been said today if I said that everything is fine. I realise that there is a problem. Many hon. Members in the Chamber have spent a lot of time and effort getting the legislation to the stage that it is at today and monitoring its implementation. I do not intend just to say that everything is fine. I recognise the points made about the PCA’s performance.
As a result of today’s debate, I read the correspondence between the PCA and Rachel Reeves, the Chair of the Business, Energy and Industrial Strategy Committee, with whom I dealt many times when working on my previous portfolio and for whom I have a lot of respect. I read the letter that she wrote to the PCA last year. There are key concerns about the speed of the arbitration process. Clearly, the PCA’s office has faced far greater demand than predicted, and the number of referrals has been significantly greater than was foreseen. At the PCA’s request, we have taken action to build up the team. The appointment of a deputy pubs code adjudicator, Fiona Dickie, who started at the beginning of November last year, has been mentioned. She is supporting Mr Newby in enforcing the pubs code, including arbitrating individual disputes. If it is under-resourced, it is our job to ensure that that is not the case. The PCA seems to be very conscious of that matter, and has not as far as I know asked for resources that have not been given.
The statements of principle on clauses mentioned by my right hon. Friend Theresa Villiers seem to me a very good idea, and I will look into that straight away. Officials may tell me that it cannot be done for some reason, but it seems to me, on the face of it, to be a very good idea to look into.
I am very conscious of time, Mr Robertson, but on the arbitration point, the PCA has received 225 cases for arbitration and accepted 186 as valid referrals. Of the accepted cases, 165 related to the market rent only tenancies that have been mentioned today. The PCA has issued 93 final awards. The fact is that Parliament chose arbitration as the means to resolve such disputes under the pubs code. My right hon. Friend Sir Greg Knight asked why it was always in confidence. Arbitration, by definition, is a confidential process—that point was made later in the debate. We do not see individual cases. It is not right that the Government should see such cases as that of, for example, Gary Murphy, the constituent of my right hon. Friend the Member for Chipping Barnet, because that is not how an arbitration system works. That does not take away any comments about the merits of the case, but it is not right that we, as the Government, are in a position to second-guess the arbitrator’s result. That is just how the system of arbitration works, but hon. Members might feel that it is not the right system.
The PCA has already published 40 products on its website, which I looked at before the debate. It provides a lot of information and guidance on the pubs code and PCA activities. As has been mentioned, it published the result of a verification exercise to understand the tenant’s experience in applying for MROs. When that was published, the PCA undertook work with the pub companies to inform the development of a compliance handbook that was published just before Christmas, setting out minimum standards for pub companies to comply with the pubs code MRO requirements.
The point about the lack of enforcement was a valid one. Perhaps on another occasion I will be able to go into greater detail, when I have more time. The PCA has set out his approach to investigations and enforcement in statutory guidance, and stands ready to take further action.
On the conflicts of interest point that was made about Mr Newby, the Secretary of State explained to the BEIS Committee that the appointment process was in full accordance with the code of practice for ministerial appointments to public bodies. I cannot comment on this one in particular, because I was not involved in it, but I have seen that practice for many other appointments that I have been involved in as a Minister. The process is very thorough, and I cannot believe that things were not disclosed and not considered properly. The panel concluded that Mr Newby had no particular conflicts of interest that should call into question his ability to do the job. I know what hon. Members meant—they are being very graceful in not chuntering—but there were proper processes.
The Government support the pubs trade. In the short time remaining, I would like to say that I have never met Mr Newby. I intend to send him a copy of the Hansard report of today’s debate when it comes out tomorrow, and ask for a meeting with him—perhaps in two or three weeks, to give him a little time—where he can provide answers to the specific questions that have been raised. After that, it is my intention to speak again to the hon. Member for West Bromwich West, and ask him to attend a meeting with me to go through those responses.
I belatedly welcome the Minister to his new role and portfolio. I do not envy him trying to grasp the ins and outs of the issues surrounding this topic, which some of us have been dealing with for many years. Having seen him perform before, I am confident that he will demonstrate both the commitment and competence to address our concerns properly and effectively.
A couple of things emerged from the debate, first of which is the enormous expertise within the ranks of the House. I refer particularly to my hon. Friend Toby Perkins. Without his actions in 2015, we would not be as far as we are in the debate, and I think that deserves formal recognition, as does the work of Greg Mulholland in the past. I also thank my hon. Friend Bill Esterson for his prosecution as locum for the other shadow Minister, my hon. Friend Gill Furniss.
I welcome the assurances given by the Minister, and would be very happy to work with him whenever I can to ensure that the issues that have been raised today are addressed. On the point about conflicts of interest, I was open-minded, but I think that the decisions of the Chartered Institute of Arbitrators and the implications are serious. I would ask him to examine those very carefully.
Question put and agreed to.
That this House
has considered the application of the Pubs Code 2016.