My Lords, when I was interrupted a minute or two ago I was explaining that I had some amendments here and that we had some doubts still, despite my noble friend’s assurances about the workability of what is now proposed. I should say to the noble Lord, Lord Whitty, who I think asked the question, that I do not propose to move my amendments today; I propose to have them discussed. I suspect that that is what he expected me to say, but then I suspect that he was not putting his question to me.
At this point I remind the Committee, as I did the House at Second Reading, that until a year ago I was a non-executive director of one of the six companies covered by the proposed code. The group of which I was a non-executive director had five breweries, two large ones and three small, stretching from Cumbria to Ringwood in the New Forest. It owns some 2,000 pubs, of which about 500 were managed, and the balance were tenanted in various forms.
This is a bit of housekeeping. The Captain of the Gentlemen-at-Arms has told me that it has been suggested that I did not declare this interest at Second Reading. For the record, I draw the attention of the Committee, and indeed the House, to col. 1289 of Hansard on 2 December, the date of the Second Reading of this Bill, in which I declared in terms the interest that I just declared. It was further suggested by someone that I did not declare my interest at the beginning of my speech. That is perfectly true; I did not. I think that the Companion does not require you to make your declaration at the beginning of the speech. The beginning of my speech was not about pubs; it was about pre-pack administrations and about the Government’s procurement policies as they affect small companies, in which I had no interest to declare. When we came to the pubs, I made the declaration that I have described, so I hope that we can draw a line under that question.
I thank my noble friend and her team of officials for the time they have given to discussing some of the operational problems that it is feared may occur. I thank the Government, having listened to some of the
arguments that my noble friend has just briefly outlined for the Committee, which include a complete rewriting of Clause 42, which, as we realise, is the essential heart of the new regime. The amendments, as we have heard, were tabled last Thursday night, and it is fair to say that, given only three complete working days since, all parties are struggling to understand the full implications of what is now proposed. My noble friend Lord Cope of Berkeley had a sensible suggestion to achieve some permanence that we can then discuss and amend on Report if necessary. I do not suppose that CAMRA will agree with much of what I say but it may be persuaded by some of the arguments, and I suspect it would agree that we are struggling slightly with the flow of information that has come so late in the day.
I have tabled a number of amendments to Clause 42, which form part of a strategic whole. Before discussing the amendments in detail, I shall take a few minutes to discuss the shape of the pub industry and how those amendments would be to its long-term advantage. I begin by making three things clear. First, these amendments do not—I repeat, not—seek to overturn the House of Commons decision to introduce a market rent only option, the MRO. I think that that is probably a mistake; time will tell, but it may accelerate pub closures. However, the Government have decided to accept the decision, so I want to move on from that point.
Secondly, the amendments are designed to help to keep pubs open. The sector is under pressure from a wide range of adverse tides. There seems to be a view that somehow pubcos want pubs to close. A landlord needs a tenant as much as a tenant needs a landlord. That is particularly true of the company with which I was involved, which brewed its own beer in integrated premises, and it is through its own pub estate that a large proportion, 25% to 35%, of the product is sold. A closed pub is of no use in this regard, and closure even for a short period can be disastrous. If I may use the noble Lord, Lord Stevenson, as an example, if he is in the habit of having a pint on the way home from work and his normal hostelry is the Crown but it closes for refurbishment, he will not cease having his pint but will go to the King’s Head, elsewhere in the high street. It may be that as a result of the Crown having closed for a bit, his permanent patronage will be shifted to the King’s Head. In the company in which I was involved, when we undertook refurbishment we wanted it to be as quick and painless as possible to avoid upsetting our regular clientele.
Thirdly, these amendments are designed to iron out some of the idiosyncrasies and unevenness that, if not changed, will seriously affect future investment in the sector and its longer-term health. I am afraid that it is not realistic to believe that individual free house operators will have access to the sums of capital that large companies have at their disposal.
I turn to the industry. As I have said, the Bill affects only six companies, unless the Government accept Amendment 69A, tabled by the noble Lord, Lord Berkeley. It is not surprising that the issue of hybridity has raised its head and has had to be addressed in Clause 70(3). The six companies fall into two categories: two of them brew beer as well as owning pubs, which
they sell in part through their own estate. They also sell in supermarkets, through independent pubs, free houses, off-licences and so on. I will refer to these as the integrated model. The other companies are pubcos. They do not brew beer; they very often buy their beer in from breweries operated by their rivals. They are clearly more focused on the rental levels available in their pubs.
As I explained at Second Reading, this rather counterintuitive structure of pure pubcos came about because of a parliamentary decision on the beer orders in the 1980s, which prevented breweries from owning more than 2,000 pubs. The disinvestment programmes forced on them resulted in what have become known as pubcos. They resulted from a parliamentary decision, which many argue had a completely unexpected and unintended consequence. We need to make sure that we do not set out today on a journey that has similar unintended consequences. By the way, some argue that the way in which this weakened the brewers weakened the whole of British beer on the pub market and led to the rise of foreign lagers, which are sold in every pub in the country. If your Lordships go into a pub you will be faced with Stella Artois, which is originally Belgian, Fosters and Castlemaine from Australia, Grolsch from Holland, Kronenbourg and, more recently, Peroni. Most, although not Peroni, are brewed here under licence but not owned in Britain at all.
Those two types of companies have differently aligned interests and objectives, but I would like the Committee to remember a further differentiation between managed and tied pubs. Managed pubs, as the title implies, are run by employees of the company who are paid a salary with a bonus and other fringe benefits. They are quite different from tied tenants, who are essentially self-employed small businessmen. All the issues about beer pricing and other conditions of the tie are of no interest to the manager, who is in effect running a branch office. I am very grateful to my noble friend for having made it clear in moving her amendment that managed houses have no place in the provisions of Part 4.
As I said at Second Reading, people feel strongly about pubs; even if they do not want to go to them, they like them to be there. Their disappearance is resented for removing an essential part of what people see as a community. Just how strongly people feel about pubs, though, even I underestimated. It is not often, working away as a humble Back-Bencher in the decent obscurity of your Lordships’ House, that a single sentence in a 13-minute speech can get one simultaneously on to the front pages of the Daily Mail and the Daily Telegraph and described as an Islamophobe to boot. For the record, let me set my sentence in context.
I said that the pub trade in all its forms—tied, untied and free—faces very adverse tides, which are resulting in pub closures. The adverse tides, in which I fear that the tie plays only a marginal part, include cheap alcohol in the supermarket, with an average price of £1.13 per pint compared to about £3 in the pub, so that people drink at home; the rise in the consumption of other beverages not normally associated with the pub, such as wine; the rise in regulation
including drink-driving, the smoking ban and new licensing laws; rises in costs, including council tax; and deep-seated socioeconomic changes, including the deindustrialisation of parts of Britain—I used the example of the carpet trade in Kidderminster at Second Reading—and the arrival of people whose faith forbids the drinking of alcohol. That last point is not in any way and was never meant to be a criticism, as I am a great believer in religious tolerance in every direction. However, it means that such people are, quite understandably, unlikely to be persistent frequenters of premises which, under Clause 65(3), are defined as ones in which,
“one of the main activities carried on at the premises is the retail sale of alcohol to members of the public for consumption on the premises”.
As a result of these trends, in which sectors of the pub trade are closures now taking place? From the publicity being given, it would appear that the conclusion is that nearly all the closures are taking place in the tied sector. The truth, I am afraid, is rather different. Mr Doug Jack, an analyst at Numis, the City investment house, says in a paper that the closure rate in the free-of-tie sector is more than double the closure rate in the tied, tenanted, leased sector. There is a multitude of reasons for this, all connected to the fact that tied pubs also tie the pub company into the pub’s success or failure. As part of the rent is paid through the beer, the pub company is motivated to drive up beer volumes, which is why pub companies invest substantial amounts in capital expenditure, tenant support and rent concessions when good licensees are struggling.
4.15 pm