My Lords, in this group I have tabled Amendment 33L in response to government Amendment 33J, to which my noble friend was kind enough to refer in her opening remarks. It tackles the reintroduction of parallel rent assessments, which were abandoned, or removed from the Bill, at an earlier stage. Before I go any further, I need to remind the House, as I have previously, that I was until January a year ago a non-executive director of one of the companies affected by this Bill. It was one of the integrated pub companies: we operated five breweries and about 2,000 pubs, of which about 500 were managed and about 1,500 were tied in various forms.
That having been said, I regret that this Government, my Government, should have allowed themselves to be carried along on a tide primarily fuelled by emotion and with insufficient attention to the underlying hard economic realities of the pub trade. The trade faces acute pressures as a result of fundamental changes in our society and in our way of life. I fear that the changes we are proposing to endorse today may well increase those acute pressures rather than reduce them. However, I recognise the settled will of the other place and this House about the introduction of a market rent only policy. I also recognise another acute pressure; namely, that faced by my noble friend on the Front Bench in trying to square the circle. I would like to place on record my thanks to her and her long-suffering team of officials for the time and effort that they have taken.
I begin my remarks from a point on which I hope all parties can agree. We want to find a way to keep as many pubs as possible open and the challenge is how to achieve that. The answer must be to agree policies which balance, on the one hand, tenants’ rights and, on the other hand, the need to provide a degree of certainty about the future to the pub owner, the brewer and the pub investor, and to do so while incurring a minimum degree of bureaucracy, paperwork and administrative cost. I recognise the steps that the Government have taken in introducing amendments to the Bill today. In this group, for example, government Amendment 33AV, while far from ideal, at least recognises the need to provide for an aftermarket in pubs. I trust that the Government will resist the blandishments of the noble Lord, Lord Whitty, in a few moments when he speaks to his Amendments 33AW, 33AX and 33AY. I have to warn the Government that there may be unintended consequences even from that change.
CAMRA and others claim that there is a wave of money wanting to pour into the pub trade if and when the tie is removed. As I explained in Committee, that is far from the truth. Even if it were true, this amendment will not reassure individuals or companies wishing to buy pubs from big companies. Big companies own the bulk of the pubs and therefore usually will be the seller. Those individuals seeking to buy will try to avoid taking on a property carrying with it the uncertainties of the Pubs Code and the adjudicator, and the way in which he may operate. When looking to sell a pub, the pubcos may well be left with no option but to look more readily at alternative non-pub uses for their assets.
I am afraid that I am forced to the conclusion that the Bill does not provide the appropriate balance between the parties. I have tabled just three amendments,
which would redress that balance and give an appropriate degree of certainty to pub owners and their investors. The first of these, Amendment 33L, is in response to the Government’s proposal in Amendment 33J to reintroduce parallel rent assessments.
Parallel rent assessments were introduced voluntarily by the pubcos as a means of reassuring tenants that, by providing an assessment of what a free-of-tie rent would be, they were being fairly treated. It was not the case that the pubcos got any credit for doing this. These PRAs were not popular with the Royal Institution of Chartered Surveyors, first because of the challenge of finding comparable properties—imagine trying to find a comparable property for a small village pub—and secondly, and no less significantly, the challenge of how to value the back-up provided by the pubcos to the tenant, known in the trade by the rather unattractive name of SCORFA, special commercial or financial advantages, which vary a great deal from company to company and pub to pub.
When the open market rent option was introduced, it was right that the PRAs were abandoned. After all, tenants could now apply for a market rent option as of right. However, for reasons that are quite obscure, other than riding the wave of emotion, the Government are reintroducing parallel rent assessments through Amendment 33J. I hope the Government will accept—I think from her comments in her introductory remarks my noble friend does accept—that to have two separate and different valuation methods to procedures cannot be a good way of providing clarity to tenants, certainty to the pub companies or even a level playing field for the adjudicator. Nor should we forget the administrative costs of having two entirely separate procedures. This trade is insufficiently profitable and its profitability is probably still falling. Let us not establish duplicate procedures which will still further reduce that already inadequate return.
Amendment 33L proposes one procedure. If a tenant asks for a parallel rent assessment—I accept that the Government wish to bring that back—the procedure to be followed should be the same as the first step in the market rent only procedure. At the end of the assessment the tenant can decide whether to stay as he or she is or to proceed with the MRO option. What should not happen in the latter case is to go back to square one and start again with an entirely separate procedure which, in due time, the tenant may or may not wish to accept either.
When my noble friend comes to wind up, could she confirm on the record that the rent assessment trigger for MRO relates only to rent assessments carried out in formal rent reviews and renewals of existing agreements? I am sure this is the case, but concern has been expressed in the industry that the MRO assessment trigger is wider than that. If my noble friend wants to cut down duplicative administrative costs for the pub industry, she will accept my amendment, which does nothing more than require that PRA and MRO evaluation procedures follow the same steps.
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