Greg Mulholland writes… Here is Lib Dem ministers’ chance to save the pub

There has been much talk about the demise of the great British pub. People up and down the country are now sadly used to seeing boarded up pubs, many with rather optimistic to let boards outside.

There are many reasons given for the closure of pubs, but a closer look at the names on the To Let boards, often written in small writing, reveals the most fundamental. The names Enterprise Inns and Punch Taverns, the two largest pub-owning companies in the land, with around 12,000 pubs between them, are finding it harder and harder to find people to take their pubs on? Why?

The answer is simple, everyone knows that the leased tied house business model they operate is not working for their licensees, is not working for pubs and now is not even working for these hugely indebted companies, or their increasingly impatient shareholders. Yet at the same time, whilst 3,216 tied pubs have closed since December 2008, 425 new free of tie pubs have actually opened.

In September, the BIS Select Committee delivered a devastating and unanimous verdict on the pubcos. It lambasted them for repeatedly breaking promises to change their business practices and found clearly that ‘the tie’, as operated by them, is unfair to licensees, many of whom can’t earn minimum wage despite healthy turnover figures. It is bad for pub customers who are overcharged for a pint, due to the hugely inflated prices the licensee has to pay for beer; and it is closing pubs, pubs that need not and should not close.

The problems in the sector were of course caused by the unforeseen consequences of the well intentioned but poorly considered Beer Orders, that rightly restricted the number of pubs that a brewer could own but failed to do so for non-brewers, which led to the establishment of the huge stand alone pub companies, who then came to dominate and distort the sector.

This then skewed the business model towards long leases heavily weighted in favour of the pubco and hugely restricting the choice of options available to potential entrants to the trade as well as causing higher than necessary prices to the consumer, which has made it difficult for pubco tied pubs to compete with freed and managed pubs, which combined with unfair and unregulated rents has led to many pub failures.

The market has clearly failed and the pubs sector has been stifled. This is damaging and destroying what would otherwise, even in difficult economic times, be viable small businesses that of course also employ local people and buy local produce. It is also closing pubs, pubs that local communities rely on. On so many levels, this is anti-liberal and something that we should surely want to change.

Liberals believe that the market should be allowed to function without government intervention when it is succeeding and delivering including in a way that does not lead to socially unfair outcomes or exploitation; but when a market is not operating in either a fair or an open manner, liberals firmly believe that this is when Governments should intervene, to right the wrongs of market failure which there so clearly is in this case.

It is important to understand that the proposed reforms suggested would free up the pub sector, would encourage growth as a result of a renewed, rejuvenated pub sector, with more diverse ownership that will promote entrepreneurship and the British economy. For too long now they have been stifled by the business models of the large pub companies. The implementation of a statutory code with genuine free of tie option would free up the sector and allow it to thrive and prosper once again.

The good news is that this decision is, almost uniquely, in the hands of not one but two Lib Dem Ministers. Ed Davey is the Minister in whose portfolio this falls, with Vince Cable of course the Secretary of State in the Department responsible.

Both Ed and Vince have clearly and unequivocally stated, on the record, that they would intervene, if the industry failed to genuinely reform itself, which it so clearly has. They have both committed to back the previous Government’s plans, based on the Select Committee recommendations, so the Coalition Government are now committed “to intervene to regulate the market by putting the Code on a statutory basis backed by an industry enforcer” and with the voluntary code of practice not including either a non-tie option or a guest beer option, the Coalition Government must now “intervene to introduce a non-tie option and legislate for a Beer Order to allow guest beers”.

So the solution is clear, it is achievable and it is fundamental to the future of the British pub and allowing pubs that have stagnated under an unfair and unsustainable business model to thrive and succeed. We cannot alas do anything about the thousands of pubs that have closed, many of them unnecessarily, but Liberal Democrats in Government can and must save thousands that are threatened, due to who owns them and the basis on which they have to operate.

It is very notable that the calls for reform are fully backed by the Federation of Small Businesses and the Forum of Private Business, who are all too aware, from their own members, that pubco tied lessees operate on unreasonable terms skewed very heavily in favour of the pub owning company.

The Save the Pub Group and CAMRA recently compiled a list of examples of pubs around the country that had been deemed ‘unviable’ by the pubco owner, yet now were thriving under new ownership and being run on a different business model.

This is a very positive trend in the sector, however it is currently only happening on a small scale because pubcos are disposing of pubs, even when they are viable simply to pay off their debts and appease their increasingly disgruntled creditors. Real reform – which means a statutory code with open market rent review, would lead to this happening with hundreds and possibly thousands of pubs, who could then be taken on and operated on a different and sustainable business model.

The future for the pub, post tie reform, is bright. With reform, pubs can become centres for enterprise and innovation again and customers can enter, knowing that the person whose name is above the door, can and will earn a decent living wage from their efforts without much of the turnover being extracted and shipped overseas to keep foreign creditors quiet.

At last the sea of To Let Boards will become a thing of the past and more and more pubs will be run by local companies, small breweries and communities, with a genuine stake in its success and a commitment to its place in the local economy as well as the community.

There is a bright future for the pub, there is a liberal future for the pub. It is now down to Liberal Democrats to deliver that.

* Greg Mulholland is MP for Leeds North West and Chair of the Parliamentary Save the Pub Group.

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14 Comments

  • Jason Symonds 13th Nov '11 - 5:30pm

    Excellent piece Greg! I run a Punch tenancy at present, I’m one of the lucky ones that makes a profit. But basically without the TIE I would be able to invest capital back into my pub (needed full repair lease) and employ more staff so I wouldn’t have to work 70 hours a week. Punch think that I’m doing alright because I make a good profit but at what cost to my family (Wife and 3 boys 9,6 and 3). So please keep up the good work not only will you save hundreds of pubs you could be securing and creating thousands of jobs in brewing, building etc. Let alone the extra tax revenue from thousands of happy landlords/ladies who will finally making a profit.

    All the Best

    Jason

  • Lib Dem Member 14th Nov '11 - 10:33am

    The net closure rate of pubs is falling, not rising. More free-trade pub s are closing (and at a faster rate) than tied pubs. http://www.beerandpub.com/newsList_detail.aspx?newsId=455

    Under your reforms, the pubcos would still own the buildings and would still need to service their debts. Under your model, how would those debts be serviced (paid off) by the companies? What is to stop the the pubcos selling the pubs to new owners who will change them from pubs into something else? Also, where does a chain like Wetherspoon fall into your analysis?

  • Agree with Gareth. Numerous examples of pubs suffering because of pubcos: see story re two Greene King pubs in Oxfordshire: http://www.heraldseries.co.uk/news/9360245.Pub_chain_blamed_for_threat_to_inns/?ref=mr

    Similar story at the Star in Sparsholt, where local residents are trying to keep the pub open after Punch Taverns put it up for sale for £450,000. Know of other landlords suffering because of the price they are forced to pay for beer and high rents.

    Some breweries now refusing to sell their beer to pubcos because of what they force landlords to pay compared with the free trade.

    Wetherspoons have a completely different business model.

  • Lib Dem Member, you shouldn’t believe all you read especially when it is produced by the mouthpiece of the Pub Companies, the BBPA. They will argue that more free of tie pubs are closing than tied, a consequence of a failed tied pub being sold freehold by the pubco’s and seriously skewing the numbers. Secondly the closure rate takes no account to failed tied businesses. there is no comment on the “churn” of failed tenants within a venue, this would be a statistic for a sold Free pub but isn’t for a tied venue. The number of these as huge and dwarfs that of FOT sales. Again the figures are being skewed.Do some digging and the true horror of the position will be laid open for you to see, It’s not pretty!

    I understand your question about Pubco’s having to service their debts, but are you suggesting that this should be at the expence of many thousands of businesses ove-charged and going bust to save them? All a free of tie option would do is ensure the pubco’s provide the services they are meant to and currently do not. It is not the end of the tie per se, just a Sword of Damocles should they fail. Currently there is no genuine sanction against them and they abuse this position with gay abandon that costs livelihoods and lives.

    Should the pubco sell to a third party as you suggest, so be it. All the more reason that a code needs to be placed on a statutory footing so the new owners are equally compelled.

    Regards

    VBS

  • Greg thank you for your support and defence of the publicans and customers alike through your actions and determination to see fair play.
    Interesting piece and understandable given the mess the industry is in.
    Gareth you said the BBPA statistics have been shown to be entirely made up. Is this correct? Can you share how you know?
    (I had a very quick look and feel the report might just a tadge “selective” in its analysis. Not suprising as it is the Pubcos trade organisation rather than the tenants/ lesses or independant Publicans.
    Still trying to figure out how “free trade pubs have been closing at a much faster rate that tenanted and leased pubs in recent years” when they then say “The CGA data shows that 1,334 pubs moved out of the tenanted/leased sector, and 1,711 pubs moved into the free trade sector since January 2009.”
    Or what appears to be a net increase of 377 EXTRA Free trade pubs. Have I missed something?)

  • Peter Chegwyn 14th Nov '11 - 6:50pm

    This is an excellent article, very welcome to local Lib. Dem. campaigners like myself who are trying to support our local pubs and pub landlords in any way we can. Let us hope that Lib. Dem. Ministers in Government embrace what Greg is saying and do what they have promised to do to help save the British local.

  • Alan tattersall 15th Nov '11 - 2:18pm

    Keep up the good work Greg, but unfortunately even the revised ‘Code of Practice’ is nothing more than a PR exercise. The ‘free of tie’ option is a charade. I have just been in negotiation with Enterprise over a new lease for an empty pub. If I was to exercise my right to free of tie on all available sections i.e. one local ale, wines and spirits, soft drinks etc. (Leaving the bulk of the beer, lager and cider still tied) they require an ANNUAL premium of £14,500. Which part of ‘free’ don’t they understand? The new lease also requires £6,500 annual payment into a building maintenance fund which they control and you can only apply for funds back twice a year and at their discretion. They are insisting that we use their accountants and their stock control for which we pay an over the odds flat fee. Statutory compliance contract of £1,000 p.a. The list goes on and on. Rent has gone up from £25,000 to £32,000 (this was on a pub that had gone bust!!) This company refuses to listen to anyone, yourselves included, the tie must be abolished and with a fair arbitrated rent review or the decimation of the industry will continue. As a side issue my local market town has four empty and boarded up pubs in its centre, all Enterprise pubs, they are blighting our towns and villages as well as destroying one of Britains greatest assets, the local pub.

  • I’ve owned 6 leisure businesses and worked in numerous others over the last 20 years. I currently own an EI lease and have never suffered such an adverse business situation, which has little to do with the current recession, but all to do with Pubco greed. EI do nothing, (I really mean NOTHING), positive for my business and the 8 BDMs in 9 years I have had, have been a negative influence. The so-called Statutory Code is a joke and the pubcos will not reform themselves as we all know; I doubt now that they actually can reform without going broke quicker. I am saddened by the ignorance of “LibDem Member”, whose quote from the discredited BBPA and spurious comment about Wetherspoons testify to that ignorance. If I could buy my beer on the open market I could reduce my prices by 80p – £1.00 per pint. It’s as simple as that – the consumer wins, the publican wins and the country wins. Instead, I will go broke in 2012, having made nothing since 2007/8. It does n’t need to be this way.
    Keep up the good work Greg and don’t let them stall, as every week means lost pubs and broken lives for hard-working publicans, who want nothing more than to run decent pubs and to earn a decent living.

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