A speedy solution

MP Martin O'Neill, the man who led the Trade & Industry Select Committee's recent probe into the pubcos, tells Daniel Pearce why the subsequent report did not go as far as many licensees wanted. The committee received hundreds of complaints from publicans - so why did it fail to recommend tougher action against the pubcos?​

At the early stages we were conscious that there were a lot of troubled publicans. But when we were able to see the oil and water separate, we understood that the level of concern wasn't necessarily uniform across the business. I think we got the most extreme cases early on, but as a lot of us talked in our constituencies, we got confirmation of some of the complaints, and appreciated that not all was as gloomy as some people would have had us believe.

Did licensees present a strong enough case?​

We got 450 submissions from individuals and their reps, as well as entries from all the trade associations. We had no complaints about the evidence we received. When we came into the inquiry we had a fragmented story of abuse and misunderstanding about what the responsibility of the pubco was. The Federation of Small Businesses (FSB) brought a number of instances to our attention where a lot of the problems were as much the creation of publicans as they were of pubcos. There was an understandably vociferous group of tenants who were casting around for reasons why things hadn't gone their way.

The report makes a number of criticisms of the pubcos. Why does it stop short of recommending legislation?​

Legislation takes a long time - if you want things to happen quickly it's better to advocate voluntary change. Alternatively, we would have had to identify problems, the government would weigh up whether these had substance, then find solutions, which may or may not have accorded with ours. After consultation and draft legislation, you'd be talking about three or four years. One of the things that struck us during the inquiry was that the pubcos responded immediately and changed some of their practices, in areas where there were clearly shortcomings - so the mere fact we had an inquiry spurred some movement.

In what areas?​

With upward-only rents we were pushing at an open door and there have already been commitments in this direction. I'm talking about greater due diligence on the behalf of putative publicans. The pubcos now recognise it would be as much in their interest as the tenants if they knew what they were letting themselves in for.

So did the committee believe the pubcos and licensees had been equally at fault in the past?​

It was clear that some of the pubcos had been cavalier in their attitude towards their tenants and had looked to exploit them in certain ways. But had the individuals adopted appropriate due diligence, things might have been a bit different. Too few tenants speak to accountants who specialise in pubs, for example. People have big ideas about what the business is about, but they need to strike a balance over what's happened in the past and what could happen in the future if they run a pub themselves. This is one of the areas in which we were in greatest difficulty, the tenants didn't always understand what they were letting themselves in for, and the pubcos were insufficiently rigorous in their selection of future tenants.

Were you impressed by the pubcos' evidence?​

There was a sense of the 'snow job' - we got this avalanche of information from them which, frankly, was too much. The pubcos laid it on with a trowel. Maybe we got an over-rosy view of what their tenants thought of them. We received evidence which they had obtained from surveying their members, with responses which tended to be favourable. But several hundred people were sufficiently motivated to complain about them. What people forget is that these businesses are based on very high-geared debt. The pubcos are paid large sums of money but have to dance to the tune of venture capitalists and banks. I wouldn't say they were stung by the criticisms but it forced them to reconsider their operations.

How confident are you that the pubcos will act?​

They've had a wake-up call. When did they have to previously account in public for their activities? The pubcos know that if they don't get it right, there may well be state intervention. We'll have to wait and see what the government's response is - but now this is a matter of public record and given the pubcos' statements and the complaints and remedies we have suggested, we would expect to see progress relatively quickly.

Do you believe the beer tie and the current rental system are out of date?​

We indicated that there were a number of areas where it could be improved. It could be argued that if a publican realises the potential of a property it may be down to him or to the location. If a pub is in a good location and is pretty well run, it's got a pretty strong chance of being a success. That in turn can reflect what might be a higher rental the next time around. The key to this is a better system of rent negotiation and a clearer basis for rents, so people know what the components of rent are, and can identify which areas they have a problem with, if there is a dispute. It's about having a better, more transparent, more mature relationship with the pubcos.

We could have said 'Ok, why don't we just make the pubcos property companies and let someone else be the beer wholesaler?' At this stage I see no case for that as if you did it would be very much a creature of the brewery. You'd probably get back to the worst of the old ways [when the national brewer had a virtual monopoly on beer wholesaling]. Having said that, we did feel that the way the tie operates in respect of distribution can and might well be anti-competitive, so we are keeping an eye on this. We know we are down to two distributors of beer now and there are problems with access to the supply system for smaller breweries.

Why not, at least, oblige pubs to offer a guest beer?​

We were advised that competition law would prevent certain things. If we could stop smaller brewers from having to pay 'listings fees' that could end another barrier. We want independent brewers to have easier access to the market - the Direct Delivery scheme and removal of the payment to get on the list are two ways this could be achieved. We have tried to avoid being over-prescriptive and unnecessarily dependent on legislation.

You were quite strongly critical of the Office of Fair Trading (OFT), which said during the inquiry that pubcos had no competition issues to answer.​

We felt the OFT has a tendency to say that if it walks like a duck, quacks like a duck and goes near the water it's a duck - but that might not necessarily be the case. We have suggested it looks at the issues again - when it sees the new raft of licences being issued, that would be an appropriate time to do so. The OFT is very cautious. It's a bigger organisation than it used to be but it still comes out with statements such as 'Oh well, we think it would be disproportionately expensive' to query something. That's a civil servant's argument for doing f*** all! We'll see what its response is.

What sort of future do you see now for the pub industry?​

It's fair to say that in many parts of the country there are too many pubs - a proportion of the estate has been inherited and the pubcos can't sell them off or police them successfully. Perhaps the pubcos need to admit that they can't make a go of them. In the course of the next parliament a successor committee will want to look again at the pub trade. I've always been very sensitive to the charge that a select committee shouldn't parachute into issues and then just run away.

The Department for Trade & Industry has a max​