The previous Labour Government made it clear that if the recommendations of the previous select committee report in 2010 were not enacted then it would step in with legislation. This commitment was repeated by the new Secretary of State, Vince Cable, to the committee after last year’s general election.
It was not a decision made lightly. The committee has a Government majority, with several members from business backgrounds, including one former pubco owner. None of the members are instinctive regulators.
Unfortunately, the volume and contradictory nature of the evidence given to the committee allied with the obvious lack of progress on resolving the key areas of disagreement left the committee with little alternative but to demand Government intervention. Of the many committee recommendations made previously, only one (the implementation of the Pubs Independent Rent Review Scheme) has been implemented in full.
Despite assurances from the pubcos that self-regulation is driving industry reform there is a huge volume of evidence indicating otherwise. Progress on accrediting company codes was slower than necessary and there was evidence many lessees had never seen them.
Even when there were breaches of the codes found against the pubco the sanction seems ineffective. Losing British Beer & Pub Association (BBPA) membership does not seem a deterrent. Greene King left voluntarily and still attracts lessees. While losing British Institute of Innkeeping (BII) accreditation may seem more serious there is little evidence it influences potential lessees.
The legal standing of the code is confused with different companies giving different interpretations. In the absence of any legal test case this confusion reinforces the case for statutory intervention.
Rents
On rents, the committee found improved Royal Institution of Chartered Surveyors (RICS) guidance that came out of previous recommendations seemed to be having little impact.
The committee heard accounts of low levels of awareness among lessees of the guidance and claims that RICS members were signing off reviews without application of the guidance or benchmarked costs. Given the crucial importance of transparency to both sides, the committee felt there was a lack of willingness on both sides to resolve this to the benefit of the industry.
The issue of transparency — or lack of it — was one of the reasons the committee felt that regulation is necessary. New entrants to the business need training and information about their pub. While commercial confidentiality and in some cases the absence of full accounts can be a barrier to disclosure, it was felt this had become an excuse for not providing relevant financial information.
The belated agreement by the BBPA to engage with the Association of Licensed Multiple Retailers’ (ALMR) benchmarking survey is welcome but there can be little confidence in its commitment, given its failure to contribute to a national database of rents, first recommended by the 2004 committee.
The issue of the beer tie generates strong feelings. The 2010 committee report said all existing lessees should be offered a free-of-tie lease with an open-market rent review based on RICS guidance. It has not happened.
The BBPA/IPC survey showed only 16% of new lessees and 9% of existing lessees had been offered this. There were even doubts about the genuineness of the rent review when it was offered. Again the trade has shown an unwillingness to tackle a key issue, which was vital to sustain its claim that it was capable of self-regulation.
Self regulation
A point has been reached where the committee feels it cannot continue holding further inquiries to determine whether promises made at this inquiry will be upheld. The industry has had time enough to show that it is committed to self-regulation, but has failed.
Day by day more pubs shut. Every closure is a loss to its community and often a tragedy for the lessee who ran it. Not every closure can be attributed to the relationship between pubcos and lessees but in the face of difficult trading the failure of the industry to show a sense of common purpose can only make things worse.
It is recommending that the Government gives the committee a timetable for a consultation with proposals for statutory code and an adjudicator armed with a range of sanctions. We’d expect the proposals within two months. The committee will not allow this to be unnecessarily delayed. Only the law can bring about the changes in culture and practices in the industry necessary to ensure the survival of that great British institution — the pub.
Adrian Bailey is chairman of the Business, Innovation & Skills Select Committee, which published its latest report on the landlord/tenant relationship last week.