Statutory code: Taxpayers will subsidise "unfair" practices of tenanted pubcos

The left-leaning Social Liberal Forum has backed proposal for a statutory code for pub companies in its submission to the Department of Business, Innovation & Skills (BIS).

The think tank argues the public purse would benefit if tenants earn more money under the proposed statutory code - the Government claims £102m would be transferred from pubcos to publicans through changes such as introducing a compulsory free-of-tie option and an open-market rent review through the code.

Marginal tax rate​

It says the effective marginal tax rate for anyone on tax credits is 73% (20% income tax, plus 12% national insurance contributions and 41% tax credit withdrawal). “In that case, earning another £4,000 - the Government’s own figure of the transfer of income from pubco to licensees - would mean an extra £2,920 for government (partly in taxes and partly in reduced tax credit spending),” the think tank said, adding that this would affect c45% of the more than 25,000 licensees in tenanted the sector.

“Thus at the most conservative estimate, there would be a gain to the public purse of some £33m through the effects of reform on tax credit spending and tax/benefit yield; even without taking into account the benefits of increased income from greater entrepreneurship and the freeing of licensees to let their businesses grow in the knowledge they will reap the benefit.”

Transfer of income​

The submission says that it has been argued by some that the transfer of income has been estimated far too low and the real figure could be c£100m, if the transfer of income was more like £10,000 per licensee.

The Social Liberal Forum also gave an alternative calculation that estimates taxpayer support for tied publicans on low incomes, in the form of working tax credits and child tax credits, totals £101.5m a year.

This is based on CGA/Campaign for Real Ale figures that have shown 57% of pubco licensees earn less than £10,000 per year and 80% earn less than £15,000.

Significant benefit​

The submission says there’s a “significant benefit” to full tie reform proposed by the Government, as long as the principle is enshrined that a tied tenant should be no worse off than a free-of-tie counterpart and a “fair market rent” option is included.

It states: “In short, taxpayers are being asked to subsidise the unfair practices of the pubcos unless reform is undertaken; and in this case, ‘thorough’ includes both the ‘not worse off’ principle and the fair market rent option.

The group adds: “It is also the case that the economic growth in overwhelmingly British cask and craft beer and cider trade, with a doubling in the number of UK breweries in the last 10 years, risks stalling unless the current barriers to market access through the tie are lifted and entrepreneurship further promoted.

“The Social Liberal Forum supports progressive measures that will bring tangible benefits to reducing income and wealth equality.

The full tie reform as the Government suggests would certainly do that (a halfway house would likely be of minimal benefit); and the benefits to the over 20,000 tied trade households not to mention a  staff estimated to be up to 200,000 would be significant indeed.”

The think tank says it also “strongly supports the assessment of the Government that the self-regulation model has not worked as the industry has demonstrated itself incapable of self-regulation”.