Statutory code: Government intervention could protect "those with less good business sense"

Professor Morten Hviid, director of the Centre for Competition Policy (CCP), rejected the need for a statutory code for pub companies, saying: “The net impact will be fewer pubs and higher prices for people to go to the pub.”

Competition​

In a response to the consultation into the plan, Hviid queried the Government’s view that this is not an issue of competition mainly because the Office of Fair Trading believes there are no competition concerns in the sector. “The intervention itself may well be anti-competitive by raising rivals’ costs, reducing the number of firms and increasing the prices to consumers,” he said.

The Department for Business, Innovation & Skills (BIS) consultation said some tenants who have experienced problems with their pubcos have wanted to run a pub as a “lifestyle choice” or are attracted to a particular pub or the living accommodation. It also noted the concerns raised about “chronically low levels of literacy and numeracy among tenants”.

Business based decisions​

Hviid asked: “In a time of austerity, how will BIS justify the use of government resources to support lifestyle choices and if it can do so, why focus on this particular group?… Should BIS be protecting business people who do not make business-based decisions?

“Surely both from a consumer benefit and a growth perspective we should promote top quality managers with a good business sense. If the majority of tenants protected by the proposed intervention fall into one of the three categories [mentioned above], the intervention may end up protecting those with less good business sense and BIS should think carefully before intervening.

“If people are taken advantage of there may be good reasons to pursue the pub company for identifiable business violations and possibly to introduce new or sharpen existing rules. However it is not a valid reason for introducing legislation to keep people with poor business sense afloat in the business.”

500 or more​

Hviid questioned the idea that only companies with 500 or more pubs should be subject to a statutory code. “There should not be a code in the first place. If there were, it should cover all,” he stated.

“Why is it possible for very large pub companies to hide the fact that it treats tenants badly but not a small one? This seems illogical. Surely the harm to the tenant does not depend on the size of the pub estate.”

Unintended consequences​

He warned of the “unintended consequences” of including franchised pubs in the statutory code and said the idea that a tied tenant should be no worse of than their free-of-tie counterpart “may well be a bad principle”. Hviid also warned about the costs of a code adjudicator, and asked BIS to ensure that these costs aren’t passed onto the consumer.

Hviid concluded: “The Government appears to forget that there are not such things as a free pint.

“If the market really is competitive as claimed, then increasing the fixed costs of the industry will lead to exit until the price has increased to cover these additional costs. The impact of these extra costs on investment, especially in a climate of little bank lending where such investments are largely made from retained earnings, has not been adequately assessed.

“The net impact will be fewer pubs and higher prices for people to go to the pub.”

The CCP is funded by the Economic & Social Research Council.