The tie untied

For all the pub industry’s expensive lobbying, in the end many MPs couldn’t resist the even more powerful campaigning by the Fair Deal For Your Local coalition. Seventeen Tory rebels, several stay-aways and a fistful of LibDem backbenchers ensured the government suffered its first defeat in a whipped vote on one of its own bills since the 2010 election – by 284 votes to 259.

It was an extraordinarily effective late ambush by the campaign leader Greg Mulholland MP (Lib Dem), against his own party’s ministers Jo Swinson MP and Vince Cable MP, though one certainly gets the sense that neither was too embarrassed about the outcome, given that MRO is actually Lib Dem policy.

Despite previously rejecting MRO as an option that would lead to “a high degree of uncertainty in the industry” and lower levels of investment, an estimated 1,400 pub closures and 7,000 job losses, the coalition government failed to stop even some of its own MPs choosing to take that risk with other people’s livelihoods.

Intervention​

At our Tenanted Pub Summit in June, I asked Adrian Bailey MP (Labour) – chair of the BIS select committee that investigated the pubcos, and an avid MRO advocate – whether he felt any unease at the prospect of instigating government intervention into private commercial contracts. He admitted that he did, but plainly he was not worried enough ‎to prevent himself and his colleagues from doing just that.

Mulholland and his disciples have quickly dismissed the reactions from the tenanted pub companies bemoaning the death of the beer tie as “hysterical”. But having driven a coach and horses through their business model, he might forgive them a degree of nervousness.

David Forde, CEO of Heineken UK, which operates Star Pubs & Bars, said: “These changes would threaten [our tenant partnerships] and make it more difficult for people to enter the market and own their own pub. We urge Parliament to think again before this poorly thought out proposal becomes law.”

Simon Townsend, CEO of Enterprise Inns, added: “This amendment, which was not supported by the Government, threatens to have serious unintended consequences for publicans and the industry at large… In light of yesterday’s vote we will continue to assess all options to safeguard the interests of both our publicans and shareholders.”

And Brigid Simmonds, CEO of the British Beer & Pub Association (BBPA), claimed: “This change effectively breaks the ‘beer tie’, which has served Britain’s unique pub industry well for nearly 400 years. I hope Parliament will rethink as the bill continues its progress.”

Loosened​

While it’s true to say that the beer tie has not been unravelled completely, it has been loosened. And like a flappy shoelace, one wonders whether it can continue to serve any purpose – especially for those pubcos with more than 500 pubs, who will now have to offer their tenants free of tie deals if requested at certain junctures.

Contrast the reactions of the pubcos and their lobbyists with that of CAMRA, whose brand new chief executive Tim Page welcomed “a move that will secure the future of the Great British Pub”, adding: “Allowing over 13,000 pub tenants tied to the large pub companies the option of buying beer on the open market at competitive prices will help keep pubs open and ensure the cost of a pint to consumers remains affordable. The large pub companies will no longer be able to charge their tenants prices up to 60p a pint higher than open market prices.”

Impassioned​

Rarely has such an issue been so polarising for the pub industry, with each side of the argument employing extraordinary tactics to secure their position, and only a few fence sitters (stand up the Association of Licensed Multiple Operators, which seems never quite to have known whether it is an establishment or anti-establishment group). On the morning of the vote, the BBPA issued a last-minute reforecast on tenanted pub closure numbers.

And Mulholland orchestrated an impassioned plea from a Conservative activist and former Punch tenant who “found that the eye-watering marked up beer prices and excessive rents she was forced to pay made it impossible for her to make a living”. (The same woman who, according to our archive, ran an “award winning, profitable” Punch pub from 2003-2005 before selling it for a £130,000 premium”!)

But that’s all history now. Barring further intervention from the government (who I am told will “survey the wreckage” before deciding on next steps) or rejection from the House of Lords, or legal challenges further down the line, the big six tenanted pubcos – specifically Enterprise Inns, Punch Taverns, Marston’s, Star Pubs & Bars, Greene King and Admiral Taverns – will soon face a new reality.

Nuclear option​

But these are canny operators, whose shareholders will expect them to attempt to circumvent the worst effects of the MRO and the wider statutory code.

Expect the accelerated transfer of tenanted pubs into franchises, which fall outside the scope of the code, despite an unsuccessful last minute amendment to have them included by Toby Perkins MP (Labour), who also previously and inexplicably tried to drag managed pub operators into the legislation (but that’s another story).

Expect, according to analyst Doug Jack of Numis, the pubcos to compensate for the expected loss of income by cutting capex and support to their tenanted pub estates, which are currently financed by the central purchasing power that the MPs’ vote has endangered.

And in a week in which it was revealed that Enterprise Inns now owns 22 convenience stores, expect the pubcos to be more creative and aggressive with their approach to property management. Enterprise Inns might even reconsider its “nuclear option" option of converting into a Real Estate Investment Trust, suggests Geoff Collyer of Deutsche Bank.

In short, expect those ‘unintended consequences’.

Stunning​

For now, Mulholland and his anti-pubco disciples will enjoy a well-earned celebration. They have won a stunning victory. And even if he were to lose his seat at next year’s General Election, in what is expected to be a Lib Dem massacre, I imagine he will consider his life’s work to have been done.

For the pub industry however, the work is just beginning on another politically-enforced phase of market development.