HC Deb 14 November 1991 vol 198 cc1327-34 10.16 pm

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wood.]

Mr. Stan Crowther (Rotherham)

I declare an interest in this matter, as I am the parliamentary adviser to the National Licensed Victuallers Association. I am pleased to have an opportunity to draw the House's attention once again to the upheaval that has taken place in the brewing industry and the licensed trade since the beer orders of December 1989.

There can hardly ever have been a piece of legislation that has so utterly failed to achieve its stated objectives. We were told that the orders were introduced with the intention of increasing competition, thus providing more choice for customers and holding down prices. In fact, competition has been reduced, prices have rocketed, thousands of public house tenants have been forced out of the trade and thousands more have felt that they have no reasonable option other than to accept the terms being imposed upon them by the brewers and accept long leases at enormously increased rents, with full responsibility for repairs. The brewers have decided to destroy the traditional tenancy system. It is on its way out.

It must be understood that the brewers' actions have not been forced upon them by the legislation. The beer orders did not require them to do anything of this sort. In that connection, I should like to quote from a letter that the Secretary of State wrote to the right hon. Member for Selby (Mr. Alison) who was concerned—rightly so—about a letter that a tenant in his constituency had received from Grand Metropolitan Estates. The Secretary of State wrote: I can assure you that the action the company has taken has not been forced on it by any of the measures the Government has introduced following the MMC's report on the brewing industry. The Secretary of State went on to say that he was concerned that the letter from Grand Metropolitan Estates tried to imply that the orders had forced the company into the action it was taking against the tenant. The Secretary of State was right. The orders did not require such action to be taken. I am grateful to the right hon. Member for Selby for allowing me to quote from the letter.

In discussions with me, representatives of all the major brewing companies have admitted that the orders did not force them to take those actions against the tenants. I have been told that the companies were merely prompted by the orders to "review" their commercial strategy. Whitbread and Bass have both used that expression. What they mean by "reviewing" their commercial strategy is that, because they will have to dispose of 11,000 tied houses, they are determined to squeeze every penny they can out of those that remain. The way in which they do that is to abolish the old tenancies and to introduce long leases under which full repairing responsibility is placed on the tenants. On top of that, they introduce massive rent increases.

In your constituency, Mr. Speaker, the case of Mr. David Harper of the Clifton Arms is typical. I have spoken to your constituent and he is happy that I should cite his case, because it demonstrates the way in which things are happening. In Mr. Harper's case, less than two years ago, his rent was doubled from £12,000 to £24,000. The amount was then increased by another £2,000 because it was related to the retail prices index—I do not know why. Now his landlord, the Allied Brewery group, has invited him to accept a 10-year lease at a starting price of £36,000 a year. Before he can even accept the lease, he is required to put the place into good repair, which may cost him another £30,000. Such things are happening all over the country.

Many public houses have been grossly neglected for years by their owners, yet the owners now demand that the tenants pay all the cost of putting the public houses into good order. In some cases, the costs are enormous. I know of at least one case in which the cost is likely to be £80,000, which is a measure of the neglect by the brewers of their own properties.

I have details here of scores of cases, but as I cannot take up the time of the House in referring to all of them, I will pick one or two examples. There is a Whitbread house, the Kings Arms, in Temple Sowerby near Penrith. The present rent is just under £12,000, but the proposed rent is £22,000. The capital cost of the repairs which the tenant must pay before he can even have the lease is £10,000. There is a Whitbread house, the Seven Stars, in the Wirral. The present rent is just under £15,000, but the rent now being demanded is £35,000.

There is the Black Bull at Birstall in West Yorkshire, which I know. It is a nice, small public house for which the rent is £16,120. The owners now want £30,000. It is impossible for the business at that pub to be increased to such an extent, because it is a very small house. There is a John Smith house called The George at Stanningley near Leeds. John Smith is now part of Courage, although Courage is now called Fosters. The present rent there is just under £14,000, but the proposed rent is £33,000.

One of the worst cases is that of the Broadway hotel at Dunscroft in Doncaster. It is again a Courage house, for which the present rent is £18,000. The company now seeks a rent of £42,000. That is happening all over the country and the tenants will be required to accept all the costs of repairs.

Earlier this year, the Secretary of State met the representatives of all the major brewery companies, having received a deputation from the National Licensed Victuallers Association. To his great credit, he persuaded the brewery companies to accept the principle of independent arbitration. I thought that we were making progress. Unfortunately, matters are not quite as simple as some of us thought they were. Bass, for example, requires a tenant to put down a deposit of £ 1,000 before he can even contemplate arbitration. In many cases, the arbitrator may be appointed only from a list of people approved by the brewer. Many of them usually earn their living by carrying out valuations on behalf of brewery companies. The most astonishing thing—indeed, it is almost unbelievable—is that tenants are required to sign a lease before the rent has been fixed. What type of arrangement is that? In normal commercial life, no one would dream of doing such a thing. It is not surprising that, in those circumstances, very few tenants are invoking the arbitration procedures.

I asked Grand Met how it justified the rent increases being imposed. As many hon. Members know, Grand Met is no longer a brewer, as it has transferred all its breweries to Courage, or Fosters, as it is now called. Grand Met is essentially a pub-owning company, apart from its other interests. When I asked Grand Met how it could justify the high rent increases, I was told that tenants could easily afford them because tenants would now receive all the proceeds from the amusement machines instead of sharing them with the brewers, although they still have to pay a high licence fee and rent.

I was told that the tenants would also make more profit from guest beers. How are they to do that? Grand Met said that tenants could negotiate a discount of £30 or £40 a barrel. I said that, as brewers never sell beer at a loss, why did not the brewers knock £30 or £40 off the price of a barrel to the tenants of their tied houses in the first place? I did not receive an answer, but the sum involved would have been about lop a pint, which could be taken off the retail price and still leave brewers with a profit.

I also asked Grand Met what percentage of its tenants had left the trade completely since the beer orders were introduced less than two years ago. The answer was 40 per cent. My inquiries suggest that roughly the same figure applies to all major companies in this country. That is appalling. The tenants gain great skill and experience over the years in serving the public and in running their public houses. They have disappeared from the scene, but I am sure that that is not what the Government intended.

Meanwhile, the concentration of ownership has continued apace. When the MMC's report was published, the four biggest brewery companies had 58 per cent. of the market. They now have 70 per cent. of the market, and the proposed merger between Allied and Carlsberg will push that figure even higher.

The latest scheme devised by Bass to circumvent the beer orders—the intention, not the letter, of the orders—is to sell 372 public houses to a company called Enterprise Inns, which has immediately signed a contract with Bass to supply Bass beers to all those public houses. Nothing has changed—they are as tied as before, but they are now excluded from the beer orders, so that they have no guest beers.

I am repeatedly told that all the fuss is being caused by a vociferous minority of licensees. No one can persuade me that the 3,000 licensees who went to Blackpool to take part in a protest march during the week of the Conservative conference are all mindless militants. They are ordinary, decent licensees who want to continue to do their job of serving the public. They see their livelihoods put at risk and the traditional tenancy system disappearing. That is what concerns them.

Despite what I have said, I am not especially critical of the brewers. They operate in a hard commercial environment. They are looking after their commercial interests, but unfortunately they are doing so at the expense of the tenants and customers, the very people who are supposed to benefit from the legislation. That is the paradox that the Government will not acknowledge and that is why I must criticise them. I do not criticise them for getting it wrong in the first place. Anyone can make a mistake. I criticise them for refusing to accept that they made a mistake and for refusing to take any action to put matters right, when it was patently obvious that everything was going disastrously wrong.

In another measure, the Government extended the Landlord and Tenant Act protection to the licensed trade but they would not bring it in immediately—it had to be implemented some time in the future. Protection that does not come into effect until half the people whom it is supposed to protect have already disappeared from the scene is hollow protection indeed.

Many hon. Members believe that the Secretary of State should immediately instruct the Director General of Fair Trading to review the position urgently and in detail, so that we can discover whether there is still some possibility of saving something from this awful mess. He should not wait until 1993, which is the present proposal. By then, all the damge will have been done.

I am reminded of the famous poem, by Robert Southey, about the battle of Blenheim, when little Peterkin asks: But what good came of it at last? Old Kaspar replies: 'Why that I cannot tell,' said he, 'But' twas a famous victory.' Almost two years after the beer orders went through the House, we are entitled to ask the Minister what good came of them at last. The Government certainly cannot claim that it was a famous victory. The customers are definitely no better off. Tenants have suffered great distress; many thousands of them have been forced out of their homes and businesses. The brewers, who spent millions of pounds campaigning against this legislation, have shot it to pieces.

10.31 pm
Mr. James Hill (Southampton, Test)

I had applied for an Adjournment debate on this subject, but I realised that the hon. Member for Rotherham (Mr. Crowther) had a prior right, representing as he does the NLVA.

I have today won a concession from the Secretary of State for Trade and Industry, in as much as he is going to give a delegation from the Southampton and district licensed victuallers an opportunity to see him at the Department to talk over some of these matters. Worthy servants of the brewers are being turned out of their livelihoods and homes by these draconian rents, set in the main by estate agents who have no concept of the harm that will be done to these people.

I thank the Secretary of State for this concession, and I am sure that, with good will on the part of the Government, we can arrive at a successful outcome.

10.32 pm
The Minister for Corporate Affairs (Mr. John Redwood)

I am grateful to the hon. Member for Rotherham (Mr. Crowther) for raising this important subject. He has tirelessly put the views of the National Licensed Victuallers Association to the Government during the course of these discussions and changes.

The hon. Gentleman suggests that the orders have failed, but the main order, to break the tie, is not yet in effect, so it is premature to say that the proposal has failed to introduce competition. We must wait and see what its impact is before making that judgment.

To review the position before this judgment can be made would be far from helpful. It would create a great deal of additional uncertainty for tenants, customers and all in the brewing industry. Perhaps, on reflection, the hon. Gentleman will agree that that could make matters worse. It would certainly encourage the brewers to look again at their commercial strategy. The hon. Gentleman was critical of the way they had done that as a result of the orders while the review was under way. It would be wrong to encourage such a move before it is possible to form a view on how the orders have worked out in practice.

I am grateful that the hon. Gentleman pointed out that the closure of pubs, which was a common feature of the industry before the orders were thought of, has nothing to do with the Government's policy or the MMC inquiry.

If a pub is closed, that is a commercial judgment by the publican and the brewer depending on the relationship between them. It is usually by the brewer. That commercial judgment is made on the basis of the pub and its location. Hundreds of pubs closed before the orders and, unfortunately, some pubs are closing now. Closing a pub does not help a brewer to comply with the important brewing order; it is essential that the House understands that, as many hon. Members have problems involving pubs, and they need to answer that point, which shows that the brewing order is not the cause of the pub closure.

The hon. Member for Rotherham made some interesting points about independent arbitration. The Secretary of State and I have worked hard in discussions with the brewers to get improvements in the way in which they treat their tenants. One of the important points was to get the offer of independent arbitration where all else has failed. I will certainly consider the points that the hon. Gentleman made when I read Hansard and consider the ways in which it may be possible to dilute or circumvent the effect of independent arbitration in the way that the hon. Gentleman suggested.

The Government are committed to pursuing a vigorous competition policy in the brewing industry and elsewhere. We will continue to look closely at mergers in the brewing industry which fall for consideration under the fair trading legislation. Although the Monopolies and Mergers Commission report did not think that concentration in brewing was a problem, the authorities do not wish to see undue erosion of competition in brewing, and that will obviously inform our assessments and judgments in future transactions.

There has been little change in the combined market share of the six national brewers owning more than 2,000 pubs since February 1989. The increase in concentration of the big four, to which the hon. Gentleman referred, is entirely due to the Grant Met-Courage pubs-for-breweries deal. Those transactions were considered fully by the MMC. The number of pubs freed from ties as a result of the undertakings required by the Secretary of State will be much greater than would have been required under the orders. It was the tie which the MMC thought created all the problems. That explains the judgment in that case.

I do not accept that recent acquisitions of regional brewers and closures of breweries are the result of the beer orders. Regional brewers are not affected directly by them. The industry has long been characterised by mergers between brewers, closures of breweries and sales of public houses. The decisions of regional brewers such as Boddingtons and Greenalls to cease brewing were commercial ones taken by the managements of those companies and they were not forced on them by any of the Government's measures.

An important way of encouraging vigorous competition in the brewing industry is to give regional brewers the chance to expand. The beer orders do just that. Regional brewers have opportunities to acquire further premises from the national brewers, and they can sell their beers to a greater number of "free outlets" after November 1992. Regional brewers such as Morlands, Greene King and Wolverhampton and Dudley have already seized the opportunity to expand their estates.

The guest beer provision also provides opportunities. The Publican on 17 June reported: the guest ale tidal wave is swelling, as many national tenants prepare to take a non-brewery tied beer". The Morning Advertiser of 24 September reported on an in-depth survey that it had carried out into the effects of the guest beer provision. This found that some 40 per cent. of the tenanted pubs of the national brewers were now offering guest beers. That figure could well increase significantly. The survey found that Wadworths, Youngs, Fullers, Marstons and Adnams among the regionals had all done particularly well from the provision, accounting together for nearly 30 per cent. of the guest beer market.

Several new micro-brewers have sprung up. The Morning Advertiser of 30 October reported the story of Jim Botur, who spent his redundancy money from Matthew Brown on starting his own independent brewery. He said: We have received a lot of support from both free trade customers and tenants who are now able to stock a guest beer in their pubs. We were confident that the new Beer Orders would give us the opportunity we needed. The hon. Gentleman referred to recent increases in the price of beer which, I agree, have been large. As the brewers do not have to comply with the main measure of the orders until 1 November 1992, it is too soon to judge what impact the orders will have on prices. I notice that the steepest price rises in past years have been in pubs tied to the national brewers. The beer orders target precisely those brewers, by ordering a reduction in their tied estates by 11,000 outlets. Customers will have more choice of outlet and beer. They can shop around if some prices rise too far. We have asked the Director General of Fair Trading to review the orders in late 1993, when their effectiveness can be properly assessed.

Mr. Richard Alexander (Newark)

Apart from what the customer may or may not find with the price of beer, is it not the case that what the hon. Member for Rotherham (Mr. Crowther) has described would not have taken place if the beer orders had not been passed by the House?

Mr. Redwood

I am not sure whether that is true. We can never be sure, because those events took place. However, there were changes under way in the brewing industry before the beer orders were drafted and put to the House. We saw leading brewers thinking about segregating property from brewing, and we saw one major brewer thinking about introducing new styles of lease, which is the main burden of the hon. Gentleman's criticisms. One can argue that there were changes under way in the brewing industry before the beer orders came along. I am not sure whether all those changes are the result of the beer orders or the threat of the beer orders.

I and the Secretary of State are worried about the notices to quit that some brewers have issued to many of their tenants. The major brewers do not have to evict tenants to comply with the requirement that they release pubs from ties by 1 November 1992. Closure of a pub does not help them to comply with the orders in any way. Most of the notices have been issued to allow the brewers to renegotiate existing agreements; few will result in eviction.

The Secretary of State and I have urged the brewers concerned to keep the number of notices sent out to an absolute minimum, and to make their purpose clear to tenants. The timing of notices was determined by the fact that all tenants will be protected by the Landlord and Tenant (Licensed Premises) Act 1990 by July 1992 as a result of the legislation that we enacted last year at the tenants' request. I remember seeing a delegation from the tenants at that time. The Government moved swiftly to meet their requirement to introduce the landlord and tenant legislation.

Mr. William Cash (Stafford)

Does my hon. Friend agree that, in certain cases, it has been extremely difficult for some smaller pubs to be able to pay the amount of money that some of the brewers have been asking them to pay?

Mr. Nicholas Winterton (Macclesfield)

It is impossible.

Mr. Cash

It is a simple point, but it has caused certain distress.

Mr. Redwood

I know that tenants are worried by the extent of the price rises for their rents that the brewers are suggesting.

Mr. Winterton

Are you?

Mr. Redwood

But that will be determined by the marketplace. There will be independent review in cases where agreement cannot be reached. Of course I would like tenants to have realistic rent demands and then have successful businesses on the back of them, and I hope that the rent demands will turn out to be realistic in relation to the actual security of tenure offered under the new style of lease and in relation to the business opportunities offered under that style of lease as well. The hon. Gentleman fairly pointed out that there is a larger range of business opportunities available under the new leases, and that, of course, will be reflected in the rent charged under those lease arrangements.

The longer-term leases which many brewers are insisting should replace existing tenancy agreements represent a different kind of lease with a different rental price on them. Over the summer, the Secretary of State and I met to encourage them to adopt best practices in dealings with their tenants. At our prompting, all the major brewers have now agreed to allow independent arbitration or assessment of rent in difficult cases where agreement cannot be reached. They have accepted the need to be flexible towards tenants who would have real difficulties in taking on a long-term lease, treating those nearing retirement with special consideration. That flexibility might involve the offer of a short-term agreement or a long-term lease with an appropriate break clause. The brewers have also agreed to consider offering compensation to such tenants in exceptional circumstances on a case-by-case basis.

The Secretary of State, in the letter he sent to all hon. Members, said that it would be unrealistic to expect the removal of all differences between brewers and their tenants. We have been encouraged to hear from the president of the National Licensed Victuallers Association that he has seen some softening in the brewers' approach since our meetings with them. I understand the NLVA's continuing fears, but I am glad that its most recent letter to the Secretary of State began by saying: the reaction of the national brewers to the recent series of meetings held with yourself and John Redwood MP would initially seem to be both positive and encouraging". I shall, of course, continue to watch the situation closely and will read all the comments that have been made tonight, including those made from sedentary positions in support of the hon. Member for Rotherham. I shall also do all that I can to ensure that brewers behave responsibly towards their tenants. However, I am convinced that a further review of the industry at this stage would only create additional uncertainty, which would not be in the interests of the industry, the tenants or the customers.

Question put and agreed to.

Adjourned accordingly at sixteen minutes to Eleven o'clock.