§ Motion made, and Question proposed, That this House do now adjourn. —[Phil Woolas.]6.16 pm
§ Sir Patrick Cormack (South Staffordshire)
I am delighted that so many hon. Members are in the House to hear the opening of the debate. I am particularly grateful to Mr. Speaker, who is of course a renowned teetotaller, for choosing the subject of this evening's Adjournment debate, because it is, of course, Mr. Speaker's choice on a Thursday.
I raise a subject of great importance, particularly to those of us who live in the west midlands, and I am delighted to see the three hon. Members representing Wolverhampton in their places. I hope that the hon. Member for Wolverhampton, South-West (Rob Marris) will be able to make a brief contribution to the debate because the main brewery to which I shall refer is in his constituency.
This is really a story of capitalism. I am a great believer in capitalism, but I believe in responsible capitalism, and in people who are in a position to control others' lives because of what they own doing it responsibly. The Wolverhampton and Dudley brewery is an excellent example of responsible capitalism. The company is in the top 300 in the country; it is the country's leading regional brewer. It has pubs as far apart as Alnwick in the north, Weston-super-Mare in the south-west, Corby in the east and Aberystwyth in Wales in the west. It owns Marston's in Burton, the Mansfield brewery and Camerons in Hartlepool, but the heart of the company is in the heart of England, in the black country in the west midlands. It is a thriving, well-run company and has been a cornerstone of local community life since 1890.
The present managing director is the fifth generation of Thompsons to have had a prominent position in the Wolverhampton and Dudley brewery. The company has contributed greatly to the life of the local community. There are two charitable trusts which have education as their particular objective. It has grown over the years, but its growth by acquisition has been based on success and a sense of responsibility. It is a fiercely independent company in an industry that is increasingly dominated by a few big breweries. It has 1,800 pubs spread around the country, most of them concentrated in the west midlands.
In my constituency there are pubs like the Dudley Arms in Himley, the White Hart in Kinver, the Greyhound in Swindon and the Plough in Trysull—all wonderful English names for good English pubs, each one of them different from the others, each with its own distinctive character and ambience. That is what we mean by an English pub. The plastic uniformity of the theme pub is not for any true Englishman. I would resist to the end the development of pubs in that direction.
The company is now threatened by a hostile and aggressive takeover by Pubmaster, a company that is entirely foreign-financed. I am not a little Englander—I am a great believer in our place in Europe—but that does not diminish my fierce local pride and patriotism, and I do not want the Wolverhampton and Dudley brewery to fall into the hands of foreigners who neither know nor care about the English pub.
522 What is worse, we know that if Pubmaster acquires the company, it will sell off the breweries and keep the pubs. The ales that people enjoy would then be at risk. There is no guarantee that the breweries would all survive, and if they did, they would certainly be swallowed up by one of the big conglomerates. That is where the Minister comes in. I am most grateful to her for being here. She should carefully consider referring the matter to the Monopolies and Mergers Commission.
§ Mr. Dennis Turner (Wolverhampton, South-East)
The hon. Gentleman has spoken eloquently about the uniqueness of the pubs associated with the Wolverhampton and Dudley brewery, and they are indeed wonderful pubs, but I declare my interest as a dedicated Banks's boozer drinker. It is not the pub but the booze that attracts me. The beer is wonderful. The uniqueness of the beer brewed at the Park brewery at Wolverhampton is at great risk. Not only the beer and the pubs but 1,700 or 1,800 jobs at the breweries are at risk. We really must keep our beer—Banks's beer, Marston's beer—brewed where it has always traditionally been brewed.
§ Sir Patrick Cormack
That seems to have been a mini-speech in the middle of mine. I have a great affection for the hon. Gentleman and I agree with every word that he says, even though he has stolen some of my best lines. He probably knows more about beer than anyone else in the House, and I hope he will soon be reincarnated as Chairman of the Catering Committee.
If the hostile bid succeeded, there would be asset stripping of the worst sort. Furthermore, the pubs themselves, which Pubmaster says it wants to keep, would be threatened by the plastic uniformity of the theme pub, with everything, including the menu, the same in every one. That is the negation of the English pub, which is unique to this country and is already under threat. There are far too many villages and parts of towns where the pub is at risk or has closed. The figures are frightening.
We are talking about a thriving company, not one that needs bailing out, yet it is at risk. The hon. Member for Wolverhampton, South-East (Mr. Turner) talked about jobs. The total number of jobs involved is 17,000, and the number of jobs at risk in our part of the world—I checked the figures this afternoon—is 4,500, if we take into account the drivers and all the others involved.
Pubmaster's unscrupulous approach was seen this week when the brewery had to take legal action over Pubmaster's divulging of information to potential buyers of breweries when it has bought the pubs.
We are dealing with a real human story that is repeated in many homes in my constituency and those of all the hon. Gentlemen attending this debate. A cloud of uncertainty hangs over many lives. In some cases, we are talking about families who have given two, three, four or five generations of service to this local company and have been well treated, showing a wonderful corporate spirit in return. I spoke about the charitable doings of the trusts established by the family, but the workers give enormous sums of money to the Compton hospice. They have a corporate and community identity and spirit, and it is at risk.
I appeal to the Minister to consider a reference to the Monopolies and Mergers Commission, because of the threat to the breweries. I also wish to appeal through the 523 Minister to the institutional shareholders. There is no doubt that if the individual shareholders had their say, the sale would never take place. However, the final outcome of the hostile bid will be determined not in the homes of Wolverhampton or south Staffordshire but in a few boardrooms in the City of London. I wish to say to those institutional shareholders, "You have a thriving company here in which many people take great pride. You have jobs that are secure and a product that is appreciated and enjoyed. You have pubs that are visited by people who regard them as their locals and who enjoy going there. Do not put all that at risk for the sake of a quick buck".
§ Mr. Ken Purchase (Wolverhampton, North-East)
The hon. Gentleman speaks well. He said that he supports the notion of capitalist means of production, which has indeed brought great wealth across the world. However, he speaks like a socialist and that is welcome. On a serious note, the danger of international capitalism of the type that he has eloquently described is that it can be completely disconnected from its localities and become hostile to the very people who ensure results for the shareholders. Will the hon. Gentleman make a personal appeal to the institutional and other shareholders to recognise that their profits are at risk if they continue with that folly?
§ Sir Patrick Cormack
The hon. Gentleman is being a little mischievous. I am not a socialist. As he well knows, I am an unrepentant capitalist, as I made plain earlier. However, I believe in responsible capitalism, which has done so much to help the countries of western Europe, including ours, enjoy our present standard of living. In fact, I am involved in an annual award for responsible capitalism, which was presented last year by no less a person than the Chancellor of the Exchequer. We made common cause on that issue and we will continue to do so.
The company is a good example of responsible capitalism, but it is in danger from an avaricious, inhuman capitalism—there is good and bad in everything—and I repudiate that. I hope that those who have the ultimate say will also repudiate it, so that the people whose lives have been so clouded by uncertainty will be able to relax this summer. The bid is not in the best interests of the industry, of the midlands, of those who work for the company or of the consumers who enjoy the products that are produced.
§ Rob Marris (Wolverhampton, South-West)
I should declare a slight non-pecuniary interest, in that my constituency office is rented at a commercial rate from the brewery and I am currently negotiating a new lease. I find it surprising but pleasing that the hon. Member for South Staffordshire (Sir Patrick Cormack) is coming around to the views of Labour Members about responsible capitalism and, if his current trajectory continues, he may even cross the Floor.
On a more serious note, the hon. Gentleman and I are at one on this issue. The breweries are local institutions and they support other local institutions, namely the pubs of which he spoke so eloquently. Pubs are a fine British, as well as English, tradition.
I am especially concerned about the jobs in Wolverhampton, South-West, as the Park brewery is in my constituency. I may not be as big a beer drinker as 524 my hon. Friend the Member for Wolverhampton, South-East (Mr. Turner)—few hon. Members are—but I do drink beer and am concerned about the brands made by the Wolverhampton and Dudley brewery.
The Campaign for Real Ale has always been very clear that that company—Britain's largest independent regional brewer—does a great job. We must protect the brands that it makes, and the fear is that the pubs will be sold off if the takeover goes through. The brands would then also be sold off, with the result that they would not be brewed in the original breweries. That would be a loss to the nation's taste buds.
I thank the hon. Member for South Staffordshire for raising the matter in this Adjournment debate.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson)
I join in congratulating the hon. Member for South Staffordshire (Sir P. Cormack) on securing this debate. He and my hon. Friends the Members for Wolverhampton, South-East (Mr. Turner), for Wolverhampton, North-East (Mr. Purchase), for Wolverhampton, South-West (Rob Marris), for West Bromwich, East (Mr. Watson) and for Dudley, South (Mr. Pearson) clearly all feel passionately about the subject of the debate.
When I realised that I was to reply to the debate, I did not appreciate that it would also be about socialism and capitalism, and about good and bad. Wide new horizons have opened up of which we were unaware when we began. I fully recognise that this is a key concern to the hon. Member for South Staffordshire, and to other hon. Members whose constituents also work for the brewery concerned. I accept that the hon. Gentleman is a passionate consumer.
I am sure that the hon. Member for South Staffordshire will appreciate that I cannot comment in detail on Pubmaster's proposed acquisition of Wolverhampton and Dudley, as the merger is being considered by the Office of Fair Trading under the Fair Trading Act 1973. In due course, the Director General of Fair Trading will advise my right hon. Friend the Secretary of State on whether the merger should be referred to the Competition Commission for further investigation.
What I can do, however, is set out some background to the Government's overall approach to competition policy. I can also sketch out the process for examining mergers such as this, the wider position within the beer market as a whole and the future direction of merger control.
On competition policy, my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Trade and Industry made it clear when they announced proposals for an enterprise Bill last month that the Government intend to tackle the challenge of enterprise and productivity in the UK economy, of which an effective competition policy is a key part. It is at the heart of the Government's strategy to close the productivity gap between the UK and our industrial competitors. Competition is a key driver for innovation, productivity and growth.
Competitive markets provide the best means of ensuring that the economy's resources are put to their best use by encouraging enterprise and efficiency and 525 widening choice. Competition policy is used to ensure the efficient workings of markets, and to prevent abuses of markets that lead to less innovation, higher prices, lower choice and lower quality than would result from efficient competition. That may link up with the points made earlier about what capital at its best—as represented by the hon. Member for South Staffordshire—might consist of.
Part of the Government's competition policy is the regulation of mergers. The principal provisions for the control of merger in the UK are contained in the Fair Trading Act 1973.
Mergers qualify for investigation under the Fair Trading Act if they either pass an assets test—if more than £70 million of assets are being acquired—or a share-of-supply test. The latter applies if a share of 25 per cent. or more in the supply of a particular good or service in the United Kingdom is created or enhanced.
Under the Act, the independent Director General of Fair Trading advises the Secretary of State for Trade and Industry whether qualifying mergers should be referred to the Competition Commission for full investigation; the Secretary of State then decides whether to refer or not. The Commission investigates whether a merger is against the public interest and reports its conclusions to the Secretary of State. If the commission concludes that a merger may be expected to operate against the public interest, the Secretary of State may prohibit the merger, allow it to proceed subject to conditions or allow it to proceed unconditionally. There are no powers to block or impose conditions on non-newspaper mergers unless the commission reaches an adverse finding.
As I said earlier, the proposed acquisition of Wolverhampton and Dudley is being considered by the Office of Fair Trading. It might be useful, therefore, if I explain in a little more detail the analysis that the OFT undertakes. Where a merger qualifies for investigation under the Fair Trading Act, in the first instance it is the officials of the DGFT who undertake an analysis of the merger. The main aim of their evaluation of a merger is to establish its potential effect on competition, although other possible public interest issues are assessed where they may be relevant.
Ever since the monitoring process was first introduced in 1965, a primary concern of the reference policy of successive Governments, Conservative or Labour, has been the control of mergers that would have an adverse effect on competition in the United Kingdom. It is the policy of this Government to refer merger cases to the Competition Commission for further investigation primarily on competition grounds.
It is open to the DGFT and to Ministers to consider other issues, which can be broadly categorised as public interest issues and could include, for example, the effect on employment, regional development, or national security. As the DGFT's own published guidance states, however, it would only be in exceptional circumstances that such considerations might be a decisive factor. The primary purpose of our merger control policies is to consider and, if necessary, block or amend those mergers that are identified as having adverse effects on competition in markets.
526 As I am sure the hon. Member for South Staffordshire will appreciate, no two merger cases are identical, but the DGFT's assessment follows a similar pattern. In the first place, he will identify the markets in which the parties to the merger are involved. Where markets directly overlap, there is the most obvious possibility that there might be a reduction in competition, but competition issues may also arise where the merger involves markets that are linked vertically—where the parties are involved in different stages of the production or supply of the same goods or services.
Secondly, the structure of the markets affected by the merger is analysed so that the likely effects of the merger on the nature and degree of competition in those markets that are relevant can be assessed. Factors that may be taken into consideration include the extent and impact of any barriers to market entry and the buying power of customers. The judgment that the DGFT then makes is whether the merger would give rise to a degree of market power that would allow the merged company to raise prices or reduce quality to the detriment of its customers, or to operate in some other way that could be against the public interest.
Once the OFT has assessed the merger, the DGFT advises the Secretary of State whether the merger should be referred to the Competition Commission for further investigation. I listened to what the hon. Member for South Staffordshire and my hon. Friend the Member for Wolverhampton, South-West said in this regard. In October last year, my right hon. Friend the Member for Tyneside, North (Mr. Byers)—the then Secretary of State—announced that he had decided to accept the DGFT's advice on reference in all but exceptional cases. This remains the Government's policy.
Such exceptional cases are not expected to arise often. It may be appropriate for Ministers to intervene, for example, where a merger raises national security issues or where there is a material change after the submission of the DGFT's advice, or where the advice of the DGFT conflicts with the views of sectoral regulators.
Should the Secretary of State decide, in the light of the DGFT's advice on a merger case, to refer it to the Competition Commission, the commission will assess whether the merger will operate against the public interest. The Fair Trading Act requires it to take into account all matters that appear to it to be relevant in the circumstances in determining whether a merger operates or may be expected to operate against the public interest.
With that background in mind, I will deal briefly with the case raised by the hon. Gentleman. Pubmaster is a pub landlord with about 2,000 pubs throughout England and Wales. Its proposed acquisition of the Wolverhampton and Dudley was notified to the OFT in June. The merger is still being assessed by the OFT and the DGFT has not yet advised Ministers whether it should be referred to the Competition Commission for further investigation. In view of the Secretary of State's role as statutory decision maker, I am sure that the hon. Gentleman will appreciate that I cannot comment on the substance of the case.
The OFT has issued a public invitation for third party comments on the merger. I will, of course, ensure that the OFT is aware of the views that the hon. Gentleman and my hon. Friends have expressed today. If anyone has any comments that they wish to make, they should contact the OFT directly as soon as possible so that their views may 527 be taken into account in the consideration of the case and so that the DGFT can reflect them in his advice to the Secretary of State.
§ Mr. David Drew (Stroud)
May I remind my hon. Friend of the history? Pubmaster came into being because of Whitbread's divestment under the 2,000 tied houses rule. Is it not worth reconsidering that issue? In my area, pubs were handed over haphazardly, which led to much disagreement in the intervening time. It may be worth looking at the history to find out whether the business can be managed better in future.
§ Miss Johnson
I am grateful to my hon. Friend for that intervention. I have listened carefully. I cannot respond on the particular, but it may be helpful if I set out some more general observations on the brewing industry as a whole and on competition within the sector.
Historically, the beer sector was and remains the most important alcoholic drink industry in terms of UK production. Both consumption and production of beer have fallen in the past 10 years. Since 1989, the beer sector has seen considerable restructuring in the wake of the beer orders of 1989. The number of national brewers has reduced from six to three and the break-up of large, national brewer-owned pub estates has given rise to independent pub companies such as Pubmaster.
The UK brewing industry was referred to the Monopolies and Mergers Commission for investigation in 1986. That investigation resulted in measures, known as the beer orders, being taken to weaken the links between brewers, especially large national brewers, and pubs. The orders are the Supply of Beer (Tied Estate) Order 1989 and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989.
The tied estate order required national brewers owning more than 2,000 pubs to release from tie half the pubs they owned in excess of that number by 1 November 1992. It also gave the national brewers' tied tenants the right to serve a guest beer and source wines, spirits and soft drinks from any supplier of their choice from 1 May 1990. The loan ties order enabled recipients of brewers' loans to terminate them without penalty on giving three months' notice, required brewers to publish wholesale price lists for their beers and prohibited brewers from imposing restrictions on the future use of licensed premises when they are sold.
The Office of Fair Trading monitors the brewing and pub industries closely and investigates any suspected anti-competitive practices, but structural changes in the industry such as the closure of breweries, or contractual matters such as the treatment of tied tenants by breweries and pub chains, cannot be dealt with under competition law.
There have been major developments in the industry since 1989, including the growth of pub chains as a counterweight to the market power of the large national brewers. The DGFT announced a review of the beer orders on 14 January 2000 and submitted his report to the Department last summer. He recommended the retention of some parts of the beer orders: the provisions relating to loan tie agreements, the prohibition on refusing to supply beer for resale and the requirement to publish wholesale prices. He recommended the removal of the remainder—the cap on the size of brewers' tied estates, 528 the requirement on large brewers not to tie drinks other than beer, the guest beer provision and the ban on brewers preventing a pub from continuing to be used as a pub when sold—because they were no longer needed.
In his response to the DGFT's recommendations, the then Secretary of State said that the beer orders were radical and necessary in their time but that, more than 10 years on, the market had changed and some of them had now served their purpose. He agreed, in particular, with the DGFT's recommendation that the 2,000 cap on the number of pubs that a brewer can own should be revoked.
There is no doubt that the introduction of the cap in 1989 encouraged the subsequent major growth and development of retail pub chains by forcing on to the market 11,000 divested brewers' pubs. In that sense, the beer orders have served their purpose in that the cap has been instrumental in creating the market power of the retail pub companies, which is now ranged against the national brewers. Moreover, it is right that the cap should go because, as the DGFT said in his report, it is restricting the growth of those larger regional brewers that want to continue to brew.
Competitive changes in the beer industry are also affected by individual decisions on merger cases. Such cases are considered on their merits. On occasions, mergers raise competition concerns that justify a reference to the Competition Commission—for example, Bass and Carlsberg-Tetley in 1997, Whitbread and Allied Domecq in 1999 and Interbrew and Bass last year. On other occasions, competition concerns can be remedied by undertakings in lieu of a reference, as was the case for Scottish and Newcastle and Greenalls, and the Punch Group and Allied Domecq in 1999. Other transactions raise no competition concerns and are cleared, such as the merger between Grand Pub, Inntrepreneur and Spring Inns in 1997, or Wolverhampton and Dudley's acquisitions of Marston, Thompson and Evershed and of Mansfield Brewery in 1999.
As with all these cases, I can assure hon. Members that the merger that we are discussing today will be considered on its merits by the Secretary of State in the light of the advice of the Director General of Fair Trading and, in undertaking this consideration, the competition effects of the merger will be the key issue.
§ Sir Patrick Cormack
I intervene because we are not so time-constrained as usual in Adjournment debates. I am grateful for what the Minister has said. Will she give an absolute assurance that the social impact will be taken most seriously into account, as well as all the other factors?
§ Miss Johnson
I have already indicated some of the factors that can be taken into consideration, including employment issues. I cannot give him an on-the-spot undertaking on the points that he has raised, but I can assure him that these things will be properly considered. Perhaps that is the assurance that he seeks. I cannot comment further on these matters due to the nature of the consideration that Ministers need to give to them. I am sure that the hon. Gentleman will accept that. However, I hope that what I have said has shed some further light on the situation.
§ Question put and agreed to.
§ Adjourned accordingly at twelve minutes to Seven o'clock.