§ 2.53 p.m.
§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, with the leave of the House, I wish to announce the Government's response to the report from the Monopolies and Mergers Commission on the supply of beer.
This was a comprehensive report. It recommended far reaching changes in the brewing sector. Passionate views for and against its recommendations have been expressed forcefully to me and to my colleagues since I published it on 21st March. I have listened carefully to views from all quarters—large and small brewers, the tenants, and, most importantly, the consumers. But before I announce my decisions I should like first to restate the Government's position in relation to this and all other MMC reports.
8 The essence of the Government's view is this: competition is good for industry and commerce and, above all, for consumers. It encourages enterprise, greater productivity, greater diversity and lower prices. In general the operation of the market delivers the benefits of competition to the consumer. But sometimes the Government have to step in—in mergers, restrictive and anti-competitive practices, and monopolies. And the ultimate sanction which the Government hold—and exercise when necessary—is to order divestment. Without this sanction our policies to ensure that competition is kept free would be without force and effect.
Certain preliminary conclusions were announced by my honourable friend the Parliamentary Under-Secretary of State on 8th June; and I made a further statement of the Government's position during a debate in your Lordships' House on 14th June. We made it clear that certain measures would apply to the national brewers, but not to regional and local brewers.
I now turn to the specific decisions I have reached on matters covered in the MMC's recommendations. I have taken particular note of recent further evidence of the need for more competition in the supply of soft drinks and low alcohol beers to pubs. We have decided therefore that tenants of the national brewers should be free to buy these and certain other products from any source, free of ties. Products thus freed from the tie will include non-alcoholic and low alcohol beers, soft drinks, ciders, wines and spirits. These measures should significantly enhance competition in the supply of these products.
All brewers will be required to supply beer to the wholesale trade at prices no more than those in a published list. The MMC showed that some wholesalers had been prevented from operating in the market because brewers had refused them supplies. These measures, and others I shall shortly come to, should stimulate a more open and competitive wholesale market in beer and other drinks.
We agree with the MMC's conclusion that licensed tenants must be given greater security of tenure in the new circumstances. I confirm that amendments to the Landlord and Tenant Act 1954 will be brought forward as soon as parliamentary time permits to give licensed tenants the same protection as other business tenants. I am conscious that many tenants have found themselves in an uncertain position since the MMC report was published. In some cases they have already been served with notice to quit. It is regrettable that some brewers have seen fit to take this action before firm decisions have been announced.
We envisage that subject to parliamentary approval of the necessary legislation, all tenancies which have three or more years to run from today's date will fall within the scope of the Act. In the case of tenancies without a definite term, they will fall within the scope of the Act with effect from three years from today, or from the first rent review after the legislation takes effect, whichever first occurs.
The MMC made a number of recommendations aimed at giving tenants further protection, beyond 9 that provided by the Landlord and Tenant Act. I have considered this carefully, and have taken particular note of the representations made by the National Licensed Victuallers' Association that the power the brewer landlord has over the tenant is such as to justify a special level of tenant's protection. I have however decided that it would not be right to go further than affording licensed tenants the same protection as all other business tenancies.
I hope that those landlords who have issued notices to quit to their tenants as a consequence of the MMC report will now withdraw such notices. I have announced what I believe are appropriate transitional arrangements. I do not wish to see the position of tenants unduly jeopardized in the period before any amendments take effect. If necessary I will make an interim order under the Fair Trading Act 1973 as amended by the current Companies Bill to safeguard their position.
The MMC recommended the prohibition of all new loan ties. The effect of loan ties is, however, very different from that of ties resulting from ownership, which are permanent ties to one brewer's products. Loan ties can and do change from brewer to brewer frequently. It is clear that in the right circumstances they can be pro-competitive. I have also been persuaded that these loans can be an invaluable source of finance for new public houses and particularly for clubs. I have therefore decided not to prohibit them, but instead require that they conform to certain conditions to ensure that they are not used anti-competitively. All loan ties must be capable of termination at no more than three months' notice without penalty, and in the case of loans from the national brewers must be confined to beer.
We have already made it clear that the requirement recommended by the MMC that tenants should be allowed to offer a guest beer should apply only to the national brewers. We have also made it plain that the guest beer will be a cask-conditioned beer, other than stout. The issues to be resolved are who should be permitted to supply the guest beer and whether the requirement should apply to all exclusive ties entered into by national brewers, whether through ownership or loans.
We have decided that the right to take a guest beer should indeed apply to all exclusive ties entered into by national brewers. As to who should be able to supply to the houses of the national brewers, one view is that any brewer, other than the one responsible for the tie, should be able to supply the guest beer. On the other hand, the Brewers' Society has suggested that only brewers with an annual output of less than 200,000 barrels may supply. That would exclude any other than small, local brewers. We would welcome further views on this during the statutory consultation period.
I now turn to measures to address the central question of the size of the tied estate of the national brewers. The MMC recommended that no brewer should be allowed to own more than 2,000 on-licences. I have always made it clear that I was prepared to consider alternatives provided that they dealt with the public interest issues clearly identified by the MMC.
10 The national brewers made it clear that nothing which would fundamentally affect the strength of the tied-house system would be acceptable to them. But that is the central detriment identified by the MMC. Furthermore, it is clear that greater freedom to purchase products outside obligations imposed by the brewers would be widely welcomed both by publicans and by their customers.
I have decided that all brewers who own more than 2,000 on-licensed premises wilt be required to release from ties one half of the premises above that threshold. They must be leased free of ties to the company's products. As these premises will now become free houses, the owning brewer will be permitted to make the new form of tied loans should the new tenants require them. At present there are some 15,000 free houses. On the basis of the data in the MMC report, these measures will add an additional 11,030 free houses. The proposals should enable a major freeing of the market without the compulsory divestment originally recommended by the MMC.
The central problem identified by the MMC was that the tied-house system restricts choice and competition. The MMC identified a number of ways in which the operation of the licensing system has this effect. The licensing system exists to control the supply of alcoholic drinks and to ensure that such drinks are sold only by fit and proper persons. However, in practice licensing justices take account of a wide range of factors in deciding whether to grant a licence to an applicant including whether in their view there is a demonstrable need for new licensed premises.
The MMC took the licensing system as given. However in view of the consequences for competition I believe that we should consider this matter further, even though the MMC made no recommendation to that effect.
It is no part of government policy to seek to increase the number of licensed premises. But, equally, a licensing system devised for one purpose should not be used for another purpose, namely to fortify a local monopoly. My right honourable friends the Home Secretary and the Lord President of the Council and I have agreed to look into this point further.
The main measures that I have announced will take some time to put into effect. I propose that a period of two years should be allowed for those measures which involve modifying tenancy agreements or separating a business into a tied and free estate. At the end of one further year I propose that the effect of these measures should be reviewed by the Director General of Fair Trading. They involve significant structural changes to the market, and it will be important to review whether they have had the desired pro-competitive effects.
Throughout my consideration of the MMC report I have been in close touch with the European Commission, which is itself conducting a review of competition in the brewing sector throughout the Community. The measures that I intend to take are compatible with the terms of the existing block exemption from Article 85 of the treaty of Rome.
11 The Commission's own examination is also looking closely at the effects on competition of vertical tying, and I look forward with interest to the conclusions of its study. When the position in the United Kingdom is reviewed at the end of three years we shall take fully into account the results of the European Commission review and any consequent changes to the EC block exemption regulation.
Drafts of orders to give effect to the measures that I have announced today will be published as soon as possible. Parties whose interests are affected by such orders will have a period of at least six weeks in which to make representations after they have been published before the orders are placed before Parliament.
§ 3.5 p.m.
§ Lord Williams of Elvel
My Lords, the House will be grateful to the noble Lord the Secretary of State for his Statement today. I am bound to say, openly and frankly, that we regard his announced view on the central question of the tie as being no more than a cave-in to brewers' interests.
There is a remarkable change from the Secretary of State's announced position when the report was published that he was minded to accept its recommendations. Since then the noble Lord has conducted negotiations. That contrasts starkly with the negotiations which the Government failed to conduct with the Transport and General Workers' Union before deciding to abolish the dock labour scheme.
The Monopolies and Mergers Commission identified a complex monopoly. Since then the Brewers' Society has mounted a formidable campaign. The Brewers' Society is no doubt a vested interest, but where in all this did the consumer come in? The noble Lord said that, most importantly, he had listened carefully to the consumer. Is it not the case that the Consumers' Association supported the view and the recommendations of the Monopolies and Mergers Commission?
Going through the Statement, which I have had only a short time to review, I note that the supply of soft drinks and low alcohol beers will be released from the tie. As I understand it, that supply is not covered by the block exemption under Article 85 of the Treaty of Rome. I wonder therefore what is new in the noble Lord's announcement.
With regard to the extension of the Landlord and Tenant Act which the noble Lord announced, we shall welcome the amendments when we see them, provided they conform with what is our understanding.
With regard to the recommended prohibition on all new loan ties recommended by the MMC, we agree with the noble Lord, as we have announced, that loan ties can increase rather than diminish competition. As I said in our debate, we believe that there is a very strong case for maintaining loan ties, as he has indicated.
The central question which the noble Lord addressed was that of the tie. His announcement is a long way from what the MMC recommended.
12 The MMC spent two years compiling its report. It interviewed and examined witnesses from across the whole spectrum of the trade, consumers, other businesses and trade unions. It came up with recommendations which the noble Lord has seen fit to disregard. Since he declared himself minded to accept the report, he has offered concession after concession to the brewers. As he said, early on he ruled out the application of the MMC report to regional and local brewers. Next, in a speech in this House, he offered a further concession to the brewers. Now he has offered even further concessions. At the time of the debate he proposed that any brewer owning more than 2,000 premises should run the rest of its portfolio as a property portfolio. It is concession after concession to powerful vested interests. It is a ragged and humiliating retreat, and we regret that the Secretary of State was not more resolute.
§ Lord Ezra
My Lords, I should like to thank the noble Lord for his Statement, which has finally clarified a question that has led to a great deal of speculation. I much appreciate the first part of his Statement in which he expressed the view that the whole purpose of such Monopolies and Mergers Commission inquiries is to look into cases where competition might be in question and for the Government to take stock of the position and take decisions. However, I should like to ask him one or two questions.
The first concerns the new loan ties. The noble Lord referred to certain conditions which would have to be applied in the application of the new loans. Will he elaborate on that point so that we can be satisfied that the new loan ties will be in conformity with greater competition?
As the noble Lord, Lord Williams of Elvel, has pointed out, the big issue arises over the number of tied houses that brewers can continue to operate. The recommendation of the Monopolies and Mergers Commission was clear; namely, that the limit should be 2,000 and the rest be sold off. There has been much speculation in the press about the alternative proposition that any number over 2,000 retained in the ownership of the big brewing companies should be free houses.
The noble Lord has pointed out to us today that that is not the route he is taking; he has halved that number. He should explain why he has reached that conclusion. It would not have been unreasonable to say that any number over 2,000 should not necessarily have to be divested but should be freed. Why has he apparently changed his mind, at any rate so far as concerns press comment? It seems a bit of a retreat. I should be glad to hear his comments.
I was pleased to note that there has been close consultation with the European Commission. As I understand it, what is now proposed is regarded as conforming with Article 85 and the possible derogations thereform and that if the Commission, as a result of its own inquiry, should come to other conclusions, they will be taken seriously into account by the Government.
§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, for the manner in which he welcomed part of the Statement, if not all of it. I should say to him that I was of course taking the consumers' interests very much into account. I listened carefully to bodies such as the Consumers' Association which brought home to me the great need to see that soft drinks and other non-beer drinks are covered and are made a more competitive market. I should say to the noble Lord, lest he be concerned about our position within Europe, that soft drinks and other non-beer drinks are covered by the block exemption, but they are not central to it. We are free to adopt whatever policy we wish in respect of them without conflicting with the block exemption.
The noble Lord said that I listened to the brewers. Of course I listened to the brewers. I also listened to people who are perhaps rather closer to the noble Lord, Lord Williams of Elvel, than I am; by that, I mean the TUC. Indeed, the general secretary of the TUC, Mr. Norman Willis, wrote a letter to me on 22nd May to which I paid great attention. In that letter he said that the TUC is,opposed to the basic recommendation to put a 2,000 ceiling on licensed premises which any one brewer may own".He said that we should forget all about that and that we should not divest anything. He also went on to say that the,unrestricted access to supplies of soft drinks could well discourage investment by brewers in pubs to the detriment of those who work in the industry".I believe that the noble Lord should occasionally consult his colleagues because there seems to be a great disparity of views on the matter. That was the difficulty in which I found myself. This is a matter on which all are experts—all, that is, who occasionally go down to their local for a drink—but it is important that we see our way through in order to remove detriment to competition.
I should point out to the noble Lord, Lord Ezra, that the changes that we have made to tied loans will now conform to the best of practice within the trade. Any tenant receiving a tied loan or any landlord of a public house receiving a tied loan will have the ability to pay it off within three months upon serving three months' notice. From that moment onwards, the tie will no longer apply. Secondly, it would apply to beer. We are going out to consult to see what sort of beer can be used; whether it can be provided by another national brewer or whether it should be provided by one of the smaller brewers or anywhere in between.
The noble Lord, Lord Ezra, asked why the figure was only half, just over 2,000. First, I think that we must avoid too much turbulence in our society.
§ Lord Young of Graffham
My Lords, the noble Lord's friends would not have me do anything, but the noble Lord, Lord Williams of Elvel, would have me do everything. That was the difficulty in which I found myself. Having to dispose of large numbers of public houses within a short period would not help to remedy the position.
14 We have done two things. First, we have provided that one-half of the houses—that is, over 2,000—will become new free houses. That will end in the creation of some 11,000 new houses. Secondly, we have provided that we shall give two years for that to come into being and one year thereafter to see the effect; then the Director General of Fair Trading will look at the position. If it appears that that does not cure the detriment, we may well have to do more. We should not go dashing in with immediate steps when we can see a step-by-step basis.
Finally, we have done one thing which the MMC did not recommend and which goes to the very heart and core of the problem: namely, that the system of licensing justices and of licensing public houses that we have erected over the course of the century has ensured that the number of public houses does not increase. That is probably a good thing, but the way in which the system works may have very anti-competitive elements. It may well be that magistrates look at the need element and then listen to competitors within a licensing justice area which ensures that new people cannot enter that market. It is something that I and my colleagues will examine; in the longer run, I suspect, this will have the greatest effect of all.
§ 3.15 p.m.
§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that many people will appreciate the great care and trouble he has taken to consider the representations made to him on this matter, not least in the debate in this House a week or two ago? Is he also aware that many of us will warmly welcome his decision to reject the Monopolies and Mergers Commission's proposal for the compulsory divestment of a large number of public houses by the major brewers with all the confusion and difficulty that that would have caused, particularly in country districts?
Is my noble friend further aware that his proposal to deal with the question of the licensing law and licensing justices appeals to some of us who used to practise the law in that area as being extremely sensible and calculated to increase the competition which it is thought necessary to stimulate? On that point will my noble friend say why the Monopolies and Mergers Commission seems to think that a monopoly existed in an industry in which, in addition to local regional breweries, six major companies were also operating? Are there not many industries in this country which are controlled by far fewer major firms?
§ Lord Young of Graffham
My Lords, I am grateful to my noble friend. Of course, he is quite right. The figures, of themselves, do not tend to denote any great monopoly, but it is ease of market entry which distinguishes this industry from almost every other. One can open another shop in the high street; there is barely any limit on the amount of competition that one can introduce. However, in this area, the system of licensing justices has been such as almost to eliminate any increase. In a period of 20 years, when we have seen population changes within the United Kingdom, the number of public houses has 15 increased by only some 7 per cent. The investigation that I shall carry out with my colleagues may well free up the market. If it does, I hope that it will not tempt my noble friend to go back into practice.
§ Lord Mason of Barnsley
My Lords, is the Secretary of State aware that I believe that the brewers are insensitive, out of control and greedy? Last week, Whitbreads increased the price of its beer by 4 pence a pint and the price of its lager by 6 pence a pint, and this week John Smiths and Tetleys are doing the same. By those substantial price rises, the brewers are still abusing their monopoly power. Secondly, the noble Lord will perhaps remember that, when low-alcohol and non-alcohol beers and lagers came on the market, the brewers priced them higher than alcoholic drinks. Not only was it undermining Her Majesty's Government's policy on "Don't drink and drive", it was totally irresponsible. I hope that in his talks with the Brewers' Society, the Secretary of State will make plain that the brewers ought to be adopting a more responsible attitude in both the sales of their products and their relations with the public.
Finally, in his speech on 14th June (recorded in Hansard at cols. 1431 and 1432) he said:there is a need to increase competition in this industry…there are…substantial public interest detriments which need to be remedied".I do not believe that his statements satisfy those needs. Perhaps he will now explain to the House the extent to which he is content that he has gone far enough to satisfy public opinion and consumers, and that he really has broken the monopoly.
§ Lord Young of Graffham
My Lords, I hear what the noble Lord says. I suspect that I am not the best person to advise the brewers today because I doubt whether I am the most popular man with them at the moment. I should point out, however, that in freeing up 11,000 of the existing public houses which are tied to the six national brewers, over the period of the next two years we shall be increasing the number of free houses in this country very substantially indeed. By insisting that wholesale prices must be published and that the brewers have to supply on that basis, we are enabling almost for the first time those free houses competitively to obtain supplies of beer. By taking low-alcohol beers as well as non-alcoholic drinks out of the tie, we shall considerably improve the supply of those commodities.
I regret some of the things that have happened over the past two or three years, but I suspect that when this House has had an opportunity to reflect on the package as a whole and —what is very important —the look that we shall take at the licensing justices, noble Lords will agree that over the next two or three years we shall be taking considerable steps to put right this market.
§ Lord Kimball
My Lords, I hope that my noble friend appreciates that he has made a very disappointing Statement. Of course the industry is grateful for what he said that he will do. Already 16 foreshadowed are matters concerning the loan tie, the guest beer and the landlord and tenant arrangement. However, in no way can the industry accept the revised arm's length agreement on one-half of the public houses over the 2,000 figure. All that my noble friend is doing is handing over 11,000 public houses to what essentially will be subsidised foreign competition. Worse, he is in fact interfering with a fundamental property right in the United Kingdom.
§ Lord Young of Graffham
My Lords, I regret to hear what my noble friend has said. I hope very much that the national brewers will reflect on my package as a whole, and will realise that it represents a proper balance in the recommendations of the MMC report. We live in a world in which defects have to be remedied. I hope that in the fullness of time the brewers will accept and live with the present position.
§ Lord Lloyd of Kilgerran
My Lords, is the Minister satisfied that the measures which he proposes will be effective—I repeat the word "effective"—in reducing the ridiculously high cost of non-alcoholic drinks and soft drinks sold in public houses, having regard to the high prices that have been imposed on the public in recent months, a matter to which the noble Lord, Lord Mason, has referred?
§ Lord Young of Graffham
My Lords, we have taken them out of the tie and further provided that in three years from now the director general will reconsider the position. That fact will not have escaped those in the industry. I am sure they will realise that if the situation has not been remedied, further steps may have to be taken.
§ Lord Stoddart of Swindon
My Lords, is the Secretary of State aware of the sharp reaction from this side of the House when he mentioned that the industry should not be subjected to undue turbulence? In fact our view is that the present government has so far subjected to turbulence virtually the whole of our national life throughout their term of office. In particular that has been achieved by the Prime Minister and her style of government.
Is the Minister further aware that many people will be very concerned by his remarks about a possible alteration to the licensing system? He must know that the increase in drunkeness over the past few years has been very marked, and indeed came about shortly after the greater freedom that was given to off-licences to supply beer and other drinks at any time. Does he agree that, if the trade is further released from control, drunkeness may increase still further? That would be a tragedy for the whole country. I urge him not to proceed with this item and to leave the licensing system as it is.
§ Lord Young of Graffham
My Lords, perhaps I may just say to the noble Lord how grateful I am to him for having paid tribute to the Prime Minister for the tremendous changes that she has wrought in the economy of the United Kingdom. That has ensured that during this decade we have been top of the 17 growth league compared with what happened in the 1960s and 1970s, which barely needs repetition in your Lordships' House. So far as concerns the other points raised by the noble Lord, they are matters of which my right honourable friends the Home Secretary and the Lord President of the Council are very much aware and will be taken into account by all of us.
I believe that we are predominantly considering whether the way in which the present system works in fact promotes monopolies within areas. We are speaking of diversity. We are not of necessity talking of a greater number of public houses. All these matters form part of the problems which all of us have to take into account.
My Lords, is my noble friend aware that many people will feel that in due course he will deserve the thanks of not only pub users, pub tenants and pub managers, but the brewers themselves, large and small, because they will be encouraged further to compete? Is my noble friend also aware that the objections of the spokesman for Her Majesty's Opposition this afternoon to me at any rate seemed full of humbug since—I ask my noble friend to remember—the Opposition spokesman in another place completely toed the line when seeking to protect the dock labour scheme?
§ Lord Young of Graffham
My Lords, I am most grateful to my noble friend. I hope that he will have a word with the brewers and help them to appreciate how good I have been to them. At the moment I suspect that they may not see it exactly that way. In reply to my noble friend—and it is a matter that I should have mentioned to the noble Lord, Lord Williams of Elvel—I cannot see the faintest similarity between the dock labour scheme, which was after all a statutory protection to give jobs for life, and the steps that we are now taking in this industry whereby we are endeavouring to create a more competitive environment.
§ Lord Dean of Beswick
My Lords, perhaps I may first offer my apologies to the Minister for missing the first couple of minutes of his Statement. I believe that in answer to some of the questions put to him, he said that the major objective of the Government was to protect the consumer. Having said that, let me refer to the question of tied houses. Is the Minister speaking of landlords or tenants of public houses? Is he not aware that in this country the brewers have an appalling record of increasing overnight the rents of their public house tenants, and in fact doubling those rents in some cases, so that in order to survive tenants have to levy astronomical increases on all commodities that they sell?
Will the Minister say whether that is one of the facets of the present discussions that are taking place? If not, in my opinion, he appears to have missed out on taking away a component part of the dictatorial rights that the brewers have enjoyed in the past. If he does not deal with that situation, they will continue to act in that way.
§ Lord Young of Graffham
My Lords, this very balanced package provides at the same time more diversity of choice by introducing guest beers, greater competition by ensuring that low-alcohol and non-alcoholic drinks should be freed and protection for the tenants by bringing them within the scope of the Landlord and Tenant Act.
I hope that after some reflection noble Lords will agree that it would be difficult to devise a more balanced package; with the proviso that we have to see how well it works over the next three years in order to decide whether it is necessary then to go further.
§ Viscount Montgomery of Alamein
My Lords, I warmly welcome the modest improvements that my noble friend has made in the licensing regime. Does he agree that ultimately the best interests of both consumers and retailers would be served by the total abolition of licensing?
§ Lord Young of Graffham
My Lords, I have gone no futher than to say that, with my colleagues, we shall look at the present system to see whether perhaps the "need" element is required. I do not think that I could go nearly so far as my noble friend suggests. That shows your Lordships how complex the whole field is.