§ 3.7 p.m.
§ Lord Kimball rose to call attention to the recommendations of the Monopolies and Mergers Commission in respect of the brewing industry and to the problems which arise in connection with these recommendations; and to move for Papers.
§ The noble Lord said: My Lords, I am the grandson of a brewer but I have no knowledge of the industry beyond that which I suspect most of your Lordships have—namely, that we all know what makes up the best communities in Great Britain. I do not wish to argue my case on rural communities alone. I think 1428 also of groups within towns which hold together and live as proper communities.
§ What makes those communities work? It is the presence of the parson, the pharmacist, the physician, the policeman, the postmistress, the priest, the primary schoolteacher and the publican. The list is alphabetical; we all have our own priorities. Today I wish to look in particular at the fate of the publican. After all, pubs are popular. British pubs are popular and unique to Great Britain, I might almost say to England, because there is something special about the English pub. Pubs provide the opportunity for our population to enjoy their most popular form of relaxation after watching television.
§ The whole question of the public house has been of some concern ever since my noble friend announced that he was minded to accept Recommendation 12.129 of the Monopolies and Mergers Commission report. It suggested that no major brewer should be allowed to retain more than 2,000 on-licensed outlets. I wish today to follow this recommendation to its logical conclusion, and in so doing pay a special tribute to my noble friend the Secretary of State for Trade and Industry, who himself has been very keen to hold the debate. With the co-operation of noble Lords opposite we have succeeded in arranging a debate before my noble friend has made up his mind on the extent of the recommendations of the Monopolies and Mergers Commission which he will ask the House to implement. I am very grateful for his assurance that he has come here today to listen before making up his mind. I am quite certain that imprinted on the heart of my noble friend is "1992"—rather like "Calais" in the case of someone else. That major factor has not been considered by the Monopolies and Mergers Commission.
§ We really must face up to the fact today that in 1992 we shall release the forces of competition throughout Europe. Only the fittest will survive. There will be emphasis on economies of scale within the European Community. We need strong brewing companies to survive in that atmosphere. To dismantle them at this stage makes no sense whatever.
§ We have won the argument in Europe on the harmonisation of excise duties. Some people may consider that unfortunate. However, the fact remains that Great Britain will remain the country with the highest rates of excise duty. Our neighbours in Belgium and France have a very low rate of duty and Italy has none. The single market requires the removal of all fiscal frontiers. If tax control at the border goes, what will prevent drink purchased at low rates of duty flooding into this country? This is no time to weaken the brewing industry. That point was omitted by the Monopolies and Mergers Commission.
§ If my noble friend is minded to implement the recommendation on the 2,000 pub limit, let us consider what will happen. The industry has only two choices. It can keep its pubs and sell its breweries, or it can put 22,000 pubs on the market at a stroke. American, Japanese and Australian brewers are waiting in the wings to buy up this country's brewing capacity. They understand about 1429 monopolies. In Australia one brewer has 98 per cent. of the home market. I do not believe that noble Lords are opposed to foreign ownership as such, if brought about by natural market forces. However, what I find quite unacceptable is that a Conservative Government should propose the dissolution of the brewers' estates and bring it about by regulation and interference.
§ A very charming letter has been delivered to all your Lordships. It was sent to the Clerk of the Parliaments who forwarded it to me. Mr. Burbridge-James, who lives on the South coast, states that, having fought for his country in the last war he invested £100 in each of the three major brewers which distributed beer in his area and whose beer he could enjoy. Mr. Burbridge-James states that, as a pensioner, the income from the holdings, which have grown in strength, is essential in maintaining his standard of living.
However, the important point in the letter occurs when Mr. Burbridge-James asks:
What kind of society is it that will forcefully take what is legitimately mine and hand it over to others to pursue the same trade"?
§ We are not only here in Parliament to represent consumers' interests; we also have a duty to investors and savers in the industry. We seem inclined to forget that. In addition to the investors and the savers in the industry, we also have a duty to the people employed in the industry. Between Watford and Warrington, right across the centre of the Midlands, there are 27,000 brewery employees. I believe the noble Baroness, Lady Fisher of Rednal, has some more up-to-date figures from the Transport and General Workers' Union. What will happen to the British hop industry if our breweries are taken over by foreign companies?
§ The other alternative to the brewers retaining their estates but selling their breweries is that 22,000 pubs will be put on the market at a stroke. That will be a major loss to many communities in terms of losing a social centre. Many pubs are economically non-viable; they are just social centres. It is no good thinking they will remain pubs. The property developers will descend on them like vultures. Attractive corner sites in city centres will not remain as licensed premises; they are far more valuable for property development. We shall lose a very large number of Britain's public houses if the second alternative occurs.
§ It is interesting that although these drastic proposals are made in the report, no one has found any real abuse of power. The report states that 75 per cent. of public houses are owned by 6 per cent. of brewers. However, that is hardly a monopoly when the biggest brewer of all only owns 22 per cent. of all pubs. There is no monopolistic situation. Despite what I am afraid I can only describe as a rather crude attempt last week by the department to try to split the united front that has been retained by the six major brewers, the 52 regional brewers and the 150 micro-brewers, they are all absolutely convinced that the alternative of selling off the 22,000 pubs and enforcing the 2,000 public house limit is unacceptable and unworkable.
§ If we are to look at what might be done—we must try to find a solution to the problem—there is some 1430 merit in what the Consumers' Association stated in its evidence to the Monopolies and Mergers Commission concerning the maximum level of local concentration of public houses in the ownership of any one brewer. The association suggested that no brewer should own more than one-third of all full on-licences in any licensing district. Licensing districts are roughly equivalent to English constituencies. There are virtually 600 English constituencies; there are 630 licensing districts.
§ If my noble friend is thinking along these lines, he should recognise that it would be an extraordinary step to ask a major public company to divest itself of its assets. If that were done voluntarily, I hope my noble friend realises that it would be a major concession on the part of the national brewers. It must be seen as such, and it must be the end of the saga. There is no question of coming back in two or three years' time and saying that not enough has been done.
§ I know that my noble friend Lord Orr-Ewing will deal with the problem of the tie and how it affects all the clubs in this country. I can only say that if I could borrow money at 3 per cent. today and also have a choice of borrowers at that rate, I would appreciate that the tie is no disadvantage to any commercial operation. Many of us are very pleased to see how so many clubs in this country have been modernised and made habitable as a result of the brewers' tie.
§ In conclusion, I must refer to the dissenting report from Mr. Mills. It is rather typical that this is not mentioned in the summary of the commission's report, nor is it listed on the contents page. I think we should look at that report. It seems to suggest the sensible way through this problem. Mr. Mills states that we must look at the limited independence of some tenants and at the imposition of ties when properties are sold. He feels that those elements have worked to the detriment of the public interest. To alter that primary legislation it will be required to amend the Landlord and Tenant Act 1954.
§ I think all of us in the House would support the recommendation that in every public house there should be one guest beer. I mean a genuine guest beer and not an imported foreign lager. I believe we would all like to see a firm recommendation that every brewery should allow into all its public houses at least one local British brewed ale, and not just a lager which carries with it all the expenses of extra advertising. I think we would all agree that those are sensible recommendations that should be implemented.
§ The report of the Monopolies and Mergers Commission is massive. It has 470 pages; it is as big as the London telephone directory. However, at no point does the commission state that excess profits are being made. It does not even say that the industry is inefficient; in fact it says that it is reasonably efficient.
§ If we go ahead with the recommendations contained in the report and they are implemented in full the result will be fewer public houses, the disappearance of pub tenancies, serious financial difficulties for our sports clubs, declining amenity 1431 standards, fewer United Kingdom owned breweries brewing English beer and less choice of beer at higher prices.
I agree with the final paragraph of the Monopolies and Mergers Commission minority report:
Warts and all, imperfections and all… the consumer [has] reasonable value for money and reasonable choice. The … industry should be left to change and develop as it is already doing".
§ My Lords, I beg to move for Papers.
§ 3.20 p.m.
§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, I thank my noble friend for raising this subject today. I welcome the opportunity to hear further views on the Monopolies and Mergers Commission report.
My noble friend said that I had 1992 in my heart. The former Queen of England who claimed that they would find Calais written on her heart after she died lost Calais. We have no intention of losing the battle for 1992.
The Monopolies and Mergers Commission made its report to me in February of this year. It was the result of an extensive investigation lasting two and a half years. The report was published on 21 st March. I said then that I accepted its conclusions. I stand firm on that. I have not so far heard anything to persuade me that there are not substantial public interest detriments which need to be remedied.
As to the recommendations, although I said when the report was published that I was minded to accept them, I indicated that I was ready to listen to views from any interested party about precisely how the recommendations should be put into effect. I was open to representations, both public and private before reaching a final view. We have now had the best part of three months' consultation since the report was published. This is bound to be an unsettling period for the brewing industry and for publicans. From their point of view the sooner firm decisions are reached the better. But it is also important that our decisions, when they are made, should be the right ones.
The representations made have taken many forms. Your Lordships will have seen advertisements in the campaign sponsored by the Brewer's Society. These have suggested that the effect of the Monopolies and Mergers Commission recommendations would be the closure of many pubs and a reduction in consumer choice.
However, we have also seen the subject debated by pub-goers themselves. My department has received a number of letters from them. In the last analysis they are the most important of all because the issue we are debating is how best the consumer should be served.
Last week the Haig Whisky company published the results of a survey of pub-goers conducted by MORI. According to the press release announcing the results of this survey:Most regular pub-goers want the monopoly of the big brewers broken… The majority are in favour of the Government implementing the Monopolies Commission Report. Only a third 1432 of adults surveyed opposed the idea that the major brewers should be required to sell off some of their pubs.84% said that the landlords should have more freedom to introduce more beers. The majority of consumers thought that the recommendations would be good for the traditional British pub. 66% said that the choice of beers would increase, and 60% that the quality of pubs would increase.These results confirm what the Consumers' Association found in its own survey, which was conducted in May 1987. The conclusions of that survey were given in evidence to the Monopolies and Mergers Commission. Two-thirds of respondents agreed at the time that all pubs should be allowed to sell draught bitter from more than one brewer. Only 7 per cent. disagreed with that proposition. Furthermore, there was overall agreement that pub prices were too high compared with supermarkets and off-licences. 61 per cent. agreed and only 11 per cent. disagreed.
I am sure that your Lordships will also have seen references to the article on prices of soft drinks in the June edition of Which. The Consumers' Association reported a restricted choice of soft drinks in many pubs and prices which could be higher than those for alcoholic drinks, on which, of course, duty is paid. The Consumers' Association agreed with the Monopolies and Mergers Commission that these are detriments which result from the operation of the tie. The public are often obliged to buy such products from the brewers rather than being able to shop around for the best range and prices.
Publicans themselves, when questioned in opinion surveys, show substantial support for many of the MMC recommendations. On 27th May the newspaper The Publican gave the results of its own survey of publicans:Around 90 per cent. of publicans want greater security of tenure under the Landlord and Tenant Act, want to see an end to the non-beer tie, and want a choice of guest draught beer".Over the last few weeks my honourable friend the Parliamentary Under-Secretary of State for Corporate Affairs and I have listened carefully to the views of a great many people who have come to see us to discuss the report. We have had a number of meetings with the Brewers' Society. We have also met representatives of individual brewers, either at their own request or through the offices of their Members of Parliament. We have heard from the National Licensed Victuallers' Association, which represents many licensees, the Consumers' Association, the Campaign for Real Ale, and others.
As a result of those extensive consultations I believe that a number of matters are now clear. I believe that the Monopolies and Mergers Commission was clearly right that there is a need to increase competition in this industry. It was also clearly right in recognising the important part that regional and local brewers have to play in maintaining diversity and choice in the supply of beer.
We have already made plain in a Written Answer in another place last week the importance the Government attach to the role of the regional and local brewers. We said then that our intention was that certain measures should apply to the national brewers but not to other brewers. We had in mind 1433 particularly the requirement to allow tenants to choose a cask-conditioned guest beer; the abolition of the tie on low-alcohol and non-alcoholic beers, ciders, wines and spirits and soft drinks; and any measures to reduce local monopoly.
I agree with the Monopolies and Mergers Commission's conclusion that the position of publicans needs to be strengthened so that they can more effectively meet consumer preferences. There are two main ways in which that role of publicans can be enhanced.
First, I am glad to say that there seems to be consensus among the main parties that tenants' security of tenure should be increased by bringing them within the scope of the Landlord and Tenant Act 1954 as the MMC recommended.
However, there also seems to be agreement that certain further steps recommended by the MMC would not be appropriate. The MMC recommended that the parties to a tenancy should not be allowed to contract out of the provisions of the Act, as is the case with other business tenancies. It also recommended that brewers should be required to incorporate certain standard provisions into tenancy agreements. These would cover such matters as assignability of tenancies and restrictions on the brewer's ability to take back premises at the end of a tenancy for its own use or for redevelopment.
It is generally agreed that these further provisions might in the long run make tenancies unattractive and should not be pursued. The National Licensed Victuallers' Association itself has indicated to us that it accepts this.
Secondly, tenants have a role in improving choice. One of the ways they may do this is through the guest beer proposal. Fears have been expressed, and were expressed by my noble friend this afternoon, that this proposal could result in a flood of heavily promoted, mass produced brands, which would not contribute to a genuinely greater choice. We are clear that we should specify that the guest beer should be cask-conditioned; that is to say, a real beer of individual character. That accords with the views of most publicans on what they would wish to offer, and we believe that it will be welcomed by regional and local brewers.
In relation to the national brewers, I am still considering the position. Here I do have concerns about the extent to which a few dominate the market. The six national brewers account between them for 74 per cent. of brewer-owned tied houses, 75 per cent. of beer production and 86 per cent. of loan ties.
I should like first briefly to consider the issues in relation to the national dominance of the major brewers and to put before your Lordships' House some of the ideas which have been canvassed to address that national dominance. First, let me raise one dimension of the problem which particularly concerns me. That is the question of local concentration and local choice. In a number of licensing districts, one or other of the national brewers owns over a quarter of all the pubs, in some districts over a third of all the pubs, and in a few districts over half.
1434 It is hard to see that that situation can encourage vigorous competition. Choice at a local level is important to the individual consumer. I am inclined to think that no major brewer should be allowed to tie more than a limited proportion of the pubs in any local authority area. Any excess pubs should be sold to owners who are not already dominant in that area. I would welcome your Lordships' views on that important aspect of the position held by the national brewers.
Secondly, let me turn to how increasing competition and choice might be addressed at the national level. The Monopolies and Mergers Commission recommended that no company with brewing interests should be permitted to own more than 2,000 on-licensed premises. The MMC believed that an approach of that kind was necessary if the detrimental effect of the vertical tie were to be remedied, and the market freed.
The MMC also recommended that there should be a ban on all future loan tying, whereby the brewer provides financing on favourable terms in return for a commitment by the publican to purchase drinks. The MMC correctly identified that loan tying can be used to reinforce a dominant market position akin to ownership of the pub. But I am reflecting further on that proposal because it seems to me that there are circumstances in which loan tying may be acceptable. I have in mind, as an example, the position of members' registered clubs, where I see an argument that they should be free to enter into loan ties if that is the collective wish of the members on a free vote. In those circumstances, I should however want to ensure that loan agreements do not unreasonably lock borrowers in to a particular supplier. They should be free to change the loan and supplier easily if another offers better terms.
I see many attractions in the overall approach recommended by the MMC and I have received many representations in its favour. Many who know the industry well believe that direct action of that kind is necessary to ensure that vertical integration is broken down and the market opened effectively.
However, I have also received representations on a variety of alternative approaches designed to achieve the same basic objectives by different means. One interesting suggestion that has come from a number of sources is that competition and choice would be greatly increased if the national brewers were required to operate their property portfolios above a threshold on an independent arm's length basis. In other words, each of the national brewers would be able to retain its property investment but would lease on an arm's length basis to independent tenants, groups of tenants or separate companies the management of its pubs over and above the threshhold. Those independent managers would be free to negotiate their finance and their supplies of drinks—including beer—from wherever they chose, from the most competitive source.
That idea was first canvassed by CAMRA, but has also been proposed by the Wolverhampton and Dudley Brewery, which has set out its ideas in a document now placed in the Library of your Lordships' House. The idea has been canvassed in outline only. Philosophically, I find it attractive. It 1435 may offer an opportunity to remedy the detriments resulting from vertical integration which the MMC have identified, without forcing property disposals. If a way could be found of opening the market to much greater competition, through the creation of many more free houses and the breaking of the grip of the national brewers without forcing property disposals, I should welcome it.
The meetings that have been held with the Brewers' Society over the past few weeks have been very valuable, and I am grateful to the society for its help in conducting the first round of exchanges. We announced by Written Answer in another place the conclusions that we have reached in the light of those meetings. However, I fear that I cannot now continue discussions with the Brewers' Society when we turn to the highly market-sensitive question of the MMC's divestment proposal. I am sure that there is no one in this House who will not recollect that I have the responsibility for the working of the market and that these are matters which affect not only the responsibilities of the major brewers but the entire working of market-sensitive situations.
I have therefore decided that the next stage is for me to discuss the MMC's divestment proposal—and the alternatives to it—with the national brewers. I shall be meeting them shortly for private discussions on those market-sensitive issues. I wish to assure all noble Lords that I shall be ready to hear constructive proposals from them which address the central issue of the extent of the vertical tie. But I should say at this stage that it is for them to persuade me that the arm's length proposal or any other option can offer a remedy as effective as the MMC's own recommendations.
We are holding this debate today and it is a welcome opportunity, for I should welcome your Lordships' views on this or any other alternative remedies provided that they meet the basic criteria; namely, that they address the dominance of the national brewers and the grip on the market that they have secured by vertical integration.
§ 3.37 p.m.
§ Lord Williams of Elvel
My Lords, the House will be grateful to the noble Lord, Lord Kimball, for raising the matter and to the Secretary of State for being so frank in his open-mindedness about the possible solutions that noble Lords may wish to recommend to him.
I have read part of the Monopolies and Mergers Commission report. I cannot say that I have read the whole thing. I hope that there are many noble Lords in the House at the moment who have read the whole thing and will therefore be superior to me in knowledge. But from what I have read this is an extremely distinguished report from the commission. As noble Lords will know, it was my noble friend Lord Wilson of Rievaulx who set up the Monopolies and Mergers Commission when he was President of the Board of Trade. He will agree that the report is one of the most distinguished that the commission has produced in its 40 years, if my arithmetic is correct.
1436 As the Secretary of State has said, there is no doubt that the MMC is right in saying that there is a complex monopoly. That is nothing new. In 1977 the Price Commission identified exactly the same problem. In 1969 the MMC identified the same problem. However, we must note that, although the problem was identified 20 years ago, nothing has happened up to now. I should therefore say to the Secretary of State that we on these Benches intend to hold him to his word that he will now do something about it. The Government simply cannot shelve the whole thing and do nothing.
The noble Lord started off by saying that when the report was published he was minded to accept its conclusions. I am not sure whether or not he was minded to accept the recommendations. There may have been a semantic problem. He then got a blast from the Brewers' Society and I thought somewhat changed his tune and said that he preferred to ask the Brewers' Society: "If the MMC recommendations are wrong, have you got anything better?" That is rather like asking turkeys how they like to be roasted for Christmas. The noble Lord, Lord Kimball, replied that the turkeys would rather not be roasted at all and would like the situation to continue as it was before. However, I must say to him that, so far as we are concerned and from what the Secretary of State has said so far as he is concerned, that is not an option.
Beer and related products sold through the beer trade, if I may use that generic expression, are not simply commodities sold on the basis of price. I think that the noble Lord and I agree on the problem of defining the differences between services, amenities and the product. As the noble Lord, Lord Kimball, said, there is no doubt that the pub offers not just a commodity at a certain price but also an amenity to go with it. So to try to consider the whole area on the basis of price is in my view not correct.
No doubt there are some noble Lords who will say that market forces and prices must rule, but I disagree. I find it difficult to understand how anybody can come to a conclusion that a certain price is unjustified. To me that is a very odd type of argument, given that in what we are dealing with there is a strong service element.
This is a very complex industry and therefore the report was complex. The recommendations were summarised by the noble Lord, Lord Kimball, the most important point being the 2,000 on-licence outlet limit of ownership. Those recommendations were complemented by other recommendations referred to by the Secretary of State; namely, the loan tie, the product tie in terms of the guest beer, the terms and conditions of tenancies and, although he did not mention it, the wholesale price list publication, which I shall come to in a moment.
Apart from the noble Lord's initial reaction, the Government have responded in rather a curious way in a Written Answer given in another place to what was obviously a planted Question. The Government have now said that regional and local brewers need the full exclusive tie. We agree with that and believe that it is an important step forward. They have agreed that the Landlord and Tenant Act should be extended to cover tenancies in pubs. We agree with 1437 that. They have agreed that the guest beer, in so far as it applies now to the big six, should be a real ale and not a lager—and so we avoid the Fosterisation of Britain—and we agree with that.
They have agreed that there should be abolition of the tie on non-beer products. We agree with that, while noting that the block exemption—the EC regulations 1984/83—which allows the beer vertical tie excludes other ties. It has been in full operation since 1st January this year and, if the tenants have greater security of tenure, they will by virtue of that regulation be able to break what I believe has been a tie imposed by the brewers to date. But I agree that that is a matter of opinion; it is a question of whether the tenant has sufficient initiative to understand the scope of his rights. But security of tenure is definitely needed in order that that provision can take its full effect.
What is now left? For the big six—because we are talking about the big six only—wholesale price lists are to be published with discounts and discounts should be related to volume—justifiable quantity discounts, or whatever they may be. It seems to me that at this point we are entering rather difficult territory; namely, that of the Robinson Patman Act of the United States which, as the noble Lord will know, was part of the 1930s scene and requires that discounts should only be related to quantities or to some justifiable or provable reason for the discount. It has caused enormous trouble in the United States.
I am uncertain—I put it no higher than that—as to whether this is the right moment to embark on a major piece of competition legislation such as the Robinson Patman Act in the United States. Legislation would be required not just for the beer trade but right across the board and I am sure that the food manufacturers would have their say should the noble Lord try to draft any Bill along the Robinson Patman lines. It is not that I am opposed to it. I simply believe that this is not the right place to start along that road.
So far as concerns tenant security, as I said, we agree that the Landlord and Tenant Act should be extended. We also agree with the Monopolies and Mergers Commission that the tenants should be given a reasonable opportunity to acquire premises if the brewer who owns the premises sells. Obviously there has to be market value. One cannot have any preferential right for the tenant other than that he might have first refusal if the brewer decides to sell. We also agree that there should be some restriction on repossession of tenanted houses, in particular where the licence is lost. I think that those are elements where a code of practice, statutory or otherwise, or an order would be welcome.
I am afraid that we part company with the Monopolies and Mergers Commission on the loan tie. I think that the Secretary of State is also moving in our direction on this point. After all, membership clubs survive by low interest rate, high quality, high volume loans from the brewers. Speaking as a banker, if I may do so for a moment, I cannot conceive that any bank in its right senses would lend the same amount of money to a membership club at the same rate as a brewer would do it. Of course, the member of the club would be paying the interest rate 1438 directly through the product price. Nevertheless, it is undoubtedly true that there are many membership clubs that would go out of business if they were required to go to the banks and if the brewers were not allowed to lend them money. So we would certainly keep that provision unless the Government can come up with some magic scheme which would allow cheap finance to be offered to membership clubs as a substitute for the cheap finance that they are receiving from the brewers.
The next argument concerns the tie on the brewer-owned on-licence outlets. This is the argument to which the noble Lord, Lord Kimball, addressed himself primarily. To my mind there are several difficulties with what the Monopolies and Mergers Commission recommends. Under certain circumstances if major brewers in the big six (and two have threatened already to do it) instead of divesting themselves of their retail outlets divested themselves of their production, it would create a situation in which there were strong retailers who had command of their own brands and who would be able to say to the producers, "We will specify the quality of beer and what specific gravity we need. You will deliver it here, there and everywhere". They would have enormous power. It would seem like Tesco, Sainsbury's and Marks and Spencer rolled into one so far as the countervailing power of the retailer is concerned. So we are doubtful about that and, if that is the noble Lord's intention, we think that he certainly must extend his order—and he has powers under Section 56 and Schedule 8 of the Fair Trading Act to do so—to cover not just those who have brewing interests but anybody who might own more than 2,000 on-licence outlets.
I do not know how the noble Lord will be able to draft such an order. Having looked very carefully at the section and schedule that I mentioned, it seems to me that to draft something along the lines of the text of the Monopolies and Mergers Commission and at the same time to say, "But nobody else can do it", is a task which would stretch the imagination of the most fertile mind of parliamentary counsel.
I therefore come back to a remark made by the noble Lord, Lord Kimball. There may well be difficulty and confusion between ownership and the tie. I welcome very much what the noble Lord the Secretary of State said about the possible alternatives. There are a number of alternatives that I believe he should pursue. I should like to see no limit on the ownership of licensed outlets; but no company, brewing or other, may tie exclusively more than 2,000 outlets either by virtue of ownership—that is, through management or tenancy—or by loan tying or by selling to another owner with a product tie. I should exclude from those 2,000 outlets the membership clubs which I have just described and which I believe need a loan tie. Outlets above that ceiling, as the noble Lord has said, could be run as a property portfolio. There would be a restriction upon the ability of the owner to impede other brewers and other parties, whoever they may be, from selling their products into that outlet if they can match quality and price.
A number of people have worried about the enforcement problem. I simply say this. Each major 1439 brewery of the big six would have to nominate with the Office of Fair Trading those outlets which it wished to tie exclusively. That list would be open and available for all to see. Outlets which were not on that nominated list—and it could be regulated by local conditions and monopolies, as the noble Lord said—would be open to anybody. Although there is no legal mechanism to bring such a proposal under the 1956 Act, under a Section 56 order I believe that he could achieve this. It would be, in effect, a restrictive practice to stop any other organisation selling to outlets not on the nominated list. Anybody can come in and, if it can match price and quality, open up the normal nominated list to what is effectively a free trade. If that is adopted, there is no need for a guest beer. The guest beer is already allowed to enter. However, if the noble Lord wishes in the 2,000 nominated outlets to have a guest real ale, I certainly would not dispute that as a possibility.
On disposal of outlets, we do not have the problem which the noble Lord has outlined. It would be very difficult for markets to cope with thousands of premises being dumped on the market, rural pubs being shut down, or whatever it might be.
All that I have suggested would be a major revolution in the brewing industry. If the Government were to adopt this solution, we would ask them to declare a moratorium for, say, three years on mergers, acquisitions and re-arrangements in the industry. As a result of the order that the Secretary of State would make to implement this solution and to deal with the complex monopoly conditions revealed in the MMC report, nobody would know quite what the financial effects on any given company would be. It would be in those circumstances wrong to have any radical change in the structure of the industry. If this solution were adopted, it seems to us to be a good basis for the industry up to 1997, when the block exemption on the vertical tie—the exemption from Article 85—comes up for review. If we go along the lines that I have suggested, I believe that in 1997—if Sir Leon Brittan in his great wisdom were to decide that the vertical tie is no longer in the interests of the Community and that a block exemption should not be continued—the brewing industry would be in a much better condition to face that problem as and when it occurs. Therefore the industry must be prepared for that.
I conclude by saying that the Government are absolutely right to reject a solution to the problem based on pure theology of market forces. Market forces would demand that we scrap the licensing system. I do not think that the Government, ourselves or anybody else will scrap the licensing* system. We reject market forces. Some noble Lords who will speak today will recommend the pure market force argument. I hope very much that, with the conversion of the noble Lord to industrial policy and clear industrial planning, he will reject those arguments. I am also glad that the noble Lord, having been converted to industrial policy, does not live anywhere near Downing Street because I am afraid that he might receive unwelcome attention from the 1440 current Rasputin and a handbagging from certain people who believe that market forces ought to overrule all sensible ideas that he might put forward for this industry.
It is welcome that we can have this dialogue at least in the same language. Up to now the noble Lord and I have had dialogues but we seem to be entering into dialogues from a wholly different theological position. I am very glad—it is a matter of the profoundest relief—that he is willing to talk our language. If there are flaws in the suggestions that I put forward I should be grateful if he would point them out and speak to them in the language that he has used this afternoon. If not, I hope that he will take them as a basis for a good way forward. However, if he simply rejects them without good reasons purely because they come from the Labour Party, CAMRA or somebody else, I am bound to tell him that he will be turning this into a partisan issue, and it should not be a partisan issue. That is something that all noble Lords will wish to avoid since to do so would be damaging both to one of our great industries and to the consumer.
§ 3.57 p.m.
The Viscount of Falkland
My Lords, we are all grateful to the noble Lord, Lord Kimball, for giving us this opportunity to talk about these proposed radical changes to the arrangements for the brewing industry in this country. I listened to his speech most carefully. I found it most persuasive. However, I should be interested to hear—perhaps the noble Lord and I can talk outside this Chamber—about the problems that he would foresee if these recommendations were to be implemented in the drive against alcohol abuse. Although I may have on occasions criticised the industry for not contributing more in certain areas, one has to commend their initiatives to enhance social responsibility with regard to drinking alcoholic beverages in this country. It is the lack of social responsibility which causes so much abuse today regarding drinking in particular in public places. I mention the commitment of the industry to publicise the new strength requirements to improve awareness of drinkers of the alcoholic strength of different drinks. It has been an area of confusion. More people are becoming aware of which drinks are strong or weak. That is helpful.
The Scottish Whisky Association funded a conference on Young People and Alcohol in February 1989 which involved a major survey of attitudes—a very important issue—and the behaviour of young people. The Brewers' Society's Wheelwatch Campaign with regard to drink driving and the attempt to promote the availability and sale of drinks which were safe for those who have to drive was important. This year £25 million is to be spent on the development and marketing of low and non-alcoholic beers. That again is encouraging. The trade has co-operated very strongly in tackling alcohol-related disorders, violence and so forth, in pubs through better management of premises. Does the noble Lord, Lord Kimball, consider that management would suffer in the light of these new recommendations? There has been a great sense of 1441 responsibility in making sure that young people do not have access to drinks in pubs although the subject of identity cards for that purpose causes some heated debate.
These are very positive developments. I should like to commend the Government's involvement in next week's National Drinkwise Day on Saturday. It is to be launched by the Government. Several companies have come together on this day to produce posters relating to alcoholic strengths and the promotion of low alcoholic brands. I am very happy to say that the major companies in this country which sell alcoholic drinks through supermarket chains have very responsibly produced sensible leaflets for the guidance of customers about their products. It all helps to create the new social responsibility that I have mentioned.
All these matters are very positive. However, whatever the changes in the future, or whether we maintain the status quo, I should like to feel that this energy towards combating alcohol abuse and allowing people to drink with enjoyment and responsibility continues. I should like to be assured that should we see radical changes this will be kept up. The urgency was highlighted by the Government when they commissioned the survey on drinking in England and Wales in 1987 which revealed that some 5 million men and 2 million women were drinking over a level considered to be safe. Between 1.25 and 2 million men and the corresponding 0.25 million women were drinking amounts each week which would certainly damage their health. When I talk about health being damaged, I mean that for a man that figure is 50 units per week which, if someone is drinking lager, is an incredible amount of liquid with a very high content of alcohol.
It means that the bulk of alcohol-related harm—violence, accidents, illness, absenteeism and a chain of other harmful results and also drink driving, one of the most important—is not confined just to a minority of chronic abusers of alcohol but extends quite widely through the drinking population. The young people are especially vulnerable and have become more so over the last 10 years. Recent reports have shown that about four in every 10 young men under 24 drink over what is considered to be a sensible level which would not be damaging to their health over a long period, and one in every 10 young men drink very dangerous levels indeed—well over 50 units.
In addition, I hope that the industry, whatever way it goes and whatever decisions the Secretary of State takes, will be reconvening the National Alcohol Forum, a joint initiative which unfortunately foundered through disagreement over chairmanship and polarisation of attitudes over licensing laws which we discussed in your Lordships' House through the Licensing Bill. The re-establishment of that body would be complementary to the excellent work of the Wakeham Committee and could put forward recommendations to that committee.
The Government and the drinks industry will obviously commission further research on drink driving, particularly aimed at the hard core of older drivers. It seems nowadays that there is a 1442 concentration on young drivers perhaps because their offences are more colourful and horrifying. But there is a hard core of older drinkers who in almost every case are people who repeatedly offend as drink drivers. They have a drink problem and need treatment. That must have careful consideration by the Government and I am sure that will be taken on board by the Wakeham Committee.
Perhaps the Government and the brewing industry should also commission and encourage more local and regional activities providing advice and counselling for problem drinkers. By and large to date the whole picture of the drinks industry has been encouraging. I begin to think that much of my criticism and comments in the past have been somewhat carping, but we must keep up the pressure. If the National Alcohol Forum is reintroduced, we shall be able to establish more accurately what are the factors which will make it possible for us to identify the relationship between alcohol and a variety of illnesses and deaths. It is that which is most alarming.
Like my colleagues on these Benches, I am a committed European and upon our entry into the single European market in the 1990s we do not feel that our culture will suffer in any meaningful way, any more than we feel that the use of pubs and part of our culture will change, either. I hope that people will begin to drink with more responsibility all through the age and social groups with more enjoyment and responsibility. Even if we do not become a country of cafes like France and Italy, I hope that at least we shall begin to drink with responsibility, care and enjoyment as people do in those countries in those cafes.
§ 4.5 p.m.
The Lord Bishop of Truro
My Lords, my interest in the supply of beer was at its height when I married a brewer's daughter. It was a profitable deal. When exchanging visits with my in-laws, empty crates in my poor curate's abode were invariably replaced by full ones.
Earlier when studying theology at the university my concerns had been a little more catholic. At that time a sum of money had come the way of the junior common room. A termly meeting had to decide how to invest it for the common good. There is a record in the minute book in that common room to the effect that Mr. Mumford threw in the whole weight of the Church on the side of port.
It would be an exaggeration to claim support on quite such a scale for the Motion of the noble Lord, Lord Kimball, but I know that at least three bishops would have liked to take part in this debate. Among several areas of concern, what stirs me most is the effect of the recommendations on community life in the rural areas, particularly in thirsty Cornwall. It is in the country more than anywhere that public houses surplus to the proposed figure of 2,000 per brewery will be under threat. How are they to keep going?
I listened with very great interest to the proposals of the noble Lord, Lord Williams of Elvel. I shall want to study them with special care. Also, I shall 1443 listen eagerly to any response from the Secretary of State to those rather detailed and fascinating proposals. For the moment I find myself still wanting to say that few tenants will be able to buy the pubs that become available. Other commercial interests may develop the properties for rather different purposes. Private individuals will probably acquire them for houses, including housing for resale, I dare say. Certainly, because of the size of the properties concerned, they will be sold at prices beyond the capability of most local people.
Those pubs which remain may be taken over by international brewing chains which would alter the arrangements for supply and might even serve to create more monopolies. We have to assume therefore that many local pubs will disappear. I find myself comparing this phenomenon to the dissolution of the monasteries. I dare say I ought to avoid special pleading, but one is tempted to wonder where the bellringers will repair after their strenuous exercise and how hard-pressed vicars and recalcitrant church wardens will resolve their differences. Your Lordships may care to exchange the adjectives.
There has been a fruitful partnership between church and pub for many centuries, though I suppose that little bit of social history did not weigh heavily with the Monopolies and Mergers Commission in its report. I am sure it cannot be at all controversial that your Lordships will want to take careful note of the threats to local community life. The pub is a peculiarly English institution, and not even the Cornish would deny that. It is a centre of village life which has served the social needs as nothing else has, including the Church itself. I doubt whether the MMC's great motivation is to fill the churches; nor would any right reverend Prelate on these Benches want that at the expense of the pubs.
I have to hand a press statement which was issued yesterday by the National Association of Local Councils. With its permission I shall quote from it:Whereas in the 1950s it was an unusual village which did not have its own school, church, post office, village shops, garage and regular local bus service, the changes in the manner of life and the economic and social pressures of the last three decades have meant that most small villages are now finding themselves without a school or garage, sharing a minister with three or four neighbouring parishes so that the church is in use only one Sunday in three or four, with at best a part-time post office and, if no post office of any kind, then probably no village shop".That is a most powerful statement from the association.
Nowadays people move about from village to village according to taste and need. Therefore it is all the more important that the few remaining facilities should continue to be available and be stable at that. Furthermore, by the provision of many pubs drink driving is kept to a minimum because of the shorter distances involved. Many pubs in the country are run at a loss. However, it has been the policy of the larger brewers to maintain them as a public service. That is not to say that purveyors of beer are in the charity business. No doubt the millions of visitors to the countryside take their custom to the more profitable town pubs during the rest of the year. I 1444 dare say that many country pubs are kept going by the "townies".
Whether profit-making and viable or not, pubs are a vital part of rural life. If they go, village communities will be impoverished even further and the whole nation will suffer. I do not believe that the case is made for the arbitrary reduction of the power for good exercised by the large brewers of this country. Six of them own 75 per cent. of the pubs and that is not excessive when brewing is compared with other sectors. Certainly they provide more freedom of choice than is so in other nations where the monopoly base is smaller. The future of 20,000 public houses is at risk. Is it really a wise risk to take?
§ 4.13 p.m.
§ Lord Orr-Ewing
My Lords, I would not be out of place in thanking the right reverend Prelate for his contribution to the debate. One normally compliments a noble Lord on his maiden speech. His looks belie the fact that he may be reaching retirement and coming towards the end of his time to speak in this House. When that happens we shall be most sad. We hope that before he finally retires he will make many more sensible, down to earth and humane speeches.
The Church, the pub and the other institutions that the right reverend Prelate mentioned are essential to village life. The club is as important in built-up areas. He spoke about the villages in his dioceses, but the same is true of tower-block areas. There people badly need a community centre where they can exchange views, enjoy themselves and relax. Pubs have come to fill the gap left by the church halls.
I should also like to thank the noble Lord, Lord Williams of Elvel. He made a most constructive speech which I should like to study more closely. I am not sure that the threshold should be 2,000 pubs, as was also mentioned in the admirable speech of my noble friend. It is not an inflexible threshold and, as was stated in the leader in Monday's Financial Times, 5 per cent. of the outlets is extraordinarily low. It may well be that the number should be flexible and higher in certain areas, and I hope that it will not be written in tablets of stone.
I compliment the Secretary of State on approving the investigation. The 30 people who undertook it carried out a long and loaded task. It is a formidable undertaking merely to produce a 500-page report. I only wish that there had been more people on the committee with knowledge and longer experience of consumer and service markets, but there is never a perfect mix.
It is not generally appreciated that this is the fifth investigation involving the brewery industry in recent years. The first MMC investigation was reported in 1969. It also proposed a threshold and a number of untied pubs above that, but that was rejected. I am not sure what has changed to make the proposal more acceptable, but it should be reconsidered. In 1969 there was an investigation by the Prices and Incomes Board of which the noble Lord, Lord Williams, was later chairman. In 1977 1445 the board made a second investigation into beer prices. The report was published on 29th July and I note that the noble Lord took up his appointment on 1st August—
§ Lord Williams of Elvel
My Lords, I thank the noble Lord for giving way. At that time the chairman of the Prices and Incomes Board was the noble Lord, Lord Cockfield, whom I am glad to see in his place.
§ Lord Orr-Ewing
My Lords, I am sorry that I did not refer to the noble Lord, but I did not see him take his seat. I was exonerating the noble Lord, Lord Williams, because he moved into office two days after the report was tabled.
The EC has considered tied loans and whether, in the case of the main breweries, there was a restrictive practice, thereby reducing competition. After lengthy consideration it reported that at least for the next 15 years, ending in 1997, there was nothing to discourage tied loans. On the whole the practice was to be approved of. I hope that my noble friend will take that into account.
Clearly after five investigations action is called for but not to the extent that has been recommended. Some of the major recommendations appear to be dangerous and will destroy an aspect of life in this country without replacing it with anything constructive.
I have always understood that the definition of a monopoly is 25 per cent. of the market. Not one of our brewers has 25 per cent. of the market; the biggest is Bass, with 22 per cent. Ipso facto, there was no case for an examination under that general ruling. I cannot help feeling that, after five investigations, when we come to a decision we should leave the issue alone for a while and tackle some other monopolies. For instance, the BT monopoly arranged by the Government had 97 per cent. of the telephone lines, while they allowed Mercury—now Cable and Wireless—to compete to the extent of 3 per cent. Five years have passed since that agreement was reached so perhaps that case should be examined. Even the BBC has been secured—and I thoroughly approve because it is a public service—and it has 50 per cent. of the market with the approval of the Government. Therefore, the size of a company's hold on the market has not a dominant effect on governments. I understand that the next examination will be into petrol companies, and we shall await the outcome.
It is worth remembering that, although six brewers in this country hold 75 per cent. of the market, that is a much lower figure than for any of the EC markets. After 1992, if nothing is done, that 75 per cent. will be subject to futher reduction by competition, particularly from the big competitors in Germany, where they make some very good beer, and Denmark. Therefore, if nothing is done, that 75 per cent. is likely to be reduced.
I see that in Chapter 1.27 it is recommended that no new tied loans be allowed. My noble friend and others have already dealt with the public house side of the matter. I hope that, if that recommendation is reconsidered, it will be considered sympathetically 1446 so that not too much is not torn apart and dismantled.
I want to deal with the clubs, and I believe that I have the support of the noble Lord, Lord Williams, on this. There are 34,000 clubs, of which about half have tied loans at this moment. The working men's clubs close to the Labour Party and the Conservative constitutional clubs are two large elements with tied loans. There are 3,600 working men's clubs in all, almost all of which have tied loans, and there are 1,500 of our clubs, the majority of which have tied loans.
I remember very well that when I was adopted for North Hendon we had a constitutional club. I do not believe that it was entirely on my side despite its name. However, we would have been absolutely lost if we had not had a tied loan from a local brewery.
§ Lord Young of Graffham
My Lords, I have said earlier this afternoon that I can see an argument why members' clubs should be free to enter into tied loans if that is the collective wish of the members on a free vote. That is a point which is accepted.
§ Lord Orr-Ewing
I am delighted to receive that reassurance. I felt that if that was endorsed from this side of the House as well as from the other, it would be written in tablets of stone and my noble friend would not in any way draw back from it.
There are also British Legion clubs and service clubs, most of which have tied loans. Then there are the sports clubs. There are 24,000 of those. The nice thing about these tied loans is that they are extremely flexible. They are given at a very low percentage—I believe it is 3 per cent. To obtain such a loan from the bank the rate is 15 per cent. However, if you do not receive the service that you want, you can change your brewery, or if a windfall allows you to pay off the loan you can do so or if there is a better loan at the bank you can switch to the bank and pay off the loan. However, it is interesting to note how much these loans have helped the sporting clubs. That covers golf, tennis, squash, local rugby football and soccer clubs. Those loans are of inestimable value and much of what has happened in sports clubs is a result of tied loans. Therefore, I hope that that will never be at risk.
The construction of floodlighting, which is an advantage for outside sporting clubs and which obviously extends the hours for drinking, can be financed through a loan. Cricket nets can be erected. I only wish that they had had their effect on the English cricket team because we might have done rather better. It is not a condition of the loan that it shall be spent on the clubhouse or on internal facilities.
Of course there are valid points and my noble friend is right to take them into account. We shall eventually debate them in the House when the Bill comes forward. However, I hope that the criticism about the threshold which has arisen and which is likely to arise as a result of this debate and about the tied loans—I was glad to receive the assurance of the Secretary of State—will be taken into account.
1447 I believe that we owe a debt of gratitude to my noble friend Lord Kimball for initiating this debate. It is, as the Secrtary of State said, absolutely essential that we should kick this ball around and discuss it before any action is taken which would make fundamental differences to the pubs, clubs, restaurants and other such facilities in our community that make life worth living in this country.
§ 4.24 p.m.
Viscount De L'Isle
My Lords, like my noble friend Lord Kimball and the right reverend Prelate, my prime concern in considering this report is the future of the British pub. Of course I do not ignore what my noble friend Lord Orr-Ewing said about clubs, but, as the right reverened Prelate said, in the country and also in the town the pub is a social institution of prime importance. What worries me is that the MMC does not seem to have addressed itself to the social importance of the pub; nor does it connect, as did the right reverend Prelate, the practice of breweries of maintaining marginally profitable or even unprofitable public houses in some areas as being a valuable social contribution.
If I understand it, the object of the commission's report is to create effective competition and, if necessary, narrow the margins of the brewers. Brewers are not benevolent institutions per se. They consider their own interests. If their margins are narrowed apart from the selling off of the nationals' 22,000 pubs, they will close those pubs which are least profitable. The academics, if it is academics who wrote the report, have rather purloined the word "detriment" as being a pure economic term. But what about the detriment to those villages or to those side streets in a neighbourhood where the pub is so important? Is there not a detriment in that case? Whatever the consumers may have told my noble friend Lord Young of Graffham about their preferences for change, I have no doubt that when their pub is closed they will know who closed it; it will be the Government. Therefore, I ask him to be extremely careful that he does not introduce a series of measures which deprive people of their community centre, which more often than not lies, in the pub.
As has been pointed out, competition in other places such as the United States and Australia has led to concentration in a very few breweries and I believe that that is the overall trend. It is because the present system of vertical integration has preserved our pubs that I believe it should be handled with very great care.
I cannot believe that it would be a wise course of action to force on to the market within a limited period 22,000 public houses. I agree that a great many of them would be likely to fall into the hands of property dealers who would change their use. As we know, as the noble Lord, Lord Williams, pointed out, there is already a limited number of outlets. I do not see that limit being raised very easily since that depends on the attitude of the licensing justices all over the country and they have been very careful 1448 about issuing more licences. Therefore, unless we are very cautious we shall see an overall and serious net reduction in the number of pubs available to the people, and with that I see a lack of choice not only as to place but also as to the number of beers available because there exists real competition for that.
As has already been mentioned, 1992 is close upon us. I am sure that if we were to fragment the industry, as might happen if all the proposals and recommendations were accepted, there would be plenty of European brewers and others who would very much like to pick up the fragments—and this at a time when the brewing industry must summon up the blood to meet European competition.
Of course if some of the nationals are deprived of and have to sell so many of their public houses, they may, as suggested by the noble Lord, Lord Williams, go over to the retail trade entirely or they may keep some of their houses and devote some of the resources garnered from their sales to promoting more and more national beers. I do not think that the recommendation, although I do not dispute it, of one cask matured guest beer will blunt the force of insistent promotion which is now so prevalent, particularly in America, and which will be available soon through sattellite and other means all over Europe.
Therefore, I do not discount the competition that will come. I fear that against that competition our pubs will suffer in numbers again. Therefore, I ask the Secretary of State once more to pay attention to this point. The deprivation not only of rural communities but urban communities and neighbourhoods of their public houses through the onslaught of competition will be ill-received, and properly ill-received, if countervailing care is not paid to ensuring that as far as possible these outlets are preserved for the use of the people.
§ 4.31 p.m.
§ Lord Pender
My Lords, we are all grateful to my noble friend Lord Kimball for initiating this debate. Beer always has a good run, and rightly so. I believe that there have been 13 reviews of the industry in the past 20 years.
It has been encouraging to read during the past few days of certain reassurances to protect the regional and local brewers. We await with interest what my noble friend the Secretary of State has to say at the end of the debate. Of one thing there can be no doubt: the Monopolies and Mergers Commission has ensured lasting recognition of its report through the words, "2,000 pubs". The pub is an integral part of life. People do not go to pubs just for the beer. Pubs are a meeting place for adults second only to private dwellings. They provide a social centre and a line of communication. Their demise could lead to a number of social problems. I strongly believe that the English pub—in particular, the village pub—is very much part of our heritage and a major tourist attraction. To put this in jeopardy when people are enjoying more leisure time and when 1449 tourism is one of the best growth areas of our economy would seem ludicrous.
The main proposal that brewers be restricted from owning more than 2,000 pubs would constitute the most fundamental change ever proposed to the British pub. The ramifications of implementing the restrictions would be destructive to the industry. The issue has inevitably proved the favoured liqueur for today's debate. I confine my remarks to the proposals concerning public house tenants. These are serious in that they threaten to destroy the tenanted system which has served the British public so well for so many years. On the surface, the proposals purport to improve the lot of the tenant. In reality, they would tip the present delicate balance between tenant and brewery landlord so far away from the brewery's interest that no brewery would in future offer its pubs for tenancy. The economic balance would be weighted heavily towards breweries managing their own pubs rather than offering them to a tenant.
What brewery would readily lease a pub to a tenant in the knowledge that the brewery could thereafter never again select a tenant for that pub? Their rents could never be increased, except by application to a court. Over one-quarter of the beer trade would be lost to the brewery as the tenant could buy in a "guest" beer from any other supplier. The brewery would no longer be assured of a market for its low alcohol beers—the fastest growing sector of the beer market. My noble friend the Secretary of State dealt with that point. No wonder so many of the tenants who have thought through the implications of these proposals have rejected what would, at first sight, appear to be of great advantage to them. If these proposals are implemented there will no longer be any tenants left to reap the benefit.
Then again, the MMC had intended that these proposals would benefit regional and local brewers. The large majority of brewers have looked closely at the implications and profoundly disagree. Their view is that these proposals represent the greatest threat that the regional brewers have had to face since the war. The proposed undermining of the tenancy system will hit the regional brewers harder than the majors as the majors will in any case be left with virtually no tenancies if they are forced to sell 22,000 pubs.
If we are to have a distinction between national, regional and local brewers then that distinction has to be identified by the number of houses or annual output. It will be interesting to have a government comment on that. Possibly the number of houses is a better identification, particularly if at a later date there are further negotiations with Brussels as to a brewer's ability to tie whether through a loan or ownership of the outlet concerned. It seems to me that it is quite possible that the total number of tied outlets that might be allowed by the Commission could be in the region of 500 to protect the smaller German and Belgian brewers who are faced with a similar situation as ourselves if the tie is abolished.
§ 4.38 p.m.
§ Baroness Fisher of Rednal
My Lords, I apologise to the noble Lord, Lord Pender, for jumping up at 1450 the same time as he did. Perhaps I may say to noble Lords, as the only woman to speak in this debate, that I use pubs but I do not drink beer; so, if anyone is calling, it will be a gin and tonic!
I wish to emphasise the aspect about which I perhaps know a little more than noble Lords who have spoken—the urban areas, and particularly the rural areas. I do not think anyone has yet mentioned the fact that in rural areas that have tourist attractions the pub is part and parcel of the attraction for tourists. If a pub is just outside the area it is a place that is visited by them. I believe the Secretary of State is keen on extending tourism and the service trade, so that can be linked with the friendship and peculiar village atmosphere of some pubs.
In comparing the general standard of pubs today with those of 20 years ago one sees that the change is significant. Normally, today's pubs have extremely good decor. They come in various period styles, such as Victorian, Tudor or moderniistic. All have carpeted floors and comfortable seating. We should also accept that it was perhaps the brewers, through their pubs, who broke down social barriers. I can remember when the bar was where the lower classes went—many of them Labour supporters. There was also the smoke-room, which was a bit upper class. The brewers not only got rid of that; they also got rid of sexism. They abolished the gents-only parts of pubs. Perhaps the brewers were a little in advance of some other organisations in breaking down social barriers.
We have seen a change in beer drinking over the past 25 years. My knowledge comes from the Birmingham-Wolverhampton-West Midlands areas where 25 years ago dark mild ale was popular. Public taste then moved to lighter beers. Another change took place when bitter beers became popular. We now see yet another change in consumer taste. Lager is now a popular drink in pubs. There is also this new drink called LA. When I first heard somebody call for it I thought, "I don't know what this kind of beer is. It must be some quite fantastic thing that is coming from the States". However, I recognise that that is low alcohol beer, which of course is to avoid perhaps a tough driving penalty for driving under the influence of drink.
We see not only a change for male drinkers. Women's tastes have changed quite considerably in pubs over the past 25 years. The biddy in the corner drinking her glass of Guinness has gone, and we see the younger element choosing spirits or perhaps from the great variety of wines that are available. I know that the noble Lord made some points about the loan tie, and the noble Lord, Lord Orr-Ewing, went into detail about that. I hope that the noble Lord the Secretary of State will make quite sure that he gives serious consideration to the loan tie and free trade outlets.
Over the past 18 months I have been chairman of Motability in the Midlands. Our task is to raise charitable moneys for adaptations to be made to cars for people who have the motability allowance. I am amazed at the high standards in the clubs today. I go to many of them to receive cheques that have been raised for charity, and I see the discipline that 1451 is exerted in what were called working men's clubs and are now called in the main social clubs.
It is important for the Secretary of State to understand that there is keen competition between all the brewers to get this trade. I have firm information that every time the subject of the renewal of a contract comes up it has a high profile on the committee agenda of all clubs, because they are going to make quite sure that they get the best deal from the brewers competing for them. That point is perhaps covered by a kind of free vote of the people.
The thriving clubs that we now have are providing not only for male drinkers but are providing all kinds of facilities, sports facilities, and particularly places for families, which is much better than having children stand outside public houses. They are now with their parents, and the clubs are providing these kinds of facilities. We have talked about 1992. All European countries allow free trade loans, so there is no reason why Britain should be different in that respect.
The report goes into prices in the big brewers' houses. But are prices too high for the drink consumer? The beer drinker would obviously answer that he thinks that the tax on it is too high. In fact, it is the highest in Europe. The noble Lord the Secretary of State always gives us percentages, but this does not mean a solitary thing to me. I remember that I was on a committee of one woman and three men. They had to fill in a form on how many women comprised the committee and they said 25 per cent. I became the 25 per cent. woman after that. Percentages really do not mean very much.
The brewers would argue that, despite the punitive taxation, we in this country have beer prices that are among the lowest in Europe. The Monopolies and Mergers Commission report conveys the fact that prices will come down if its proposals are put into operation. There is no reasoning in the report to show that prices will come down. I was very gratified that the noble Lord, Lord Orr-Ewing, gave the example of British Telecom because I had that down as well. We have gas, electricity, and water. It is no good these people telling us that prices will come down because we know full well that they do not, and the consumer is now used to that.
§ Lord Young of Graffham
My Lords, if the noble Baroness will forgive me, I think I can do no more than to comment on the paper submitted by the Wolverhampton and Dudley Breweries, which is a brewery prominent in the area that the noble Baroness was discussing. They say on the second page that competition indeed is responsible for low prices, that it is only in the Midlands where committed regional brewers have been able to use that weapon competitively, and that it is no accident that prices in those areas are below the national average. I assure the noble Baroness that that was something which the report actually showed. I commend that paper to the noble Baroness. Indeed, it contained many of the proposals that the noble Lord, Lord Williams, advanced in his speech.
§ Baroness Fisher of Rednal
My Lords, I commend to the noble Lord the Secretary of State the note of dissent, paragraph 42:It is interesting to note the valid point made in the report that in some regions of the country—such as the North-West and the West Midlands"—that is the part that I know best—the practice of regional brewers in maintaining their wholesale and retail beer prices at significantly lower levels than the national brewers has been effective in keeping the pricesdown.in other words, the existing competition works".That is the dissenting report. I think we are level pegging now.
Will the changes lead to more consumer choice? Most public houses have at the moment a wide choice of bottled beers, including those of all the various brewers. The issue really comes down to the availability of different draft beers. Perhaps I may say something about guest beer. "Guest beer" is a wonderful phrase. It is really your competitors' beer. It is like asking Marks and Spencer to take in things from Littlewoods or British Home Stores and put them on one side and say, "Let us see what we can do". That is what a guest beer really is. It is putting your competitors in the same position that you are in.
There is a saying that you can lead a horse to water but you cannot make it drink. People who use pubs and drink beer choose the pubs that serve the beer they like to drink. They choose. It is a choice that they have. They go around. I know that it is much more difficult with village pubs, but in places like London, Birmingham, Manchester and other cities people can choose where they want to go, and they choose according to their taste.
If the noble Lord the Secretary of State wants to take on the brewers he ought to recognise that the consumer has to have a free choice, and that free choice must be the pub that he wants to use and the beer that he wants to drink. It should not be a government edict. This is the Government who talk about freedom of choice. What the Minister is saying this afternoon is, "I just want to curtail that freedom". It does not go down very well coming from a freedom-loving government.
Perhaps I may now give my Birmingham plug. Everybody in the House knows that I never make a speach without relating it to the West Midlands or Birmingham. I make no apology for that. We have seen the demise of two large Birmingham breweries—Ansells, which was in the constituency that I represented in another place, and Davenports. We are left with one brewery, which is partly in Birmingham and partly in Sandwell, an adjoining borough. The closure of the brewery at Cape Hill which belongs to Mitchells and Butlers would be catastrophic. The brewery has undergone a major modernisation programme costing £11.5 million. Only last year it was given a major award by Business and Industry for the thoughtful development of the site and employee considerations.
If the brewery had to close many of its tied houses and was allowed to retain only 2,000, there would be serious repercussions. It has been in Birmingham 1453 for more than 100 years. It is part of Birmingham life and is one of the large employers along with Cadbury, Kendrick and Guest, Keen and Nettlefolds. Mitchells, which joined with Butlers, became one of these family businesses. It does exactly what the Secretary of State likes people to do. It is business in the community. Mitchells and Butlers has become part of the Birmingham scene. It plays a full role in all kinds of sponsorship—sport, the City of Birmingham orchestra and charities—and other projects which the city promotes. One would hesitate to see destroyed a great tradition started by a Birmingham family.
The Secretary of State said that people are being consulted. The duty of the Monopolies and Mergers Commission was clear. It was based upon responsibility for the public interest. However, the Secretary of State has another serious responsibility—to maintain employment. I have had a long report from two of the largest trade unions involved with the industry. It says that nearly three-quarters of the labour force in the Midlands—this refers not only to Mitchells and Butlers but to all the other brewers in the area, including those in Burton-on-Trent—could lose their jobs. This applies not only to the breweries but to the outlets that would have to close down.
The report says that wages and conditions of service in the brewing industry, particularly pension rights, are considered to be good. If the Transfer of Engagement Act had to be put into operation many of those benefits would be lost. The West Midlands is moving out of recession. We make a special plea to the Secretary of State not to aggravate the position by bringing about the closure of breweries in the West Midlands.
The note of dissent makes the point that the recommendations of the commission are more drastic than necessary. To some extent the report arrives at conclusions that can only be described as blinkered. I echo what other noble Lords have said. No other country has an institution comparable to the British public house. It must be preserved.
§ 4.55 p.m.
§ The Earl of Liverpool
My Lords, I should like to join other noble Lords in thanking my noble friend Lord Kimball for initiating this debate and thereby giving us an opportunity to consider the report by the Monopolies and Mergers Commission which took about two and a half years to produce and which some of us have been having difficulty digesting since its publication in March. I should like to say how interesting I found the speech of the noble Baroness, Lady Fisher of Rednal, and how closely in tune I felt with everything she had to say.
I should declare an interest as a director of J. W. Cameron & Company, a regional brewer in Hartlepool and a subsidiary of the Brent Walker Group. I also own one public house. I can therefore perhaps be said to be firmly in the camp of the regional and perhaps even of the local or micro. I hope this afternoon to address the wider implications of the MMC report as it affects the whole industry.
1454 Brewing and our pubs are a unique and much loved part of our national heritage. Indeed, the relative competitiveness and production efficiencies which flow from the tied house system are both envied and admired by our competitors abroad. I hope to touch on the overseas competition aspect later. There is nothing new about the present system. Indeed this is acknowleged by members of the MMC who state in chapter 2 of their report that a measure of vertical integration has existed in the industry since the 18th century.
There must be good reason for such integration to have existed for more than 200 years. Primarily it is the fact that if one is producing a product with a short cellar or shelf life, in order to minimise wastage, increase efficiency and keep one's price competitive one must know with a reasonable degree of accuracy what one's volume sales are likely to be and where those outlets are located. That is as true today as it was in the 18th century. I am concerned that the proposal put forward today by the noble Lord, Lord Williams of Elvel, who advocates in effect a new tier of public house—a real free trade of some 22,000 pubs—will make production planning virtually impossible.
In tenanted pubs an entrepreneurial licensee can, for the outlay of a modest sum, start his own profitable business in premises where the rent is subsidised and where he can benefit from the marketing expertise and brand advertising which is freely provided by his brewer. He also gets a home for his family thrown in. No wonder the Brewers' Society quite rightly called this tenant-brewer relationship a partnership. I believe that this system has been a positive force in keeping retail costs down. In paragraph 2.203 of the report we are told that:Since beer consumption peaked in 1979 the real price of a pint of bitter in public bars has risen by 15 per cent.".The reports adds:Over the same period real personal disposable income rose by 14.6 per cent.".Those figures suggest to me that in real money terms the price of a typical pint of beer has increased by a mere 0.4 per cent. over 10 years, which is not a bad effort.
Lord Young of Grafifham
My Lords, it is 15 per cent. in real terms—over the rate of inflation. The report showed the increase in the price of a pint of beer between 1979 and 1987.
§ The Earl of Liverpool
My Lords, I am grateful to my noble friend for correcting me. When one considers that more than 35 per cent. of the retail cost of a pint sold goes to the Government—that is 30p on every pint, producing an annual income to the Exchequer of £3.2 billion or 6 per cent. of GDP—we have not done badly. It is also worth noting that well over half a billion pounds is invested annually by Brewers in improvement to their pubs.
I believe that the police do not wish to see any changes in the present structure of the tied house system. There are unfortunately the less desirable elements of our society which from time to time rear their ugly heads. And pubs must deal with them. I 1455 am talking about drugs and various other problems. If members of the police are concerned in any way about a tied house, they have the benefit of knowing that they can go to the brewery company where they will receive immediate support. The company will immediately institute the most stringent inquiry so as to ensure that matters are put right.
I should like to turn briefly to consumer choice. With over 200 breweries in the United Kingdom—that figure includes micro-brewers—the product range is enormous. In any given area there is a tremendous choice of pubs available to the public. Members of the public are free to choose which pub door they go through. Indeed, that point has already been made by other noble Lords.
In the North-East—I have with me the figures provided by the North-East Brewers' Association—there are 3,183 pubs, 1,116 of which are free houses. The remaining 2,017 are divided between 11 breweries. That does not seem to me unduly monopolistic or in any way acting against the public interest.
There is a great variety of reasons why people choose to go to a particular pub. It may be the atmosphere and decoration, the clientele, the pub's games facilities, the food, the music, their liking for the licensee and his staff, its particular location—and, yes, beer. However, on that last point, it is very often the care which a licensee takes in looking after his beers which is more important than the range.
One of the statistics used by the MMC and upon which it bases much justification for its recommendations is the fact that the so-called "Big Six" own 75 per cent. of all brewery-owned on-licences. I suggest that that ignores the fact that there are over 37,000 free trade on-licences. With those included no one brewer can be said to own even 10 per cent. of the market. As my noble friend Lord Orr-Ewing said, that is hardly a monopoly. The point I am trying to make is that while there are undoubtedly some big fish about, the sea is big enough and the ecosystem is not too much out of balance.
The draconian recommendations contained in the report would have far-reaching consequences detrimental to consumer prices and to the small businessman, let alone to the brewing industry as a whole and, I believe, to the public. The brewers have gone about their lawful business in our capitalist democracy for many years seeking to develop profitable companies. I should like to join with other noble Lords in expressing concern at the possibility that they may be called upon to divest themselves of substantial assets.
When one reads the report one cannot help being fascinated by the chapter headed "Note of Dissent". I should like to express agreement with my noble friend Lord Kimball who drew attention to it as perhaps the lone voice of sanity. The sad part about all this is that whatever is done by the Government as a result of the report, the alarm bells have been set jangling. The result is that available tenancies will continue to decline in number, thus denying 1456 many aspiring licensees with limited capital resources a route into the trade.
The likely passing of the village pub was a point excellently made by the right reverend Prelate the Bishop of Truro. It has already been said that 1992 is just around the corner. A number of overseas competitors would just love to see us shoot ourselves in the foot and thereby provide them with a bridgehead in our industry. That simply must not be allowed to happen. I hope that my noble friend the Secretary of State can assure the House that he is mindful of that fact.
There is one final point which I do not think has so far been touched upon. It concerns the MMC's recommendation that the whole question of the supply of gaming machines—that is, amusement machines offering prizes—in pubs should be referred to the Director General of Fair Trading under the Fair Trading Act 1973 or that it should be the subject of an investigation under the Competition Act 1980.
Brewers are currently able to apply a measure of control by maintaining a list of reputable suppliers with which their tenants may deal. I am not sure what the MMC has in mind, but I must say that any dilution of the brewers' right of control will have the most disastrous consequences. The system works well at present and prevents the less reputable and, if I may say so, more colourful operators from gaining a foothold in this aspect of the trade.
I know that my noble friend the Minister has listened carefully to all the arguments that have been put forward both this afternoon and in recent weeks. I hope that he can at least reassure me that if any changes to the industry are to be implemented, he will acquire for himself a fine pair of kid gloves and handle the matter with the greatest care lest a Pandora's Box be opened which the whole country may live to regret.
§ 5.6 p.m.
§ Lord Thomas of Gwydir
My Lords, my noble friend Lord Orr-Ewing paid tribute to the commissioners who produced the report for the hard work which they put into it. I agree with him. I have no doubt that they are all men who are able, industrious and intelligent. Their two-and-a-half year inquiry was indeed comprehensive, as the 501-page report bears witness. What amazes me is that, despite all their effort, with the exception of the dissenting commissioner, Mr. Mills, they have apparently failed to understand the way in which competition works in the brewery industry. They appear to have failed to recognise the long-tested efficiency advantages of vertical integration and the role of contracts in allocating risk between brewer and licensee and the benefit of that structure for the consumer. They seem to have discounted the clear evidence of heavy competition at all stages in the supply of beer and ignored the commendable and unique performance of the UK industry, in particular when compared to that of other countries.
Mr. Mills, the dissenting commissioner, expressed the view that most of the recommendations proposed by his colleagues, if implemented, would be an unnecessary leap into the dark, could be counter 1457 productive and damaging to the structure of the industry and could consequently be against the public interest. In my view, that can be considered to be a polite statement. The truth is that, almost without exception, the recommendations proposed are misconceived, illogical and disproportionate. Moreover, the major ones quite clearly should be rejected.
Having somewhat firmly expressed by opposition to the report, perhaps I should tell the House that I have no financial interest in, or any connection whatever with, the brewing industry. My interest, apart from being an appreciative consumer, is political and legal. My political view is similar to that expressed by my noble friend Lord Kimball in that I believe that the brewing industry is a highly competitive, successful, responsible, popular and unique British institution. It is unthinkable that a British Government who believe in a free market and deregulation should lend their support to some of the drastic recommendations proposed. That is my political view.
My legal view is that I disagree with the commission's reasoning that a monopoly situation under Section 6 of the Fair Trading Act 1973 exists. My noble friend Lord Orr-Ewing referred to what he believed to be a monopoly situation; but under the 1973 Act a monopoly situation would exist if at least one-quarter of the supply of beer was from a single company or an interconnected group of companies; that is known as the scale monopoly. It is clear that such a monopoly does not exist in the United Kingdom brewing industry.
To get round that difficulty the commission seized hungrily on Section 6(1)(c) and Section 6(2) of the 1973 Act which prove that a monopoly situation exists if two or more non-interconnected persons supply one-quarter of goods in the United Kingdom by conducting their respective affairs so as to prevent, restrict or distort competition in connection with the production or supply of that description of goods. That incidentally is known as a complex monopoly.
The commission decided that a combination of 70 brewers—six national, 11 regional, 43 local and 10 small brewers, all independent of one another and in active competition with one another—were together supplying over one-quarter of the United Kingdom beer. In fact they were supplying 90 per cent. of it. It therefore found that that amounted to a complex monopoly situation.
The commission's reasoning behind that somewhat surprising finding was that each brewer owned retail outlets to which it supplied by restrictive agreements with tenants or orders to managers most of all the beer sold and that each made preferential loans with restrictive agreements for the supply of its own beer to free houses and clubs.
The commission said that that meant that those brewers were conducting their respective affairs in order to prevent, restrict or distort competition. I believe that to be an unfair interpretation. It is a narrow interpretation of what that section of the Fair Trading Act meant by competition. No one 1458 suggests that vertical arrangements and ownership diminish in any way the intense competition in the beer market as a whole, and it is in the United Kingdom market as a whole, of which it is alleged that at least one-quarter has been monopolised, that competition must be considered. To approach the matter from the effect of an individual contract between a brewer and tenant or operator is in my opinion legally wrong and economically unreal.
§ Lord Peston
My Lords, perhaps I may intervene to ask the noble Lord to clarify what he is saying. I listened earlier to the noble Lord, Lord Orr-Ewing, making a similar point. Is he saying that the Monopolies and Mergers Commission has failed to understand the Act under which it has been set up to operate and which it has interpreted, having considered everyone of the arguments that the noble Lord has put—because they are put in the report and rebutted? Is he saying that the Monopolies and Mergers Commission does not understand its own legislation?
§ Lord Thomas of Gwydir
My Lords, what I am saying is precisely what I have just said; namely, that the commission's interpretation of what was required under that part of Section 6 of the 1973 Act was wrong and unreal. The reason that I gave was that it should measure competition in relation to United Kingdom competition and not in relation to what may be a contract between the brewer and licensee or borrower. I hope that the noble Lord will have the opportunity to consider what I have said. I may be wrong. These are matters of argument. But nevertheless it is a view which I wish to put forward.
I shall go further. The United Kingdom brewers' vertical arrangements and agreements are all approved of and authorised by European Commission Regulation 8–1984/83, to which the noble Lord, Lord Williams of Elvel, referred, as a block exemption. It remains valid until 1997. Indeed, five out of the seven recommendations made by the commission in the report are in direct conflict with that regulation. The commissioners considered that point, and if the noble Lord would like to look at paragraph 12.119 he will see that they appear to consider that, if my noble friend the Secretary of State consults the commission on its recommendation, the problem is solved. I fear that it is by no means as simple as that.
The recommendation seeks, through prohibiting agreements and conduct expressly permitted by the block exemption, and in other ways, to impose a restrictive competition regime in the United Kingdom only; in other words, it is seeking the distortion of competition in the Common Market. I submit to my noble friend the Secretary of State that it would be unwise of us to lend our support to that recommendation.
§ Lord Young of Graffham
My Lords, I hesitate to intervene once again, but we have a difficult and complex position as it is. We should take care not to make it more difficult. Even the dissenting view accepted the fact that a complex monopoly situation exists. Paragraph 1.11 of the report shows that the 1459 six national brewers account for 75 per cent. of United Kingdom beer production. I have had the opportunity to take other advice. In our view there is a complex monopoly situation. I am listening carefully to the debate. We should be looking for remedies so as to rectify the position. It would not take the debate further to go into the foundation of the report and the advice that I have had from the director general since.
§ Lord Thomas of Gwydir
My Lords, my noble friend may wish to lend his support to the report. I do not. The difficulty that he says we are in is not my difficulty but his. It is whether he is going to carry out, through the legal process, some of the recommendations contained in the report. I suggest that he would be unwise so to do. That is why I criticise the report. The commissioners have produced an unsatisfactory report. Most of their recommendations do not deserve support.
I have been speaking for some time now and I shall not continue much longer. I should have liked to have referred to some of the recommendations to which other noble Lords have referred, in particular the major recommendations referred to by my noble friend Lord Kimball and the right reverend Prelate the Bishop of Truro, as well as my noble friend Lord Pender, concerning the limit of 2,000. That recommendation cannot in the analysis be supported at all. I hope that my noble friend will come out straight away and say that it will be discounted and not supported. The whole proposal will inevitably cause disastrous problems in the industry.
The other recommendation concerned the tied loans which were referred to by my noble friend Lord Orr-Ewing. I welcome what my noble friend the Secretary of State said about supporting members' clubs, provided that all the members want it, to negotiate a loan with the brewer. However, what about the free houses? Why can they not negotiate a loan with the brewer? That is something which, as the noble Baroness, Lady Fisher, said, is widespread throughout Europe.
The major recommendations to limit the number of public houses owned by brewers and abolish the loan tie are adequately referred to in the note of dissent by Mr. Mills in paragraph 14. He says that they are:neither desirable nor necessary: indeed their implementation—far from making the market more competitive—could make it less competitive, reduce consumer choice, cause considerable uncertainty and create public interest detriments.I ask my noble friend to pay attention to that kind of view which was expressed by one of the commissioners.
Of course one would agree that it may well be that some changes in the UK brewing industry are desirable. Many have been mentioned, but these are minor changes. The noble Baroness, Lady Fisher, referred to changes which have taken place over the last 25 years. They are led by both the brewers and the consumers and these changes are constantly taking place. The brewers are responsible people. If changes are needed they may well be achieved by 1460 voluntary persuasion. My noble friend the Secretary of State says that he is in communication with the brewers. I hope that he will realise that negotiation is infinitely preferable to recourse to the legal powers provided by the 1973 Act. Negotiation and persuasion are the course which I urge him to follow.
§ 5.24 p.m.
§ Viscount Massereene and Ferrard
My Lords, I apologise to my noble friend Lord Kimball for being delayed, since the train which I went to catch never turned up. Amazing! I was delayed by an hour, but for once it was not my fault.
The only connection that I or rather my family have ever had with brewing is that in the 18th century my family gave the first Guinness a charter to start a brewery. When a book was written on the history of the firm I gave the author access to the papers of the time. That of course has given me no experience regarding breweries. But I wish to say that I am fortunate enough to reside for a fairly large part of the year in the most beautiful part of Kent, with the most beautiful pubs I have ever seen in England, with their gardens, creepers and charming pubkeepers.
Other noble Lords have referred to the idea in the report that it should be demanded that the breweries should get rid of 2,000 houses. Some people might think that that would be favourable to the small companies, and that is possibly right. However, I doubt it. I believe that if that happens the breweries might decide to sell far more and it could become a forced sale. That would be disastrous. To start with, I imagine that if they sold all their houses it would come to about £6 billion and the smaller companies would not be able to pay the amounts necessary in order to buy some of the houses back.
What would probably happen is that some great industrialists from Australia, Canada, America or wherever would buy them. I am all for money coming in through people investing in Britain, within certain limits, but it would be disastrous if the brewery business became completely controlled by foreign hands. That is just my opinion.
It would be rather interesting for somebody to write a book—it would have to be very long—on how pubs in different parts of the British Isles vary. I have been to quite a lot of pubs in all parts of the shires. I remember once being taken by a friend to a pub in Ireland. There were 16 or 17 pubs in the village and only nine inhabited houses. It was surprising. I asked, "How do you explain this?" "Oh, well", was the answer, "I think some other activities might go on in the other houses". So I dropped the subject. A great deal of what I have written down has already been mentioned so I shall not repeat it.
I wish to say a word about the idea in the report that tenants of breweries' pubs could appoint, or lease to, tenants of their choice. That might be all right if they made the right choice, but would they have the experience to do so. I do not think that would be very satisfactory and some undesirables might be chosen by the sitting tenant. We must remember the problem of drugs. I am quite sure that, if that problem arose, some of the people quite 1461 innocently chosen might deal in drugs. So I do not agree with that proposal. I must not repeat what has been said before. It is always difficult if one speaks towards the end of a debate not to do so.
As regards the price of beer, the report seems to think that the retail price of beer will go down, but I am sure that that will not happen. There are many reasons for that, some of which have already been mentioned.
I have spoken for six minutes. I think that the report is very well prepared but I should like to make one criticism. To a great extent it has been prepared by academics. I am all for academics, but in their right place. I have had experience of small businesses. It has been my experience that one must have managed a business or businesses oneself to find out the problems. I shall not continue, but I wish to thank my noble friend on the Front Bench for his very good explanation of the matter. I must apologise that I did not hear all of his speech as I arrived so late. I heard quite a lot of it, but I hope to hear more from my noble friend towards the end of the debate.
§ 5.30 p.m.
§ Lord Harris of High Cross
My Lords, after listening to the spirited warning by the right reverend Prelate against what he called the dissolution of the pubs, the least we can hope is that the local brewer of the right reverend Prelate will name one of its better hostelries "The Bishop of Truro", so that we can all visit it to enjoy the local brew.
The Minister had better watch his flanks. He may gain the eloquent support of the noble Lord, Lord Williams of Elvel, but rouse up a holy alliance of the Bishops' Bench, what used to be called in this House the "beerage"—I caught a whiff of beerage on the breath of some speakers—and that 25 per cent. woman, the noble Baroness, Lady Fisher of Rednal, to say nothing of such friends on the Cross-Benches as myself.
I personally welcome the MMC report mainly—indeed only—for the dissenting note by Mr. Leif Mills, who describes himself, in the best tradition of trade union leaders, as a:frequent consumer of real ale".If we read the note of dissent written by Mr. Mills, we shall discover that he displays indignation, scorn and anxiety, but his warnings are sober and there are no signs of the report having been written, as they used to say, under the affluence of incohol. Not the least of the services that Mr. Mills has rendered is to challenge the idea that on complex issues of economic policy, committees should always seek a unanimous verdict.
In an IEA Hobart paper written 25 years ago, entitled Anything but Action, A. P. Herbert half seriously suggested that on these occasions we should appoint two panels, each charged with presenting the strongest case respectively in favour of and against a particular proposition. That candidly acknowledged the fact that good men can disagree and such a system would leave the reader, and in the last resort the Government, to judge the merits of the contending arguments.
1462 I congratulate the brewers in this situation for the generally high quality of the special pleadings which they have prepared to inform our judgment and to redress the balance of advocacy. Having pondered the opposing arguments of the MMC report and its critics, I strongly incline to the commonsense view expressed by Mr. Leif Mills that the distinctive quality and traditional popularity at home and abroad of the British pub is not unrelated to the tied estate. He acknowledges that competition does not and cannot work with textbook simplicity as economist members of the MMC frequently appear to assume. His most telling quip, which academics might dignify as a "rejoinder" to the majority, is to propose an examination question for their students. He proposes the following question:The brewing industry may well work in practice, but does it work in theory?I should add that Mr. Mills has himself studied economics, even if it was that rather dangerous amalgam of PPE at Oxford which has a great deal to answer for in enthusing many members of the Labour Party with socialism from which they have only recently begun fully to recover.
I seriously believe that this industry works well on the whole. It is at the forefront of the growing international leisure and service sector which, as the noble and gallant Viscount, Lord De L'Isle, said, will face intensified competition from Europe and further afield. Despite the charges of the MMC report, concentration of production is lower than in other comparable countries, choice is wider and prices in pubs are a much smaller multiple of the prices in competing off-licences and supermarkets.
Regional variations in prices offended the MMC, but they proved to reflect wide differences in property costs. Wholesale margins were singled out as looking high and rising, but turned out to be lower and stable because of discounts forced on brewers. What forced those discounts on brewers? It was competition in the local retailing situation. Lager looked relatively expensive to the geniuses of the MMC, but proved to have higher marketing and capital costs. The total misjudgment of the report was in asserting that brewers made their profits mainly from brewing and wholesaling. Yet Whitbread has said that, faced with forcible dissection, it would not be the only one to stick to its pubs rather than to its breweries.
The most devastating critique of the MMC comes from one of the foremost economic experts in competition theory, Dr. George Yarrow from Oxford. His conclusion is that:The MMC's analysis of the effects of vertical agreements dissolves into virtually total incoherence".Even among economists, that is a fairly unfriendly observation. The major objection of Dr. Yarrow is that the report constantly refers to "the monopoly situation" on the formal reference criterion that at least 25 per cent. of beer sold on licensed premises was made by companies which controlled outlets, and/or made preferential loans to free outlets. Dr. Yarrow says there was no effort by the commission to demonstrate whether and in what respects market dominance existed or was exercised to the detriment 1463 of consumers. Dr. Yarrow points out that competition is a multidimensional process going beyond prices and profits to the costs of production, marketing, research, innovation, to say nothing of consumer choice, convenience and amenity, on which other noble Lords have spoken so eloquently.
Leaving aside the gross invasion of property rights in making brewers sell off most of their pubs, Dr. Yarrow predicts that the results will have anti-competitive effects to the detriment of small retailers and brewers, and still more in the long run on their customers. None of us can have missed over recent years the improved quality and range of services in British pubs, with a welcome emphasis on food and family facilities. Our expert witness Dr. Yarrow points out that an apparent restriction in one dimension may increase competition in other ways, not least when more supermarkets, off-licences and clubs sell more drinks for home consumption within the range of television and beyond the reach of muggers and breathalysers. In short, pubs have to compete vigorously to keep their customers. The economic efficiency gained by the tying of outlets is shared by lower prices to the customer.
If we leave aside ideological rhetoric, no economist really believes that in complex, diverse and differentiated markets the textbook assumptions of atomistic competition provide a serviceable model, whether for beer, water or anything else. The outcome of trying to push the real world in that direction would be more likely to produce instability, higher costs and less choice through homogenised output, and lack of progress through inability to finance long-term investment.
Save in rare identical products and in some financial markets, imperfect competition is the best competition we can have. Where we should always be vigilant is in purging avoidable restrictions upon production and distribution, above all to keep open entry to new competitors. In brewing, the key restriction which brings the tied house into question is the power of licensing justices to veto new entrants on some assessment of "need".
In its otherwise disappointing evidence, the Consumers' Association points out that licensing,makes it very difficult to open new pubs and gives a clear value to the licences owned by existing ones".My proposal to rescue the Government from the MMC's ambush draws on the 1972 Erroll Committee on liquor licensing. It is that justices should henceforth be confined to their historical function (since 1552) of ensuring that the individual to whom a licence is granted is "a fit and proper person" and that his premises are suitable for their purpose. But let the justices be relieved of the intolerable burden and the impertinence of deciding local need, which is a business judgment for the market to regulate.
Once this artificial restriction on new outlets is swept away, the theoretical objection to ownership or control of outlets by brewers must be reduced if not substantially removed. In that event the academic critics could return to brood in their ivory towers and the majority of us, who I gather visit pubs at least once a month, can continue to enjoy 1464 the many and varied charms of that unique British institution.
§ 5.40 p.m.
§ Lord Ingrow
My Lords, I too should like to thank my noble friend Lord Kimball for giving us the opportunity to consider the report. I must first declare an interest. I am a small brewer. I have worked out roughly where we stand: we affect the total supply of beer by somewhere around the fourth decimal point. Therefore I do not believe that I can be said to be a monopoly in myself. But I have spent a great deal of time in the brewing industry. I was appalled to realise that it was 50 years. So I have had over 50 years' practical experience of the industry.
I have listened to the many speeches this afternoon and I think that there are Members who think that they have a fair idea of what goes on in breweries. I do not think that; I am confident that I have practical experience of the industry, as has my noble friend Lord Liverpool.
In a small brewery one has to fight hard to keep going but one does not have to surrender. We have more free trade than we have tied trade. As noble Lords will be aware, there has been committee after committee on the subject. I had the pleasure of giving evidence for the Magistrates' Association to the commission of the noble Lord, Lord Erroll of Hale. He is still here, and very happy about the matter.
I understand that the most recent investigation was instigated by the Office of Fair Trading alone. There was no outcry and no demand from the public. The MMC appointed a committee of six members to investigate and report. Originally it was due to report within two years but took two and a half years of expensive hard work. When the committee produced its questionnaire it sent me the same one as the large brewers. It is all very well for the large brewers; they have plenty of people to complete such questionnaires. Noble Lords can guess who had to complete it in my brewery.
As a small brewer one has to look at everything that is going on and find out why things are happening. I had to consider the consequences to my brewery of each proposal.
I told my colleagues in the industry that, since the matter had been sent to the MMC, the commission would come back with the report, whether that was justified or not. That is what I have found from studying the report and that view seems to be borne out by what the noble Lord, Lord Thomas, said rather better than I could.
Four of the six members of the committee had never been in practical business of any kind. It is dangerous for this or any other industry to be subjected to destruction by well-meaning people who do not know their subject. Indeed, they were the kind of people to whom no sensible industrialist would offer gainful employment.
If one looks at the report one finds that it is all about figures: they know the price of everything and the value of nothing. I should like to give a few examples. The report said that too much profit was made. That is the kind of easy remark made by those 1465 whose salary comes not from business but from the public sector, and is fairly common. The report said that there was not enough competition; however, it has been said that if one wants competition one may be frustrated by the licensing justices who say that there are enough pubs and there is no need for any more.
There was apparently surprise among the members of the commission that the price of goods of all kinds varied up and down the country. It is extraordinary to read something like that. I wonder what right they have to judge anybody when they do not know the simplest facts of life. I find it disgraceful. Of course prices vary up and down the country. National variations do occur. Fish is cheaper on the docks than in the shops; beer is dearer in London—most things are dearer in London.
There is one point which I believe should be nailed, namely the brewers' tie. That is presented in the same way as nurses used to present children with the threat of Bonaparte if they did not go to bed quietly. The brewers' tie—what is it? If one owns a shop and sells very good shoes in it, that is one's right in accordance with the law. Someone may then come along and say, "I cannot sell my shoes as well as you. I want you to sell my shoes in your shop". If that happened with any product but beer most people would think it extraordinary. It is a most extraordinary state of affairs. If one wants to buy the goods of Marks and Spencer you buy what the board of Marks and Spencer says you can buy. If you want to go to the estimable noble Lord, Lord Sainsbury, you buy what the board of Sainsbury's says you can buy. You will not find its goods in Marks and Spencer and vice versa. Nobody grumbles.
I have only tenants in my pubs. I like to see people have an opportunity to succeed for themselves. They can do that in a small firm. But I do not think that I should want to continue in that way if the proposals in the report were to cramp our style completely.
If the proposals concerning loans were adopted we should be left with managers. I should stress that many clubs come to brewers because brewers will lend them money when banks will not. (I wish that banks were as careful in lending money in other areas). As it is, there will be a great reduction in the number of sporting clubs, and Clubs of all kinds, if we are not allowed to extend loans.
When the state enters business—and this is a proposal to nationalise elements of the private brewer—the results are not good. Perhaps we can cast our minds back to the nationalisation of various breweries before the First World War. The last—the Carlisle state breweries—I think was returned to private ownership 18 years ago. One brewery had to be shut immediately, the owners tell me, because it was liable to blow up, and the standards of decoration and the regulations which were applied in other pubs under that system were a total disaster. It does not fit naturally with the production of beer to run the business on Civil Service lines.
There was a mention of a consumer elite, and the report of the Consumer Council is before us. With respect, those people are the elite of any organisation. 1466 One can find just as many people who will say that they would rather have music in a pub as will say that they would rather not have music. The responses tended to come from the council, which is not the same thing as the ordinary British people.
It is hard going in a small industry. I know. I suggest that those who do not know or who think that it is very easy should try it, with their own money, and see whether they are competitive. We shall be round there in Carey Street when they file their papers.
It seems extraordinary that in the whole of the report the MMC does not appear to have thought what the consequences would be if all its recommendations were followed. Clearly the report needs to be amended before it can be considered.
But there is one danger that we should consider. If I had been presented with a proposal to confiscate substantial property I should have got rid of it as quickly as one would get rid of a primed grenade. That, bluntly, is my advice to the Secretary of State. He has the poisoned chalice there in his hands and he should get rid of it as quickly as possible. I can only say that there must be no question of the report having the same consequences on the government side as did the abolition of resale price maintenance in 1964.
§ 5.50 p.m.
§ Lord Mancroft
My Lords, we must thank my noble friend Lord Kimball for instigating this useful debate. Furthermore, perhaps I may suggest that, when a noble Lord as loyal to the Government's cause as my noble friend draws attention to problems arising from a report such as this, the Government would do well to heed that warning.
I cannot lay claim to any great knowledge of the brewing industry; indeed, I do not now drink any alcohol, so I suppose that I could claim a certain disinterest. But I have one area of knowledge, in that I am closely involved in the treatment and long-term rehabilitation of alcholics.
Some people would suggest that those who sell alcohol are responsible for the problems of alcoholism and alcohol abuse. That is not a view that I hold. However, all manufacturers and retailers have a responsibility to make sure that no harm befalls the customer as a result of purchasing their products. The large brewers in the United Kingdom have responded well to the call for low-alcohol and non-alcolohic beers and have continued to promote them strongly through expensive advertising campaigns. They have also artificially suppressed the price to make them competitive with ordinary beers, which are much cheaper to brew. They have responded to that challenge in a way that leaves the tobacco and drug companies looking very foolish.
On the subject of so-called lager louts, the police have always told me that it is far easier to police tied or tenanted pubs than free houses because, if there is a problem, the breweries are both quick and keen to take police advice in getting it sorted out. Of course they have the money to implement rapid change which is not available to landlords of free houses.
1467 Problems of repeated rowdiness and violence in pubs can often be dealt with by changing the appearance and atmosphere of the pub. The introduction of restaurant facilities and the provision of a room where children can go is enormously helpful in discouraging troublemakers. Only the larger breweries can provide the capital necessary to make those changes.
Again, only the larger breweries have the money to run those incredibly expensive advertising campaigns that we need to alter public attitudes to drinking. To divest them of their pubs to any degree would deprive them of the inclination and money to continue to make those vital changes to an area of severe social problems.
In part, I suppose that I am addressing some of the problems raised by the noble Viscount, Lord Falkland. What worried him was, if the big six breweries are forced to sell off 22,000-odd pubs, how will the landlords of those pubs find the money to maintain standards as they should be maintained. That is a very real worry.
I should not dare to criticise so mighty a tome as the Monopolies and Mergers Commission report; indeed, I should hardly dare to lift it! On the face of it, much of what it concludes as recommendations seems sensible. The sale of guest beers, the lifting of restrictions on soft drinks and other freedoms would undoubtedly be good for the consumer, but on that one point of ownership of outlets by the brewers I am concerned.
If one stands back and looks at it, brewing is a very healthy industry. There is a large diversity of businesses, including international conglomerates, large public companies, small private companies and family firms, as well as many one-man outlets. There is a large turnover, good profit margins and a vast, stable and increasing asset base. Take away that asset base, as the report recommends, and the industry may be severely damaged.
In that matter, as in all others, it is only opinion. I cannot claim to have studied the industry as closely as the MMC has done. But on one thing I am clear: British pubs are a much loved institution and the brewing industry is successful and highly thought of abroad. In short, the system works, and if something works we should not mess about with it.
§ 5.54 p.m.
§ The Earl of Shrewsbury
My Lords, I too should like to add my thanks to those of other noble Lords to my noble friend Lord Kimball for instigating the debate. I must offer the House my apologies for being unable to be present at the start of the debate. I had to attend an industrial function in the West Midlands.
It is a source of consternation to me that I am forced to oppose my Front Bench on this occasion. I should declare an interest as a great consumer of beer, although not in vast quantities. To my mind, there is no beer on earth that comes even remotely close to British beer, especially Burton-brewed beer, and I shall defend it to the very last drop.
1468 What the commission is demanding puts the British brewing industry under threat and undermines its very existence. In my view, what the commission is proposing is both heavy-handed and fatuous. Such interference would not be tolerated in other markets, for the allegations of a serious abuse of market power are flimsy, to say the least.
If my noble friend really believes that a monopoly situation exists in the brewing industry—and I am not so certain that I agree with him—it is a monopoly that has worked extremely well for many years to the benefit of the consumer. There is considerable freedom of choice in what the consumer purchases. I know that, if I visit a pub that does not stock my favourite tipple, I go elsewhere because the chances of being able to buy that brand nearby are very high indeed.
As the Financial Times in a leader on 12th June put it:Consumer choice is not restricted, just because individual outlets offer a restricted range of products… In some areas individual brewers may own too many pubs, but in general, product choice can be exercised by moving between different outlets".But what a state we have reached, with 1992 only four years away, when we are asked to be parties to the undermining and dissipating of our great beer-making traditions. Why should our great brewing industries be forced to shed parts of their business by arguments, which are anything but overwhelming and which would also leave them less able to meet head on the force of foreign competition?
As we have heard from other noble Lords this afternoon, there are currently 200 independent producers in the United Kingdom, with six companies accounting for 75 per cent. of the market. That is hardly excessive by any standards and is positively benign when compared with monopoly power in overseas brewing industries.
Like many other noble Lords, I am not prepared to stand on the sidelines and watch our great brewing industries in this great country being torn apart. Those who suggest it are way out of line with reality and should be made to sit down with the heads of our great brewing concerns and be told—and should listen to—the facts of life.
Where I live in Staffordshire is within 15 miles of Burton-on-Trent, which is the hub and centre of Britain's great brewing traditions. The brewer that I know best in my area is Bass, Mitchells and Butlers. In the Midlands alone, that brewery has over 2,200 public houses and four distribution depots; it currently employs in excess of 13,000 people. It is a major supplier to the free trade and a major employer.
Implementation of the report would bring dire consequences for the industry. Hundreds of public houses would be under great threat, prices would rocket, there would be less choice of brands and hundreds, if not thousands, of jobs would be put at risk.
Bass alone would have to divest itself of some 5,300 outlets nationwide. It would be barred from entering into any more free trade loan agreements. 1469 That in turn would drastically affect working men's clubs, many of which would be unable to survive. The resulting social upheavals are obvious. There would also be a danger of invasion by companies outside the European Community. The effect on the Midlands economy alone could be disastrous. Already Birmingham breweries have had very hard times. Ansells closed in 1981 and there is now a proposal to close Davenports with its site going for redevelopment. Even Cape Hill, one of the Midlands' brewing success stories, which has undergone a recent £11.5 million modernisation programme, would be under threat.
Furthermore, the recommendations pay no consideration whatsoever to the role played by brewers in the communities that they serve. Bass has invested £ 100 million over the last two years within the Midlands. Its contributions to the arts, sports, charities and community projects maintain all that is best in the British way of life. None of that should be allowed to perish on the whim of the ill-informed.
Can my noble friend the Secretary of State honestly be serious—at a time when the Midlands is really moving forward in its quest for full employment—in wishing to implement badly thought out proposals that stand every chance of dragging the area back to the ghastly days of the late 1970s and early 1980s? Can he honestly say that such drastic measures will improve the structure of the industry? I think not. Can he honestly say that to take away property rights (which is what the enforced divestment of public houses means) is something that we as a property owning democracy should sit back and allow to happen?
Does he think that there is a sufficient market on which to float all those superfluous properties? Especially at the present time, with high mortgage rates which are already a killer, can he see people who previously were tenants borrowing without any financial assistance at all from the industry to run their own businesses? I do not know one banker who would support them. I do not know one person who supports the recommendations of this report.
§ 6 p.m.
§ Lord Peston
My Lords, I take part in this debate as an Opposition spokesman on industry. My noble friend Lord Williams of Elvel did the same, and, as I understand it, the noble Lord, Lord Young, is still the Secretary of State for Industry.
As I listened to the debate it seemed to me that what was needed here was either the Secretary of State for Social Services and our spokesman for that on this side, since it appears that the brewers are undertaking to carry out social services and are not selling beer. Alternatively, our arts spokesman should be present as this debate raises concerns which are part of our national heritage; or we should have our employment spokesman because employment seems to be a fundamental issue in our discussions. There may also be a place for our agriculture spokesman because of the need to preserve our rural areas; or, if I understood correctly the right reverend Prelate the Bishop of Truro and there is some inextricable connection between the 1470 Church of England and the brewing industry, perhaps we need our religious affairs spokesman to be present.
In that case we are most fortunate on these Benches because our main spokesman on industry is also our religious affairs spokesman. To the right reverend Prelate the Bishop of Truro I must say that my old friend the noble Lord, Lord Annan, who listened to what he referred to as a splendid speech but who, regrettably, could not take part in the debate himself, asked me to remind noble Lords of the election song of the Liberals in 1880. They used to sing "The Churchman and the Brewer":We will drive them from the land For the non-Conformist children are marching hand in hand ".I must say that many of the contributions to the debate have somewhat distressed me. As an academic myself, I do not mind any attack on academics. As noble Lords are aware, I can take care of myself in that regard—and noble Lords may discover that for themselves in a moment or two. However, I have to say that the group of members of the Monopolies and Mergers Commission who produced this report were not a group of academics. So far as I can see, except for one obvious exception they are a group of businessmen. They have some experience of running industry but certainly I do not recognise most of them as academics.
I do not think that it will do to attack the Monopolies and Mergers Commission itself simply because one does not like what it has done. That is my first point. My second point refers back to the comments of the noble Lords, Lord Orr-Ewing and Lord Thomas of Gwydir. I remind the House that the Brewers' Society said that it did not think that this industry was a complex monopoly. However, I think one owes it to your Lordships to remind the society that these matters were looked into in very great detail by the Monopolies and Mergers Commission itself, and it has simply said that the Brewers' Society is mistaken. The noble Lord, Lord Thomas, is perfectly capable of saying that he does not agree. But it must not be misunderstood: the Monopolies and Mergers Commission is a major body and it has certainly taken a view which cannot be dismissed out of hand. I was most happy to hear the Secretary of State say that the advice from his department was exactly the same. This is a proper inquiry which falls well within the terms of the legislation.
I was equally distressed to hear the noble Earl, Lord Shrewsbury, say that the committee was ill informed. I cannot believe that he has read the report. For example, the least of the information contained in the report is all the information that the Brewers' Society produced, and, to give it credit, that information is summarised in every detail. If the group were ill informed, it is not obvious to me just how it could have been ill informed. What was the Brewers' Society doing in respect of the enormous chapter which summarises its evidence in the report if it was not correctly informing the MMC? If the noble Earl will reflect for a moment, he may consider that his use of those words was not entirely appropriate. In my view the group were not even 1471 remotely ill informed and that is not the way in which to approach this report.
Let me add that I do not believe that if we find ourselves with a report of this kind, any Member of your Lordships' House can do anything but consider it carefully; or rather, noble Lords would be failing in their duty if they did not scrutinise the contents of the report. That is the purpose of this debate.
I must say that I have generally heard very little which gives any suggestion of this report being a definitive report. An enormous range of evidence has been considered. It is a report that, in particular, states very clearly the views of the Brewers' Society and then goes to a great deal of trouble to rebut those views. It is fundamental to our deliberations that the relevant issues should have been considered. They have certainly been considered by a group of people who have no axe to grind. They are people who stand independently and act, as they are obliged to do, in the public interest.
One may disagree with them. I am not for one moment suggesting that when a report comes forward anyone is forced to say that he agrees with it. To suggest that this report is anything other than a first-class definitive analysis produced in a bona fide manner and using the best available evidence does less than justice to the report itself or your Lordships' House.
At the risk of tedium, I shall quote from the report itself. The opening paragraph reads:We have unanimously concluded that a monopoly exists in favour of those brewers who own tied houses".There is no shilly-shallying there. They say that they have unanimously come to that conclusion. Again, at paragraph 1.18:Eloquently though the industry's case has been put, we are not persuaded that all is well. We have confirmed our provisional finding that a complex monopoly situation exists in favour of the brewers with tied estates and loan ties".Paragraph 1.22 refers to the,detriments which we see as arising from this lack of competition",and in summary it lists the main detriments:the price of…beer …has risen too fast…the high price of lager is not justified by the cost of producing itetc.
Noble Lords can read this report as well as I can. All that is contained in the report. It is not a superficial report or one that has not considered the matter fundamentally and in my view considerately.
A particular point that I should like to draw to the attention of the House was also raised by the noble Earl, Lord Liverpool, although I think that the Secretary of State dealt with it quite admirably in his intervention. The report shows quite clearly that the real price of beer has risen over this period. Indeed, the noble Earl, Lord Liverpool, put the main point that it has risen in real terms at the same rate as real incomes have risen. Given that it is argued—as I think it was argued by the noble Lord, Lord Kimball, to whom we are thankful for introducing this debate—that there are economies of scale, in this industry to argue economies of scale plus a rise in the real price of the product at the 1472 same rate as the rate of rise in real incomes is all the evidence that is needed to show that this is a monopoly industry exerting a monopoly power. One could look for no harder evidence.
§ Lord Harris of High Cross
My Lords, I rise to intervene because the noble Lord, Lord Williams of Elvel, said particularly that this was partly a manufacturing business and partly a service sector. Over the past decade or so there has been a transformation of the facilities and amenities and everything related to the industry. One cannot say that it is demonstrable as the noble Lord says. Still it remains arguable.
§ Lord Peston
My Lords, I was about to return on other grounds to the remarks of my old friend, the noble Lord, Lord Harris, and I shall do so in a moment. However, I think that the evidence is overwhelming. We are not discussing a minor rise in the real price of beer—bitter in this case. I see that the noble Earl wants to intervene. Perhaps I may just finish this sentence. We are discussing a major price rise which could not possibly be accounted for by what has allegedly happened on amenities.
§ The Earl of Liverpool
My Lords, I am grateful to the noble Lord for allowing me to intervene again or at least to reply to him. I was referring to the 10-year period 1979–89 when prices rose by 15 per cent. in real terms. If one applies an average percentage increase, that comes to a little over 1 per cent. per annum. Given the enormous increase in that same period in the contribution to the Exchequer that has been made from the price of a pint through duty and VAT, I do not think that that is in any way unreasonable.
§ Lord Peston
My Lords, obviously the noble Earl is perfectly within his rights to say what he regards as unreasonable. Perhaps I may remind him that we should be looking at the same table. The table to which I refer is the one that takes out the VAT element. There may be a further element for VAT. However, this table is net of the VAT element. In my old Treasury days, the Exchequer was most obliged to the industry for generating a degree of revenue. Of that there is no doubt. I do not think that the ending of a monopoly here would diminish that revenue.
I was astonished and most disappointed by the speech of the noble Lord, Lord Harris of High Cross. It is a sad day for the Institute of Economic Affairs, of which he has been such an admirable leader—I recommend its pamphlets to my students—when its leading figure speaks in your Lordships' House in favour of one of the major restrictive practices—namely, the tie—that one can find in this country. I say that to him in terms so that he knows where I stand. He argues that the competitive model, which is the baseline for all serious analysis of economic welfare, no longer applies. If that is the case, the difficulty for him is that a very large number of the most interesting pamphlets ever to come from the IEA are now disowned by him. I found that a most 1473 unhappy intervention. Adam Smith would most certainly be turning in his grave on this matter.
Perhaps I may refer to Mr. Mills's minority report. There is a difference between a minority and a majority. We can agree at the very least that we are entitled to regard the majority group as bona fide people who have considered these matters. However, I was intrigued by Mr. Mills's point on competition. It was in the famous paragraph 42 to which my noble friend Lady Fisher referred. Mr. Mills states that the existing competition works. The point that many of us wish to make is that more competition will work even better and more in the interests of consumers.
I well understand why noble Lords on the other side have argued about the effect of either the recommendations of the MMC or those of my noble friend Lord Williams of Elvel. I was delighted to hear the sympathetic way in which the Secretary of State said that he was open to consider that line of advance. There is an enormous argument for going in that direction. However, it will weaken the big brewer. There is no doubt about that. But the whole point of trying to do something about monopoly power is that it weakens those who are exercising such power. That is the nature of the problem.
In praising the intervention of the Secretary of State, perhaps I may say that noble Lords will recognise how difficult that is for me on an occasion such as this. However, it is equally difficult for him to be praised by me when hardly a word has been spoken in his favour by anyone sitting behind him. His intervention that we must look carefully at the non-beer tie is also correct. We would very much agree with him. We are also well aware that the local monopoly problem will not necessarily be solved by the MMC recommendations. The problem of local monopoly is very difficult to solve. The Secretary of State and his department are looking at the local monopoly problems. He will be strongly encouraged by my noble friends and myself on that matter.
En passant, two aspects of the debate left me quite bewildered. I agree that pubs are better than they were. However, this mythology that pubs are so good seems to be rather exaggerated. Not all pubs, but too many, are still dirty, uncomfortable, noisy beyond belief and of course polluted by cigarette smoke. We know that they overcharge for soft drinks, and the public resent that. There is enormous evidence on that.
I do not wish to go back over the ground that my noble friend Lord Mason of Barnsley covered a few weeks ago. But we know that this admirable industry, envisaging itself as a social service, is still unable to provide a uniform standard measure of wine and is still unable to tell its customers what wine they are buying in the glass. I accept the premise of caveat emptor. I would not dream of ordering a glass of wine in a pub. Nevertheless, for those people who do, I should have thought that this marvellous social service industry, constantly concerned only with the public interest and not its profits, would move slightly more rapidly in the direction of letting the public know what they are getting when buying a glass of wine.
1474 The right reverend Prelate the Bishop of Truro and other noble Lords have raised the question of the rural pub. It is difficult to read the whole report through while listening to the debate. I have rapidly looked through the report a second time to see whether any definitive evidence was provided that rural pubs were threatened. If the subject is that important I am surprised that it was not a major part of the evidence of the Brewers' Society.
The issue seems to have arisen much more recently. When it realised that it was going to lose the argument on economic grounds, the society thought that it would go into rural preservation, heritage and such matters. I accept the view of the noble Viscount that one must not listen to academics because they have no experience of the world and do not know of these matters. However, as an economist, I am unable to see any evidence that the rural pub is threatened overwhelmingly, and I cannot think of any reason a priori why it would be. In particular, the brewers have not claimed that they are using monopoly profits in urban areas to subsidise the rural areas. They may not make the same profits in those cases, but I have not read that they are suggesting—they may now have changed their ground—that the rural pub is in some sense uneconomic and will go under in intense competition.
I have rather more belief in the market than most noble Lords opposite, though not the Secretary of State. In so far as the rural pub is desirable and desired, the market will provide appropriate rural pubs. I am not one of those who believes in competition in the market except where it concerns my own interests. I believe in competition in the market where it is relevant; and that is another matter altogether.
In conclusion, I believe that this subject has been thoroughly explored. I believe that the brewers have lost the argument. I believe that they now seek to reverse policy using a massive public relations campaign, financed no doubt by the monopoly profits that they earn. I believe that this is a critical moment for competition policy in this country. It is fundamental that the Secretary of State acts on this report and that he acts sooner rather than later.
§ 6.17 p.m.
§ Lord Young of Graffham
My Lords, again I say how grateful I am to my noble friend Lord Kimball for initiating the debate and for giving all in your Lordships' House the opportunity to debate this matter thoroughly. I have been sitting in your Lordships' House for close on five years now. It is said—I believe it fully—that one judges a man by his friends. I have had a certain amount of culture shock this afternoon as I begin to wonder where I am sitting.
In summing up, I find myself under a very real difficulty. Much that I could say would, I fear, be market sensitive. So there is very little indeed that I can add to the statement that I made earlier in the debate. There are however one or two small items that I wish to mention. I ask all in your Lordships' House to read my words very carefully. They were 1475 not chosen lightly. I ask noble Lords to ponder on them and what they mean—just as I shall read carefully all the contributions made this afternoon—in order to see the way ahead in what is a very difficult situation.
I correct one or two inaccuracies. The noble Lord, Lord Williams of Elvel, outlined what seemed at first sight to be in large part the proposals of the Wolverhampton and Dudley Breweries and CAMRA. In case he should be thinking that I have changed my position, I assure him that it is he who has changed. I said that I was attracted philosophically by the proposals of the Wolverhampton and Dudley Breweries to release the tie above the threshold because that would let the market work. One would have more consumer choice rather than the other way round. I am sure that the noble Lord will be reassured to find that what he finds attractive is the working place of the market.
I say this to the noble Viscount, Lord Falkland. We should be careful when referring to 1992 and considering the situation in terms of alcohol abuse. There is not necessarily a better world when we cross the Channel. It is some time since I saw the current figures. But it seems to me that the consumption of alcohol, for example in France, is considerably above that of the United Kingdom. That is not necessarily something which we should want to follow. These are areas in which we must be very careful.
The right reverend Prelate the Bishop of Truro expressed concern, which many in your Lordships' House have echoed, for the future of the village pubs. Perhaps I have led a peculiarly sheltered life—the noble Lord, Lord Williams of Elvel, seems to know that I have led a sheltered life—but many village pubs seem to me to be free houses. I am not sure how many pubs are tied and how many are free. The issue has only recently emerged and the figures are not available in the report. For many village pubs other services become attractive. I am not sure what effect that will have. It is something which we must take into account in our further deliberations.
I must tell my noble friends Lord Orr-Ewing and Lord Thomas of Gwydir that 25 per cent. is not the test. We are talking about the ease of market entry. Many speakers have referred to other matters. But the great difference between this industry, the on-house licence, and any other, is that the number of public houses in the country is limited. The number is 18,000. It has increased by only 7 per cent. over the past 20 years. It is that, coupled with a vertical tie, that persuaded, I believe, the Monopolies and Mergers Commission to say that a complex monopoly exists. Of course what we are looking at is a way to remedy that difficulty.
I should tell my noble friend Lord Pender that there is consensus among the parties, which includes the National Licensed Victuallers' Association, that security of tenure should be increased by bringing it within the Landlord and Tenant Act 1954. To the noble Baroness, Lady Fisher of Rednal, I must say that one cannot always choose one's beer merely by going to the local pub. In some local authority areas, though not many, over 50 per cent. of the pubs sell 1476 only one particular make of beer. In other areas it is a third. But there is evidence of local concentration. That may be a fruitful area to consider.
I assure my noble friend Lord Liverpool that I will exercise care over the next few weeks. I have heard enough in the House this afternoon to be fully aware that this matter is not taken lightly. I assure all in your Lordships' House that I shall not take it lightly. Indeed, when I enter into the final series of meetings with the brewers I shall be concerned to ensure that all noble Lords' views are taken into account.
The contribution that puzzled me the greatest was that of the noted Cross-Bencher, the noble Lord, Lord Harris of High Cross. I have known and respected the noble Lord for a long time. I wondered whether he was changing his whole approach to the workings of the market until the penny dropped at the very end of his speech. The noble Lord said that we should bring into being the recommendations of the Erroll Committee back in 1973 on granting licences. Of course the easiest way to cure the problem is to abolish the licensing system. Do that, and we have no problems! The market will expand and customers will choose. But there are very good reasons why that is not possible. I doubt whether there would be many in your Lordships' House, if any at all, who would seek that kind of solution. It is because we are in that difficulty that we find ourselves in a difficult complex monopoly situation, as the report shows.
We have had an interesting debate. If I go further I shall begin to say things which those who look at markets may misinterpret. I am grateful for what many have said in the debate and I shall read all the contributions with considerable care.
§ 6.24 p.m.
§ Lord Kimball
My Lords, I believe that the noble Lord, Lord Peston, forgot that criticism of the report came from behind him, to his left, to his right as well as in front of him. It is fair to say that this has been a unique debate. In fact, 17 noble Lords have spoken and 15 from all sides of your Lordships' House have found little in favour of the Monopolies and Mergers Commission's report.
I have worked out that the noble Baroness, Lady Fisher, in fact represented 6½ per cent. of our debate. The reduction in her percentage from 25 per cent. in no way reduces the importance of her contribution and her reflection of the problems in the Midlands.
We are all grateful to the right reverend Prelate the Bishop of Truro for his contribution. It may be his last week of duty as our prayer Bishop, but it is certainly not his last chance to contribute to our deliberations.
All of us on both sides feel that much of what the noble Lord, Lord Williams, said is worthy of further and deeper consideration. My noble friend asked us to give him an answer—I have his speech here which he was kind enough to send up to me—and study what he put forward about a threshold over and above which the national brewers would have to lease their houses to independent tenants at arm's length. That is little better than saying that they should be allowed to own only 2,000 houses. I am 1477 sorry, but I have to tell him after consultation that that is a totally impracticable proposition.
§ Lord Young of Graffham
My Lords, I hope my noble friend will forgive me and I am sure my noble friend consulted extensively with the whole industry, but the industry must reflect on what I have said and look at it carefully. Let us not come to any premature judgments.
§ Lord Kimball
My Lords, I accept that point, but I am giving an initial reaction to what my noble friend asked. My noble friend Lord Thomas showed us the extent of the legal tangle into which we may get. It is the Government's job to sort that out. It is not our job to do so. But we may find ourselves in a very difficult and serious situation.
I am grateful to my noble friend Lord Orr-Ewing because by his speech he succeeded in getting an undertaking from the Government which lays to rest the problem that we have all feared about the tie and its effect on clubs. It is a much more complicated issue than any of us thought before we started the debate. I really wonder what the hurry is. I hope we shall not rush into bringing forward the orders or even the primary legislation that is needed. After the debate we should go away as my noble friend has suggested and consult and reflect, because one of the reflections that must be faced is that the debate has shown that there is certainly no majority for any of these proposals. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.