Beer tie must go to Competition Commission, MPs say
Pubcos have come under severe fire in the long-awaited MP-led report into the tied model - with calls for an "urgent" Competition Commission investigation into the beer tie.
The 88-page Business and Enterprise committee (BEC) report contains damning evidence on the way the relationship between pub companies and their licensees operate - concluding the system is "biased" against licensees.
The "unanimous" report says: "We are not saying that all, or even any, pubcos abuse all lessees all the time, but it is clear that not only is there potential for abuse, but also that abuse occurs."
The report makes a string of potentially industry-rocking recommendations, including a call for the beer tie to be "severely limited" to allow proper competition in the market.
The group of 11 cross-party MPs also recommend:
- Every lessee, existing and new should be offered the choice of being free-of-tie or tied. "The status quo is not an option," it says.
- The AWP machine tie should be removed
- Greater transparency about how rents are calculated
- The Department for Business and Enterprise urgently explores ways to stop inequalities in bargaining power in contracts being abused.
- A ban on pub companies placing restrictive covenants on pubs, which stops them being used as pubs in future
Bullying
The report, a follow-up to the 2004 Trade and Industry Select committee inquiry, also attacks pubco business development managers (BDMs). It says its evidence suggests "there are still too many BDMS who "offer lessees little or no support, and some who bully or intimidate them".
It adds: "Some of our evidence suggests this culture is not limited to BDMs but can reach further up a company".
The findings are based on oral and written evidence presented to MPs during its inquiry - and its own independent survey of 1,000 lessees.
However a significant amount of the report focusses on the practices of the big two pub companies - Punch Taverns and Enterprise Inns.
Peter Luff MP, chairman of the committee, said: "The report explicitly acknowledges that not all the problems of the pub industry come from the tied pub model.
"Nonetheless, our inquiry found alarming evidence indicating there may be serious problems caused by the dominance of the large pub companies."
The report also expresses astonishment that there is no independent dispute resolution system that licensees can use.
Luff added: "It is not clear that the benefits of the tie outweigh its disadvantages.
"Our report challenges pubcos to demonstrate the benefits of the tie, by offering their lessees the opportunity to run their pubs on a free of tie basis. This can only work if there is a transparent system for negotiating rents.
"But even if the industry took up our challenge, the problems about the imbalance of bargaining power remain. We believe that the Department for Business, Enterprise and Regulatory Reform should examine this issue."
On the tie recommendations, Luff added that the committee did not want to damage regional brewers. "For this reason we are recommending an urgent investigation by the Competition Commission, rather than simply making a policy recommendation."
The report also says that the government must take responsibilty because "the OFT has failed to examine this market properly".
In a statement Punch Taverns said it noted with "disappointment" the findings of the inquiry.
"We call on the government to reject the committee's recommendation for a market investigation by the Competition Commission. The competition authorities have looked at this market a number of times," it added.
"We strongly believe that the tied pub model provides a fair and equitable approach to sharing risk between ourselves and our licensees, represents a low cost opportunity for entrepreneurs, and has a rightful place in the market."
Click to Full Pub Companies Report and all of the oral and written evidence provided to the committee.
