46% of tied tenants earn under £15k pa

29-Aug-2011 - Last updated on 30-Aug-2011 at 11:27 GMT

Tenants are campaigning for a fairer deal from pubcos

Forty six per cent of tied pub tenants earn less than £15,000 per year, more than twice the proportion among free-of-tie licensees, according to a new study that urges Government action on the beer tie.

A new report from the Institute of Public Policy Research (IPPR) includes a CGA survey of 558 licensees, with a balance of tenure and geography. In addition, 10 tied tenants were interviewed at random.

The survey found:
• 46% of tied tenants earn less than £15,000 per year, in contrast to 22% of non-tied licensees.
• 57% of tied tenants say they are struggling financially (non-tied: 43%).
• 88% of tied tenants who claim to be financially struggling identify the beer tie as one of the most significant factors in their financial problems.
• Nearly 90% of tied pubs generate an annual profit of £30,000 or less (non-tied: 74%).
• 68% of tied tenants have managed their pub for more than three years (non-tied: 80%).
• 37% of tied tenants believe that within three years they will no longer be managing their current pub (non-tied: 22%).
• 54% of tied tenants said their pubco added no value to their business.
• 28% of tied tenants see their pubco positively in terms of their business support, 20% as a recognisable brand name, 19% see a benefit of training support, 13% in property investment, 12% in the pricing of non-tied products.
• 32% of tied tenants have not received information on and read their pub company’s revised code of practice.
• 83% of tied tenants don’t believe the code of practice will benefit them; 17% believe the code will do further harm.

Some improvement
Pub companies could take some comfort from that fact that tenants’ responses were less damning than those given in a similar CGA survey in 2009 for the Business & Enterprise Committee (BEC), the predecessor to the Business, Innovation & Skills Committee (BISC) that’s investigating how pubcos treat tenants.

The 2009 survey found 67% of tied tenants earn less than £15,000 per year (2011: 46%) and 64% of tenants did not feel their pubco added any value (2011: 54%).

IPPR’s new report, Tied Down. The beer tie and its impact on Britain’s pubs, calls on the Government to:
• Require pub companies with more than 500 tied pubs offering commercial full repairing and insuring leases to “provide flexibility” to lessees, including a guest beer option and an option to become free of tie, accompanied by an open market rent review.
• Require pub companies to make information on business costs and turnover available to potential lessees.
• Require pub companies to cooperate with the creation of a pub rents database, and publish their wholesale price lists and details of discounts paid to lessees.
• Support the creation of a single “stronger and more comprehensive” code of practice, to be supported by an independently constituted adjudicator with the ability to provide redress to lessees where the code is breached.
• Implement the recommendation from the Law Commission that unfair contract terms regulations should be amended to improve protection for the smallest and most vulnerable businesses (firms employing nine staff or fewer).

Significant pressure
Rick Muir, IPPR associate director, said: “Thousands of publicans across Britain are being put under significant financial pressure by the beer tie. Our survey of publicans shows they have suffered worse through the recession because of this beer tie.

“The beer tie limits the commercial freedom of tied publicans, who are forced to pay more for their beer than non-tied operators.

"A recent Select Committee report shows that the higher prices tied publicans have to pay for their beer are not adequately compensated for by lower rents. It estimated that because of the discounts they can access, non-tied operators will make more money from their businesses.

“The Government should act to reform the way the industry operates and give publicans greater freedom from the big pub companies.”
The report is expected to add pressure on the Government to act on pubcos. It comes as the industry awaits the publication of the report by BISC into how pub companies have responded to criticisms about their treatment of tenants from by its predecessor BEC.

BISC’s report is due in autumn, and the Government is expected to respond within three months of its release.

Support
A spokesman for the British Beer and Pub Association, which represents pubcos, said: "We will look at the report and its recommendations carefully, but the recent survey we commissioned jointly with the Independent Pub Confederation shows that awareness of the new codes of practice is already very high among licensees, and rent is being clearly explained to tenants.

"These positive figures are even higher for new entrants, so we feel the industry is moving in the right direction. This survey also showed that 78 per cent of new lessees and tenants under took pre-entry training before taking on a tied pub.

"Also, we have recently reported to the BIS Select Committee that last year, BBPA members invested more than £250 million into supporting their tied estates.

"We need a thriving tied sector, as tied tenancies and leases still provide a low cost entry into operating a pub without the capital required to buy a freehold."

He added: "Any look at the problems facing the industry also needs to take account of the wider picture. Since March 2008,we have seen a 35 per cent increase in the tax on beer — this is a central reason why so many pubs are under pressure, as 50 per cent of their wet sales are still beer.

"Pubs are also some of the most highly regulated businesses in Britain, and this is adding hugely to operating costs."