Vince Cable: "In too many cases tenants are being exploited and squeezed"
It has become clear to me that the self-regulatory approach, which was announced by the Government in November 2011, has not been sufficiently far-reaching, with many individual publicans continuing to face significant hardships and difficulties. Therefore, further Government action is required in order to maintain a level playing field in the business environment.
The pub industry faces a wide range of challenges and the number of pubs has declined from 70,000 in 1980 to approximately 50,000 today. At present, 18 pubs (net) are closing every week. Whilst the financial crisis has brought into stark relief the slow process of sectoral decline, it is undoubtedly the case that the activities of the major pub companies, with their highly leveraged business model, have intensified the crisis.
With the banking collapse and subsequent recession, the weakness of companies with high debt-to-equity ratios has been rather brutally exposed. What we have seen in recent years is some pub companies trying to retrieve their financial position at the expense of their tenants. We are all familiar with well managed, popular pubs in our constituencies being driven to the wall by, frankly, exploitative financial practices.
Damaging behaviour
Although some pub companies behave well, the evidence I have received makes it clear that in too many cases tenants are being exploited and squeezed, through a combination of unfair practices, lack of transparency and a focus on short-termism at the expense of the long-term sustainability of the sector.
This behaviour, especially alongside the many other challenges facing the sector, risks damaging the British pub industry, which not only consists of small businesses employing hundreds of thousands of people across the country but also contributes substantially to community spirit and cohesion.
After considering the various options, I have therefore decided to consult on establishing a Statutory Code and an independent Adjudicator for the pubs sector to govern the relationship between large pub companies and their tenants. At the heart of this intervention I propose to establish both an overarching fair dealing provision and the core principle that ‘a tied tenant should be no worse off than a free-of-tie-tenant’, enshrined in statute.
I would like to be clear that I am not proposing to abolish the beer tie. When operated as envisaged and fairly, it is a valid business model being used responsibly by companies both large and small. Were it to be removed, the British brewing industry could be significantly disadvantaged.
What is clear is that it is the abuse of the tie, like the abuse of rent calculations and other factors, that is causing problems in certain circumstances.
Accordingly, the Government’s goal is simply to ensure that ‘the tied tenant should be no worse off than a free-of-tie tenant’. This consultation therefore asks an open question as to how best to achieve this, whether by a mandatory free-of-tie option or alternatively by mandating that higher beer prices must be compensated for by lower rents, or by other means.
The Government is committed to ensuring a fair deal for tenants and I look forward to hearing from all those who have a view on how to achieve this.
Adapted from the foreword to the statutory code consultation. Vince Cable will be the keynote speaker at the Tenanted Pub Company Summit on 17 June.
