If the flutter of a butterfly’s wing can stir a hurricane, is it possible that a letter fluttering into the wrong office tray in 1989 helped bring about a law that blew like a tornado through the pub and brewing industry, shaking it so hard we still feel the reverberations today?
Sir Peter Luff, sitting over a pint in a pub owned by Young’s, which, as it happens, was one of the firms that stopped brewing in the wake of the Beer Orders, isn’t suggesting the ‘Lost Letter’ was solely to blame.
But he includes it in a “combination of little things” that meant a law that shouldn’t have happened did happen – with consequences that continue to shape the dynamics of the industry.
Luff’s connection with pubs goes back way before 1989. He is delighted to report that when The Morning Advertiser was launched at the end of the 18th century, his family was running the White Hart, a coaching inn at Slough on the road from London to the West.
His publican ancestors later sold up to open the town’s first post office, which grew into a stationery business that Luff worked in for a brief spell.
He also fondly remembers being a pupil at the Licensed Victuallers’ School at Slough, where the houses were named after their brewery sponsors, something he’s not sure you could get away with today.
“So pubs go way back into my personal history,” he says. “It’s been a theme throughout my life.”
The theme was to play again, with a note of discord, when Luff became special adviser to Lord David Young, trade & industry secretary in Margaret Thatcher’s Conservative government.
“They were three happy years, but the one thing we got wrong was the Beer Orders,” he admits.
When the report of the Monopolies & Mergers Commission’s inquiry into the brewing industry and the tied house system landed on his desk in March 1989, he was surprised to find that it called for, among less controversial measures, brewery tied estates to be capped at 2,000, slashing through the pub operations of the UK’s largest brewers, known as the ‘Big Six’.
“We knew something was wrong with the industry, but the MMC recommendations were more radical than certainly I expected,” he recalls. “In retrospect, Leif Mills got it about right.”
In a ‘Note of Dissent’ Mills, the lone representative of trade unionists, pub-goers and beer drinkers on the commission, described the forced sell-off as “an unnecessary leap in the dark” that might very well make matters worse and reduce competition.
But the MMC majority held sway and, in a phrase that became notorious, Lord Young declared he was “minded to implement the recommendations”.
The following months, says Luff, “are burned into my memory”. “There was Brexit-like acrimony to the debate and, like Brexit, it split the Tory Party.”
‘Beerage’ fury at proposals
The ‘Beerage’, as the aristocratic leaders of the brewers were known, rose up in fury at the proposals, carrying with them local Tory MPs who stood in their party’s long tradition of supporting the brewing industry.
Yet Luff insists they had misunderstood Lord Young’s intentions, misreading the arcane language of his statement.
“It was our legal advice to publicly use that form of words – ‘minded to implement’. We had no choice about that. And it had never been controversial before.
“It was really an invitation for people to come forward and tell us we shouldn’t do it, so it opened a dialogue. All outcomes were negotiable, there were a range of other remedies we could have used.
It could have been done differently but we didn’t communicate that with sufficient clarity, and that wasn’t what the industry heard.
“We expected dialogue and instead all hell broke loose. We had the brewing industry attacking us and that was probably our fault.”
Even then it might not have been so bad were it not for the Lost Letter. It had come from Sam Whitbread, a direct descendant of the Samuel Whitbread who founded the famous brewery and arguably the most respected member of the Beerage. And it asked for dialogue.
The first Luff knew of it was when Whitbread began to publicly complain that he’d been ignored.
“We couldn’t remember receiving any invitation to talk so I dug around in the in-trays and found the letter. It had been marked for Lord Young’s urgent attention but for some reason had sat in that tray for a whole month. It was an administrative error and it was one of the little things that set the brewing industry against us.
“If we’d had a proper dialogue at that stage, if the brewers had come to us and said ‘what do you mean?’, the situation becomes very different.”
Another error was miscalculating that a substantial slice of the industry would side with the Government.
“We over-estimated the desire among smaller brewers for a more competitive marketplace. Middle-sized companies, like Wolverhampton & Dudley (later Marston’s), did see an opportunity to expand, but most family brewers had no hunger for change, no thirst for competition.”
Pressure forced compromise
Though pressure from the Beerage, and from within the Tory Party, forced Lord Young to compromise, chiefly by halving the number of houses the Big Six would have to free from the tie or sell-off, 11,000 pubs was still a large number, and it made little difference to the outcome.
Most controversially, of course, the Beer Orders opened the door to a new kind of pub operator, companies set up to buy the former brewery pubs that flooded the market between 1990 and 1992 and, because they didn’t brew, were still able to tie their tenants for beer and other supplies.
“It’s blindingly obvious now that would happen,” says Luff. “It didn’t occur to us at the time, though, and as an economist perhaps it should have.
“If I’ve learned one lesson from politics it’s that intervening in an industry like this will lead to consequences you can’t foresee. Intervene in the market at your peril!”
While the unpopularity of the Beer Orders probably had its part to play in the Cabinet reshuffle that removed Lord Young and his special adviser from their posts within weeks of its publication, there was another twist in the tale for Luff and, perhaps, a chance to tackle the most aggravating consequence of the legislation.
By 2004 two pubcos, Punch Taverns and Enterprise Inns had, through aggressive takeover strategies, expan-ded to each own more than 8,000 tied pubs, and their frequently abrasive relationships with their tenants had attracted the attention of Parliament’s Trade and Industry Select Committee.
It made a number of recommendations about how the pubcos might improve their behaviour and suggested the situation be reviewed during the following Parliament.
That didn’t happen until 2008 when Luff, now an MP, found himself chairing the renamed Business & Enterprise Select Committee and coming face-to-face with the pubcos and tenants born, indirectly, of the Beer Orders.
“It was meant to be just a bit of good housekeeping,” he says. “But we were appalled at what we discovered, at how the big companies were behaving. They were gobbling up and spitting out publicans on a scale that was shocking. It was a real revelation to me.
“I’ve never known a select committee more united in its outrage.”
That outrage was exacerbated by the attitude of the big pubcos. According to Luff, “they were doing things that were wrong, yet they came in like rampaging rhinos to defend themselves”.
Presented with contradictory accounts of the situation, the MPs went so far as to conduct their own research among tenants. “That was a first for the committee, and it produced striking results.”
They concluded the relationship was unfair to lessees and tenants. The pubcos had failed, among other things, to adequately explain to them the business risks and to properly train business development managers to give them the support they needed.
Luff concedes that “some tenants are bad business people, but the pubcos were to blame for letting them in, taking advantage of them, and we had to stop that happening.”
Reaching an agreement was difficult and required a third inquiry by what was now called the Business, Innovation & Skills Select Committee, also chaired by Luff. On the tenants’ side of the argument it had become “a cause,” says Luff. “Extreme positions were taken and neither side would move.”
Some in the licensees’ camp demanded an end to the tied-house system itself, not something he could support. “The tie has benefits. It’s like a franchise so there should be no problem with it if it’s operated to both parties’ mutual benefit.
“But on balance I was with the lessees. A particular problem was that the pubcos felt their whole business model was vulnerable and they didn’t want to concede anything.
“Perhaps they couldn’t afford to be honest about their behaviour, but when you are under pressure like that you must concede ground and exceed what your opponents expect from you.”
Luff was determined to pursue a voluntary solution. “Self-regulation is always best. It’s cheaper and there’s less acrimony. It creates better relations. When the state comes in it takes a long time, there are unintended consequences and there are costs. It’s bureaucratic and expensive. Both pubcos and their tenants lose by not having voluntary regulation. They have a shared interest so they should work together.
“I wanted the pubcos to embrace a voluntary code to avoid a statutory code. I came close, but in the end it was a case of too little, too late.”
The statutory pub code that eventually followed the inquiry is to be reviewed in a couple of months. “It’s up to others now to judge whether it’s working,” says Luff.
“But I know there have been improvements, and if we’d had what we’ve got now five or six years ago there would have been no need for a statutory code.
“PIRRS (the Pubs Independent Rent Review Scheme) is an efficient way of resolving rent disputes, as long as it’s consistent. MRO (the free-of-tie market-rent-only option) is no magic bullet, but I hope tenants can use it as a lever to get a better tied deal that can work for both parties – they have to understand, though, that property companies like pubcos have to make a return on their investment.
“I’d be interested to see the results of the review, to see whether that’s happening and whether deals are offered fairly. That’s the test.”
And Luff isn’t quite out of the game yet. As chair of the Pub Governing Body (PGB), which looks after landlord-tenant relationships among pub operators with fewer than 500 houses that aren’t covered by the statutory code, he’s still hoping he can influence the industry’s future.
Taking a lead on regulation
He’s pleased with what the PGB has achieved so far, especially improvements in training for BDMs and members’ “generally good relations with tenants”. Companies that haven’t joined – “they know who they are” – are warned they are a risk to the reputation of the whole industry.
The body is currently working on an accreditation scheme, a stamp of approval from the PGB that prospective licensees can check before signing a deal.
“We’re taking a lead, and if we can continue getting it right we will demonstrate that self-regulation works.
“As a result of what we’re doing at the PGB I think the Government may one day be able to say, with the consent of those involved, that they’ll end statutory regulation for the rest of the industry. That’s my hope.”