Thank you, convener. Good morning, committee members. For transparency, I refer the committee to my entry in the register of members’ interests and the in-kind support that I have received from the Scottish Licensed Trade Association, the Campaign for Real Ale, GMB Scotland and Tennent Caledonian wholesalers.
I am grateful for the opportunity to discuss the bill. Now is a critical moment for Scotland’s pubs: it is the worst time for them since the second world war. Some may never open their doors again after the coronavirus crisis. We need to do everything that we can to protect and save the pubs that we all cherish and that contribute so much to our communities.
I have never claimed that the bill would help with all the problems of all pubs, but it is vital that it proceeds in order to help the approximately 750 pubs in the tied sector, which has well-documented, deep-rooted problems. Tied pubs, unlike free-of-tie pubs, face costly and unusual restrictions, which can deny tenants the flexibility that they need to sustain and grow their businesses. As you have heard, pub-owning companies often take far more than is fair from pub profits. The opportunities for Scottish products to reach the tied sector are limited, and the mark-up on tied products can be excessive and unsustainable. By rebalancing the relationship between tied tenants and pub company landlords, we can help tenants to make their businesses work and keep a fairer share of the profits that pubs make in the Scottish economy.
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The big pub-owning businesses say that the bill is a
“solution to a problem that doesn’t exist.”
They are entitled to disagree with the bill, but it is arrogant and irresponsible to deny that problems exist in the sector in the face of the evidence, so let us talk about the problems and the evidence.
As the Federation of Small Businesses and CAMRA explained in their written evidence, self-regulation has failed. Prior to the introduction of the England and Wales pubs code, there had been six voluntary codes in 10 years and four parliamentary select committee inquiries, culminating in a 2011 report, which said of statutory regulation:
“we see no other alternative for an industry which has for too long failed to put its own house in order.”
The Economy, Energy and Fair Work Committee has access to the findings of the consultation that I conducted on the bill, in which 93 per cent of the 275 individual responses supported legislative action. Most responses to the committee’s call for evidence support legislative action. Ninety-three per cent of the nearly 100 tenants taking part in the committee’s survey said that legislation is necessary. Do not let the pubcos tell you that there is no problem here.
The committee will also be aware of the 2014 CAMRA-commissioned study, which found that 65 per cent of tenants had an annual income of less than £15,000 and that 74 per cent believed that they were worse off as a result of their tie. How can that be fair or sustainable?
Tennent Caledonian has supplied evidence showing that, over a two-year period, while revenues grew by more than 5 per cent for free-of-tie pubs, revenues for tied pubs fell by 8 per cent, according to the CGA trading index. Times are tough but they are tougher if you are tied. Tennent Caledonian also cites a CGA study showing that the tied model extracts more than £30 million of profit from the Scottish economy. In written evidence, it said that English beers are stocked on the tied estate in Scotland at twice the level that they are in free-of-tie pubs, to the detriment of local products.
The committee heard evidence from Jamie Delap of the Society of Independent Brewers, who said that Beerflex provides only a “relatively small” element of access to the tied market. You heard evidence from Greg Mulholland of the British Pub Confederation that
“the reality of what they”—
pubcos—
“term ‘investment’ is that it is just a form of loan”.—[Official Report, Economy, Energy and Fair Work Committee, 18 August 2020; c 8.]
The investment myth has been busted. Tenants pay it back over and over again. You also heard Chris Wright of the Pubs Advisory Service say that investment by pubcos is often at high and uncompetitive rates. You heard that tenants on one side of the border have the protection of a statutory adjudicator, whereas tenants of the same pubcos here in Scotland do not. I have never made it a party-political issue, and I have no desire to do so, but it is a matter of fact that Scottish MPs of all parties, including the SNP, voted for the adjudicator in England and Wales.
However, there is something that the committee did not hear about, which is what the pubcos really think of the statutory code in England and Wales. In written evidence to the Business, Energy and Industrial Strategy Committee, they say that awareness of the statutory code is up, tenure has increased, the number of young applicants taking on a tenancy has increased and pubcos now provide better support for licensees and better recruitment processes.
The evidence is clear. If pubcos are good, responsible landlords, what do they have to fear from the bill? If a tied agreement is working well for a tenant, there is no reason to seek redress through a pubs code. However, if tied deals are not working, we need to rebalance the pubcos’ relationships with their tenants to ensure that they do. That boils down to three regulatory principles, on which I propose a code should be based: the principle of fair and lawful dealing, the principle that tied pubs should be no worse off than free-of-tie equivalents, and the principle that tied deals should offer a fair share of risk and reward.
The committee is asked to decide whether to recommend the general principles of the bill to Parliament. I believe that those principles are sound and represent a proportionate response to the deep-seated issues detailed in the evidence that the committee has received. I look forward to answering your questions.