Meeting of the Parliament (Hybrid)

Meeting date: Tuesday, March 23, 2021

Official Report 1178KB pdf

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Tied Pubs (Scotland) Bill: Stage 3

We move to stage 3 proceedings on the Tied Pubs (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2, the marshalled list of amendments and the groupings of amendments. As usual, I will sound the division bell and suspend proceedings for five minutes for the first vote. Each vote will last for one minute.

Section 14—Adjudicator’s duty to arbitrate or appoint arbitrator

Group 1 is on the application of the Arbitration (Scotland) Act 2010 in relation to section 14. Amendment 2, in the name of Andy Wightman, is the only amendment in the group. I just heard Andy Wightman giving his valedictory remarks, but I call on him now to speak to and move amendment 2.

Amendment 2 aims to ensure the operation of an effective statutory arbitration scheme. I am concerned that the scheme as proposed in the bill is not governed by the Arbitration (Scotland) Act 2010. As the bill stands, the scheme allows for the arbitration rules of any institution to be adopted and for arbitrations to be seated in England or elsewhere. There is also no appeals mechanism in respect of an arbitration, which seems unfair.

I take the view that any statutory arbitration scheme in Scotland should follow the Scottish arbitration system and rules, be seated in Scotland and have the proportionate appeal processes within that system. Parties should not be deprived of the benefit of the procedures that are set out in the 2010 act.

The 2010 act was designed to augment and enhance statutory arbitration, and section 16 has the effect that the act’s substantive provisions and the Scottish arbitration rules, which are set out in schedule 1, govern any arbitration that is carried out under a legislative provision. The rules set out a scheme that allows an arbitration to proceed from the appointment of an arbitrator to the final and binding determination of the dispute, including appeals to the court. All that is needed to attract the 2010 act is that legislation says that a dispute is to be resolved by arbitration, or words to that effect.

Almost 11 years on from royal assent, section 16 of the 2010 act is still not in force. That is a matter of regret, and I urge the Scottish Government to bring it into force as soon as possible.

Despite the delay in bringing that important statutory provision into force, drafting tools have been used by the Scottish Government and the United Kingdom Government to ensure that that approach to statutory arbitration can apply to new statutory schemes. Therefore, there is precedent elsewhere for the approach in amendment 2—for example, in the Food Safety Act 1990 as amended by the Food (Scotland) Act 2015. That illustrates that the Scottish Government has considered the approach important in new arbitration schemes in the context of previous bills.

I understand that the Scottish Government shares my concern about the approach to arbitration in the bill but has indicated that the issue can be fixed by subordinate legislation. I do not consider that to be an appropriate approach to the development of primary legislation, and my view is shared by Brandon Malone, the chair of the Scottish Arbitration Centre, and Lord Glennie, a recently retired judge of the Court of Session who is vice-chairman of the board of the Scottish Arbitration Centre.

Amendment 2 would ensure that the arbitration scheme in the bill was, rightly, governed by the Scottish arbitration system, including that system’s fair appeals mechanism.

I move amendment 2.

Let me briefly say how far we have come with the bill. At stage 2, more than 300 amendments were lodged, whereas at stage 3 we have 13 amendments to consider—I am sure that I am not alone in welcoming that.

The issue that amendment 2 seeks to address did not come up at stage 2. As Andy Wightman said—he is well informed—the Government does not support amendment 2. As we heard, it would apply the arbitration scheme as set out in the provisions of the Arbitration (Scotland) Act 2010 as if those provisions were in force. In the Government’s view, and in my view, having discussed the matter with Neil Bibby, the member in charge of the bill, amendment 2 is not necessary and would create rather than resolve issues when it came to conducting arbitrations under the bill.

One difficulty with amendment 2 is that it would apply the arbitration rules in the 2010 act without resolving potential clashes between provisions in the bill, such as those at sections 16 and 17 on fees and expenses, and provisions in the rules on that. Some of that may be resolved by section 16(3) of the 2010 act, which provides generally that the bill’s provisions trump the rules in some cases, but that sort of clash is what the power to modify legislation in section 17 of the 2010 act was designed to sort out.

The delegated powers in the bill and in the 2010 act will allow ministers to consider how the Scottish arbitration rules regime should most appropriately be applied in the context of the bill. That is in tandem with the process of drafting and consulting on the Scottish pubs code, which is where the detailed regulatory provisions will lie.

Appropriate arbitration is important for business and, as the Minister for Business, Fair Work and Skills, I recognise arbitration as a cost-effective, fast and flexible way of resolving disputes outside the courts. I am keen, therefore, that we get this right. I reassure members and any stakeholders who are watching, including the Scottish Arbitration Centre, that any issues can be worked through properly through consultation and engagement. That engagement will, of course, include the Scottish Arbitration Centre, whose knowledge and input is valued. The time for such engagement, though, is when the code is being developed and not when the overarching legislation is being discussed. I therefore call on members not to support amendment 2.

I refer members to my entry in the register of members’ interests and the support that I have received in relation to the Tied Pubs (Scotland) Bill. At the outset, I thank Andy Wightman for his interest in the bill and his contribution as a member of the Economy, Energy and Fair Work Committee. I congratulate him on progressing his own bill to stage 3 today.

Section 14(2) of the bill confirms that arbitration proceedings under the bill must be conducted in line with the rules of the Chartered Institute of Arbitrators or any other dispute resolution body nominated by the arbitrator. The purpose is to ensure that arbitrations are conducted in accordance with recognised sectoral rules and guidelines. However, amendment 2 would leave out that subsection entirely and would instead provide that, until the Arbitration (Scotland) Act 2010 is in force for any arbitration being carried out under section 14(1), the act is to be treated as applying as though it were in force for that arbitration.

I have concerns about the construction of the amendment. For example, it would leave out all of section 14(2) instead of seeking to add a further provision to those already included. I also think that there is a risk in seeking to put what the amendment proposes into the bill when ministers have up to two years in which to make the code and appoint an adjudicator. Could we be sure that what was agreed now would be fit for purpose by the time the code and adjudicator were in place? The 2010 act’s statutory arbitration provisions might be in force by the time the bill became operational law, in a couple of years, leaving the approach in amendment 2 unnecessary.

Like the minister, I think that it would be better not to agree to the amendment today. If, when the time comes, the Scottish Government feels that the bill needs to be linked to the 2010 act more effectively, it can use the power that is already in the bill to make ancillary regulations. I therefore ask Andy Wightman not to press amendment 2.

I thank the minister and the member in charge of the bill for their comments, and I note the points that they have raised. I acknowledge that perhaps the issue could have been raised earlier. I also welcome the minister’s acknowledgement of the Scottish Arbitration Centre’s expertise—indeed, it assisted me with the amendment.

In the light of the fact that, as I understand it, the Scottish National Party and Labour groups oppose amendment 2, I shall allow members to remain in their offices for a little longer by not pressing the amendment.

Amendment 2, by agreement, withdrawn.

After section 19

Group 2 is on investigation into changes to pub leasing arrangements before the act is fully in force. Amendment 3, in the name of Neil Bibby, is grouped with amendment 10.

I have lodged these amendments to allow the adjudicator to tackle an issue that has been of concern to the industry and to me for some time, which has taken on new significance following amendments made to the bill at stage 2. The bill was amended at stage 2 so that the Government now has a maximum of two years—extended from the one year originally in the bill—in which to make the code and appoint an adjudicator. I have said before that I understand the very fair and legitimate reasons why the Government would wish that to be the case, not least because of the impact of Brexit and the Covid pandemic.

I thank the minister for his constructive engagement with me on this issue and on the bill more generally. I am also grateful for the minister’s confirmation that the two-year timeframe is not a target and that the code and adjudicator may well be in place sooner than two years after the bill is passed.

However, there are already concerns among tenants and representative organisations that some pub-owning businesses may use the period between the bill passing and the code and adjudicator coming into effect to take steps to avoid the code by creating agreements by other means that could take them out of the scope of the code and adjudicator. Those could include short-term agreements, self-employed management agreements and other forms of bogus self-employment. If that was to happen, it could have a significant impact on tenants’ rights, pubs and consumers.

I therefore lodged amendment 3 to require the adjudicator to start an investigation in the first year of their appointment into any changes that were made to contractual terms in the period between the bill receiving royal assent and section 7 of the bill coming into force, which relates to the unenforceable contract terms, if those changes resulted in agreements not being covered by the code. The amendment requires the report, which would include an explanation of the adjudicator’s findings, to be published and laid before the Parliament, which would allow for committees to scrutinise the report and ministers to give it full consideration.

Amendment 10 is a consequential amendment that allows the adjudicator to require a person on pain of prosecution to provide information in relation to that avoidance investigation by adding the investigation to the list of reasons for such information gathering that is set out in paragraph 4 of schedule 2.

I respect the right of businesses to manage and structure their business as they see fit, if that is done fairly and with good intent. However, most of us would agree that deliberately seeking to undermine the code before it is enforced is not desirable. For various reasons, it would not be possible for the bill to directly provide for such avoidance attempts, but I ask members to consider the amendment in my name and give the adjudicator the power to investigate such behaviour.

I move amendment 3.

I recognise and understand Mr Bibby’s worries about possible avoidance behaviour by pub-owning companies in the period before the code comes into effect. That issue has also been raised with me by the Scottish Licensed Trade Association. I reiterate my observation that it is inherently difficult to avoid a code that is not yet written, but I understand that the concerns are primarily about the timescale for the implementation of the code. I emphasise Neil Bibby’s point that the two years is very much a backstop; it is not, as he rightly said, a target and we are committed to putting the code in place as soon as possible with the appropriate consultation.

It is an area that is worthy of debate and discussion, so in that sense I am glad that Neil Bibby has lodged amendments 3 and 10 to give us the opportunity to debate them. As he laid out, the amendments place a duty on the adjudicator when first in office to begin an investigation into activities of pub companies in the period before the code comes into force. In the first instance, I am somewhat concerned that that might mean that the adjudicator would be diverted from their fundamental and important task of implementing the code as it applies to tied pubs in Scotland.

Moreover, I am concerned that the process of investigation that is required by amendment 3 could undermine the establishment of productive relationships between the adjudicator and the pub sector at their inception. We also need to establish a relationship of trust with all parties and, in that regard, I worry about the signal that that would send. Mr Bibby will recall that I have made that point directly to him.

I acknowledge the intentions behind amendments 3 and 10 and I thank Mr Bibby for talking them through with me, but I do not think that they are required, for the reasons that I have outlined. The amendment that I lodged at stage 2 that provided for the code to specify circumstances where a market-rent-only lease need not be offered and the proposals that we will shortly debate in group 4 are a better way to reassure pub-owning companies and encourage them to retain tied pubs. That is the fundamental concern that this set of amendments drives at.

The Government is committed to ensuring that the bill and the market-rent-only provisions are fair for landlords and tenants. I have been clear that the code will be subject to the fullest consultation, but it will also be informed by the behaviour of all parties in the intervening period before it comes into effect. I urge all stakeholders to recognise that and to continue to work constructively with one another and with the Scottish Government. On that basis, I ask Mr Bibby to consider withdrawing amendment 3.

18:00  

After lodging my proposal for the bill, I received numerous reports that pub companies would seek to avoid a statutory code by adjusting their operating model. Whenever Parliament chooses to regulate an industry, that industry will—inevitably—react. However, the only reason for pub companies to seek to avoid fair and proportionate regulation would be if they knew that at least some of their business practices were incompatible with the principles that underpinned such regulation.

Pub companies in England and Wales made similar threats, many of which turned out to be exaggerated. The tied model continues to be a feature of the sector there, albeit that tenants are now empowered to seek a better deal.

I am concerned about the possibility of so-called Uberisation in tied pubs. That might attract other regulators’ attention, but the Parliament and any adjudicator that we create should be aware of the impact of the gig economy’s extension into the sector, particularly between royal assent and commencement.

The coming months will shine a light on pub companies’ conduct. Will they be willing to engage with fair and proportionate regulation or will they disadvantage some of their tenants in a deliberate attempt to avoid it?

I have listened to the arguments and particularly to the points that the minister made. I thank him for his reassurances, particularly about timescales. I accept that we must proceed as far as possible on the basis of good faith, so I will not press amendment 3. I will watch developments closely.

Amendment 3, by agreement, withdrawn.

Schedule 1—The Scottish Pubs Code

Group 3 is on the Scottish pubs code and a requirement to offer a guest beer agreement provided that the beer is produced by a small brewery. Amendment 4, in the name of Graham Simpson, is grouped with amendments 5 and 6.

These amendments would ensure that the guest beer provision could be used only by a small brewer and not by a larger multinational brewer, which would already have routes to market. The bill allows any brewer, regardless of its size or location, to take advantage of the provision. Amendment 4 is aimed at preventing a race to the bottom on price, which would result only in smaller domestic brewers being priced out.

At stage 2, Neil Bibby helpfully mentioned Strathaven Ales. Strathaven is near where I live, in East Kilbride, and I can attest to the fine produce of Strathaven Ales. I am applying the Strathaven Ales test to ensure that smaller breweries get a fair slice of the cake.

Without my amendments, far from encouraging more domestically produced beer into our pubs, we would have fewer opportunities for smaller brewers to access pubs, because pub-owning companies would need to compete in their own premises with larger brewers. Far from encouraging the provision of more Scottish beers in Scottish pubs, the bill without amendment would result in fewer domestic brands from smaller producers appearing in tied pubs. It would fail the Strathaven Ales test.

The bill could be seen to prevent the setting of further parameters on guest beers in the code because of the words:

“regardless of who produces it”.

Amendment 4 addresses that by stipulating that the beer would be

“provided … by a small brewery”.

Amendment 6 would grant the power to define a small brewery in the code. The amendments are all aimed at ensuring that the bill would do what I believe Neil Bibby intended when he introduced it.

I move amendment 4.

The guest beer provisions were the subject of considerable discussion at stage 2, when a number of similar amendments were lodged, voted on and defeated. I made it clear then and reiterate now that the Scottish Government is keen to encourage the supply of local craft beers in pubs, for the benefit of producers and consumers. In that sense, I am not unsympathetic to Mr Simpson’s aims and I recognise his good intentions with the amendments. I say to him that I have not yet had the good fortune to sample any ale from Strathaven Ales, but I look forward to doing so in due course.

As I said at stage 2, I am considering how the guest beer arrangements under the code might be shaped through the existing provisions in the bill.

My view was and remains that the details on the matter would be best laid out in the code, rather than in the bill, which could cause difficulties in implementation. As I have already said today, the detail of the code will be subject to wide consultation and, in that context, consideration will be given to how we support small breweries. That is the correct approach, in contrast to being prescriptive in primary legislation. On that basis, I urge members to reject the amendments.

The amendments in the group seek to restrict the guest beer right to beers from small breweries only, with the definition of “a small brewery” to be set out in the code. They would remove the freedom and flexibility as to the producer and provider of the guest beer as currently provided for in the bill.

As I made clear at stage 2 when various amendments were debated that sought to restrict the terms of the guest beer right, I have sympathy with the principle of looking to support and encourage small brewers and businesses in getting more Scottish pubs to stock local craft beers. However, I fundamentally support tenants being able to choose which guest beer to sell depending on their circumstances and customer preferences. That was the underlying principle on which I based the guest beer right as set out in the bill and that is why I oppose amendments that seek to limit which beers can be chosen as a guest beer.

The bill requires the code to specify the circumstances in which the offer must be made. That is appropriate: the consultation process and the code, rather than the bill, are the best places to consider such matters.

As it stands, the bill, including the market-rent-only provision, will benefit Scotland’s brewers and will protect Scotland’s small brewers. It will enhance opportunities for tied publicans to stock Scotland-brewed products, across the tied estate. The bill is a game changer in that regard. I urge members to reject amendments 4 to 6.

I have nothing further to add. On the basis of what has been said, I will not press amendment 4.

Amendment 4, by agreement, withdrawn.

Amendments 5 and 6 not moved.

Group 4 is on the Scottish pubs code and the requirement to offer a market-rent-only lease. Amendment 12, in the name of Graham Simpson, is grouped with amendments 13, 8 and 9. If amendment 8 is agreed to, it will pre-empt amendment 9.

My amendments 12, 13 and 8 aim to provide clarity for pub-owning businesses and tied pub tenants, who have all raised concerns about the impact on investment in their businesses due to the current wording of the bill. My amendments would ensure that some parameters are set in the detail of the pubs code that will give a limited degree of confidence that investments in sites can continue at this crucial point in the sector’s recovery. As the bill is currently drafted, there can be no protections contained in the code and, crucially, no foresight, beyond the comments of the current minister.

That will create significant problems for pub companies in identifying funding and in conversations with lenders. Both landlords and tenants have said that they have real concerns about the impact on future investment, even if amendments 12, 13 and 8 are agreed to. A degree of uncertainty and investment risk in tied pubs is now inevitable, which is a real shame. At the very least, the amendments will ensure that there must be—not may be—some provisions to enable a return in investment made, without the risk of an MRO being triggered during that time. That is the only difference to the Government’s amendment 9, although the difference is critical.

Since the introduction of the code in England and Wales in 2016, Scottish pubs’ share of Great Britain-wide spend has doubled. If the amendments are not agreed to, that trend could be reversed, putting the Scottish tied-pubs sector at a competitive disadvantage in comparison to the rest of the UK.

As members well know, the whole hospitality sector is currently on its knees and investment will be crucial to aiding its recovery. My amendments seek to give the sector a limited degree of confidence at this time.

I move amendment 12.

I welcome the amendments in this group, which concern a part of the bill that is crucial to landlords and tenants. It is clear that that remains the case from the discussions that I have had with stakeholders since stage 2, so it is right that we are able to debate the issue this evening.

It is important that the market-rent-only provisions are fair for both landlords and tenants. That is why I lodged amendments at stage 2 to allow the Scottish ministers to set out in the code the circumstances in which a market-rent-only lease may not be offered. The development of the code will, of course, be subject to consultation but, as I have said, my strong inclination is that investment should be one of those circumstances. I want to reassure pub-owning companies that Scotland is open for business and welcomes investment in Scottish tied pubs. I want pub-owning companies to have confidence and to continue to invest in this important sector.

My amendment 9 will provide assurance to the sector that the Scottish Government is committed to protecting the position of pub companies with regard to investment. The amendment strengthens my stage 2 amendments on MRO leases and reflects the conversations that I have had with stakeholders—landlords, tenants and, of course, Mr Bibby—about this element of the bill. I believe that amendment 9 has strong support and will improve the balance of the bill.

My stage 2 amendment deliberately included the word “may”, before specifying the circumstances in which an MRO lease may not be offered. It provides flexibility in relation to when an MRO lease has to be offered. The default position remains that a pub-owning business will be required to offer an MRO lease.

Amendment 13 would make it a requirement for the code to set out the circumstances in which an MRO lease need not be offered. In my view, that would go too far and would remove the flexibility that the Economy, Energy and Fair Work Committee endorsed by supporting my stage 2 amendment. Although I welcome the fact that Mr Simpson has acknowledged and incorporated the wording of amendment 9 in relation to investment, I do not think that amendment 13 is necessary. Amendments 8 and 12 are consequential to amendment 13.

I do not support Mr Simpson’s amendments. I ask members to support my amendment 9.

Under the bill as introduced, the code required pub-owning businesses to offer a market-rent-only lease to a tenant who requested such a lease—there were no exceptions. As the minister has said, as a result of the amendments that he moved at stage 2 it is now possible for the code to specify the circumstances in which a market-rent-only offer need not be made by a pub-owning business.

Amendment 13 would go further by making it a requirement, rather than a possibility, that the code sets out circumstances in which an MRO offer need not be made. It also includes the example that an agreed investment may be a reason for an MRO offer not to be made. The investment example is also the subject of the minister’s amendment 9, which I will come to in a moment.

I remain satisfied that the minister’s amendments at stage 2 strike the right balance, so I will not support Graham Simpson’s amendments in the group. I therefore ask members not to support amendments 13 and 8. Amendment 12 is a consequential amendment, which will not be required if amendment 13 is not agreed to, so I will not support amendment 12 either.

As I have explained, the minister’s stage 2 amendment means that paragraph 5(3)(aa) of schedule 1 to the bill allows, but does not oblige, the code to specify

“circumstances in which a pub-owning business need not offer to enter into a market rent only lease with a ... tenant”.

Amendment 9 adds to that the example of circumstances

“where an agreement to invest in a tied pub has been entered into”.

The amendment does not change the scope or legal effect of the bill, and it might be helpful in providing an indication of the sort of circumstances that may be consulted on and considered for inclusion in the code. The amendment might also help to improve relations between tenants and pub companies. Such a measure could be beneficial for all involved—tenants and pub-owning businesses—so I will support amendment 9 for that reason.

Mr Simpson, do you wish to press or to withdraw amendment 12?

I wish to withdraw it.

Amendment 12, by agreement, withdrawn.

Amendments 13 and 8 not moved.

Amendment 9 moved—[Jamie Hepburn]—and agreed to.

Schedule 2—Scottish Pubs Code Adjudicator

Group 5 is on the Scottish pubs code adjudicator and the power to require information. Amendment 1, in the name of Neil Bibby, is the only amendment in the group.

Amendment 1 is a minor and technical amendment. Paragraph 4 of schedule 2 deals with the adjudicator’s powers to require information, and paragraph 4(2) lists the purposes for which the adjudicator may require information. Unfortunately, there is an error in paragraph 4(2)(b), which currently refers to a subsection of the bill that does not exist and also is not worded accurately. Amendment 1 corrects that error without changing the intention behind the provision. The amendment will ensure that the adjudicator can require information for the purposes of monitoring whether the requirement to comply with a direction given under section 9(2)(a) has been fulfilled, which has always been the policy intention.

I move amendment 1.

18:15  

Minister, do you wish to add anything?

I will briefly commend Mr Bibby’s eagle-eyed nature and urge members to support the amendment.

Amendment 1 agreed to.

Amendment 10 not moved.

Group 6 is on the Scottish pubs code adjudicator and assistance from the Scottish ministers. Amendment 11, in the name of Andy Wightman, is the only amendment in the group.

Amendment 11 relates to the staffing of the new adjudicator. It would allow for the Scottish ministers to “ensure the provision of” staff in respect of the adjudicator, allowing greater flexibility in the approach to staffing and supporting the adjudicator. I am concerned that the provisions on staffing are restricted to ministers directly providing staff or the adjudicator seconding staff from other bodies. My amendment would ensure that ministers can work with the adjudicator on the appropriate mechanism for staffing, which might include a contract for service with another body.

The wording in the amendment is used in the Schools Consultation (Scotland) Act 2010, as amended by the Children and Young People (Scotland) Act 2014. That allows ministers to work with the convener of the school closure review panels to ensure that there is a contract for service in place to administer that body and support the panels. I consider that amendment 11 will provide ministers and the adjudicator with wider scope for staffing and supporting the work of the adjudicator.

I move amendment 11.

The amendment concerns the powers for the Scottish ministers to provide assistance to the adjudicator, including for staff, services or facilities, with or without charge. I do not think that the amendment is necessary, particularly as the levels of assistance that will be required are expected to be low. For example, we do not expect the adjudicator to need many staff, and any assistance from the Scottish ministers in that regard is likely to be provided directly by the secondment of Scottish Government staff, which is already explicitly provided for in the bill. Moreover, the bill already contains sufficient powers for the adjudicator to enter into contracts with other parties or for the Scottish ministers to enter into contracts on the adjudicator’s behalf.

Simply put, the concerns that Mr Wightman has raised are already accounted for in the bill. Consequently, I ask members not to support amendment 11.

Amendment 11 seems to be aimed at ensuring that the Scottish ministers can help to contract services with other bodies to provide support to the adjudicator. The amendment is no doubt well intentioned, but it seems to be misconceived and would serve no practical purpose. There is no need for the words “may provide” to be supplemented by

“or ensure the provision of”.

If the adjudicator wants to contract with others for staff, for example, it already has powers to do that under paragraph 24 of schedule 2. Paragraph 11 of schedule 2 is a provision to empower ministers, not the adjudicator. Should the adjudicator want the sort of support with contracting that the amendment seems aimed at, ministers can already provide that, given the flexibility for them under paragraph 11 to provide “other assistance”. I therefore do not support amendment 11 and I ask Mr Wightman to consider seeking to withdraw it.

I note the comments from the minister and Mr Bibby and I will not press the amendment.

Amendment 11, by agreement, withdrawn.

That ends consideration of amendments. As members may know, at this stage in proceedings, I am required under standing orders to decide whether in my view any provision of the bill relates to a protected subject matter; that is, whether it modifies the electoral system or franchise for Scottish parliamentary elections. The bill does no such thing, and therefore it does not require a supermajority to be passed at stage 3.