Struggling pub landlords were promised help today with Business Secretary Vince Cable announcing plans for an independent Adjudicator to address unfair practices in the industry.
As well as the new Adjudicator Dr Cable also wants to establish a new statutory Code to look at the relationship between large pub companies and publicans, which will be enforced by the Adjudicator. This new Code will ensure fair practices for a number of issues including rents and the prices publicans pay for beer. It would also have the power to investigate and deal with disputes between pub companies (pubcos) and publicans, and in some cases have the power to fine.
In particular, the proposed Code would prevent abuses of the beer tie, which oblige publicans to sell particular types of beer. It would enshrine the fundamental principle that ‘a tied licensee should be no worse off than a free-of-tie-licensee’ which will ensure a level playing field is maintained in the pub sector.
Business Secretary Vince Cable said:
There is some real hardship in the pubs sector, with many pubs going to the wall as publicans struggling to survive on tiny margins. Some of this is due to pubcos exploiting and squeezing their publicans by unfair practices and a focus on short-term profits. Four Select Committee reviews since 2004 have highlighted these problems.
Last year we gave the pubcos one last chance to change their behaviour but it is clear that the self-regulatory approach was not enough and in October I wrote to the industry to seek their views. A change in the law is now needed to shift behaviour.
I hope these measures mean publicans are given a fairer chance at running their pub, which in turn will help them grow their businesses instead of losing them.
The formal consultation on these proposed measures will be launched in the spring.
Notes to editors
The proposed Code will be based on the existing Industry Framework Code but will be strengthened to include an overarching ‘fair dealing’ provision, and also the principle referring to the beer tie which states that ‘a tied licensee should be no worse off than a free-of-tie-licensee’. This will be particularly important for rents, as the consultation will propose that guidance issued by the Royal Institute of Chartered Surveyors be interpreted in light of this principle.
- The proposed Adjudicator will be based on the model of the widely-welcomed Groceries Code Adjudicator, and will have the power and function to:
- arbitrate individual disputes between large pub companies and publicans
- carry out investigations based on complaints that have been received, during which they could require information from pub companies
- impose sanctions where an investigation finds that a pub company has breached the Code – including, in the case of severe breaches, financial penalties
- publish guidance on when and how investigations will proceed and how these enforcement powers will be used
- advise pub companies and publicans on the Code
- report annually on his or her work
- recommend changes to the Code
The Code is expected to apply to all pub companies which own more than 500 tied leases, exempting smaller companies so that only those with the greatest market power are targeted. This is due to evidence indicating that smaller companies have been behaving responsibly, although this will be explored further during the consultation.
Concerns about the relationship between pubcos and publicans have been raised by the pub industry for many years, with BIS Select Committee Reports highlighting the issue continuously since 2009. In 2011 the Committee recommended that the Government implement a binding industry Code and establish a Code Adjudicator. In November 2011 the Government announced a self regulatory approach, with the Code being brought into legal contracts and the industry establishing an independent arbitrator and advisory services.
The independent arbitration service appears to be working well, with two of the three cases heard so far finding against the pubcos. Version 5 of the Industry Framework Code was incorporated into contracts by the end of 2011.
Following further concerns raised by the BIS Select Committee the Secretary of State wrote to the industry to ask for evidence on how well the self-regulatory approach was working. Many responses showed some improvements had been made, but that much more was needed and that the necessary culture change had not taken place.
- The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set four ambitions in the ‘Plan for Growth’ (PDF 1.7MB), published at Budget 2011:
- To create the most competitive tax system in the G20
- To make the UK the best place in Europe to start, finance and grow a business
- To encourage investment and exports as a route to a more balanced economy
- To create a more educated workforce that is the most flexible in Europe.
- Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.