Britain’s struggling pubs have received a boost as MPs voted in favour of loosening the grip pub companies have on landlords who lease their pubs.
MPs voted 284 to 259 in favour of an amendment allowing landlords an independent rent review and to end the “tied pub” concept.
A pub that is tied to a particular brewery or pubs company (pubco) is obliged to buy the bulk of its beer from that company, usually at a price higher than a free house – a pub not tied to a brewery – would pay.
According to the Campaign for Real Ale (CAMRA), tied pubs pay up to 45% more than competitors who can buy their beer on the open market.
In 1989, legislation was introduced that made it possible for a tied pub to stock at least one so-called guest beer from a brewery other than the one to which the pub is tied, in an effort to loosen the stanglehold pub groups have over their tenants, but the legislation was reversed in 2003.
The latest move should relieve some of the pressure on pub landlords, who are struggling to compete with cheap booze on sale in supermarkets while coping with increased VAT and beer duty, not to mention the fall-out from the introduction of the smoking ban.
Pubs in Britain are closing at the rate of around six a day, and a study by the CAMRA in 2011 found that almost two-thirds of these closures were pubs that are tied to a pubco.
Tuesday night’s vote represents a defeat for the government, which had instructed its MPs to vote against an amendment to the Small Business, Enterprise and Employment Bill, put forward by Lib Dem Greg Mulholland, chairman of the all-party Parliamentary Save the Pub group.
The government wants to introduce a pubs code that includes the right to request a rent review after five years, but Mulholland’s amendment will enable landlords to negotiate their rents and to shop around for the best beer prices.
The British Beer and Pub Association was bitter about the outcome of the vote, saying it was "hugely damaging", whereas CAMRA hailed its own stout defence of the British pub, saying the move came “after ten years of our campaigning.
“Allowing over 13,000 pub tenants tied to the large pub companies the option of buying beer on the open market at competitive prices will help keep pubs open and ensure the cost of a pint to consumers remains affordable. The large pub companies will no longer be able to charge their tenants prices up to 60 pence a pint higher than open market prices," declared Tim Page, CAMRA’s chief executive.
Shares of the pub companies have taken a battering, with Enterprise Inns (LON:ETI), down 15%, and Punch Taverns (LON:PUB), down 13%, the hardest hit.
Simon Townsend, chief executive of Enterprise, warned that the amendment “threatens to have serious unintended consequences for publicans and the industry at large”.
“Independent economic research, commissioned by the Government, found that a ‘market rent only’ option would lead to widespread pub closures, significant job losses and reduced investment in the sector. This amendment is a disproportionate response which proposes fundamental change that is wholly contrary to the findings of the consultation, from which the Bill was drawn up,” Townsend argued.
Many pub companies acted to support their tenants after the credit crunch and the introduction of a smoking ban in England hit the pubs trade with a double whammy in the second half of the last decade, and some analysts have suggested the new rent review policy could prompt the pub companies cut loose loss-making or less profitable pubs.
Punch Taverns, meanwhile, claimed it has been at the forefront of improving the support for tenants across the sector and remained committed to a sustainable future for British pubs, but warned that the Bill, should it become law, “would have significant adverse consequences for Britain's community pubs”.
A statement from the group said the amendment would most likely have the effect of reducing investment in pubs.
“Punch's view is that the amendment would lead to the creation of an unworkable two tier economic market and would be contrary to existing legal contracts and property rights. It also runs contrary to the OFT's [Office of Fair trading’s] view when it considered a super-complaint from CAMRA in 2010 and concluded that tied tenants were able to compete effectively and that the commercial interests of pub companies and their tenants were aligned,” the pubs group said.
“We are currently considering the potential impact of the amended Bill on Punch, including the implications for our substantial pub investment program [sic] and our disposal plans,” it added.
The pub companies that have their own breweries were hit less hard; Greene King (LON:GNK) was off 4.3% in mid-morning trade, Marston’s (LON:MARS) was down 2.6% while Fuller, Smith & Turner A shares were up 8p at 928p.