Grahame Morris MP

Member of Parliament for Easington

Pubs Code and the Adjudicator

April 15, 2016 Speeches 0

Due to time constrains I had to shorten my comments, below is the full speech I had hoped to make during the debate.

I must start by commending the hard work and dedication of campaigners which make up the British Pub Confederation.

We have had years of consultations, investigations and inquiries.

However, without your efforts I do not believe we would be here today, just a few weeks away from the introduction of a new Pub Code and adjudicator.

These changes have been a long time coming, and unfortunately too many viable pubs, and working men’s clubs, within our communities have called last orders because of unfair and unsustainable rents, ties and profit share arrangements.

This has left tenants unable to secure a fair income, even in successful pubs, as well as some struggling on less than the minimum wage despite many hours of work.

The repercussions of pub closures are felt across communities who not only lose vital community assets, but the jobs and contributions that businesses make to the local and wider economy.

The pub and brewing industry contributes £22 billion to the UK economy, as well as sustaining nearly a million jobs, particularly for young working adults.

And there is a multiplying effect with successful pubs not only directly employing staff but also supporting jobs throughout the supply chain, in retail, agriculture and brewing.

The Pubco Business Model has weakened, not strengthened the industry.

The hope is that the new Pub Code and Adjudicator will address the inherent unfairness in the exploitative practices of the Pubco model.

It should be a step which strengthens the industry ensuring tenants will receive a fair living and reward for their work, viable pubs remaining open, and hopefully we can halt the decline which has seen significant numbers of pubs close over the last 20 years.

As we approach the introduction of the Pub Code, I note that the industry and the government are keen to “draw a line under the past”, emphasise that “things have changed”, and that “all sides have to work together to move forward”.

I am yet to see this change.

Pubco’s are working hard; not to deliver fairness for tenants, but to circumvent the Pub Code and legislation before it comes into force.

The Government cannot be complicit in such behaviour.

However, the decision to appointment Paul Newby as the Pubs Adjudicator has not endeared them or won any trust from tenants.

Concerns remain that loopholes contained within the draft Pub Code will undermine the legislation and must be removed from the final version of the Code, if we are to fulfil our promise to tenants.

The Government will undermine the fundamental principle of the Pub Code – that tied tenants are no worse off than free of tie tenant – if they allow Pubcos to force tenants to relinquish long term leases, should they opt for a Market Rent Only option.

This undermines the assurances offered by BIS that tenants taking the Market Rent Option should not be subject to discrimination by the Pubco.

The Government must make it clear that if a tenant choses a Market Rent Option they will be entitled to the same length of agreement, terms and conditions as their old tenancy.

Otherwise, the right to trigger the Market Rent Only option will be undermined, and such tenants would be discriminated against by the very nature of the agreement.

The other area of concern is the Market Rent waiver in exchange for investment.

I note that one of the concerns Pubco’s are keen to emphasis is the risk to investment by the Pub Code.

I understand campaigners have acknowledged that where there is real substantial investment, a limited waiver could be acceptable if entered into willingly by both parties, but not something forced upon tenant to allow a Pubco to void their responsibilities under the Code.

And, it must be real investment – not the continuation of the current system, in which Pubco’s are trying to portray tenants’ investment as investment from the company.

The Minister will be aware of the issue given that the BIS impact assessment highlights the FSB survey which found that 68% of their members had not received any investment from their pub company in the last 12 months”.

Risks are placed firmly at the feet of tenants, with lease terms and conditions often stipulating they are liable for repairs, maintenance and improvements.

And, where investment is received from the pub company, tenants are often required to invest themselves.

This so called investment from the pub company is then usually recovered through higher rents during the course of the lease.

I believe most reasonable people would see this more as a loan, rather than an example of investment.

Any real investment usually occurs when a pub is vacated as money is required to ensure the property can be leased to a new tenant.

There are real concerns about the waiver for investment, and the loophole in chapter 12 of the Draft Pub Code where new tenants can be asked to sign such a waiver.

This risks making the Market Rent Option an artificial right, open to abuse by Pubcos, who would refuse to let pubs to those unwilling to sign the waiver.

It would also create a perverse incentive where existing tenants are forced out and replaced with tenants who have been forced to forfeit their rights.

The Government need to show they do not support such actions, and implement a number of safeguards to ensure any waiver is limited, reasonable and agreed willingly by both parties.

Waivers should be restricted to tenants who have been in a substantive agreement for two years and there should be no option of waivers for investment for new tenants.

The Adjudicator should also have the power to void waivers following a complaint and inquiry so action can be taken in circumstance where promised investment does not meet the waiver criteria.

Failure to address these concerns could effectively nullify the Pub Code and lead to new exploitative practices.

Despite the calls to work together and draw a line under the past, Pubco’s have been busy working hard to find ways to circumvent the Pub Code.

Actions included:

Pressuring tenants to take up rent reviews, in advance of any scheduled review, before the implementation of the Pub Code.

Coercing tenants to give up long leases and take up new five year contracts with no market rent option and no renewal rights.

Bribing tenants to sign up to new agreements without a market rent option, through reducing rents.

Seeking to force tenants onto five year non-renewable tenancies, and threatening to only offer such agreements, to avoid their tenants having their legal rights to trigger the Market Rent Only option.

And, this is from an industry that is telling us that they want to move forward and work together, while at the same time finding new ways to exploit their tenants.

The Government must make it clear that any attempts to circumvent the legislation will dealt with by the Pub Code and that there will be serious repercussions for any Pubco seeking to engage in such practices.

The Pub Code is about redressing the balance of power and the exploitative practices of Pubcos, and if they continue to seek new ways to exploit their tenants, we will have to assess the powers and duties of the Pub Code and the Adjudicator.

The actions of Pubco’s, in the past, and today, will require a diligent and effective Pubs Adjudicator, who commands the confidence of tenants.

After all, it is tenants who have been exploited over the years and they are looking to the government to appoint someone impartial and willing to give them a fair fighting chance.

This cannot be Paul Newby.

I do not call into question Mr Newby’s integrity, but it is difficult for tenants to have confidence in an individual who has received a significant income from acting on behalf of Pubcos.

From the outset there will be a perceived lack of fairness.

It was for this reason, the majority of us thought the Adjudicator would be someone from outside the pub sector, a person with no real or perceived conflicts of interest and could command confidence from across the industry.

Again, this is not Mr Newby.

He has acted personally on behalf of at least three Pubco’s he must now regulate, and his company has work on behalf of all six large pub companies.

Mr Newby has personally acted for pubcos against tenants campaigning on pub valuation related cases.

Mr Newby has not even commenced his job and we already have to ask about his intention once he leaves to role of adjudicator.

If he returns to the industry in which he has made his career his decisions are inevitably going to be influenced as there will be a need for him to maintain good relations with the Pubco’s.

I am concerned that every decision in which he agrees with a Pubco is going to be questioned, whether his judgement is fair or not, because of his long standing connection to large Pub companies.

Mr Newby should never have placed in this position.

What is more concerning is that throughout the entire appointment process, BIS seems to have been oblivious as to the reaction such an appointment would cause.

The Minister seemed shocked at the dispatch box a few weeks ago that anyone could question the appointment.

Was it not obvious to the Minister that a man with such close connections to the Pub Companies may not be seen as impartial?

If the Government insist on the appointment of Mr Newby, they will be purposely undermining the Office of the Pubs Adjudicator from day one.

The Pub companies see Mr Newby as their man, and worse still, tenants agree.

I am worried that the Minister cannot see that this situation is simply untenable.

I believe if the Minister truly wants the Pub Code to work, she will need to appoint an adjudicator that can command confidence across the industry.

She should apologise to Mr Newby and re-run the recruitment process.

The pub and brewing industry make an immense contribution to our local communities and our economy.

The drive behind the Pub Code and the role of the Adjudicator is to strengthen the industry, and should be seen as a step towards addressing the decline and number of pub closures over the last twenty years.

We need to get this right first time, otherwise we will be here again in the not too distant future calling for reform of the Pub Code and Adjudicator.

The Government have the opportunity to enforce the legislation passed with the overwhelming support of parliament.

Close the loopholes,

Protect tenants being brow-beaten into giving up their rights,

And, restore confidence in the Adjudicator’s office by appointing someone who can command support from all sides of the industry.