Update: MPs’ vote on tied pubs ‘could lead to new wave of closures’

Opinion is divided over the like impact of a House of Commons vote to amend a proposed code of condu

Opinion is divided over the like impact of a House of Commons vote to amend a proposed code of conduct for pub companies. - Credit: PA

A rebellion in Parliament involving an 11th hour amendment a proposed code of conduct for pub companies could lead to a new wave of closures and job losses, it has been warned.

The vote saw the Government suffer its first legislative defeat - by a margin of 25 votes - as a number of Conservative and Liberal Democrat MPs supported a change to the Small Business, Enterprise and Employment Bill.

It will mean that pub tenants who are currently the subject of a “tie”, requiring them to source supplies from their landlord, often at above market prices, in return for a reduced rent, will in future be able to demand a “market rent only” (MRO) agreement instead.

There have been widespread complaints that the tied house system is open to abuse by pub companies, although the industry argues that the model provides a low cost of entry for people to wishing to start running a pub and also provides for capital support at a time when banks are often unwillnig to lend.

The Government’s plans for a statutory code to prevent abuse omitted the MRO option, on the grounds that it would have a negative impact on investment and could lead to some pub companies quitting the tied sector entirely.

However, a Government amendment allowing for a review of the code in two years’ time, to consider the addition of an MRO if the code was still failing to achieve adequate protection, was rejected by the Commons in favour of the immediate inclusion of the market rent option.

Liberal Democrat MP Greg Mulholland, who proposed the reform, said it would “simply bring back market forces into a sector that frankly has become grotesquely anti-competitive”.

Most Read

He stressed that the MRO option would come in gradually over five years and would only be triggered at key points in the cycle of a lease or tenancy, such as rent reviews, lease renewals or on the sale of the title of a property, or if there was a major change in prices or circumstances such as a cheaper pub opening next door.

However, the British Beer and Pub Association (BBPA) said the vote was “hugely damaging”, as the Government’s own research had found.

BBPA chief executive Brigid Simmonds said: “This change effectively breaks the ‘beer tie’, which has served Britain’s unique pub industry well for nearly 400 years.

“It would hugely damage investment, jobs, and results in 1,400 more pubs closing, with 7,000 job losses, as the Government’s own research shows.”

The warning of pub closures was echoed by Enterprise Inns, Britain’s biggest pub landlord which owns around 5,500 tenanted and leased pubs.

Chief executive Simon Townsend said: “This amendment, which was not supported by the Government, threatens to have serious unintended consequences for publicans and the industry at large.”

He said a Government review had rejected the “market rent only option” as damaging to pubs, communities and the wider industry, and would lead to “widespread pub closures, significant job losses and reduced investment in the sector”.

Mr Townsend added: “We continue to believe the tie offers the best operating model for the vast majority of our publicans.

“In light of yesterday’s vote we will continue to assess all options to safeguard the interests of both our publicans and shareholders.

“In the meantime we will monitor the situation closely and await the Government’s response to this unwelcome development.”

However, the vote was welcomed by both the Campaign for Real Ale (Camra) and the Federation of Small Businesses (FSB).

But Camra chief executive Tim Page said: “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 60p a pint higher than open market prices.”

FSB national chairman John Allan said: “The freedom to stock a wider range of beers will provide a boost to local economies while giving consumers greater choice.”

The MRO option will only be available to tenants of companies owning more than 500 pubs, and so will not affect the vast majority of brewers, such as Southwold-based Adnams, which have much smaller estates.

However, Bury St Edmunds-based Greene King currently owns around 1,900 pubs, of which about 900 are subject to lease, tenancy or franchise arrangements, the remainder being under direct management.

It has also agreed a £773.6million deal to acquire the Spirit Pub Company which, subject to completion, will add a further 1,200 pubs to the Greene King estate, including around 450 operating under lease.

It is understood that, under the MRO amendment, pub companies which also brew their own beer, such as Greene King, will still be able to require tenants to sell their own brands but that tenants will be free to source supplies from the wholesale market rather than having to buy direct at “tied” prices.

A spokesman for Greene King said yesterday that the company did not wish to comment on the vote at this stage.