The end of the Beer Tie

The beer tie system has in place for over 400 years but, on 18th November after a decade of Parliamentary Committee Reports and attempts at self-regulation, MP’s backed an amendment to the Small Business Bill which is aimed at giving tenants an option. If this eventually becomes law, tenants would be able to pay a market rent (known as the Market Rate Option or MRO) and be free to buy products on the open market or they could have a tied contract which would probably give them a cheaper rent but they would have to buy the products from the Brewery or Pub Co. Shares in Enterprise Inns and Punch Taverns fell by c20% on the news.

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This was a defeat for the Government in the House of Commons despite a three line whip. It now goes up to the Lords, so it may not be over yet. The Government is trying to introduce amendments in order to water it down. The British Beer and Pub Association (BBPA) is furious and claims it will result in publicans going bankrupt and the eventual loss of 7,000 jobs and the closure of another 1,400 pubs. These figures are from a report which they were involved in preparing and as 20+ pubs are closing now every week, that’s probably 1,400 each year under the present system.

Stephen Billingham, executive chairman of Punch Taverns, said: ‘Punch has been at the forefront of improving the support for pub tenants and we remain committed to a sustainable future for British pubs. However, the amended Bill would have significant, adverse consequences for Britain’s community pubs.’ So suddenly Punch is interested in the communities their pubs serve!!

CAMRA, which has campaigned for years against the pub tie system, is delighted, “the government was forced to pass a law which bans pub companies from charging their landlords rip-off rents. This was an unfair practice which squeezed the pennies of our local pub landlords while those at the top of pub chains made huge profits.” Over 45,000 CAMRA members signed a petition which was submitted to Parliament, calling for an end to the “Great British Pub Scandal”.

What are the benefits to the Beer Tie?

The beer tie lowers the barriers to entry in to the pub industry. Rather than buying a pub outright, would-be landlords can lease premises from a large company such as Enterprise Inns or Punch Taverns. The landlord also benefits from the economies of scale of a large company, paying less for furniture, glassware and other fixtures. The PubCos argue that their model is shoring up Britain’s pubs by bringing more people into the industry and therefore keeping more premises open. (But you might well ask why so many are closing under their model.)

But there are drawbacks

In return for the lower capital costs, pub companies expect loyalty from their franchisees. That can mean landlords must only buy beer from the company that owns the pub, often at a higher cost than on the free market. CAMRA claims that pub landlords in tied systems ended up paying their owners an extra 60p per pint compared to the market rate. CAMRA also says many self-employed landlords do not make a good enough living with six in ten of them paying themselves less than £10,000 a year, lower than the national minimum wage.

What might it all mean for the pub goer?

It could bring down the cost of a pint if landlords pass on the savings from buying their beer in the open market. It could also lead to a greater variety of beer being available in a pub – including more brews from small, independent outfits. But it could also undermine the business models of Britain’s big pub companies, which rely on hard working landlords for their profits. If the bottom line comes under pressure, they may close down their less profitable pubs.

But beware

Like so many interventions by politicians there will be unforeseen consequences and one major fear is that the PubCos will increase tenants’ rent to force them out and then replace them with managers thus avoiding the consequences of the end of the beer tie.

And now …

CAMRA continues to work on amendments which will tidy up the act, make it clear when tenants have the choice to be tied or not and lobby for changes to planning regulations which allow the PubCos to close pubs and sell them off for redevelopment even if they are listed as an asset of Community Value.

Hold on to your hats – we are not done yet!!

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