THE government has announced a consultation into what it considers to be the exploitative relationship between pub companies (pubcos) and their tenants. But we’ve been here before, and government interference didn’t have a positive effect last time. In fact, this is the latest in a very long line of official interventions into the brewing and pub industry – over 30 in 50 years – ranging from price investigations, Office for Fair Trading (OFT) reviews, European inquiries, and investigations by the Monopolies and Mergers Commission (MMC). And yet the decline of the British pub continues.
Why so many inquiries? Since the 1960s, on top of the social and political importance of the price of a pint, governments and competition authorities have seen the tied house system (where a pub must buy at least some of its beer from a particular brewery) as potentially anti-competitive. In 1986, this culminated in the OFT referring the entire industry to the MMC for investigation.
The resulting inquiry took two and half years to complete. Its recommendations were seen by many as draconian, and the resulting so-called Beer Orders of 1989 represented an industrial intervention arguably more radical than any in post-nationalisation Britain.
The two major obligations of the Beer Orders were that brewers which owned over 2,000 pubs must free from the tie half the excess over 2,000. The second was the guest beer provision (where tenants of the large brewers would be allowed to stock one “guest” cask-conditioned draught beer supplied by another brewer). Parallels with the current proposals are very clear.
But in giving big brewers little choice but to sell off 11,000 pubs, with the goal of improving the lot of consumers, the government achieved almost the exact opposite. The price of a pint rose by 50 per cent in real terms in 20 years. Many brands disappeared and the large pub-owning companies, now the subject of this consultation, emerged. These companies were subject neither to the 2,000 limit nor the guest beer provision. Within a few years the two major pubcos, Enterprise and Punch, had arisen. At their peak, both had more pubs than any of the major brewers before the MMC report, and today the brewing operations of the big brewers are all foreign-owned. Meanwhile regional brewers, which the government sought to protect, have closed or been taken over. Of the 11 regional brewers identified by the MMC at the start of its investigation, only four still exist.
Many pub tenants, who the authorities had wanted to help, were badly affected by the outcome. At the very least they suffered a long period of anxiety – the pub was often their home as well as business. Some 30 per cent left the trade in two years. Those who remained were subject to a variety of lease agreements, as consolidation among the pubcos took place. The MMC also expected tenants to buy their pubs as they became available. But this was during a recession, and obtaining mortgage finance was difficult; the majority of pubs were bought by pubcos, not tenants or small brewers.
It is, of course, ironic that the current consultation concerns companies that the government largely helped to create. And there are parallels between the MMC recommendations and what is now being proposed. The number of pubs a group must have to be subject to the new regulations – 500 – imposes a false ceiling on businesses. The idea that tenants of large pubcos should be allowed to carry guest beer, again aimed at helping small brewers, had mixed results last time.
Will some firms sell pubs to get below the limit, causing more uncertainty for tenants? None of the major brewers opted for a “free of tie” estate before; at the time, Bass said “it didn’t regard collecting rents as a core activity”. Will one or more big companies withdraw from the industry? Will there be more pub closures, the trend in on-trade volumes still being downwards? With landlords and management distracted, trading may well be affected. Will manufacturers reduce the discounts offered to the (smaller) companies, thereby reducing the benefit passed on to tenants? Has the government considered any of this?
Beer Orders were revoked in 2003, with very few people noticing. Within months of the publication of the MMC report more than one MMC member posed the question: “How did we get it so wrong?” Why should these new proposals, if enacted, defy the law of unintended consequences and turn out to be entirely benign rather than make matters worse?
John Spicer is co-author of Government Intervention in the Brewing Industry. (Palgrave Macmillan, £18.99)
City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.