Why The Treasury Must Scrap The ‘Pubco Price Escalator’

TO BRING DOWN THE PRICE OF A PINT IN THE PUB, THE TREASURY MUST AGREE TO SCRAP THE ‘PUBCO PRICE ESCALATOR’ VIA A FAIR DEAL FOR YOUR LOCAL!

 Chair of the Parliamentary Save the Pub Group, Greg Mulholland MP, has called in the House of Commons for the Treasury to agree to scrap the ‘pubco price escalator’ which is the surest way of delivering a cheaper pint in Britain’s pubs.

 The Save the Pub Group were at the forefront of the successful campaign to scrap the hated beer duty escalator in 2013 and deliver the first cut in beer duty since 1959 and are backing the campaign for a freeze in beer duty in the 2014 budget.  This move has helped British brewers, particularly those who are brewing just more than the limits of progressive beer duty, however hasn’t had an impact in pubs owned by the large leased pubcos, because they operate their own escalator, the ‘pubco price escalator’, which is responsible for much larger and above inflation rises in beer prices each year, most recently in February 2014.

The Save the Pub have now called on the Chancellor and the Treasury to give pubs and pub goers a real boost by backing the Fair Deal for Your Local campaign and a ‘market rent only’ option – the right to pay a fair market rent and not be subject to hugely marked up pubco ‘tied’ prices – something that would directly lead to a cheaper pint in many pubs up and down the country.

In Treasury questions, Mulholland commended the Treasury for the cut in beer duty last year and echoed calls for a freeze in this year’s budget but called on the Treasury to give a big boost to pubs by tackling the ‘pubco price escalator’, pointing out the huge rise in the cost of a beer on pubco price lists compared to the much lower increase in prices that free of tie pubs pay to wholesalers. The British Beer and Pub Association have also undertaken a survey this month showing that many workers are put off going to the pub because they cannot afford it.

 Treasury minister, Nicky Morgan MP, said “the Department for Business, Innovation and Skills has been reviewing that whole matter” and that following “many thousands of responses to its consultation”, she and other Treasury ministers “await the response”.

Mulholland has also put forward a parliamentary motion calling for the Treasury to back the Fair Deal for Your Locals campaign and BIS Select Committee ‘market rent only’ option to bring down the cost of a pint in pubco pubs. It notes the comments of Rob Willock on 23 October 2013, editor of the Publican’s Morning Advertiser who came up with the phrase the ‘pubco price escalator’ when he said in an editorial “there is one area in which pubco lessees still regularly appear to suffer in the relationship with their landlord that remains unregulated and potentially unfair – that of beer pricing” and “the pubcos fought passionately against the beer-duty-escalator – and won their concession. It’s not fair for them to impose the same sort of mechanism on their lessees”;

The motion also notes the latest pubco price hike in February (such as 5p on a pint of Carling for Punch Taverns pubs and 6p on a pint of Stella Artois for Enterprise Inns) which was not followed by wholesalers Red Sky – who supply the free trade – who instead absorbed brewery prices rises. It also points to the extraordinary £2.271 billion profit made by Punch Taverns in ten years, 2002-2012 from on-selling beer they don’t brew to their own tenants and points out that the Association Licensed Multiple Retailers benchmarking survey shows average tied rents are higher than free of tie, which  demonstrates that pubco tenants don’t get low rents for higher beer prices but are double overcharged.

Greg Mulholland, Chair of the Parliamentary Save the Pub Group commented: 

“The Save the Pub Group was at the forefront of the successful campaign for a cut in beer duty in last year’s budget, we praised the Treasury when this was announced and now we want to see this continued with a beer duty freeze. 

 “The beer duty cut has proved a real boost to brewing, but it has had little impact in pubco tied pubs because the pubcos continue to operate their own ‘pubco price escalator’ and increase beer prices year on year, regardless of inflation or tax levels. With Punch Taverns having made an outrageous £2.271 billion pounds in ten years from on-selling beer they don’t brew to their own tenants, it is obvious why the price of a pint has gone up and up. It is a rip off on a grand scale of both hard working small business people, publicans – and of British beer drinkers.  

 “So if the Chancellor wants to give a boost to the Great British pub, as well as to beer drinkers this year, as well as freezing beer duty he needs to back the one thing that will really lead to a cheaper pint in thousands of pubs, which is a fair deal for pubco tenants to stop the pubco price escalator. 

 “The Chancellor needs to listen to the Federation of Small Businesses and the Forum of Private Business (who are based in his constituency) who are both involved in the Fair Deal for Your Local campaign. They know that their own licensee members are being ripped off through outrageous pubco tied prices and that a market rent only option will lead to a cheaper pint as well as saving pubs up and down the country”.

 Chris Lindesay, is a Punch lessee at the Sun Inn, Dunsfold and is coordinating a rapidly growing network of Punch Tenants which aims to provide help and advice to Punch Tenants as the financial problems of Punch Taverns continues to threaten their businesses and livelihoods. Commenting, Mr Lindesay said:

“There is increasing concern and confusion in the Punch Tenant Network over the wide differences in pricing schemes across the Punch Estate.  On February 24th we were all presented with a “Brewers Wholesale Price” increase of 5p per pint which would normally require an increase of 12p at the bar, tied rents are assessed on that basis.  Punch tenants are paying those increased prices now, yet in the free of tie trade there has been no increase in price from the wholesalers who must compete in the open market for their trade.  The Free of Tie wholesale price for Carling is today 44p per pint lower than the normal fully discounted price charged by Punch to the majority of their tenants.  A Free of Tie Pub can undercut a tied Punch pub price by 53p a pint and still make the same cash profit that a Punch Pub is assessed on.  With tied rents now shown to be higher than free of tie how can a tied tenant survive?”

The Federation of Small Businesses have also added their voice calling for government to introduce a market rent-only option to aid struggling pubs. This would allow licensees to reduce the cost of a pint in their pubs by getting rid of the pubco price escalator.

Simon Clarke publican and Fair Pint Campaigner said :

“Following the duty cut and escalator being scrapped the Treasury must have been disappointed at the response from tied publicans who they probably expected would be celebrating. Once again Fair Deal For Your Local hits the nail on the head the ‘benefit’ of duty concessions pales into insignificance when compared to the ‘pubco price escalator’. In just over a year some cask ale products have dropped in price by 1p, thanks to the Government initiative, whilst at the same time the some pubcos have increased the price to their tenants by as much as 15p. To maintain the same profit margin, which is already tenuous, the tied tenant would need to increase the price of a pint to their customer by 30p. Clearly once again tied tenants have sought to absorb the damaging pubco increases but as the pub closure rate shows, with almost 2/3’s being tenanted or leased pubs, this can not continue.”

Commenting on behalf of the Federation for Small Businesses, Clive Davenport, Portfolio Chair for Trade and Industry, said:

“High wholesale beer prices are making it tough for tied pubs to compete, with our survey showing 75% of tied pubs would take on more staff if they were free of the tie. We have strongly argued that statutory regulation is urgently needed to ensure that tied pubs are given a fair deal, and are able to compete.”

Licensees Supporting Licensees (LSL) have also added their full support and endorsed the Chair of the Parliamentary Save the Pub Group, Greg Mulholland MP, in his call to scrap the ‘pubco price escalator’. Commenting, the LSL said:

“This invidious device employed by the Pub owning property companies, through the tie they operate, has year on year raised the price of drinks to pubs by above inflation. That this is done invisibly, in a manner that tied publicans cannot combat and yet often have to absorb the cost is a national disgrace.

We agree with the editor of the Publicans Morning Advertiser and with the Save the Pub Group that this needs addressing. We believe this only possible through the Treasury supporting a ‘market rent only’ option for pubco tenants and therefore ensuring a fair deal for your local.”

Notes:

1.    For more information, contact Mo Saqib (Parliamentary Researcher to Greg Mulholland MP) on saqibm@parliament.uk or 0207 219 3833.

2.    The source for the figures used in the question to Nicky Morgan MP is from Enterprise Inns price lists compared with price lists from Red Sky wholesalers, who supply free trade pubs. http://www.fairdealforyourlocal.com/wp-content/uploads/2013/10/FDFYL-Setting-the-Record-Straight-Oct-2013.pdf

3.    The text of the Early Day Motion (EDM 1170) is as follows:

 

The ‘pubco price escalator’ and a fair deal for local pubs

 

That this house welcomes the 2013 beer duty cut and calls for a freeze in 2014; believes that this has benefited brewers but not pubco tenants who face above inflation pubco price increases;  notes that Rob Willock, editor of the Publican’s Morning Advertiser called this the ‘pubco price escalator’;  agrees with his comments on 23 October 2013 “there is one area in which pubco lessees still regularly appear to suffer in the relationship with their landlord that remains unregulated and potentially unfair  – that of beer pricing” and “the pubcos fought passionately against the beer-duty-escalator – and won their concession. It’s not fair for them to impose the same sort of mechanism on their lessees”; further notes that over six years 2003-2013 the price of an eleven gallon keg of Fosters increased to Enterprise Inns tenants 4.5 times the increase to freehouses; further notes the latest pubco price hike in February, not followed by wholesalers; deplores Punch Taverns’ £2.271 billion profit in ten years from on-selling beer they don’t brew to their own tenants; further notes that the ALMR benchmarking survey shows average tied rents are higher than free of tie demonstrating that pubco tenants don’t get low rents for higher beer prices but are double overcharged; calls upon the Treasury to support a ‘market rent only’ option for pubco tenants which would allow the open market to self regulate product price, increase licensee earnings, make pubs more viable and reduce the price of a pint in pubco pubs.

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