Government must get rid of the ‘pubco price escalator’

All-Party Parliamentary Save the Pub Group

Three hated escalators gone, one to go:

Now Government must get rid of the‘pubco price escalator’

 

At Prime Minister’s Questions today, the Chair of the Parliamentary Save the Pub Group and Coordinator of the national Fair Deal for Your Local campaign, Greg Mulholland, has called on the Prime Minister to end the ‘pubco price escalator’, the rip off price rises forced on tied tenants by the large pubcos. 

 Pubco tenants tied are forced to buy their beer and other product from their pubco are hugely marked-up above market prices and every year, the pubcos,  who are in billions of pounds of debts through their own reckless financial engineering, raise the prices to their tenants above inflation.

 The most recent rise in February 2014 (e.g. 5p on a pint of Carling for Punch Taverns pubs and 6p on a pint of Stella Artois for Enterprise Inns pubs) which was not followed by wholesalers such as Red Sky – who supply the free trade. No wonder, when you consider that Punch Taverns – a pubco who don’t brew any beer – made £2.271 billion profit in ten years from on-selling beer to their own tenants!

 One typical example of the pubco price escalator sent to the Save the Pub Group shows that over a six year period 2003-2013 the price of an eleven gallon keg of Fosters increased to Enterprise Inns tenants 4.5 times the increase to freehouses! This is pushing the price of a pint up to customers as well as making it difficult or impossible for licensees to make a living – yet pubco bosses continue to pay themselves huge salaries and bonuses.

 In his question, Greg Mulholland praised the cut in beer duty, but pointed out that it will not help the 20,000 or so pubs tied to the large companies unless this ‘pubco price escalator’ is dealt with through a fair deal for local pubs – the option to pay rent only and not excessive beer prices.

 Greg told the house that the fuel duty escalator has gone, the beer duty escalator has gone and now the alcohol escalator has gone, but asked the Prime Minister when he would end the pubco price escalator.

 Prime Minister David Cameron, in a helpful and welcome response, acknowledged the need to “look very carefully at what is happening in tied pubs and at the activities of some pub companies”.

 The Prime Minister said: I thank my honourable Friend for what he said about the cut in beer duty, which is the second in a row in the Budget. It is about making sure that the industry creates jobs and about supporting our pub trade. It was noticeable that straight after the Budget Marston’s announced 3,000 additional jobs. We want to look very carefully at what is happening in tied pubs and at the activities of some pub companies. It has been debated in the House. We are looking very closely at what more we can do to make sure there are fair outcomes for Britain’s publicans and Britain’s pub goers.”

 The Government committed in January 2013 to introduce a statutory code of practice for the large pubcos to enshrine in law the principle that a tied licensee should not be worse of than a free-of-tie licensee and also that there should be an overriding principle of ‘fair dealing’. However the Government have not yet announced when the code will be introduced and how these principles will be delivered.

 210 MPs support the Fair Deal for Your Local campaign www.fairdealforyourlocal.com and the early day motion calling for the Government to introduce the market rent only option has more signatures than any other this sessionhttp://www.parliament.uk/edm/2013-14/57. There is very clearly a majority in the House of Commons for the market rent only option, originally suggested by the cross party Business Select Committee.

 The concern however remains that the pubcos and their lobbyists, the British Beer and Pub Association, are trying to block reform by private lobbying of the Chancellor and other senior Conservatives in the Government, concern that was increased when the Treasury refused a Save the Pub Group request about pubco/BBPA lobbying and refused to say what meetings they had had with them.

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

 “I was heartened at the Prime Minister’s personal acknowledgment of issues surrounding tied pubs and that certain pubcos needed to be looked at. The cut in beer duty is good news for Britain’s brewers, however it will not help the 20,000 pubs tied to the large companies unless the Government also tackle the ‘pubco price escalator’.

 “Pubco tenants already pay rip off marked-up beer prices and are fined if they dare to buy at fair, wholesale prices and to make matters worse, the pubcos increase beer prices year on year, regardless of inflation or tax levels. This is putting licensees out of business and shutting pubs”.

 “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, the Chancellor must also face up to the reality of the pubco price escalator.  

 “The Prime Minister and Chancellor have said they want to save pubs, but despite the beer duty cut, pubco pubs will continue to fail and close in droves unless the Government finally tackles the anti competitive, price distorting tied pubco model.

 “It is great that the Government has got rid of the hated fuel, beer and alcohol duty escalators, but now the Prime Minister and Chancellor must now back the one thing that will really lead to a cheaper pint in thousands of pubs, which is putting an end to the pubco price escalator through a fair deal for local pubs”. 

 Simon Clarke of the Fair Pint Campaign 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 cannot continue.”

 Clive Davenport, Federation for Small Businesses 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.”

 Val Spencer, representing Licensees Supporting Licensses said:

 “The pubco price escalator has year-on-year raised the price of drinks to pubs by above inflation in a manner that tied publicans cannot combat and have to absorb, this is a national disgrace.

 “The pubco price escalator must go by the Government supporting a ‘market rent only’ option for pubco tenants and therefore ensuring a fair deal for your local.”

 Chris Lindesay, Punch lessee at the Sun Inn, Dunsfold and coordinator of the Punch Tenants Network said:

 “On February 24th Punch tenants were all presented with a “Brewers Wholesale Price” increase of 5p per pint which would normally require an increase of 12p at the bar. 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 government must 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.

 [ENDS]

Notes:

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

 

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