SUMMER ECONOMIC UPDATE
Although from time to time we see politicians posing with pints of beer, I have to ask, how many of them are really ‘pub people’ who understand how the pub trade works? On the face of it, the update that the Chancellor of the Exchequer delivered on 8 July was generous but only to one sector of the pub trade. Tom Stainer, CAMRA’s Chief Executive, commented, “While a six-month cut in VAT for food served in pubs and the ‘Eat Out to Help Out’ voucher scheme in August is welcomed, we are concerned that pubs have been left behind by the Chancellor’s statement, which contained little support for community pubs. It is also disappointing to see no direct support for independent brewers and producers, who will not benefit from a VAT cut that specifically excludes beer and cider. CAMRA will continue to campaign for greater support for all pubs, including those that don’t serve food. We are calling for long-term support measures – business rate reform and a tax reduction for draught beer – to encourage people back to the supervised setting of the community pub. ‘Lockdown’ has shown just how valuable our pubs are to local communities and the pivotal role they play in tackling loneliness and social isolation. It is absolutely right that they receive extra support during the difficult months ahead to ensure their continued survival.”
There have been calls for a reduction in the VAT rate from 20% to 5% for the hospitality sector for some years, most recently, in June, by Alistair, Baron Darling of Roulanish, one of Mr Sunak’s predecessors, although he only proposed a reduction to 15%. Mr Sunak’s reduction only lasts until 12 January 2021. Given the costs that many pub operators have had to meet during ‘lockdown’, any savings that come from this reduction may be needed to keep the business afloat and cannot be passed on to customers. It should be remembered that pubs who deferred payment of VAT and other bills at the beginning of ‘lockdown’ will still have to meet those debts. To be fair to him, Tim Martin acknowledges this.
The VAT reduction does not apply to alcoholic drinks so only if a pub sells food will they see any real benefit. An extra 10p in the £1 on sales of soft drinks, nuts and crisps is unlikely to make any difference for wet-led pubs. Likewise, only pubs that serve meals will benefit from the ‘Eat Out to Help Out’ scheme. I assume that you can’t order £10 worth of crisps. One publican quoted in the Guardian (11 July) said, “If I was Rishi Sunak and I wanted to design something that got rid of community boozers and replaced them with large chains, I would have written that statement.”
Interestingly, by the time the VAT reduction ends, the UK will be free to create its own transaction tax system. Let’s hope that the opportunity for long term help for pubs is not missed. Likewise, the ‘business rates holiday’ only runs until next March and the Government is currently putting forward legislation that will base rates from 1 April 2021 on pubs’ turnover from 1 April 2019. Given what has happened since, that cannot be fair.
FURLOUGH SCHEME
When delivering his update, the Chancellor of the Exchequer confirmed that the furlough scheme (or the Coronavirus Job Retention Scheme, to give it its correct name) will definitely close at the end of October. In May he had announced that employers would be expected to make an increased contribution and he later confirmed that from 1 August, employers would have to start paying National Insurance and pension contributions. In September the proportion paid by the Government will reduce to 70%, up to a limit of £2,190, and then in October to 60% (limit £1,875). The scheme was closed to new entrants from 10 June but, from 1 July, existing furloughed staff could be brought back part-time, with wages paid through the scheme pro-rata for hours worked.
Given that some pubs would not be able to reopen because they could not comply with the COVID-19 guidance and that those that did open would not be receiving the same level of takings as previously, the British Beer & Pub Association (BBPA) had asked for the scheme to be continued for pubs at the full 80% until at least the end of the scheme in October. The Chancellor was not able to agree to that or to requests to provide assistance with rents. He did however introduce a job retention bonus of £1,000 payable for every furloughed member of staff that an employer takes back onto the payroll. Although several retail chains have said that they will not apply for these grants, several pub companies, including Young’s and City Pub Group, will do so. He also introduced funding for young employees and apprentices which might help to avoid redundancies in the pub trade, given that a large proportion of pub staff are young and short term.
PUBS CODE ADJUDICATOR
Prior to Fiona Dickie taking over on 6 April, the PCA called on the six regulated pub-owning businesses (POBs) (those with 500 or more tenancies) to support their tied tenants through the COVID-19 emergency as much as possible and in particular to be ‘open about their approach so that individual tenants know what treatment they can expect’. The POBs were also reminded of the requirement under Regulation 41 of the Pubs Code to record and agree conversations with tenants. In addition, the POBs needed to let their tenants know that complaints of unfair treatment could be made to the POB’s own Code Compliance Officer and that unresolved complaints were to be reported promptly to the PCA.
Subsequently, Ms Dickie added, “The government’s announcement that pubs in England can reopen from 4 July will be very welcome to tied pub tenants. However, many challenges and uncertainties remain for the regulated sector and the period following reopening will present pub-owning businesses with a further test of how fairly they are treating their tied tenants. I will therefore be looking closely at how all of the pub-owning businesses that I regulate adapt their business approaches in response to the challenging new trading realities in a post-COVID world. My focus will include how they respond to their Code obligations in dealing with tenants’ COVID-related debts and the impact on tied rents set on the basis of pre-COVID assumptions and expectations. I will also continue to press those pub-owning businesses to act fairly when offering further support to their tied tenants, even as the COVID emergency restrictions are gradually loosened. My message to date to tenants whose pub-owning businesses have not published a transparent methodology for their support has been clear: if they do not believe they are receiving fair and open support they should take their concerns direct to their company’s Code Compliance Officer. I will receive prompt reports from those pub-owning businesses about any unsatisfied complaints.”
The PCA still believe that many tied tenants are not fully aware of their rights under the Pubs Code, as was indicated in the survey that they conducted in December 2019. A new project to ‘address the needs of all pubs code users and increase levels of code awareness among tied tenants’ will begin at the end of July. The process will start with tenants being asked to complete another survey.
There are some who are of the opinion that, rather than attempt to regulate the tied house system, it would be simpler to abolish it. This is especially so for those POBs that do not brew, which now, of course, includes Marston’s. In the meantime, there is still no news of last year’s review of the PCA’s functions.
NEW TRADE BODY FORMED
Readers will recall that in the last edition I mentioned that the Department for Business, Energy & Industrial Strategy (BEIS) had set up a task force to control the reopening of the hospitality industry and that the British Beer & Pub Association (BBPA) were already involved in the consultations. In order to ensure that pub tenants themselves have a voice, a number of prominent pub campaigners have joined with the Forum of Private Business to develop the existing ‘Protect Your Pub’ campaign into the Forum of British Pubs (FBP). Their aim is to protect and preserve pubs and the people who run them and, as their website says, ‘We believe that pubs are valuable small businesses that form part of our national heritage and the beating heart of our communities. We believe they should be appreciated as the valuable resource that they are. Historically, tenants are often unfairly treated by the pub companies they are tied to, and the introduction of the Pubs Code has failed to deliver on its key principles’. They will look to represent tenants in dealings with both national and local government (especially on planning matters), the pub owning businesses and various statutory bodies such as the Pubs Code Adjudicator (PCA) and the Valuation Office Agency (for rateable value calculations). CAMRA has previously worked with many of those involved in setting up the FBP and happily will do so again when appropriate.
One of the FBP’s first initiatives, organised by Pubs Advisory Service, is a petition to the Competition and Markets Authority. This arises from the Summer Economic Update and the inequitable way that, as explained above, it benefits food-led pubs (mostly owned by the big chains), over wet-led pubs. The petition also makes the point that, as Tom Stainer mentions above, small independent breweries, which have received no assistance either, rely on these pubs to buy a substantial amount of their beer. The petition ends, ‘This petition calls upon the Competition and Markets Authority to launch an inquiry to tackle unfairness in the wholesale beer market as a matter of urgency and restore fair and lawful competition to hospitality and drink businesses, the last inquiry was in 1989 and the sector is long overdue another one’. If you wish to sign the petition, go here. As I publish this, it already has 2,467 signatures.
CHANGES AT THE CMA
The Competition and Markets Authority, as mentioned above, is important to consumers because its function is to protect us from unfair takeovers and mergers and business practices. As well as the FBP’s petition, they have also been asked by CAMRA to investigate the Carlsberg-Marston’s deal (see page 15). The current chairman, former Conservative MP and now peer, Andrew Tyrie, is however resigning after two years. According to the Guardian, he feels that the UK’s competition laws are ‘not fit for the modern age’ and that he cannot campaign for their reform while he occupies his present role.
PUB OWNING BUSINESSES AND RENTS
As pubs reopen, the pub owning businesses (POBs) will be looking to collect outstanding rent from their tenants. Many companies simply postponed payment, although there were some, including Fuller’s, Shepherd Neame and Young’s, that waived rents while pubs were shut. CAMRA’s view is that, given that pub rents are calculated on the basis of turnover, there should be no rent charged when a pub was not trading through no fault of the tenant. Similarly, the full rent should not be charged once a pub has reopened and, again through no fault of the tenant, it can only trade at a reduced level. It is hard to know what the regulated POBs are up to, largely because most of them claim to be in individual negotiations with tenants which they say are confidential. There have been reports however that pubs have been refused support from their POB because they have received Government grants and that some POBs are refusing to negotiate rent reductions with tenants who have changed to or are seeking to change to Market Rent Only agreements. With the latter, the PCA should be stepping in, in line with her statement above.
MORATORIUM ON EVICTIONS EXTENDED
Quite early on, the Government put a halt to landlords evicting business tenants or starting bankruptcy proceedings against them for rent arrears. As regards pubs, this mostly protects independent pubs run in rented premises, such as a large number of micropubs, but it also affects many pub chains who rent their premises. Originally the moratorium was to expire on 30 June, but on 19 June it was extended to 30 September. It does however only cover rent falling due during the COVID-19 crisis and not any pre-existing arrears. Commercial rents are, by convention, payable quarterly on the usual quarter days: 25 March (Lady Day), 24 June (Midsummer Day), 29 September (Michaelmas) and 25 December (Christmas). The extension therefore covered the quarter due on 24 June. At the same time, the Government issued a voluntary code of practice to guide relations between landlords and tenants, which are becoming somewhat fraught right across the retail sector. Of the rent due on 25 March, according to the Guardian (20 June), only half has been paid. The code says tenants should pay the rent in full if possible or, otherwise, ‘pay what they can’. This measure does not, of course, waive the rent due. It will still have to be paid eventually.
INSURANCE CLAIMS
Following pressure from trade bodies, the Financial Conduct Authority (FCA) has, after all, accepted some of the complaints about insurance companies not paying out on business continuity policy claims. Around 67% of claims were rejected with many more publicans still waiting to hear, despite the FCA urging insurers to respond quickly. The FCA is examining the wording of 17 different policies for potential disputes and will take action against eight insurance companies in the Commercial Court in July. The Commercial Court is a sub-division of the Queen’s Bench Division of the High Court of Justice.
LATE NIGHT LEVY
There has been no movement here and local authorities, led by Newcastle City Council, are calling on the Ministry of Housing, Communities and Local Government to amend the Licensing Act 2003 to give local authorities the discretion to waive or alter LNL fees, according to local need. An attempt was made to add clauses to the Business and Planning Act to delegate powers to local authorities but it did not succeed.
MUSIC VENUES
Although pubs have been allowed to reopen, music venues (including those inside pubs) are still closed and as time goes on, are coming increasingly under threat. Following pressure from the industry, including the Music Venue Trust, the Government announced on 6 July that it will provide a £1.57 billion support package for arts venues and cultural spaces, including live music venues. The package will be a mixture of grants and loans although full details have yet to be disclosed. The Music Venue Trust had already set up a Crowdfunder page to raise funds for independent pubs and music venues. No doubt this will still be needed. If you want to help, go here.
Tony Hedger