There are few topics in the pub industry as emotive as the relationship between pub companies and the tenants that run the premises they own. Years of campaigning by associations such as CAMRA (Campaign for Real Ale), as well as several government reports into the beer-tie, have established that the relationship between pub companies and their tenants is often fractious and dysfunctional. Business secretary Vince Cable has now launched a consultation on how a state-backed regulator for the industry would work after his department flagged its intention to produce a set of proposals earlier this year. One of the proposals is to introduce statutory regulation for all pubcos that own more than 500 pubs, which would cover most of the UK pubco industry.
The push for a state regulator comes two years after the industry was given a final chance to set up and run its own agreed self-regulatory regime. That effort ultimately came to naught and is why the Department for Business, Innovation and Skills (BIS) has published its consultation, which is also the conclusion of at least two parliamentary committee reports in recent years. Pub landlords have complained for years that the combination of the beer-tie, which forces tenants to buy beer from the pubco at huge mark-ups, and an arbitrary approach to raising rents has pushed many tenants into severe hardship and contributed to the alarming number of pubs that have closed over the past five years - the closure rate was running at 12 a week at one stage, according to CAMRA.
It is true that competition from supermarkets and the now-abolished beer duty escalator have also had an effect, but the ambitious expansion plans of pubcos before the banking crash lie at the root of the industry's problems. This left the major pubcos with a legacy of vast debts secured against rapidly declining property assets and is the source of grave doubts over whether the business model is ultimately feasible. The situation is particularly acute at Punch Taverns (PUB), which recently failed to convince its bondholders to accept a restructuring of its £2.1bn debt pile.
