Small Business, Enterprise and Employment Bill

Public Bill Committee, 28 October 2014.

Clause 35 - The Adjudicator

Jo Swinson (Liberal Democrat, East Dunbartonshire)

It is a pleasure to serve under your chairmanship, Mr Robertson. I am delighted that we now come to the issue of pub companies, about which there has been much discussion in Parliament over the past 10 years, particularly by the Business, Innovation and Skills Committee.

Clause 35 is very straightforward. It establishes a pubs code adjudicator and introduces schedule 1, which sets out the detail of these arrangements. Committee members will be well aware of the history of this. There have been four investigations by the Business, Innovation and Skills Committee into the relationship between pub-owning businesses and their tenants, and whether the tied model is at the root of unfairness in that relationship. The Government continue to receive a large amount of correspondence from tenants about problems in their relationship with their pub-owning business, as well as from many Members writing on behalf of their constituents.

I pay tribute to the many individuals who have campaigned, argued and worked tirelessly for many years—both within the House and outside it—for a statutory pubs code enforced by an independent pubs code adjudicator. In particular, the Business, Innovation and Skills Committee and the all-party Save the Pub group have done crucial work to raise awareness over the years. The extensive evidence presented to that Committee contributed to the cumulative evidence base that led the Government to consult last year on the establishment of a statutory code enforced by an independent adjudicator. The Committee has since welcomed our proposals.

Establishing the adjudicator is the purpose of the clause and its accompanying schedule. The adjudicator will enforce the statutory code that we will come to in clause 36. These measures represent a significant step for the sector. They are a proportionate and targeted response to the long-standing problems in the pub industry. For the first time, tied tenants will have a statutory code that they can rely on, with an independent adjudicator to enforce it who has real sanctions at their disposal. Schedule 1 deals with the adjudicator’s status, appointment and other procedural matters, as well as the adjudicator’s information powers and amendments to legislation.

The adjudicator will be a corporation sole who carries out functions on behalf of the Crown. This means that they can act formally as an office holder rather than an individual when entering into contracts and when suing or being sued. There should therefore be continuity when there is a change in the individual who happens to hold the office at any given time. The adjudicator will be appointed by the Secretary of State, who may also appoint a deputy adjudicator. The adjudicator may be appointed for up to four years initially and may have a further one or two terms of up to three years each. The Secretary of State may dismiss an adjudicator if they are satisfied that the adjudicator is unable, unwilling or unfit to perform their functions. The Secretary of State will determine the adjudicator’s eligibility for remuneration and related allowances, as well as the amounts of those payments. The adjudicator will be able to recruit and appoint secondees from the public sector and pay their remuneration.

Paragraphs 10 and 11 of the schedule deal with conflicts of interest. I appreciate that this issue will be covered in our debate on later amendments. The adjudicator has wide-ranging functions within the pubs sector, including providing advice and guidance as well as arbitrating and investigating. It is therefore important that we prepare for potential conflicts of interest. The adjudicator will be required to publish their arrangements for avoiding conflicts of interest, and they may require the Secretary of State to appoint an acting deputy if both the adjudicator and their deputy are unable to act due to a conflict of interest.

As clause 39(6) already enables a different person to be appointed as an arbitrator, that would be more likely for an investigation. We think it will be quite unusual for that to be needed but it is important to have the provision. The adjudicator will be required to keep proper accounts and related records, and to send an annual statement of accounts to the Secretary of State and to the Comptroller and Auditor General for certification. The Secretary of State must lay before Parliament the certified statement and the Comptroller and Auditor General’s report on it.

John Robertson (Labour, Glasgow North West)

Order. I ask the hon. Member for Wells (Tessa Munt) to leave, please. Thank you.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Paragraph 18 of part 1 of the schedule creates an exemption from liability for damages when actions are taken or omitted in the exercise or purported exercise of the functions of the adjudicator, deputy adjudicator, acting deputy adjudicator or adjudicator’s staff. Of course, sub-paragraph (2) places a limitation on this, specifying that it does not apply if the act or omission is in bad faith, or if the award of damages is made because the act or omission was unlawful because it was incompatible with a convention right as defined in the Human Rights Act.

Part 2 of the schedule is concerned with a core function of the adjudicator: to investigate potential breaches of the pubs code. To do this effectively, the adjudicator must have robust powers to require information, which are provided in part 2. The exercise of these powers is clearly limited to information that the adjudicator requires for the purposes of an investigation; to monitor whether a previous recommendation has been followed; or which relates to the provision of parallel rent assessments by pub-owning businesses. The requirement to provide information must be imposed in writing and must specify where, when and to whom the information must be provided, the form in which it is to be provided and the possible consequences of failing to comply. Part 2 also establishes the offences of intentionally failing to comply with a requirement to provide information without a reasonable excuse, and of knowingly providing false information. A person found guilty of these offences may be punished by a fine.

Part 3 of schedule 1 makes amendments to other legislation to reflect the introduction of the adjudicator. These will ensure that the adjudicator is open to investigation under the Parliamentary Commissioner Act 1967; that anyone holding the post of adjudicator or deputy adjudicator is disqualified from membership of the House of Commons; and that the adjudicator is subject to freedom of information requests.

There is clearly a great deal of cross-party agreement that an adjudicator should be established. Clause 35 is absolutely essential to achieving that. Schedule 1 sets out the details of how the adjudicator will function, and deals with a variety of important details involved with the carrying out of the adjudicator’s functions. I know that we will discuss many aspects of this while dealing with today’s amendments.

Toby Perkins (Labour, Chesterfield)

It is with great pleasure that I robustly support clause 35 today. At the start of this important series of clauses, it is worth taking a moment to consider the really significant step that the Bill and the Government are taking today. Many new institutions and legislative changes seem like a huge step when they are introduced, but several years later we may find it hard to believe that we ever did not have them. I suspect that a pubs code is one such case. It is a momentous day for many people who, in all kinds of different ways, are involved in our pub industry and have its best interests at heart—those who have been calling for an adjudicator, as proposed in clause 35, and those who have taken a different view over the course of the legislation and might choose that it did rather less. I hope we get the opportunity to debate those issues today. As I say, this is an historic day—a day that we will look back on in one way or another for many years to come, reflecting on what we did that day. Hopefully, we will do so with pride and with a sense that what we achieved has made a real difference.

Today is not only a victorious day or a day of real pleasure for the Opposition. How often are measures that the Opposition have been demanding for 30 months, and which have been resisted at every turn by the Government, turned into legislation that is brought forward by the Government? I took a moment yesterday evening to visit the estimable website theyworkforyou and carry out a search for my own speeches, which I think may be one of the main functions of the website. I suggest that they change the name to “I Work for You”. I searched my own speeches to see how many times over the course of this Parliament I had used the words “pub companies” or “pubs” in speeches, questions and other parliamentary interventions. I discovered 39 different occasions in which I had raised the subject of pub companies and 62 separate debates or questions in which I had raised the issue of pubs.

As the Minister was absolutely right to acknowledge, it is a special day not just for Her Majesty’s Opposition but, much more importantly, for Parliament. This is an issue that has united much of the House throughout those 30 months. It is Parliament, through the Business, Innovation and Skills Committee, that has been pushing this course, not just for 30 months but for between five and 10 years.

Andrew Griffiths (Conservative, Burton)

I absolutely agree with the hon. Gentleman that this is a momentous day. Will he join me in praising the coalition Government for being the first Government ever to bring forward a statutory code and regulation to protect tenants and the pub trade?

Toby Perkins (Labour, Chesterfield)

I will to an extent, but anyone who listened to that contribution might believe that the hon. Gentleman was not, through much of those 30 months, the person standing in front of the truck trying to stop this legislation from happening. If he is suggesting that he is now on board and believes that this is a really positive step for the industry, then that is a damascene conversion. If the Government have managed to get the hon. Gentleman on side, the coalition has achieved more than anyone could have imagined.

Andrew Griffiths (Conservative, Burton)

We are all in it together.

Toby Perkins (Labour, Chesterfield)

Indeed, but judging by some of the amendments the hon. Gentleman has proposed—he has his name signed to a significant number—he would like to reduce the impact of the code. I look forward to hearing his contribution with great interest.

It is important to remind ourselves of the history of the clause and how we got here. The BIS Committee reported on this in 2004, 2009, 2010 and 2011. The 2004 report identified many problems with the industry. Some of its headings were very interesting. It looked at the

“Development of the UK market for beer (including beer orders)”.

No debate on the impact of pub companies can ever overlook the impact of previous legislation on beer orders. I know that the hon. Member for Burton has referred to that in the past. The contents also included the complaint from the Federation of Small Businesses, which is not an organisation that, in general terms, calls for more regulation. However, in this case it spoke up for its members and said that the relationship had to be on a fair basis; if the industry was not capable of doing that, it said, Government regulation might be something that would have to be considered.

Another heading to that report was:

“The contractual relationship between tenant and pubco”,

as were:

“The cost of the tie to tenants…The benefits of the tie to tenants”

and

“Balancing the costs and benefits of the tie”,

so right back in 2004 many of the issues that we will debate today and which have been debated in recent years were identified as significant issues. Finally, under the conclusion section, the BIS Committee wrote:

“At this stage we do not think a legally binding code of practice necessary, but if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it.”

It is important to remind ourselves of the steps that that Committee took to try to prevent us from getting to the stage we are at.

There was then the May 2009 Select Committee report, the introduction to which said that,

“the results of our survey are disturbing. We recognise that landlords are rarely, if ever, popular with their lessees, but the results are often startlingly clear, this combined with the evidence submitted to the inquiry, suggests that, the imbalance of bargaining power and information between pubcos and their lessees has produced a system which is biased against lessees, and needs to be examined in depth.”

The report said:

“The FSB carried out a survey of its members, following the call for evidence by the Committee, and found that 99% of the 156 members who responded felt their situation in relation to their pubco had not improved since 2004.”

That was the 2009 report saying that even after all the criticisms in the 2004 report, there had been an overwhelming sense among respondents to the FSB survey that the situation had not improved.

The conclusion to the 2009 report fell short of recommending the imposition of a statutory code. It said:

“It may be that the beer tie should be prohibited. The OFT has failed to examine this market properly; the Government should now assume responsibility, to ensure both that competition issues are properly investigated and that the wider legal framework is adequate.”

In March 2010, the Government responded to the Select Committee report. The Committee’s publication of that response and their view on it confirmed:

“Our most recent Report set a June 2011 deadline for the industry—a year after the codes are due to be implemented—to prove that it has delivered on its proposals for reform and to demonstrate that those reforms are working effectively. That deadline has now also been taken up by the Government. In its Response the Government makes the following commitment: ‘If the Business, Innovation and Skills Committee concludes by then that the code is not working as well as it should we will consult on putting the code on a statutory basis with effective enforcement.’”

The Committee concluded:

“We are grateful to the Government for its acknowledgement of the central role that we have played in driving forward reform of the industry. This commitment sends to the pub industry an unambiguous message that, should our successor Committee not be satisfied with the industry’s measures in 2011, the Government will not hesitate to intervene.”

So let us be absolutely clear about two things. Between 2004 and 2010, the Select Committee never, at any point, reached the conclusion that the time for statutory regulation had been reached, but a clear commitment was in place that left the Select Committee in the position of arbiters of the progress being made by the industry and a commitment by the then Government to regulate if the industry did not get its house in order by June 2011.

On assuming office in 2010, the Secretary of State confirmed to the BIS Committee that he would abide by the policy position taken by the previous Government. The BIS Committee’s September 2011 report concluded:

“The purpose of this inquiry into pub companies was to assess whether or not the industry had delivered on its promise of meaningful reform. As with previous inquiries, modest improvements have been made. However, the fact that it has taken a number of select committee inquiries to prompt these improvements demonstrates the deep-seated problems which lie at the heart of the industry. While the new codes of practice are a step in the right direction, they only address a limited number of areas. In many areas we do not believe that there has been a genuine commitment to reform. Many of the potential benefits of the new code, which were identified by our predecessor committees, have been undermined by a process of implementation which can only be described as half-hearted.”

It went on:

“The position of the previous Government—endorsed by the current Government—was that if we so recommended, it would consult on how to put the Code on a statutory footing. It is now time for the Government to act on that undertaking. In its response to our Report, the Government has to set out the timetable for that consultation and begin the process as a matter of urgency. We further recommend that the consultation includes proposals for a statutory Code Adjudicator armed with a full suite of sanctions. Considering the amount of evidence gathered by us and our predecessor Committees this should not be a lengthy process; and given the Government’s undertaking to us we do not anticipate any meaningful delay.”

So—this is very important in understanding the history of the issue—it was only in that September 2011 report, which was seven years after the first inquiry, that the Select Committee finally reached the conclusion that a statutory code was needed. From that moment on, Parliament and Her Majesty’s Opposition have been at some pains to get the Government to deliver on that promise, but let nobody suggest that Parliament has not attempted everything in its power to prevent having to regulate within the industry or that it has rushed to judgment.

However, despite Parliament’s patience on the issue and the expectation that the September 2011 report—more than three years ago—would be the call to action required, the fight was not over. We had interminable vacillation and procrastination from the right hon. Member for Kingston and Surbiton (Mr Davey) when he was in the role now held by the hon. Member for East Dunbartonshire, which reached its nadir in the 2012 Back-Bench debate, in which he attempted to argue, in the face of overwhelming evidence to the contrary, that his voluntary code was delivering on the Government’s commitment. That debate was important, because it took place in the days before the Government came to the conclusion that they can lose Back-Bench debates and ignore the motions.

The motion passed unanimously by this House read:

“That this House believes that the Department for Business, Innovation and Skills’ proposals for reform of the pub industry fall short of the undertaking given to the Business, Innovation and Skills Committee in July 2010 and that only a statutory code of practice which includes a free-of-tie option with an open market rent review and an independent adjudicator will resolve the contractual problems between the pub companies and their lessees; and calls on the Government to commission a review of self-regulation of the pub industry in the Autumn of 2012 to be conducted by an independent body approved by the Business, Innovation and Skills Committee.”—[Official Report, 12 January 2012; Vol. 538, c. 400.]

That was in response to the voluntary process set up by the Government. It put clearly on the record the view of this House that the Government’s proposed measures were inadequate, and stated that they should be introducing measures such as those in the Bill.

We then had the brief tenure of the hon. Member for North West Norfolk (Mr Bellingham), although I do not think his heart was ever really in it. But at every stage, we have felt that unless we pushed this issue, nothing would happen. The Government announcement of a review of the success of the voluntary code came just a couple of days before the Secretary of State was due to come to the House to answer questions on it. The January 2013 announcement that the Government had concluded that voluntary regulation had not worked, and that the code needed to be put on a statutory footing, was rushed out the very day before an Opposition day debate on the subject, and there was no sign of any plans in the 2013 Queen’s Speech. In January 2014—four months after we expected a response to the BIS consultation—the Labour party secured another Opposition day debate to push for a response. Finally, here we are in October 2014 with the Bill before us, imperfect though it may be—it may expect too much of the family brewers and too little of the pub companies—but it is here, and it is an historic day and we should celebrate it.

Andrew Griffiths (Conservative, Burton)

I have been listening with interest to the hon. Gentleman’s welcome for the Bill and his allusion to the Opposition’s constant pushing on the statutory code and regulation. He mentioned the BIS Committee, which has published reports on this subject for some 10 years, but will he enlighten the Committee about why his party, when it was in government, did not introduce regulations or legislation on this issue?

Toby Perkins (Labour, Chesterfield)

I am somewhat disappointed with the hon. Gentleman. My speech answered that question, so I am surprised he felt the need to ask it. The case that I have been making is that the BIS Committee and the previous Government took a variety of steps to say, “There is a significant issue. The Government do not want to rush into regulating this industry differently from all other industries unless there is no alternative, but the industry must understand that the BIS Committee and the Government take the matter seriously, and that if steps are not put in place to deliver on these principles, the Government will legislate.” Precisely because there was a desire not to rush to judgment, the BIS Committee made every effort in 2004, 2009 and 2010 to find alternative ways of resolving this issue. The BIS Committee first called for statutory regulation only in September 2011, which was the moment at which the Labour party made that our position.

The previous Government rightly did everything in their power to work with the industry to keep things on a voluntary footing, but, eventually, they came to the conclusion that enough is enough. The damage that the pubco model was doing to the industry was so significant that the unprecedented step of regulating this industry, as opposed to many others, was taken.

The huge majority of responsible pub-owning companies will bitterly regret that the various Select Committee reports and stays of execution given the industry regarding a statutory code were never enough to deliver the fairness that the House agreed was needed. I am bound to say that if the industry and its representative body, with the support of the hon. Member for Burton, had not worked so hard to close ranks to protect those whose practices continually fell short of what was fair or in the best interests of the industry, there is a strong chance that we could have got to this point without the need to regulate.

Sheryll Murray (Conservative, South East Cornwall)

Does the hon. Gentleman agree that there is a clear distinction between the small family brewers that have tenants and the six large pub companies? Does he also agree that we need to differentiate between the different sectors of pub-owning companies?

Toby Perkins (Labour, Chesterfield)

I agree absolutely. The hon. Lady will be aware of the amendments we have tabled to increase that distinction. The code as laid out does create that distinction, but in our view, which I suspect the Committee shares, the different expectations on the family brewers, some of which are quite large, and the pub companies are such that it is too narrow and additional steps should be taken. I will not pursue that point further, because we are to have that debate shortly, but we absolutely agree with the central premise raised by the hon. Lady.

If that distinction had been drawn a little more powerfully in the past, we might have avoided the industry closing ranks to such an extent, even though in private many of the small family brewers would admit that the way certain major companies were operating was not in the best interests of the industry. If people had spoken out more powerfully on the difference between those models, rather than trying to encourage Government to look in the other direction, we might not have arrived at the point we are today.

Let us not forget that CAMRA’s research, which powerfully underlines the hon. Lady’s point, indicates that the majority of pubco licensees earn less than £10,000 a year, compared with just 25% of free-of-tie lessees. That is very relevant during a cost of living crisis, when the pressure on wages exercises all of us in the political sphere.

Last year I carried out a survey of every pub in my constituency, regrettably by post rather than in person. The results backed up the national evidence that tied pubs are struggling: 57% of tied pubs that responded to the Chesterfield pub survey cited pubcos increasing the price of beer disproportionately to the cost as one of the most serious negative influences on their businesses; 43% claimed to have sought a renegotiation of the terms of the tenancy agreement; and 96% had seen a drop in profits during the past year. Crucially, tied and managed pubs saw their profits drop to a greater degree than free houses.

Doing nothing is not an option and I welcome the historic step that the Government are taking. Ensuring that tied licensees are just as able to earn a good living if they run their pub with vision, endeavour and enterprise as their non-tied equivalents is an important commitment for this House to support. Today will be a transformational day for this vital industry, which so many of us feel so passionately about, if we get this legislation right. That is what we all want.

I hope that all hon. Members will ensure, on behalf of the hundreds who sit at home having been bankrupted by a business model that worked against them and knowing that this legislation came too late for them, that the Committee will honour its debt to them. We must ensure that the legislation we put on to the statute book delivers on the principles we set out for it and is not further weakened but gives all investors in the industry, large and small, confidence that this is an industry that will work fairly for them. I look forward, in the debate on schedule 1, to discussing the adjudicator in detail, but we have been calling for the creation of a pubs code adjudicator for a long time, so I wholeheartedly welcome the Government introducing it.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I welcome the Opposition’s welcome for the measures. MPs of all parties have campaigned hard for these changes, and I am glad that the hon. Gentleman recognised that it is to the Government’s credit that we have brought forward these proposals. I note that it prompted our Whip to remark, “This is the best speech to date.” That is one way to get praise and approval. We were all intrigued by the hon. Gentleman’s search for himself on TheyWorkForYou.com. This self-searching for terms on online tools seems to be a habit for Opposition Members, after the infamous Ed Balls on Twitter. None the less, the hon. Gentleman makes an important point about the history of these discussions.

Toby Perkins (Labour, Chesterfield)

For the sake of clarity, I also searched the hon. Lady’s contributions to this debate, and I would be happy to let her know her own figures if she would like.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The hon. Gentleman is very kind; I may well take him up on that offer.

The hon. Gentleman made the important point that this subject has been well debated by the House and set out the history over many years. There has been some to-ing and fro-ing over the precise point at which legislation could have been introduced, but the important thing is that we now have legislation which we can all support to provide some much needed protection for pub tenants. He said that it is a good day for Parliament; I argue that it is a very good day for pub tenants in constituencies up and down the country.

Schedule 1 - The Pubs Code Adjudicator

Toby Perkins (Labour, Chesterfield)

I beg to move amendment 196, in schedule 1, page 135, line 17, at end insert—

“(2A) The adjudicator must not—

(a) be an employee of a large pub-owning business as defined in section 60 of this Act,

(b) be a shareholder of a large pub-owning business as defined in section 60 of this Act,

(c) have been an employee of a large pub-owning business, as defined in section 60 of this Act within the twelve month period prior to the commencement of their appointment as Adjudicator.”

John Robertson (Labour, Glasgow North West)

With this it will be convenient to discuss the following:

Amendment 62, in clause 42, page 34, line 43, after “vexatious”, insert “or unsubstantiated”.

Amendment 63, in clause 49, page 36, line 41, at end insert “or

(c) the basis and reasoning behind the decision to impose a penalty.”

Amendment 195, in clause 50, page 37, line 19, leave out “or wholly without merit”.

Amendment 64, in clause 50, page 37, line 20, after “merit”, insert “or unsubstantiated”

Toby Perkins (Labour, Chesterfield)

Amendments 195 and 196 are very important. The principle of a pubs code now appears to be accepted—on Second Reading it was hard to find anyone who disagreed with the introduction of a pubs code; even the hon. Member for Burton welcomed it. However, it was also very clear that there was considerable debate still to be had about exactly what the code should include. Schedule 1, which deals with the creation of the adjudicator, is a very important part of that debate.

One of the reasons we are supporting a statutory code today is that, in many cases, landlords’ faith in the self-regulatory model has completely broken down, so that even those landlords with legitimate grievances and complaints are reluctant to bring them forward through the proper channels, or by the time they do so it is too late for them to have any hope of saving their business. Interestingly, the very first people to report to the voluntarily created adjudicator won their case but lost the pub. The financial damage that they had suffered in the period leading up to the adjudication was so great that the business was not able to survive, even though they had their day before the adjudicator and actually won their case. The new statutory code must overcome those problems and recognise that licensees should not be punished for honest mistakes.

The concern that led me to table amendments 195 and 196 is to remove any disincentive for tenants to file complaints against the pub company or landlord that owns their pub. Amendment 196 addresses who should be the adjudicator, and amendment 195 would remove the words “without merit” from clause 50. We are worried that those words will create a situation in which tenants are disinclined to pursue adjudication. As drafted, the adjudicator can pass on the costs of an investigation to an individual landlord or licensee, if they deem that a complaint is vexatious or without merit. Obviously, if the adjudicator finds that a claim is vexatious, or if the adjudicator finds positive evidence that a complaint was caused by a grudge against the landlord, people would not want the adjudicator to be used in that way.

Unlikely as it seems, if people were to bring vexatious claims, I am willing to accept that the costs may be attached to those people. But if we also include claims that the adjudicator finds are without merit—going right back to the evidence that we heard in 2004, this debate has been about tenants often having tremendously less information about their own circumstances than is held by the pub companies—and given that tenants have a real lack of clarity on what is a fair rent or a fair beer price, having a clause that says, “We can charge you if we consider that your claim is without merit,” is possibly going a step too far. Clause 50 might mean that many tenants who would want to seek adjudication will say, “I’m not quite sure whether I have a strong case. I feel that I have, and I think that what I was told originally about the sort of money that I should be able to make has been misleading. Is my claim with or without merit in the eyes of the adjudicator?” If we start saying “On top of being heard, you are going to face a significant bill,” we might dissuade people, who are already pretty desperate in many cases, from seeking adjudication.

Amendment 195 would simply remove the term “without merit”. In no way do I want to support people who are making mendacious complaints, but where people are making an honest complaint in good faith on which the adjudicator, after looking at the figures, sides with the landlord and finds that there is no merit in the case, I think that saying, “In those circumstances, you can be charged,” would have the opposite effect to what the Minister intends.

Although amendment 195 would remove “without merit” from clause 50, amendments 62 and 64, which were tabled by the hon. Member for Burton, would go even further and increase the number of cases in which a tenant may be charged for the cost of a hearing. He believes that the tenant should be charged if their case was unsubstantiated, which is very concerning.

Andy McDonald (Labour, Middlesbrough)

There is a principle running through all our legal environments that penalties can apply where someone conducts themselves in a vexatious or pernicious way. However, that principle does not extend to the civil or employment tribunal arena, where people are necessarily non-meritorious if their claims fail because they did not win the battle on its merits. It would be entirely wrong for them to be punished further with adverse costs orders. Does my hon. Friend agree?

Toby Perkins (Labour, Chesterfield)

My hon. Friend speaks with great knowledge of the subject. He is, of course, entirely right. Let us think about what the hon. Member for Burton proposes with his amendment. Tenants who go in front of the adjudicator and challenge their relationship with their landlord are often at a desperate point in their business cycle or at their wits’ end. They will have to worry about whether that will further damage their relationship with a landlord on whom they are often dependent. For them to take that step and then be told, “Not only could you potentially be paying the costs if the case is found to be without merit, but you could be hit with the costs even if it is unsubstantiated,” would be a very damaging principle in their circumstances. It would be introduced by a Government who have been responsible for a number of damaging principles when it comes to people’s legal rights to take action.

Andy McDonald (Labour, Middlesbrough)

Given that so many of these landlords earn the equivalent of less than the minimum wage, that sort of fear and prohibition would completely block them in any attempt to seek redress. Would my hon. Friend agree?

Toby Perkins (Labour, Chesterfield)

I absolutely would. This is far too broad a term. It could lead to the adjudicator falling back on the victim who made the complaint when they are not able to gather enough evidence for proof beyond the shadow of a doubt. The impact of that would be that businesses in desperate straits are pretty unlikely to come forward to the adjudicator. If that is what the hon. Member for Burton proposes, what does that say about his commitment to the pubs code and the adjudicator? Why would he want a situation where, having created this adjudicator, we then say to anyone who uses it, “If you do use it, bear in mind that you will be hit with the costs if the case is unsubstantiated.” It seems to be a way of undermining the very adjudicator that the Committee wants to introduce.

Ian Murray (Labour, Edinburgh South)

My hon. Friend mentioned this Government’s track record on access to justice. We have seen with employment tribunal fees that the number of people taking legitimate cases to employment tribunals has dropped by 80%. The danger is that we create a strong adjudicator but make it completely toothless, because no one will use the service.

Toby Perkins (Labour, Chesterfield)

Absolutely. If Mr Robertson will allow it, I would like to pursue that argument at greater length. None of us in this place want vexatious claims to be brought against either pub-owning companies or employers. However, setting out to prevent claims and prevent people from seeking justice would be an odd position for a Government with any pretence of introducing socially just measures to take.

Amendment 195 would still offer pub-owning companies the protection that, in the event of vexatious claims, there would be an opportunity to offer costs, but would remove the phrase “without merit” that might result in many tenants not taking the opportunity to use the adjudicator.

There is currently an adjudicator—the Pubs Independent Conciliation and Arbitration Service—set up on a voluntary basis by the industry under the changes that the Government made in 2011. PICAS has had nine cases in the past year, at a time when around 30 pubs a week are closing and many pub company tenants, in response to our survey, suggest that the pub company is the reason that they have been unable to make their business succeed. That shows that having too much expectation that people who are in desperate straits will go to the adjudicator in the first place is probably unrealistic, so for the Bill to put in place measures that would further discourage people is a step too far. I hope that the Government will support that minor amendment, which leaves in place the safeguard that they want to create, but prevents there being an added disincentive for desperate tenants to go to the adjudicator.

The question on amendment 196 is very significant. No one would expect the chief executive of EDF to chair Ofgem, and no one would expect the chairman of Severn Trent Water to run Ofwat. The principle that those subject to statutory regulation should not be in charge of that regulation is clear. However, the Bill currently contains no provisions to prevent a senior pubco employee, a placeman who was previously at one of the big pub companies, or a pub company shareholder from becoming the new adjudicator.

We need a system that has the confidence of individual licensees up and down the land, which is why the new statutory code is being brought forward in the first place. To ensure that there are no misunderstandings or accusations of conflict of interests at the birth of the new adjudicator, we need to establish its zealous independence in primary legislation. That is why amendment 196 prevents employees of large pubcos from being the adjudicator.

One reason that some licensees do not have the faith in PICAS that we had hoped they would, is that its chair was recruited from the ranks of the pubcos and their lobby body, the British Beer and Pub Association. For too long the pubcos have held sway over how they are regulated; in January 2012, a freedom of information request tabled by the all-party parliamentary Save the Pub group even revealed that some of the Government’s response to a BIS Committee report on pubco regulation was written by the pubcos themselves. So the Government are sat there, apparently as neutral arbiter, cutting and pasting evidence from the pub companies and putting it out as though it was their view.

Amendment 196 says that the adjudicator must not

“be an employee of a large pub-owning business…a shareholder of a large pub-owning business”,

or

“have been an employee of a large pub-owning business”

in the previous 12 months; that is entirely sensible. The amendment may well fit absolutely with what the Government were thinking they would put in secondary legislation on the conflict of interest clause, but if it was in the primary legislation, people would have a great deal more confidence in it.

Finally, I turn to amendment 63, tabled by the hon. Member for Burton, which would give pubcos the right to challenge the entire basis on which the adjudicator comes to a decision. We believe that would be incompatible with the very purpose of having a statutory regulator as imposed by the Bill. The rights of the adjudicator to make such decisions are clearly set out elsewhere in the Bill so we are unclear how the amendment can work alongside the rest of part 4. I look forward to hearing what he has to say. If he is attempting to weaken the Bill at every turn, people—even those who might agree with some of the principles he is outlining—will question why, and might come to the conclusion that he is attempting to undermine the capacity and ability of the Bill to deliver on the principles that the Government have set out.

I hope that the Committee sees its way to supporting amendments 195 and 196 and rejects amendments 62 to 64.

Andrew Griffiths (Conservative, Burton)

It is the first time that I have tabled amendments in Committee. I crave your advice, Mr Robertson, and the Committee’s assistance with what is a new procedure for me.

I am delighted to welcome the Bill and support its aims. It is to the credit of everyone concerned that, for the first time, we have a statutory code that will give confidence to tenants and, I hope, give certainty to businesses involved in this industry. This is a hugely important industry, not just for our communities—for the community pubs where people drink, enjoy a pint, socialise and have all the social benefits that come from the pub—but for the economic benefits that come from the pubs throughout our constituencies. They are all small businesses in their own right, employing huge numbers of people and making a huge contribution to the UK economy. It is absolutely right that we support them correctly through the Bill.

I do not wish to take up too much of the Committee’s time on this. I want to clarify to the hon. Member for Chesterfield that I absolutely want this to work. I want the Bill and the adjudicator to be a success. I want the statutory code to work for the businesses and for the tenants concerned. However, to do that we have to have a system that can cope with and is reactive to the needs of the companies and the tenants. Given that the Bill has had a gestation period longer than an elephant’s, it is a disappointment that the draft code has still not been published. It is a disappointment that we do not have as much information as we would like. A great deal of uncertainty still remains, not about the broad aims and thrust of the Bill, but about the detail: how it will work in practice, the impact that it will have on pubs, and the impact that it will have on the businesses in this industry.

It is for that reason I have tabled a number of amendments: to try to tease out the Minister’s intention, the Government’s intention and what the code and the adjudicator will look like when they are completed. I strongly believe that we need to get this in place as soon as possible. I do not wish to delay it or postpone it; I want to see it up and running. However, I also want certainty. I do not think that we need to make this any more of a political football than it has already become. I tabled my amendments because I have great concerns about the adjudicator’s ability to cope with the potential number of cases that it might have to deal with. I do not want it to collapse under the sheer work load of cases put before it.

The hon. Gentleman alluded to the issue of family law and the changes that the Government have made. There has been a thread running through all the Government’s approaches to these kinds of disputes that we want to do all we can to avoid getting to the point of an expensive legislation—an expensive government—option. I am concerned that, as the legislation currently stands, it is all too easy to reach for the adjudicator as the first option rather than the last option in resolving a dispute.

Toby Perkins (Labour, Chesterfield)

As I said previously, the hon. Gentleman will be aware that for much of this debate it has been his view that voluntary regulation was basically working and should be given more time, and that it was effectively a dark day if the Government brought in a pubs code. Perhaps he could clarify whether he is still of the view that voluntary regulation is working and it is a mistake to put this on a statutory footing, or whether he now thinks that statutory regulation is a good idea.

John Robertson (Labour, Glasgow North West)

Before the hon. Gentleman answers, I advise him that if he wishes to move any of his amendments he must say so during his contribution.

Andrew Griffiths (Conservative, Burton)

Thank you for that very sound advice, Mr Robertson. I am sorry that the hon. Member for Chesterfield must have missed my speech when the conclusion to the consultation was announced, and he obviously cannot have been present on Second Reading when I made a contribution. It was an invaluable contribution, and I will send the hon. Gentleman a copy today so that he can read it for himself. I was of the view that self-regulation should have been given more time, but I also came to the clear view that the issue had been an open sore which was debilitating to the industry and frustrating for tenants, and which had locked politicians, business people and publicans in this argument for too long.

I was convinced of the argument that a statutory code would draw a line under that, and give some certainty to the businesses and some protection to the tenants. That would prevent what we have seen taking place in Committee Rooms such as this throughout Parliament for 10 years or more. That is a debilitating debate where pub companies and tenants are more focused on arguing the toss here in a Committee Room than getting on and running good pubs, selling good beer and serving their customers.

Toby Perkins (Labour, Chesterfield)

I am grateful to the hon. Gentleman for putting his change of heart on the record and explaining why he has come to that conclusion. The industry needs to move on and to have confidence. Does he not then understand that anything that creates an additional sense among tenants that there are risks to pursuing the adjudicator—which actually undermines the new powers that we are giving to tenants—would be damaging for the principles that he lays out? Does he not therefore see why it would be very much in the best interests of the good spirit in which we are pursuing the Bill for him not to press amendments 62 and 64 to a vote?

Andrew Griffiths (Conservative, Burton)

I listened to the point made by the hon. Gentleman, but I remain concerned because there are currently some 22,000 tied pubs in this country. That is 22,000 small businesses that will all have access to redress from the adjudicator. At the moment, most of those cases are dealt with by a discussion between the tenant, the publican and the pub company. That is exactly what we wanted to see, with the adjudicator as backstop.

I am concerned that as the code stands there is absolutely no risk in relation to reaching for the adjudicator. We do not do this for anything else. The hon. Member for Middlesbrough talked about the industrial tribunal, where we have now said that we want to see people who are pursuing a case have a stake in that case and a cost in the case, to prevent cases from being taken on a whim. In family law, we are now doing all we can to find a resolution before we get to the point of needing to go to court and see a judge.

Ian Murray (Labour, Edinburgh South)

I appreciate that the hon. Gentleman is trying to develop the case for his amendments, but I ask him to reflect on the fact that a pregnant woman who has been discriminated against at work now has to pay £1,200 to go to an employment tribunal. Does he think that is fair?

Andrew Griffiths (Conservative, Burton)

Obviously, I would not want us to discuss something that was not within the scope of the Bill. However, I absolutely support this Government’s initiative and their determination to support businesses and make sure that they are not tied up in vexatious complaints. That is extremely important. It is interesting that, for example, we insist that a person must have exhausted all the internal complaints procedures before they go to the local government ombudsman. However, not only will a person be able to go to the adjudicator without it costing them anything, but, as the Bill is drafted, they will not have to be a tenant; they will be able to go to the adjudicator from the moment they call a pub company to inquire about a pub. My concern is that some people will use the adjudicator as a negotiating tool, rather than as a body that rules and supports tenants, as it is intended to be.

Andy McDonald (Labour, Middlesbrough)

The hon. Gentleman has perhaps answered my question already. He used the word “unsubstantiated”, but what he is saying is that if the case is ultimately deemed to be non-meritorious or is unsuccessful, the cost will follow the event. If that is the case, does he accept that that will be a bar that will put people off? Does he think that the code will be undermined if people think they cannot access it?

Andrew Griffiths (Conservative, Burton)

If we look at the Bill as drafted, we are talking about, for example, a publican being charged £200 for a parallel rent assessment. When we consider the amounts of money that arise in relation to disputes about pub tenancies, I do not think it is unreasonable that when a person uses the adjudicator for statutory help and support, we levy a charge that is returned to the claimant if their case is upheld. I cannot think of many instances—perhaps the hon. Member for Chesterfield can give me a few—in which a person has recourse to an adjudicator in such a way without there being some sort of a charge.

Toby Perkins (Labour, Chesterfield)

I was going to pursue that very point. For the sake of the Committee, will the hon. Gentleman talk about the way that PICAS works and the charges that are attached to it? Did the way in which that system was set up lead to a huge raft of unsubstantiated claims?

Andrew Griffiths (Conservative, Burton)

The charge to go to PICAS is £200, which I do not think unreasonable. It is not unreasonable to expect a business person—let us be honest: these tenants are business people, although some of them may make wrong decisions—who seeks help and advice in that way to have a stake in their complaint.

Toby Perkins (Labour, Chesterfield)

The Bill as drafted is about awarding costs at the end of the claim if it is pushed and is found to be without merit. There will be no charge to use the service, but the costs of the hearing will fall on the person whose case was found to be without merit. Those costs would be considerably more than £200, would they not?

Andrew Griffiths (Conservative, Burton)

I understand the hon. Gentleman’s point, but perhaps he is misinterpreting my amendment. I am concerned that there will be no risk to a person’s taking a punt with the adjudicator. If they are in a rent negotiation with a pubco, why not flip a coin and see what the adjudicator says? I want to see the adjudicator work, but none of us is naive enough to think that a person will not use a lever that offers them a way to get somebody on their side to influence the negotiation. If the adjudicator can be used with no risk, there is a risk that it will be abused.

I seek clarification from the Minister on that issue, because there is a great deal of meat to be put on the bones of the Bill. Many of these amendments are probing amendments, so I do not intend to press them. However, I seek, either today or later, precise detail about how the adjudicator will operate. I seek clear and precise clarification from the Minister that he does not think there will be thousands upon thousands of claims that will not only tie the pubs code adjudicator in knots but turn it into an expensive and cumbersome quango. None of us wants to see that.

I am grateful for your advice on the amendments, Mr Robertson. I do not intend to press them to a vote. I am keen for the Minister to give us a clear idea and assurances that this will not end up as an expensive quango.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Mr Robertson, it is good to have the opportunity to get into more detailed discussion of this part of the Bill. To avoid confusion, it might be helpful to provide information for the Committee. My hon. Friend the Member for Burton expressed concern that the draft code had not been published. The Government response to the consultation on pub companies and tenants was published on Tuesday 3 June. On page 130 at annex F is the draft code for pubs, as has already been published. That is obviously available for hon. Members to read.

I wrote to Committee Members on Friday to set out how, as a result of the evidence sessions and discussions with hon. Members, I was already minded to make some revisions to the published draft code. I will also listen further to the Committee’s views during our deliberations and publish a revised code before Report.

The Government have always intended, for the sensible reason that the final code has to reflect the final form of the Bill, that the final code will be published after Royal Assent. After Royal Assent, the Government will quickly consult on the specifics of the code with a view to its being in place shortly afterwards. The point of publishing the draft code and a revised code is to enable as much discussion as possible to be done in advance.

Sheryll Murray (Conservative, South East Cornwall)

Can the Minister give us any indication whether she will make available to the Committee the clearly amended draft code to date? It seems bizarre that we are to discuss and pass a Bill without seeing the content of the final draft code, which cannot be amended after the Bill receives Royal Assent. That seems to be putting the cart before the horse.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I will happily clarify for my hon. Friend. The letter I sent on Friday set out the changes I have already suggested. I have also set out that I intend to publish a revised draft code before Report, which will be before the Bill is passed. It is also the case that the final code will have to be passed through statutory instrument by the affirmative resolution, so Parliament will have the final say on the draft code, which will be handled as secondary legislation after Royal Assent. There will be plenty of opportunities, not just for debate, but to ensure that we get the code right, and for Parliament to have its say.

Andrew Griffiths (Conservative, Burton)

I thank the Minister for clarifying that. I clearly misunderstood in our conversations last week when she said that there was a new draft code imminent. I did not realise that that imminent new draft code would not be forthcoming in time for this Committee to consider it.

However, there is concern. This is a consultation and a process that has been going on for a decade. We have had four BIS Committee reports and a consultation with thousands of consultees that lasted 18 months. We are a long way down the track. It worries me that we have to take on trust the contents of a draft code that will not be amendable by the House. I accept there will be an affirmative resolution. There is concern that the Department does not have this nailed down, given how long the consultation has been taking place.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The hon. Gentleman on the one hand wants changes to the Government’s proposal and on the other wants us to nail it down and not make any change at all. I think the best way for Government to operate is to respond to views expressed in Parliament. We have already published a draft code, and instead of publishing a finalised code and saying, “No matter what is discussed in Committee we will not change one iota, and no ‘t’ or ‘i’ will be crossed or dotted,” we are adopting a more constructive approach.

We are saying we will take the Committee discussions into account, with a view to publishing a revised draft code. That will then receive further scrutiny on Report. After Royal Assent there will be public consultation on the code, before the House gets to vote on it. I take the point that the vote in the Statutory Instrument Committee will be on whether the code, as presented, should come into force; but that will be after further consultation, when hon. Members and members of the public, and other stakeholders, will be able to have a say.

The Government are approaching the matter in a spirit of consultation that I should have thought the Committee would appreciate.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

The Committee cannot have it both ways—seeking such constructive meetings as those that my hon. Friends the Members for Burton and for South East Cornwall and I, among others, have had about the code in the past few weeks, to try to influence the outcome at this late stage, and yet also telling the Government that they should have locked the code down, done and dusted, and sealed in an unchanging format. I, for one, welcome the constructive approach that both Ministers have taken in engaging with colleagues on the matter.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I thank my hon. Friend for his constructive approach. He, like other hon. Members, has a constituency interest in the issue, and it is right that Members put their case about things that affect their constituencies. His welcome for the Government’s approach to consultation echoes the response that we have had from stakeholders, pub companies and all those involved who are keen to make sure they can work with Government. It would be great if the process of government were perfect and everything was 100% right first time, but an approach in which we take people’s views on board and emerge with a stronger end product is the best way forward.

Toby Perkins (Labour, Chesterfield)

I think there is some legitimacy to the point raised by the hon. Member for Burton that of course, going through the process, amendments will be proposed—and some may be agreed—to relatively minor aspects of the code. However, what ends up in the code will be the key detail, in terms of the effectiveness of the Bill. We are effectively being asked to give our support on the basis of a draft code that already appears likely to change considerably, before our eyes. Will the Minister clarify whether, after Royal Assent, it would be possible for a future Government simply to change the draft code without needing to come back to the House? What would the process be if a future Government wanted to change it?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

It is a good question, and it is certainly helpful for the Committee to be clear about it. The point of the code being established through secondary legislation is that things can change; if that happens it may be helpful in future to be able to amend the code. Industry may recommend that, and be keen for it to happen. We want the Government to be able to respond to such future changes in the situation in the industry.

The hon. Gentleman’s point about parliamentary approval is important, however; we hope that the Bill will be passed by Parliament, and therefore we need to make sure that there will be parliamentary process. Any amendments to the code in future will require parliamentary approval through the affirmative process. I think that that is right for something of such importance. Therefore, there would be an opportunity in future for Parliament to discuss the matter and have the final say.

Toby Perkins (Labour, Chesterfield)

To clarify that—I may not be at my sharpest today—does the Minister, in talking about the affirmative process, mean that a statutory instrument would be considered in Committee, with a view to approving any changes?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Absolutely. I apologise if that was not clear. If a change was intended, it would clearly be best practice for the Government to consult on the proposed change rather than to present a fait accompli; that is the way that the Government tend to operate. Following such a consultation process, a statutory instrument would be presented for debate and a vote in the House. That will give some reassurance, I hope, to the Committee that Parliament will be very much involved in the process on the code in future.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I have found this debate incredibly useful and thank those who enabled us to have it. What impact will the measures have on micro-breweries? I have some in my constituency, so I want to understand how the measures might work in that regard.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The hon. Gentleman raises a good point. Micro-breweries are popular and are a real success story for many of our local economies. We already have the voluntary code, which many micro-breweries will be signed up to. When discussing a later group of amendments we will debate exactly what provisions companies with fewer than 500 tied pubs should be subject to. The Government’s view is that tenants of such companies need protection but that that requirement should be proportionate. In our evidence sessions it was suggested that we have not got the balance quite right in the code as published. As I set out in my letter to the Committee on Friday, the Government are aware of those concerns and are minded to respond to them. I have already set out that we think that annual compliance reporting should be moved to the enhanced code and be something that is required from larger companies with more than 500 tied pubs. I am open to discussing fully how that can be done when we come to the later group of amendments.

As for micro-breweries, because of our general moratorium on any regulation on very small businesses, the situation will depend on the exact size of the micro-brewery, so if very micro breweries have fewer than 10 employees, they will be exempt from the code. Whether breweries will have to comply with the basic statutory code, as set out, will depend on their size.

Some amendments in this group deal with the pubs code adjudicator’s ability to award costs following arbitration or investigations; others seek to put measures in the Bill to prevent potential conflicts of interest. My hon. Friend the Member for Burton has outlined his concerns about the burdens that the requirements of the code could impose on pub-owning companies. He is representing his constituency, where two large pub-owning companies—Punch Taverns and Marston’s—are based. Opposition Members have highlighted the challenge of making sure that the adjudicator can properly protect the rights of tied tenants, raising concerns about whether that will be the case.

Amendment 196 deals with conflicts of interest and would prohibit a current employee of a large pub-owning company, or a person who has been such an employee in the past year, from holding the post of adjudicator. It would also prevent the adjudicator from holding shares in a large pub-owning company. All members of the Committee would agree that it is crucial that the adjudicator is, and is seen to be, independent; the very success of the post depends upon that fact. The appointment will be made in an open recruitment exercise, in line with the standard code of practice for ministerial appointments to public bodies. Candidates will be expected to demonstrate high standards of integrity and objectivity, and to show that they are free from bias and can act independently.

I sympathise with the intention behind the amendment—I am sure all members of the Committee do—of making sure that such an individual is truly independent, but the processes already in place through the code of practice for ministerial appointments to public bodies give us the clarity and assurance we need, without adding an additional hurdle in the primary legislation.

Toby Perkins (Labour, Chesterfield)

I understand from what the Minister says that she, like us, would think that somebody who failed to meet one of the conditions that we have put in amendment 196 would not be perceived to be objective, even though they could be a person of huge integrity. What problem does she think would be caused by supporting the amendment? Since it clarifies some of the principles she sets out, why not have it in the Bill?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Part of the problem is about putting something in primary legislation that is covered by existing practices. It would also highlight one particular set of conflicts of interest that might be a problem. If we put that in the Bill, we could put in all sorts of other provisos as well. Rather than be over-prescriptive, it is better to recognise that we have a well respected and credible process for making sure that any public appointments are made in such a way that those appointed are independent and able to do the job, and that those who make the appointment following the existing guidance on how that is to be done are able look at the facts of the case and come to a judgment. If we are going to put this in the Bill when we already have a perfectly serviceable system for making sure that conflicts of interest and independence in public appointment are dealt with, how many other things could we put in,?

Toby Perkins (Labour, Chesterfield)

One might describe the principle the hon. Lady lays out as the Fiona Woolf principle; it demonstrates the point I am trying to make. I take it that she is saying that she cannot imagine a circumstance in which it would be appropriate for an employee or recent past employee of a big pub company to be the independent adjudicator. There is a raft of examples in the Bill; they are not exhaustive but they are specific examples of the kind of thing that might happen. Does she not see that our amendment would be a really useful step in building confidence in the Bill, enabling us to say that this is different and this is an independent adjudicator?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I have sympathy with the amendment because I understand his concern about the difficulties there would be if, for example, the person who was appointed as an independent adjudicator was employed by someone they might be adjudicating on. I am not suggesting that that situation would or should arise; I am saying that we have procedures in place for ensuring that the independence of whoever is appointed to this position, or any public appointment, is taken into account. We should not write unnecessary additional hurdles into primary legislation. We could have a scenario in which somebody who had worked 11 months ago, possibly for a short time, for such a company might be an ideal candidate for the position and there might be no problem or apparent conflict. We would do better to trust the existing proper appointment processes than to be over-restrictive. None the less, I hope that can reassure the hon. Gentleman that it is not our intention that someone should be appointed who is clearly not seen to be independent. Making sure that appointments are got right will be a key challenge and an important job for Ministers, after a proper recruitment process.

Toby Perkins (Labour, Chesterfield)

Will the Minister clarify that as the adjudicator needs to have reasonable knowledge of the industry, there will always be a question about their independence, whether they be a former CAMRA worker or a former pub company representative? How can people be confident about that when the Government are not willing to support something that is straightforward and gives certainty about that regulator?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

There will clearly be a great deal of public scrutiny and Ministers making such an appointment will think very carefully about all these issues. Indeed, all those involved in the recruitment process will follow the independent guidelines that are already set out. There are many opportunities in the House of Commons for hon. Members who are unhappy with such decisions to challenge them and to hold Ministers to account for the decisions they make. I talked earlier about the provisions whereby the Secretary of State can take action if a concern arises about a conflict of interest, so there are protections.

The hon. Gentleman makes an important point. Good candidates for this position may be people who have experience within the industry, because it is an often complex industry and such understanding could be hugely beneficial to their ability to undertake the role and, indeed, to build confidence on both sides. Being unnecessarily prescriptive may not be the best approach, particularly in primary legislation. There might be an individual with experience as a tenant who worked for a pub company 11 months previously, who is ideally placed to do the job and who has the confidence of the whole industry, but the hon. Gentleman’s amendment would mean that that person is not eligible to do the job, even though all the processes find that they are ideally placed. We must ensure that the processes are trusted.

Toby Perkins (Labour, Chesterfield)

Is the Minister saying that, from her experience, she cannot imagine circumstances in which someone working for a pub company or someone who was recently closely associated as a long-standing employee of a pub company would be appointed as the adjudicator?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I certainly think there would be an issue if the adjudicator’s independence were to be questioned. A Minister making an appointment where the independence is likely to be questioned would want to be absolutely satisfied that the person is right for the job. Who knows who will be making the decision? I assure the hon. Gentleman that I would give careful consideration to all those elements. I reiterate that there will be much scrutiny of the position, so if people think that the decision has been made wrongly, there will be plenty of opportunities for the responsible Minister to be held to account. I am sure that will be in the mind of the person making the appointment.

The other amendments address the costs of both arbitration and investigation. Amendment 62, tabled by my hon. Friend the Member for Burton, would exempt pub-owning businesses from paying the costs of the arbitrator when the tenant has referred a complaint that is found to be unsubstantiated. Similarly, amendment 64 would give the adjudicator discretion to recover some or all of the costs of an investigation from a complainant if their complaint is unsubstantiated. Amendment 195 also addresses costs, but not in relation to arbitration; the amendment addresses only the cost of investigations. The amendment would remove the adjudicator’s power to recover some or all of the costs of an investigation from a complainant if the adjudicator finds their complaint to be wholly without merit.

On the arbitrations side, as the Committee is aware, these are individual disputes about alleged breaches of the code. As has already been discussed, a tenant will already be required to pay a £200 fee for arbitration, which is designed to deter frivolous requests without preventing tenants from referring a valid case. The hon. Member for Chesterfield and other Opposition Members have highlighted concerns about whether tenants will feel able to pursue cases and whether there will be a climate of fear. Tenants have been taking cases to arbitration through PICAS, and views differ about the effectiveness of PICAS. Some tenants have expressed concerns about whether PICAS is sufficiently independent or has sufficient powers to enforce the voluntary code, but I suspect that those are more the reasons why more referrals to PICAS have not been made, rather than tenants being unwilling to take their cases forward. Tied tenants have been open about their concerns, although there has been a suggestion that they will not feel able to pursue their case. I hope that we have set out a system in which there is confidence that they can. It is important to note that, in the case of arbitration, there is no restriction in terms of a case having merit.

Unlike the Arbitration Act 1996 and the Groceries Code Adjudicator, the Bill does not provide for costs to be assigned to the tenant if they bring an arbitration case that is without merit. That is precisely for the reason that I outlined; tenants might not have significant resources or be well versed in the law and therefore able to assess whether an arbitration case has legal merit. However, if they feel that there is a concern, they can take that to arbitration. That is quite different from a vexatious case, in which an arbitrator may assign costs to the tenant. For that very reason—the risk that facing a costs award will dissuade tenants with genuine cases from going to the adjudicator—we will resist the amendment which suggests that unsubstantiated cases should risk that costs award. We have that protection for vexatious cases, which is important.

Toby Perkins (Labour, Chesterfield)

Will the Minister lay out the kinds of cost she would envisage a tenant might have to meet in the event of their case being seen to be wholly without merit? What would the cost be of an investigation that might then fall upon the tenant?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

If the hon. Gentleman will permit me, I will deal with the amendments on arbitrations first and then come to the issue of investigations and cases which are wholly without merit. It is important to recognise that we have a different regime for arbitrations and investigations. Arbitration is about the individual disputes. We do not want tenants who feel they have a genuine case to feel in any way encumbered about asking for arbitration on their case. The opposite side of that argument was put forward by my hon. Friend the Member for Burton, who expressed his concern that the adjudicator would be swamped with rent disputes and cases being taken on a whim. The cost of £200 does deter frivolous cases. He made the point that, in the grand scheme of what is at stake, £200 is not a huge sum. None the less, it is a significant sum to make someone think twice before doing something on a whim.

The evidence we heard suggested that swamping will not happen. Kate Nicholls, from the Association of Licensed Multiple Retailers, set out that there is no reason for the adjudicator to be swamped by rent assessment claims if the industry acts fairly. Pub companies have told us that around three quarters of their tied tenants agree the rent on the basis of the first rent proposal made by the pub company. As such, it would be pretty unlikely for those cases to go to the adjudicator at all.

Andrew Griffiths (Conservative, Burton)

I may have misread the Bill or missed something, but the only reference to a charge I can find is the £200 for a parallel rent assessment. I cannot find any other reference to a charge for access to the adjudicator. Will the Minister clarify whether that is the case?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

We have set out in the code that there would be a £200 charge for a parallel rent assessment and a £200 fee to refer an alleged breach of the code for arbitration. I think that helps to deal with the hon. Gentleman’s concern.

The hon. Gentleman also suggested that tenants would go to the adjudicator as a negotiating tactic. Clause 40 (2) will hopefully provide him with some reassurance on that. Subsection (2) requires that 21 days must have expired from the day the tenant notifies the pub company of the alleged breach before they go to the adjudicator. If a tenant is concerned that the code has been breached, they have to tell the pub company and there is then three weeks before they can go to arbitration. That gives the pub company plenty of time to engage with the tenant, explain why they think they have not breached the code, or look again and make a change if they have inadvertently done something that is not within the spirit of the code. That is designed to try to encourage the two sides to have a discussion and ensure they can come to an agreement. That will obviously not be possible in some cases, which is when arbitration will be the option to proceed with.

The very existence of the adjudicator may make pub companies consider what proposals they put forward in their rent negotiations. That is the intention of the Bill. We want to ensure, in an industry where there has been a power imbalance and individuals have been getting a very raw deal, that the people putting forward the rent reviews do so with a little more care. I hope the Committee welcomes that.

Andrew Griffiths (Conservative, Burton)

Is the Minister saying that she sees the Government having a role in regulating and setting rents in the industry?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I do not see the Government having a role in that at all. In cases where pub companies do not comply with the code and the dispute is referred to arbitration, clearly the adjudicator will have powers at its disposal, which could include deciding what a fair rent would be. As far as is possible, the intention is that the industry will take seriously the very fact that the adjudicator exists, and that where there has already been pretty shabby behaviour in the treatment of tenants, that will be nipped in the bud rather than go to arbitration or investigation. The very presence of the adjudicator will act as a useful reminder for good behaviour and compliance with the code in the industry.

Toby Perkins (Labour, Chesterfield)

On arbitration, the Minister will be aware that, under clause 42(6), the pub-owning business will pay fees and expenses, except where

“the arbitrator concludes that the referral was vexatious.”

It does not say anything about referrals that are wholly without merit, simply those that are “vexatious”. However, through clause 50, on what costs might land on the tenant, subsection 2(b) is expanded to include “wholly without merit”. It seems inconsistent that “vexatious” is enough in one case—that is exactly what we are saying it should be; we do not want vexatious claims to be brought—but “wholly without merit” is added in the other. What is the reason for that?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The hon. Gentleman is being impatient; I am just coming to that.

I hope I have dealt with arbitrations; I now move on to investigations. The hon. Gentleman says that the two tests for how costs should be awarded are inconsistent. It is true that they are not entirely consistent, but that is because arbitration and investigation are not the same thing. As a result, we think they deserve to be treated differently. Investigations are about dealing with wider systemic breaches of the code, so typically not just an individual circumstance where a tenant has been badly treated, which can be dealt with by arbitration. Investigations are much more likely to look at a pattern of behaviour affecting lots of different tenants, perhaps by one or more pub companies. Investigation would be the tool reached for in those cases.

There are two different amendments trying to change, in opposite directions, the test that we have set out. Amendment 64 is similar to the proposed amendment on arbitrations set out by the hon. Member for Burton and enables the adjudicator to have discretion to recover the costs if an investigation of a complaint is “unsubstantiated”, whereas amendment 195, in the name of the hon. Member for Chesterfield, would remove the adjudicator’s power to recover costs if the complaint is wholly without merit. That tension between the two issues—calls to go further in one direction and calls to go further in the other—may show that we have got the right balance between deterring complaints that are vexatious and wholly without merit, and not preventing tenants from voicing their valid concerns.

There is a different test for the adjudicator to start an investigation; there is a need for reasonable grounds to think that the code has been breached. With that test, before anything happens, it would be pretty unlikely for an unsubstantiated claim to be investigated at all—to deal with the point made by the hon. Member for Burton. I think that that fact gives some reassurance and protection.

If enough evidence were presented to convince the adjudicator that there were reasonable grounds to suspect the code had been breached, but the claim turned out to be wholly without merit, that would suggest that something untoward had gone on. Quite a significant weight of evidence would have fallen apart on further investigation and scrutiny. Perhaps such circumstances would mean that the adjudicator had been misled to start with about the grounds for opening an investigation. That is the reason for the phrase “wholly without merit” in addition to “vexatious” for the test in question. We do not want campaign groups to go on fishing expeditions. We want investigations to happen when there is good reason to suspect a problem. The adjudicator will be able to decide whether there are reasonable grounds based on the evidence presented.

Toby Perkins (Labour, Chesterfield)

I entirely accept what the Minister says about not wanting fishing expeditions, but surely the argument she used about why it would be unlikely for an unsubstantiated investigation to be pursued is the same as the point about why it would be unlikely for an investigation to be pursued if it were “wholly without merit”. If she is talking about someone misleading the adjudicator into carrying out an investigation that they then wished they had not done, that sounds like a vexatious claim, which would still be covered. However, I worry that the argument she used, very successfully, to demolish the case for “unsubstantiated” also demolishes her own point.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I do not agree. We are getting slightly into semantics. There could be circumstances in which a volume of potential complaints could be wholly without merit, but could not be defined as vexatious. In that circumstance it should be possible for the adjudicator to do something.

It is also important for the Committee to recognise that there would be discretion: the adjudicator would not have to award costs. They could take a view, if there had been a vexatious claim, or if an investigation that was wholly without merit had been started, and could impose some or all of the costs of the investigation on the person who brought the matter to their attention and encouraged them to start it.

I want to reassure the Committee that complaints that are genuine but turn out not to involve a breach of the code will not be penalised. We want people to be able to make such complaints. However, we need a deterrent against false or fictitious complaints, and for those reasons the amendment would not be a wise one.

Amendment 63 would give pub-owning companies the right to appeal against the reasoning behind an adjudicator’s decision to impose a financial penalty. I expect financial penalties to be reserved for only the most serious and persistent breaches of the code. Penalties can be used only following an investigation. If the adjudicator found that there had been a serious breach and decided that a financial penalty was the most appropriate sanction, they would have to write to the pub-owning company specifying the amount, and the grounds for imposing it.

The adjudicator’s finding that a company had breached the code would be final, but the Bill already enables companies to appeal to the High Court against a penalty or the amount of the penalty. An appeal mechanism is already built in. Because we already have that mechanism, which delivers the intention behind amendment 62, there is no need for the amendment. I hope that reassurance is welcomed by the hon. Member for Burton. I hope I have dealt with the genuine and varied points that have been raised, and that hon. Members will withdraw their amendments.

Toby Perkins (Labour, Chesterfield)

The hon. Member for Burton said in support of his amendments—although he explained that he does not intend to press them to a vote—that he did not think there should be a process in which there was no risk for tenants. He effectively saw the adjudicator being used as a first rather than a last resort. It is unlikely that that will be the outcome; there is already a cost. Let us be serious about this: pub tenants work some of the longest hours of anyone in our whole economy. One reason why the fact that so many of them are earning less than £10,000 is so shocking is that in many cases, they are working 60, 70 or 80 hours per week to try to keep the business going and make it a success.

It is extremely unlikely that pub tenants have the time—in between serving their customers and trying to come up with new and imaginative ways to get people into their pub—to make some improbable attempt to use the adjudicator as part of a basic negotiation. It is also very unlikely that this would become a regular feature, or that people would go to the adjudicator in advance even of signing up to the tenancy. To suggest that this would happen regularly is somewhat offensive to those who have been the victims of measures we are seeking to prevent in the future. They often feel that they have been through a process that has wasted their time. They are the ones who have been misled or sold a false prospectus. The idea that suddenly, they will start exploiting the adjudicator in order to get an unfair deal at the hands of their pub company is entirely wrong.

The hon. Member for Burton also said that we would expect people first to have exhausted the pub company’s internal procedures. That few cases have reached PICAS shows that adjudication is very much being used as a last resort by tenants. Adjudication brings tenants into dispute with their pub company, their relationship with which is absolutely central to the success of their business. I firmly believe that tenants do not want to go through a quasi-legal process with their pub company unless they absolutely have to. I want to send out a strong message that of course we think that people should attempt to pursue the internal procedures before racing off to the adjudicator. However, nothing we have heard in this debate has convinced me that people would stop doing that. Tenants who go to adjudication—for arbitration and to start a broader investigation—often do so with a sense of absolute desperation, rather than a malicious intention to get their relationship with their pub company on to a controversial footing.

Many pub companies have business development managers who have a regular relationship with their tenants. The success of that support is a matter of debate and dispute, depending on the tenant and the pub company. The central principle of the tie is a body of support from a major company to a small business person—something they would not get as a free-of-tie tenant. Breaching that relationship of trust is a big step for a tenant. We should recognise that a tenant taking their pub company to tribunal is a significant step, just as it is for an employee to take an employer to tribunal, with all the inherent risks on both sides. The idea that there is no risk to tenants in this process as laid out is wrong.

The Minister, the hon. Member for East Dunbartonshire or Dunbartonshire East—how does she prefer it?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I prefer East Dunbartonshire.

Toby Perkins (Labour, Chesterfield)

As the Minister will have it.

John Robertson (Labour, Glasgow North West)

I think it is the Electoral Commission that has it, by the way.

Toby Perkins (Labour, Chesterfield)

You agree, Mr Robertson. We would not want anyone in Westminster telling the Scots what to do. I am happy to follow the Minister’s preference.

We have had considerable discussion of whether it is sufficient for a draft code to be laid out when it will be subject to significant change, or whether it would be sensible to go through all the stages and say the draft code would follow once agreed. The hon. Member for Burton had a point when he said that what was in the code will be by far the most important aspect of the legislation’s success. We all want to offer certainty to the industry. Yes, we want to have something up our sleeve to ensure that industry delivers its side of the bargain. However, it is also necessary to offer the industry, which has been through significant upheaval recently, some certainty.

The draft code remains a matter of debate and something to be consulted on. As the hon. Member for Burton rightly said it has already been subjected to 18 months of consultation. To arrive at this point and say that substantial changes could be coming down the line—not just a line or a word here or there—without a code in front of the Committee and potentially not until Report, is a significant omission. If people felt that the code had moved on, so that in broad terms they could understand what they were signing up to, that would give greater reassurance, although we acknowledge that it might be open to minor changes during the progress of the Bill.

The Minister’s point that the Statutory Instruments Committee is a safety net to ensure that the code is subject to affirmative resolution procedure will not convince some people. There will be a huge body of work. I have been a Member of the Statutory Instruments Committee, chaired by my hon. Friend the Member for Leeds East (Mr Mudie). The speed with which he is able to get that Committee started and finished is a wonder to behold. I have no doubt that there are events at which measures are looked at in considerable detail.

We have had so much debate on the substantial matter of the pubs code in Select Committees and three parliamentary debates. To say that the Statutory Instruments Committee will look at the draft code, which is going to be the major factor, and that that should reassure us—I can understand why people might be a little concerned about that.

Sheryll Murray (Conservative, South East Cornwall)

Does the hon. Gentleman agree that there has been so much interest in the matter for so long that to deny all Members who have an interest the opportunity to discuss the code and have input almost looks as if the process is not open and transparent?

Toby Perkins (Labour, Chesterfield)

The Minister is gesturing her prop. I assume that is not a request to intervene. The draft code exists, it existed on Second Reading and it will exist on Report and at other stages. It would be preferable if we could have a little more—if not in absolute black and white—of the sense of what Members are signing up to before Report. I will press the Minister on that.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The subject has been a matter of some debate in Committee. The draft is available for discussion. We could resolve the concerns that are being raised by putting the code into primary legislation but I hope that the Committee agrees that that would be a rigid way of approaching the matter. In terms of industry regulation, it would be very unusual for a Government to write something such as a statutory code into primary legislation so that even if the industry agreed strongly that a change was needed, we had to wait for a slot for primary legislation in the House to deal with it. I do not think that that is a sensible way to go about the regulation and I hope that it is not the view of the Committee.

Toby Perkins (Labour, Chesterfield)

The Government have put several examples of such regulation in the Bill, so it is not entirely without precedent, but I agree with the Minister. She will note that, with two or three exceptions, we have not elected to put the code into primary legislation. That is not what I am calling for, but we have a draft code that was published some time ago in response to the consultation. I think the Minister described it as the basis for the consultation to start. Given how central the draft code is to the success of the entire legislation, she could take steps that are in between putting it in primary legislation now and perhaps having a second copy of the draft code that responds to many of the points that have been made in subsequent consultations in evidence sessions and, indeed, in Committee. She could, and I hope she will, take such steps between now and the end of the process to give people more certainty about what they are signing up to.

The Minister agreed with the principle of amendment 196 and said that she agreed that someone who is currently working for, has shares in, or has recently been employed by a large pub-owning company and is seen as someone who has the pub company in his blood, is unlikely to be viewed by a Minister as sufficiently independent to be the independent adjudicator. Being prescriptive about the nature of the appointment in the schedule is not an ideal way of proposing this; however, it was really important that that debate was had and placed on the record. With the leave of the Committee I shall withdraw amendment 196, but I would like to test the will of the Committee on amendment 195. In discussing amendment 195, the Minister said we were getting into semantics, which is the problem with the line-by-line study of a Bill. Words are important.

I fear that—notwithstanding that we do not want vexatious claims being brought and that, if people are bringing vexatious claims, they should be liable for some costs—the safeguards that the Minister offered to the hon. Member for Burton about why unsubstantiated claims are unlikely to be the subject of an investigation also holds true about a claim that is wholly without merit: it is very unlikely that such a claim would be the subject of an investigation. It would, however, leave doubt in a tenant’s mind that, not only have they got the upfront cost to bring a case to arbitration and potentially the costs attached to asking for a parallel free-of-tie rent assessment, they are also potentially liable to significant costs if their claim is found to be wholly without merit.

The Minister may well say, “Do not worry, unless they are doing something really wrong that will not happen,” but the message that will be heard by tenants, who are already at the last resort and absolutely desperate—often having run out of money and having to borrow from next week to pay for this week’s bills—is that they could be hit by substantial costs if their claim is judged to be without merit. Notwithstanding the reassurance that the Minister has attempted to offer, that would undermine the principles that she is trying to achieve in the Bill. The balance is right: if someone makes a vexatious claim and it is the view of the adjudicator that a claim is purely trying to cause trouble, has no basis in fact and is motivated by mendacity, costs might be attributed to the tenant. However, if a claim is simply found not to have merit, the clause might have the opposite effect to the one we want and push people away from taking up the opportunity we are creating for them today to go to the adjudicator. I hope that we can all get together to ensure that we get this clause absolutely right, therefore I beg to ask leave to withdraw amendment 196.

John Robertson (Labour, Glasgow North West)

We have had an extensive discussion of schedule 1 and, with the agreement of the Committee, I shall put the question.

Clause 36

Sheryll Murray (Conservative, South East Cornwall)

I beg to move amendment 69, in clause 36, page 31, line 1, leave out subsection (4).

John Robertson (Labour, Glasgow North West)

With this it will be convenient to discuss the following:

Amendment 59, in clause 36, page 31, line 11, leave out subsection (5)(b)(ii).

Amendment 60, in clause 36, page 31, line 18, leave out “their tied pub tenants” and insert “such assessments”.

Amendment 193, in clause 36, page 31, line 19, at end insert—

“(g) require large pub-owning companies as defined in section 60 of this Act to provide a list to their tenants of any products and services they provide to tied tenants which such a company considers to have a monetary value; and a statement of what that amount is and how it was calculated; and the Secretary of State or any tied tenant may refer that amount to the adjudicator for an assessment of the accuracy of any estimate or the reasonableness of any assumption in relation to each amount.”.

Amendment 68, in clause 37, page 31, line 45, at end insert—

‘(5A) Changes to the Pubs Code pursuant to section 37 shall be made by order. Such an order is subject to affirmative resolution procedure.”.

Amendment 194, in clause 38, page 32, line 12, at end insert—

“(d) which purport to give only the pub-owning company the right to break a tie agreement.”.

Amendment 61, in clause 38, page 32, line 15, leave out from “(1)” to end of line 17 and insert

“only apply to new agreements or at agreed break points such as rent reviews within current agreements”.

Amendment 67, in clause 62, page 42, line 15, leave out from “tie” to end of line 16.

Sheryll Murray (Conservative, South East Cornwall)

I am a little confused by the content of subsection (4). This is a probing amendment and I hope that the Minister will be able to reassure me. Small family brewers running traditional tied pubs have been led to believe that they will not be subject to any legislation, as self-regulation works effectively for their estates. They have operated the tied tenancy model for decades—in many cases, for hundreds of years—they have developed their own practices within their company codes and they abide by the spirit of self-regulation.

I find it extremely difficult to understand

“the principle that tied pub tenants should not be worse off as a result of any product or service tie.”

I seek an explanation from the Minister of what is meant by the phrase

“tenants should not be worse off”.

If she can reassure me about that, I will not press amendment 69.

Toby Perkins (Labour, Chesterfield)

I want to speak about amendments 193 and 194. Now that the existence of the code has been agreed to, we are turning our minds to what should be in it, who should be covered by it and to whom each individual bit should apply. We are also debating clause 36, on the creation of the pubs code.

This series of amendments pertains to what the statutory code does. Our amendments seek to tease out how Government will deliver on the principle of a tied tenant being no worse off than a free-of-tie tenant. We want to give hope to the landlords and land licensees in my constituency and across the country who are struggling to make a living and are watching us today in the desperate hope that something will change for the better. We understand that whatever comes out of this Bill Committee will not be a magic solution that overcomes all the problems facing the pub industry. Pubs are ultimately private businesses, and the tenants who run them are small business owners who are often setting out to live their dream of owning their own business—in particular, their own pub—but many of the licensees who attempt to get a pub business going do so with very little knowledge of what they are getting themselves into.

Many of us who have been involved in this issue over the past four and a half years have met tenants who say, “I had no idea, at the point that I became a tenant, what I was getting myself into.” The previous Business, Innovation and Skills Committee reports give numerous examples of the disconnect between the pub companies’ understanding of what their tenants were signing up to and the level of knowledge and the expertise they gave to their tenants in advance of that process, and the tenant’s understanding of what they were getting themselves into and what their expectation should have been.

Andrew Griffiths (Conservative, Burton)

I absolutely understand the hon. Gentleman’s point. It is essential that small business people who take on a pub understand exactly what they are taking on and the implications of the contract. I could not agree more. With that in mind, will the hon. Gentleman explain the due diligence process that would have to be followed by anybody who wanted to take on a tied pub?

Toby Perkins (Labour, Chesterfield)

The processes that they would take on would differ from pub company to pub company.

Andrew Griffiths (Conservative, Burton)

Under the current voluntary code.

Toby Perkins (Labour, Chesterfield)

The process that a new tenant takes on is different for each pub company, but each of the pub companies would claim that there was a significant series of training sessions—

Andrew Griffiths (Conservative, Burton)

Perhaps I might provide some information. The submission by the Royal Institution of Chartered Surveyors, which carries out valuations, states that a pub operating business

“must ensure that the tenant has taken independent professional advice, including business, legal, property and rental valuation advice.”

For the sake of clarity, those are the types of information that a tenant would have before they took on such a tenancy.

Toby Perkins (Labour, Chesterfield)

I am grateful to the hon. Gentleman, but he knows that in many cases, the level of knowledge that RICS and the pub companies deem correct for a tenant to have is very different from their actual level of knowledge. Pub companies claim that in many cases where things go wrong, a tenant has bought the tenancy not directly from the pub company but effectively second hand from the previous tenant.

Sheryll Murray (Conservative, South East Cornwall)

For the record, the hon. Gentleman is talking about an assignment.

Toby Perkins (Labour, Chesterfield)

I thank the hon. Lady for setting the record straight. Many of the people whom I have met who were unhappy about the deal that they signed up to had assigned leases. I met someone in my constituency just this weekend who had taken on a tenancy on that basis. Even under those circumstances, there is a duty of care on the pub company, and the pub company met her. I think that there is still reasonable cause to expect that a tenant should be properly aware of what they are letting themselves in for.

I accept that the entire debate can become bogged down by pub companies saying, “Here are our terms and conditions and code of practice,” and individuals saying, “Here is my personal experience.” In an industry in which there are 22,000 people operating under the pub company model and in the region of 50,000 pub owners or licensees, there will always be individual cases in which things go wrong. Having said that, the number of such cases speaks to the broader problem, which is why the Government have been persuaded to introduce the legislation. Many other businesses have suffered shrinking pains over the past few years. There has been a huge reduction in the number of petrol stations and convenience stores, for example, but in this case there has not been the same sense of an industry rising up and saying, “It’s market forces or changes in culture and buying habits that has led to my business going bust.” It is very specifically saying that it is the role of the pub company. There may well have been a number of other factors in the fact that the industry is struggling, but the industry has specifically said that the pub company holds responsibility for some of this failure.

Andrew Griffiths (Conservative, Burton)

I understand the important point that the hon. Gentleman is making, and I have two related questions. First, if the pub company has provided prospective tenants with all the information—a business plan, a financial adviser, an accountant, and a valuer, so that they know how much they will pay for their beer, rent, wine and spirits—and those people choose to sign the contracts, what more can the pub company do? Secondly, if he has a particular concern about assignments—where a tenancy is transferred to someone else without any recourse to the pub company—why has he not tabled an amendment to outlaw assignments in the pub industry?

Toby Perkins (Labour, Chesterfield)

I will answer the hon. Gentleman’s second point first. We have said, throughout this process, that there are models that work but with which there are often problems. We have not gone down the route of attempting to outlaw assignments, but there are a whole variety of things that we could have attempted to outlaw if we had a very interventionist approach. We have attempted to fight shy of that. There is a problem with assignments, but that is not the nub of the issue or, indeed, the substantial part of it. I am aware that the big pub companies would often refer us back to assignments and say, “Actually, that is why people were misled.”

The hon. Gentleman asked what more pub companies could do if they had done all the things that they said they had. If they had done all the things they said they had, why are all these people not saying, “It’s because of changes in buying habits and supermarkets,” or pointing to any other factors to explain why their business has gone under? Why are they specifically pointing their finger at the pub company and saying, “I don’t feel we were in it together. They had a model that enabled them to continue succeeding even when I failed”?

That is why the Government have arrived at a point where the statutory code is the correct course of action. When the hon. Gentleman was speaking—he might want to respond to this—I detected a sense that he still thinks there is not a lot wrong with this model but is persuaded that the industry will not move on until we get some sort of regulation and so, in the interests of the industry, he is supporting the regulations because we are all sick of talking about it, even though the model itself is not really broken.

Andrew Griffiths (Conservative, Burton)

I will tell the hon. Gentleman exactly why I support the Bill as it stands: it guarantees that the pub companies have to do what they say they are doing. There is a lot of back and forth; the pub company says one thing and the tenant says another. This will guarantee that pub companies act as they say they do or face the consequences. What I like about the Bill as originally outlined is that it is based on behaviour. If the pub companies behave properly and reputably, and look after their tenants, they have nothing to fear. If they do not behave reputably, tenants can have recourse to the Bill. I want legislation that is based on behaviour, not intervention in the marketplace of the kind seen in Soviet Russia.

John Robertson (Labour, Glasgow North West)

Order. The hon. Gentleman will have the opportunity to speak, but that was a contribution, which interrupted the hon. Member for Chesterfield’s speech, and not a question.

Toby Perkins (Labour, Chesterfield)

I am grateful for that guidance, Mr Robertson; I think I might have slightly asked for it. The hon. Gentleman made the point that we are always wise to be mindful of the strengths and limitations of intervention in markets. It is wise to be cautious about any intervention. To return to his earlier question of why we did not do all this a couple of years after we first spotted the issue, it was precisely for that reason: we wanted to do everything we possibly could to ensure that the industry had an opportunity prior to intervention.

There are a number of important reasons why the industry, after a number of different interventions of different kinds from successive Governments, is still struggling. Despite the fact that there are many successful pubs, the continuing scale of pub closures should be a cause of real concern for us all. We know that every time a pub closes it leads to a loss of about £100,000 to the Treasury, and a loss of an average of 10 jobs. We know that the pub industry employs young people and women in particular—two groups that have found the job market particularly difficult under this Government. It is an important industry to support.

The industry has faced a number of issues, which include, in no particular order: the general cost of living crisis and flatness of wages over the past six or seven years; the fact that people have less money in their pockets; and the fact that supermarkets now see alcohol sales as a central driver in getting people through their door. That has had a huge impact on the pub industry. The smoking ban has also had an impact on a certain kind of pub. A whole variety of different measures and things that have happened have been the cause of a number of the pressures on the industry. It is absolutely our view that the Government are right to say that the relationship between tenants and their pub companies is another factors.

The series of amendments that we are discussing relates to what the statutory code does. Our amendments attempt to understand how the Government will deliver the principle of a tied tenant being no worse off than a free-of-tie tenant.

First, I reinforce that the Labour party is not opposed to the principle of the beer tie, despite much of what we have placed on record about how the tie works in certain cases. In many circumstances it works well, particularly for rural and isolated pubs that might find it difficult to access and to have delivered products from the open market. Much more widely, the vast majority of pub-owning companies have used the tie responsibly. They are ostensibly what are usually described as family brewers and smaller pub-owning companies. Those businesses do not have a dominant market position. They are in a very competitive market for tenants. They will be unable to attract them if their deal and the way that they operate is not strong enough. The tie allows those brewers to establish a relatively guaranteed outlet for the produce that they brew, and it has survived throughout the years because of the patrician approach of the brewers.

There is no doubt that if the entire industry had taken the approach of the vast majority to the tie, we would not feel the need to discuss it. It is important to put on the record that this debate and any future amendments to the Bill at further stages are not about ending the tie, but about reforming it, so that it becomes relevant and a successful business model in coming years. The issue that we raised from the start is the dominant market position held by a small number of major players, and the impact that has had on people attempting to enter the industry as new business owners.

Companies such as Wetherspoons work with a managed model, which is successful for the pubs that they own, which tend to be pretty large and predominantly in town centres or busy locations. That model has not been used in anything like the same way in smaller community pubs, which have often been particularly under pressure. In those pubs, people run their own business and, frankly, are willing to work 60, 70 or 80 hours a week to keep it going; that is the model that the industry has fallen back on. The Labour party, in opposition, could legitimately question whether a business model that relies on people working 60 or 70 hours to make the business a success is a strong model for us to defend. None the less, the tie has allowed brewers to establish an outlet for their beer. The brewing industry, like the pub industry, is incredibly important for our economy, and we all hold it dear and want it to continue to survive and thrive.

Sheryll Murray (Conservative, South East Cornwall)

I am grateful to the hon. Gentleman for generously giving way again. Does he believe that there is a difference between various pub-owning companies? Does he think that independent family brewers operate in a different way from larger pub companies, and could he expand on the difference?

Toby Perkins (Labour, Chesterfield)

In general terms, they have been doing so. We should be careful not to push people into blocks and say that everyone under a certain model is one thing and everyone under another is something else. The hon. Member for Burton made the point that this is about behaviour, as opposed to making too sweeping a statement. In general terms, the hon. Member for South East Cornwall is right. There are a small number of companies that have had a dominant position, so if someone wanted to run a pub in many locations around the country, they had little choice but to sign up with a company. The way that pub companies have operated and the scale of those pubs’ indebtedness have put pressures on them that have not existed in the independent family brewers marketplace.

The hon. Member for Burton spoke at some length about the fact that no one can understand the debate we are having today without understanding the impact of the beer orders and going back to changes made in the late 1980s. Many family brewers operate in pubs that they have been in for dozens of years. During the recent Heywood and Middleton by-election, I was pleased to go with my right hon. Friend the shadow Chancellor to the Lees brewery in Middleton where he, with no little aplomb, pulled a pint of best, and we had an opportunity to discuss the business model that that brewery has owned for more than 180 years. We should recognise that many independent brewers have operated in a different way, and that pressures on them were often different. We cannot get away from the fact that a central feature of the whole debate is based on the time at which the pub-owning companies—

Graham Brady (Conservative, Altrincham and Sale West)

I remind the Committee that with this we are discussing the following:

Amendment 59, in clause 36, page 31, line 11, leave out subsection (5)(b)(ii).

Amendment 60, in clause 36, page 31, line 18, leave out “their tied pub tenants” and insert “such assessments”.

Amendment 193, in clause 36, page 31, line 19, at end insert—

“(g) require large pub-owning companies as defined in section 60 of this Act to provide a list to their tenants of any products and services they provide to tied tenants which such a company considers to have a monetary value; and a statement of what that amount is and how it was calculated; and the Secretary of State or any tied tenant may refer that amount to the adjudicator for an assessment of the accuracy of any estimate or the reasonableness of any assumption in relation to each amount.”.

Amendment 68, in clause 37, page 31, line 45, at end insert—

“(5A) Changes to the Pubs Code pursuant to section 37 shall be made by order. Such an order is subject to affirmative resolution procedure.”

Amendment 194, in clause 38, page 32, line 12, at end insert—

“(d) which purport to give only the pub-owning company the right to break a tie agreement.”.

Amendment 61, in clause 38, page 32, line 15, leave out from “(1)” to end of line 17 and insert

“only apply to new agreements or at agreed break points such as rent reviews within current agreements”.

Amendment 67, in clause 62, page 42, line 15, leave out from “tie” to end of line 16.

Toby Perkins (Labour, Chesterfield)

If you had been here this morning, Mr Brady, you would have heard me talking about the pressure on the large pub-owning companies, to which the hon. Member for South East Cornwall referred, that bought their stock and became established at the top of the market. The industry has changed tremendously, and the value of that stock, in comparison with other property portfolios, has fallen significantly. That in no way excuses their doing some of the things that were reported to the Business, Innovation and Skills Committee and others, but we must understand that they face pressures that are not faced by long-established family brewers that have owned their stock of pubs for considerably longer.

Many people have asked whether the Government are likely to achieve the aims of their principle that tied tenants should be no worse off than free-of-tie tenants. A chief executive of one of the major pub companies told me that he is unable to see how any Government can demonstrate in a coherent or statistically satisfactory way that tied tenants are no worse off. He said that the offer available for tied tenants is so different from the offer for free-of-tie tenants that it would be very difficult to prove that with statistical analysis. I agree entirely, which is why we concluded that we must allow the market to decide whether tenants are better off tied or free-of-tie. Therefore, we suggested a mandatory free-of-tie option, under which licensees would have the right to go free of tie when signing a new contract or renewing an existing deal. That option would force pub companies to offer customers the best deal, because if they did not, landlords would be free to try their hands on the open market.

It is unsurprising that the Government’s response to their consultation on the statutory code, which was printed in June, concluded that,

“a mandatory free-of-tie option—also known as the market rent only option—is popular with many tenant groups and might arguably offer the simplest way of ensuring a tied tenant is no worse off than a free-of-tie tenant.”

The Government decided not to pursue that option, although they concluded it would work and would be easy to implement. Therefore, we are keen to press the Government on how they see the “no worse off” option working.

Members of the Committee will have noticed that the Opposition have not tabled an amendment containing the mandatory free-of-tie option for tenants of large pub-owning companies, which could have been a feature of clause 36. The Government suggested that the clause will achieve the aims of the principle that no tenant will be worse off than if they were free of tie. The mechanism with which they hope to achieve that aim is in the draft statutory code, but it appears, on the face of it, to be complex, incomplete and unclear. The Government would have us believe that under their proposals tenants will have more transparency due to their right to ask their pub company to show them how much their rent would be under a free-of-tie scheme. The proposals that the Minister brought forward offer new tenants the right, for a fee, to ask for a parallel rent assessment. Following Royal Institution of Chartered Surveyors guidelines, but not subject to any particular oversight, a pub company employee will offer tenants a “Here’s what you could have won” rent assessment. All the information is held by the pub company, all the calculations crunched by their accountants, the valuations done by their employees and all the final estimates derived from them. Even if they reveal that the landlord would have been better off free of tie, they have no right to demand that option.

Our objective going into Committee was to attempt to ensure that the principle of “no worse off” is really fulfilled. I am open to being persuaded by the Minister—or any other members of the Committee—that things have moved on and there is a way that we can say for sure that that principle will be fulfilled because of some new and substantial evidence from her. In advance of seeing what would be an unexpected and exciting development, our view is that the potential benefits that market rent only could bring remain and we look forward to scrutinising the Government’s “no worse off” offer.

Andrew Griffiths (Conservative, Burton)

I understand the argument that the hon. Gentleman makes for the MRO free-of-tie option. I do not agree with it, but I understand the points he makes. He is not a shy and retiring politician, so if he has the courage of his convictions and he believes that free of tie is the solution for our publicans, why has he not had the guts to table an amendment on it today? Why can we not debate it today? What is he afraid of?

Toby Perkins (Labour, Chesterfield)

That is a very confrontational way to start the afternoon’s proceedings. We have come to the Committee in a spirit of compromise and reconciliation, attempting to forgive the hon. Gentleman’s previous sins and those of the Government. It is precisely in that spirit that we tabled the amendment, but there might be further opportunities during the Bill’s passage to debate alternative options if we remain unconvinced by the Government’s approach. I would say to him that it is not over until the fat lady sings; let us see where we go during the progress of the Bill. Maybe we will be persuaded today that the “no worse off” option that the Government are bringing forward is capable of being delivered.

I should be interested to hear the Minister’s response to a number of questions on that line. First, given that the whole basis of the tied model is that rent is cheaper but the beer is more expensive, how does having a free-of-tie assessment showing that the tenants could be paying more rent if they went free of tie offer empowerment to the tenant?

Secondly, will there be any requisite requirement on the pub-owning company to show what the free-of-tie beer price would be? How would that be established? Will it be comparable with discounts offered to other free-of-tie tenants on the open market?

Thirdly, will additional benefits—such as training, websites and managerial support—be included in the assessment figure? Does the Minister not realise that the point at which most tenants discover that, from their perspective, they were sold a pup is often near to the point where they are running out of time and money? The likelihood of a new tenant wanting to pay for a parallel assessment before they have even started on the tenancy and before they know whether what they have been told is likely to be true, seems pretty low. Once a tenant is in crisis, are they likely to have either the money or the inclination to take up an unenforceable parallel assessment? We understand that the parallel assessment can be triggered at any time, but at what point in the process does the Minister expect it to be triggered? If the assessor is being employed by the big pub-owning companies, how is she going to convince sceptical critics of the pubs code that there will be a real validity to the figures anyway?

Ian Murray (Labour, Edinburgh South)

I am delighted that my hon. Friend has given way, because he brings up the point about comparing rent with tie and what that comparison looks like in terms of the overall income, expenditure and profit of that individual business. I declare an interest. Having been a tenant of Enterprise Inns, the Greene King Group and the G1 Group, I have some experience of tied leases. He will know that while giving up on one they sometimes gain on the other: I bought my own packaged tie out for a £1,500 increase in my annual rent. There was no independent assessment; it was just a figure plucked out of the air, so there has to be some assessment of what is fair and what is not fair in terms of the tie that is involved in those leases.

Toby Perkins (Labour, Chesterfield)

I appreciate my hon. Friend’s intervention. He is absolutely right that there has to be an assessment. He went into the industry with far more knowledge than many tenants, who do not have the experience that he had of the industry prior to taking on a tenancy. Often people have just been made redundant or they have had some other life-changing experience and they decide to put their wherewithal into owning a pub. They often have a fair bit of experience of pubs from the other side of the bar and think that it is something they would be good at. They have to go into it largely on a basis of trust, so the information they have on which to make an assessment is incredibly important.

I have a few final questions for the Minister. Who will monitor whether certain assessors overvalue the free-of-tie rent? What will be the professional sanction of an assessor found to have wrongly applied RICS guidelines? It is a matter of considerable regret that the finalised code was not presented to the Committee. Will we get an updated code prior to the further stages of the Bill? Will the Minister also confirm whether the statutory, enhanced codes will be finalised in time for Report? Does she see that as relevant to the decision that we are asking the Committee to make today?

Pubcos often claim a series of incidental services and products, from website advertising to business support, training and poster promotions, as one of the key financial benefits of being in a tied pub. Yet the process is open to little if any scrutiny. We take the Government’s word that they are serious about using transparency and openness in meeting their objective, so will the Minister consider requiring large pubcos to list on their websites the full package of benefits and their estimated monetary value? Having these in the public domain and open to challenge by landlords who feel they have not received the advertised level of benefit will help tenants to have confidence that they are not worse off than if they were free of tie. Neither pubcos nor the Government should have anything to fear from that process. If the pubcos are right and the additional services they provide work out to be much cheaper for landlords than taking on all those tasks themselves or attempting to make their way in the market without those supports, then a strong public case will have been made for the beer tie. I hope that all members will back amendment 193 on that basis.

Amendment 194 focuses on the fact that although we have not brought forward the mandatory free-of-tie option that we considered, the free-of-tie option as an alternative to the tied model does exist in most pub company contracts, but only on the basis that the pub company can trigger it. Tied agreements often have terms permitting release from the tie, accompanied by an open-market rent review—essentially the MRO option—triggered by the pubco and not the tenant. Amendment 194 seeks to suggest that pub companies should not have the right to say, on the one hand, that the free-of-tie option is some kind of dangerous threat to civilisation as we know it while, on the other hand, saying, “We can make you free of tie should we choose to.”

Andrew Griffiths (Conservative, Burton)

The hon. Gentleman obviously does not want to get into a debate about the free-of-tie option, although he kept mentioning it in his very interesting speech. The London Economics report, which was produced on behalf of the Department for Business, Innovation and Skills, suggested that a free-of-tie option would lead to the closure of thousands of pubs across the United Kingdom. What does he say about that?

Toby Perkins (Labour, Chesterfield)

I have to say that I thought very little of the London Economics report. I did not believe that it was a credible document. That report worked on the basis that the pubcos have an existing model and, because that model does not change, this makes no difference to their way of operating and therefore has no impact. There might be some validity in that very narrow definition. However, the whole purpose of having the free-of-tie option is that it would force pub companies to change. It would force them to ensure that their huge buying power and all the advantages they list to their tenants of being tied rather than free-of-tie would be brought to bear in order to ensure they were better off. That is the principle of the mandatory free-of-tie option. The hon. Gentleman said that I did not want to debate the free-of-tie option, but I never said that; I just said that I had not tabled an amendment on it. It is an important aspect which could have been included in the clause. However, the Government chose not to. In discussing the clause, it is right to consider what the free-of-tie option may have offered.

We believe that it is fairer that contracts are either binding on both parties—meaning that pubcos must fulfil their obligation to the licensee for the duration of the agreement—or that either side can break the arrangement if it is not working for them. Amendment 194 ensures that the unilateral opportunity to send a pub from being tied to free-of-tie is not something that pub companies can have in their contracts and then deny the tenant the same right. In order for pubcos to be truly incentivised to offer the best deal and continue providing a good service to their tenants throughout the life cycle of a contract, such provisions are needed. That is one reason I was very disappointed to read amendment 61, which would only allow such changes to be made at the end of contracts or “agreed break points”. It seems to fly in the face of many of the existing principles in the current contracts. Those points could be several years away, providing licensees with no power and little hope. That is why we will not support that amendment.

I now turn to the other amendments proposed by the hon. Member for South East Cornwall. We are pleased that the Government seem to finally accept the need for reform and acknowledge that tied tenants can face severe difficulties through no fault of their own. However, amendment 69 would go in the opposite direction by removing the principle of “no worse off” than free-of-tie from the Bill altogether. If the hon. Members for South East Cornwall and for Burton are proposing that because they suspect that the principle is undeliverable—the hon. Lady did not expand on that in the introduction to her amendment—I would potentially have to agree with their analysis. However, given the entire principle of the Bill and that the Secretary of State has spoken for two and a half years about that principle being delivered, attempting to remove it from the face of the Bill seems a staggering amendment.

Andrew Griffiths (Conservative, Burton)

I would not wish to put words in the mouth of my hon. Friend the Member for South East Cornwall, and I am sure that the hon. Gentleman does not wish to either. She said that she wanted more detail about how the Government intend to achieve a “no worse off” option. The principle is one we all support; this is about how we achieve it in practice. Through amendment 69, which my hon. Friend said she will not push, we are looking for the Minister to elucidate.

Toby Perkins (Labour, Chesterfield)

I share the hon. Gentleman’s thirst for information; hopefully, we will both have our thirsts quenched. Nevertheless, the hon. Lady could have asked for the information without proposing an amendment that would undermine the whole principle of the Bill. Frankly, she is starting her quest for information on fairly shaky ground if her method for probing the Government for details on how they are going to achieve something is to propose that they do not set out to achieve it. That is worrying.

The point is important because Government Members have tabled some amendments with which I have some sympathy. However, there is a sense that many of their amendments are attempts to undermine elements of the Bill that the Opposition support, which gives us considerable pause for thought.

Sheryll Murray (Conservative, South East Cornwall)

The hon. Gentleman is referring to amendments tabled in my name. I want to reassure him that I certainly did not intend to remove any of the protections given by the clause. The amendment is probing in nature, but I am certain that his amendments will achieve far more than mine has, which is why I said that I was not going to push it to a vote when I moved it.

Toby Perkins (Labour, Chesterfield)

I feel as if I am doing the Minister’s job for her—I am killing amendments before our very eyes; she will have little left to respond to. Nonetheless, I appreciate what the hon. Lady said and am glad that she will not push the amendment to a vote. I hope that she will consider what I have said about the message sent by amendments that would undermine the principles of the Bill.

That brings me to amendments 59 and 67, which would scupper even the Government’s own modest system of parallel rent assessments for tied tenants. The proposals in these two amendments, which may well be evaporating as I speak, would mean that there was no comparison for a tied tenant package. If the proposals in amendments 59 and 67 had been delivered, it is hard to see how the proposal in amendment 69—to remove the principle that a tied tenant should be no worse off—would not have been delivered as well. If that was the case, we would have to question why we should do the whole thing in the first place.

Amendment 60 would prevent the Secretary of State from drawing up regulations that confer duties on pub companies in relation to their tied tenants, which would make any regulations relatively meaningless, with no recourse for victims regarding the unfair relationship with their pub company. We will therefore vote against the amendment if given the opportunity.

Andrew Griffiths (Conservative, Burton)

I would like to make the point, gently, that the hon. Gentleman has been on his feet discussing my amendments for more than 45 minutes. I would be delighted to defend my amendments if he would get on and give me the chance.

Toby Perkins (Labour, Chesterfield)

Frankly, had the hon. Gentleman stopped intervening, we would probably be at that point already.

I want briefly to discuss amendment 68, which would make it much more difficult to change the code, once it is published, by subjecting any changes to the affirmative resolution procedure. We believe that the trend of 31 pubs closing a week simply cannot be allowed to continue. Anything that ties the Secretary of State’s hands or limits his or her ability to address the problem head on should not be supported. In fact, the flexibility of the code’s drafting is one tool at the Government’s disposal to ensure that errant companies are kept in check.

I intend to push amendments 193 and 194 to a vote when the opportunity arises. Clause 36 is very important; it is probably the pivotal clause in the entire Bill. We look forward to hearing what the Minister has to say in response to our questions and hope that she is able to convince us that she can deliver the principles in the Bill.

Andrew Griffiths (Conservative, Burton)

It is a delight to serve under your chairmanship, Mr Brady, and to get to my amendments at last. There is a great deal for us to cover, so I will be as brief as possible. Some of the amendments are at the heart of trying to get clarity about the role and objectives of the adjudicator. I think we all agree that we want the adjudicator to be able to defend the interests of tenants and bring some confidence to how the system operates.

Key to that is the role of the parallel rent assessment and my amendment 67. We need to be clear about what we are trying to achieve with those assessments. The function conferred on the adjudicator in relation to parallel rent assessments is vague and I would like more detail about the aims and objectives. The Minister said in the evidence session that the assessments were for transparency, with the adjudicator as the backstop. I am keen to know more details about how that will operate.

My concern is that, having rejected a free-of-tie option, which I think is the right thing to do, we could be introducing a new free-of-tie option through the back door or by stealth, which the Department for Business, Innovation and Skills has rejected. I want any system that we introduce to work properly—to be efficient and effective. I draw the Minister’s and the Committee’s attention to the evidence provided to the Committee by the Royal Institute of Chartered Surveyors, the professional body that will be administering these provisions. It will produce guidelines for all property valuations, including pubs. It is important to look at the evidence presented to the Committee, in which RICS said:

“The reason the pub market is specialist is because each public house is a unique business entity...It is rare for two public houses to be the same…Valuation is an art not a science. The courts have historically allowed latitude in a valuer’s opinion of value when considering professional negligence of 10%…greater…where there are complex matters involved”.

With pub valuations, some or all of the following factors, or variables, might apply: the length of the agreements; the repair obligations of the tenants; or the rent adjustment period. There can be ties in place for a whole host of things, be that beer, lager, cider, wine, spirits or soft drinks. Certain discounts are available to some tenants and not to others. The level of tenant investment is also key. This is clearly a complex matter, more complex than any other commercial rent agreements, such as those of retail shops or offices. Comparable rent assessments are not easily available, as they are for offices or shops.

The RICS evidence states:

“RICS notes that under paragraph 12(a)i the POB must ensure that the tenant has taken independent professional advice, including business, legal, property and rental valuation advice”.

In relation to the parallel rent assessment, the evidence goes on to state:

“Tied and free of tied rental markets in the leased sector are very different in many ways. It is therefore difficult to compare rental assessments from across the two markets. Additionally, in order to compare a tied lease with a free of tie lease the valuer would need to have sight of the full accounts and stock sheets from the free of tie tenant of comparable properties; this information is not available. As a result a realistic rental assessment on this alternative basis is not achievable. RICS therefore questions what the Parallel Free of Tie Rent Assessment will achieve”.

My point about the assessment is not that it is not important to have information or transparency, but that we must have an element of caution when we intend to intervene in the marketplace—and, from what I can see, when we intend for the Government adjudicator to intervene to set rents. Can the Minister advise me of a business relationship in any other sector where an adjudicator intervenes to set a rent in this way? It would be unthinkable for an adjudicator to interfere in the rent paid by a McDonald’s franchisee. What is the difference in the business agreement here?

What are parallel rent assessments? They will be open only to tenants of large pubcos, because they will be in the enhanced code. Tenants have the right to apply to the adjudicator for a parallel rent assessment in the event that rent is not agreed with a pubco, either for new agreement or renewal. They are then completed by the pubco. Parallel rent assessments compare the tied deal for the specific pub with a free-of-tie deal. We have heard how difficult that is going to be for the RICS surveyor to complete. The hon. Member for Chesterfield talked about that difficulty. I am convinced that he would not cast any aspersions on RICS, the professional body that undertakes this process, but I am sure he would agree that there are some serious challenges to overcome if this is going to work.

On 5 August, the Minister, in her note to fellow MPs, suggested that the parallel rent assessments would be subject to arbitration with consequential potential for value transfer. That was a new proposal, an addition that had not been mentioned before. It certainly had not been discussed with the industry; nor was it in any of the discussions that I had been involved in. My concern is not that we are not making tenants aware of the obligations, nor that we are not making crystal clear what people are signing up to, but that we are interfering in the marketplace in a questionable way.

In a letter to one of the pubcos just last week, BIS officials suggested that 2,700 rent assessments could take place every year. That is very positive. If there are 2,700 rent assessments, that is 2,700 tenants with full information about the obligations and whether the deal is good for them. They are empowered to make the correct business decision. However, if the Minister is suggesting that the Government are going to get between a potential tenant and a landlord—a pub owner—to negotiate that rent down, I will have major concerns about the ability of the adjudicator to cope with that level and complexity of work. I have great worries that this will cause the adjudicator to collapse.

It is worth looking at where RICS sees the problems. It talks about market intelligence; a significant part of any rent-setting is gathering detailed information on the local market, in much the same way as an estate agent might look at other comparable houses on a road when they are valuing a home. However, there is in effect no free-of-tie tenant market for surveyors to compare with. I understand that there is only one pubco—Wellington pubco, which has some 800 pubs—that operates this model. Where is the RICS surveyor going to get the information from?

In his speech, the hon. Member for Chesterfield spoke about benefits and working out their value. That is also something that the Minister needs to clarify and consider. In any free-of-tie assessment, RICS believes that the tenant does not enjoy the benefit of any landlord support, which is of course special commercial or financial advantages. The challenge is then how the benefits given to the tied tenant are quantified; the hon. Gentleman alluded to that earlier.

Of course, some benefits are easy to quantify—we can work out how much free training is valued at, the cost to buy or savings passed on from bulk buying of non-drink items, card-processing machines and so on—but many are not. Those are mainly financial, and relate to things such as cash-flow help and flexible credit terms, which are not available on the open market. For example, if a pubco allows more flexible credit terms, perhaps allowing a tenant to have more barrelage and pay at a later date or over a longer period, that is a quantifiable benefit for the tenant, but it is difficult to pin down and put a price on from the pubco’s point of view.

The hon. Gentleman talked about free trade beer pricing. It is not as simple as he suggests to look at what a tenant is paying in a tied model and at what the same beer can be bought for from Costco or whatever cash-and-carry might sell it. There are a number of features. Geography is key; some brands are stronger in some parts of the country. In my area, Carling sells incredibly well, whereas it sells less well in London.

Popular brands command a price; there are discounts on market leaders and fewer on others. Brewer involvement in the pub is a relevant factor; a brewer supplying the lager, three cask ales and the Guinness to a pub may do a better deal than if it was just supplying one-off items. It is difficult for the hon. Gentleman—and, indeed, RICS, as it points out—to work out the value of that help. Credit terms are important. Those who pay cash at the cash-and-carry are very different, and would expect a lower price, from those taking extended credit terms from a pub company or a family brewer, and that is understandable. We have to be aware of where that leads us.

Toby Perkins (Labour, Chesterfield)

Many of the hon. Gentleman’s points are similar to mine, but he comes to a different conclusion. He is laying out many challenges that face the Government in trying to deliver a statistical viewpoint that demonstrates whether someone is better off free of tie. I was reflecting on that myself. Does he think that the Government have succeeded in creating such a statistical viewpoint?

Andrew Griffiths (Conservative, Burton)

As I have already said, this is about empowering the small business person who is taking on the pub to ensure that they are taking on the right deal. Pub companies make tenants go through due diligence—talking to their lawyer, financial adviser and bank manager, putting together their business plan, being made thoroughly aware of how many barrels of beer that pub sold last year under the previous tenant and how much profit they made. If all that information is at their fingertips and they have their parallel rent assessment, which allows them very clearly to see whether it is a good deal for them, what more can the Government and the pub companies do to assist them? Tenants are adults; they are business people who must be trusted to make the correct decision when all that information is laid out clearly in front of them. Parallel rent assessments have a huge role to play and can be very helpful in that. However, as RICS itself said:

“It is an art, not a science.”

To say that the adjudicator will transfer value and cut the price of rent as a result of a parallel rent assessment is an unprecedented intervention in the marketplace. Where do we go with that? My big concern is that it will lead the Government to a legal challenge. I have already heard that discussed and would be interested to know what the Minister thinks about it.

I will rattle quickly through my other amendments. Amendment 59 outlines the pub code’s requirement that businesses provide assessments relating to tied tenants. Part 2 is unclear what

“assessments of money payable by the tenant in lieu of rent”

actually means. I tabled the amendment to get clarity. Perhaps the Minister and her officials will explain it to me today or write to me in the coming days.

On amendment 60, clause 36 as currently worded would apply to anything in the landlord-tenant relationship. I am concerned that it risks introducing unnecessary and disproportionate measures into the code. We are basically writing a blank cheque as to what else could be added to the code. One of the frustrations that I alluded to earlier is that if we saw the code in more detail, it might address that concern.

Clause 68 mentions the code and industry consultation. We have already heard Labour Members say that they are champing at the bit—that if they get into power at the next election, they may introduce a market rent only option. Of course, in government, one is perfectly capable of doing so, but tenants and the industry want some certainty. If there are to be changes, we owe it to the industry to ensure that there is proper consultation and discussion of any changes. Perhaps the hon. Member for Chesterfield would like to intervene to tell me whether Labour intends to do that at the next general election; I would be interested to know.

Toby Perkins (Labour, Chesterfield)

I am not entirely certain of the challenge that I have just been set.

Andrew Griffiths (Conservative, Burton)

Are you going to introduce market rent only?

Toby Perkins (Labour, Chesterfield)

Are we minded to? As I said, until now, nothing that I have heard has changed my view that a mandatory rent-only option is the best way forward. After the Minister has responded and we have moved on from this point, it might return in the Bill or at some point in future. Obviously, if the Bill was in and working, we would see how things were working, but I have seen nothing yet that would suggest to me that a mandatory rent-only option would not—

Andrew Griffiths (Conservative, Burton)

I thank the hon. Gentleman for that helpful intervention.

Amendment 61 is a probing amendment to understand what resilience the Government will have in place for the adjudicator. We have already heard that there are 22,000 tied pubs across the country, and that from natural rent assessments, just by general churn, we expect 2,700 parallel rent assessments every year. However, it is possible that on day one, there could be a rush to the adjudicator. Thousands upon thousands of tenants could apply to the adjudicator. If that is the case—I see nothing that leads me to think that it might not happen—does the Minister feel confident that any adjudicator she puts in place will have the capacity to deal with it? What modelling has the Department done on what it believes will be the initial take-up of the adjudicator’s help and advice?

Toby Perkins (Labour, Chesterfield)

I am interested in the point that the hon. Gentleman is making. When the Pubs Independent Conciliation and Arbitration Service was introduced, there was no giant rush by the entire industry to adjudication. Why does he think that it would be different this time?

Andrew Griffiths (Conservative, Burton)

Because for the first time we have this option of parallel rent assessment, which introduces a new factor into the equation. I genuinely believe that this brings an incredible, fantastic amount of transparency into this business sector. That is a good thing, and that is why I support parallel rent assessments. The more information with which we can empower tenants—who are new business people—when they take on these pubs, the more we will prevent them from making the wrong decision.

I support the parallel rent assessments, but my concern is that, if it is adjudicable, we could see this being snarled up in lengthy court cases and perhaps even judicial reviews, to which the Minister alluded. We want an adjudicator that is fast on its feet, that can respond quickly to concerns, and that can intervene where it sees wrongdoing in the marketplace and where it sees pubcos’ behaviour going wrong, as I said earlier. If pubcos are behaving wrongly, they deserve to have the full might of the adjudicator come down upon them.

However, I do not think that it is the role of the adjudicator to set rents or force a pubco to rent a property at a value at which it does not want to do so. The choice to the tenant is to rent another pub, and all they will have lost is their £200 application fee for their parallel rent assessment. If the adjudicator finds on their side, that fee would be refunded to them anyway. We have to look at the role of Government here, which should not be to get involved in every single rent negotiation. However, we have an important role in bringing transparency to this industry.

I have explained the reasons behind my probing amendments. I hope that I have now provided the Minister with some food for thought, and that she can come back and—to continue the food metaphor—put more meat on the bones of how this adjudicator is going to work. I do not intend to press these amendments to a vote, but I look forward to listening to the Minister.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I am delighted to serve under your chairmanship again this afternoon, Mr Brady. There has obviously been a wide-ranging debate on a whole range of issues, and I will endeavour to respond to the Committee and provide reassurance on the various issues that have been probed.

It makes sense for me to start with the prime principle of tenants being no worse off. The question was very fairly posed by my hon. Friend the Member for South East Cornwall, “What is the no worse off principle?” For many of those who have been deeply involved with the various reports produced by the Select Committee on Business, Innovation and Skills and who have followed this issue over many years, this has become almost a term that trips off the tongue.

However, it is useful for us to go back and ask what this principle is all about. It does what it says on the tin, and says that a tenant should not be worse off as a result of being in a tied agreement. Basically, a tenant’s projected profit under the tied scenario should be equal to or greater than their projected profit under a free-of-tie scenario. If that is not the case, it is up to the pub-owning company to provide a reasonable justification as to why the tied balance should be lower. In particular, this is the trade-off between the dry rent and the wet rent. If they are charging a tied tenant higher prices for beer, which is the basic situation of the tied model, that is compensated for by a combination of a lower overall rent and, indeed, quantifiable benefits to the tenant. That could be free goods such as a TV, or it could be other training and support or business practices which are provided.

For many tenants this works perfectly well, and they are very happy with that trade-off as it is provided. Indeed, perhaps they trade a higher marginal cost for greater certainty and lower fixed costs, and that model is perfectly reasonable in itself. Obviously, that rent needs to be calculated in accordance with fair and open market principles, if people are making that comparison. There are different ideas about how that principle can be enshrined to ensure that that happens. Although the Opposition did not table any amendments to the clause, they said that a free-of-tie, market-rent-only option is a way of guaranteeing that principle.

Toby Perkins (Labour, Chesterfield)

I believe it is also the policy of the Minister’s party, as proved by the Liberal Democrat conference. Will she confirm that?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I will happily do so. I am delighted that the hon. Gentleman is such an avid follower of Liberal Democrat conferences. It certainly is our position. However, we are obviously in a coalition Government, so we have looked at how the principle can be delivered through the actions that the Government are taking. We came forward with the alternative mechanism of having parallel rent assessments for pub companies that have 500 or more tied pubs. Our proposal would allow prospective tenants who are unhappy with their negotiations with a large pub company and do not think they have been fairly treated to request from the company a parallel rent assessment to set out clearly what their rent would be under the tied model and the free-of-tie model, so that they can make a decision. If they have concerns about how the assessment is calculated, the adjudicator is in a position to arbitrate.

Toby Perkins (Labour, Chesterfield)

To repeat the question that I was asked by the hon. Member for Burton, does it follow that at the end of this process the Liberal Democrat manifesto will call for a change to the Bill to reflect the Minister’s party’s policy?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Our manifesto will be published shortly before the election, and many of our policies will end up in it. I am not going to write the Liberal Democrat manifesto for the Committee right now. As joyous as that would be, I suspect you would chastise me for doing so, Mr Brady, so the hon. Gentleman will have to wait. However, I confirm that that is the party’s policy. That said, if the system that we are putting forward is able to deliver the principle that most people who are campaigning on this issue want to see achieved, tenants will be in a much stronger position.

Toby Perkins rose—

Graham Brady (Conservative, Altrincham and Sale West)

Mr Perkins, I trust that you are not going to pursue the point about the Liberal Democrat manifesto.

Toby Perkins (Labour, Chesterfield)

Thank you for the direction, Mr Brady. I simply want to clarify that the Minister considers that her proposal may be a way of satisfying what she was just talking about.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I am determined that we deliver on the “no worse off” principle, and the parallel rent assessment process should be a way of doing that. It will support the many vulnerable tenants who have been badly done by and deal with some of the problems that were eloquently outlined in the Select Committee reports.

The hon. Member for South East Cornwall mentioned family brewers. I confirm that the wording of clause 36(4), which her amendment would remove, makes it clear that the provisions relating to the “no worse off” principle will apply

“only in relation to large pub-owning businesses”,

so most of the companies she talked about will not be caught by the clause.

Amendment 59, tabled by my hon. Friend the Member for Burton, would remove the obligation on pub-owning companies to provide the equivalent of a rent assessment for tied tenants who pay a fee of any kind for their pub rather than a traditional rent, which are often called franchise agreements. We recognise that franchises are often different from traditional tenancies, in that they seek to replicate a uniform brand across all their pubs. All the franchise models we are aware of—there are currently only a few of them, but it is a growing model—include the tying of beer and other products. Therefore, although they have use a different method to charge the tenant, setting a fee rather than a traditional rent, we believe there is the same potential for abuse, so they should be governed by the provisions of the pubs code. Otherwise, we risk writing a loophole into the legislation before it is even on the statute book. If my hon. Friend has questions, I am happy for him to discuss the matter further with officials.

Amendment 60 is about the pubs code imposing obligations on pub-owning businesses only in relation to rent assessments. I understand that my hon. Friend’s aim is to limit the impact of the pubs code on pub-owning businesses. The draft pubs code is based on the industry’s voluntary code, so I get slightly frustrated when people talk about not having much opportunity to look at it. It is on pages 130 to 150 of the Government’s response to the consultation, published in June, so it is available for any Committee member or indeed any member of the public who wants to look at it. The draft code has a range of different protections and obligations, including those in relation to rent assessments and other issues such as information. We do not have any intention of imposing obligations beyond what it is in the draft code, but I think that by agreeing to amendment 60, we would in fact slim down the voluntary code, which the industry is pretty happy with, so we do not want the amendment to be accepted.

As the hon. Member for Chesterfield said, flexibility in the code is important. Changes deemed necessary in the future might be slightly different and not related to rent assessments. We would not want to tie the hands of the Secretary of State in terms of their ability to make such a change, albeit with parliamentary approval through the affirmative procedure. That would give MPs and other stakeholders an opportunity to have their say through the normal consultation process. Limiting it to rent assessments would be too restrictive.

Amendment 61 is about delaying the applications of regulations under clause 38 to void any tenancy terms that are incompatible with the code. It suggests that that should apply only to new tied agreements or at agreed break points in existing agreements. The difficulty with that is that many tied agreements in this sector are long-term leases. If the amendment was passed, it would mean that tenants with those kinds of lease would have to wait many years—20 years, in some cases—before they would be protected from incompatible terms or terms that penalised them for using the code.

Andrew Griffiths (Conservative, Burton)

The Minister will know that most tied tenancies have a break clause at either three or five years. I have never heard of a tenancy that does not have a break clause in 20 years.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

We are talking about some 20,000 tenancies up and down the country. My hon. Friend suggests that some tenants who are struggling on a day-to-day basis, and who are potentially in a very unfair situation, should have to wait another five years for their protections. I do not think that that is appropriate.

Amendment 67 suggests that parallel rent assessments would not assume that all other elements of the tenancy would remain the same, other than the tie. Parallel rent assessments are intended to provide the tenant with transparency, so that they can make a proper comparison and decide whether they would be better off under the tie or with a free-of-tie option and therefore a lower price for their beer but a higher rent. If we start having all sorts of other things that are not comparable, that becomes a rather blunt instrument which is not able to deliver what we seek to deliver, which is for tenants to be able to make an informed decision and for pub companies to have to offer a decent tied arrangement in the first place. That tied arrangement will be compared against a free-of-tie option, therefore delivering the “no worse off” principle. It has to be a meaningful comparator.

Andrew Griffiths (Conservative, Burton)

I spoke at great length about the RICS evidence and its concerns about the parallel rent assessment. Has the Minister met with RICS to discuss its concerns? If not, will she be doing so?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I have not personally met with RICS, but I know my officials have been in regular contact. I want to turn to the questions the hon. Gentleman raised about the RICS guidance and the issues he pointed out.

In talking about how those parallel rent assessments are put together, we are making an assumption that pub owning business have a reasoned basis for the tied rents that they are setting in the first place—that they are not figures plucked out of thin air, but they have known costs that are relied on where possible, and where precise costs cannot be known, they are making some kind of reasoned assumption about them. It must therefore be possible for them to be able to calculate a free of tie equivalent rent.

In terms of the valuing of benefits, the hon. Gentleman made the point that it is difficult to put a value and a figure on the benefits, sometimes referred to as the SCORFA—special commercial or financial advantages. If in the negotiations both sides agree that the deal is a good one that they are happy with, there is no need to put a value on those benefits: the tenant is happy to sign up, the pub company is happy to agree to the terms that have been put forward and everything proceeds in perfect harmony. That is what the pub companies tell us happens in the vast majority of cases. Although we know there are significant numbers of cases where that does not happen, our evidence from the consultation shows that lots of tenants are quite happy with the way the system works. Therefore, in many cases, there will not need to be a figure put on those benefits.

Andrew Griffiths (Conservative, Burton)

The Minister is being generous in giving way and I appreciate that. Does she understand that the implications of what she is suggesting is that every single rent agreement will be up for negotiation on day one of the introduction of the adjudicator’s code? That is the implication of what she is saying.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I disagree with the hon. Gentleman’s interpretation, but I will come to that point in a second. To finish the point I was making about the benefits, if his point is that he does not think the pub companies can justify the benefits that are being offered and put a value on them that stacks up, that may speak volumes about where some of the difficulties lie in the industry.

On the specific points that RICS has made about the challenges of putting together a parallel rent assessment, it talked about how it would need to be produced without being backed up by any market evidence. In fact, there is nothing in our definition that rules out the use of market information that is easily available. The hon. Member for Chesterfield asked how the prices would be put together in a parallel rent assessment—how much would be paid for beer. That is a good example of the type of market information that is readily available. There are lots of different websites where people can find out how much it would cost to buy on the open market a particular brand of beer. That information is something that can be used in putting together parallel rent assessments.

We recognise the genuine points that RICS has put forward. In the code that we have published we have included a profit and loss account to show the type of information that would be required for a parallel rent assessment. RICS and other stakeholders have come back to us with some advice on how that can be improved and we stand ready to take that on board. We hope to work with them in preparing the final draft.

My hon. Friend the Member for Burton suggested that parallel rent assessments were new and arbitrable and somehow that became known on 5 August. It is not new. It is clear from the legislation and the draft code. Clause 39(5) makes it clear that the pubs code can be arbitrated on except where provisions are specifically designated as being non-arbitrable. Parallel rent assessments are also clearly in the draft pubs code. That information is clear already.

I am glad that amendment 69 will not be pressed. I accept what my hon. Friend says about not pushing it to a vote, but I put to him that the combined effect of many of the other amendments that he has tabled would undermine the “no worse off” principle, which is central to the Bill and which we are keen to ensure we maintain. He mentioned that there could be a huge surge in complaints to the adjudicator right at the start, after its introduction, and I said that I disagree. We estimate the number of rent reviews that become due in any given year to be about 4,200; not all would end up even asking for parallel rent assessments, and of those that did a lower number would end up going to the adjudicator. Basically, only those rent reviews generally coming up for renewal would be subject to parallel rent assessments. Section 25 in part 7 of the draft code, on page 143 of the Government’s response, sets out the two circumstances in the code in which a rent review could otherwise take place: if there is

“a significant alteration to the price”

at which tied products are supplied, or if there has been

“an event outside…the Tenant’s control and unpredicted…that impacts significantly on the Tenant’s ability to trade.”

A very large employer closing down very close by and that having a massive impact on the business would perhaps be one example. It would not be the case that on day one every single tenancy in the country would be going to the adjudicator.

Amendments 193 and 194 were tabled by the hon. Member for Chesterfield. With amendment 193, he is basically emphasising the importance of tenants having the information that they need. Clearly, that is something that we want to achieve through the parallel rent assessments. I hope that he has been somewhat reassured by our discussion about parallel rent assessments showing the tenant what the situation would be if they were free of tie, so the information would have to be put to them.

Sheryll Murray (Conservative, South East Cornwall)

The Minister has just said that in exceptional circumstances someone could ask for a rent review. Could she explain, perhaps using her example of a large business closing down, the difference between the impact on, say, a local shop and the impact on a local pub? She seems to me to be saying that someone in a local pub could go and ask for a rent review and the Government would intervene if that was not allowed to happen. What about a local shop or any other business that is affected?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Clearly, there will be different leases of different lengths for different types of property. One of the differences with many pubs is of course that people tend to be living where they have their livelihood. Often, tenants live there with their entire family; it is not purely a business proposition. The other key thing is of course that we have seen over the last 10 years or so Select Committee report after Select Committee report pointing out the difficulties in the pub sector. We are seeking to address those difficulties. Had those challenges not been created in this sector, we would not be having this discussion today; we would be on a different part of the Bill because part 4 would not have been required.

To return to amendments 193 and 194, the parallel rent assessment will ensure that the information has to be set out where negotiations have broken down. That is the key point. When this is happening between a tenant and their pub company and it is agreeable, there is no need to put this additional step in the process. It is where those negotiations break down that we want to target it.

Toby Perkins (Labour, Chesterfield)

There were two points behind the amendment. First, there may well be things that always have a certain amount of value placed on them by the pub companies—the value of the website, the value of the training and so on. If that was just assessed once, it would not need continually to be reassessed, and doing it once would save the pub companies a lot of money. Secondly, can the Minister clarify whether she was including all those incidentals as part of the judgment that would potentially go to an adjudicator on whether the tenant genuinely was no worse off?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

On the second point, the calculation about whether the tenant is or is not worse off does absolutely need to include those other benefits and some allocation of value to them, but that needs to be done in a reasonable way. The hon. Gentleman makes a very good point: it could save companies a lot of money to do some of the calculations for the benefits that they offer. Perhaps they could even put that on their website as a marketing tool. There may be companies that want to take up that suggestion. Whether it should be required through the code is a different question. Some will be specific to individual pubs, so the benefits might vary. From a city centre pub to a very rural pub, circumstances will vary in terms of the size of the pub and so on, so there needs to be a requirement to take the specific circumstances into account. In general terms, providing that information may be something that companies want to take up.

Amendment 194 concerns terms of an agreement that can be made unenforceable if they give only the pub-owning company the right to break the tie agreement. Clause 38 is all about ensuring that tenants can have the protections of the code and will not be denied those protections as a result of having tenancy agreements that contain provisions which are inconsistent with the code. We are keen to consult on these regulations and will do so after Royal Assent. They will also be subject to the affirmative procedure. I encourage hon. Members to get involved in that exercise if they have ideas about the terms that should be in those regulations.

The hon. Member for Chesterfield asked how realistic it is to expect new tenants to go for parallel rent assessment. He is right to highlight, as we heard in evidence, that optimism bias is one of the factors at play in this industry. That is why we have information requirements in the code—a pub company has to make sure that tenants have thought things through, that they have a business plan and so on—designed to address that point. Obviously, tenants will have access to parallel rent assessment if they wish. Obviously, when negotiations fail there can be a new agreement; equally, however, in a regular rent review, if negotiations fail a PRA can be triggered 21 days later. As I mentioned a few moments ago, section 25 in part 7 of the draft code outlines other circumstances.

The hon. Gentleman asked if an updated code will be published before Report. I reiterate my intention to do that. We have the draft code, I sent a letter to the Committee on Friday setting out some of the changes I think should be made, but I also want to take account of our discussion this afternoon in drawing up a revised code before Report. He asked whether that will be the finalised code. I caution the Committee against hoping that it will be set in stone before the Bill becomes law. He mentioned the advantage of having some degree of flexibility in the code, which means that it has to be in secondary legislation. By definition, therefore, it has to be put into legislation after the primary legislation has been passed. That also, of course, gives us the opportunity to have further consultation on that secondary legislation before bringing it into effect. I hope that our discussion as the Bill progresses will ensure that we have something pretty near to the final form.

Sheryll Murray (Conservative, South East Cornwall)

What assurance can my hon. Friend give the pubcos and small family brewers that they will be protected under the code? Clearly, all the small family brewers with fewer than 500 pubs expected to be exempt, yet there does not seem to be any assurance in the Bill that what she is promising in the statutory code after Royal Assent will protect them.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I do not want to trespass too much on to the next group of amendments, but, in summary, there is already clarity in the draft code that the parallel rent assessment section does not apply to those that do not fall into the definition of “large pub-owning businesses”. My letter to the Committee on Friday set out other changes that I have committed to make to the code and we will discuss whether there are other areas that we should also move to the enhanced code that are only applicable to those larger companies. I hope that is reassuring.

As I said to my hon. Friend in response to an earlier intervention, before the Bill is finalised the only way to have absolute clarity is to put the draft code in primary legislation. I do not think that she would want us to do that; I do not think that that is the best way for Government to regulate when they intervene. I am sure that she does not wish us to go for that solution to the dilemma she outlined.

Toby Perkins (Labour, Chesterfield)

I got the sense that the Minister was approaching the end of her remarks. Before she does, I wanted to ensure that she responded to the following two issues. How will she convince us that there will be real validity to the figures? Will there be any professional sanction for an assessor who was found to have wrongly applied the RICS guidelines?

Jo Swinson (Liberal Democrat, East Dunbartonshire)

The hon. Gentleman pre-empts me. On validity of assessments, a wide range of information is already out there, which can be used to back up the assessments. As I said, we think that there has to be a basis on which pub companies make these calculations when they put together their tied agreement offers in the first place, so clearly they can put in some of that information as part of the parallel rent assessment. Of course, those involved in the industry who already follow existing guidance show that there can be confidence. However, the ultimate back-stop of the adjudicator will also provide some reassurance.

On sanctions if the RICS guidance is not followed, if the person doing an assessment is a RICS member and they do not follow the guidance, that is partly a question for RICS on how it qualifies its assessors. However, if an assessment is produced that is not in line with RICS guidance and the adjudicator arbitrated and that was found to be the case, the adjudicator ultimately has the power, for example, to set the rent or to correct the wrong assumptions. It can then send the parties back to continue the negotiation with the correct assumptions.

Andrew Griffiths (Conservative, Burton)

On a point of clarity, my understanding is that it is not the pub company that values these benefits but the RICS surveyor. The onus will be on the RICS surveyor to attach a value to those benefits, not the other way round.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

Clearly, the RICS guidance is available to pull together the rental information, but the pub companies will be in an ideal position to value the benefits that they provide. I expect that they would share that information with not only their tenants, but those involved in the process—ultimately including the adjudicator, if necessary—and be able to back that up.

Toby Perkins (Labour, Chesterfield)

The hon. Member for Burton described them as RICS assessors, but the point is that these are employees of pub companies: they are not necessarily approved by RICS, but they follow its guidelines. The worst thing that can happen to an employee of a pub company if they get it wrong is that the adjudicator might tell them that they have got it wrong. That is not a huge sanction. If we have a system that is based largely on the fact that a pub company employee will give a fair assessment and there is no sanction if they do not, we can understand why people might not be confident.

Jo Swinson (Liberal Democrat, East Dunbartonshire)

I think I can reassure the hon. Gentleman on that point. The ways that companies do this varies from company to company. He is quite right that often it will be an employee of the pub company—who sometimes might be RICS qualified and sometimes might not—who will pull together these assessments in line with RICS guidance.

We all accept that in every job there will sometimes be a situation whereby somebody gets something wrong. That is the purpose of arbitration and it can be put right. If any kind of systemic pattern emerges, that is where the difference between an arbitration and an investigation comes in. The adjudicator will have the power to open an investigation if they believe that there is any kind of pattern of breaking the code. They would view an individual case where a valuation was wrong quite differently: those things happen and the arbitration process is there to get that right. If there was a situation where, as the hon. Gentleman suggested, a pub company felt that not much would happen and it systematically tried to get a wrong assessment past as many tenants as possible, the adjudicator would view that pretty dimly. They would certainly have the power to launch an investigation. If they found that to be the case, they would have the sanctions to be able to make recommendations, publish information—effectively naming and shaming—and ultimately issue a financial penalty. Those powers exist and the adjudicator will have the ability to choose the right mechanism to remedy the situation.

I hope that those explanations have reassured the Committee and I urge hon. Members not to press their amendments.

Sheryll Murray (Conservative, South East Cornwall)

I beg to ask leave to withdraw the amendment.

Sheryll Murray (Conservative, South East Cornwall)

I beg to move amendment 151, in clause 36, page 31, line 2, leave out “large”

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss the following:

Amendment 152, in clause 36, page 31, line 2, leave out “also”

Amendment 162, in clause 36, page 31, line 4, at end insert—

“(b) the Secretary of State shall ensure that provisions of the Pubs Code which carry costs which smaller businesses would find difficult to absorb, as prescribed, do not fall upon those pub-owning companies who own less than 500 premises,

(c) such provisions to be prescribed may include—

(i) the duty to employ a Code Compliance Officer, and to file annual Code Compliance Reports,

(ii) the duty to employ a business development manager and provide training thereto,

(iii) the duty to provide parallel free of tie rent assessments”

Sheryll Murray (Conservative, South East Cornwall)

I want to deal first with amendments 151, 152 and 70. They would amend clause 36, about which we have engaged in quite a lengthy discussion. These are enabling amendments, should the amendments to clause 60 be adopted. I will deal, in particular, with amendments 154 and 71 to clause 60. I notice that amendments 70, 71 and 72 and amendments 154, 155 and 156 appear to do very similar things. I reassure the Committee that I will not consider all the amendments. We seem to have two sets of very similar amendments because of some confusion with the tabling of the original amendments.

The amendments that I want to discuss aim to protect family brewers. They would amend the Bill to ensure that pub companies with fewer than 500 tied tenants are removed from the constraints of the statutory code. Indeed, the Secretary of State for Business, Innovation and Skills has been quite consistent in giving his undertaking that companies with fewer than 500 tied pubs would be exempt from a statutory code. In response to a question from the hon. Member for Chesterfield on 11 September, he stated:

“We have no wish to create problems for the small, family-owned pubs, which are an extremely important part of the industry.”—[Official Report, 11 September 2014; Vol. 585, c. 1064.]

The original BIS consultation said that the regulations would only apply to pubcos with 500 pubs or more, and

“would target those companies with the greatest market power and exempt smaller companies, about whom very few complaints have been received.”

Family brewers running traditional tied pubs had been led to believe that they would not be subject to any legislation as the self-regulation was working effectively within their estates. Many of them, as I mentioned earlier, have operated with tied tenancy models for decades—and it has been a lot longer than that in the case of the family brewery owned by my constituent, James Staughton, although the brewery that he owns is not in my constituency but in that of my hon. Friend the Member for St Austell and Newquay. In that respect they agree that individual tenants require protection and advice, and are fully committed to continuing on a voluntary basis the pubs independent rent review scheme and PICAS, which already exist within the voluntary code.

Toby Perkins (Labour, Chesterfield)

Does the hon. Lady have any assessment of the extent of the cost base if PICAS and PIRRS keep going, but without the contribution of big pub companies, which would be in an entirely different adjudication system—particularly for micro-brewers, who probably would suddenly face making a significantly higher contribution for perhaps three or four pubs? What would the impact be in relation to the cost base?

Sheryll Murray (Conservative, South East Cornwall)

The Independent Family Brewers of Britain have assessed that it will cost in the region of £90 per pub per year. I will come on to how much of a financial burden inclusion in a statutory code might impose on those small businesses. I shall certainly seek an answer to that question from my hon. Friend the Minister.

A survey of 2,971 tenants, about the voluntary code, was conducted by IFBB pubs, and 2,770 responded. It showed that in 2012-13 only two applications had been made to PIRRS; and none had been made to PICAS. Only five formal complaints were made about business development managers, all of which were settled by internal grievance procedures without the need for outside intervention.

Anne Marie Morris (Conservative, Newton Abbot)

I am extraordinarily interested in the statistics that my hon. Friend has given. It seems to me that the family companies need all the help they can get. If problems are on as small a scale as she has said—I have never heard of anything so small—she is right in tabling her amendment, to try to protect them from over-regulation.

Sheryll Murray (Conservative, South East Cornwall)

The Bill is all about helping small businesses, and that is what I want to do. I am grateful for my hon. Friend’s support for the amendments.

Of the 2,770 tenants who responded, 100% were committed to funding the continuation of PICAS and PIRRS. I have been shown a copy of a letter from the Secretary of State to my right hon. Friend the Member for Wokingham (Mr Redwood), in which he states that evidence suggests that larger pub-owning companies may no longer continue to fund the voluntary mechanism once the statutory code comes into force, which could soon render the voluntary system unviable. The IFBB have given a clear undertaking to continue to operate under the voluntary code, and I hope that the Minister will acknowledge that.

The Minister sent a letter to Committee members on Friday. I thank her for ensuring that her office rang mine, to make sure I received it. It was kind of her and I know she is aware of my interest in the matter. My constituent James Staughton, who is the owner of St Austell Brewery, a family brewery located in the constituency of my hon. Friend the Member for St Austell and Newquay, had joint discussions with my hon. Friend and myself on this subject. We undertook considerable joint discussions on the matter of the statutory code and the cost and excessive regulatory implications for family breweries.

As far as I can tell from her letter, the Minister has made one concession, outlined in paragraph 1, which is to move the annual compliance report into the enhanced code. I am unable to find any further changes to the Bill in this lengthy letter, but I stand to be corrected. Perhaps she will expand on any further changes.

As the Secretary of State confirmed to the House:

“The Government have introduced a number of measures to support pubs, including ending the beer duty escalator and cutting beer duty”.—[Official Report, 11 September 2014; Vol. 585, c. 1063.]

That reduces, of course, the cost of a pint. I am sure that it is not the Minister’s intention to undo the good work we have already done for the beer trade by imposing costly bureaucracy on small family breweries. We should be supporting small businesses and encouraging entrepreneurship.

Many pubs in my constituency are owned by local family breweries which treat their tied tenants with respect. It is very clear that the Bill introduces diseconomies of scale. The inclusion of smaller companies within the scope of the legislation will have the reverse effect of the deregulatory intention of the Bill. It will, instead, introduce costly compliance burdens which are disproportionate and damaging to family brewers, which are not the focus of the complaints, as acknowledged in the evidence to the Committee by Fair Pint and the Campaign for Real Ale. Family brewers believe that their inclusion in the Bill will encourage transfers of pubs from tenancy to management and will reduce the opportunity for entrepreneurs to enter the pub business.

I want to ensure the future of pubs in my constituency that are owned by local family breweries which treat their tenants with respect, and that the partnership relationships between the small breweries and their tenants are able to continue without the added burden of so much bureaucracy. It is in this spirit that I give notice that I will be pressing amendments 71, 72 and 73 to a vote. I hope that Committee members from all parties will vote to support the small, family-owned pubs that the Secretary of State described as,

“an extremely important part of the industry”—[Official Report, 11 September 2014; Vol. 585, c. 1064.]

while ensuring that the larger companies, under the statutory code, can move towards engaging in a similar partnership relationship with their tenants.

Toby Perkins (Labour, Chesterfield)

I am very pleased to speak in support of amendment 162 in my name and those of my hon. Friends the Members for Edinburgh South and for Hartlepool. The broad body of campaigners, from CAMRA to the Forum of Private Business, the Federation of Small Businesses and the GMB trade union, recognise that regulation should fall only on those who have done most to contribute to the problem and are most able to absorb the costs of new regulation. That is why, throughout the several years that we have been involved in the campaign, the measure of 500 pubs has been used to distinguish the large pub companies—about which we, as MPs, receive most complaints from our constituents—from smaller, independent, local or family brewers. For example, back in January 2013, a day before Labour’s Opposition day debate on the subject, a letter from the Secretary of State stated:

“In order to place the most proportionate burden on business”

the Government are proposing that

“this new regulatory regime should apply to all pub companies”

with more than 500 pubs. The BIS Committee report of July 2013 supported the 500-pub threshold, but recommended including

“a level of flexibility in any Bill to allow the Secretary of State subsequently to alter the threshold in the interests of the industry.”

CAMRA’s super-complaint to the Office of Fair Trading in 2010, which did much to focus the attention of policy makers on the issue, highlighted the organisation’s concern that restricted and distorted competition in the UK pub market, due to the unfair implementation of the beer tie in certain circumstances and other exclusive purchasing obligations, is artificially inflating the consumer price of beer, reducing consumer amenity in pubs and increasing the rate of pub business failures. Again, the complaint only focused on pubcos that impose a beer tie on 500 or more pubs.

That was surprising, having been so reluctant to regulate at all for so long.

Andrew Griffiths (Conservative, Burton)

The hon. Gentleman mentioned a super-complaint that was made by CAMRA and I think we have all read that. Will he tell us what the response to that super-complaint was?

Toby Perkins (Labour, Chesterfield)

The OFT’s response was that, in the context of consumers, there was not a competition issue. While I understand why CAMRA attempted to make that case, I do not think the central point we have ever been making has been about the impact that the pub companies have on consumer choice. Many of the pub companies have a wide range of beers available and have been contributory factors in the growth of some of the brewers. From our perspective, it is perfectly consistent to say that the OFT were right to come to the conclusion that there was not an impact on consumer choice of beer, but still think there was an impact on the choice of people attempting to get into the industry as a tenant.

As I was saying, the Government having been reluctant to regulate at all for so long, it was a surprise to me when the Government’s draft regulatory code, released in June, made the statutory code binding on all companies that owned tied pubs, no matter what their size or market share. The Government’s proposals have an enhanced feature that only applies to those with more than 500 tied pubs, yet that is one part—part 8 of the 13-part draft code—that would not apply equally to small family brewers and large pub-owning companies. That is a strange approach and we have attempted, with our amendments, to greatly reduce the burdens of it.

We have been consistently saying that we did not see this process as being about a significant regulatory regime being placed on the smallest independent brewers. We have always said that they should have been exempt from the most onerous effects of regulation. However, attempting to extricate them from the Bill, as the Minister is doing, is quite problematic. The Government have so clearly set themselves in favour of a core and enhanced code, and given our reservations that the code currently only exists for companies that have 500 tied pubs, I suspect that if we started delivering on what the hon. Lady is proposing—not withstanding my support in general principle for what she is saying—we would end up seeing many companies that we would expect to be covered by the code, not being covered. Because of the two combining features of only those with tied premises being affected and the 500-pub limit, we could potentially create a lot of loopholes and undermine the potential of the legislation to achieve what we hope it will.

If the hon. Lady gave us an indication that she was minded to support our amendment—which makes it clear that it should be any pub-owning company with over 500 pubs—that would set my mind at rest on the complete exemption that she talks about. In the event of her amendment not carrying the day, I would be interested to hear her thoughts about our more specific approach of removing a significant number of onerous steps from the statutory code and adding them to the enhanced code.

Sheryll Murray (Conservative, South East Cornwall)

The hon. Gentleman asked about costs. The Minister will hopefully come up with how much it will cost for small family brewers, but does he have any figures to share with us? If the family brewers are still included in a statutory code, what would the cost implications be for them? I shared with him that the cost of them funding the voluntary code was £90 per pub. Does he have any indication of whether the statutory code he talks about would be of a similar cost?

Toby Perkins (Labour, Chesterfield)

I think I understand what the hon. Lady is saying. I believe she is asking about the cost of the Government’s proposals for small family brewers. She might do better to ask the Minister. The principle of the original legislation was to create a code for pub-owning companies with over 500 pubs. If we had drafted the legislation, we would have worked precisely on that basis. The Government made two changes, in terms of what we expected the legislation to look like and what it actually looked like. The first, as the hon. Lady pointed out, independent family brewers were dragged into something that they had no expectation of being dragged into. The second important change was that the Government chose to say, “This is about 500 tied pubs,” rather than purely about 500 pubs. The combination of those two things and how the code has been written makes it much more difficult to achieve the carve-out and exemption that the hon. Lady seeks.

Andrew Griffiths (Conservative, Burton)

I am struggling to understand what the hon. Gentleman is trying to achieve with this amendment. He has articulated a problem with the tied model; I do not agree with that. However, he suggests that pub companies with no tied pubs should be caught up within the legislation. Companies such as Wetherspoon’s or Mitchells & Butlers, which have no tied pubs, would be regulated by a piece of legislation that aims to deal with alleged abuses of the tied system. Why?

Toby Perkins (Labour, Chesterfield)

I will come on to that. If it was as simple as every pub-owning company either having tied pubs or not—as the hon. Gentleman suggests with his example of Wetherspoon’s—his approach might make sense. We would all imagine a company such as the Spirit Pub Company to be covered by the code. It is a pub-owning company with 1,200 pubs but it actually only has 430 on a leased model. It is partly about market share and the dominance that comes from having a significant number of pubs. As a collective, the five or six major companies own a substantial number of the pubs in the industry. It is also about trying to prevent loopholes to ensure that pub companies that we all expect to be covered by the Bill are not able to exempt themselves by creating alternative models—whether they call them franchises or anything else. The more wriggle room we create, the more likely it is that pub companies will say that they are not covered.

I say to the hon. Members for Burton and for South East Cornwall, and the other hon. Members whose names the amendments are in, that it is decision time. If they accept our point about the size of the market and support our amendments, which address the issue of the measure covering not only people who have tied pubs, their amendment would be a lot less concerning. We must decide whether we take the sensible step that we are proposing, which is to say, “Okay, there is a code, but the way it is drafted makes it difficult to create the carve-out that the Government are attempting.” I do not believe the proposed carve-out would survive the rest of the legislative process, because it is like attempting to unscramble an omelette. The principles that the Government are laying out are important for independent family brewers, but the practical concerns that those brewers have raised with me about how onerous the code will be for them would be overcome by our amendment.

For us not to object to the hon. Lady’s proposal, we would need to be assured that the issue of the 500 tied pubs was dealt with. Otherwise, businesses are likely to exempt themselves from this measure, which we all expect to cover them.

Sheryll Murray (Conservative, South East Cornwall)

If the hon. Gentleman’s amendment were accepted, what would happen if a pub company had 300 tenants that are protected by the pubs code, whether it is voluntary or compulsory, and another 201 pubs that have managers in? With my amendment, the 300 tenants would be subject to the voluntary code, which would not impose any restrictions on them, but if the company had a further 201 pubs with managers in, they would be brought into the statutory code, because those managers are employed on a completely different basis. Will the hon. Gentleman explain how he would get around that problem if he removed the tied option from the 500?

Toby Perkins (Labour, Chesterfield)

Very easily. If the company had 500 pubs, it would be subject to the enhanced code. It is as simple as that. The point is that if the company had more than 500 pubs, and 300 of them were on a lease model, it would be brought inside the enhanced code and subject to its requirements.

Andrew Griffiths (Conservative, Burton)

Allow me to bring some clarity to the hon. Gentleman’s thinking. He needs to understand that there is a fundamental difference in law between a lease and a tie. He is suggesting that we regulate businesses that have not had a single complaint made against them—indeed, they do not operate those kinds of business arrangements in any way, shape or form—simply to ensure that we catch businesses that he perceives to be wrongdoers. Had he thought it through, he might have had an argument if he had said, “500 leased or tied tenancies”—there is an intellectual argument behind that. But he is suggesting that a deregulating Government, who want to lessen the red tape and the burdens on business, should impose extra and expensive regulation on businesses that have not had a single complaint made against them. That is not something that I, for one, could justify to the pub trade or to the businesses affected. I struggle to see how he could, either.

Toby Perkins (Labour, Chesterfield)

As I was saying, the central question is what extra burdens we would be placing on companies that do not have any leased or tenanted arrangements. The truth is that, in practical terms, those burdens would be minimal to the point of being non-existent.

To return to a point I raised earlier, the real danger is that many of the amendments tabled by the hon. Members for Burton and for South East Cornwall have sought to weaken the code. The principle behind amendment 151 would lead to a situation in which companies that all of us who prepared and support the code expected to be covered by it could end up finding ways of getting out of being covered. We anticipated six or seven companies being regulated, but the number could end up being only three or four; perhaps those companies might then find alternative ways to get out of being covered by the code. We could be left with Rolls-Royce legislation without any petrol in the tank, as no company would be covered by it.

The hon. Members for Burton and for South East Cornwall have to decide, ultimately, which side they are on. Are they going to support the small pub companies, and accept that one of the costs of doing so is to ensure that all the companies we anticipated being brought inside the code are actually brought inside it, or—for the sake of protecting the big pub companies and allowing them additional wriggle room—are they going to choose not to back the code and so see their intentions for independent family brewers go undelivered? If they are not willing to do as I suggest and remove the provision about the tie, will they instead consider our amendment 162, which would remove the regulatory burdens on independent family brewers? It lists a number of things that such brewers would not be expected to do. Will they support us on that?

Amendments 159 to 161 are intended to make it clear that large pub-owning companies are those that own over 500 pubs of any kind, something that the all-party Save the Pub group has clearly and consistently called for during the campaign. Without those amendments, the Bill and the code will take no account of market share or market powers, which must provide the true definition of large pub-owning companies. Amendment 151 would mean that a pub-owning company with 1,200 pubs, 400 of which were owned on a lease model, would not be described as a pub-owning company under the Bill. That is a significant issue that we must address.

The chair of the all-party save the pub group, the hon. Member for Leeds North West (Greg Mulholland), warned on 16 July in the Chamber that it is crucial to prevent some of the companies that we want to be subject to the statutory code from moving out of that obligation. He said that if the 500-pub limit applies to tied premises only, the likelihood of businesses exempting themselves from the code will grow. As a result, the desire of the House to make the requirements more rigid is likely to grow, not recede. That relates to the principle of what the hon. Members for South East Cornwall and for Burton have been saying.

I mentioned Spirit Pub Company, which has 1,200 pubs, only 450 of which have what they would describe as a tied arrangement. Everyone would expect Spirit to be included in the enhanced code, but under the amendments proposed by the hon. Members for South East Cornwall and for Burton, it would not. If all of Labour’s amendments were accepted, they would come within the code. If only the amendment to exempt independent brewers and pub-owning companies but not larger pub-owning companies was pursued, Spirit would be left out, because it has fewer than 500 pubs with tied arrangements. They are important amendments, and Members will have to consider carefully the conclusion that they come to. The amendments would ensure that we do not subject thousands of pub company tenants to further delay as businesses that we all expected to have to comply with the code find different ways to dodge it.

The Government’s response on the issue seems a bit confused, and the sense that there is a battle about it on the coalition side of the Committee does not do anything to give the certainty that the industry is looking for. The Government’s consultation document proposed that the new regulatory regime should apply only to pub companies with more than 500 pubs, so I am interested to hear from the Minister why it has been drafted as it has. It said that for the companies within the scope of the code, it should apply only to their non-managed pubs. The Government even grouped consultation responses using those definitions, yet they decided to change the definition to 500 tied pubs during the process. We disagree with that conclusion, and we are giving the Government and the hon. Members for South East Cornwall, for Burton, for St Austell and Newquay, for Plymouth, Sutton and Devonport, and for Newton Abbot the opportunity to put those things right today and support our amendment. It would make a significant difference to the Bill’s impact on family brewers and, indeed, on any pub-owning company with fewer than 500 pubs.

We are concerned that there is an attempt to water down an already limited set of proposals, which would mean that fewer companies would be covered by the provisions of the code. That is certainly true of amendment 192, which would tighten the list of people who are considered tied tenants under the Bill before a final tenancy agreement is signed. Under the Bill, those entering negotiations for a premises that is currently a tied pub would be covered. That would give them the right to see further information about their costs if they were to request to be free of tie, and it would increase transparency from the beginning of the process. If the amendment were accepted, that would be limited to those who have reached a trading agreement, by which time it might be too late.

Likewise, amendment 66 would remove from the provisions of the Bill tenancies at will—those with no definitive end point—and those of less than 12 months, potentially disfranchising many licensees and limiting their rights. Just as it is not right for those on temporary contracts or short-term deals to be discriminated against in the workplace, nor should tenants on short-term contracts be excluded from the protection of the pubs code. I anticipate pressing amendments 157 to 161 to a vote, and I eagerly anticipate the support of the Committee in ensuring that those important clarifications, which offer greater certainty to the industry, are approved.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

It is a pleasure to follow the hon. Member for Chesterfield, although what he suggests is somewhat mealy-mouthed support for the family brewers sector. He says that there is a tension in the coalition, but the only tension on the Government Benches is because we want to get this right.

As my hon. Friend the Member for South East Cornwall said, there have been only two applications to PIRRS in the family brewers sector, and no applications at all to PICAS. As my right hon. Friend the Secretary of State has said, we do not want to overburden family brewers with compliance when the issue that we are trying to tackle is in the pubcos, as the hon. Member for Chesterfield knows. The hon. Gentleman is inviting the Committee to back his amendment, which would not exclude independent family brewers from the provisions that he wishes to set up. In fact, his amendment 162 would just move some of the provisions into the enhanced code. As we know from the letter my hon. Friend the Minister sent to the Committee earlier this week—I have to congratulate her on the way in which she has engaged with my concerns, those of my hon. Friend the Member for South East Cornwall and those of others—she is minded to move a whole bunch of provisions into the enhanced code.

Sheryll Murray (Conservative, South East Cornwall)

Will my hon. Friend give way?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

If my hon. Friend will hold on a second, I will deal with her point in passing.

My hon. Friend the Minister sets out clearly in her letter that the requirement to produce an annual compliance report will be moved into the enhanced code, and that requirements for business development managers to record conversations will be qualified to material matters such as rent, repairs and other such stuff that is directly relevant to the licensee. The information requirements regarding PIRRS and informing tenants who are contracted out of the Landlord and Tenant Act 1985 will be reviewed ad nauseam. My hon. Friend concludes by saying that she is open-minded on requirements for other areas where compliance would overburden smaller, family businesses also to be moved into the enhanced code. I am afraid that the hon. Member for Chesterfield is inviting us to do nothing that my hon. Friend the Minister has not already said she will do.

Toby Perkins (Labour, Chesterfield)

I invite the hon. Gentleman to consider the chronology of this: we tabled the amendments on Thursday, and by Friday we had a letter saying that the Government were minded to support many of them. He might be putting the credit in the wrong place.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

If the hon. Gentleman reads the letter, he will find that the chronology was meetings between myself and the Minister, and between my hon. Friend the Member for South East Cornwall and the Minister, before the point he mentions.

We have all shared our aspiration to reduce compliance burdens on the family brewing sector. The 29 long-established brewing and pub-operating companies across the country that are part of the IFBB have about 3,000 tenanted and leased pubs. I encourage my hon. Friend the Minister, my right hon. Friend the Secretary of State and others to think about moving those companies entirely out of the statutory code. That is why I support the amendments tabled by myself and my hon. Friend the Member for South East Cornwall.

The hon. Member for Chesterfield is not asking us to do anything that the Government have not already offered. If he actually wants to stand up for family brewers, I invite him to join us in exempting those under with 500 pubs from the provisions of the Bill.

Andrew Griffiths (Conservative, Burton)

Time is short, so I will briefly deal with my hon. Friend’s amendments, with the issue of family brewers and with the contribution made by the Opposition spokesman for pubs. I am open mouthed at the lack of understanding of the industry that the hon. Member for Chesterfield has just demonstrated. This is a tenanted and leased pubs Bill, but his amendment encompasses every pub business and every pub company in the country, whether they have leased and tenanted pubs or not. That shows a complete lack of understanding of the way the industry operates. The hon. Gentleman expects companies such as Wetherspoon’s and M&B, which have none of these agreements in any of their pubs, to be caught up in the Bill, this burden and this regulation. I cannot see the sense in that. I look forward to the hon. Gentleman’s discourse with Tim Martin, the owner of Wetherspoon’s. I am sure he will take great delight in educating the hon. Gentleman about the implications of including his business in the Bill and what that would do to it.

I am disappointed. Had he wanted to, the hon. Gentleman had the opportunity to table an amendment that applied only to tenanted and leased pubs. That would have solved his problem, but he missed the opportunity, either by not understanding it or not seeing that that was the way forward. He has demonstrated that he wants to play politics with the issue rather than help family brewers and all the people they employ throughout the country. He has made a huge mistake in making that so obvious to everyone who reads the debate.

I understand what my hon. Friend the Member for St Austell and Newquay said about the Minister’s desire to find a solution. I understand that, with her letter and her intent to put more of the burdens into the enhanced code, she has made strides forward. Nevertheless, like my hon. Friend the Member for South East Cornwall, who moved amendment 151, I still feel that I must do what I can to support the family brewers, because that was definitely the mood that came through from Parliament when we debated this issue on Second Reading. That is why I will support her amendment.

Of the other two amendments that I tabled in the group, the most important is the one dealing with tenancies at will, which, the Committee will remember, we discussed at some length when we were taking evidence. Tenancies at will are established in emergencies due to death, divorce or pestilence; when something goes wrong with a tenant, pub companies use them to fill the gap. If the tenant is affected by a divorce, death or illness, then rather than enforcing its contract and insisting that the tenant fulfils their obligations, the pub company will often let the tenant go.

I hope that the Committee will take it as read, but if not, I can read out many examples of tenants who went through illness, divorce or family breakdown and so had no choice but to get out of the pub. If the pub companies had not had tenancies at will available, they would have had two options: first, they could have shut the pub until they found a full-time tenant; or, secondly, they could have continued to charge the tenant, racking up their debt. Tenancies at will allow pub companies to fill a pub with a tenant on a short-term basis. Indeed, some companies and individuals do only that. They are the caretaker: they go into a pub and do the bare minimum—keeping the doors open and the beer flowing—while the pub company is going through the process of finding a new tenant.

In the evidence sessions, we heard about the due diligence that we all want pub companies to do to ensure that tenants are properly informed. They must ensure that the prospective tenants understand how the business operates, their legal position and their lease; that they have a business plan; and that they are fit and proper people to run a business. All that takes time. We heard that it can take up to six months. If we do away with tenancies at will, pubs will have to close because no one will be able to go in and run them between long-term tenancies.

The reality is that the people who go in for tenancies at will understand the situation. They understand that it is a short-term gig, they have fewer responsibilities, and they are often better remunerated because they are the emergency care. My real worry is that, if we do away with tenancies at will, as the Bill currently suggests, we will not only see more pubs closing in the short term—because the pub companies will have no choice but to lock the doors and board them up—but when the company does find a tenant to take over the pub, it will be more difficult for the tenant because, as always, if a pub closes, people go to the one down the road or in the next village. Closing the pub risks losing regular customers, which is going to cost the business.

I want to draw to the Committee’s attention the evidence that we received from the Association of Licensed Multiple Retailers, an organisation that one might think would want to see an end to tenancies at will. It said:

“Following the oral evidence…members of the…Committee might be forgiven for thinking that tenancies at will…are commonplace in the sector and large numbers of inexperienced tenants use them as ‘tasters’ before rolling them over and using them as their entry into the business. Our experience and understanding contrasts with this markedly. TAW agreements are always temporary in nature and usually fixed in term—they are a short term, expedient measure to keep a pub open when there has been an exceptional event”.

Andrew Griffiths (Conservative, Burton)

I will bring my comments to a close as quickly as I can. I was talking about tenancies at will and quoting the evidence from the ALMR, which said:

“A TAW is rarely used as a ‘try before you buy’ device as suggested at the oral evidence session and there is no possibility of a TAW being rolled into a longer term substantive agreement without the Code’s due diligence being applied in full.”

What I am suggesting with my amendment is that we keep in place these temporary, flexible agreements, but two things would happen. First, any of these tenancies at will that rolled over to more than 12 months would automatically become a tenancy encapsulated in this Bill and part of the adjudicator’s realm. The second point to make is that if someone goes to a substantive agreement thereafter—after a month or two months—the moment they sign that substantive agreement, they would be covered anyway. I understand the Minister’s concern that there is room for abuse, but I think that we have demonstrated that the safeguards are in place, and that the role that these tenancies at will play in keeping pubs open are so important that they should be exempted.

In speaking about my final amendment, I will be as brief as possible. The aim is to clarify an anomaly that I see in the Bill and that I am sure is a case of unintended consequences. As it stands, anyone is covered by the code the moment they pick up the phone and speak to the pub company. Therefore, if someone was window shopping—it is the equivalent of walking into an estate agent’s, talking to the girl and asking for a set of particulars—they would be covered by the adjudicator. They would be able to take that company to the adjudicator and have a ruling against it just from that very short, initial discussion.

Companies such as Admiral Taverns tell me that they receive up to 5,000 inquiries every year. I am sure that it is not the Minister’s intention that that should be covered by the Bill. The scope of this clause as drafted would, I think, impose unnecessary and excessive burdens on pub companies, with very limited benefit for tenants and prospective tenants. The clause should clarify that advisers to the principals in a negotiation are not themselves party to the negotiation and do not benefit from the provision. Yes of course, when a negotiation is begun, when substantive negotiations happen, those people should be covered by the code. I accept that, but there needs to be some semblance of sense here that a negotiation begins when two parties begin intense negotiations, not when someone picks up the telephone.

I do not intend to press the amendments to a vote today, simply because the Labour party has indicated that it is opposed to exempting tenancies at will, but I hope that the Minister will understand the amendments in the spirit in which they are meant. This is not a way of pub companies wriggling out of their responsibilities or trying to avoid giving tenants the rights that they deserve. This is a vital tool that is used to keep pubs open. That is something that I am sure everyone on the Committee wants to see and I know the Minister wants to see.