Call for pub industry competition inquiry

MPs called today for an urgent competition investigation into the pub industry amid fears that ties between pub firms and licensees were forcing up prices for drinkers.

The Business and Enterprise Select Committee said the current practice in which pub companies compelled their tenants to buy drinks from them - known as the "beer tie" - should be "severely limited".

"There... are strong indications that the existence of the tie pushes up prices for consumers," the MPs said.

The committee was "surprised and disappointed" at the Office of Fair Trading's (OFT) reluctance to re-examine the beer tie's impact since a study in 2004 and called on the Government to order a Competition Commission probe.

'Pubcos' such as Enterprise Inns and Punch Taverns fall under the spotlight in the committee's report, after claims that firms use their strong position to impose heavy rental burdens - while failing to pass on the full benefit of discounts on beer to tenants.

The report said: "The failure of the pubcos to pass on the benefit of their discounts to the lessees prevents the lessees from passing on the benefit to the consumer in terms of reduced prices."

This has led to an "ever increasing disparity" between the price of beer in pubs and off-licences, it adds - undermining the viability of many pubs, as tenants are forced to increase prices and encouraging the trend towards drinking at home.

An independent survey commissioned by the MPs also found that almost two-thirds of lessees did not think pubcos added any value, while 67% of tenants earned less than £15,000 a year.

Although the report admitted other pressures on pubs, such as changing consumer preferences and recession, an average of 39 pubs closed every week in 2008, compared with eight in 2004.

"It is to the overall detriment of the consumer if pubs are forced to close due to uncompetitive practices in the market," the report added.

The practice of pubcos selling sites with restrictive clauses stating that they should no longer be used as pubs was also criticised as anti-competitive by MPs, who called for it to be banned.

"We believe it is for the market to decide whether a pub is unviable and not for a pubco to restrict a building's use," it said.

Committee chairman Peter Luff added: "Our inquiry found alarming evidence indicating there may be serious problems caused by the dominance of the large pub companies."

Alongside greater transparency over rent-setting and an independent dispute resolutions system, Mr Luff challenged pubcos to demonstrate the benefits of the tie by allowing tenants the opportunity to run their pubs on a free-of-tie basis.

Mr Luff said that doing away with the tie completely could put too much power into the hands of brewers and wholesalers, but called for severe restrictions on the practice.

In calling for a competition investigation, he added: "Some might argue that this can be left to the market. Pubcos which not only benefit themselves but support their lessees are likely to stay in business. If pubcos push too hard and are too greedy they will fail.

"But on the way, bad companies will inflict real damage on their direct customers, the lessees, and on their indirect customers, ordinary drinkers."

Punch Taverns said it was disappointed by the report's findings and said there were good grounds for the Government to reject the committee's recommendation for a market investigation by the Competition Commission.

It said competition authorities had looked at the market on several occasions and concluded it was not anti-competitive.

Punch added: "We strongly believe that the tied pub model provides a fair and equitable approach to sharing risk between ourselves and our licensees, represents a low cost opportunity for entrepreneurs, and has a rightful place in the market."