Watchdog gives pub industry the all-clear

Britain's pub industry was given the all-clear by competition watchdogs today following a "super complaint" about so-called beer ties.

The Office of Fair Trading (OFT) said it found no evidence that "tied" prices - where pub companies compel tenants to buy drinks from them - were harming competition for consumers.

The Campaign for Real Ale (Camra) had filed its first ever super complaint to the OFT in July over fears that high rents and beer ties were forcing good landlords out of business.

But the OFT said it found "generally effective competition between pubs" and would not be taking further action.

The OFT dismissed Camra concerns that supply ties were protecting pub-owning companies, leading to higher beer prices and less choice for consumers.

In response to Camra's complaints over pub rent calculations, the OFT said while it had received a number of submissions from worried pub lessees, its work was to focus on competition issues and the impact on consumers.

Simon Williams, senior director at the OFT, said: "Any strategy by a pub-owning company which compromises the competitive position of its tied pubs would not be sustainable, as this would result in a loss of sales.

"Pub-owning companies are not therefore protected from competition by virtue of the supply ties agreed with their lessees.

"We understand that our response to Camra comes at a difficult time for the industry, but the evidence indicates that consumers benefit from a good deal of competition and choice within this sector."

The pub industry has suffered in recent years from the introduction of the smoking ban, sharply lower consumer spending amid the recession and competition from supermarkets selling cheaper alcohol.

Figures earlier this year estimated that pubs were closing at the rate of seven a day and Camra said in its complaint urgent reforms were needed to save the sector from "extinction".

Camra's complaint focused on the conduct of large pub groups.

These "pubcos" came under heavy fire from the lobby group, which alleged they were using their strong positions to impose heavy rental burdens while failing to pass on the full benefit of discounts on beer to tenants and therefore consumers.

Camra said the current beer tie system meant licensees paid around 50p a pint over the odds by being prevented from buying on the open market.

However, the OFT found only "marginal" differences in the average retail prices in tied pubs compared to free houses - by 8p more for a pint of lager and 3p for cider, while bitter prices were at the same level.

It added that higher beer prices in recent years were due to increases in pub and service sector costs.

Enterprise Inns, which has 7,600 leased and tenanted pubs, said in a statement it was "delighted" at today's decision by the OFT.

It added: "The tie has now been reviewed no fewer than 25 times since 1966 - 21 in the UK and four in the EU. On every occasion it has been concluded that the tie was fit for purpose.

"For many decades the tie has provided a low cost of entry to the pub industry for committed, entrepreneurial licensees who are unable to afford to buy a pub of their own.

"The tie provides an attractive mix of low fixed cost rent plus variable beer margin which reflects the performance of the pub, aligning the interests of the tenant and the landlord, both of whom want the pub to be successful."

Following the 90-day investigation, the OFT said: "The evidence indicates that at a national, regional and local level, there is no significant concentration of pubs owned by an individual pub company and there is generally competition between a number of different pub operators."

"Further, we have not found evidence to suggest that pub companies are acting jointly to increase prices or rents for their lessees."

Camra called on the Government to overrule the OFT decision and refer the sector to the Competition Commission.

It said the OFT had ignored its concerns and those highlighted in a report by the parliamentary Business and Enterprise Select Committee (BEC) earlier this year, which urged reforms to be made to the relationship between pub-owning companies and their lessees in the interest of consumers.

Mike Benner, Camra's chief executive, said: "We do not accept that there is sufficient competition between pubs or adequate consumer benefit from competition and choice within this sector.

"The OFT decision fails to address the legitimate concerns raised both in our super complaint and the BEC report and does nothing to address the imbalance in the landlord/lessee partnership, which is leading to higher prices, less choice and weak investment in pubs."

Shares in pub groups soared on the London market today after the OFT verdict removed the uncertainty of a major investigation into the sector.

Enterprise Inns shares raced more than 17 per cent ahead, while Punch Taverns lifted 12 per cent.

However, the industry still faces a formal response from the Department for Business, Innovation and Skills to the BEC report released in May.

The response had been delayed until the outcome of the OFT report.