The silent crisis engulfing our pubs

Pub workers are battling against a corrupt set of markets rigged against them.

Pub workers are battling against a corrupt set of markets rigged against them.

Mark Dodds sits opposite me in a café. He looks bereft as he clutches a little cappuccino. It's as if he was made to stand behind a bar, and he looks awkward in a chair. After sixteen years of running his pub in Camberwell, it finally closed down in September.

"We were making a profit until 2005," says Dodds, "We were still a viable business, we just got squeezed from the top. I fought and fought but in the end I had to let go... Honestly, it's a relief to be signing on."

A silent crisis is engulfing our pubs, and the reasons behind it are little known. It blows like a chill across the country, sweeping in and out of the boarded up pub fronts in our inner cities all the way to our remotest rural corners where punters huddle over their pints in their few remaining social centres.

Last year sixteen pubs closed every week. To put that in perspective, that's over two every day. In the last two years, over 1,000 pubs have disappeared from Britain's suburbs alone.

If this was just the result of market demand, the story would be a sad one. But the real story inspires anger. Pub workers are battling against a dark, corrupt set of markets that are rigged against them. Many are going down not because they need to, but because they're forced to.

Think of your local pub. The chances are that it will be "tied", meaning that it is most likely owned by one of the big pub companies. That people who are actually running that pub - the "Publicans" - are forced to pay rent at prices the owners decide (dry rent) and buy beer at the prices they set (wet rent).

These pub company giants are not household names. Enterprise Inns owns 6,000 pubs; Punch Taverns owns about the same. Looking from the outside, it's not easy to tell which pubs have ties and which don't. They don't have to be chains. Today over half of Britain's pubs are tied, and it's squeezing them into submission.

In one of the most shocking statistics, a recent IPPR report found that 46 per cent of publicans in tied pubs earned less than £15,000 a year, compared to only 22 per cent of non-tied publicans.

I'm not often disappointed by the FT, but when they reported on the decline of pubs in this article last week, they failed to tell this story.

"Tied pubs offer you promises of support and training and good beer prices, but they are often lies", says Jonathan Mail at the Campaign for Real Ale, "It's only after you've invested £50,000 of your own money that it doesn't turn out that way, and your beer prices suddenly jump arbitrarily high."

Mark Dodds said he had to buy £2,000 of beer a week from his pub company, when he could have bought the same amount for £1,200 from a wholesale supplier down the road. When he first took over the pub the rent was £32,000, but at the next round of negotiations his pub company wanted to more than double it. The 68 per cent hike they finally settled on, combined with another rise in the next review, bankrupted him.

"If I'd been able to keep our profits for extra investment," says Dodds, "I could have made that pub work."

Why would any pub company want to squeeze its managers in this way? Some say short-termism. As long as you gain the target level of return over the whole portfolio it doesn't matter if one or two get squeezed along the way. In some cases, it may even suit companies to force the publicans out of business so the site can be sold to a property developer. That explanation is at least consistent with the free market, but it still leaves a community without a pub.

We should remember that Britain's 50,000 pubs are more than watering holes. They are centres of our community, as Jamie Wright's sweet film aboutThe Railway in Wales shows. Interesting IPPR research has tried to put an economic tag on the social value of a pub. By factoring in things like the equivalent cost of holding community meetings elsewhere, they found that each pub offered between £20,000 and £120,000 of community value a year. That's on top of the £6 billion tax revenue and one million people they are estimate to employ.

This is not unrelated to the High Streets First campaign. At the moment, betting shops and pay day loan companies can move into former pubs without planning permission. "The Hope" in my constituency was the last pub on Rye Lane, now it's a Paddy Power. Local people feel that they are losing control of the high streets they love.

Of course pubs face other challenges. Demand is falling. Competition is increasing. Supermarkets are serving a new generation more interested in intoxication than conversation. With beer duty set to go up 10p a pint in the budget on top of VAT rises, there are worries that another wave of pubs will be pushed over edge, and free holders like the Railway are also at risk. But according to IPPR's research, it's still the tied pubs that are suffering most.

So what do we do about it? Dodds is exploring setting up a co-operative pub chain, The People's Pub Partnership, and it's worth supporting. It's also worth asking your local pub whether they are tied, and how they are being treated. With punters onside, publicans can increase the pressure on owners for a better deal.

As for policy, the Campaign for Real Ale is calling on the government to give publicans the choice to leave the tie completely at their next round of rent negotiations. Pub companies would still have a few years to make their ties attractive, and pubs wouldn't leave all at once. It wouldn't just help the publicans and the communities that treasure them, it would also be consistent with the free market.

Rowenna Davis is a journalist and author of Tangled up in Blue: Blue Labour and the Struggle for Labour's Soul, published by Ruskin Publishing at £8.99. She is also a Labour councillor.

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.