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Brewing Industry (Mmc Report)

Volume 152: debated on Monday 8 May 1989

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Motion made, and Question proposed, That this House do now adjourn.— [Mr. Chapman.]

1.2 am

The proposal in the Monopolies and Mergers Commission's report into the supply of beer in this country would, if implemented, lead to enormous and fundamental upheaval in the industry.

The report, and the issues surrounding it, need to be debated in Parliament, and perhaps I should explain my purpose in initiating the debate. I have no vested interest in the matter. However, I know something about the industry—which some hon. Members may regard as a disadvantage—because for a number of years before becoming an hon. Member I was a sales manager with a soft drinks company selling to the licensed trade.

I speak as someone who believes strongly in the free market. Any Government action to implement the proposals in the report would amount to an unwarranted —indeed, counterproductive—intervention in the workings of the free market. The brewing industry is a classic example of the free market, having sorted a fairly complex industry into an orderly and consumer-oriented market.

I also speak as someone who believes in the sanctity of private property. I am horrified that one of the main planks of the report would force companies to divest themselves of assets that they have legally and enterprisingly built up over many decades. For a Conservative Government to undermine those two fundamental principles, there has to be clear and overwhelming evidence that competition does not exist and that the consumer is getting a raw deal.

Yet there is almost no evidence in the report that there is massive consumer dissatisfaction with the current set-up. The report tells us that 80 per cent. of beer consumed in this country is consumed away from home on licensed premises. In America, only 20 per cent. of beer is consumed away from the home, in West Germany the figure is 40 per cent. and in Belgium and France, the figure is 43 per cent. Those figures do not suggest mass dissatisfication in the United Kingdom with pubs and clubs.

One of the key factors on which the Monopolies and Mergers Commission based its conclusion that a so-called "complex monopoly" was operating against the interest of the consumer was that the price of beer had increased by 15 per cent. above the retail prices index since 1979. But the report records the results of a survey carried out by the Consumers Association, which showed that only 1 per cent. of consumers mentioned price as the reason for choosing a particular pub. That is not surprising, because beer prices in this country are among the cheapest in the industrialised world. The consumer is looking for the right mix of amenity, choice of product and comfort. If price is as important as the report suggests, why is it that clubs, which generally offer lower prices as well as a lower level of amenity, have declined in recent years?

The real competition exists between pubs. The commission reports that the licensee survey showed that 90 per cent. of pubs had competition within a five-minute walk and that 34 per cent. of licensees faced competition from at least 10 pubs within a similar distance. The report records also that pubs in this country have a much greater advantage in the number of brands of beer per outlet than those in other countries, which is not altogether surprising when one considers that there are more than 1,000 different brands of beer sold in the United Kingdom. Surveys have shown that the British consumer is satisfied with the choice available in pubs—so much for the commission's claim that there is insufficient choice in the British pub.

The report has not even attempted to prove that there is massive consumer dissatisfaction with the current set-up. That is not surprising. I contend that there is no such massive dissatisfaction. I carried out my own survey in the village of Honley in my constituency last Friday by visiting several pubs and clubs. Honley, with an adult population of 5,500, has an interesting mix of pubs arid clubs. I found a significant difference in prices being charged and in the level of amenity being offered. One pub was popular because of its taproom, another was known as a beer house and yet another was known as one frequented by young people. It was interesting to note that the pub charging the highest prices also seemed to be the pub attracting the most customers. I talked to some of the punters enjoying a pint in the various pubs. From my own straw poll, I can report that there was practically no dissatisfaction with the choice available. The only grumble I heard concerned the price of low alcohol beer I was surprised by the high level of awareness of the report. I have to inform my hon. Friend of the enormous concern that it has generated already, especially among tenants and free landlords.

I find it disturbing that the report seems determined to underplay the significance of the massive amounts of money, amounting to about £3 billion, that have been invested in the refurbishment of existing pubs by the brewery companies between 1982 and 1988. The commission makes much play, for example, of the large price increase between July 1985 and July 1986, but fails to mention that that price increase coincided with an especially heavy amount of investment of £1·2 billion in the years 1985 and 1986 alone. It is almost as though the fact of that investment did not fit in with the conclusion that the MMC wished to reach.

One aspect of the report that I find particularly unsavoury is the fact that the MMC highlights the regional variations in the price of beer. I should have thought that lower beer prices in the north could be easily explained by lower property costs as well as lower service costs, not to mention the fact that consumption of beer is far higher in the north than in the south and that that increased volume justifies a lower price. Regional variations are not uncommon where a significant level of services is involved, and I understand that beer price differentials are lower than those in prices for car servicing, cinema admissions and restaurant prices. If the Government act to reduce the regional variations in price—I have no doubt that that would mean an increase in the price of beer in the north —the move will be clearly seen as an attack on the north, and with justification.

I now come to some of the recommendations in the report. The most stunning omission from the report is its failure to examine exactly what effect the proposals will have on the industry. As the dissenting member of the investigating group, Mr. Mills, said:
"the recommendations, if implemented, would be an unnecessary leap in the dark."
The combination of imposing a ceiling of 2,000 pubs on each brewery, insisting on a guest beer being allowed into each tenancy and stopping tied loans being made to the free trade will, in my view, lead to many marginal pubs in rural and inner-city areas being closed, many free outlets finding it impossible to get off the ground and an increasing trend towards a few national, heavily promoted megabrands dominating the market.

The report is already creating ripples. Decorative Glass Structures Ltd., a firm in my constituency which manufactures stained glass for pubs, has written to tell me that the effect on its order book has already been significant. The reason for that is simple. Major brewery chains have now frozen all their projects on tenanted premises. We know, too, that three regional breweries have already given notice to all their tenants.

I find it somewhat worrying that the MMC should so signally have failed to calculate just how the brewers would respond to the proposal to limit their tied estate to no more than 2,000 pubs. The MMC rather naively believed that the brewers would meekly sell off a number of pubs to bring their estate down to 2,000, although it does not take a genius to realise that even if they did that, while many pubs would be bought, those on the margin in rural and inner-city areas would almost certainly be closed.

It is now becoming clear that the national brewers would choose to be retailers and simply sell their brewing interests. That would almost certainly lead to a concentration of brewing in the hands of fewer companies and it would also provide the opportunity for foreign brewing interests to buy into the United Kingdom brewing industry. At the moment, the national brewers are happy to keep the marginal pubs open because they contribute extra volume, but once the interests have been split up the retailing companies would see no benefit whatever in keeping such pubs open, so in those circumstances, too, the marginal pubs are likely to disappear.

I am concerned that, despite all the MMC's fine words about its wish to help the small regional brewers, great stress is laid on the fact that there are still opportunities to reduce costs through the economies of scale. By implication the MMC therefore expects there to be fewer but larger breweries in the future. It is worth pointing out that the report records, albeit in passing, that, in 1986, the number of off-licence premises owned by breweries amounted to about 57 per cent. of the United Kingdom total, compared with 78 per cent. in 1967.

The proposal that guest beer should be introduced in every tenancy is well meaning, but it will become counter-productive. It is intended by the MMC to help small regional breweries, but I fear that it is likely to result in big national breweries spending more and more money promoting one or two megabrands that it will be almost impossible for a tenant to refuse to take, not because the brewery is twisting his arm but because of the X millions of pounds being spent on television advertising, thereby giving certain brands an extremely high profile.

Of course, smaller breweries will be able to sell their beers to some of the national tenancies, but hon. Members should make no mistake: when it comes to a battle between the local and big national brands, there will be only one winner, as experience in other countries has shown. I have heard that a regional brewery in the south of England believes that that provision is likely to see its sales of beer decline by about 30 per cent.

Another effect of the proposal being implemented will be the number of tenanted houses that will be turned into managed houses, which I would regret. A tenant tends to be more entrepreneurial than a manager and contributes his own special character to the pub environment.

The proposal that tied loans to the free trade should be eliminated would be disastrous for many small clubs and would make it increasingly difficult for an entrepreneur to start a new club or pub, particularly if the venture were unique or unusual. Even the Campaign for Real Ale recognised in its evidence to the MMC that loans were often necessary for a new free house to be viable. The MMC admitted that there was a great deal of competition between brewers in relation to loans made to the free trade, and, from my experience, I can confirm that free trade outlets frequently change suppliers to get a better deal from an alternative brewer.

I received a letter from a constituent, Mr. John Moxon, who is involved with the Marsden football club in my constituency. His letter states:
"Six years ago, without any track record, Greenalls brewery had sufficient faith in us to advance a substantial loan to enable us to start up and erect a tastefully furnished clubhouse with full facilities which was then expanded in a similar fashion three years later by further brewery investment. We now enjoy a proud position in the community with great accent on junior football and a family atmosphere second to none in social activities."
He believes that the opportunities to develop clubs in that way will be lost if brewers are no longer allowed to lend money.

Thousands of similar clubs up and down the country would never have got off the ground without the help of breweries and would have found it almost impossible to get a loan from banks, because of the high commercial risk involved and also because, in many cases, there is no collateral for a sports club to offer in return for a loan.

Concern about the issue is not confined to Conservative Members. The hon. Member for Glasgow, Springburn (Mr. Martin) went out of his way to find me and ask me to mention his concern. He is worried about the abolition of loans to rural pubs in Scotland, not to mention employment prospects being threatened in the Tennants brewery in Glasgow.

What is staggering about the report is that it has simply not considered what effects its key proposals will have on the industry; nor has it made any serious comparisons between the United Kingdom brewing industry and brewing industries in other countries. If it had done so, it would have recognised how disastrous its proposals would be. For a start, it would have learnt that the United Kingdom, with over 1,000 beer brands, has infinitely more choice and variety than any other country in the industrialised world and that that is a direct result of the mix of tied and free outlets.

The tie in Australia was abolished 10 years ago, with the direct result that beer prices have increased by 40 per cent. above the retail prices index; two breweries now dominate the market with over 90 per cent. of the market share between them, and the consumption of beer in the home has risen markedly. The fact is that those countries where the brewing industry has no tied outlets are dominated by a few massive companies.

The direct result of the proposals, if implemented, would be the formation of a few large brewing companies, which would then spend massive amounts of money on promoting a few national megabrands. Those promotional activities would in turn ensure that the market share of those national megabrands would increase year after year, so that we would eventually reach the situation that exists in so many other countries. Is that really what the MMC intended?

If my hon. Friend the Minister were to report that the MMC does not intend a free-for-all and that the tie will be continued, albeit in limited form, I would draw his attention to the position in Scotland and Northern Ireland, where there are far fewer tied outlets than in England and Wales and where two breweries dominate the market with over 80 per cent. of the market share.

What I find somewhat ironic is that one of the few companies that is quoted in the report as arguing strongly in favour of the changes suggested, because the tied system is working against it, is Bulmer H. P. Holdings plc, yet without the tied system the brewers would have been wholly unable to break the near-monopoly stranglehold that Bulmer itself had in the 1960s and 1970s, and which it has now lost, to the benefit, I suggest, of all.

I turn briefly to one or two aspects of the report to which I am more favourably inclined. The MMC is keen to see the conditions of tenants improved and that is an area which needs some work. The brewers need to make some concessions in that area. I know that the National Licensed Victuallers Association representing tenants and free landlords is keen to see greater security of tenure and I believe that in the wake of this report it would be appropriate if the Brewers Society sat down with representatives of the tenants to see whether an agreement can be hammered out in relation to some of these issues.

There are one or two lesser aspects of the report with which I agree, but, as one or two of my hon. Friends are pointing to their watches, I shall summarise them briefly. I believe that the MMC report into the supply of beer is fundamentally flawed. It is based on a number of false premises and seems to have been compiled by theoreticians who were determined to arrive at a preconceived set of conclusions regardless of the realities of the industry. If the report's recommendations were implemented, a number of pubs would disappear, the nature of many clubs and pubs would change dramatically and the variety of outlets would be reduced significantly.

The brewing industry in this country provides beer at competitive prices in attractive surroundings which are heavily patronised by consumers up and down the land. It would be ironic indeed if it were a Conservative Government, and this Conservative Government of all Conservative Governments, who meddled in the brewing industry like a good old-fashioned interventionist Socialist Government. We would not be forgiven if we did so meddle and changed the face of the British pub. My advice to my hon. Friend the Minister is very simple and very practical—leave well alone.

1.23 am

The Parliamentary Under-Secretary of State for Corporate Affairs
(Mr. Francis Maude)

I am grateful to my hon. Friend the Member for Colne Valley (Mr. Riddick ) for raising this subject. It has been useful to air some of the issues.

It is important to remind the House of the background to this whole issue. The subject of the supply of beer was referred by the Director General of Fair Trading to the Monopolies and Mergers Commission in 1986. The MMC took two and a half years over its deliberations and investigations and reported to us in February this year. The report is a substantial document which, with appendices, runs to just over 500 pages. The MMC came to a clear conclusion that there was a complex monopoly that restricted competition at all levels.

The MMC set out in considerable detail the detriments to the public interest, which it saw as arising from the lack of effective competition in the supply of beer. It is worth repeating those detriments. It found that consumer choice was restricted, both because one brewer did not allow another brewer's beer to be sold in outlets which the first brewer owned and—perhaps especially important—because of the brewers' efforts to ensure that their brands of cider and soft drinks were sold in their outlets.

The MMC found that the tenant's bargaining position was so much weaker than his landlord's that he was unable fully to meet consumer preferences. In addition, independent manufacturers and wholesalers in beer and other drinks were allowed only limited access to the market. The MMC found that the results were that the price of beer in public houses had been rising much faster than inflation in the past few years; the price of larger was higher than justified by the cost of producing it, and that the variation in wholesale prices between regions was excessive.

The MMC concluded that those were serious public interest detriments. It must surely be clear that the Government cannot simply ignore those findings. Our consistent policy has been to give power to the consumer, and the best way of doing that is to ensure that competitive markets work properly.

In the past couple of weeks we have seen quite an extraordinary campaign conducted through advertising in the national press. That was a campaign that was eventually identified as emanating from the Brewers Society. However, that campaign has not sought to argue through the issues in any thorough sense at all. It has instead been based on assertions and emotive appeals, many of which do not stand up to scrutiny. At least, my hon. Friend has actually put and developed arguments and has not simply relied on bald assertions.

I shall try to deal with some of the points that have arisen. An attempt has been made to create the impression that the entire industry is united in its opposition to the MMC's recommendations, but that is certainly not the case. For example, Friday's trade press quoted one regional brewer as saying:
"The report contains more positives than negatives, and if the big six got their heads out of the sand they'd see that."
The Small Independent Brewers Association came to see me last week to tell me personally of its support for the recommendations. It welcomed the opportunity to compete on more equal terms with the bigger breweries. CAMRA—the Campaign for Real Ale—has told us that it, too, is strongly in favour of the report's recommendations. In addition, the National Licensed Victuallers Association supports the arguments set out in the report for stronger tenants' rights. Well they might do so, because in the past few weeks tenants of a number of major breweries have found themselves served with notice to quit. That is not just hearsay. My Department has received a number of letters from tenants who are seriously concerned about their position.

It is worth recalling that nearly 100 pages out of the 300 that form the body of the report are given over to consideration of the views of the Brewers Society and of individual views. Therefore, brewers' views have been carefully considered.

In its report, the MMC paid tribute to the rigour and thoroughness of the Brewers Society in responding to the MMC's questions and to the society's effectiveness in championing its members' interests. Since the report was published, we have seen in the advertising campaign independent evidence of its willingness to champion vigorously its members' interests. It is sad that the quality of that campaign has not matched the seriousness of the issues which are addressed in the MMC's report.

I understand that it is an expensive campaign, which is costing about £200,000 a day. It would have been cheaper for the Brewers Society if, instead of spending all that money—all of which is paid for by beer drinkers—it had spent a more modest sum in coming to my Department in Victoria street to talk to us about its views. I am pleased to report that today, some seven weeks after the report was published, the Brewers Society, in response to our specific request, has written to us with its views and has accepted that it would be better to meet and to discuss the matter face to face.

We are not wedded to every word of every recommendation that the MMC has made. There may well be consequences of some recommendations that were not previously foreseen. There are many recommendations of different sorts affecting different interests in the industry in different ways. It is unusual to find many people who have expressed views who condemn every aspect of the recommendations, and it is important to recognise that.

Clearly, there is a great deal of scope for discussion and we look forward to taking part in those discussions. I am aware that uncertainty is damaging to the industry and that many employees, tenants and others have been alarmed by some of the assertions made during lobbying. I hope that we can resolve those uncertainties as soon as possible. We want to make decisions before long so that these matters can be resolved, but naturally we have to ensure that those decisions are properly considered. We are keen to hear from anyone who has constructive proposals for better remedies than those which are identified by the MMC. I reiterate what my right hon. and noble Friend the Secretary of State said last week:
"If the brewers don't like the MMC proposals let them come to us with alternative proposals which address the serious public interest issues raised".
I am glad that the Brewers Society is now to do that and I look forward to discussions with it, but let no one be under any misapprehension: in the face of the serious public interest findings, for the Government to do nothing is simply not an option.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes to Two o'clock.