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Public Bill Committee
SMALL BUSINESS, ENTERPRISE
AND EMPLOYMENT BILL
WRITTEN EVIDENCE
PUBLISHED BY AUTHORITY OF THE HOUSE OF COMMONS
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PBC (Bill 011) 2014—2015
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Contents
The Newspaper Society (SB 01)
Mr Robert Feal-Martinez (SB 02)
Equality and Diversity Forum (SB 03)
Forum of Private Business (SB 04)
Association of Colleges (SB 05)
Citizens Advice Scotland (SB 06)
Barry Haigh (SB 07)
Federation of Small Businesses (SB 08)
Greene King (SB 09)
Campaign Against Arms Trade, Friends of the Earth, Greenpeace UK, Jubilee Debt Campaign,
Platform and The Corner House (SB 10)
Independent Family Brewers of Britain (IFBB) (SB 11)
UNISON (SB 12)
Asset Based Finance Association (SB 13)
TUC (SB 14)
Campaign for Real Ale (SB 15)
British Chamber of Commerce (SB 16)
Institute of Directors (SB 17)
British Beer and Pub Association (SB 18)
Association of Convenience Stores (SB 19)
Richard Dunstan (SB 20)
Business Information Providers Association (SB 21)
Society of Independent Brewers (SB 22)
The Law Society (SB 23)
Jordans Trust Company Ltd (SB 24)
Citizens Advice Scotland (SB 25)
National Day Nurseries Association (SB 26)
Association of Licensed Multiple Retailers (SB 27)
Insolvencylist.com (SB 28)
Chartered Institute of Personnel and Development (CIPD) (SB 29)
Enterprise Inns plc (SB 30)
R3 (SB 31)
Admiral Taverns (SB 32)
British Private Equity and Venture Capital Association (SB 33)
Punch Taverns plc (SB 34)
The Quoted Companies Alliance (SB 35)
Local Government Association (SB 36)
Grant Thornton UK (SB 37)
Equiniti David Venus (SB 38)
Association of Professional Staffing Companies (APSCo) (SB 39)
Wilkins Kennedy LLP (SB 40)
National Federation of Roofing Contractors (SB 41)
Robert May (SB 42)
International Financial Centres Forum (SB 43)
Institute of Chartered Accountants for England and Wales (ICAEW) (SB 44)
Royal Institute of Chartered Surveyors (RICS) (SB 45)
Spirit Pub Company PLC (SB 46)
Stephen Beales (SB 47)
The Punch Tenant Network (SB 48)
Shepherd Neame (SB 49)
Fair Pint Campaign (SB 50)
Letter from Mr George Mudie MP to all Chairs of the Bill Committee (SB 51)
The British Exporters Association (BExA) (SB 52)
Carol Ross (SB 53)
Law Society of England and Wales (SB 54)
Finance & Leasing Association (FLA) (SB 55)
Adam Robertson (SB 56)
James Watson (SB 57)
Gareth Epps (SB 58)
Simon Clarke (SB 59)
R3—supplementary evidence (SB 60)
Pre-school Learning Alliance (SB 61)
Justice for Licensees (SB 62)
Mr Ron Piper and Miss E. Piper (SB 63)
Fair Pint Campaign—supplementary (SB 64)
Paul Crossman (SB 65)
Luke Howell (SB 66)
Public Concern at Work (PCaW) (SB 67)
Charity Law Association (SB 68)
Alan Yorke (SB 69)
David Morgan (SB 70)
AGMA (SB 71)
The Punch Tenant Network—supplementary (SB 72)
The Punch Tenant Network—supplementary (SB 73)
Federation of Licensed Victuallers Associations (SB 74)
J Mark Dodds (SB 75)
Dr N. Orkun Akseli (SB 76)
Paul Davies (SB 77)
Ms R Gresham (SB 78)
Bates Wells Braithwaite (SB 79)
Hilton-Baird Financial Solutions (SB 80)
Institute of Chartered Accountants of Scotland (SB 81)
Reading Borough Council (SB 82)
Punch Taverns plc-supplementary (SB 83)
Minister for Employment Relations and Consumer Affairs and Minsiter for Women and
Equalities (SB 84)
Small Business, Enterprise and Employment Bill: Written evidence 3
Written evidence
Written evidence submitted by The Newspaper Society (SB 01)
I am writing on behalf of the Newspaper Society and the Newspaper Publishers Association to bring forward
some concerns about Parts 7 and 8 of the Small Business, Enterprise and Employment Bill which received its
second reading on 16 July 2014.
1. The Newspaper Society represents regional and local news media companies which publish around 1100
local newspapers, read by 30 million people a week, together with 1700 local media websites, attracting 79
million unique users each month and ever developing digital information services. The Newspaper Publishers
Association represents the national print media. The members of both organisations take their responsibilities
to report accurately and responsibly seriously, and to that end oppose any legislative measures which inhibit
access to publicly held information.
2. In broad terms, our members welcome the provisions contained in Part 7 of the Bill relating to transparency
and the new provisions requiring UK companies to keep a register of people with significant control over the
company. Our concerns are in relation to Clause 3 of Part 7 (laid out in Schedule 3 to the Bill) and specifically
the proposed amendments to s790ZE and s790ZF of the Companies Act 2006. These provisions provide that the
residential address and full date of birth of those with significant control over the company should not be made
available for inspection. As your explanatory notes make clear at paragraph 380 this information is necessary
for the unique identification of individuals in the vast majority of cases. Similar provisions are contained in Part
8 Clause 84, which provides for the full of date of birth of directors to be withheld from the public.
3. These provisions will seriously impede public scrutiny of business matters. The purpose of a publicly
available register of directors, and the proposed new public register of people with significant control over the
company, is to enable the public, via the media where necessary, to discover who runs and controls the business
affairs of organisations. Their aim is not just to contribute to transparency and facilitate public scrutiny, but
also to maintain probity. By withholding the address and full date of birth of individuals this aim is wholly
subverted. Our members will be deprived of the ability to verify the identity of individuals to assist them in
their detection, investigation and reporting of issues of legitimate public concern, and to report these issues
identifying the individuals concerned with adequate specificity to avoid the accidental defamation of others
with the same name. (In the same way that the law recognises that publication of address and age in court
reports are necessary and our members are careful ensure their inclusion to ensure that defendants are not
confused with individuals of the same name.) The local and regional press in particular play a large role in
protecting its readers by revealing dishonest, fraudulent or otherwise misleading or untrustworthy conduct
by business, and by exposing phoenix companies. The exposure of Phoenix companies cannot be done if the
journalist cannot access anything other than the name of the director or person with significant control. Unique
identifiers are also required. These facilitate financial, business and consumer journalism. We would strongly
urge you to reconsider these provisions on public policy grounds.
4. Our second area of concern relates to Schedule 3 of the Bill and the proposed amendments to sections
790O and 790R of the Bill. These provisions require any person who wants to inspect a company’s PSC register
to make an application specifying the reason why they wish to see register and the use which will be made of
the information, and impose criminal penalties on anyone using such information for any other purpose or
disclosing the information to any third party. As drafted, these provisions could prevent a newspaper from
publishing a series of articles over a period of time relating to a company and its ownership without applying
on each separate occasion to inspect the register and giving the company advance notice of the nature of the
article it proposes to publish. This is both time consuming and unnecessarily bureaucratic but also carries a
high risk that our members will be declined permission to use the information in the register for a contentious
expose (which information may already be well known to the member because of an earlier inspection of the
register for a different article). We would respectfully suggest that this section, if it operates in this way, would
be contrary to our members’ article 10 rights to freedom of expression and would create the famous “chilling
effect” on publication of stories in the public interest. We would therefore suggest that a journalistic exemption
to these two sections is required.
5. The NS therefore hopes that the government will reconsider these parts of the proposed Bill to remove
these obstacles to the open reporting of business and commercial matters by the media.
July 2014
Written evidence submitted by Robert Feal-Martinez (SB 02)
Pubs Statutory Code of Practice
Bio: My name is Robert Feal-Martinez, I recently retired as a front line licensee after over 27 years. During
that time I have been a Manager, Tenant, Lessee and Consultant.
4 Small Business, Enterprise and Employment Bill: Written evidence
In addition to this I am a former BII Regional Secretary, during which time I undertook consultations with
Local Authorities on the Licensing Act, Smoking Ban and other industry specific issues. I am a qualified Trainer
and Assessor.
I was founding Chairman of Freedom to Choose, a pro-choice group against the imposition of the smoking
ban. I am totally against non-evidenced or false evidence based Legislation.
I have spent many years ‘fighting’ the pubco’s and have assisted other lessee’s and licensees both as a BII
Secretary and on my own account. I am well known by the pubco’s for my outspoken comments about their
activities and am fully aware that they need to change.
Having said that you may well be surprised as to my views expressed in this document:
Part 4:
1.(a) The Government has decided there is a need for such an Adjudicator but it is unclear whether this will
be in parallel with PIRRS, PICAS and the PGB. I believe that from a slow start the aforementioned bodies are
starting to have an effect on the attitude of the pub companies. It is unfortunate that a lot of misinformation has
been presented to BIS, and has been believed, when a little investigation reveals in most cases a totally different
story. That is not to say there are genuine cases. However the ones hitting the media are not all they seem.
(b) There have been personal attacks of a quite relentless nature against those expressing alternatives views
to that of certain MP’s and anti pubco campaigners. Many of us believe such attacks led to the untimely death
of Bernard Brindley, the then Chair of the PGB.
(c) The Adjudicator in my view should be a place of very last resort in so far as a specific complaint against
a pubco is concerned, complainants should not be allowed to ‘drip feed’ the Adjudicator. Any complaint should
have properly passed through the PGB before being subject to further Adjudication. Any appeal against the
Adjudicator should be about process, not the complaint itself.
(d) I would suggest a realistic time limit be placed on the conflict resolution process prior to going to the
PGB, with independent mediation as part of the process, something that can resolve disputes (I have undertaken
a number of such cases that had been deadlocked involving the big Pubco’s, acting primarily for the tenant, but
from an objective view point).
2.(a) It has always been my view that rather than the very ‘messy’ current system of Lease Agreements
and Codes of practice where a breach of the Codes is not by law a breach of the Lease is neither practical or
sensible, the Code should be incorporated as part of the lease and thus will provide Civil remedy. Of course
the Code would necessarily apply to both parties unlike now where it only applies to the Pubco’s conduct.
Evidence of failed Civil litigation should be a factor considered before referral to the Adjudicator, especially
if the PGB etal concur with the litigation outcome, as we saw in one such case referred to the BIS committee
(b) One major complaint from the anti pubco campaigners I agree with to a degree is the lack of openness in
the current PGB process in so far as the detail of decision process. It has to be said that the rules of the process
are clear, but perhaps they need to be changed to allow the Committee full disclosure on public media criticism
by either party.
(c) What we have seen to date is lessee’s going to the press with ‘their side of the story (usually relaid to
MP’s)’ in the full knowledge the Pubco won’t comment on individual cases and the PGB can’t.
3.(a) Campaigners have called for what has been known as the Primary Principle (PP), parity between non
and tied pubs together with a Market Rent Option (MRO). Frankly neither of these options would be fair or
equitable with the current crop of lessee’s and leases.
(b) In my view the reasons should be quite clear. Lessee A takes on a free of tie lease at a higher rent to
reflect the lack of tie. Lessee B on the other hand takes on a tied lease with a lower rent, in the full knowledge
they will pay more for their beer. It has become common to describe this as Wet and Dry rent which adds
further distortion and confusion. The wet rent is not rent at all it is cost of sales, the lessee should adapt his
sale price to account for the greater purchase price to achieve the appropriate gross profit margin to allow the
business to be profitable.
(c) To simply say as the PP does, that tied lessee’s should be no worse of than free of tie lessee’s ignores
the myriad of factors affecting profitability, and the unfairness of changing the tied lessee’s terms because they
don’t like the deal they signed, bluntly would they be asking for such a change if they were out performing
all the other free of tie pubs in the area. Indeed on the PP basis free of tied pubs could request an arbitration
because another free of tie pub was making more money.
(d) The MRO is also an impossible thing to deliver as a collective formula on rents, I have asked those who
advocate this, some experienced surveyors and accountants how this could be achieved in the large number
clearly that would be required and they cannot tell me and suspect they couldn’t tell BIS either. There is simply
no like for like with pubs, except of course perhaps concept estates which are usually managed anyway, but
even they would likely have different cost bases across the country.
Small Business, Enterprise and Employment Bill: Written evidence 5
4.(a) I also believe it would be counterproductive and a disaster for the smaller brewers who operate merely
tied tenancies to be included in the Statutory Code. Their margins and profitability are volatile and any increase
in base overhead would likely close pubs or worse still close breweries, like wise expecting the brewers to offer
a guest provision which would likely be the breweries bestselling lager, such as Carling or Fosters. I know from
personal experience when a Unique tenant I opted for my best selling cask beer as my guest ale, coming on the
same dray but directly invoiced by Courage. Unique did not like that at all.
(b) It also has to be said that in all my 27 years in the Industry I have heard just a handful of complaints
either from brewers or tenants about misconduct either way. Where there have been the odd genuine issue it has
been resolved without a lengthy and expensive process.
(c) In short there is no justification for including genuine small brewers in this process.
In conclusion, as I have intimated I do not see a valid reason for the introduction of the Adjudicator at this
time. It would be my contention that the legislation should be put in place with a delayed date to be decided by
the Secretary of State if after a real trial of the PGB process is shown to be really failing subject of course to
my observations in 2b being implemented.
Finally the Government has got to search it’s conscience as to whether it is their role to interfere with the
free market at the behest of one side of a so called ‘Business Partnership’, when the OFT and the EC have
consistently decided the market is not being foreclosed to the detriment of the consumer at large, and as one of
those consumers I have to say choice is certainly not a problem, even in Scotland where I now live.
What would happen next, McDonald’s franchise holders wanting sell Burger King products.
Thank you for taking the time to read this. I have always wanted fairness in my industry, but granting what
some campaigners want, I believe would be a disaster leading to more job loses and pub closures. That mustn’t
be the outcome, we have lost over ten thousand in seven years. I am happy to further respond should you have
any specific questions.
July 2014
Written evidence submitted by the Equality and Diversity Forum (SB 03)
1. The Equality and Diversity Forum (EDF) is a network of national organisations committed to equal
opportunities, social justice, good community relations, respect for human rights andan end todiscrimination
based on age, disability, gender and gender identity, race, religionor belief, and sexual orientation. Further
information about our work is available at www.edf.org.uk and a list of our members is attached. Our member
organisations represent people who have any or all of the characteristics protected in the Equality Act 2010 and
one of our key concerns is that each should have access to equal rights of access to justice regardless of their
age, disability, gender and gender identity, race, religionor belief, and sexual orientation (unless there is a good
reason why this is not appropriate).
Executive Summary
2. We have commented on only a small number of the Bill’s clauses. In particular—
—— The EDF supports procurement measures that will assist small and medium sized enterprises in
obtaining procurement contracts.
—— The EDF recognizes that non-payment of Employment Tribunal awards is a substantial problem for
successful applicants, however, we question whether the proposed provisions will assist the 35% of
Applicants who receive no payment of their award at all. We suggest that enforcement of awards could
be secured through Her Majesty’s Revenue and Customs (HMRC) as we consider that would result in
a much better rate of collection.
—— The EDF welcomes the introduction of increased financial penalties for underpayment of the National
Minimum Wage (NMW), however, we regret that there is a very low level of enforcement of breaches
of the NMW legislation.
—— The EDF welcomes this prohibition of exclusivity clauses in zero hours contracts as a first step to
tackling the problems that such contracts create for the most vulnerable members of the workforce.
However, we consider that they should be given guaranteed working hours no matter how limited
these will be.
Clause 33—Procurement
3. This clause enables the Government to make regulations, under the negative resolution procedure, placing
duties on contracting authorities as to how they conduct public procurement. In particular, the regulations could
impose duties to make procurement documents available for free, to accept electronic invoices, to run efficient
and timely procurement processes, and to engage with potential suppliers in certain ways. This last requirement
might be used, for example, to ban the use of pre-qualification questionnaires for low value contracts and
standardise them for higher value contracts.
6 Small Business, Enterprise and Employment Bill: Written evidence
4. The EDF welcomes any procurement measure that will assist small and medium sized enterprises in
obtaining procurement contracts.
Clause 136—Non-payment of Employment Tribunal Awards
5. This clause will allow the imposition of a financial penalty on respondents who have not paid Employment
Tribunal awards its aim is to encourage compliance with their rulings and the prompt payment of awards.
The provisions will also cover non-payment of sums owed in settlement agreements reached following ACAS
conciliation.
6. The problem of non-payment of Employment Tribunal awards has been widely recognized by Government
surveys.1 For instance a recent BIS study2 found that:
49% of claimants who had been granted an award by an employment tribunal had been paid this
award in full, and a further 16% had been paid in part. This amounts to 64% of all claimants, and
leaves more than a third who had not received any money at all, even after in some cases enforcement
action was taken.
7. Research by Citizens Advice has also confirmed that the non-payment of awards is a very significant
problem
—— one third of people [applicants] never see any of their money. Only half actually receive full payment.
—— the most common reason for non-payment of awards is employer insolvency; however over half of the
claimants giving this as a reason believed that the company was in fact trading again under a different
name or at a different location.3
8. The risk of failure to secure payment of awards affects decisions to litigate in the first place. This is
because applicants to the employment tribunal now have to pay a fee to lodge their application and again
before a hearing. If they obtain an award which is then not paid they will be doubly out of pocket. Citizen’s
Advice has commented—
As of 29 July 2013, claimants to employment tribunals are subject to issue and hearing fees of £390
for relatively simple claims (e.g. unpaid wages or holiday pay) and £1,200 for all other claims…
These are substantial sums of money for anyone, let alone for low paid workers who are generally
at greater risk of unfair practices… Where people do manage to pay them however, there must be an
even greater obligation on the system to deliver, as far as possible, a genuinely meaningful outcome.
To achieve this, there must be action to improve the initial rate of compliance with awards by
employers, and an effective system of enforcement when the compensation ordered by the tribunal is
not forthcoming. Otherwise, employees seeking justice through the tribunal system will simply end up
worse off than they were before, and the reputation of the tribunal system as a credible corrective of
bad employer behaviour, in ever greater shreds. The problem for a significant proportion of applicants
is that employers disappear or go into liquidation—an extra fine is likely to be meaningless in this
context.4
9. Moreover enforcement of an Employment Tribunal award is itself costly. There is a further £40 fee for
the County Court to enforce the payment of the award or a £60 fee for the Employment Tribunal Fast Track
Enforcement Scheme for the High Court to enforce the award.
10. EDF considers that a hard pressed applicant who has already paid the Employment Tribunal fees should
not have to meet enforcement charges as well.
11. EDF considers the non-payment of awards is therefore a real and substantial problem in securing real
justice in cases which are well founded. It therefore welcomes the Government’s recognition of the need to
address this problem.
12. Nevertheless the proposed mechanism for dealing with this problem does need deeper consideration. The
new Bill proposes fines, however if the award cannot be collected we would question the likelihood of a fine
being collected or the prospect of a fine having a deterrent effect.
13. An amelioration of this problem that would certainly provide some help to successful applicants would
be for the Employment Tribunal Service to repay the fees paid to the applicant where a respondent fails to pay
the award within a fixed period.
14. Additionally, if enforcement of awards could be secured through Her Majesty’s Revenue and Customs
(HMRC) we believe that would result in a much better rate of collection. HMRC has enforcement officers
both for the National Minimum Wage and to collect tax debt. Their responsibilities could be widened to
MoJ, Research into enforcement of employment tribunal awards in England and Wales, May 2009, BIS, Payment of Tribunal
Awards—2013 Study—IFF Research, 2013 at https://www.gov.uk/government/uploads/system/uploads/attachment_data/
file/253558/bis–13–1270-enforcement-of-tribunal-awards.pdf
2 BIS, Payment of Tribunal Awards—2013 Study—IFF Research, 2013
3 Cost of a hollow victory, CAB, November 2013, at http://www.citizensadvice.org.uk/index/policy/policy_publications/er_
employment/the_cost_of_a_hollow_victory.htm
4 Ibid, p 6-7.
1 Small Business, Enterprise and Employment Bill: Written evidence 7
cover enforcement of Employment Tribunal awards, with the associated costs being also recoverable from the
recalcitrant unsuccessful respondent to the litigation.
15. HMRC are not only likely to hold information on a company’s tax position which could assist in
establishing viable assets, but may also be chasing the same company for tax debts, so could add the unpaid
award to this recovery.
16. Overall while EDF welcomes the intention behind this clause it considers that real work is needed in
Parliament to make it truly effective and appropriate.
Clause 138—National Minimum Wage abuses
17. This clause sets maximum financial penalties for the underpayment of the National Minimum Wage
(NMW) on a per worker basis; thus the more workers that have been underpaid the greater is the maximum
penalty. It also provides that this maximum figure can be amended by secondary legislation.
18. The EDF supports these provisions as a progressive measure that fits the enforcement to the circumstance
of the default in a proportionate manner.
19. It can be forgotten how serious it is for those on low incomes to be properly paid but it should not be. In
1909 Sir Winston Churchill said—
It is a serious national evil that any class of His Majesty’s subjects should receive less than a living
wage in return for their utmost exertions… where you have what we call sweated trades, you have no
organisation, no parity of bargaining, the good employer is undercut by the bad and the bad by the
worst; the worker, whose whole livelihood depends upon the industry, is undersold by the worker who
only takes up the trade as a second string… where these conditions prevail you have not a condition
of progress, but a condition of progressive degeneration.5
This is no less true now than it was in 1909 when Parliament was discussing the Trade Boards Bill.
20. Moreover the NMW is particularly important for women, ethnic minorities and disabled people. Women
constitute two-thirds of those on low pay; unsurprisingly it has been estimated that the introduction of a UK
living wage would disproportionately benefit low paid women.6 Low pay is also closely linked to the poverty
experienced by ethnic minority groups.7 Additionally, disabled people are less likely to be working and more
likely to be low paid when compared to a non-disabled person with the same level of qualification.8
21. EDF therefore welcomes the introduction of increased financial penalties for underpayment of the NMW.
22. However the proposed changes are less than what is necessary. EDF is well aware that there is a very
low level of enforcement of breaches of the NMW legislation. Unless this is really improved some employers
will continue to underpay, believing that the risk of being caught out is so low as to be acceptable.9 It is not fair
to those employers who pay the NMW if, for want of proper resources to ensure the regulation of the NMW
they are undercut by unscrupulous employers. Lack of enforcement resources must be addressed to ensure that
the NMW means what is says and is truly ‘national’ and a ‘minimum’ wage.
Clause 139—Zero hours contracts
23. This clause will make exclusivity clauses unenforceable in zero hours’ contracts (ZHC). It will enable
all workers on these contracts whose current employers are unable to offer them enough work, to boost their
income by working elsewhere.
24. There has been a significant increase in the use of ZHC in the last 10 years and they have spread into
an increasing number of different sectors. It has been difficult to obtain reliable information about this, and the
resulting statistics have painted a widely variable picture.
25. In 2012, the Office of National Statistics estimated that there were 250,000 zero-hours workers,
(representing 0.7 per cent of the workforce), compared with 134,000 in 2006 (0.5 per cent of the workforce).
Hansard Series 5, Vol 4, col 388, 28 April 1909 at http://hansard.millbanksystems.com/commons/1909/apr/28/trade-boards-bill .
See Fawcett Society (2013) The changing labour market: delivering for women, delivering for growth’. April. Available at http://
www.fawcettsociety.org.uk/wp-content/uploads/2013/04/Fawcett-The-changing-labour-market.pdf
7 See, for example, Palmer, G. and Kenway, P. (2007) Poverty among ethnic minority groups: how and why does it differ? York:
Joseph Rowntree Foundation. Available at: http://www.jrf.org.uk/sites/files/jrf/2042-ethnicity-relative-poverty.pdf
8 New Policy Institute Report on Disability, Long-term Conditions and Poverty, Tom MacInnes, Adam Tinson, Goretti Horgan, Ben
Baumberg, Declan Gaffney, 15th Jul 2014, at http://npi.org.uk/publications/income-and-poverty/disability-long-term-conditionsand-poverty/#sthash.J4xfytqG.dpuf
9 Across all sectors, only two employers have been prosecuted for non-payment of the National Minimum Wage since 2010. This
is despite the fact that 700 penalties have been issued in the same period. See All-Party Parliamentary Group on Migration (2014)
‘How can we ensure a level playing field for all workers?’ APPG Migration Briefing at http://www.appgmigration.org.uk/sites/
default/files/Briefing%20Paper%201.pdf
5 6 8 Small Business, Enterprise and Employment Bill: Written evidence
26. However, it is widely recognised that these official statistics do not reflect the full extent of current zero
hours working in the UK.10 This reflects the precarious nature of this class of employment where flexibility is
so great that many relationships are barely visible to the authorities.
—— In July 2013 Norman Lamb, the Minister for Public Health revealed his Department’s analysis that
there are more than 300,000 zero-hours contracts workers in social care alone.11 This figure represents
at least one in five of all workers in the sector.
—— A report from the Chartered Institute of Personnel Development (CIPD) estimated in a report in
November 2013 that there are just over 1 million zero-hours contract workers. This amounts to some
3.1 % of the UK workforce, being four times the ONS’s estimate; CIPD found that nearly a quarter
(23%) of all employers use ZHCs.12
27. While it is clear that this reflects a huge amount of uncertainty for workers and the degree to which
flexible working has been embraced by employers as a tool of modern employment cost management it is not
clear how many of these contracts have the exclusivity clauses that this new clause proposes to address. EDF
cannot therefore estimate how many people might benefit from this new clause.
28. Yet any protective measure is to be welcomed. Thus it is known that ZHCs are often used for women,
ethnic minorities and young people—some of the most vulnerable people in the workforce.
29. The Office for National Statistics have found that—
Looking at the types of people employed on ‘zero-hours contracts’, the Labour Force Survey shows
that they are more likely to be women, in full-time education or in young (16–24) or older (65 and
over) age groups, perhaps reflecting a tendency to combine flexible working with education or
working beyond state retirement age.13
30. Whilst a minority of people do choose this type of employment because it suits their way of life, most
do not, and for them it is the only work available. This type of employment often means that those working on
ZHCs are poorly paid, have no regular income, find it impossible to plan ahead and are at risk of exploitation.
31. Accordingly the EDF welcomes the proposed prohibition of exclusivity clauses as a first step—but only
a first step—to tackling the problems that ZHCs create for the most vulnerable members of the workforce.
32. The EDF welcomes this prohibition of exclusivity clauses as a first step to tackling the problems that
zero hours contracts create for the most vulnerable members of the workforce. However, we consider that they
should be given guaranteed working hours no matter how limited these will be.
33. Such an approach would not make part-time employment any less common but would make the
relationship between those who are dependent on it and those who offer it less one sided.
August 2014
Annex
Equality and Diversity Forum members
Action on Hearing Loss
Age UK
British Humanist Association
British Institute of Human Rights
Children’s Rights Alliance for England (CRAE)
Citizens Advice
Disability Rights UK
Discrimination Law Association
End Violence Against Women Coalition
Equality Challenge Unit
EREN—The English Regions Equality and Human Rights Network
Fawcett Society
Friends, Families and Travellers
Gender Identity Research and Education Society (GIRES)
CIPD Zero-hours contracts: Myth and reality. Research Report, November 2013; Ian Brinkley (2013) Flexibility or Insecurity?
Exploring the rise in zero-hours contracts. The Work Foundation August 2013
11 These statistics, provided in a written response to a Parliamentary Question are based on Skills for Care workforce estimates.
12 CIPD Zero-hours contracts: Myth and reality. Research Report, November 2013
13 http://www.ons.gov.uk/ons/rel/lmac/contracts-with-no-guaranteed-hours/zero-hours-contracts/art-zero-hours.html
10 Small Business, Enterprise and Employment Bill: Written evidence 9
JUSTICE
Law Centres Network
Mind
National AIDS Trust
National Alliance of Women’s Organisations (NAWO)
Press for Change
Race on the Agenda (ROTA)
RNIB
Runnymede Trust
Scope
Stonewall
The Age and Employment Network (TAEN)
Trades Union Congress (TUC)
UKREN (UK Race in Europe Network)
UNISON
Women’s Budget Group
Women’s Resource Centre
Other signatories to this briefing
Inclusion London
British Muslims for Secular Democracy
August 2014
Written evidence submitted by the Forum of Private Business (SB 04)
1. This evidence is submitted from the Forum of Private Business. The Forum of Private Business is a
business membership organisation. Members are small, private sector employers.
2. All figures in this response, unless otherwise stated, come from Forum of Private Business research. We
are happy to support this submission with oral evidence.
Summary
3. The Forum of Private Business broadly welcomes clauses in the bill that support better cash flow for
small businesses: a reporting requirement to create more transparency in payment terms and times of large
companies; the opening of business data to other financial lenders subject to relevant safeguards; regulations
to support new ways of paying in cheques. Whilst there is support for businesses being directed to alternative
sources of finance beyond banks, such a redirection should be offered prior to, not after, rejection by the
bank. The Forum of Private Business feels the Bill can go further in the area of late payment, specifically by
amending the law to faithfully transpose the 2011 EU Late Payment Directive.
4. Given the largely disappointing content of the Deregulation Bill, the Forum of Private Business is pleased
to see stronger measures around the structure of regulation creation and enforcement in this Bill. There is
strong support for a review of business appeals procedures and a definition of micro businesses. Business
Impact Targets, whilst useful, need to be strengthened to take account of the impact of the frequency of change
of legislation, rather than just their strict monetary value. Further, EU legislation should be included in such
targets. The Forum of Private Business also has concerns that a single click registration process at Companies
House, whilst desirable, may exacerbate the issue that Companies House is not subject to the same due
diligence procedures as registration agents in the private sector.
5. The Forum of Private Business welcomes clauses that encourage e-Invoicing in the public sector and
the automatic paying of interest on late payment to procurers. This needs to be passed down the supply chain.
Putting the Mystery Shopper scheme on a statutory footing is a positive move, though clarity is needed as to
why there are restrictions on the public sector bodies to which this applies.
6. The Forum of Private Business welcomes a Pubs Adjudicator and pub code but feels the government
could go further to protect tied tenants.
10 Small Business, Enterprise and Employment Bill: Written evidence
7. The over use of zero hour contracts by large companies has overshadowed the more proportionate
and appropriate use of them by small businesses. Whilst there are few legitimate reasons for maintaining
‘exclusivity’ in these contracts, businesses should have the option of applying it where it can be justified.
Part 1: Access to Finance
Clause 3: Companies: duty to publish report on payment practices.
8. BACs report £46.1bn is now tied up in late payment, of which nearly £40bn is outstanding to small
businesses. Forum of Private Business research illustrates late payment is having a significant impact on
business development, productivity and growth. Access to finance, cost of finance and credit trade insurance
were all cited by business as problems linked to late payment. Late payments are also having a knock on effect;
77% of businesses reported that being paid late led, in turn, to them failing to pay their suppliers on time.
9. Late payment remains a significant issue for businesses. This Bill seeks to give the Secretary of State
a power to force larger companies to publish payment terms and times. Such publication must be done in a
transparent, clearly referenced and consistent manner to ensure it is useful.
10. As an example, in the last 12 months, Marks and Spencer extended payment times to some suppliers
to 75 days in order to bring their terms in line with the ‘industry average’. The Forum of Private Business
immediately challenged their status on the Prompt Payment Code. The company was unable to explain to what
industry average they were referring and how it was calculated. The Forum of Private Business believes that a
reporting requirement on payment times will mean larger companies are forced to better justify their payment
practices to their suppliers, customers and shareholders.
11. In addition to having companies provide a standardised form of payment terms and times, the Bill should
prescribe a central database into which such data is entered. This can collate averages across different sectors
and remove the rather oblique justifications often given for extending payment times.
12. However, more needs to be done to tackle late payment. In responding to the Government’s discussion
paper in January the Forum of Private Business stopped short of calling for legislation on maximum payment
terms, but did request the government fulfil what we believe is its obligation under Article 7 of the 2011 EU
Late Payment Directive to put in place a mechanism that allows businesses to maintain their anonymity when
challenging ‘grossly unfair’ practices. It is our understanding that the ability to challenge ‘grossly unfair’ is not
yet in law and therefore cannot be used to challenge companies.
13. Discussions with the Department for Business, Innovation and Skills suggest there is concern at a lack
of evidence base to grant the power to business representatives to take larger companies to court on behalf
of their members. We believe the evidence base is irrelevant in this case, given the cases could be taken on a
single member basis, should they wish a body to represent them anonymously in challenging what is believed
as ‘grossly unfair’ practice by a customer.
Clauses 4 and 5: Provision of credit information on small and medium sized businesses
14. Small businesses are reporting a more confident outlook in 2014, with many looking to employ or
increase hours this year. For the first time since 2008, private sector employers report time, not cost, as their
biggest barrier to growth. Nevertheless, the issue of credit remains high on their agenda.
15. The past financial performance of business is often a critical piece of information for lending but whilst
the existing lender has that history, competitors have a more limited amount of information. This provides
an advantage to the incumbent lender. It remains the case that 80% of term lending to UK SMEs is by the
incumbent bank.
16. We support the proposals as they stand in the Bill to widen access to this with express permission of the
business. The Forum of Private Business believes the power should lie with the borrower, not the bank or an
intermediary, in deciding where they want to seek finance and who can access a credit history.
Clause 11: Electronic paying in of cheques
17. Small businesses welcome changes that make it easier to pay and be paid and the Forum of Private
Business supports changes to allow the electronic paying in of cheques, which retains the payment mechanism
for those that still value it whilst adapting it to those that want quicker and more convenient methods of
payment.
18. Cheque imaging must add to, not reduce, options for customers in how they transact. Small businesses in
particular can receive a large volume of cheques for which Smartphone technology might not be an appropriate
substitute for the convenience of local branch scanning. Businesses are not likely to support any proposal that
could lead to the closure of more branches. Against a backdrop of declining bank branches government must be
vigilant that more are not closed as automation attains wider use amongst customers.
Small Business, Enterprise and Employment Bill: Written evidence 11
Unnumbered clause: Signposting businesses to alternative sources of finance
19. The latest research from the Forum of Private Business suggested that 18% of businesses would consider
using an alternative lender to replace their current banking services. A larger proportion (27%) would consider
alternative providers to supplement their existing finance provision. Whilst the number of businesses using
alternative providers of finance is growing steadily, there remain some significant awareness and cultural
barriers.
20. The Forum of Private Business supports a mandatory process for banks to offer a matching service to
small businesses but not automatic enrolment within it. Such automation may cause issues for businesses if a)
they are already going through the relevant bank’s appeal process or b) the business might be clear following
the application refusal that they are not currently in a state of financial readiness. This might mean exposure
to other lending platforms would provide similarly negative outcomes, either discouraging a business from
seeking future finance or potentially damaging future applications. The Forum of Private Business believes
there is a case for referring businesses to alternative providers but it must be a conscious choice following a
clear set of reasons for refusal from a bank, or prior to a bank’s formal consideration of a funding request.
21. The Forum of Private Business believes a better situation would see relationship managers give
an indicative idea of whether a bank will fund and then, where necessary, refer the business instead to an
alternative lender first, so that a bank credit check process does not pointlessly damage a business’ opportunity
to obtain finance.
Part 2: Regulatory Reform
Clause 13: Target for streamlined company registration
22. A proposed single electronic registration to both form a company and register with HMRC for tax
purposes through a ‘single click’ is to be welcomed. However, the Forum of Private Business is concerned that
the private sector does not benefit from such a simplification. It is likely to drive more businesses to register
through Companies House.
23. The Forum of Private Business has raised concerns in the past that registration through Companies
House, whilst easy, means businesses do not go through all the relevant checks enforced upon registration
agents in the private sector. In order to fully support this proposal we would wish either that Companies House
fulfils all the regulatory requirements undertaken by the private sector or that those same regulations are lifted
from the private sector. The latter is undesirable but whilst this mismatch remains government is benefitting
from an uneven playing field, undercutting private sector provision.
24. The Forum of Private Business recommends that the Association of Company Registration Agents is
invited to give further evidence on this clause.
Clauses 15–17: Review of business appeals procedure
25. The Forum of Private Business welcomes support and clarity around business challenge to regulators.
Nevertheless, a fear will remain that should challenges be made, the business might be subjected to an increased
level of assessment. The government should ensure that current consideration of proposals to share information
between regulators should specifically exclude whether a business has challenged regulators in the past.
Clauses 18–24: Business impact targets
26. In 2013 the Forum of Private Business found the cost of compliance for all businesses was £18.2bn,
equating to £14,800 per small business (£9,200 in internal costs, £5,600 in external costs). Major costs are
health and safety (3.7bn), employment law (4.7bn) and tax compliance (6.0bn).
27. The Coalition Government intends to be the first government in history to reduce—not increase—the
burden of regulation. Measures to tackle the regulatory stock (Red Tape Challenge, One in Two Out), together
with changes to the regulatory flow (Regulatory Policy Committee and Growth Duty), mean that in terms of
sheer volume of regulation the Government is likely to meet that objective. Putting legislative commitments
into statute is an important step for accountability and the Forum of Private Business supports the proposal,
with some caveats.
28. The cost of compliance reported to the Forum of Private Business by its members continues to rise and
there is a difference between government deregulation and impact at the shop floor. All governments must
understand that part of the regulatory impact comes not from the size of regulations, or their enforcement, but
their frequency of change.
29. In order to better reflect this, the Forum of Private Business proposes that targets take account of
regulations not just in financial ‘in’ and ‘out’ values but introduces stronger safeguards against the continuous
changes experienced in certain areas of law. For example, parental leave has changed on average every 18
months since 2004. Each time employment law changes, small businesses need to understand the rules. The
constant state of flux of employment law is often a disincentive to train staff and leads to expensive outsourcing
for advice. Where many changes are EU driven, too little consideration is given by government in introducing
domestic reforms at the same time, increasing the frequency of change. The proposal is that government should
12 Small Business, Enterprise and Employment Bill: Written evidence
be legally restricted to legislate on employment law just once during a parliamentary term. Should further
changes be needed outside of that allowance, it would require approval by the independent body to be created
in the Bill.
30. A second amendment to the Bill should be to include EU legislation in targets. This would ensure
governments are aware of the whole impact of regulation on business, not just domestic sources.
Clause 30: Definitions of small and micro business
31. The Forum of Private Business welcomes a statutory definition of micro businesses. This will align
government policy across different departments and simplify which laws and protections apply to which size
of business.
Part 3: Public Sector Procurement
Clause 33: Regulations about procurement
32. The Forum of Private Business welcomes the measures that will see procurers to the public sector have
interest paid on late invoices automatically. This is an important step in wider use of powers under the EU Late
Payment of Commercial Debts Directive.
33. The Forum also welcomes steps towards the adoption of e-Invoicing in the public sector.
Clause 34: Investigation of Procurement functions
34. The Forum of Private Business welcomes the strengthening of the Mystery Shopper scheme, which has
been highly useful for smaller businesses in raising examples of poor procurement practices. Clarity is needed
as to why government departments do not qualify for this clause.
Part 4: The Pubs Code Adjudicator and the Pubs Code
Clause 35–63: The Adjudicator and the Pubs Code
35. The Business Select Committee have done four reports into the issue of tied tenants over eight years. All
concluded that abuse of the tie was taking place and that the solution is the market rent only option.
36. The British Beer and Pub Association figures show that over ten years non-managed pubs decreased by
over 8,000 whilst the free trade sector actually expanded by 1,600.
37. The Groceries Code Adjudicator has worked well for in the grocery sector and with some tied tenants in
need of protection a Pubs Code Adjudicator will help the sector.
38. As a member of the Fair Deal for Your Local campaign coalition, the Forum of Private Business believes
that tied tenants should be no worse off than non-tied tenants. The position of the Fair Deal for Your Local
campaign is that the legislation is a good first step but could go further. Tied tenants should have a free-of-tie
option and access to a Market Rent Only option that would see a fairer assessed market rent. That the average
tied rent is higher than the average rent for free of tie pubs is bad enough but when coupled with a beer tie at
artificially high prices, many tenants continue to go out of business.
Part 7: Companies: Transparency
Clauses 70–71: Register of people with significant control
39. The only concerns with these clauses are that they may impose additional costs on private sector
company registrars which are themselves often small businesses. These costs may of course be passed on to
clients, however, that is likely to drive more business towards the government’s own Companies House service.
There is potential here for uncompetitive practice here in imposing such costs on the private sector.
Clauses 76–77: Corporate Directors
40. There is currently no requirement that any of the directors should be within the jurisdiction in which the
company is registered. The Forum of Private Business suggests the committee might consider this point by
inviting the Association of Company Registration Agents to give evidence.
Part 11: Employment
Clause 139: Zero hour contracts
41. The reputation of zero hour contracts has been damaged through their over-use by larger businesses.
However, they remain valid for a number of reasons, not least the flexibility they offer seasonal and start-up
businesses.
42. There are few legitimate reasons for maintaining the exclusivity clause in these contracts. The Forum
of Private Business suggested to government a new ‘primary employer’ status, that meant an employee would
Small Business, Enterprise and Employment Bill: Written evidence 13
be obliged to work the hours made available by their primary employer, but would be free to seek extra hours
outside of those already committed to. This would remove the exclusivity clause for employees, yet maintain
the workforce security required by the employer. Removing the exclusivity clause is the primary issue for zero
hour contracts and the Forum of Private Business does not believe further change in the law around their use is
merited.
August 2014
Written evidence from the Association of Colleges (SB 05)
Introduction
The Association of Colleges (AoC) represents and promotes the interests of colleges. We are a not for profit
organisation created by colleges for colleges.
We:
—— Represent colleges nationally;
—— Provide advice to members on critical areas;
—— Support organisational needs of colleges and partners.
About Colleges
FE and sixth form colleges are institutions that provide academic and vocational qualifications and skills to
anyone.
Colleges provide a rich mix of academic and vocational education. They offer a wide variety of courses and
opportunities for anyone, from young to old, to help them achieve their goals. These may include:
—— A Levels
—— Apprenticeships and Higher Apprenticeships
—— Foundation degrees
—— Vocational qualifications at all levels
—— Community Learning
—— Undergraduate and postgraduate level degrees.
Key Facts:
—— Every year colleges educate and train three million people.
—— 846,000 16 to 18-year-olds choose to study in colleges—almost twice as many as school sixth forms.
This includes 185,000 young people taking A Levels
—— 154,000 students study higher education in a college
—— Colleges run 1,300 businesses open to the public, including hair and beauty salons, restaurants and
nurseries
—— Colleges are major employers with 139,000 full-time equivalent staff members
1. We have commented only on Part 6 of the Bill which relates to education evaluation.
2. Clauses 67–69 aim to ‘improve the sharing of information on learning outcomes between government
departments and schools, colleges and other educational bodies̕14.
3. Currently, similar data to that which will be collected under the terms of the Bill is collated via local
authorities. Unfortunately this is often incorrect, incomplete or not made available in a useful format. Colleges
therefore use staff time and commission external companies to supplement this information. It is required as
evidence by Ofsted and to help potential students and employers make informed decisions.
4. The Association of Colleges, therefore, supports these clauses in principle because they should provide
young people and their parents with accurate information about trends in employment and salary related to
particular qualifications.
5. The clauses, over time, should also help colleges inform what qualifications and curriculum they decide to
offer their local community.
6. The data will need time to bed down and for historic trends to be considered. However, we would caution
against Government using this data to make decisions about the funding levels for individual qualifications.
7. New section 253A of the Apprenticeships, Skills, Children and Learning Act 2009, inserted by Clause 68,
provides a definition for the student information which can be shared. However, regulations will be produced
which will set out when student information can be shared and with whom. We think there is merit in publishing
these regulations in draft to allow for more detailed consideration.
14 House of Commons Research Paper 14/39, section 8
14 Small Business, Enterprise and Employment Bill: Written evidence
8. New section 49B of the Further and Higher Education Act 1992, inserted by Clause 69, allows the
Secretary of State to provide destination information to a further education institution. Regulations will set out
what information will be shared. We think there is merit in publishing these regulations in draft to allow for
more detailed consideration. We are seeking clarity as to whether Clause 69 applies to schools and academies
which provide education to 16 to 19-year-olds.
August 2014
Written evidence submitted by Citizens Advice Scotland (SB 06)
Citizens Advice Scotland (CAS), our 61 member bureaux and the Citizen Advice Consumer Service helpline
form Scotland’s largest independent advice network. Advice provided by the Scottish CAB Service is free,
independent, confidential, impartial and available to everyone. Our website, Adviceguide, also provides the
public with up to date information on a range of topics. We are champions for both citizens and consumers and
in 2012/13 we helped over 314,000 people deal with over a million issues. We want a fairer Scotland where
people as citizens and consumers are empowered and their rights respected.
Summary
1. With an estimated 1.4 million zero hours employment contracts in the UK,i their growing prevalence has
given rise to a number of serious causes for concern. Citizens advice bureaux in Scotland have highlighted
a number of different problems stemming from the way zero hours contracts have been used by employers,
particularly in the last year.
2. Whilst zero hours contracts may be suited to particular types of work, such as casual or seasonal labour,
the misuse of zero hours contracts is becoming a major problem, which should be addressed to prevent
exploitation and hardship. Misuse can include situations where zero hours contracts are issued by employers
inappropriately, such as where a full-time or part-time contract may be better suited and have led to a number
of serious problems for CAB clients including:
—— Lack of work causing destitution
—— Serious debt and budgeting difficulties due to a fluctuating income
—— Difficulty accessing support from the benefits system
—— Lack of entitlement to certain employment rights and confusion over employment status
—— ‘Zeroing down’—effective dismissal deterring workers from enforcing basic rights
3. Citizens Advice Scotland welcomes the ban on exclusivity clauses in zero hours contracts proposed in the
Bill. It is extremely unfair for an employer to prevent someone from taking on another job, ‘just in case they’re
needed’. However, this move will not prevent the misuse outlined above. CAS believes that more must be done
to prevent these situations and recommends the Small Business, Enterprise and Employment Bill is used as an
opportunity to ensure that workers are protected from the misuse of zero hours contracts. We recommend the
Committee consider options for strengthening the Bill in this area including:
—— Workers on a zero hours contract should be given a statutory ‘right to request’ a contract that guarantees
hours, without suffering dismissal or detriment for making the request
—— Legislate to ensure that where mutuality of obligation for the employee to undertake work provided by
the employer is present, an individual is classed as an ‘employee’ rather than a ‘worker’ even if their
contract states zero hours
—— Extending protection from unfair dismissal to workers as well as employees
—— Extending full rights to parental leave and pay to workers as well as employees
—— Requiring employers to inform prospective candidates that the vacancy is on a zero hours basis, for
instance by publishing it in the job advertisement, or by informing them at interview.
Exclusivity clauses in zero hours contracts
4. Citizens Advice Scotland welcomes the ban on exclusivity clauses in zero hours contracts introduced by
the Bill. Whilst not the biggest problem facing CAB clients with zero hours contracts, instances of restrictive
exclusivity clauses have been reported. A ban on exclusivity clauses in contracts that guarantee no work is an
attractive solution that would prevent workers being stopped from seeking other employment if their current
employer has no work to give them. It is extremely unfair for an employer to prevent someone from taking on
another job, ‘just in case they’re needed’.
5. It also complements the Government’s aim for a labour market that is ‘flexible, effective and fair’, by
promoting flexibility for individuals to balance the flexibility enjoyed by their employer.
—— A West of Scotland CAB reports of a client who is currently on a zero hours contract, but was offered a
permanent full time job doing similar work to what they currently do. However, their current employer
contacted their prospective employer to complain and ‘put a stop to’ the client going to work for the
company.
Small Business, Enterprise and Employment Bill: Written evidence 15
Lack of work causing destitution
6. One of the key features of zero hours contracts is that no work is guaranteed in any week. For a growing
number of workers, far from offering flexibility and choice in their working patterns, their zero hours contract
has left them with very little, or no income whatsoever for a period of time. Citizens advice bureaux in Scotland
advised clients who found themselves in crisis and destitute as a result of a sustained period without work—in
some cases being unable to afford to eat and requiring a referral to a food bank.
—— A North of Scotland CAB reports of a client who is employed in a laundry on a zero hours contract.
She has been laid off work for the past three weeks due to a machinery breakdown. She is currently
facing hardship due to loss of income and was consequently referred for a food parcel.
—— An East of Scotland CAB reports of a client who works on a zero hours contract. He has only had
three days’ work in the last month and as a result will have earned only about £150. The client has
been to the Jobcentre for help and been advised that the only way they can help is if he signs on for
Jobseeker’s Allowance (JSA). The client was referred to a food bank.
—— An East of Scotland CAB reports of a client whose Jobseekers Allowance (JSA) was stopped 11 weeks
ago as he no longer meets the required criteria. He is working on a zero hours contract and some
weeks has no income. He is in a single household and in receipt of Housing Benefit and Council Tax
Reduction. He sometimes struggles to buy food and wanted to know if he could access a food bank.
7. The provision of food aid has grown significantly in Scotland in the last three years. The Trussell Trust
which operates 26 foodbanks in Scotland, provided five times as many food parcels in 2013–14 compared to
the previous year. Between January and March 2014, 1 in every 50 clients who received advice at a citizens
advice bureau required a food parcel. Around 11% of clients that need to make an application for charitable
support are in employment.ii The parallel rise of zero hours contracts and food banks reflects an extremely
concerning trend in 2014.
Serious debt and budgeting difficulties due to fluctuating income
8. Workers on zero hours contracts can often find their working pattern—and therefore their income—
unpredictable. Citizens advice bureaux have advised clients on zero hours contracts whose working hours have
dropped or fluctuate leaving it extremely difficult to budget and quickly accruing substantial debt.
—— A North of Scotland CAB reports of a client who had accrued rent arrears over a period which now
totals £982.76. She has a repayment arrangement with the Council, but her payments recently lapsed
because she was on a zero hours contract cleaning on a building site and there was no work. The
client has now been summoned to appear in the Heritable Court over her arrears.
—— An East of Scotland CAB reports of a client who was employed as a driver through an agency on a
zero hours contract. However, he has had little work over the last two weeks and has no hours for the
coming weeks. The client has signed on for Jobseeker’s Allowance (JSA) but has multiple debts. He
was seeking advice about possible bankruptcy.
—— An East of Scotland CAB reports of a client whose employment varies significantly because of a zero
hours contract. She can work between 7 and 13 hours per week and her income can vary from £60 to
£100. The client struggles with her budget and to address her debt issues as she is not sure how many
hours she will be working on a week to week basis and has no guarantee of any work.
9. High-cost short-term credit (popularly known as payday loans) is a type of loan agreement which allow
consumers to borrow for a short period of time (typically less than three months) for a small amount of money
(between £50 and £2,000). In the last three years payday loans are one of the fastest growing areas of advice
both made to local citizens advice bureaux and to the citizens advice consumer helpline service. They can
represent a way for workers on zero hours contracts to cope with fluctuations in their income in the short term
caused by irregular working hours. However, when large repayments are due in a week where little work is
available, workers can find themselves in a situation where they have no way of paying back the loan.
—— An East of Scotland CAB reports of a client who is unable to pay various payday loan companies.
Her total debts amount to £4,850. Whilst she lives with her mother and pays no rent, she works as a
waitress on a zero hours contract, sometimes earning more than £200 per week, but next week will
only earn £70. She is due to pay three separate payday lenders a total of £173 next week and has no
way of paying.
Difficulty accessing support from the benefits system
10. Workers on zero hours contracts can slip through the benefits system as they have difficulty claiming
in-work benefits and means tested benefits. To be eligible for Jobseeker’s Allowance (JSA) an individual must
work less than 16 hours, and to be eligible for Working Tax Credit a claimant must work more than 30 hours a
week (more than 24 hours a week for couples with children). If a person works between 16 and 24 hours, and
those hours fluctuate, it is likely that their income will be very low—potentially lower than those in receipt of
out of work benefits.
—— An East of Scotland CAB reports of a client who was working as a relief cleaner on a zero hours
contract. For the last four months he has only had 11 or 12 regular hours work a week. His partner
16 Small Business, Enterprise and Employment Bill: Written evidence
was prevented from claiming Employment and Support Allowance (ESA) by the Department of Work
and Pensions (DWP) as they were told it is possible the client could be working more than 24 hours
per week if he was on a zero hours contract. The DWP has also told the client that it is not worth
applying for Jobseeker’s Allowance (JSA), as he might be working over 16 hours in some weeks. The
client is therefore very anxious about their income.
—— An East of Scotland CAB reports of a client who has a zero hours contract at the cinema where
he has worked for 13 years. He previously received Working Tax Credit (WTC), but the payments
stopped because his hours for the past year averaged less than 30 hours a week, which the client
had not realised because of the erratic nature of his working hours. He was asked to phone to make
arrangements to repay the overpayment of WTC, but as the client has a hearing impairment which
makes it difficult to use the telephone he did not do so. Now he is facing legal proceedings to recover
the debt, and has also been told he has been overpaid Housing Benefit because he had not informed
the council that his WTC has stopped.
11. With unpredictable hours it is extremely difficult for zero hours contract workers to estimate their
average weekly earnings for the purposes of claiming in-work benefits. For in-work claimants whose earnings
fluctuate, their weekly earnings can be averaged over a period of five weeks for the purposes of the benefits
system. However, even this can prove difficult for some workers, who can be working almost full time hours in
one week, then hardly at all in the next. Citizens advice bureaux have advised clients who have been overpaid
benefits in one week, which they must repay, then been underpaid in the next due to their hours reducing,
leaving them facing an income crisis.
—— An East of Scotland CAB reports of a client who had started a new job as a carer on a zero hours
basis and has no guarantee of the number of hours per week. For example, she worked almost a full
week over Christmas, but she has had varying amounts from 10 hours down to as little as 4.5 in one
week. The client was seeking advice about benefits to which she might be entitled.
Sanctions and zero hours contracts
12. Not getting enough working hours can be a reason for a number of workers to leave zero hours contracts,
or to decline the offer of a zero hours job. Citizens advice bureaux have advised a number of clients who
were concerned that if they did so, they would be prevented from claiming Jobseeker’s Allowance (JSA)
or sanctioned for turning down an offer or voluntarily leaving a job. In October 2013, the UK Government
confirmed that workers in this situation should not be sanctioned.iii CAS strongly welcomes this clarification,
but believe that more could be done to communicate this to benefits claimants, prospective claimants and
Jobcentre staff.
13. However, recent indications from the Department of Work and Pensions (DWP) that claimants may be
sanctioned for these reasons when Universal Credit is rolled out,iv is of concern. Supporters of zero hours
contracts justify them on the basis that they offer ‘flexibility’ to the worker and the employer—requiring
jobseekers to apply for them or risk a benefit sanction has the potential to further undermine that flexibility.
14. We would recommend claimants under Universal Credit should not be sanctioned for not applying for a
zero hours vacancy if it does not meet their needs.
Lack of entitlement to certain employment rights and confusion over employment status
15. This a problem with workers being unclear about the terms of their contract, and workers and employers
being unclear on what rights they are entitled to on a zero hours contract. However, many of these difficulties
are caused by misuse of zero hours contracts which, by accident or design, exploit weaknesses in the law in this
area, rather than because information and advice is not available.
16. Uncertainty over whether those engaged on a zero hours contract are legally workers or employees
is at the root of this problem in a number of cases. A number of Employment Tribunal rulings, which have
looked beyond the written contract and considered what has taken place in practice when determining whether
someone should be classed as a ‘worker’ or as an ‘employee’v, have further muddied the waters.
17. Citizens advice bureaux have reported a number of cases of workers whose employment rights were far
from clear, and whose employers do not grant them certain rights on the basis of their zero hours contracts.
—— A West of Scotland CAB reports of a client who is single and expecting her first child. She was working
on a zero hours contract, but has now left her employment as her employer told her she would not be
due any maternity pay due to the fact that her contract was zero hours.
—— A West of Scotland CAB reports of a client who has worked for her employer as a home carer since
January of last year. She underwent an operation to her hand in May of this year and has been off sick
from work since. She does not receive Statutory Sick Pay as she is on a zero hours contract. She has
had a meeting with her employer about taking on lighter duties but this request has been refused. She
is not looking for reduced hours but does not feel that she can carry out the same duties due to pain.
She has qualifications in support/social work and would ideally like a similar post. Her employer is
not taking any action to dismiss her and is quite happy to keep her on as long as she continues to hand
in medical certificates. She is not sure if she should comply with this or simply resign.
Small Business, Enterprise and Employment Bill: Written evidence 17
—— An East of Scotland CAB reports of a client who came in and reported that she had been employed
for around two years and she had not had any paid holidays. She spoke to her manager about this
and was told that as she was on a zero hours contract she was not entitled to any paid holidays. The
bureau assisted the client in writing a grievance letter.
‘Zeroing Down’—effective dismissal deterring workers from enforcing basic rights
18. In a number of cases relating to the misuse of zero hours contracts, poor employment practices are
reported by workers engaged on them. Whilst this is not necessarily because of the contract in itself, in practice
employers have used their ability to cut their hours to the individual as a ‘punishment’ to deny them their basic
statutory rights, deter them from asserting their rights, or in an attempt to make them resign. This has become
known as ‘zeroing down’.
—— An East of Scotland CAB reports of a client who has been employed for four years on an ‘as and
when required’ basis. Over the last six months he has worked around 50 hours per week. He has now
been advised that there are no further hours for him, but that he is not being made redundant or his
contract terminated. Two days later the client went online to see what work was available and the
job which he did was advertised by his employer. The client has been advised by one manager that
if he chooses to leave, he would receive a good reference, but does not wish to leave the job and has
worked nearly every week whilst he has been employed there.
—— An East of Scotland CAB reports of a client employed on a zero hours contract which specifies ‘no
more than 25 hours per week’. The client reports that she has been consistently working about 25–27
hours per week for the past year, until recently when her hours were cut back to 6 per week. The
reason given is because there is less work to do during winter, but the client feels the real reason is
due to a clash with her new manager, stemming from her refusing to do additional admin work for no
extra pay. This resulted in an unpleasant meeting, where the owner and manager shouted at her and
threw a pen, immediately prior to her hours being cut.
—— A West of Scotland CAB reports of a client who is employed on a zero hours contract. His best friend
was previously the assistant manager, but had left on bad terms with the current manager. Since then,
the client’s hours have been cut from 30 hours per week to 6, and the client feels he is being singled
out and treated unfairly by the manager.
—— An East of Scotland CAB reports of a client who works as a waitress and feels she is being unfairly
treated by a new manager, including undermining her in front of the staff and customers. The client
did not have a copy of her contract, but it seems likely it is a zero hours contract. Recently she has
been told that, as they are employing some full time waiting staff, there is no need for her to do so
many hours. On a number of occasions she has been told on arrival at work that she is not needed
because the restaurant is quiet and sent straight home.
19. This ability to dramatically cut the amount of work offered can act as a barrier to workers being able to
enforce their rights in the first place, offers no flexibility or fairness to the individual, and is an example of clear
misuse by unscrupulous employers. Increasing the amount of information available will not help workers in
this situation, if attempts to assert their rights at work are met with their working hours being slashed.
Recommendations
20. In terms of employment law, there are some potential areas where it could be strengthened to guard
against the misuse of zero hours contracts. Unfortunately no single option would entirely prevent misuse, but
some reforms may help to protect workers from some of the situations outlined in this briefing. CAS would
recommend the following options be considered for inclusion in the Bill:
21. Give workers on a zero hours contract a statutory ‘right to request’ a contract that guarantees
hours, without suffering dismissal or detriment.
One of the reasons that misuse of zero hours contracts occurs is because they are issued in situations for
which they are not suitable—for instance, where a worker requires regular full-time or part-time work. One
possible remedy to this would be to give workers the right to request their contract be altered to a stable
one that is more suitable, with a legal protection from being dismissed or suffering detriment for making the
request. There would be no obligation on the employer to grant the request, but by giving reasons for declining
it would encourage them to consider the implications of the contract on the worker, whether it is appropriate
and alert them to the worker’s desire for a more stable working pattern. It is envisaged this would operate in a
similar manner to the right to request flexible working currently afforded to employees.
22. Legislate to ensure that where mutuality of obligation for the employee to undertake work
provided by the employer is present, an individual is classed as an employee rather than a worker even if
their contract states zero hours.
Employment Tribunals generally operate on this basis at present, if a case comes before them. However,
ensuring that this was put on a statutory footing has the potential to provide clarity for employers and individuals
prior to a case being brought to Tribunal. It may dissuade employers from issuing zero hours contracts in
unsuitable situations based on the mistaken belief that the contract prevents an individual being classed as an
employee, even if they are expected to undertake work on a frequent basis.
18 Small Business, Enterprise and Employment Bill: Written evidence
23. Extend protection from unfair dismissal to workers as well as employees
This option would strengthen the rights of workers on zero hours contracts by giving them some redress in
situations where the amount of work provided is dramatically cut in an apparent attempt to ‘get rid of them’.
This would represent a significant change in employment law and the impact would need to be carefully
considered as it would extend to other workers including those on appropriate zero hours contracts. However, it
may be a necessary measure to protect workers from extremely poor treatment at work.
24. Extend full rights to parental leave and pay to workers as well as employees
Citizens advice bureaux have reported cases where workers are denied paid maternity leave, including those
on zero hours contracts. This reduces the flexibility of the individual engaged on a zero hours basis. One step
to address this could be to extend the paternal leave and pay rights currently enjoyed by employees to workers.
September 2014
References
i
Analysis of Employee Contracts that do not Guarantee a Minimum Number of Hours—Office for National
Statistics, April 2014 http://www.ons.gov.uk/ons/rel/lmac/contracts-with-no-guaranteed-hours/zero-hourscontracts/art-zero-hours.html
ii
Voices from the Frontline—Food parcels and the benefits system—Citizens Advice Scotland, April 2014
http://www.cas.org.uk/publications/voices-frontline-food-parcels-and-benefits-system
iii
Freedom of Information request 3022/2013 https://www.gov.uk/government/uploads/system/uploads/
attachment_data/file/269392/foi-3022–13.pdf
HC Deb 1 September 2014 c43W-44W
iv
Pulse Healthcare Limited v Care Watch Care Services Limited and six others EAT 2012.
v
Written evidence submitted by Barry Haigh (SB 07)
As an ex-tenant of Marston’s which Andrew Griffiths (MP for Burton) supports I can inform you that there
are three issues: one is the price of the rent, the second is the tie and extortionate price, and the third is the
dilapidated condition of the big pubcos’ neglected properties.
The only way to have fairness and openness, if this committee wish to do that, is to have market rent only for
any pubco or brewery with more than 250 tenanted pubs. Then it would be up to the people to see and decide if
they wish to risk their efforts and finances.
As we are all aware, the small breweries have to work hand in glove with the tenant, but Enterprise, Punch,
Marston’s and others have for so many years used the poor tenant as a cash cow: the more they work the more
the large pubcos will increase the rent and beer price, just to pay for their inadequate and corrupt business
practices.
The picture (Annex 1—not included) is an example of what Marston’s class as tenants’ accommodation
standards. The building is listed as Grade 2. This is what the Government and Treasury have allowed of
companies such as Enterprise, with only one managed pub, and Punch, with not many more managed pubs,
with finances that read £180 million equity with a £2.3 billion debt pile. I hope that this committee understand
they are asking the tenants to stand the pubcos losses and interest charges which works out at £34,000 a year
per pub before rent and other charges are added, which the tenant has no control of. Please make this, and the
fact that the tax payers own 86% of RBS—the bank that they have loans with—fully transparent to all. If the
pubcos and breweries are acting as property leasing companies then why do none of the normal laws apply to
them?
One other point which you should be aware of is that the tenant’s deposit has no safeguard. Pubcos use the
deposit for their cash flow unlike private landlords who have to keep it safe in a deposit account.
All the faults and weaknesses have come about after the change which was made to the Beer Orders. What
tenants cannot understand is why the government has allowed these rogue companies to continue trading for so
long when it is easy for everyone to see it is a disaster waiting to happen. As you are well aware Enterprise’s
finances are very much the same as Punch and they have six hundred million pounds due on notes in 2016.
Action needs to be taken now, and the only way is to have Market Rent Only.
I myself would purchase at least one pub but after having three valuations of a property I find that the pubcos
and breweries have over valued the pubs solely to keep a false asset value on the company. If you require proof
of this I would be happy to supply you with it. The only argument that the pubcos and breweries use for the
costs is beer duty: this is a false view. The largest percentage of cost is from pubcos and breweries charging
20% Vat and 40% mark up on goods supplied.
Small Business, Enterprise and Employment Bill: Written evidence 19
If the committee and the pubcos want true and fair business then surely they could charge just a market rent
so the tenants can, as with any other business, see if it is viable.
I note that the price of beer sold to tenants from the breweries is vastly different from the price at which
breweries supply the supermarkets. This cannot be because of the duty. I would suggest it is due to the greed of
breweries and pubcos squeezing every possible penny from the already hard put upon tenants.
If you want to stop anti-social drinking then it is the supermarkets with their offers on beers and spirits that
are the cause, with people preloading before they leave the house. Tackle this problem and you will find that
pubs are not the cause—they promote regulated drinking and refuse to serve anyone who has obviously had far
too much to drink.
There is a massive impact on and cost to the Treasury from tenants being on tax credits and other benefits
as a result of the pubcos. I am aware the government owns 86% of RBS; I hope it is not now the case that this
committee is expecting the British taxpayer to pick up the bill or indirectly support the pubcos with their greed.
It would seem that the committee fears the pubcos folding. I know that people will invest and buy pubs but
only at a fair price: prices in an open market will reflect and protect from pubcos and breweries trying to get
back inflated prices so that their asset values are higher than the true value.
All these points and the tenants’ views—not just pubcos and breweries views—should be made available. It
is supposed to be a free market: we do not appear to have such a thing when it comes to pubs.
There is one more point that the committee should be made aware of. Marston’s, Punch, Enterprise and the
others use holding companies for pubs that they cannot get tenants for, and the licensing authorities have no
control or knowledge of this. In some cases the operator that has been placed in the pub has no personal licence.
September 2014
Written evidence submitted by the Federation of Small Businesses (SB 08)
Introduction
1.1 The Federation of Small Businesses (FSB) welcomes the introduction of the Small Business, Employment
and Enterprise Bill, the first ever Government Bill focused entirely on small businesses, to support them in the
day to day running of their firms, thereby boosting productivity and business growth.
1.2 The FSB is the UK’s leading business organisation, with approximately 200,000 members. In the past 40
years we have gone from strength to strength by remaining truly member-led and being able to authoritatively
protect and champion the interests of the small business sector through our ‘Voice of Small Business’ surveys.
1.3 Our National Chairman John Allan has remarked of the Bill that “it reflects the growing recognition of
the role small businesses have to play in driving forward the economy and the need to do all we can to support
them in that effort.”
Part 1—Access to Finance
Late Payments
1.4 The FSB believes it is imperative the Bill seeks to address the current imbalance of power that exists in
the relationship between creditors and debtors. This would provide small firms with a clear legal justification if
they decided to seek redress or reject certain terms.
1.5 Retrospective discounting is in breach of agreed payment terms, and is too often used by large
companies to maintain their margins and in some cases expand their own business. As the large company can
be a significant customer, the small business has little choice but to absorb the cost. We would like this practice
to be prohibited, regardless of offers to offset the cost, for example through trade finance.
1.6 We hear too often of invoices being challenged near their due date. This can occur even under long
payment terms. Where the debtor delays challenging an invoice until close to the due date, the small business
can suffer from an unplanned reduction in cash flow. The disruption to cash flow can have severe knock-on
effects to other creditors in the supply chain. We would therefore suggest that once goods or services have been
received to the customer’s satisfaction and the invoice is issued, a time limit should be imposed on challenging
the invoice. We suggest that should be 21 days from confirmed receipt of invoice.
1.7 There is no justification for the practice of requiring payments to belong on a supplier list. This should
be prohibited, not least on fairness grounds, but also for its potential implications on competition (larger firms
having the greater potential to pay the upfront costs than smaller businesses).
1.8 The FSB would like to see a mandatory prompt payment code for larger firms included in the Bill in
order to encourage a more rapid cultural change with regard to late payment. Compliance with the code has
been limited, with signatories regularly unilaterally extending payment terms, in some cases to 120 days,
without any sanction or approbation from the Prompt Payment Council.
20 Small Business, Enterprise and Employment Bill: Written evidence
1.9 We support the measure included in the Bill which will allow the Secretary of State to force a business
to provide an explanation if a payment is late, as it falls within our broader call for a more thorough and
transparent reporting framework around prompt payments. Current reporting requirements only produce a
‘snap shot’ of a company’s performance against a single point in the payment cycle. Furthermore, especially for
larger companies, reporting is only made on a group basis, disguising the behaviour of subsidiaries’ payment
practices which may vary widely. This needs to be addressed to include group subsidiaries. The FSB awaits
further details from the Government on how the Secretary of State’s power will be used.
1.10 We would like to know what further measures the Government could put in place to minimise the costs
and time associated with using the court system to enforce the contract terms that businesses must pay their
invoice within 60 days, unless expressly agreed otherwise, such as for trade credit, and provided it is not unfair
to the creditor.
Specific clause on invoice finance
1.11 The FSB supports the measure included in the Bill to nullify the impact of clauses in business contracts
that prohibit a business from selling their invoices to a third party finance provider. This should help to improve
small businesses’ cash flow by removing legal barriers to invoice finance.
Specific clauses on the duties for banks and credit reference agencies to share more information about their
SME customers
1.12 The FSB welcomes measures included in the Bill that impose a duty on designated banks and credit
reference agencies (CRAs) to provide specified information about their small and medium sized business
customers. This will help to ensure equal access to data for all lenders, which is an important step towards
helping alternative finance lenders assess risk and help open up greater competition.
1.13 We would also like to see a duty included in the Bill which requires banks and credit reference agencies
to provide information about the criteria used to calculate the credit score of the small and medium sized
business customer. This would increase transparency and guidance to help small firms to understand their credit
score and help them take steps to improve it. The customer would request this information in writing and no
charge would be made for providing it.
Specific clause on VAT registration information
1.14 The FSB broadly supports the sharing of data where it helps to increase the availability of credit to
SMEs. The specific measure relating to the disclosure of VAT registration intends to increase the availability
of trade finance. However, we are keen to ensure that any data sharing will be subject to strict controls in order
to prevent misuse and does not allow access to the entire tax record, but only a limited and tightly defined
information set.
Mandated referrals mechanism
1.15 The FSB believes that a referral mechanism marks the next stage in the process of widening the
marketplace for small businesses finance. We would like to see the Bill define the scope of which businesses
fall under the Government’s plans to introduce a mandated referrals mechanism so we can ensure as many
firms can benefit as possible.
Specific clauses on exporting
1.16 In order to boost the number of small firms exporting, the FSB would like to ensure support is more
tailored and streamlined to make it easier and quicker for small businesses to access.
1.17 Opening up different types of export support that can be funded by UKEF will be a useful step to boost
export finance. The ability to provide general support to exporters rather than just individual contracts, the
support of intangible exports such as intellectual property, and supporting the supply chain will enable UKEF to
be more flexible in providing support to increase exports. It is crucial that UKEF have the resources to deliver
a wider range of support, so it is welcome that the Budget increased the amount of direct lending available.
Specific clause on speeding up the process of paying in cheques
1.19 The FSB welcomes measures such as cheque imaging, which should speed up the clearing process for
cheques and potentially reduce transaction costs. This will directly benefit many of our members who often
suffer from cash flow problems and rely on cheques as their primary means of cash flow (and payment).
Part 2—Regulatory Reform
1.20 The FSB welcomes measures included in the Bill which help to reduce the costs of company registration
and make Companies House more efficient. In addition, allowing e-registration is a very welcome initiative.
However, we would seek an assurance that Government will consult widely on the details of the changes,
including with the small business community.
Small Business, Enterprise and Employment Bill: Written evidence 21
Specific clause on appointing a body to verify assessments and lists in reports
1.20 We support the proposal in the Bill to put into law a body to independently scrutinise Government
Impact Assessments. However, we believe the Clause should go further—our recommendations are outlined
below.
1.21 The Regulatory Policy Committee (RPC) should be enshrined in law as the independent body to
conduct assessments of Government IA’s. While the RPC currently carries out this function we believe naming
the body in law would strengthen its role further and build on the progress that it has already made in ensuring
rigorous analysis of the impact of Government policy measures.15
1.22 In addition, we believe the role of the RPC should be further enhanced, creating an RPC+ model of
scrutiny. This would give the RPC further roles to that of scrutinising IAs. These should include the RPC
establishing ‘Challenge Panels’ for all areas of regulation and regulatory enforcement and the RPC acting as a
single point of contact should problems arise with regulators and taking up regulatory issues identified by trade
associations and business groups.
Specific clauses on company filing, ownership transparency, compensation orders and creditor meetings
1.23 The FSB broadly welcomes the proposed changes to company and insolvency law and processes
proposed in the Small Business Bill. In particular we welcome the attempts to:
—— Reduce some of the burdens around company information filing at the margins;
—— Measures to improve transparency around company ownership; and
—— Improve the rules on director disqualifications, which currently enable too many directors to avoid
accountability.
1.24 In order to be clear and ensure full compliance the definition of ‘significant control’ will have to be
carefully crafted.
1.25 We support the proposal to introduce compensation orders for disqualified directors and for
administrators to assign causes of actions to creditors. While we believe this latter change could be useful for
small business creditors there is a good argument for the rules to be further developed so that administrators
are required to positively consider assigning causes of actions to creditors and where there is a request from a
creditor to do so, to assign an action where it is reasonable to do so. In addition, if creditors, especially small
ones, are to bring an action they will need access to the right information. We consider that the proposed
changes should ensure that administrators have to pass on the required information. The danger otherwise is
that this new avenue will be impractical to use.
1.26 We are also concerned that the changes to the requirements for creditor meetings could be detrimental
in some cases to small businesses. The meeting of creditors with the director(s) of the insolvent company can
offer the only opportunity a small creditor has of getting answers about why the businesses went bankrupt. We
would be worried if the chances of holding a creditors meeting were significantly reduced through the proposed
changes.
Part 3—Public Sector Procurement
1.27 The FSB strongly supports the intentions of the Bill, which if realised, should address a number of
issues affecting the ability of small firms to bid for and win public sector contracts. We would welcome the
opportunity to engage early in the regulatory design process and would be seeking to assist the Government to
make the most of the opportunities created by this regulatory package.
1.28 In addition to the Government’s stated objectives, the FSB would like to explore the opportunities for
using regulation and/or guidance to address any issues left outstanding, following the first round of reforms
under the Lord Young agenda which are expected to be announced shortly.
Part 4—Pubs Code and Adjudicator
1.29 Whilst the FSB welcomes a number of measures included within Part 4 of the Bill, we believe the
proposed legislation should be enhanced in order to provide better protection for tied pubs.
1.30 Tied publicans need to be convinced that the parallel rent assessment process will be accessible and
relatively straightforward, and provide timely resolution. While the enhanced code procedures are intended
to support the principle that a tied tenant should be no worse off than a non-tied tenant, additional clarity is
required to establish how it will lead to that outcome, without an option to go free-of-tie.
1.31 The FSB also believes the Bill should provide a mandatory option for tenants to operate free of tie, with
an independently assessed fair rent, known as the market rent only (MRO) option. Further, we would like to see
guest beer rights introduced to ensure more diversity in the market. Our survey results from 2013 show that tied
publicans would strongly support both measures.
15 Between 2010 and 2012 the proportion of impact assessments judged to be ‘fit for purpose’ on first submission by the RPC
increased from 65% to 81%. Source: BRE (2013). ‘Seventh Statement of New Regulation’.
22 Small Business, Enterprise and Employment Bill: Written evidence
1.32 The FSB welcomes relevant provisions in the Draft Code that include a right for tied pubs to request a
rent review if they haven’t had one for five years, and to access information that has been used by their landlord
to calculate the rent.
1.33 We further welcome access to the enhanced code for tenants of pub companies with over 500 pubs.
This will allow them to request a parallel rent assessment which would set out the equivalent cost if the tenant
was free of tie if rent negotiations fail—as this is designed to protect the principle that tied tenants should be no
worse off than those that are free of tie.
Part 6—Education Evaluation
1.34 The FSB believes a lack of appropriately skilled staff is a significant barrier to growth and that the
UK’s skills shortage (particularly in the STEM industries) suggests that further education institutions are not
meeting the needs of the labour market.
1.35 We agree that policymakers need to glean a greater understanding of why this is the case through
additional information sharing. Furthermore, we support destination information being available to young
people so that they can make an informed choice and consider a wider variety of education options based on
their career aspirations.
1.36 The FSB would like to see the information collected go beyond salaries and institutions to include data
on qualification level achieved, course/area of study, and industry/position attained as well as where people are
from, and their age. Furthermore, we believe alternative education and training routes should also be measured,
such as apprenticeships, school leaver programmes and graduate schemes.
Part 11—Employment
Specific clause on financial penalties for employers who fail to pay tribunal awards
1.37 Whilst the FSB is not opposed to penalising firms who do not comply with tribunal outcomes, we
would stress that only 3 per cent of our members were summoned before an employment tribunal between
2004–2009.16 The FSB believes small firms must be given sufficient time to pay tribunal awards and have
sufficient opportunity to make an appeal.
1.38 The proposals to issue a penalty once the time for appealing a tribunal decision has expired, without
an appeal or payment being made, and to give the defendant 28 days either to pay the award or to make a
further appeal, are in our view, reasonable. However, the use of penalties may not fully address the issue as
the problem of non-payment of tribunal awards goes wider—in many cases, non-payment occurs where the
company has become insolvent—and alternative measures may therefore be necessary.
Specific clause on employment tribunal postponement
1.39 Although very few small businesses experience an employment tribunal, for those who have done, our
research shows that the average cost of preparing for a tribunal, including legal costs (but excluding awards) is
£6,900 for a small firm.17
1.40 Small business owners are resource poor and the time out preparing for and attending a tribunal is time
out from growing the business. This problem is exacerbated if tribunals are postponed. We therefore support
measures to limit the number of tribunal postponements, including through the use of cost orders in the case
of successful late postponement applications. However, to help lessen the burden of employment tribunals on
small businesses we believe further steps should be taken.
1.41 In order to address the wider problems with the Employment Tribunal system, judges should be
encouraged to adopt a more proactive and directive approach to case management. Cost orders should be
more widely used with monies paid to the opposing party, and the way in which cost orders are interpreted by
Employment Tribunal Judges, should be clarified through clearer guidance. Greater use of cost orders would
give employers a better chance of recovering costs incurred in defending themselves against an ill-founded
claim.
Specific clause on increasing National Minimum Wage penalties
1.42 The FSB supported the introduction of the introduction of the National Minimum Wage (NMW)
and therefore supports the Government taking a robust approach to tackling unscrupulous employers that do
not comply with NMW legislation. In failing to pay NMW, many of these employers will intentionally be
undercutting other law-abiding small businesses.
1.43 However, occasionally, an employer may make a genuine mistake and it is important they have an
opportunity to appeal to the Secretary of State, as is currently the case, in order to support compliance.
16 17 FSB, The FSB-ICM ‘Voice of Small Business’ Annual Survey, February 2010
FSB, The FSB-ICM ‘Voice of Small Business’ Annual Survey, February 2010
Small Business, Enterprise and Employment Bill: Written evidence 23
1.44 Guidance on all aspects of the NMW (including the apprenticeship rate, the accommodation offset and
how deductions from pay are treated) should be readily available to and widely promoted amongst businesses.
The FSB operates an independent legal advice line for our members to provide guidance on NMW legislation
and all aspects of Employment Law. Organisations like ACAS and the Pay and Work Rights helpline should
also be promoted to employers.
Specific clause on banning exclusivity in zero hours contracts
1.45 A recent FSB survey found that only seven per cent of small firms employ staff on a zero hours
contract.18 As a general rule, we believe workers on zero hours contracts should not be prevented from
undertaking other work under so-called ‘exclusivity clauses’.
1.46 The FSB supports a code of practice and guidance on the use of zero hours contracts. This would
encourage fair use of zero hours contracts by employers and make clear their responsibilities, while at the same
time improving employees understanding of their rights. It would also encourage firms to seek alternatives to
outright exclusivity where appropriate.
September 2014
Written evidence submitted by Greene King (SB 09)
Background to Greene King
1. Greene King is one of the leading pub and brewing companies in the UK. We run 1,900 managed,
tenanted, leased and franchised pubs; restaurants and hotels; and we have also been brewing award-winning
ales for over 200 years. We employ 23,000 people, roughly half of whom are under the age of 25. As part of
our continued investment in the business, our estate and our people, we also operate a successful apprenticeship
scheme and recently announced our intention to create an additional 2,000 apprentices in 2014, to add to the
2,500 we already have. We have run our business very successfully for over 200 years based on the tied pub
model. Over 75% of our tenanted and leased estate of 860 pubs is operated under a traditional short-term
tenancy agreement.
2. We are recognised for the overall quality of our pub estate and beer brands, which has been achieved by
long-term investment and a continued focus on providing customers with great value, service and quality.
Executive Summary
3. This submission focuses exclusively on the elements of the Bill which relate to pub companies and their
tenants, contained in Part 4 of the Bill.
4. Greene King does not believe there is a proven need to put a code of practice on a statutory footing, but as
legislation has been deemed necessary, it should be proportionate to the problem. We have significant concerns
about elements of the Bill and there are a number of changes we feel should be made to the Bill in this context.
5. The definition of ‘large pub-owning businesses’, which come under the scope of the enhanced code, to
include companies with over 500 pubs, is entirely arbitrary and will create competitive disparities. Greene
King owns over 500 pubs, but over 75% of our tenanted and leased estate consists of traditional short-term
tenancy agreements, and we have had no recognised breaches of the voluntary code. Measures should instead
be targeted at the more damaging, longer term, fully repairing and insuring leases.
6. The requirement for parallel rent assessments will be impossible to achieve in an accurate manner and
will significantly distort the market.
7. The definition of what constitutes a pub should be amended, to ensure that tenancies-at-will (TAW) are
not included. This would avoid a damaging situation whereby many pubs would be forced to close on a shortterm basis due to the nature of the requirements in the code.
8. We believe there should be greater clarity around the record taking requirements for Business Development
Managers in the Bill.
9. Any proposals which would add a free-of-tie option to the legislation should be avoided, as this would at
the very least lead to significant pub closures and job losses.
Introduction
10. We welcome the opportunity to provide evidence to the Small Business, Enterprise and Employment
Public Bill Committee. Our evidence focuses exclusively on Part 4 of the Bill which addresses pub companies.
While Greene King does not believe there is a proven need to legislate in this area, we note that the measures
in the legislation are, for the most part, more sensible and workable than previous proposals, some of which
have included changing the nature of the tie or removing it altogether. It is our firm belief that the tie is not
18 FSB, FSB ‘Voice of Small Business’ Member Survey, March 2014
24 Small Business, Enterprise and Employment Bill: Written evidence
broken and that any changes, which materially affect the way in which it operates, will result in significant and
damaging unintended consequences, including pub closures and job losses.
11. Despite this, we remain concerned about a number of the measures in the current form of the Bill, which
would add costs and bureaucracy to an industry that is already struggling under the weight of red tape imposed
upon it in the last decade. Aside from the smoking ban, credit crunch and recession, pub companies and their
tenants have also had to deal with rising alcohol duties (which remain high despite the welcome recent cuts
and removal of the beer duty escalator), a growing preference for consumers to drink at home, changing
demographics and upward pressures on costs.
12. In this submission, we set out our concerns with certain aspects of the proposed legislation, and also
make clear the importance of the Beer Tie, and the need to ensure that any proposals to add a mandatory freeof-tie option to the Bill are rejected, as well as other measures, such as the parallel rent assessment proposal,
that aim to replicate the impact that a free-of-tie option might have on the industry.
Aspects of the Bill that should be addressed
13. We are concerned with the inclusion of TAWs in clause 61 (2) regarding the definition of a tenancy.
We do not believe TAWs, which are flexible short-term tenancy arrangements, should be included in the Bill
and within the scope of the Code. These temporary arrangements are specifically excluded from the current
Industry Framework Code. In many cases, pubs would be closed if they faced the full range of provisions of
the Code on a short-term basis. It is not in a pub company’s best interest to run short-term agreements except
when transitioning from one long-term licensee to another. The exclusion of short-term agreements would not
generate unintended consequences and we therefore believe that any short-term agreements of less than a year
should not be included in the Bill and within the scope of the Code.
14. The definition of a ‘large pub-owning business’ as one owning more than 500 pubs in clause 60, and the
inclusion of such businesses in an ‘enhanced’ code, will create competitive disparities in the market. The 500
pub threshold figure is arbitrary and the enforcement of an enhanced code for certain pubs will provide greater
incentives for prospective tenants to choose one pub company over another, while also ensuring that a larger
regulatory burden falls on companies such as Greene King. The fact that Greene King has had no recognised
breaches of the voluntary code shows that the 500 pub threshold fails to acknowledge the real cause of the
perceived problems in the industry. Greene King operates the same tied model as the smaller, family brewers,
yet the legislation shows no consideration of this. The arbitrary 500 pub threshold will penalise companies like
Greene King for having run a successful business.
15. Should the existence of an enhanced code be deemed necessary, it should address the more damaging
leases—the long-term fully repairing and insuring leases, rather than the traditional short-term tied tenancy
agreements which make up the vast majority of our estate, and are the tenancies operated by the family brewers.
Whereas the short-term tenancy offers a low cost entry and ease of exit for tenants, the longer-term leases
require a higher level of investment from the tenants, who also receive less support and are tied into longer
contracts. The Government itself identified the longer-term lease agreement as one of the principal causes of
many of the problems faced by the pub industry in 2011. Targeting these more damaging leases would be
a more direct means of addressing the real problem, while also avoiding the need for the arbitrary 500 pub
threshold.
16. The requirement under clause 36 (6) for ‘large pub-owning businesses’ to provide parallel rent
assessments will only serve to add more complexity and confusion for potential tenants, which runs counter to
one of the key objectives of the Statutory Code. It will hinder, rather than improve, our ability to explain the
construction of a rent assessment in a clear and transparent way. It will be impossible to produce an accurate
comparison between tied and free-of-tie rents through the parallel assessments due to the substantial number
of different and changing criteria that must be taken into account, and cannot be taken in isolation, when
compiling such an assessment. There is near universal agreement from all stakeholders that the requirement for
parallel rent assessments would be misleading and unnecessary, and would represent a backwards step in this
process. We therefore believe that this requirement should be removed from the legislation.
17. We believe there should be greater clarity around the record taking requirements for Business
Development Managers in the Bill. Requiring this for every meeting or conversation would add a huge layer
of bureaucracy to operations and could threaten the strength and nature of relationships between Business
Development Managers and tenants. We suggest that record taking is only required for discussions involving
commercial terms and conditions between landlord and tenant and not for all business or personal conversations.
Examples of what could be included would be discussions on rent, beer prices or repair liabilities, while
examples of what should be excluded would be help on running promotional activity or discussions about
changes to the local competition.
The Beer Tie
18. We were concerned about calls during Second Reading for the legislation to go further and include a
mandatory free-of-tie option for tenants. This would have a hugely negative impact on Greene King. We have
operated pubs under the Beer Tie for over 210 years and strongly believe the model is not broken and that it
will continue to evolve over time as an integral part of our diversified business.
Small Business, Enterprise and Employment Bill: Written evidence 25
19. Our short-term tenancies are based on achieving the best alignment of interests between the company and
its tenants. Through these short-term tied tenancies, we are able to offer people seeking to run a pub low cost
entry to self-employment, and in many cases a home, while also providing ease of exit. Tenancies have lower
rents and the responsibility for maintaining the building falls on the Pub Company. The tied model therefore
continues to provide a low risk business opportunity with what can be a high return on investment.
20. The introduction of a mandatory free-of-tie option would have significant unintended consequences,
including:
—— Pub closures. Independent economic analysis, commissioned by the Government and conducted by
London Economics, delivered what we believed to be a very conservative forecast, in finding that a
free-of-tie option would result in 700 to 1,300 pub closures. We believe the impact would be much
more significant, resulting in pub closures well above the upper estimate given by London Economics
—— Job losses. These would come about through pub closures, changes in the brewing industry, and to
distribution and supply chains. Again, we believe that the London Economics report significantly
underestimates the number of job losses that this would cause, but even their forecasts predicted that it
would cause between 3,700 and 6,500 job losses. In reality, it would be much higher, with the impact
felt across the country.
—— A substantial decline in pub investment.
—— A restriction in consumer choice. There would be fewer pubs and fewer beers available, as market
share in brewing is consolidated amongst a small number of the most profitable producers.
—— The threat of brewery closures. Several breweries may cease production after centuries.
—— A reduction in tax revenues to the Exchequer.
September 2014
Written evidence submitted by Campaign Against Arms Trade, Friends of the Earth (England, Wales &
Northern Ireland), Greenpeace UK, Jubilee Debt Campaign, Platform and The Corner House (SB 10)
Summary
1. Our organisations and others have for many years been working on export credit issues and the Export
Credits Guarantee Department (ECGD) / UK Export Finance (UKEF). The Small Business, Enterprise and
Employment Bill, in Clauses 9 and 10, proposes to amend the powers of the Secretary of State under the
Export and Investment Guarantees Act (EIGA) 1991. The signatory organisations believe this rare legislative
opportunity to examine EIGA must be taken to increase the Secretary of State’s powers to implement
government policy over ethical end environmental issues. This briefing is intended to inform the Committee
of our concerns and to assist it in its deliberations.
2. We would draw the Committee’s attention in particular to the proposal that the Bill be used to
amend the 1991 EIGA to enable the Secretary of State to establish a “prohibitions list” to which can be
added certain classes of exports that cannot receive UKEF / ECGD support. Such a list would be flexible;
the Secretary of State would have the power to add or remove items to fit with government policies.
ECGD and UK sustainable development objectives
3. Over the years, successive UK governments has recognised the importance of sustainable development
and committed to policies aimed at achieving this goal. However, the founding Act of the ECGD prevents the
department from putting these policies on an equal footing with its aim of promoting exports. Instead, it is
required by law to make sustainable development objectives a secondary priority.
4. Although ECGD has said it will take account of environmental and social agreements on export credits
negotiated at the OECD, these agreements have no legal force in the UK. In this the ECGD differs from a
number of other export credit agencies, notably US ExIM, which have adopted binding environmental and
social guidelines.
5. This situation has led to ECGD being in conflict with wider UK government objectives on sustainable
development, most recently, as detailed below, with respect to international efforts to ban export credit support
for coal-fired power stations.
About a “prohibitions list”
6. At present no legal power for a “prohibitions list” exists. The Government’s position, therefore, is that it
is unable to formally prohibit UKEF from supporting coal or other fossil fuel plants, arms manufacturers, or
projects that could undermine human rights or the environment, even when it wants to. Therefore, legislatively
it is essential to create the ability to prohibit particular types of export credit support.
7. A “prohibitions list” would extend the Secretary of State’s powers by, for example, allowing her or him to
make sure that export finance provision reflects other government policies and priorities. The power would not
bind a Secretary of State, now or in the future, to introducing such a “prohibitions list”, nor would it prescribe
26 Small Business, Enterprise and Employment Bill: Written evidence
what might be included in such a list. It would merely allow the Secretary of State to create such a list if (s)he
chose.
8. Some competitor export credit agencies already have “prohibitions lists”. For example,
—— the Export-Import Bank of the United States (EXIM) prohibits “loans, guarantees, and insurance as to
sales of defense articles or services”.i
—— In June 2014, the German Finance Ministry announced that Germany’s official export credit agency
would be prohibited from supporting nuclear contracts.ii
Examples of projects which could be in a “prohibitions list”
9. The legislation would not commit a Government to any or all of these, but it would enable discrimination
against such projects in line with the wider Government policy of the time.
Example 1—Coal
10. In November 2013 the Secretary of State for Energy and Climate Change announced that:
“the UK will join the United States in agreeing to end support for public financing of new coal-fired
power plants overseas, except in rare circumstances in which the poorest countries have no feasible
alternative”.
The detail made clear that this could not apply to UKEF because:
“UKEF is not presently legally able to discriminate between classes or types of exports… [UKEF]
has not supported a coal fired power station overseas since 2002”.iii
11. The US policy that rules out public funding for coal plants overseas explicitly includes EXIM. For UK
governments to permanently be able to exclude supporting coal plants, the Secretary of State must have the
power to have a “prohibitions list”.
12. In April 2014 Shadow Business Secretary Chuka Umunna said that Labour would close the loophole
under which UKEF can continue to fund coal.iv
Example 2—Other Fossil Fuels
13. In the 2010 coalition agreement the Government announced that:
“We will ensure that UK Trade and Investment and ECGD become champions for British companies
that develop and export innovative green technologies around the world, instead of supporting
investment in dirty fossil-fuel energy production”.v
14. Yet, UKEF continues to support fossil fuel projects:
—— In 2012/13 UKEF gave a £147 million guarantee to support oil and gas exploration by Petrobras in
Brazil and £15 million in guarantees to a loan for a gas power project in the Philippines.vi
—— In March 2014 support worth US$215 million was announced for a major petrochemical project at
Nghi Son in Vietnam.vii
15. A “prohibitions list” is essential if UK governments are to be able to discriminate against dirty fossil
fuels and in favour of green technologies.
Example 3—military exports to repressive regimes
16. Even though arms account for just 1.5% of total UK exports, in most years the percentage of export
credit support accorded military exports has been far higher. Many of the deals which have been underwritten
are controversial, including military aircraft sales to Saudi Arabia and Oman, armoured vehicles to Turkey and
intelligence equipment to Indonesia. Much of the historic debt owed to UKEF is the result of providing cover
for arms deals in previous decades to, amongst others, Mubarak’s Egypt, the 1970s military junta in Argentina,
and Saddam Hussein’s Iraq.
17. If a future UK government wants to stop underwriting arms sales to repressive regimes, the power to
have a “prohibitions list” is essential.
September 2014
References
The Charter of the Export-Import Bank of the United States, see http://www.exim.gov/about/whoweare/
charterbylaws/upload/Updated_2012_EXIM_Charter_August_2012_Final.pdf
i
Bundesministerium für Wirtschaft und Energie, Press release 12 June 2014, see http://www.bmwi.de/DE/
Presse/pressemitteilungen,did=642020.html
ii
Small Business, Enterprise and Employment Bill: Written evidence 27
DECC, ‘UK urges the world to prepare for action on climate change and puts the brakes on coal fired power
plants’, Press release 20 November 2013, see https://www.gov.uk/government/news/uk-urges-the-world-toprepare-for-action-on-climate-change-and-puts-brakes-on-coal-fired-power-plants
iii
Business Green, ‘Labour pledges to close coal finance exports loophole’, 30 April 2014 http://www.
businessgreen.com/bg/analysis/2342324/labour-pledges-to-close-coal-finance-exports-loophole
iv
Cabinet Office, “The Coalition: our programme for government”, May 2010
v
ECGD Annual Report and Accounts 2012–13
vi
UKEF, ‘Notice of Support for a Category A Project—Nghi Son Refinery Project, Vietnam’, March 2014, see
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/295761/notice-of-support-forcategory-a-project-nghi-son-vietnam.pdf
vii
Written evidence submitted by Independent Family Brewers of Britain (IFBB) (SB 11)
Small Business, Enterprise and Employment Bill
I am writing to all MPs who are members of the Committee in my capacity as chair of the Independent
Family Brewers of Britain (IFBB) which consists of 29 long established brewing and pub operating companies
located throughout the UK who collectively own 2,971 tenanted and leased pubs which are each supplied with
beers from their respective brewery.
We are writing to highlight our concerns surrounding the legislation currently going through Parliament as
part of the Small Business, Enterprise and Employment Bill. We believed and were assured by many involved
in the consultation process that as family brewers who run traditional tied pubs well, we would not be subject
to any legislation as self-regulation was working effectively within our estates.
We have operated the tied tenancy model for decades—and in many cases hundreds of years. We are
all fully engaged in the self-regulatory system, have developed our own company codes, and abide by the
spirit and practice of self-regulation. In that respect, we agree with the Government that individual tenants
require protection and advice. However we are firmly of the view that this can be achieved without bringing
companies with less than 500 pubs into the scope of the Code and legislation. This Government has been
committed to reducing the burden of red tape, but the diseconomies of scale that these proposals will bring
will have the reverse effect and will be particularly damaging to the family brewers—who are not the focus
of the complainants—and will force pub closures and reduced investment in the sector. It will also encourage
companies to transfer a number of pubs from tenancy to management which is also not the aim of the legislation
and will in effect reduce the opportunities for entrepreneurs to enter the pub business.
Vince Cable, speaking in Parliament on this subject recently,19 stated that “we have no wish to create problems
for the small, family-owned pubs, which are an extremely important part of the industry… (they) are already
subject to the voluntary code.”
Under the current system complaints are low and in 2013/14 amongst IFBB pubs there were:
1.Only two applications to PIRRS (Pub Independent Rent Review Scheme).
2. No applications to PICA-Service (Pub Independent Conciliation and Arbitration Service), which deals
with behavioural issues, made by IFBB tenants.
3. Only 5 formal complaints being made about Business Development Managers, all of which were
settled by internal grievance procedures without the need for outside intervention.
By seeking exemption from the Statutory Code, IFBB are not proposing to exempt ourselves from any sort of
regulation regarding this issue. On the contrary, 100% of IFBB members surveyed (who represent 93.2% of the
2,971 IFBB tied tenanted and leased pubs), have confirmed a commitment to provide the funding and support
for the self-regulatory system once statutory legislation comes into force—with the understanding that
the level of funding may have to increase if circumstances require, provided that they are not subject to
the Statutory Code. We are also committed to reviewing the Framework Code to address concerns where they
exist, provided we are able to operate our businesses without the costs and red tape imposed by the proposed
Statutory Code which would undoubtedly create problems for the smaller operators, against Dr. Cable’s stated
intentions above.
We would confirm that if we continue to operate within the self-regulatory system the Pub Governing Body
would be alerted to any dramatic increase in complaints and could recommend remedial action if required. The
Government has already committed to a review within two years and any issues with smaller companies could
be addressed at this stage.
In summary, we hope you will amend the legislation to exempt those companies operating less than 500 tied
pubs. We will be submitting amendments to the Bill committee on this basis, and we hope you will support
19 Hansard, Commons Debate, 11 September 2014 c1064
28 Small Business, Enterprise and Employment Bill: Written evidence
us in achieving the balance between protecting tenants and enabling small pub operators to operate without
significant increased costs and red tape.
September 2014
Written evidence submitted by UNISON (SB 12)
Introduction
UNISON is the UK’s largest public service union with 1.3 million members. Our members are people
working in the public services, for private contractors providing public services and in the essential utilities.
They include frontline staff and managers, working full or part time in local authorities, the NHS, the police
service, colleges and schools, the electricity, gas and water industries, transport and the voluntary sector.
UNISON’s submission is primarily focused on Clause 139, ‘Exclusivity in zero hours contracts’ with
additional comments on Clause 135 ‘Whistleblowing’; Clause136 ‘Employment tribunals: failure to pay sums’;
Clause 137, ‘Employment tribunals: postponements’; Clause 138, ‘National minimum wage’
Clause 139 Exclusivity in zero hours contracts
1. Clause 139 aims to tackle the use of exclusivity clauses in zero hours contracts, which ties the worker to
working solely for one employer even though there is no contractual commitment to provide the worker with
regular or consistent hours of work.
2. The definition of a zero hours contract within the Bill would always have been a challenge since the
concept is not recognised in UK labour law. UNISON believes the wording used in the Bill has the merit of not
specifying hours worked, which could easily be circumvented by a short hours contract. While welcoming this,
UNISON believes the wording used will not protect the growing numbers of workers who are classified as ‘self
employed’ but are in fact ‘bogus’ self employed. Furthermore, the reference to ‘no certainty that any such work
or services will be made available to the worker’ could be circumvented by the ‘certainty’ of a one or two hour
a week contract.
3. This has already been recognised by BIS, which has just launched a consultation on possible loopholes and
evasions by employers using short hour contracts. UNISON will respond to the BIS consultation highlighting
our concerns and urging the Secretary of State to use the full extent of the powers granted in this Bill to make
further provisions to tackle any potential loopholes.
4. UNISON agrees with the TUC that a more effective and simpler approach would be to reform employment
status laws and rules on continuity of employment so that all workers benefit from the same basic floor of rights
at work. This would have the benefit of addressing the growth of casualisation and insecure work of all kinds
that have become an increasing feature of the UK’s labour market.
5. UNISON regrets that the further powers granted to the Secretary of State only relate to the specific
instance of exclusivity clauses. The worst abuses experienced by workers on zero hours contracts will continue
untouched by this legislation. The experience of our members has repeatedly shown that the serious imbalances
of power between employer and workers on zero-hour contracts and resulting exploitative treatment gives rise
to the most serious and widespread problems.
6. One UNISON member working in the homecare sector told us that ‘zero-hours contracts means they
have us over a barrel.’ Another said that working on these contracts means constant insecurity and that he was
‘always treading on eggshells. If you fall out with management, you could lose hours—some colleagues have
just had this happen to them where their hours have fallen’.
7. Many zero-hour contract workers lose out on basic workplace protections because they lack the necessary
continuity of service or because their employer takes advantage of their uncertain employment status to evade
employment rights obligations.
8. As the Resolution Foundation pointed out, even ‘where a clear mutuality of obligation exists and employee
status appears incontrovertible’ the financial costs of pursuing a claim both through lost income and legal costs
(which now include Tribunal fees) prove to be huge barriers for workers.20
9. Some have argued that the disadvantages offered by zero hours contracts are ameliorated by their
temporary nature, that workers will be able to access full time work when the economy improves or their
circumstances changes. The growing evidence that these contracts are becoming the norm in some sectors
belies this.
10. UNISON believes that the growth in use of zero hours contracts are fundamentally linked to the low
wages, job insecurity and underemployment being experienced by working people in the UK. We recognise
that for some workers, zero-hours contracts may be suitable but usually there are flexible working alternatives
20 Pennycook, M., Cory, G., Alakeson, V. : ‘A Matter of Time: The rise of zero-hours contracts’ Resolution Foundation (2013) p14
Small Business, Enterprise and Employment Bill: Written evidence 29
such as annualised hours that are more appropriate and do not lead to loss of employment rights and insecurity.
For all too many workers, the flexibility only flows one way.
11. A survey by the CIPD found that only 50% of employers themselves say that in practice zero-hours staff
are free to accept work or turn it down. Some employers admit that staff do not have that flexibility—23%
of employers say that in practice their zero-hours contract workers are expected to accept work when it is
available while 15% say they are contractually required to be available to work and a further 17% of employers
report that in some circumstances zero-hours contract staff are expected to be available for work.21
12. These admissions from employers lay bare the pressures on those working zero hour contracts to
remaining available to employers, limiting their ability to accept other offers of work under the fear of being
penalised by not being offered future work. They allow employers to define ‘flexibility’ to their advantage at
the cost of an employee’s ability to say no to bad pay and detrimental conditions of service.
13. None of these employers needed an exclusivity clause. Employers could simply sanction non-compliant
workers by not offering them any more work—tellingly described as ‘zeroing down’. Therefore, while UNISON
believes that exclusivity clauses are a particularly undesirable aspect of zero hours contracts and welcomes the
provisions in Clause 139, we believe it fails to touch upon some of the worst abuses and exploitation.
14. In recent times UNISON has seen a particular growth in the use of zero hour contracts in the domiciliary
and home care sector, where it is now the dominant form of employment contract. In response to a written
question by Andy Sawford MP in early July 2013, Skills for Care estimated that there were 307,000 adult social
care workers on zero hour contracts in England alone.22
15. This is despite the fact that it is widely acknowledged that the homecare sector is particularly unsuited
to zero hours contracts. The Minister for Care, Norman Lamb emphasised this point in a Westminster Hall
debate on homecare workers, last year saying: “The idea of a zero-hours contract is, in most circumstances,
completely incompatible with a model of high quality care, in which the individual really gets to know their
care worker.”23 While UNISON continues to campaign and negotiate to restrict the use of zero hours contracts
in this, and other sectors, we believe that Government intervention and legislative reform is needed to prevent
the abuse of zero hour contract workers. The provisions outlined in this bill are inadequate.
Clause 136 & 137 ‘Employment tribunals: failure to pay sums’ and Employment tribunals: postponements’
16. Clause 136 seeks to address the widespread problem of non-payment of Employment Tribunal awards by
applying a financial penalty. UNISON has always been very concerned about the large numbers of cases where
the respondent fails to pay Employment Tribunal awards. Action taken to ensure compliance by employers
would be welcome. Low paid employees already face huge obstacles in taking cases to employment tribunal
and what faith there is in the system of workplace justice exists would be further eroded if high levels of noncompliance by employers continue. However, increasing the financial penalty is unlikely to solve the problem,
as employers who do not pay compensation or back-pay are unlikely to pay the additional penalty either.
UNISON would welcome more details on how the penalties would be enforced. Specifically it is our view that
consideration must be given to emphasis on enforcement being taken away from individual (often low paid)
claimants and rather be managed either through the Tribunal system or some other enforcement agency. This
would include tackling the problem of companies who avoid payment by ensuring that they have no assets to
seize. A short timeframe for the payment of Employment Tribunal awards of 14 days and interest accruing at a
higher rate if payment is not made in 14 days may assist in increasing the number of awards that are actually
paid.
17. The disastrous introduction of fees to access employment tribunals and the dramatic fall in cases being
taken since July 2013 highlight how difficult in practice it is now for most workers to access workplace justice
as individuals. This exacerbates the problem of up-front costs for individuals and non-payment by employers in
the event of a successful case.
18. UNISON would also welcome action taken to reduce delays and short notice postponements at
Employment Tribunal cases. Such delays cause considerable disadvantages to workers taking cases, especially
if they are calling witnesses all of whom have to take time off work to appear.
Clause 135 ‘Whistleblowing’
19. Clause 135 aims to improve clarity and transparency around the reporting process for disclosures made
by whistleblowers, as well increase confidence that these will receive follow up and investigation. UNISON
agrees that prescribed bodies should be required to share some base level data about the number of concerns
raised, pursued and upheld in any given time period. It is our view that prescribed bodies are required to be
involved in issues of encouraging transparency—and there should be an assumption of some transparency from
them also.
CIPD: ‘Zero-hours contracts: Myth and Reality’ Research Report (November 2013) p16
Hansard (01/07/2013) http://www.publications.parliament.uk/pa/cm201314/cmhansrd/cm130701/text/130701w0004.htm#130701
w0004.htm_wqn8
23 Hansard (06/03/2013) http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130306/halltext/130306h0001.htm
21 22 30 Small Business, Enterprise and Employment Bill: Written evidence
20. UNISON shares the concern of the TUC that whistleblowers will be further discouraged by the changes
the government has made to S 43B of the Employment Rights Act, requiring whistleblowers to make a
judgement call on the public interest test. Employment Tribunal fees and costs to access workplace justice will
also deter employees from exposing wrongdoing in the workplace.
Clause 138 ‘National Minimum Wage’
21. This clause aims to improve compliance by increasing the penalties on employers who do not pay the
National Minimum Wage (NMW). UNISON agrees that the maximum fine for non-compliance of the NMW
should be raised as a deterrent. However, simply increasing the fines without improving and giving appropriate
resources for enforcement would undercut this clause. The Low Pay Commission has noted that the current
Government has successively reduced funding for NMW enforcement and awareness. UNISON believes that
this must be reversed. Leaving enforcement to be triggered by affected workers, who are vulnerable to losing
their job, allows too many workers to continue to receive unlawfully low levels of pay.
22. A report by HMRC on ‘National Minimum Wage compliance in the social care sector’ found that noncompliance with the NMW was widespread throughout the social care sector. However, in the year 2011–
12 HMRC only received 11formal complaints concerning non-payment of the minimum wage by homecare
providers and only 19 in 2012–13. Given that most homecare workers are employed on zero hour contracts,
many are too scared to report their employer for fear of having their hours ‘zeroed down’. UNISON believes
that this is one of the main reasons behind the incredibly low levels of homecare workers reporting their
employers for non-payment of the National Minimum Wage.
23. The failure to pay staff for their travel time between appointments is probably the single most important
reason for care workers not receiving the National Minimum Wage. More than half (58%) of UNISON
homecare workers in England reported that they were not paid for their travel time between visits, and this
figure was still over 50% in Scotland.24 The Public Accounts Committee recently expressed alarm that hundreds
of thousands of care workers are likely to be paid less than the NMW due to public procurement bad practice.
24. At UNISON’s recent care roundtable event, members described non-payment of travel time as having
become standard in homecare. This causes members particular problems when combined with the use of zero
hours contracts: one member described how non-¬payment of travel time meant that he was under pressure to
take as many hours as he possibly could under his zero hours contract. This often led to working 70-80 hours a
week, 7 days a week.
25. UNISON also believes that the government should give a new formal third party role for trade unions
and the Citizens Advice Bureaux, which treats their reports of breaches of the NMW as a formal complaint. All
such complaints would then lead automatically to a formal investigation by HMRC Officials.
October 2014
Written evidence submitted by the Asset Based Finance Association (SB 13)
Executive Summary
1. The ABFA represents the invoice finance—often known as factoring and invoice discounting—and wider
asset based lending industry in the UK and Republic of Ireland. The industry specialises in the provision of
working capital to the real economy, and particularly to smaller businesses. The industry has supported UK
businesses for over 50 years. Further information about the industry and the ABFA is included at the end of this
paper.
2. The ABFA strongly supports the objectives of the Bill to enable business and industry to thrive and grow,
and to encourage greater transparency.
3. In particular, the Bill includes some potentially significant measures aimed at facilitating access to finance
for UK businesses; empowering businesses to use their assets to increase access to a wider range of finance
options and providers. The ABFA was pleased to contribute to policy development in these areas in preparation
for the Bill and welcomes their inclusion within it.
4. This paper provides further detail on the ABFA’s views on Part 1 of the Bill that relates to Access to
Finance. It also includes additional comment on other areas of the Bill, as appropriate.
Part 1—Access to Finance
Assignment of receivables (Clauses 1 and 2)
5. The ABFA strongly supports this section of the Bill that will allow regulations to be made to restrict
the effect of ‘ban on assignment’ clauses within business to business contracts for the supply of goods or
services, as far as they relate to the debts that arise under the contracts.
24 UNISON (2012), Time to Care, October 2012, p4, www.unison.org.uk/upload/sharepoint/On%20line%20Catalogue/21049.pdf
UNISON Scotland (2014), Scotland—it’s time to care, http://www.unison¬scotland.org.uk/socialwork/timetocare.pdf
Small Business, Enterprise and Employment Bill: Written evidence 31
6. Such contractual clauses are an onerous and unnecessary restriction on the freedom of a business to
use one of its most significant assets—the debts owed to it by its customers as represented by its unpaid
invoices—to access finance. These measures will benefit small businesses and the wider UK economy, and
will bring the UK into line with many other jurisdictions around the world.
7. The effect of such contractual clauses can be particularly egregious in the context of other poor
payment practices such as the imposition of extended payment terms. Post-detailed consultation later
this year, the ABFA urges government to set a clear commitment to, and timetable for, the presentation of
robust and effective regulations.
8. On the basis that such contractual clauses in themselves constitute an undue restriction, the ABFA
believes that the implementing regulations would be more appropriately approved under a negative
resolution procedure rather than the affirmative procedure currently set out on the face of the Bill.
9. In future, the ABFA would like to see government go further and take steps to address other
restrictive contractual clauses that can prevent SMEs from accessing appropriate forms of finance. These
include the use of ‘pay when paid’ clauses (already outlawed in the construction sector) and unquantified
liquidated damages clauses.
10. These types of practice, including ban on assignment, work to effectively pass payment risk down
the supply chain to the smaller businesses that are least able to manage it effectively This has serious
impacts on the ability of those businesses to access the finance they need.
11. Invoice finance is generally provided by the assignment of debts owed to a client business (by their
customers) to an invoice finance provider who would provide immediate payment to the client business. In a
factoring arrangement, the invoice financier would then collect the debts owed themselves and in an invoice
discounting arrangement the client business would continue to collect the debts owed but would effectively be
doing so on behalf of the financier.
12. The presence of ban on assignment clauses within a contract can restrict the ability of the supplier of
goods or services from assigning the debt that arises under that contract. In some circumstances this can present
an absolute barrier to that supplier accessing invoice finance, in others it can reduce the quantity of finance that
can be provided and/or increase the costs of providing that finance. Either way, there is a negative impact on
the business seeking finance which would often be an SME and, in most cases, would be an ‘S’.
13. It should be emphasised that the Clauses in the Bill are specifically targeted at addressing restrictions on
the assignment of the debt that arises under a contract, not the delivery of the contract itself.
14. In most circumstances it is of course legitimate to seek to prevent the assignment of the delivery of the
actual contract itself—Company A contracts Company B to supply widgets with a legitimate expectation that
Company B will do so itself rather than get another party to fulfil the contract. These measures will have no
impact on the rights of the customer in that respect. However there is no legitimate reason why Company A
should be able to place restrictions on Company B from using its own assets (the debt that is due to it from A)
to access appropriate forms of finance.
15. As noted above, the use of ban on assignment clauses must also be viewed within the wider context of
poor payment practices, lengthening payment terms and the disparity in power between large customers and
smaller suppliers. With suppliers often having to wait longer than ever for payment, the effect of such clauses
can be even more egregious.
16. Such restrictions are often found in standard form contracts drafted by large customers in both the private
and public sectors; it is notable they are far less frequently seen in circumstances where the contracting parties
are more ‘equal’ in terms of negotiating power.
17. The negative impact of ban on assignment is recognised internationally and by taking action in this area
the UK is following international standards of best practice. The USA’s Uniform Commercial Code (UCC) has
long rendered such clauses ineffective and similar steps have been taken in Australia, New Zealand, Canada
and numerous other jurisdictions.
18. The negative impact is also recognised in numerous international agreements, including the United
Nations Convention on the Assignment of Receivables in International Trade and also the International Institute
for the Unification of Private Law (UNIDROIT) Convention on International Factoring. In addition, steps to
address the impact of such clauses are likely to be included in the Model Law on Secured Transactions which
the United Nations Commission on International Trade Law (UNCITRAL) is currently drafting.
19. The Law Commission’s 2005 report on Company Security Interests recommended the action against
such clauses currently included in the Bill and the independent Secured Transactions Law Reform Group
continues to support such action as part of its ongoing work on the modernisation of the UK’s legal framework
around security interests.
20. The use of ban on assignment clauses is clearly an unnecessary and onerous restriction on the ability of
businesses to use their own assets to access finance. The presumption should be that the use of such restrictive
clauses is unacceptable in normal circumstances.
32 Small Business, Enterprise and Employment Bill: Written evidence
21. Therefore it follows that the implementing regulations should be approved under the negative resolution
procedure rather than the positive procedure; the presumption must be that the use of such commercial
restrictions must be justified, not vice versa. The ABFA believes that this presumption should be appropriately
reflected in the parliamentary approval process. In addition, the regulations must be brought forward as soon as
possible.
Business payment practices (Clause 3)
22. The ABFA supports measures to bring greater levels of transparency to payment practices,
particularly those of larger businesses. Robust regulations should be brought forward to implement
these measures as soon as possible.
23. Too often large customers can impose extended payment terms and onerous contractual conditions on
smaller suppliers—transparency around these terms must be the absolute minimum requirement.
24. Whilst recognising the objective of reducing the regulatory burden for small businesses, the ABFA
believes these requirements are equally as relevant for medium-sized business as for large. Some very
significant businesses would fall under the definition of Medium and the ABFA believes it would be consistent
with the objectives of the legislation to extend these requirements to those businesses also.
Credit information (Clauses 4 and 5)
25. The ABFA supports this section of the Bill which has the objective of better facilitating the
provision of credit information on SMEs to a wider range of potential finance providers. However these
measures have to be accompanied by better information about the types of finance that are available and
that may be appropriate.
26. The ABFA noted the additional announcements made following the publication of this draft of the Bill
regarding the development of private sector platforms to facilitate the provision of this information.
27. The priority in this area must be to ensure that relevant information is made available to all relevant
providers of finance that meet accepted standards; the platforms must operate as inclusively as possible.
28. Businesses seeking finance may not always be aware of or fully understand the finance options that are
available to, and may be appropriate for, them. It is essential that these measures are accompanied by steps to
ensure the provision of authoritative and balanced information about the types of finance that are available and
where they can be obtained.
29. Information on the full range of options must be provided to businesses seeking finance as early as
possible in the process, and certainly in advance of the point at which consent for sharing their information is
requested, to ensure that they are able to provide informed consent.
30. A central concern would be ensuring that the consent regime operates effectively, particularly in the
context of the forthcoming Data Protection Regulation.
31. Another significant concern is to avoid imposing an onerous burden on the institutions that will be
required to provide information and to ensure that the information provided is relevant and useful for a range
of credit providers. A significant amount of detail will need to be confirmed in the implementing regulations
including the types of information that will be shared and the institutions that will be required to share them.
The ABFA looks forward to contributing to this process.
Disclosure of VAT registration information (Clauses 6 and 7)
32. The ABFA supports these measures; timely VAT registration information would be helpful for those
providing finance in assessing and managing risks, particularly those associated with fraud.
Part 3—Public Sector Procurement
Regulations about procurement (Clause 33)
33. The ABFA has previously agreed protocols on the assignment of debts with both the UK and Scottish
Governments (with the now defunct Office of Government Commerce for the former and the Scottish
Procurement Directorate for the latter) with the objective of better enabling businesses seeking to supply public
bodies to access invoice finance.
34. However bans on assignment are still found in some supplier contracts issued by public bodies. The
new regulations should reflect the agreements reached in those protocols and the ABFA looks forward to
appropriately contributing to the development of those regulations in due course.
35. These regulations will be particularly important if the generalised regulations restricting the effect of
bans on assignment (covered in Clauses 1 and 2) are not brought forward as quickly as possible.
Small Business, Enterprise and Employment Bill: Written evidence 33
Part 7—Companies: Transparency
Register of people with significant control (Clause 70)
36. The ABFA strongly supports the measures brought forward in this Part of the Bill aimed at ensuring
greater transparency of company ownership and control. The proposals for a Register of Significant Control are
to be particularly welcomed as they would support the fulfilment of obligations under Anti-Money Laundering
regulations.
Corporate directors (Clauses 76 and 77)
37. The abolition of corporate directors is to be welcomed in the interests of greater transparency. The ABFA
would have concerns if regulations allowing broad exceptions were brought forward.
Shadow directors (Clauses 78 and 79)
38. The more comprehensive extension of the general duties of directors to shadow directors is to be
welcomed. This should serve as a further deterrent to any individual or body acting as a shadow director.
39. However it would be helpful if further guidance could be issued in due course on the limits to which
providers of funding can impose conditions on the running of a company without becoming a shadow director.
40. As a minor drafting point with regard to Clause 79, it is not clear whether “or” is required to be inserted
after point (b) to ensure that these are understood to be separate situations.
Part 10—Insolvency
41. The ABFA was pleased to contribute to the independent review of pre-pack insolvencies and welcomes
measures to provide greater transparency for all creditors in such situations. All stakeholders recognise that
the priority in such cases must be the preservation of jobs and value; if used appropriately pre-packs can be an
important tool in enabling this.
About the ABFA
42. ABFA Members provide finance to client businesses on the basis of the clients’ assets—this will often be
the debtor book, as represented by its invoices (invoice finance; factoring and invoice discounting). In addition,
many ABFA Members will provide wider funding packages based on other receivables held in a client business
(referred to as asset based lending). In addition to the debtor book, these assets can include plant, machinery,
property, stock and even intangibles such as intellectual property.
43. The products and services provided by the industry allow businesses to release the working capital tied
up in their unpaid invoices and other assets, giving them the finance and time to invest, grow, evolve and
prosper.
44. ABFA membership includes the specialist divisions of the UK and Irish high street banks, a number of
challenger and specialist banks, and a number of independent non-bank finance providers. ABFA Members
provide finance to businesses of all sizes and have particular expertise in supporting the SME sector.
45. At the end of Q2 2014, the ABFA’s Members were providing almost £19 billion to over 43,000 clients.
Around half the client businesses supported by ABFA Members have annual turnovers of £1 million or less and
over 80 percent of these clients have annual turnovers of less than £10 million. In 2013, the industry supported
businesses with a combined annual turnover of over £275 billion.
46. The ABFA is committed to demonstrating and enforcing the high standards its Members will meet
through the ABFA Code, Professional Standards and Complaints framework.
47. This includes an independent Complaints Process, run by Ombudsman Services, and an independent
Professional Standards Council chaired by Lucy Armstrong. More information on the Standards framework is
available at www.abfa.org.uk/standards.
October 2014
Written evidence submitted by TUC (SB 14)
Zero-hours contracts—Introduction
The UK has a growing problem of casualisation, with millions of workers failing to benefit from the recovery.
Instead they are trapped in low paid, highly insecure jobs which offer poor career prospects. Many are forced
to take out pay-day loans to cover household bills and to use foodbanks to feed themselves and their families.
Of particular concern is the growing use of zero-hours contracts. Statistics published by the Office of National
Statistics (ONS) in April 2014 reveals that there are 1.4 million zero-hours contracts in use in the UK (http://
www.ons.gov.uk/ons/rel/lmac/contracts-with-no-guaranteed-hours/zero-hours-contracts/art-zero-hours.html).
34 Small Business, Enterprise and Employment Bill: Written evidence
An additional 1.3 million individuals were not offered any work by their employer during the two week period
when the ONS carried out its survey of employers was undertaken.
As worrying as these statistics are, they do not capture the full extent of casualisation in the UK. For example,
the statistics do not include all agency workers, those who are falsely self-employed or individuals who are
employed on short hours contracts who cannot earn enough to make ends meet.
Zero-hours contracts and unenforceable exclusivity terms
There is increasing public concern about growing casualisation and its impact on working people. The recent
BIS consultation on zero-hours contracts attracted more than 36,000 responses.
The Small Business, Enterprise and Employment Bill set outs the government’s limited response to the
growing problem of casualisation, with Clause 139 of the Bill introducing a ban on the use of exclusivity
clauses.
Whilst the TUC supports the principle of a ban on exclusivity clauses, new section 27A contains serious
weaknesses:
—— Employers will be able to avoid the ban on exclusivity clauses by offering workers a contract which
guarantees one or two hours work each week or even each month.
—— The Bill does not impose any penalties on employers who flout the ban. Instead new section 27A only
provides that employers cannot enforce exclusivity clauses.
—— Workers will have no redress if employers threaten to refuse them future work if they ignore an
exclusivity clause and seek work with another employer. Many will simply be unaware of their rights
and presume they are tied to one employer.
—— The Bill offers no assistance to zero-hours workers who feel pressurised into remaining available for
work, even though they are not subject to any contractual requirements.
The Government has committed to consult on how to prevent rogue employers from evading the ban on
exclusivity clauses, for example by offering one hour fixed term contracts.
The Bill gives the Government the power to introduce regulations to address some of these issues. The
regulations could extend the ban on exclusivity clauses to different types of contract (for example, short-hours
contracts for 10 or fewer hours per week). The regulations could also impose financial penalties on employers
or require employers to pay compensation to workers, although the Bill not specify in what circumstances.
During the consultation, the TUC has called for the introduction of effective sanctions. The ban on exclusivity
clauses should be extended to all workers and employees. Alternatively, legislation should be introduced
requiring employers who use exclusivity clauses to compensate workers for loss of potential earnings by paying
them on a full-time basis.
Wider abuses experienced by zero-hours contract workers
Whilst the proposal to clampdown on exclusivity clauses is welcome, the TUC believes the government
needs to go much further to tackle the abuses experienced by zero-hours contract workers. These include:
—— Low pay: TUC research, based on the Labour Force Survey, reveals that the average hourly wage
for a worker on a zero-hours contract was £8.83 an hour—a third less than the average for staff on
permanent contracts (£13.39).25 The majority (57.6 per cent) of workers on zero-hours contracts
outside London earned less than the living wage of £7.65 an hour, while more than three-quarters of
those working in the capital earned less than the London living wage of £8.80 an hour.
—— Income insecurity: Workers on zero-hours contracts were nearly six times as likely to have differing
amounts of weekly pay compared to staff with other kinds of work arrangements.26 Two in five zerohours workers reported having no usual amount of pay. Receiving a varying amount of take home pay
each month makes it difficult to meet rent or mortgage payments and other household bills, to access
credit and to plan financially for the future.
—— Under-employment: Zero-hours workers tend to work shorter hours than other staff and are more
likely to want more working hours than other workers. Despite the inadequacy of their income, the
need to be available for work when required by the employer, often at short notice, hinders the ability
of zero-hours workers to take up additional employment.
—— Impact on families: While employers argue that flexible working arrangements assist individuals with
caring responsibilities, the lack of a work guarantee, and related unpredictability of work from week to
week (and day to day) can put a strain on families and their ability to arrange childcare or elder care.
—— Lack of employment rights: Many zero-hours contract workers lose out on basic workplace
protections, because they fail to qualify as employees, lack the necessary continuity of service or
because their employer takes advantage of their uncertain employment status to evade employment
rights obligations.
25 26 TUC, (2014) Casualisation and Low Pay available at www.tuc.org.uk/sites/default/files/Casualisationandlowpay.docx
Ibid
Small Business, Enterprise and Employment Bill: Written evidence 35
—— Abuse at work: Zero-hours contracts are more vulnerable to mistreatment and exploitation at work
than regular permanent contracts. For example, there is a growing evidence of breaches of the National
Minimum Wage in the home care sector, with care workers losing out on pay for travel time.27
—— Difficulties accessing benefits: The variability of individual’s earnings can create difficulties over
eligibility for various forms of benefit.
The government should take urgent action to provide a better deal at work for those in casual, insecure
employment including:
—— Providing increased access to permanent employment on decent pay
—— Ensuring workers are fairly paid, including for all time spent on-call for the employer
—— Providing all workers with the same basic fall of rights, including statutory redundancy pay, the right
to request flexible hours and the right to return to work following maternity or paternity leave.
NMW penalties
The Bill will increase the civil penalties imposed on all employers that underpay their workers in breach of
the national minimum wage legislation by imposing them on a per worker basis.
Employers caught underpaying the national minimum wage must pay back workers at the current rate of
the NMW. In addition, a few have been prosecuted for aggravated offences under the act. In addition, in 2009
Labour introduced a civil penalty for all employers caught cheating. The penalty was to match the total arrears
owed, by with a cap at £5,000 per offence and a 50 per cent discount for rapid payment. Last year, HMRC
imposed 708 penalties, totalling more than £750,000
In April 2014 the coalition changed the regulations to make the maximum penalty per offence £20,000,
and discontinued the rapid-payment discount. They also announced their intention to bring forward primary
legislation so that the penalties could be applied on a per-person basis.
Whilst the average penalty is less than £5,000, as most minimum wage cases involve relatively small
amounts, these changes will allow much bigger penalties to be imposed in the larger cases. For example, a call
centre owner in Hull owed 200 workers £96,000 ina case last year. He received a penalty of £5,000. If the same
offence took place now, the penalty would be £20,000, and if the proposals in the current bill applied the civil
penalty would be £96,000.
This measure is welcome. However, it is not the last word in minimum wage enforcement, as more funding
is certainly needed for advertising and enforcement. In addition, there is a substantial minority of cases where
the cheating employer simply vanishes to avoid paying up. The TUC has argued that the government should
guarantee minimum wage earnings in such cases, as it does for redundancy payments. In addition, it should
be noted that Employment Tribunal fees are higher than average minimum wage arrears, thus discouraging
workers from enforcing their rights.
Financial penalties for failure to pay employment tribunal awards
Clause 136 of the Bill will allow for the imposition of financial penalties on employers who fail to pay
compensation awarded by employment tribunals. The penalties will also apply to the non-payment of sums
owed under settlement agreements reached following Acas conciliation.
Under the proposed system, where an enforcement officer considers that anemployer has failed to pay, he
or she may give the employer a warning notice statingthe officer’s intention to impose a financial penalty. If
the employer does not pay by a specified date, the officer may give the employer a penalty noticerequiring the
employer to pay the Secretary ofState a financial penalty of 50% of the unpaid amount (subject to a minimum
of £100 and a maximum of £5,000)
The TUC welcomes the government’s decision to tackle the serious problem of non-payment of Employment
Tribunal awards. Research commissioned by BIS in 2013 revealed that only 49 per cent of all individuals
who were successful at an employment tribunal were paid all the compensation due to them. 16 per cent of
successful claimants were paid in part by their employers; whilst 35 per cent did not receive any compensation
at all.28
The TUC agrees that measures set out in the Bill represent a welcome step in the right direction. However,
the Bill does not state how, or by whom, the financial penalties will be enforced. It is vital that recalcitrant
employers who refuse to pay employment tribunal awards are similarly not able to avoid the payment of
financial penalties. The measures contained in the Bill also will not provide much assistance to individuals who
were employed by businesses which became insolvent. The TUC believes that any recovered financial penalties
should be paid to the workers whose rights were breached rather than to the Exchequer.
We would call on the government to consider additional measures. These include:
27 28 I Bessa et al (2013) ibid
BIS (2013) Payment of Tribunal Awards: 2013 Study IFF Research for the Department of Business Innovation and Skills available
at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/253558/bis–13–1270-enforcement-of-tribunalawards.pdf
36 Small Business, Enterprise and Employment Bill: Written evidence
—— Committing to ‘naming and shaming’ employers who fail to pay employment tribunal awards on time
—— Requiring the HMRC to play an active role in recovering unpaid employment tribunal awards.
—— Ensuring that companies which fail to pay employment tribunal contracts are not awarded public
contracts.
—— Preventing bosses from placing their companies into insolvency in order to avoid paying employment
tribunal awards only to start trading through ‘phoenix’ companies. Individuals who are found guilty of
such practices should be barred from acting as company directors.
—— Abolishing employment tribunal fees which pricing many workers out of justice. Since the introduction
of fees, employment tribunal claims have fallen by 79 per cent, with women and low paid workers
being the principal losers.
Employment Tribunal postponements
Clause 137 will provide powers for the government place a limit on the number of successful applications
for postponements which claimants or respondents can be granted in any case. Judges will still be able to grant
postponements in exceptional circumstances. The government will also be able to required Employment Judges
to consider issuing making cost orders where a late application for a postponement is made.
The TUC supports these measures. It is often difficult for witnesses to get time off work in order to attend
employment tribunals when hearings are repeatedly put back. This proposal is also likely to speed up the
employment tribunal process and will reduce costs for all parties.
Regulations about procurement
—— The overarching objective of this part of the Bill is to create a simple and consistent approach to
procurement across all public sector authorities so that small businesses can gain better and more
direct access to this market.
—— The stated benefits of this legislation include “less bureaucratic process”, “reduced bidding costs” and
no extra burden or cost on suppliers.
—— The TUC supports public procurement that seeks to maximise value for money for the taxpayer by
ensuring that suppliers are able to meet a range of economic, environmental and social objectives that
are in the interests of the public and the commissioning authority, e.g. provision of apprenticeships,
payment of a living wage.
—— We would also want to see suppliers excluded, wherever possible, from the procurement process
if they have a track record of breaching UK employment law, health and safety and environmental
obligations, e.g. non-payment of tribunal awards, evidence of blacklisting activity.
—— We also support greater transparency and accountability in the procurement process, including Freedom
of Information coverage for all supplier of publicly funded services and ‘open book accounting’ as
standard on all contracts and public sector equalities duties extended to all contractors.
—— As such, we would be concerned if the drive towards streamlining the procurement process for small
businesses was used as a pretext for not effectively managing and monitoring the requirements set out
above.
Investigation of the exercise by contracting authorities of procurement functions
This legislation aims to provide the Minister for the Cabinet Office or the Secretary of State with a general
power to investigate procurement processes and practices carried out by UK Government Departments and
other contracting authorities, as defined in the Public Contracts Regulations, who are not wholly or mainly
undertaking devolved functions.
These measures will enable the effective monitoring of the implementation of the changes to procurement
practice proposed in this Bill as well as other modernised procurement policies and practice.
The TUC supports greater transparency and accountability in the procurement process. Far too much
information of interest to the general public regarding public funding of contracted out services is hidden
through the use of commercial confidentiality.
Both private sector contractors and the relevant public bodies commissioning services have been complicit in
this and we welcome any move that empowers the government to investigate the procurement process further.
We would welcome stronger moves in this regard, including the extension of Freedom of Information to all
suppliers of public services, ‘open book accounting’ as standard on all contracts, extension of public sector
equalities duties and disclosure on joint ventures, ownership, partnerships, supply chains and remuneration.
We would like these powers to be used to oblige commissioning authorities to disclose the fullest possible
range of issues of public interest and not focus exclusively on the procurement process itself.
Small Business, Enterprise and Employment Bill: Written evidence 37
Company transparency
The TUC supports the aim of boosting transparency on company ownership. The proposed measures are
a small, but nonetheless welcome, step towards this. At present, it can be very difficult to find out who the
beneficial owners of companies are and therefore who is ultimately benefitting from the extensive rights that
shareholders have in relation to UK companies.
Limiting the use of corporate directors is a positive move that should help to promote greater clarity about
who is running UK companies.
Directors’ disqualification
It is too easy for directors to move from one failed company to another, leaving behind them a trail of
damage to workers and suppliers who frequently get only a fraction of the money they are owed by a company
that becomes insolvent. Strengthening the director disqualification regime is important to prevent directors who
have behaved irresponsibly as a company director from acting as a director for another company.
It is very important that creditors—especially workers and suppliers—should receive sufficient compensation
when companies that owe them money fail. It is not fair that the workforce and suppliers—who often
themselves have tight balance sheets and cash flows—should pay the price of company failure that they have
played no part in creating.
October 2014
Written evidence submitted by the Campaign for Real Ale (SB 15)
1. Introduction
1.1 CAMRA, the Campaign for Real Ale is a consumer group with over 166,000 members and acts as an
independent voice for real ale drinkers and pub goers. Our vision is to have quality real ale and thriving pubs
in every community. Our decision making process is wholly independent of any commercial company or other
organisation. We are not-for-profit and all proceeds are put back into achieving our campaigning objectives.
1.2 CAMRA supports the introduction of a Pubs Code and Adjudicator which we regard as necessary to
secure a sustainable long term future for the tied pub sector. Self regulation has failed to address the problem
of large pub companies exploiting a position of power and information asymmetry to impose excessive and
unjustifiable costs on a significant proportion of tied pub tenants.
1.3 It is vital that a Market Rent Only option is included in the Enhanced Code (applying to companies with
more than 500 pubs) so that tenants of the large pub companies are able to choose between a tied and non-tied
arrangement. This choice will create a very powerful market incentive for pub companies to ensure that they
offer tied agreements which allow small businesses to thrive.
1.4 CAMRA is pleased that the Bill establishes that the Secretary of State must ensure the Pubs Code
delivers the following principles:
—— That pub companies’ dealings with their tied tenants must be fair and lawful
—— That large pub companies’ tied tenants must be no worse off than if they were free of any tie
agreements
2. Tenant earnings
2.1 Survey evidence suggests that the majority of tenants tied to the large pub companies earn less than the
minimum wage. A CAMRA commissioned survey in 2013 saw 57% of tenants tied to the large pub companies
stating their annual earnings as being below £10,000 a year.29 In contrast only 25% of free of tie tenants stated
earnings below £10,000.
29 CAMRA commissioned CGA Strategy to conduct a telephone survey of 866 tenants. The full report is available from CAMRA
on request.
38 Small Business, Enterprise and Employment Bill: Written evidence
Tenants earning £10,000 or less
annually
60%
50%
40%
30%
20%
10%
0%
Series1
Pubco tied
Free of tie lease
57%
25%
2.2 The same survey showed a similar pattern when considering the number of tenants declaring earnings
of below £15,000 a year. A shocking 80% of tenants tied to the large pub companies reported earning less than
£15,000 a year compared to only 40% of free of tie tenants.
Tenants earning £15,000 or less
annually
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Series1
Pubco tied
Free of tie lease
80%
40%
2.3 There is no justifiable business rationale why tenants tied to the large pub companies are earning so
much less than free of tie tenants. Instead of adding value to the businesses of their tenants it seems that the
large pub companies are actually making it far harder for their tenants to succeed.
Small Business, Enterprise and Employment Bill: Written evidence 39
3. Pub Closures
3.1 Pub closures have increased from 12 a week in early 2012 to a current high of 31 a week. We believe
a significant number of these closures are the result of large pub companies charging excessive rents and tied
beer prices; making many of their pubs unviable which they have then sold on; often for redevelopment.
3.2 The table below sets out the current pub closure figures. It is clear that the Non Managed (mostly leased
and tenanted) pub sector is significantly underperforming compared to the wider pub sector in terms of both
net closures and decline in absolute numbers. We believe that this underperformance is due to tied pubs being
made artificially unviable due to excessive rents and tied beer prices charged by the large pub companies.
Total Outlets
Tenure
Dec–13 Jun–14
Openings
Closures
Net
Closures
Transfers
%
Difference
in/out
Change
Net
Closures
Per
Week
Free
19,877
19,875
643
940
–297
295
–2
0%
–11.4
Managed
9,719
9,718
187
196
–9
8
–1
0%
–0.3
Non
Managed
26,320
25,347
34
525
-491
-482
–973
-4%
–18.9
Total
55,916
54,940
864
1,661
-797
–179
–976
–1.7%
–30.7
3.3 Net pub closures provide the most accurate measure of closure rates. This is because the gross closure
rates include a large number of temporary closures for refurbishment work or transfer of operator.
3.4 Punch Taverns and Enterprise Inns have both sold a significant number of pubs over the past few
years. Punch Taverns sold 433 pubs in their last financial year, reducing to a total ownership of 4,096 pubs.30
Enterprise Inns sold 428 pubs in their last financial year reducing the pubs they own to 5,493.31 These figures
alongside the net pub closure figures suggest to us that the underperformance of the large pub company tied
pub model is a major contributing factor to an increased rate of pub closures.
4. Public support
4.1 CAMRA’s campaign on pub company reform has received strong public support. A petition calling for an
end to the Great British Pub Scandal received 44,900 signatures within weeks at the start of the year. 32During
Punch Taverns—Annual Report 2013
Enterprise Inns—Annual Report 2013
32 https://you.38degrees.org.uk/petitions/save-our-pubs-from-corporate-greed-let-s-call-time-on-the-great-british-pub-scandal
30 31 40 Small Business, Enterprise and Employment Bill: Written evidence
the last 18 months CAMRA’s members have sent MPs 10,837 emails calling for action to prevent pubs being
put at severe risk of closure due to unfair practices in the pub sector.
4.2 CAMRA also commissioned independent consumer research in June 2011 which found that 64% of all
adults think it is unfair that “at the moment public house tenants are tied into contracts that prevent them from
buying beer on the open market at competitive prices.”33
5. Market Rent Only
5.1 CAMRA are disappointed that the Bill does not make any provision for a Market Rent Only option
for tenants of the large pub companies. Such an option would provide tenants with the choice of a non tied
agreement for a higher rent or a lower rent in exchange for being tied. The fact tenants are currently denied this
choice allows large pub companies to impose both high rents and onerous tie arrangements.
5.2 A mandatory Market Rent Only (free of tie) option for tenants tied to large pub companies is the simplest
way to allow market forces to work, and remove the current disadvantage to tied tenants compared with free
of tie tenants. It is essential that rents offered alongside free of tie agreements are at a fair, open market rate,
which is why we welcome the Government’s intention to require that the large pub companies ensure rent
calculations are signed off by a qualified surveyor.
5.3 A Market Rent Only option would incentivise large pub companies to act in a competitive manner and
make their tied deals fair and attractive, as failure to do so would result in a high proportion of their tied
tenants choosing to become free of tie. We would anticipate that as pub companies improve their deals to better
compete with new free of tie options, only a small minority of existing tenants would opt to go free of tie.
5.4 Too many tenants are substantially worse off because of their agreement with their pub company. Tenants
have told CAMRA:
“Over the year September 2011-September 2012 the differential between what I paid to my pub
company and what I could have paid on the open market for all my drinks was £41,650. Our rent on
that property is £42,000—almost the same as the saving I could make if I was free of tie.”
Tenant, pubco tied pub, Surrey
“We’d make £50,000 more just on beer. What the pubco’s don’t get is how much of that money I
would then reinvest in my business. This is why pubs are dilapidated.”
Tenant, pubco tied pub, Berkshire
“Price wise the difference is absolutely crazy. John Smiths is £133, but you can get it for £82
wholesale. Kronenbourg is £170, you can get it for £100. It’s not little amounts—it’s lots.”
Tenant, pubco tied pub, Burnham
“For Rebellion [brewery’s] Mutiny I pay £150 for 72 pints, where I can go and get it for £75 from
the brewer.”
Tenant, pubco tied pub, Berkshire
5.5 A Market Rent Only option would substantially increase tenant profitability, enabling tenants to invest in
growing and developing their business, and enhancing their consumer offer.
5.6 In order to avoid potential instability within the major pub companies, CAMRA would be supportive
of the major pub companies phasing in the Market Rent Only option over a five year period at rent review,
staggering the impact and giving them time to make tied agreements attractive. We would propose that the
Market Rent Option should be made available in any one of the following circumstances:
(a) at rent review or lease renewal
(b) if the Pub Company makes a significant alteration to the price at which it supplies tied products to the
tenant
(c) if there has been an event outside of the tenant’s control and unpredicted at the time of the previous
Rent Assessment that impacts significantly on the tenant’s ability to trade
(d) if a pub owning company proposes a sale of their property interest (ensuring developers cannot exploit
tied terms to evict a tenant)
5.7 The Bill should be amended to include a Market Rent Only option for tenants tied to the large pub
companies.
6. Guest Real Ale Right
6.1 In addition to a Market Rent Only option, CAMRA would like to see a guest beer right granted to all
tied tenants of the large pub companies. The guest beer provision should be defined as a beer that is either cask
conditioned or bottle conditioned to ensure access for smaller companies and improved consumer choice. This
would allow tied tenants to stock a single cask conditioned or bottle conditioned beer supplied from anywhere
in the world at a freely negotiated price.
33 CAMRA Tracking Omnibus Survey June 2011
Small Business, Enterprise and Employment Bill: Written evidence 41
6.2 Despite the growth in the number of small brewers the pub market is substantially foreclosed to them
because they are unable to supply the minimum volumes, discounts and logistics demanded by large wholesale
and pub owning companies. Hundreds of real ale breweries currently locked out of supplying a large proportion
of their local pubs would see their growth prospects improve.
6.3 Tenants would also benefit as a guest real ale option would provide a modest boost to their profitability,
and would expose large pub companies to a degree of competition on wholesale beer prices, thereby driving
down prices on other products.
6.4 CAMRA notes competition concerns have been raised regarding restricting a guest beer option to
real ale but we believe that the inclusion of bottle conditioned beers overcomes any possible competition
concerns. The 1989 Beer Orders established a right for tenants tied to the largest brewers to stock a single
cask conditioned beer outside of any tie arrangement. The Bavarian Lager company lodged a complaint in
1996 with the European Commission that this measure amounted to a quantitative restriction on imports as at
the time most beers sold outside of the UK were sold in bottles.34 Following discussions and agreement with
the European Commission the UK Government amended the guest beer provision in 1997 to include bottle
conditioned beers. The 1989 guest beer provision was repealed in 2002 due to changes in pub ownership which
meant that tenants were no longer able to benefit from the provision.
6.5 Alternatively, consideration could be given to a guest beer option that would define a guest beer as a beer
brewed by a brewer anywhere in the world with an annual production below 200,000 hectolitres. This reflects
the maximum production limit allowed through the EU’s small breweries’ relief.
7. Tenancy at will and franchise agreements
7.1 CAMRA supports the Government’s decision to include franchise and tenancy at will agreements within
the scope of the Pubs Code.
7.2 An exemption for franchise agreements would allow pub operators to avoid compliance by simply
rebranding tied agreements as franchise agreements. Clearly where pub franchise agreements exist which do
not include a rent then clauses in the Pubs Code relating to rent would not apply.
7.3 An exemption for tenancy at will agreements would likewise be problematic as these agreements can
run on for many months and in some cases years. We do not think the Pubs Code presents any insurmountable
barrier to the continued use of tenancy at will agreements and regard it as good business practice that a degree
of due diligence is undertaken at the start of such agreements.
7.4 If an exemption were provided for tenancy at will and franchise agreements we are further concerned
that this would create a market distortion by creating an incentive for greater use of such agreements.
8. The Family Brewers
8.1 CAMRA has long argued that companies with fewer than 500 pubs should be exempt on the basis that
the family brewers’ tenancy agreements are fundamentally different from the long term leases offered by the
large pub companies. CAMRA however notes the Government’s decision that the Pubs Code should apply to
all tied pub companies.
8.2 Traditional brewery tenancies tend to be on shorter terms and present less risk as these agreements are
much easier for tenants to exit from. Fewer than 1% of pubs operated by the regional brewers are operated on
lease agreements.35 In contrast, large pub companies offer longer term leases which present a much greater
risk as tenants wishing to exit face the loss of any lease premium paid, dilapidation charges and are potentially
liable to pay rent for the unexpired term.
8.3 In the UK the tied house system has been crucial to the survival of the family brewers. The value of the
tie to regional brewers is demonstrated by the virtual extinction of medium sized brewers in the USA where tie
agreements are not permitted.
8.4 A CAMRA commissioned survey in 2013 provides evidence to support our view that family brewer
tenancies should be treated differently from large pub company leases. The graph below shows that 71% of
tenants tied to the larger pub companies (more than 500 pubs) stated that they had a negative view of their beer
tie agreement compared to only 49% of licenses tied to the regional brewers (fewer than 500 pubs).
34 35 europa.eu/rapid/press-release_CJE–10-63_en.pdf
http://ec.europa.eu/competition/consultations/2009_vertical_agreements/independentfamilybrewersbritain_en.pdf
42 Small Business, Enterprise and Employment Bill: Written evidence
Describe your feelings towards the
beer tie
80%
70%
60%
50%
40%
30%
20%
10%
0%
Pubco Tied
Regional Brewer Tied
Positive
3%
14%
Neutral
26%
37%
Negative
71%
49%
8.5 On the basis that the Pubs Code is to apply to all pub companies regardless of size we would advocate
moving the following requirements from the Core Code that applies to all into the Enhanced Code that applies
only to companies owning more that 500 pubs:
—— The requirement for all rent assessments to be signed off by a qualified surveyor
—— The requirement to publish an annual compliance report
—— The requirement to appoint a Compliance Officer
—— The requirement to record all business conversations in writing
These changes would ensure that the Core Code impose no significant new requirements on the family
brewers that they have not already voluntarily agreed to through their own existing Company Codes and the
voluntary Industry Framework Code.
9. The De Minimis
9.1 We believe that the de minimis exemption for pub owning companies that employ fewer than 10 people
is set at the wrong level. A number of small brewers will employ more than 10 people on the brewing side of
their business meaning that even if they own a single tied pub they will be covered by the Code and Adjudicator.
We believe that this will place a disproportionate burden on these small businesses and will deter other small
brewers from investing in a small number of pubs to grow their businesses.
9.2 We would suggest an alternative de minimis exemption for any company that runs fewer than 10 pubs.
This would be proportionate with Ministers’ intentions to exempt micro pub owning businesses from the scope
of the Pubs Code.
10. Conclusion
10.1 CAMRA strongly supports the decision to introduce a Pubs Code and Adjudicator to protect Britain’s
pubs from being put at risk of closure due to the unfair business practices of the large pub companies.
10.2 We believe that the Bill should be amended to:
—— Instruct the Secretary of State to ensure tenants tied to the large pub companies are provided with
Market Rent Only and Guest Beer options
—— Provide an exemption from regulation for companies that own 10 or fewer pubs
10.2 We further believe that the Government should be encouraged to look at moving some of the more
onerous requirements in the Core Code into the Enhanced Code in order to protect the family brewers whose
tenancy model poses substantially less risk to tenants and has not led to widespread pub closures.
October 2014
Small Business, Enterprise and Employment Bill: Written evidence 43
Written evidence submitted from British Chambers of Commerce (SB 16)
Background information
The British Chambers of Commerce (BCC) is an influential network of 52 Accredited Chambers across the
UK. No other business organisation has the geographic spread or multi-size, multi-sector membership that
characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing
representation, services, information and guidance to member businesses and the wider local business
community.
The Small Business, Enterprise and Employment Bill
The BCC supports the thrust of this Bill, which aims to reduce regulatory burdens on firms, improve
businesses’ access to finance and help companies to export. The Bill also includes provisions around against
employers who breach the National Minimum Wage legislation, introduces a ban on exclusivity clauses in
zero hour employment contracts and measures to increase transparency around who owns and controls UK
companies with a register of beneficial ownership. The Bill also introduces changes to public sector procurement
and improvements to pupil destination information.
Access to finance measures
Clause 4: Provision of credit information on small and medium sized businesses
The Bill’s proposed changes encourage greater competition in banking by improving the ability of challenger
banks and alternative finance providers to conduct accurate risk assessments on small and medium sized
businesses. The changes:
—— Require banks to share data on their small and medium sized business customers with other lenders
through Credit Reference Agencies (CRAs).
—— Put in place data protections for small and medium sized businesses, data on small and medium
sized businesses will only be provided to CRAs where the business has signed terms and conditions
allowing that data to be shared.
—— Allow micro businesses to use the Financial Ombudsmen Service (FOS) in respect of disputes with
designated CRAs.
BCC position: The BCC and its members welcome action to help match SMEs that have been rejected for
loans with challenger banks and alternative finance providers who are looking to offer finance. However, the
safeguards put in place must ensure that businesses have ultimate control over how their details are shared and
have the option to exclude certain types of lenders.
Clause 6: Disclosure of VAT registration information
The Bill’s proposed changes are aimed to improve small business access to credit by sharing non-financial
VAT registration data. The changes:
—— Allow HMRC to make available non-financial VAT registration data for specific purposes to qualifying
parties (e.g. name and contact details) for VAT-registered businesses. No financial data will be shared.
BCC position: The BCC welcome the measures introduced to improve access to credit particularly for
smaller businesses. This will help companies reduce fraud and comply with anti-money laundering obligations
by improving the identification of legitimate businesses.
Regulatory Reform
Clause 15: Review of regulators’ complaints and appeals procedures
Clause 18: Duty on Secretary of State to publish business impact target etc
Clause 25: Duty to review regulatory provisions in secondary legislation
Clause 27: Section 25 (2)(a): “provision for review”
The Bill includes proposals to introduce:
—— A statutory framework for managing and reporting of the economic impacts of new regulation on
business and voluntary or community bodies.
—— A ‘Small Business Appeals Champion’ into all non-economic regulators, who must review
effectiveness of complaints handling by the regulator, and publish the findings.
—— Places an obligation on the Secretary of State for Business, Innovation and Skills to publish a
deregulation target, relating to the economic impact of new regulation on business, covering the whole
of the Parliament.
—— A requirement for all new secondary legislation to be evaluated after 5 years.
BCC position: BCC welcomes sensible measure to reduce the regulatory burden on firms, and the proposals
in this Bill should help to decrease the flow of unnecessary red tape on firms.
44 Small Business, Enterprise and Employment Bill: Written evidence
The BCC supports the implementation of a statutory framework for managing and reporting the impacts of
new regulatory proposals. Independent and transparent verification of the costs and benefits to UK plc of new
regulations provides business with confidence. Business wants to see long-term stability within the regulatory
framework, and if implementing this statutory framework provides this, it will be welcomed by firms. The
proposed statutory review provision should also help to remove any unnecessary regulations after five years.
The BCC supports deregulation targets, as long as they are meaningful and provide a genuine reduction
of burdens for companies on the ground, and encourages a change the mindset of Whitehall towards one of
regulation as a last resort. EU regulations are currently in scope of this target, and we would urge this to
remain the case as this measure is implemented. Tax administration, which can place burdens on business,
is also currently out of scope of this target.; We would urge for this to measure to be amended to include tax
administration.
In some cases, it is not the regulation itself that places burdens on companies, but rather the unfair or
heavy-handed implementation of this. Therefore, the BCC welcomes measures which aim to make regulatory
enforcement fairer and helps to build relationships between regulators and firms. The introduction of a Small
Business Appeals Champion into regulators may help in this, however the BCC understands that these
‘Champions’ are likely to be drawn from existing employees of the regulators. We would encourage the
‘Champions’ to be representative of the business community. It is important that companies feel comfortable
approaching the ‘Champions’ and believe in their impartiality. Therefore, the question of when they are
employed must be addressed.
National Minimum Wage and zero-hour contracts
Clause 69: 49B: Providing improved pupil destination information
BCC position: The BCC supports the Government’s focus on improving pupil destination information by
tracking students through education into the labour market. This information can be an important accountability
measure and help incentivise schools to support their students’ progress into sustained employment. Publication
of this information in a pupil destination league table coupled with Schools Inspectorates considering pupil
destination when judging school performance, would help ensure schools prepare pupils for work.
However, currently the pupil destination data period that is tracked is too short. To obtain robust information
we suggest the tracking is done over a longer period of 10 years after the pupil has finished Key Stage 5, using
National Insurance Numbers to track earnings.
Clause 138: Amount of financial penalty for underpayment of national minimum wage
BCC position: The BCC supports the Government’s actions against employers who breach the National
Minimum Wage (NMW) legislation. Firms who breach these regulations are engaging in unfair competition
with the vast majority of employers who comply with the rules. This change will help further deter employers
from breaching the NMW legislation.
However where genuine mistakes are made by businesses in this regard, it is important to have safeguards
allowing employers to appeal. The Government should also ensure that all that information and guidance on the
NMW and penalties attached to non-compliance is effectively promoted across the business community.
Clause 139: 27A: Exclusivity terms unenforceable in zero hours contracts
Clause 139: 27B: Power to make further provision in relation to zero hours workers
BCC position: The BCC believes the UK’s flexible labour market is crucial to keeping unemployment down.
Zero-hour contracts are vital for a successful jobs market, but they must also be fair and work for all parties.
We feel that a ban on exclusivity clauses which bind workers to one firm is a balanced way of addressing
concerns. However the government must ensure that further changes do not jeopardise business flexibility or
employment opportunities.
The Bill brings forward a new mechanism which would allow the Secretary of State to make provisions
to secure that zero hours workers are not bound by exclusivity arrangements. These provisions may include
modifying zero-hours contracts, imposing financial penalties on employers or requiring them to pay
compensation, conferring jurisdiction on employment tribunals, conferring rights on zero hours workers).
Further clarification is required regarding the proposal to allow the Secretary of State to make further
provisions securing that zero hours workers are not restricted by exclusivity arrangements. It is unclear how
this power would work in practice. It is important that this is not a blanket power and that safeguards exist
allowing for some scrutiny of the provisions taken by the Secretary of State. Confirmation is also required that
any financial penalties or compensation would not have a retrospective effect relating to the period prior to the
legal amendment.
Small Business, Enterprise and Employment Bill: Written evidence 45
Export Finance
Clause 9: Power of the Secretary of State under section 1 of the EIGA 1991
Clause 10: EIGA 1991: further amendments
The Bill’s contains provisions which amend legislation to increase the powers available to UK Export Finance
(UKEF) to support UK exports and exporters. The changes aim to:
—— Enable UKEF to support UK businesses currently exporting and potential exporters involved in supply
chains, through providing guarantees of general working capital facilities or by providing information
or advice.
—— Give UKEF more flexibility when providing support for exports, especially where exporting
arrangements involve complex contracting or financing arrangements, or where exports are made via
overseas subsidiaries or joint venture companies.
—— Enable UKEF to support exports of intellectual property rights and other intangibles, such as licences
of software or other intellectual property.
—— Remove the need for the Secretary of State to consult with the Export Guarantees Advisory Council on
matters relating to reinsurance.
—— Simplify the administration of UKEF.
BCC position: The BCC welcomes the broadening of UKEF’s powers. The clauses here will allow it to
work more flexibly with SMEs and provide support to UK exporters similar to that available to our overseas
competitors. However there is a strong need to ensure that these new support mechanisms are better marketed
and more accessible to SMEs. It is clear that many businesses are still unaware of these products. Export
finance support must have clearer channels to businesses through their intermediaries and brokers with the
additional resourcing needed to make this happen—Chambers of Commerce stand ready to act as the key route
to market. The support should aim to help exporting companies of all sizes to mitigate the financial risks of
exporting, and to access trade finance and export credit insurance to enable UK companies to expand into
overseas markets and win export contracts that they may not otherwise be able to take on.
Beneficial Ownership
Clause 70: Register of people with significant control
The Bill will also aim to strengthen the reputation of the UK as a trusted and fair place to do business, by
increasing transparency around who owns and controls UK companies with a register of beneficial ownership,
strengthen rules on director disqualifications and remove unnecessary costs from insolvency law.
Outline of the measures:
—— The introduction of a register of people with significant control (providing for the central registry of
company beneficial ownership information).
—— The prohibition of bearer shares (share that not registered to any authority, transferring the ownership
of the stock involves just presenting the physical certificate).
—— The introduction of measures to tackle opaque control of company directors.
BCC Position: The vast majority of firms are already transparent in the way they run their business, so plans
to improve transparency in corporate governance will be welcomed. We hope that Ministers will continue to
work closely with the business community to ensure the implementation of these reforms does not create an
unnecessarily high administrative burden on law abiding companies, while also ensuring the UK is not the only
country taking action to encourage proper corporate governance.
Public sector procurement
Clause 33: Regulations about procurement
Clause 34: Investigation of procurement functions
The Bill will contain powers to streamline public procurement to remove barriers and help small business
to access finance and tender for public procurement contracts. Also, the Bill will give additional powers to the
Cabinet Office’s Mystery Shopper scheme to monitor public procurement practice.
Outline of the measure:
—— Government may use the delegated power to require procuring authorities to: run an efficient and
timely procurement process; accept electronic invoices and make available, free of charge, information
or documents necessary for any potential supplier to apply for a contract.
—— Place a general duty on the Departments and other bodies in scope to co-operate with investigations.
—— Place duty on Departments and bodies to respond within 30 days to an order requesting information or
documents to enable investigations to proceed efficiently.
46 Small Business, Enterprise and Employment Bill: Written evidence
—— Give the Minister for the Cabinet Office or the Secretary of State the right to publish results of the
investigations.
BCC position: The BCC broadly supports these measures in the Bill, which pertains to public procurement.
Chamber members, especially SMEs, continue to experience barriers to supplying the public sector: high
bidding costs disproportionate to the size of contracts; inconsistency in speed of decision making; burdensome
red tape and overly strict pre-qualifying criteria out of line with private sector best practice. While central
government procurement has made some important strides forward in this area—for instance by abolishing
PQQs for contracts under £100k and setting ambitious targets for SME participation, this has not been reflected
in the wider public sector—the NHS, local government and other agencies which constitute the majority of
public sector purchasing.
Section 3 should make it easier to extend the changes recently introduced to central government procurement
to the wider public sector by:
—— Strengthening the power of central government over the conduct of procurement in the wider public
sector
—— Increasing the accountability of procurement functions across the public sector by enabling Ministers
to investigate performance (timeliness, efficiency etc)
We believe it would make it easier for the government to create a public-sector-wide ‘procurement passport’
by enforcing common standards. The detail of any further regulations may need to be taken forward in
secondary legislation.
Our one concern is that centralisation of standards and practices must not be used as a stepping stone to
further the centralisation of buyer demands into large, nationwide frameworks. In practice these work against
SMEs by favouring companies with broad national capability. The BCC will continue to call for a more
favourable system for SMEs which come together to bid as consortia—particularly through reviewing financial
pre-qualifying criteria.
October 2014
Written evidence submitted by Institute of Directors (SB 17)
Introduction
1. Thank you for giving the Institute of Directors (IoD) the opportunity to provide further supplementary
written evidence about the Small Business, Enterprise and Employment Bill 2014. Issues relating to creating a
trusted, transparent and fair business environment for companies in the UK are of considerable interests to the
IoD and its membership. We are therefore pleased to present our views in respect of the provisions outlined in
this Bill.
About the IoD
2. Founded in 1903, and granted a Royal Charter in 1906, the IoD is an independent, non-party political
organisation of around 35,000 individual members. Its aim is to serve, support, represent and set standards for
directors to enable them to fulfil their leadership responsibilities in creating wealth for the benefit of business
and society as a whole. The membership is drawn from right across the business spectrum. 92% of FTSE 100
companies have IoD members on their boards, but the majority of members, some 70%, comprise directors of
small and medium-sized enterprises, ranging from long-established businesses to start-up companies.
Overall response
3. Overall we welcome the main provisions of this bill, in particular those sections of direct relevance to the
IoD and its membership, as outlined below. The proposed measures in the above clauses will create a more
transparent and open business environment for companies operating in the UK as well as significantly reducing
much of the regulatory burden on small companies, many of whom have directors who are members of the IoD.
4. The IoD welcomes the Government’s efforts to promote transparency and trust in the UK business sector.
We recognise that good corporate governance is inherently linked to trust and confidence in our capitalist
system, and that this trust has been severely tested by the economic problems of the last five years.
5. The bill represents a significant piece of legislation and our one overarching concern relates to the time
left during this parliament. We would not wish the key provisions to be lost in the “wash up” or completely
forgotten. It’s important both Government and Opposition ensure adequate time is put aside to debate the full
nature of this bill.
Access to finance
6. Broadly speaking we welcome these proposals. As the Prime Minister made clear in 2013, many retailers
are facing significant problems in respect of respect of late payments. Clause 1 is to be welcomed—it will
address existing contractual barriers that make it difficult for small businesses to raise finance using their
Small Business, Enterprise and Employment Bill: Written evidence 47
receivables. Addressing this issue means companies will be able to use “invoice financing,” which is in itself a
new and exciting form of peer to peer lending with many successful companies operating in the UK.
7. The detail proposed in clause 3 is also to be welcomed. We believe companies should publish their payment
practices, with a view to creating a more open and transparent environment. Companies that pay their suppliers
late or impose unreasonably long payment terms on them adversely impact 85 per cent of small businesses.
However, we would caution on anything that creates additional burdens for companies. The government will
consult on this clause later in the year with a view for introducing secondary legislation. We look forward to
contributing to this discussion.
8. With respect to clauses 4 and 5, we believe this is a welcome addition and should provide small businesses
with more understanding and access to other alternative finance options. Where more data is accessible and
more widely shared by banks, a significant barrier will be removed for new lenders and alternative finance
providers. However, it will be important that this is properly monitored to ensure lenders are indeed a) providing
businesses with alternative financing options, should a small business be rejected for a loan and b) sharing data
more widely.
9. In addition to these legislative measures, the government’s feedback statement in May provided for a
commitment to strengthening the payment code, of which the IoD is a member. It is not a mandatory code and
some bodies, notably the Federation of Small Businesses, have called on government to make it such. The IoD
rejects this view. The code does need to become more effective and we agree that the decision to set up an
advisory board, of which the IoD is a member, is the right way to look at its effectiveness before deciding on
whether to introduce legislation forcing companies to sign up to it.
Regulatory reform
10. Our interest here is in clause’s 13 and 14 respectively, regarding streamlined company registration.
Broadly speaking, any attempt to reduce the regulatory burdens on business, specifically making life easier for
persons setting up a business in order to fulfil their legal obligations, is to be welcomed.
11. More broadly, it is important that Companies House exploits new ways of reducing the administrative
burden on companies, particularly those SMEs that lack in-house secretarial or management resources. A
modern digitally-based approach to company registration and administration provides the most effective way
forward. Creating an efficient and cost-effective technological platform that facilitates the management and
communication of reliable company information is the key challenge for Companies House during the next
decade.
Transparency and Trust of companies
12. The IoD welcomes the Government’s efforts to promote transparency and trust in the UK business sector.
We recognise that good corporate governance is inherently linked to trust and confidence in our capitalist
system, and that this trust has been severely tested by the economic problems of the last five years. We broadly
support the idea of a central registry of beneficial ownership. However, it should be recognised that law
enforcement authorities already have statutory powers of investigation which they can use to try and identify
beneficial ownership. Despite these powers, it is often difficult to prove that a person suspected of benefiting
from the shares or company in question is actually the beneficial owner. Consequently, although we think that
a registry of beneficial ownership is a worthwhile initiative, we are conscious of the significant challenges that
must be overcome in order to ensure its accuracy—the small minority of company owners who wish to conceal
their influence over a company are likely to continue to be able to do so.
13. We agree that the proposed central registry should hold information on companies incorporated in the
UK, and that it should include LLPs. We observe that public companies listed on a regulated market (i.e. the
Main Market of the London Stock Exchange) are already subject to stringent disclosure rules by the Financial
Conduct Authority. As they will already have relevant information on beneficial ownership, there is little
deregulatory benefit to be gained from exempting them from inclusion in the main central registry.
14. With respect to clause 73, we agree that, although bearer shares can be used for legitimate purposes, this
is outweighed by their potential for misuse. Their continued existence is also inconsistent with the transparency
agenda that has been addressed in this Bill. Consequently, we favour a phasing out of existing bearer shares
over a period of time. This transition phase needs to be long enough to enable existing bearer shareholders to
convert their shares into registered shares without any significant economic loss, given that many individuals
may well be holding bearer shares for entirely legitimate reasons. Additional arrangements may also be
required to protect the identities of vulnerable individuals. However, the issuance of new bearer shares could be
prohibited immediately.
15. Clause 76 raises a number of interesting questions which we would like to comment on. Countries such
as Switzerland, the Czech Republic, Jersey, and some US states have outlawed the use of corporate directors.
We are sympathetic to this position. One of the purposes of the board of directors is to provide a company—
which is ultimately only a legal concept—with a human face that can be held personally accountable. Although
we recognise that corporate directorships may be an administratively convenient means of managing subsidiary
companies and other corporate entities, their ‘non-human’ nature means that they undermine this basic principle
48 Small Business, Enterprise and Employment Bill: Written evidence
of accountability. And by further distancing natural persons from corporate actions, they provide significant
opportunities for abuse. For these reasons, we favour the phasing out of the use of corporate directorships.
However, as with bearer shares, it is important to undertake this process over an extended period in order
to allow companies to make new administrative arrangements without excessive disruption to their current
operations.
16. The blocking of new corporate directorships could take place immediately. Existing corporate directorships
should be given a number of years (e.g. at least 5 years) to convert themselves into natural directorships.
17. In broad terms we support clauses 78 and 79. We agree with these clauses and have no objections to
them. However, we should add that there shouldn’t be a shadow director—all directors should be properly
registered and appropriately referenced in annual report.
Company Filing Requirements
18. Clauses 80—91 contain a range of measures which stem from The Companies Red Tape Challenge. The
challenge identified a number of measures to simplify the company filing requirements and reduce duplication
of the requirements. The Department for Business consulted on these measures in November 2013 and
published the government response in April this year.
19. The IoD is strongly committed to encouraging entrepreneurship within an appropriate regulatory
framework. The ideal regulatory framework is one which allows companies to concentrate on running their
businesses rather than having to deal with excessive bureaucracy.
20. The UK private limited company form is a well-established and successful legal vehicle for many
businesses. But in order to sustain this success, it is important that the limited company’s regulatory regime
remains light touch, low cost and conducive to a high level of company transparency.
21. Overall, we believe that the current Companies House (CH) filing regime broadly achieves these
objectives. This is reflected in the fact that the overwhelming majority of companies comply in a timely
manner with statutory filing requirements. The current filing and returns regime is not excessively onerous for
companies, and most nowadays interact with CH online rather than by submitting paper forms.
22. Nonetheless it is important that CH exploits new ways of reducing the administrative burden on
companies, particularly those SMEs that lack in-house secretarial or management resources. A modern digitallybased approach to company registration and administration provides the most effective way forward. Creating
an efficient and cost-effective technological platform that facilitates the management and communication of
reliable company information is the key challenge for Companies House during the next decade.
23. Therefore we are broadly supportive of these main proposals. Our conclusion is that changes relating to
filing requirements will reduce the bureaucratic burden on SME directors and also assist them in preventing
identity theft. We particularly welcome steps to provide directors with more information about their legal duties
on appointment, although this falls short of a requirement for some form of induction or training for directors.
We see this as a logical next step.
Directors Disqualification
24. Clauses in part 9, relating to director disqualification, are broadly to be welcomed. We deem most of
these proposals as representing a step in the right direction, modernising older provisions, which don’t fit the
current IP regime.
25. Our view is that director disqualification proceedings should always be a matter for a court (rather than
a sectorial regulator). It need not necessarily be the case that a director prohibited from serving in a particular
sector should be prevented from serving as a director more generally. However, we accept that it may be
desirable to allow sector regulators to make applications to the Court for a disqualification. Whether this is
approved should be a matter for the Court, taking all relevant circumstances into account.
26. We are strongly of the view that a director should not be penalised due to the mere fact of being a
director of previously-failed companies. Such an approach is anti-enterprise and reflects a misunderstanding of
(or antipathy towards) the functioning of a market economy.
27. Disqualification should only be affected by the track record of the director if there is evidence of proven
wrong-doing in respect of previously-failed companies.
28. Clause 96: We have observed little evidence that the current approach is a cause for concern. It is
important that potential disqualification proceedings do not hang over directors for extended periods, thereby
affecting their ability to engage in productive economic activity.
29. Although there is some reference to director training in clause 89 (registrars’ duty to inform new directors
of entry in register), we do believe that BIS could have gone a lot further and made explicit reference to how
director training would increase trust in the enforcement regime. We would support this initiative, and stand
ready to support BIS with the provision of this kind of remedial director education programme. If we are going
to advance the cause of more effective and sustainable business, and improved corporate governance, we need
to recognise the positive role that director training can play in the process. Director training should be seen
Small Business, Enterprise and Employment Bill: Written evidence 49
as an important mechanism by which corporate behaviour can be influenced for the better—the entire focus
should not be placed on legal and regulatory reform.
Insolvency regulation
30. On the whole we are supportive of the measures contained in Part 10. We think these clauses will make
the insolvency regime fit for purpose in the 21st century. The 1986 Act is outdated and the proposals here
make logical sense. As an aside, it is important to note that we have previously stated in earlier responses to
consultations that “We are not persuaded that the existing insolvency system is somehow ‘unfit for purpose’
or acting as an obstacle to economic recovery, e.g. due to poor treatment of creditors. On the contrary, we
believe that the current framework adequately balances the interests of the relevant company stakeholders. This
view is consistent with the findings of the latest Insolvency Service survey which found that around 65% of
those questioned had confidence in the current enforcement regime.” That said, these proposals are generally
inoffensive and are satisfied with the proposals outlined in this bill.
31. On the Graham Review (Clause 117) we are supportive of any attempt to provide more clarity about
pre-packs, which are often criticised in the media. They have always had a valid role to play in saving jobs
and economic capabilities. We sincerely hope the market supports and adopts the voluntary package outlined
in Theresa Graham’s report. Enforcement of this packaged by legislation, as proposed in this clause, should be
seen as a last resort only.
October 2014
Written evidence submitted by the British Beer and Pub Association (SB 18)
Summary
The British Beer & Pub Association (BBPA) welcomes the opportunity to make this submission to the Bill
committee on behalf of its members, who produce 90% of beer sold in the UK and own 80% of leased and
tenanted pubs. Member companies are totally committed to fair, transparent and lawful dealing with tenants
and lessees and all other business partners and against any abuse of the tied pub model. They are committed to
self-regulation and have established independent complaints panels for rents (PIRRS) and for any other aspect
of the Industry Framework or individual company codes (PICA-Service) and which are working well. Whilst
we remain of the view that a statutory code and adjudicator are unnecessary, we are committed to working with
the Government and Parliamentary process in order to achieve a workable solution for the sector.
We also recognise that the Government addressed a number of problematic elements following the original
consultation. However, the BBPA still has serious concerns around several key aspects of this Bill; the ensuing
regulatory burden and the unintended consequences of the Bill is currently drafted. These are the ‘no worse off’
principle and how this is achieved in practice through the operation of the adjudicator (including the ability to
set rents which is linked to this), the inclusion of temporary agreements, franchises and small companies in the
scope of the legislation, and concerns within the statutory code itself and the ability to change the content of
the code without proper consultation. We set out our views on these subjects in more detail below and would
ask that the Committee look closely at these in their discussions to ensure the Bill is workable and fair to those
owning and operating tied pubs.
1. Clause 36 (4). The BBPA, our members and those outside our membership operating tied estates have
very serious concerns about the ‘no worse off’ principle. This provision introduces a system of regulated rents
for substantial parts of the industry. This system will operate through the determination of individual disputes,
with no appeal to a specialist tribunal and only very restricted rights of appeal to the Courts. We are therefore of
the view that the principle above will establish price controls inconsistent with a market economy and in breach
of EU competition law. Any enforced transfer of value in relation to individual agreements also risks breaching
the European Convention on Human Rights in not allowing companies’ the right to enjoy their property.
2. Our members are also concerned about how this system of rent regulation will work in practice once it
becomes enshrined in law. A major concern has been confirmed by the Minister Jo Swinson’s letter to MPs
(following the second reading debate), which clearly sets out the intention that the adjudicator will be able to
both assess whether a rent complies with the ‘no worse off’ principle, and if not will have the power to set the
rent level for individual agreements.
3. In the response to the original consultation, BIS rightly recognised and as was confirmed by London
Economics, that offering a mandatory free of tie option and a guest beer option would undermine the tied
model and lead to ‘a high degree of uncertainty in the industry’ and ultimately destabilisation and pub
closures—estimated at up to 8,000 job losses and 1,600 pubs shutting (see Annex). However, by confirming
that the adjudicator will have the power to arbitrate and enforce set rents for an individual agreement,
uncertainty is re-introduced which will lead to serious unintended consequences. It would be difficult enough
to produce a comparative rent assessment for illustrative purposes, (as originally envisaged in the consultation
50 Small Business, Enterprise and Employment Bill: Written evidence
using SCORFA36), and even more problematic to create such an assessment which would be used to determine
actual rents at an individual pub level.
4. We are of the view that the Government has underestimated the complexity and scale of such an exercise,
(for example there are currently 3-5,000 rent reviews, renewals and new agreements per year), as well as costs,
and even against what criteria comparisons are carried out. As set out in Royal Institute of Chartered Surveyors
guidance, comparing tied and free-of-tie agreements is ‘problematic’. There are significant differences (such
as SCORFA) between such agreements and, for example, there are few, if any, traditional free-of-tie brewery
tenancies to compare with. For example, there is no comparable model to the tied short term tenancy model
(three to five years), as in any other untied business agreement the landlord would not bear all the risk at his
own cost in the same way as a tied agreement.
5. Setting rents or prices for an industry is not an appropriate role for an adjudicator. Prices are set only in
regulated industries where competition is non-existent or substantially muted. Such regulated prices are arrived
at by a process that involves complex analysis of the economic position of the undertakings concerned. We
note that there is no proposal that this should be undertaken by the adjudicator, and such a process would be
completely unjustified in a situation where there is a keenly competitive market. The consequence is, however,
that the adjudicator is likely to be able to take into account only the interests of the tenant. This is not only
unsatisfactory, but also unfair.
6. There are also vital technical amendments dealing with the workings of the parallel rent assessment
which will need to be addressed—the legislation as drafted does not allow for such rent assessments to be
carried our practically and in line with RICS guidance. For example, for this to work in practice, the line in
Clause 62 (1) reading “(assuming that the tenancy is unchanged except in respect of terms relating to such
ties)” should be removed.
7. Clauses 39, 42, 49, 50. All mentions of the adjudicator in the legislation need to be clarified, as at present
it is not clear as to the operation of the adjudicator/arbitration function, (for example the lack of clarity around
the mechanisms and evidence base for companies wishing to challenge decisions made by the adjudicator) and
the apparent deviation from the Grocery Code model in terms of individual rent negotiations. The legislation
also needs to be clarified in respect of disputes against companies by tenants, as at present the legislation could
allow for vexatious or unsubstantiated complaints to be heard at a cost to companies.
8. Clause 61 (2) (d). As drafted the legislation will cover all genuinely temporary agreements which we
believe is not the intention of BIS. These temporary stop-gap agreements between companies and tenants are
hugely important and put in place to keep a pub trading whilst a longer-term tenant is being sought. Both parties
are aware this is a short term arrangement which can be ended on short notice, (to the benefit of both parties)
and hence why they are excluded from the current voluntary code. By including them in the statutory code,
with the same provisions as a substantive agreement, this will result in such agreements being too onerous to
continue—which will lead to pubs being closed and boarded up between tenants, which is in nobody’s interest.
We estimate that just over 10% of tied pubs are on such temporary agreements—around 2,100 pubs—which
would be at risk of being closed between substantial agreements. We feel that the current 12 month cut-off
for temporary agreements should be retained. If there is a concern that ‘rolling’ temporary agreements may be
granted to avoid code obligations, a form of words that will avoid this whilst also allowing genuine stop-gap
agreements to continue, could be the following: clause 61 (2) (d) “in pursuance of a provision of, or made
under, an Act, but excluding agreements where the tenant is in situ for less than twelve months.” This would
seem to us a proportionate and fair solution.
9. BBPA continues to support the position that companies operating less than 500 tied pubs should be
exempted from the code (as long as there is no material distortion of competition). IFBB members have
committed to fund self-regulatory structures if BIS decided to remove them from the scope of the statutory
code. Significant costs would be placed on small business if the legislation goes ahead without such
amendments. Vince Cable, speaking in Parliament on this subject recently37, stated that “we have no wish to
create problems for the small, family-owned pubs, which are an extremely important part of the industry…
(they) are already subject to the voluntary code. In a sense, it would be right for tied pubs of all kinds to be
given some protection.”
10. Clause 61 (1) (b). The wording contained in the Bill allows for the same safeguards to be applied to
someone looking at taking on a tied agreement, as to an established tenant already trading in the premises.
We agree with the Government that protection should apply to those entering negotiations on rent for a
tied agreement, however the legislation as drafted is far too wide, and would be very difficult and costly to
implement in practice. For example, pub companies receive hundreds of expressions of interest in their pubs
per year—not all of which will result in an agreement—and it would be practically impossible for a company
to place all of these under the protection of the code. During discussions on this issue when drafting a potential
industry standard code with tenant groups, this was recognised and a form of words which would be practically
workable and provide protections for tenants taking on a pub: “61 (1) (b) who is party to negotiations which
have reached the stage of a provisional trading agreement for the prospective tenancy of a premises which are,
or expected to be, a tied pub ahead of any final terms of the agreement being agreed.”
36 37 Special Commercial or Financial Advantage
Hansard, Commons Debate, 11 September 2014 c1064
Small Business, Enterprise and Employment Bill: Written evidence 51
11. Clause 37 (4). We are of the view that there are insufficient safeguards in the legislation to prevent
the Statutory Code being amended at a later date. Proper consultation and Parliamentary scrutiny should be
required for any changes, as indicated in the Government response to the consultation. This must be on the face
of the primary legislation to ensure the Code cannot be arbitrarily changed in the future. This is reflected in
Groceries Code, which can only be changed after a full Competition & Markets Authority investigation and not
changed arbitrarily. We would suggest that Clause 37 (4) page 31 is amended, with the addition “any proposed
changes to the Code must be subject to full parliamentary scrutiny and public consultation.”
12. Franchises. We remain of the view that ‘true’ franchises should be excluded from the Code as they are a
completely different business model from a tied tenancy as they are based on a simple profit share arrangement.
A definition of franchise could be only those business models fully approved by the British Franchise
Association (which has its own codes of practice to protect franchisees), or other wording of such a definition
that reflects this. There would be no difference between, for example, a brewer offering a franchised profit
share arrangement on a food-led large dining pub, and a restaurant company offering an identical franchise—
which could lead to unintended consequences of non-brewer/pub companies being caught under the code, as
they have alcohol franchise agreements as part of their restaurant offer, (which would be licensed the same way
as a public house).
13. Clause 38 (3). The legislation should specify that the provisions of the code will initially be applied to
leases or tenancies only at agreed break points, (such as rent reviews or renewals) in current agreements,
rather than applied to all leases and tenancies retrospectively. If a rental clause is declared void, the effect might
well be to render the whole agreement void and of no effect, because payment provisions in agreements are
usually not severable. Rendering agreements void is likely to be in no-one’s interests.
14. Finally, whilst we understand a further consultation will be undertaken in relation to the Statutory Code
S.I itself, it is important that the Committee reflect that, as drafted, it is particularly onerous in a number
of areas—particularly for smaller companies. The Code also needs to properly reflect key differences
between shorter term traditional tenancies and longer-term assignable and fully repairable lease agreements.
Examples which we would ask that the Committee direct BIS to consider further as not suitable for short term
tenancies are the stipulation of RICS valuer sign-off; requirement for code compliance officers and business
development manager obligations. It is also vital that BIS and the adjudicator work with companies to agree
what components the parallel rent assessment may include, what interpretation can be then be drawn from the
numbers considering such complex and different business models and agreements and therefore limitations of
this exercise. For example, an apparently simple question—what is a comparable free-of-tie price—does not
have a simple answer. As currently drafted the Code also does not place a duty on the tenant assigning their
lease to another prospective tenant to provide information on the business they are selling. An assignment is the
sale of a going concern, not simply the sale of a lease, and as such the sitting tenant will have information that
should (under the intentions of the Code), be disclosed to the potential purchaser.
October 2014
BBPA RESPONSE TO SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT BILL
COMMITTEE
Annex
London Economic study: key conclusions
—— Independent study commissioned by BIS to consider wider economic impact of consultation proposals
—— Sample outlet level data provided in confidence for over 1000 pubs and econometric model built
utilising wide range of scenarios and sensitivity analysis.
—— First round effects of different policy options...up to 38,000 jobs losses
—— Second round (final) effects assuming 60% of customers go to other pubs still up to 8,000 job losses
and 1,600 pub closes.
52 Small Business, Enterprise and Employment Bill: Written evidence
Study quotes:
“ There is a real possibility that each of the proposed policy reforms, except possibly the code without
permitting guest beer, instead of delivering the policy objective of ensuring tied tenants are treated
fairly, i.e, ‘no worse off’ than free of tie tenants, may lead to the end of a large scale tied pub system.”
“In the short-term, it is also worth noting that the PICAS/PIRRS system, which is the most concrete
element of the current voluntary framework, is now becoming an established part of the infrastructure,
and appears to be having some effect in starting to address the worst tenant circumstances.”
“It is our conclusion that the reforms proposed in the consultation will close up to 1,600 pubs,
although there is very great uncertainty about the precise value; In particular, the size of the transfer
from pubcos to tenants resulting from the ‘no worse off’ principle is very hard to estimate, our
results reflect the impact of a range of possible transfer values; However, there is clearly surplus pub
capacity, in quite a volatile market where, with so many pubs on the margin of viability it is hard to
determine which pubs will close.”
—— One of the most important points made by London Economics is in relation to why their conclusions
differed from the initial BIS impact assessment (who had envisaged that no pub would become
unviable as simply a transfer of profit from one party to another). London Economics noted that BIS
had not factored in capital costs (only operational costs) incurred by pub companies. For a pub to
remain viable the income would need to cover these as well.
Written evidence submitted by the Association of Convenience Stores (SB 19)
1. ACS (the Association of Convenience Stores) represents 33,500 local shops across the UK who employ
386,000 people. We welcome the opportunity to submit evidence to the Public Bill Committee.
2. The vast majority of shops in the convenience sector are owned by small business owners, with
independents making up 77% of the sector, either as non-affiliated independents or as part of a symbol group
trading under a common brand. ACS welcomes the Government’s commitment to introducing mechanisms
such as One in Two Out to reduce the regulatory burdens on small business.
3. In this submission we will highlight the successes of the Bill in reducing regulatory burdens on small
business, but also the areas where further improvements could be made.
Regulatory Reform
4. Regulation provides clear protections and boundaries for both consumers and businesses, however it also
places costs and burdens on affected premises, with small business often being disproportionately affected. It is
essential that the Government balances these two issues in policy making.
5. As outlined in ACS’ submission to the Regulatory Reform Inquiry, ACS welcomes the Government’s
commitment to removing two pieces of regulation for each new regulation introduced. Setting a business
impact target would therefore ensure these are maintained on a statutory footing.
6. Policy on deregulation targets must be sector specific and are often focused on sectors which are not
directly affected by the new regulations. If ‘One-in, Two-out’ is to deliver the desired outcomes at the lowest
possible cost, further regulation in the retail sector must be balanced by deregulation within the same sector and
not elsewhere to reduce burdens on business.
7. If a business impact target is to minimise any disproportionate impact of regulation on small business, it
is important that the Secretary of State’s report on the economic impact of regulation must define regulation
not solely by cost. Operational and administrative costs also place a huge burden on small business, which
can consequently damage their economic viability. It is important these costs are also considered, as without a
Small Business, Enterprise and Employment Bill: Written evidence 53
correct analysis of what costs affect business, there is no certainty that the policy can or will deliver a reduction
in regulatory burdens for small business.
8. We welcome the provision to ensure that all new regulations affecting business are reviewed regularly,
including the provision for a specific duty to review regulatory provisions in secondary legislation.
Definition of small and micro business
9. ACS supports the creation of statutory definitions for the terms ‘small business’ and ‘micro business’.
Convenience stores employ on average 7.6 employees per store and 91% of independent are less than 2,000
sq. ft. in size38. These definitions can be relied on when establishing whether small and micro businesses are
exempted from new regulations.
10. However, these definitions must not become the only definitions of small business for regulatory purpose.
Within the retail sector the definition of a small shop can often most appropriately by the size of the premises
that the business occupies. For example:
a. Premises that are smaller than 280 square metres of retail floor space are exempt from opening hours
restrictions under the Sunday Trading Act 1994. This floor space threshold has been used in other areas
like in the implementation of the new law restricting tobacco display.
b. The rateable value of the premise is used for the purposes of assessing a business rates tax liability (i.e
qualification for the small business rates multiplier) and entitlement to reliefs.
c. Energy consumption—this is an important way of defining whether a small business is afforded
protections in the energy market.
11. ACS support for the definitions proposed to be enshrined in this Act does not extend to these definitions
being used to the exclusion of all others. It is clear for the examples set out that there are contexts where other
definitions are far more appropriate.
Financial penalty for underemployment of national minimum wage
12. Enforcement of the minimum wage is essential to ensure that legitimate employers are not undercut by
those who do not deliberately pay the correct NMW rate. Penalties against underpayment must be sufficiently
high so as to deter employers from underpaying workers; however these have diminishing returns of value. We
believe that local authorities should have the power to prosecute employers who deliberately break the law.
Exclusivity in zero hours contracts
13. Many people enter into convenience sector employment because of its flexible nature that allows them
to balance other commitments; 67% of employees in the sector work less than 30 hours a week.39 It would
therefore not be beneficial for retailers to prevent their staff from working elsewhere.
14. It is also unlikely that convenience store employees would be entrusted with sensitive data that would
justify the use of an exclusivity clause in their contracts. Making exclusivity clauses invalid and unenforceable
would therefore allow employers and employees to benefit from the flexibility of zero hours contracts whilst
addressing their abuse by some employers.
October 2014
Written evidence submitted by Richard Dunstan (SB 20)
1. I have worked as a policy analyst on employment issues since 2000. I was employment policy officer
at Citizens Advice from 2000 until early 2013, and have since worked for Working Families and Maternity
Action. I also write for the employment law and policy blog Hard Labour. This submission is made in my
personal capacity.
2. Since 2000, the main focus of my work has been vulnerable (e.g. low paid, non-unionised) workers and
the difficulties they face in enforcing their statutory workplace rights. In this submission, therefore, I confine
my comments to clauses 136, 138 and 139 of Part 11 of the Bill.
Clause 136: Financial penalties for non-payment of an ET award
3. Clause 136 provides for the imposition of a financial penalty of up to £5,000 on an employer who fails to
pay a tribunal award (or Acas-conciliated settlement), the aim being to discourage such non-payment.
4. During my time at Citizens Advice, I researched and wrote three reports on the widespread non-payment
of tribunal awards: Empty justice (2004); Hollow victories (2005); and Justice denied (2008). So I warmly
welcome the financial penalty mechanism provided for in clause 136, not least because it is pretty much the
38 39 ACS Local Shop Report 2014
ACS Local Shop Report 2014
54 Small Business, Enterprise and Employment Bill: Written evidence
same mechanism that I proposed to ministers in 2012, during the passage of the then Enterprise & Regulatory
Reform Bill. Ministers were not (sufficiently) impressed by the idea then, but pressure from the opposition
front bench did lead to BIS minister Jo Swinson commissioning further research on the issue (replicating
the research commissioned by the Ministry of Justice, in direct response to Justice denied, in 2009). And the
damning findings of that BIS-commissioned research have evidently led to a ministerial change of heart.
5. Some have been quick to note that clause 136 would not solve the problem of non-payment of awards and
Acas settlements. Indeed it would not, but then no single measure would, as the problem is extremely complex.
There are other steps that BIS and the Ministry of Justice could and should take, such as ‘naming & shaming’
those employers who fail to pay up. But, by creating a meaningful financial disincentive to non-payment of an
award, clause 136 could be expected to at least reduce the rate of non-compliance.
6. Except that, the kind of relatively low-value claim for e.g. unpaid wages, holiday pay and/or notice pay
that has in the past often culminated in a hollow victory for the claimant when the employer fails to pay up,
is also the very kind that has been eviscerated by the hefty, upfront tribunal fees introduced by the Ministry of
Justice in July 2013.
7. Not surprisingly, vulnerable workers subjected to wage theft by a rogue employer have proven to be
reluctant to throw up to £390 of good money after bad. So the number of claims for unpaid wages etc. has
tumbled, from an average of 4,587 per month in the nine months immediately before the introduction of fees, to
an average of just 1,073 in the nine months up to June 2014.
8. In short, thanks to the tribunal fees introduced in July 2013, the longstanding problem that clause 136
seeks to (partly) address is no longer quite the problem that it was. So, while BIS might now seek credit for
trying to close the stable door, most of the horses have been galloping around the fields since July 2013, and
will continue to do so until such time as the tribunal fees regime is substantially reformed.
Clause 138: Maximum financial penalty for breach of the NMW
9. Clause 138 provides for an increase in the maximum financial penalty that can be imposed by HMRC
for breach of the national minimum wage, from £20,000 per employer (technically, £20,000 per Notice of
Underpayment), to £20,000 per underpaid worker.
10. On the face of it, clause 138 is welcome. Fifteen years after its introduction, there can be no excuse for
not paying the NMW. But the practical impact of clause 138 would be negligible, for two reasons.
11. Firstly, as the average underpayment (and penalty imposed) per worker was just £205 in 2013–14,
the number of employers who pay even the current maximum penalty of £20,000 is small: just 52 (eight per
cent) of all 652 employers penalised in 2013–14. So the number liable to receive a penalty anywhere near the
proposed maximum of £20,000 per underpaid worker would be even smaller.
12. Secondly, HMRC already can in effect impose a penalty of up to £20,000 per underpaid worker, by the
simple expedient of issuing more than the normal one Notice of Underpayment to the employer. This practice
was adopted in March 2014, when the penalty percentage was increased from 50 per cent to 100 per cent of the
total underpayment, and the maximum penalty was increased from £5,000 to £20,000. (I am not aware of any
published figure for the number of employers issued with more than one Notice of Underpayment since March
2014, but the Minister may be able to provide that figure to the Committee).
13. In short, all that clause 138 would do is align the statutory power to set the maximum penalty with the
practice adopted by HMRC in March 2014 (in order to meet the Prime Minister’s announcement in November
2013 that penalties would be both increased and imposed on a ‘per worker’ basis). According to the associated
BIS Regulatory Impact Assessment, this would save HMRC some £250,000 per year in administrative costs
associated with serving a small number of employers with more than one Notice of Underpayment.
14. However, that would be the sum total of the impact of clause 138. And, as it is not clear from the
Regulatory Impact Assessment how HMRC (or BIS) arrived at the total costs figure of £250,000, even that
figure might well be an over-estimate.
Clause 139: Banning exclusivity clauses in zero-hours contracts
15. According to a BIS facts sheet on the Bill, clause 139 would “make exclusivity clauses in zero-hours
contracts invalid and unenforceable,” the aim being to address the abusive use of zero-hours contracts.
16. Such exclusivity clauses—which prevent an individual on a zero-hours contract from working for a
second employer, even when no work is on offer from the first—are easily labeled as unfair. But even if clause
139 achieved its aim of making such clauses “invalid and unenforceable”—a rather large ‘if’—it would still
have little if any impact on the abusive use of zero-hours contracts, for the simple reason that such exclusivity
clauses are far from essential to that abuse.
17. In practice, all an abusive employer has to do is let it be known that taking work with another employer
will result in no further work being offered. Employment law specialist Mark Tarran has put it this way:
Zero-hours contracts before [clause 139]: “If you work anywhere else you will be in breach of
contract and I won’t give you any more work.”
Small Business, Enterprise and Employment Bill: Written evidence 55
Zero-hours contracts after [clause 139]: “If you work anywhere else you won’t be in breach of
contract but I still won’t give you any more work.”
18. It is worth noting that, according to BIS, only 125,000—about one in ten—of the estimated 1.2 million
zero-hours workers have an exclusivity clause in their contract. And why would employers not have bothered
to insert such a clause into nine out of ten zero-hours contracts? They didn’t, because they don’t need to. Take
away the exclusivity clause, and the worker is still on a zero-hours contract, with no guarantee of work from
one week to the next. And that is what makes them vulnerable to abuse.
19. To my mind, zero-hours contracts are best viewed as one (very nasty) symptom of a killer disease: the
abuse of vulnerable workers by exploitative employers. That disease has become more prevalent and more
virulent in recent years. But treating a symptom will not cure the disease, even if makes the doctor feel more
comfortable.
20. I hope that these brief comments will prove helpful to the Committee’s deliberations, but would be very
happy to elaborate on any point.
October 2014
Written evidence submitted by the Business Information Providers Association (SB 21)
1. Introduction
This paper has been prepared by the Business Information Providers Association (BIPA) for Members of the
Select Committee reading the Small Business, Enterprise and Employment Bill specifically relating to Clauses
6 & 7—the Disclosure of VAT registration information.
BIPA is made up of the principal commercial Credit Reference Agencies (CRA’s)—Dun and Bradstreet,
Creditsafe, Equifax, Experian, Graydon and Jordans who collectively provide in excess of 65 million
commercial trade credit reports per annum and monitor 35 million commercial trade credit accounts on
behalf of 100,000 UK based customers. The data held by BIPA members is used in the credit assessment of
more than 100 million commercial trade credit accounts per annum.
BIPA has two primary purposes;
(i) Firstly to facilitate economic growth through the promotion and protection of statutory publicly
available data used by the CRA’s. This information is essential because it helps to reduce the risk
inherent in business transactions; deters fraud; and facilitates the granting of credit.
(ii) Secondly to facilitate communication between the CRA’s and the business community to create
greater awareness of the data held; how this data is used; and how it benefits business decisions
and responsible lending.
The UK is one of the best places in the world for access to business information, Companies House
provides detailed information on 3.3 million live companies and Registry Trust (The Registry of County Court
Judgments) provides details of all County Court Judgments from the Courts Service (part of the Ministry of
Justice). BIPA members process this publically available data to add value and enable credit reports, credit
scores and recommended credit limits to be produced.
There are around 2.8 million sole traders and partnerships which together with limited companies make up
the 6.1 million businesses operating in the UK, of which 35% are VAT registered.
2. Executive Summary
Since the demise of the Business Names Registry in the late 1970’s sole traders and partnerships have not
been required to register their existence with a publically available Register or Authority, save those who
trade above the VAT threshold (currently £81,000). These businesses are required to register with HMRC but
this information is not accessible. Clauses 6 & 7 in the Small Business, Enterprise and Employment Bill will
enable this valuable information to be used productively.
There are estimated to be around 2.8 million sole traders and partnerships operating in the UK making
a significant contribution to GDP, but unlike those businesses that choose to operate as limited companies
it is difficult to verify their existence, what they do, how long they have been in business and who the
owners are. Because of the lack of verifiable data they are disadvantaged when seeking trade credit and
potentially other forms of finance. Around 12 million (18%) of all requests made to CRA’s for commercial
trade credit reports are on sole traders and partnerships.
There are 2.1 million businesses registered for VAT. 729,440 (35%) are sole traders and partnerships;
the majority of these businesses will have a turnover in excess of £81,000 the VAT threshold (although some
businesses do register voluntarily). This represents a significant proportion of businesses where no positive
publically available data can be accessed.
56 Small Business, Enterprise and Employment Bill: Written evidence
When HMRC announced their intention to consult on the release of non-financial VAT data in July 2013 this
was welcomed and supported by BIPA members. The announcement also contained details of a joint research
project with CRA’s to assess the economic value of VAT registration information.
The research project was conducted with three CRA’s, Dun & Bradstreet, Equifax and Experian under robust
security safeguards with each participant meeting Government criteria and standards for data storage, handling
and security. To manage the project each participant set up dedicated teams with VAT registration information
held in secure environments. (This remains core criteria in clauses 6 & 7).
The research project involved each CRA receiving VAT registration information on 50,000 randomly
selected businesses (limited companies, partnerships and sole traders evenly spread geographically and by size
throughout the UK). Prior to undertaking the research project the Knowledge, Analysis and Intelligence (KAI)
unit of HMRC validated each participant’s credit scoring methodology. (KAI later validated the anonymised
outputs of the Research Project and analysis).
To undertake the research project each participant set up a secure data laboratory that enabled them to
simulate their live environments. This ensured that the VAT registration data on the 50,000 businesses was kept
completely separate from CRA databases and could not be accessed by third parties.
The CRA’s used their existing credit scoring methodologies to assess the impact VAT registration information
would have on the recommended credit limits of VAT registered businesses. Each CRA’s output was validated
by KAI and the outputs from the three CRA’s were aggregated by an independent consultant to produce
anonymised results that could be published. (This was published by HMRC June 2014).
The anonymised results when extrapolated demonstrated that:
(i) 9,947 (63%) of VAT registered sole traders and partnerships would either receive a credit limit
for the first time or have an increased credit limit.
(ii) 210,222 (17%) of VAT registered limited companies would receive an increase in their credit limit
(this was in line with expectations due to the amount of information already publically available
on limited companies).
(iii)A total of 662,169 (31%) of VAT registered businesses would receive an increased credit limit due
to VAT registration information becoming available.
When extrapolated to the 2.1 million VAT population the impact on commercial trade credit limit increases is
£1.8 billion. 97% of the VAT population are SME’s and having access to increased recommended credit limits
is the cheapest form of finance available.
These estimates are believed to be conservative as, during the Research Project it was not possible for
CRA’s to recalibrate their credit scoring methodologies. If they had done so it is believed newly formed limited
companies would have benefited with receiving credit limits earlier in their existence. In 2013–2014 there were
533,032 new incorporations at Companies House.
Based upon the positive impact the release of the VAT Register will have on the ability of SMEs to access
trade credit and other alternative forms of finance BIPA strongly supports Clauses 6 & 7 in the Small Business,
Enterprise and Employment Bill.
3. Issue Overview
Much of the VAT Registration information is already in the public domain (e.g. Companies House, selfpromotion, invoices, letterheads, directories, websites and much more) but is not verifiable from an official
source. By having VAT registration information available on 2.1 million businesses will in addition to increasing
access to finance through higher recommended credit limits improve the accuracy of fraud detection and money
laundering checks.
The non-financial VAT registration information to be released on each VAT registered businesses in Clauses
6 & 7 is:
VAT Registration Number.
——
——
——
——
——
——
——
——
——
Full Organisational Name (i.e., name of proprietor or entity) and any previous Organisational Names.
Dates for any Organisational Name changes.
Full Trading Name and any previous Trading Names Dates for any Trading Name changes.
Current address (i.e., principal place of business) and any previous addresses Dates for any address
changes.
Telephone Number and any previous Telephone Numbers Dates for any Telephone Number changes.
Mobile Number and any previous Mobile Numbers Dates for any Mobile Number changes.
Email Address and any previous Email Addresses Dates for any Email Address changes
Fax Number and any previous Fax Numbers Dates for any Fax Number changes.
Web Address and any previous Web Addresses Dates for any Web Address changes.
Small Business, Enterprise and Employment Bill: Written evidence 57
—— Legal Entity Status (e.g., partnership, sole proprietor, company, public corporation, local authority,
other):
—— Incorporation Number (if company).
—— Incorporation Date (if company).
—— Effective Date of Registration.
—— Date of insolvency (if insolvent).
—— Date of deregistration (if deregistered).
—— Date of transfer of going concern.
—— Current Trade Classification SIC Code.
—— 40 character (maximum) Trade Classification SIC Code description.
4. Current Overview
The disclosure of VAT registration information as set out in Clause 6 (Sections 1–12) of the Small Business,
Enterprise and Employment Bill will be the enabler in providing businesses, and mainly SME’s, with access to
higher credit limits from suppliers. This will ultimately benefit supply chains, increase economic activity and
allow SME’s to fulfil their potential and grow faster.
BIPA estimates that trade credit is 2.5 times bank lending and contributes in excess of £500 billion to GDP.
The following analysis, which is anonymised, is a sample taken from the Research Project undertaken by the
CRA’s and clearly demonstrates how VAT registration information will impact credit limits.
Business Line of business
Business
type
A
Limited
company
B
C
D
Technology and
computer services
Specialist goods retailers Sole trader
Beauty shops
Sole trader
Years
Registered
for VAT
£0
£400
£400
4
£750
£1,500
£750
12
Partnership 14
F
Specialist designers
G
General contractors
Limited
company
Management consultants Partnership 16
H
Travel services
I
Electrical installation
engineers
J
K
L
M
N
O
P
Cleaning services
Management
consultancy
Business support
services
Management
consultancy
Food retailer
Farming
Carpentry and joinery
manufacturers
Sole trader
Increase in
recommended
credit limit
13
Restaurant
E
Limit prior Limit after
to VAT data VAT data
£0
£1,000
£0
£1,000
£3,000
£3,000
£1,000
£2,000
£3,000
3
£600
£3,600
£3,000
20
£1,000
£5,000
£4,000
Limited
company
14
£500
£4,800
£4,300
Partnership 6
£1,000
£7,500
£6,500
Sole trader
17
£0
£7,500
£7,500
Partnership 11
£2.000
£22,500
£20,000
Partnership 12
£2,500
£22,500
£20,000
Partnership 4
£2,000
£30,000
£28,000
Sole trader
£6,000
£40,000
£34,000
Sole trader
Sole trader
4
6
14
£6,000
£2,205,000
£40,000
£2,835,000
£36,000
£635,000
October 2014
Written evidence submitted by the Society of Independent Brewers (SB 22)
1.0. I am writing to the Public Bill Committee as Managing Director of the Society of Independent Brewers
(SIBA). Formed in 1980, SIBA is a trade association representing nearly 800 independent brewing companies,
the huge majority of which are micro and small businesses.
58 Small Business, Enterprise and Employment Bill: Written evidence
1.1. SIBA welcomes the aims of the Bill and its objectives to support small businesses. However, we wish
to raise our concerns regarding the proposed pubs adjudicator and statutory code and its likely impact on our
small business members, which own one or more pubs which are leased or tenanted and tied to the company.
We note that and welcome the fact that the legislation will not apply to micro businesses.
1.2. While we agree with the principle that tenants and leaseholders should be protected to enable a genuine
working partnership to exist between pub landlords and tenants/ leaseholders we do not believe it is justifiable
to require small vertically integrated businesses, often with only one tied pub, to be subject to legislation
designed to deal with concerns relating to larger pub-owning companies. It is clearly against the principles
of the Bill to ‘support small businesses by cutting bureaucracy…’ to burden small businesses with the costs
associated with the core statutory code.
1.3. Small brewers compete in a very crowded marketplace, often with companies much larger than
themselves and with substantial pub estates to provide guaranteed access to market. Our small business
members should be able to purchase and run pubs with the minimum of regulatory burdens and the proposed
legislation would hinder that process and their ability to grow.
1.4. We are concerned that an unintended consequence is that the legislation could act as a disincentive to
growth for businesses which may be approaching a headcount of ten employees.
1.5. It is also very likely that more brewers will acquire pubs in the near future and it is our view that the
impact of legislation could be a disincentive to that growth.
1.6. In order to ensure that small businesses are not unnecessarily affected by the legislation we propose that
(as well as micro businesses) small vertically integrated brewing businesses with fewer than ten tied pubs are
exempt from the Statutory Code and that this threshold should be reviewed within the timescale proposed by
the Government. This requires an amendment to clause 60.1 to define small pub owning businesses as those
with more than ten tied pubs.
1.7. I understand that the Independent Family Brewers of Britain and the British Beer and Pub Association
have written to the Committee requesting that companies with fewer than 500 tied pubs are made exempt from
the Statutory Code (assuming there is no material impact on competition) in order to remove the costs and red
tape associated with the statutory code. Several brewers are members of both the IFBB and SIBA. We support
this position as a means of dealing with our concerns, as well as those of the family brewers.
1.8. I hope that you will agree that small brewery businesses should not be burdened by this legislation and
that the Bill should be amended to prevent this.
October 2014
Written evidence submitted by the Law Society (SB 23)
1. The Law Society of England and Wales (“the Society”) is the professional body for the solicitors’
profession in England and Wales, representing over 160,000 registered legal practitioners. The Society
represents the profession to Parliament, government and regulatory bodies and has a public interest in the
reform of the law.
2. This evidence has been prepared by the Society’s Company Law Committee. The Committee is a
specialist body of practitioners and experts in company law matters, whose purpose is to review, and promote
improvements in, company law.
Overview
3. The Society welcomes this opportunity to present evidence to the Small Business, Enterprise and
Employment Bill (SBEEB) Committee. The Society has taken great interest in the issues raised at Parts 7–9 of
the Bill, which were the subject of last year’s Transparency and Trust consultation. The Department of Business,
Innovation and Skills (BIS) has maintained an open and productive dialogue with the Society throughout the
process, which has been very effective.
4. The Society appreciates that during the evidence session, the Committee may wish to ask us about
any aspect of Parts 7–9 of the Bill. In this submission, however, the Society makes certain comments on the
following five parts of the Bill:
—— People with Significant Control—Part 7, Clauses 70-71; Schedule 3;
—— Corporate Directors—Part 7, Clauses 76-77;
—— Abolition of Share Warrants to bearer—Part 7, Clauses 73-75 and Schedule 4;
—— Shadow Directors—Part 7, Clause 78.
—— Directors’ Disqualification—Part 9, Clauses 92-104;
Small Business, Enterprise and Employment Bill: Written evidence 59
People with Significant Control Register
5. Schedule 3 of the Bill creates a new obligation on, subject to certain specified exceptions, every company
incorporated in the UK to maintain a register of People with Significant Control (PSC) over the company. It
also sets out criminal sanctions and other enforcement mechanisms to ensure compliance.
6. The Society accepts that it is important for the UK to take the lead on this initiative so as to serve as an
example for other jurisdictions. The Society notes, however, that by implementing the proposed legislation
in the UK before it is more generally implemented in other jurisdictions, including in other EU member
states, there would be a real risk of an adverse effect on UK business. This risk would arise through people
preferring, given the potential additional liabilities imposed by the PSC regime, to incorporate companies in
other jurisdictions.
7. It is appreciated also that there will be a compliance cost for existing UK companies, even for the huge
number of them where there is not a “transparency” issue. These factors reinforce the point that it is important
that companies and individuals who want to be law-abiding are able to work out easily which steps to take in
order to be compliant.
8. In the light of these realities, it is imperative that the regulatory regime that accompanies these changes
is as clear and intelligible as it can possibly be. Whilst the Society appreciates that this is a difficult and
complex task, the Society is confident that it can be done, and the Society is prepared to work with BIS and this
Committee to assist in achieving this objective.
New Criminal Sanctions for Non-Compliance
9. Schedule 3 creates new offences for failing to comply with requests for information or maintain an
accurate register. These are set out in paras. 13–14 of what is proposed as new Schedule 1B to the Companies
Act. The offences apply to both individuals and companies.
10. The Society is concerned that the Schedule contains no defences to these strict liability crimes, meaning
that the mental state of the accused is irrelevant to a finding of guilt. This means for example that even if a
person takes reasonable care in completing the notice, that person is exposed to the risk of criminal sanctions if
the information he or she provides is incorrect.
11. The Society wishes to stress that criminal sanctions are a very serious matter, and that strict liability
crimes should only be created where they are truly warranted. These new offences were not the subject of prior
consultation: had they been, the Society would have used the opportunity to voice its disagreement with this
approach.
12. The Society does not think the foreseeable harm from unintentional failure to comply is so serious as to
warrant strict liability. The Society therefore proposes that the Bill is amended to include defences to take it out
of the realm of strict liability. In any event the Society thinks that it ought to be a defence that a person took
“reasonable care,” in establishing the relevant facts and coming to his or her decision, especially where that
decision seems consistent with any government guidance that may have been issued.
13. Also, the ownership or control structure of a company might be extremely complex. It could involve
consideration, not just of share ownership and share rights and of the effect of any security given over shares,
but also an assessment of the effect of other factors. These could include shareholder agreements and contractual
arrangements relating to the company’s management and financing. This is another factor which leads us to
believe that the strict liability approach would be inappropriate.
Alternative Enforcement Mechanisms
14. The Society understands that the SBEEB would impose an obligation on persons to comply with the
information regime regardless of where in the world they are. The Society has doubts about how this will work
in practice.
15. The Society submits that other mechanisms, such as the freezing of shares, may be more effective in
compelling compliance with this regime than UK criminal sanctions. The Society notes that this would be the
effect of restriction notices set out in Schedule 3, New Schedule 1B to the Companies Act, at para. 3. However,
it appears that these measures are intended only as a complimentary measure and not as an alternative to
criminal sanctions, as they are discretionary measures, which are available only to companies, and not law
enforcement agencies.
16. The Society thinks that the enforcement regime should be redrawn so that it is clear that criminal
sanctions are only pursued as a last resort.
Maintaining the Register
17. Schedule 3, in what would be Part 21A of the Companies Act, Chapter 4, para 790V, allows for an
alternative method of record keeping, according to which information on the register would be kept by the
Registrar of Companies instead of companies themselves entering the information on their PSC register.
60 Small Business, Enterprise and Employment Bill: Written evidence
18. The Society observes that this method of record keeping may complicate the matter. Whereas a company
can take action against a person who fails to provide information for the register, no action can be taken against
the Registrar for entering the wrong information. This method therefore requires companies to assume risks
that simply would not exist were they to maintain their own PSC register in-house. It is important that those
affected by the legislation appreciate this point.
Exceptions
19. Schedule 3, 790ZF provides that the Secretary of State may require the Registrar and companies to
refrain from using or disclosing PSC particulars of a prescribed kind where an application is made requesting
them to refrain from doing so.
20. The Society does have views on this aspect and looks forward to considering BIS’s proposed Consultation
on protecting people at risk from public disclosure of personal information on the PSC.
Directors’ Disqualification
21. Part 9, Clause 93, para. 8ZA of the Bill provides that a person (P) may be disqualified if they exerted
influence over a director who has been disqualified and is understood to be the “main transgressor” with respect
to the impugned conduct.
22. The Society thinks that it is fundamentally unacceptable that, under the Bill as it stands, P may
be disqualified without having been shown to have engaged in misconduct. The Society maintains that the
direction or instruction that leads to P’s disqualification must be such that the court would have disqualified
P if P had been the director. It cannot be sufficient to show that P has given a direction or instruction that was
part of the main transgressor’s conduct: it must be established that the direction or instruction amounted to
misconduct, which could in and of itself lead to disqualification.
Corporate Directors
23. Part 7, Clause 76 requires that each director of a company must be a natural person, save that the
Secretary of State may make provision by regulations for cases in which a person who is not a natural person
may be appointed a director of a company.
24. The Society accepts that the use of corporate directors may pose additional difficulties for those wishing
to know more about the control of a company, as their use is capable of obscuring the identity of the individuals
involved.
25. Corporate directors can, however, be used to serve a number of legitimate business purposes. For
instance, there is a clear administrative advantage to having a number of authorised individuals available to act
on behalf of the corporate directorship for the purposes of attending meetings and signing documents. This is
particularly important to ensure continuity in the event that an authorised individual leaves the company.
26. It is important to appreciate also that some regulators actually require the use of corporate directors. A
notable example is the FCA, which requires their use in respect of OEIC UCITS fund structures.
27. As the Government itself acknowledges, there will be situations where corporate directors ought to be
retained, either because their benefits outweigh any risks posed, or due to pre-existing legal obligations. The
Society looks forward to considering the proposed public consultation on the ban and exceptions to it.
Share warrants to bearer
28. Part 7, Clauses 73–75 and Schedule 4 make provisions for the abolition of share warrants to bearers.
Schedule 4, paras. 9 and 10 specifically provide that where such a share warrant is cancelled by cancellation
order or suspended cancellation order, the company must or can be required to make a payment into court, equal
to the aggregate of the share’s nominal value as specified in the relevant share warrant, any share premium and
what is described as “the suspension period amount”.
29. The Society considers that if this payment would make the company insolvent then the company should
be entitled to seek a court order releasing it from the obligation to make the payment, on such terms as the
court thinks fit.
Shadow directors
30. Part 7, Clause 78 provides that the general duties of a director apply to a shadow director, to the extent
that they are capable of applying.
31. The Society considers that this approach is appropriate, and appreciates that it is intended that there will
be regulations on this aspect, as stated in Clause 78(2).
October 2014
Small Business, Enterprise and Employment Bill: Written evidence 61
Written evidence submitted by Jordans Trust Company Ltd (SB 24)
Introduction
1. This paper has been prepared by Jordans Trust Company Limited.
2. Jordans Trust Company Limited is a regulated trust company, providing UK company formation,
administration and management services to non-UK resident clients who wish to do business in the UK or
overseas. Our independent professional regulator is the Institute of Chartered Accountants in England and
Wales (ICAEW). The ICAEW’s compliance team regularly visit our offices to check randomly selected files
to ensure that Jordans Trust Company is identifying and verifying the identities of all persons with ‘significant
control’ of the UK companies we form, and that we are conducting appropriate checks on the backgrounds
of these individuals (e.g. criminal record checks) to ensure that such persons do not present risks to various
stakeholders including the UK, third parties who might deal with the client UK company, and the good name of
Jordans Trust Company Limited.
3. Jordans is a large privately owned company with a strong reputation for probity and technical acumen
within the UK and international legal and accounting professions.
4. In 2013, we celebrated our 150th anniversary.
The UK’s current position as a major international incorporation centre
5. There is no doubt that the UK economy has benefitted from the formation of large numbers of UK
companies by non-UK residents for a wide variety of activities including:
(i) trading in the UK itself
(ii) investing in UK commercial property or other UK assets
(iii) trading overseas
6. The uses of UK companies in the context of para 5(iii) is particularly significant. Following the European
Court of Justice case in CENTROS (C–212/97) , the use of UK-registered companies for trading in other
EU countries, to avoid their more expensive and “un-user-friendly” company formation and administrative
requirements, was held not to be an abuse of the European Treaty principle of freedom of establishment if
the UK company conducts genuine economic activity in the overseas state. This case led to 1 in 4 companies
registered in Germany for German trades being UK companies, until Germany reformed its company formation
and administrative laws. This is just one example of the ubiquitous phenomenon of the UK company in
international business.
7. The popularity of the UK company stems from our user-friendly incorporation procedures (low-cost; no
notarial intervention and no minimum paid up capital requirements) and the reputation the UK rightly has for
‘fair play’ in business. The UK company has an internationally recognized ‘blue-chip reputation’, which it has
earned over the last 100 years and more.
8. Quite clearly, the international business communities use of the UK company brings benefits to:
(i) UK company registration agents
(ii) UK trust companies like Jordans
(iii) the Chartered Secretary sector (significant in London)
(iv) the legal and accounting sectors throughout the UK
(v) other sectors in the UK supplying goods and services to the UK corporate sector
(vi) HMRC in the form of UK corporation tax yield
Schedule 3: Register of People with Significant Control
There are numerous objections to the proposals in Schedule 3.
9. The duties on UK companies to investigate their PSCs and keep information up to date with criminal
penalties for failure to follow the intricate rules correctly (e.g. 790D-F) is a disproportionate burden on business,
particularly the small business sector. It is reasonable to conclude that only 1% of UK companies use ‘nominee
shareholders’ (the arrangements Schedule 3 is designed to pierce) and that 99% of UK companies already
reveal their PSCs unless their company secretarial administration is inadequate. The extra burdens placed on
currently transparent arrangements are therefore a gross and unnecessary bureaucratic burden.
10. Duties are also placed on PSCs to supply information to the company (s790G&H) with draconian
enforcement rules. This is also a grossly disproportionate burden on the vast majority of UK companies that do
not employ nominee shareholders.
11. These onerous administrative burdens will also put at risk the UK companies’ international reputation as
a low-cost business-friendly vehicle, with the economic collateral damage likely to be material.
12. The duty to keep and maintain the PSC register (s 790M et seq), apart from producing the unwanted
results referred to in 9 and 10 above, produces other very undesirable but predictable effects:
62 Small Business, Enterprise and Employment Bill: Written evidence
(i) Inevitable non-compliance amongst the small business sector through lack of technical competence and
financial resource—thus criminalizing a large body of the corporate sector that can ill afford expensive
professional advice.
(ii) It is a major flaw of this legislation that the particulars of PSCs placed on the PSC register will not be
independently unverified. Will criminals self-report? Of course not. Will those who have important
commercial reasons for remaining undisclosed self-report? Possibly, or they will seek legal solutions
to the problem. One of these will be to transfer their business to a new foreign-registered company
and register a branch here. Foreign companies are not within the scope of the new rules. It is worth
making the point at this juncture that sensitive PSC information is already provided to regulated trust
providers like Jordans Trust Company in the UK. Currently such information has a high level of
accuracy and candour because it is supplied in confidence, and is independently checked. Nevertheless
the information will be supplied by the regulated service provider to the regulatory authorities (NCIS)
where knowledge or suspicion of money laundering is aroused. In this case the regulated trust company
must report to NCIS the particulars of the PSC.
13. There will be a disparity in the reliability of information supplied on PSC registers of companies not
administered by the regulated sector (i.e. unverified and unchecked information) and the independently verified
and checked information received in confidence by the regulated sector.
14. There must be a worry that the currently high level of candour of information supplied in confidence to
the regulated sector (and which the regulated sector must supply automatically to NCIS if they know or suspect
money laundering) will be degraded if the providers of such information know it will come within the public
domain. There may be a flight from the regulated sector in order to avoid candid disclosure on the proposed
PSC register.
15. Section 790P arguably puts UK companies in an impossible position. If they receive a request to disclose
information on their PSC register and feel the request is not for ‘a proper purpose’, they must apply to court
within 5 days to seek an order not to supply the information. This brings a number of unwelcome issues.
Section 790P at least recognizes that the information on the PSC register is potentially sensitive, but the costs
and uncertainty of a court application created by the legislation for both the UK company and the would-be
searcher are surely unacceptable.
16. Section 790R creates criminal offences if the searcher in receipt of the information either makes
misleading statements that are reckless to obtain the information, or discloses the information to others. This
creates risks, costs and uncertainty for the searcher that are likewise unacceptable. A prudent searcher should
take professional advice before making a search. But he may be put off by the knowledge that the information
is unlikely to be independently verified if the company is not administered by a regulated corporate service
provider.
17. At least ss790P and R recognize the potential sensitivity of the information. Yet the alternative procedure
is that the information is available to all, unconditionally, if the register is kept at Companies House (the Central
register). See s 790V. One would again question the reliability of information placed on such a central register
by companies masterminded by criminals who will studiously avoid the regulated sector.
18. Section 790ZF includes provision for protecting PSCs from disclosure if they are at risk from serious
harm. The costs, conditions and delays of such applications will be likely to deter legitimate PSCs. Criminals,
unchecked and unadministered by the regulated sector, will just provide false information to Companies House.
Summary
19. We recommend that this part of the Bill (i.e. ss70 & 71 and Schedule 3) is taken out of the Bill for
further consideration. See in particular paras 22, 23 and 24 below.
20. The UK company’s excellent business reputation has been built up without a PSC register.
21. The result of implementation of the Bill’s transparency provisions will be:
(i) significant non-compliance by ‘honest’ companies that do not have the financial or technical resources
to comply with the complex and onerous rules.
(ii) criminals will put false information on the PSC or central register.
(iiithe international reputation of the UK company as a business—friendly international business vehicle
will be destroyed.
(iv)international clients may well move their UK investments into non-UK corporate structures, e.g. Irish,
Cyprus, Malta, US, Hong Kong or Singapore structures. Non-UK companies are outside the scope of
the Bill.
(v) UK traders requiring confidentiality may even form low-cost offshore companies (e.g. in Ireland) and
register as branches to trade here. There will be no UK tax saving, but if they wish to keep ownership
confidential by using a non-UK registered company, they avoid disclosure under the Bill.
22. A final point should be made. Only a tiny proportion of UK companies are incorporated through the
regulated sector represented by Jordans Trust Company Limited.
Small Business, Enterprise and Employment Bill: Written evidence 63
23. The significant majority of UK companies (c 70%) are incorporated via the Government’s incorporation
website. A company incorporated through this website provides no due diligence whatsoever. It is a gateway
for criminals who wish to avoid the searching due diligence regulated service providers like Jordans routinely
undertake.
24. The Government should address this anomaly first before imposing these frankly horrendous burdens on
the UK corporate sector, apparently for the sake of a tiny minority of criminal users of UK companies (who
will willfully disrespect the rules anyway). It seems to us that this Bill’s transparency regime has no upside and
puts the UK’s deserved reputation as an international incorporation centre at grave risk with much collateral
economic damage to the UK.
October 2014
Written evidence submitted by Citizens Advice Scotland (SB 25)
1. Citizens Advice Scotland (CAS), our 61 member bureaux and the Citizen Advice Consumer Service
helpline form Scotland’s largest independent advice network. Advice provided by the Scottish CAB Service is
free, independent, confidential, impartial and available to everyone. Our website, Adviceguide, also provides
the public with up to date information on a range of topics. We are champions for both citizens and consumers
and in 2013/14 citizen advice bureaux advised on over 550,000 new issues. We want a fairer Scotland where
people as citizens and consumers are empowered and their rights respected.
Summary
2. Citizens Advice Scotland (CAS) welcomes the opportunity to comment on the proposals outlined in the
Small Business, Enterprise and Employment Bill. In 2013/14, citizens advice bureaux advised clients on 46,540
new issues related to employment, and Part 11 of the Bill covers three specific issues of concern to CAS—the
misuse of zero hours contracts, the non-payment of Employment Tribunal awards, and workers being paid less
than the National Minimum Wage.
3. On each of these issues, the Bill contains some welcome measures—banning exclusivity clauses in zero
hours contracts and introducing financial penalties for employers who do not pay Employment Tribunal awards
or pay less than the Minimum Wage to multiple employees. However, the Bill could do more to tackle these
unacceptable situations, particularly on the misuse of zero hours contracts, where problems faced by CAB
clients include being left destitute or in debt as a result of unpredictable hours, or faced with a situation where
they have few enforceable employment rights. These are not caused by exclusivity clauses and would not be
solved by these proposals.
4. Citizens Advice Scotland:
—— Welcomes the proposed ban on exclusivity clauses in zero hours contracts.
—— Recommends that workers on a zero hours contract should be given a statutory ‘right to request’ a
contract that guarantees hours, without suffering dismissal or detriment for making the request.
—— Recommends that the Bill includes a provision to ensure that where mutuality of obligation for the
employee to undertake work provided by the employer is present, an individual is classed as an
employee rather than a worker even if their contract states zero hours.
—— Recommends that protection from unfair dismissal is extended to workers as well as employees.
—— Recommends that full rights to parental leave and pay is extended to workers as well as employees.
—— Recommends that employers should inform prospective candidates that the vacancy is on a zero hours
basis, for instance by publishing it in the job advertisement, or by informing them at interview.
—— Welcomes the proposed introduction of a financial penalty that can be imposed on employers who fail
to pay the sum, or expenses ordered by an Employment Tribunal.
—— Recommends that the Committee consider an amendment to ensure that the employer pays the sum
due to the successful claimant as well as the financial penalty to the Secretary of State.
—— Recommends that Employment Tribunal awards, expenses or fees unable to be enforced due to
insolvency or phoenix trading should be able to be claimed from the National Insurance Fund.
—— Welcomes the proposed increase in financial penalties against employers for underpayment of the
National Minimum Wage where an employer has underpaid multiple employees.
—— Recommends the UK Government runs an awareness-raising campaign to ensure workers know that
they are entitled to a National Minimum Wage and how to claim it.
—— Recommends that in the longer term, a ‘Fair Employment Commission’ should be created with the
legal powers and resources both to secure individual vulnerable workers their rights in all areas of
employment (including pay), and to root out rogue employers.
64 Small Business, Enterprise and Employment Bill: Written evidence
Zero Hours Contracts (Part 11, Clause 139)
5. With an estimated 1.4 million zero hours employment contracts in the UK,40 their growing prevalence
has given rise to a number of serious causes for concern. Citizens advice bureaux in Scotland have highlighted
a number of different problems stemming from the way zero hours contracts have been used by employers,
particularly in the last year.
6. Whilst zero hours contracts may be suited to particular types of work, such as casual or seasonal labour,
the misuse of zero hours contracts is becoming a major problem, which should be addressed to prevent
exploitation and hardship. Misuse can include situations where zero hours contracts are issued by employers
inappropriately, such as where a full-time or part-time contract may be better suited and have led to a number
of serious problems for CAB clients. This includes destitution caused by lack of work offered; serious debt and
budgeting difficulties due to a fluctuating income; difficulty accessing support from the benefits system; lack of
entitlement to certain employment rights and confusion over employment status and ‘Zeroing down’—effective
dismissal deterring workers from enforcing basic rights.
7. Citizens Advice Scotland welcomes the ban on exclusivity clauses in zero hours contracts proposed in the
Bill. It is extremely unfair for an employer to prevent someone from taking on another job, ‘just in case they’re
needed’ and complements the Government’s aim for a labour market that is ‘flexible, effective and fair’, by
promoting flexibility for individuals to balance the flexibility enjoyed by their employer.
—— A West of Scotland CAB reports of a client who is currently on a zero hours contract, but was offered a
permanent full time job doing similar work to what they currently do. However, their current employer
contacted their prospective employer to complain and ‘put a stop to’ the client going to work for the
company.
8. However, this move will not prevent misuse of zero hours contracts in the overwhelming majority of
cases that citizens advice bureaux in Scotland have seen. CAS believes that more must be done to prevent these
situations occurring and recommends the Bill is used as an opportunity to ensure that workers are protected
from the misuse of zero hours contracts.
Lack of work causing destitution
9. One of the key features of zero hours contracts is that no work is guaranteed in any week. For a growing
number of workers, far from offering flexibility and choice in their working patterns, their zero hours contract
has left them with very little, or no income whatsoever for a period of time. Citizens advice bureaux in Scotland
advised clients who found themselves in crisis and destitute as a result of a sustained period without work—in
some cases being unable to afford to eat and requiring a referral to a food bank.
—— An East of Scotland CAB reports of a client whose Jobseekers Allowance (JSA) was stopped 11 weeks
ago as he no longer meets the required criteria. He is working on a zero hours contract and some
weeks has no income. He is in a single household and in receipt of Housing Benefit and Council Tax
Reduction. He sometimes struggles to buy food and wanted to know if he could access a food bank.
Serious debt and budgeting difficulties due to fluctuating income
10. Workers on zero hours contracts can often find their working pattern—and therefore their income—
unpredictable. Citizens advice bureaux have advised clients on zero hours contracts whose working hours have
dropped or fluctuate leaving it extremely difficult to budget and quickly accruing substantial debt. In some
cases, clients have been forced to resort to borrowing from payday lenders and when large repayments are due
in a week where little work is available, workers can find themselves in a situation where they have no way of
paying back the loan.
—— An East of Scotland CAB reports of a client whose employment varies significantly because of a zero
hours contract. She can work between 7 and 13 hours per week and her income can vary from £60 to
£100. The client struggles with her budget and to address her debt issues as she is not sure how many
hours she will be working on a week to week basis and has no guarantee of any work.
—— An East of Scotland CAB reports of a client who is unable to pay various payday loan companies.
Her total debts amount to £4,850. Whilst she lives with her mother and pays no rent, she works as a
waitress on a zero hours contract, sometimes earning more than £200 per week, but next week will
only earn £70. She is due to pay three separate payday lenders a total of £173 next week and has no
way of paying.
Difficulty accessing support from the benefits system
11. Workers on zero hours contracts can slip through the benefits system as they have difficulty claiming
in-work benefits and means tested benefits. With unpredictable hours it is extremely difficult for zero hours
contract workers to estimate their average weekly earnings for the purposes of claiming in-work benefits. For
in-work claimants whose earnings fluctuate, their weekly earnings can be averaged over a period of five weeks
for the purposes of the benefits system. However, even this can prove difficult for some workers, who can be
40 Analysis of Employee Contracts that do not Guarantee a Minimum Number of Hours—Office for National Statistics, April 2014
http://www.ons.gov.uk/ons/rel/lmac/contracts-with-no-guaranteed-hours/zero-hours-contracts/art-zero-hours.html
Small Business, Enterprise and Employment Bill: Written evidence 65
working almost full time hours in one week, then hardly at all in the next. Citizens advice bureaux have advised
clients who have been overpaid benefits in one week (which they must repay), then been underpaid in the next
due to their hours reducing, leaving them facing an income crisis.
—— An East of Scotland CAB reports of a client who has a zero hours contract at the cinema where
he has worked for 13 years. He previously received Working Tax Credit (WTC), but the payments
stopped because his hours for the past year averaged less than 30 hours a week, which the client
had not realised because of the erratic nature of his working hours. He was asked to phone to make
arrangements to repay the overpayment of WTC, but as the client has a hearing impairment which
makes it difficult to use the telephone he did not do so. Now he is facing legal proceedings to recover
the debt, and has also been told he has been overpaid Housing Benefit because he had not informed
the council that his WTC has stopped.
Lack of entitlement to certain employment rights and confusion over employment status
12. There is a problem with workers being unclear about the terms of their contract, and workers and
employers being unclear on what rights they are entitled to on a zero hours contract. However, many of these
difficulties are caused by misuse of zero hours contracts which, by accident or design, exploit weaknesses in
the law in this area, rather than because information and advice is not available. Uncertainty over whether those
engaged on a zero hours contract are legally ‘workers’ or ‘employees’ is at the root of this problem in a number
of cases.
13. Citizens advice bureaux have reported a number of cases of workers whose employment rights were far
from clear, and whose employers do not grant them certain rights on the basis of their zero hours contracts.
—— A West of Scotland CAB reports of a client who is single and expecting her first child. She was working
on a zero hours contract, but has now left her employment as her employer told her she would not be
due any maternity pay due to the fact that her contract was zero hours.
—— An East of Scotland CAB reports of a client who came in and reported that she had been employed
for around two years and she had not had any paid holidays. She spoke to her manager about this
and was told that as she was on a zero hours contract she was not entitled to any paid holidays. The
bureau assisted the client in writing a grievance letter.
‘Zeroing Down’—effective dismissal deterring workers from enforcing basic rights
14. In a number of cases relating to the misuse of zero hours contracts, poor employment practices are
reported by workers engaged on them. Whilst this is not necessarily because of the contract in itself, in practice
employers have used their ability to cut their hours to the individual as a ‘punishment’ to deny them their basic
statutory rights, deter them from asserting their rights, or in an attempt to make them resign. This has become
known as ‘zeroing down’. This ability to dramatically cut the amount of work offered can act as a barrier to
workers being able to enforce their rights in the first place, offers no flexibility or fairness to the individual, and
is an example of clear misuse by unscrupulous employers.
—— An East of Scotland CAB reports of a client who has been employed for four years on an ‘as and
when required’ basis. Over the last six months he has worked around 50 hours per week. He has now
been advised that there are no further hours for him, but that he is not being made redundant or his
contract terminated. Two days later the client went online to see what work was available and the
job which he did was advertised by his employer. The client has been advised by one manager that
if he chooses to leave, he would receive a good reference, but does not wish to leave the job and has
worked nearly every week whilst he has been employed there.
—— A West of Scotland CAB reports of a client who is employed on a zero hours contract. His best friend
was previously the assistant manager, but had left on bad terms with the current manager. Since then,
the client’s hours have been cut from 30 hours per week to 6, and the client feels he is being singled
out and treated unfairly by the manager.
15. Citizens Advice Scotland recommends the Committee consider options for strengthening the Bill in this
area including:
Give workers on a zero hours contract a statutory ‘right to request’ a contract that guarantees hours, without
suffering dismissal or detriment
16. One of the reasons that misuse of zero hours contracts occurs is because they are issued in situations
for which they are not suitable—for instance, where a worker requires regular full-time or part-time work.
One possible remedy to this would be to give workers the right to request their contract be altered to a stable
one that is more suitable, with a legal protection from being dismissed or suffering detriment for making the
request. There would be no obligation on the employer to grant the request, but by giving reasons for declining
it would encourage them to consider the implications of the contract on the worker, whether it is appropriate
and alert them to the worker’s desire for a more stable working pattern. It is envisaged this would operate in a
similar manner to the right to request flexible working currently afforded to employees.
66 Small Business, Enterprise and Employment Bill: Written evidence
Legislate to ensure that where mutuality of obligation for the employee to undertake work provided by the
employer is present, an individual is classed as an employee rather than a worker even if their contract states
zero hours
17. Employment Tribunals generally operate on this basis at present, if a case comes before them. However,
ensuring that this was put on a statutory footing has the potential to provide clarity for employers and individuals
prior to a case being brought to Tribunal. It may dissuade employers from issuing zero hours contracts in
unsuitable situations based on the mistaken belief that the contract prevents an individual being classed as an
employee, even if they are expected to undertake work on a frequent basis.
Extend protection from unfair dismissal to workers as well as employees
18. This option would strengthen the rights of workers on zero hours contracts by giving them some redress
in situations where the amount of work provided is dramatically cut in an apparent attempt to ‘get rid of them’.
This would represent a significant change in employment law and the impact would need to be carefully
considered as it would extend to other workers including those on appropriate zero hours contracts. However, it
may be a necessary measure to protect workers from extremely poor treatment at work.
Extend full rights to parental leave and pay to workers as well as employees
19. Citizens advice bureaux have reported cases where workers are denied paid maternity leave, including
those on zero hours contracts. This reduces the flexibility of the individual engaged on a zero hours basis. One
step to address this could be to extend the paternal leave and pay rights currently enjoyed by employees to
workers.
Requiring employers to inform prospective candidates that the vacancy is on a zero hours basis, for instance
by publishing it in the job advertisement, or by informing them at interview.
Employment Tribunals: Failure to pay sums (Part 11, Clause 136)
20. Failure of employers to pay Employment Tribunal awards to employees who are successful in their
claim is a persistent problem. Particularly since July 2013, where a fee is required to lodge a Tribunal claim, it
is important that users have confidence that they will not incur expense and time to pursue justice, only for the
employer to simply ignore the judgement if they win, leaving the claimant financially worse off despite their
victory. Citizens advice bureaux in Scotland have advised clients who had won their case, but had received
none of the sum due to them, in some cases a considerable amount.
—— An East of Scotland CAB reports of a client who resigned from his job after he was repeatedly not paid
by his employer. He took his case to an Employment Tribunal which found in his favour, and ordered
his ex-employer to pay him £889. However, more than three months on, his ex-employer has not paid
him the award, and the client believes they may have wound up and started again in another guise.
—— A North of Scotland CAB reports of a client who was dismissed by his employer at the end of March
2013. He worked for a coach company and has been driving coaches for 40 years. He was not given a
reason for his dismissal, nor holiday pay or pay in lieu of notice. He also had not been paid for an extra
day a week that he had been working since September 2012. The client had gone through the proper
procedures advised by the CAB employment adviser with regard to raising a grievance, going through
ACAS and in addition the employment adviser had represented him at an Employment Tribunal. The
outcome was a judgement on 14th October in favour of the client for unfair dismissal, statutory notice
pay, holiday pay, failure to provide written terms and conditions and written reasons for dismissal.
The award was a total of over £13,000. On 26th February, the client had still not received his money
and so instructed the Sheriff Officer. The company was served a charge for payment but 14 days have
passed and payment has still not been made. The client does not know what to do next and is worried
he will never recover the money that is owed to him.
21. The most recently available national statistics paint a worrying picture in this regard. In Scotland, 46%
of successful Tribunal claimants received no payment whatsoever, with a further 13% not receiving the full
amount of their award. This represents a clear majority of successful claimants in Scotland not receiving the
full award, higher than the equivalent figure in England and Wales. In addition, just over a quarter (26%) of
unpaid claimants in Scotland took the step of engaging a Sheriff Officer, far fewer than those who undertook
the equivalent step in England and Wales, despite awareness of the enforcement options available being higher
in Scotland.41
22. This likelihood of payment, coupled with the fees now charged to bring an Employment Tribunal claim
is undoubtedly the explanation for the vast reduction in appeals to the Employment Tribunal, with the number
of single claims from April-June 2014 down 70% compared with the same quarter of 2013.42
Payment of Tribunal Awards, 2013 Study—IFF Research/Department for Business, Innovation and Skills, October 2013 https://
www.gov.uk/government/uploads/system/uploads/attachment_data/file/253558/bis-13-1270-enforcement-of-tribunal-awards.pdf
42 Tribunal Statistics Quarterly April to June 2014—Ministry of Justice, September 2014 https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/352914/tribunal-statistics-quarterly-april-june–2014.pdf
41 Small Business, Enterprise and Employment Bill: Written evidence 67
23. It must be recognised that civil justice is a devolved matter, and improvements to the level of enforcement
is a matter for the Scottish Parliament, which CAS is actively pursuing. Nonetheless, there are improvements
that should be made to ensure that a far higher number of employers pay claimants what they are due in full,
without enforcement action being required.
24. CAS welcomes the introduction of a financial penalty that can be imposed on employers who fail to
pay the sum ordered by the Tribunal, or the claimant’s expenses, as the Bill proposes. We would recommend
that the Committee consider an amendment to ensure that the employer pays the sum due to the successful
claimant as well as the financial penalty to the Secretary of State, as there is currently nothing to prevent them
prioritising payment of the fine, whilst still leaving the claimant unpaid. We recognise that this does not appear
to be the intention, but would welcome clarification being included on the face of the Bill.
25. This welcome measure will not however solve the problem. In the study of tribunal awards payments,
the most common reason given for non-payment across Great Britain was that the employer was now insolvent,
with the majority of claimants believing that the employer had re-started as a ‘phoenix company’, thus avoiding
paying what they are due whilst resuming trading.43
26. Part 10, clauses 117–118 of the Bill aim to address ‘phoenix companies’, by giving the Secretary of State
power to make regulations restricting sales of business assets of insolvent companies to ‘connected parties’
unless there has been third party scrutiny of the proposals. This measure, whilst having the potential to protect
business creditors from losing out from the creation of a ‘phoenix company’, would be unlikely to protect
employment tribunal claimants as they would generally be unaware of the resumption of trading under another
guise until after the transfer of assets has occurred. It would continue to be impossible to enforce the tribunal
award against the ‘phoenix company’.
27. To tackle the issue of employment tribunal awards being unable to be enforced due to insolvency or
phoenix trading, CAS recommends that they can be claimed from the National Insurance Fund, in the same
way that ex-employees can receive payments they are due through the Redundancy Payments Service. This
would restore confidence in the system, ensure that successful claimants are not denied justice and do not lose
considerable amounts of money they are owed. We would also recommend that Employment Tribunal fees are
recoverable through this route, where a claimant is successful.
National Minimum Wage enforcement (Part 11, Clause 138)
28. Evidence from citizens advice bureaux in Scotland has highlighted a number of instances of employees
being paid less than the National Minimum Wage (NMW). In some cases, individuals are not always aware of
how much they should be paid and in some instances employers appear to be ignorant of their duty to pay their
staff the National Minimum Wage at the appropriate level. Of even greater concern are reported instances of
employers deliberately and illegally paying workers less than the minimum wage.
29. Citizens Advice Scotland believes that more needs to be done to take a proactive approach to effectively
ensure that all employers comply with the law and pay their staff at least the legal minimum wage for the hours
they work. Whilst we note the UK Government efforts to ‘name and shame’ rogue employers, we believe a
twin approach of active encouragement and enforcement is necessary.44
30. CAS welcomes the provisions in the Bill to enable financial penalties against employers for
underpayment of the minimum wage to be increased if the employer has underpaid multiple employees. This
has the potential to act as a deterrent to rogue employers deliberately and systematically paying staff less than
the legal minimum.
31. These actions should be coupled with awareness-raising activity to ensure that employees and employers
are aware of the requirement to pay a National Minimum Wage at the appropriate level. This should also
include information about how employees can enforce their rights, including increased awareness of the HMRC
Pay and Work Rights helpline.
32. Challenging poor employment practices is far from easy for many workers. In many cases, clients are
well aware of their entitlements but are unable to enforce them due to a fear of being dismissed or disadvantaged
for doing so, for instance those on zero hours contracts vulnerable to the practice of ‘zeroing down’ described
above.
—— An East of Scotland CAB reports of a client who works 16 hours per week for a dry cleaning firm.
She is 32 years old but is only earning £6.21 per hour. She has no contract of employment. She has
mentioned to her employer that she is not earning the minimum wage but at the moment does not want
to cause any issues with her employer as she needs the job.
—— An East of Scotland CAB reports of a Spanish client aged over 25. The client works in a hotel for six
hours per day, six days per week. He earns £115.38 per week [an equivalent of £3.20 per hour]. In
addition to his regular hours, the client is expected to be constantly ‘on call’ and is not allowed to
leave the hotel in case he is needed for some task, including on his day off. The client has a room in
43 44 Payment of Tribunal Awards, 2013 Study
Government names employers who fail to pay minimum wage, June 2014 https://www.gov.uk/government/news/governmentnames-employers-who-fail-to-pay-minimum-wage
68 Small Business, Enterprise and Employment Bill: Written evidence
the hotel, but needed to spend his savings cleaning the room and making it habitable, as well as being
required to buy smart clothes for work, which he has never worn.
33. It is in the interest of good employers, workers, and the wider economy, that rogue employers are
prevented from exploiting vulnerable employees. However, the current systems and penalties in place for the
enforcement of the National Minimum Wage are not ensuring that all workers are paid what they are legally
entitled to.
34. Citizens Advice Scotland believes that a Fair Employment Commission with the legal powers and
resources both to secure individual vulnerable workers their rights in all areas of employment (including pay),
and to root out rogue employers could ensure that both employers and their employees are aware of their
rights and responsibilities.45 This could join up efforts to tackle underpayment of the National Minimum Wage,
ensuring that Employment Tribunal awards are paid and ensure that unscrupulous employers do not gain an
advantage by ignoring the law. Citizens Advice Scotland recommends:
35. The UK Government runs an awareness-raising campaign to ensure workers know that they are
entitled to a National Minimum Wage and how to claim it.
36. In the longer term, a ‘Fair Employment Commission’ should be created with the legal powers and
resources both to secure individual vulnerable workers their rights in all areas of employment (including
pay), and to root out rogue employers.
October 2014
Written evidence submitted by the National Day Nurseries Association (SB 26)
1. About NDNA
1.1 National Day Nurseries Association (NDNA) is the national charity representing children’s nurseries
across the UK. We give nurseries and the early years workforce information, training and support, so they can
provide the best possible early education and childcare for young children. NDNA is the voice of nurseries,
a sector of over 18,000 nurseries employing 200,000 people and an integral part of the lives of one million
children and their families. NDNA works with local and national government to develop an environment in
which quality early years education and childcare can flourish. For more information please visit our website at
www.ndna.org.uk
1.2 NDNA welcomes the opportunity to submit evidence to the Public Bill Committee, in advance of our
oral evidence on 16 October 2014.
2. Evidence
Part 5
2.1 National Day Nurseries Association strongly objects to the provision in Part 5 of the Bill to remove the
requirement for schools to register separately with Ofsted in order to provide for children aged two. If retained
in the Bill, this provision will mean that childcare and early education for two-year-olds in schools, including
for the most disadvantaged children, is not subject to a specific early years registration and inspection process
so could be established and operate without the quality assurance of expert scrutiny.
2.2 It is fundamental that regulation is driven by the needs of children. The wellbeing of children and
consistency for parents is best protected by the present clear requirement for all providers for under-threes to
be on the Ofsted Early Years Register, requiring them to comply with the internationally highly-regarded Early
Years Foundation Stage curriculum.
2.3 Deregulation for schools alone is inconsistent with Ofsted’s drive to raise the bar for quality in early years
and its proposal for a Common Inspection Framework announced last week, reducing its ability to scrutinise
all settings on a level playing field. The majority of early years provision in schools is not via England’s 418
maintained nursery schools, which are well known for their almost universal good and outstanding quality, but
via 16,400 primary schools. Latest Ofsted statistics show 78% of primary schools to be good or outstanding,
compared to 83% of private and voluntary nurseries. Therefore there is no rationale that schools can be trusted
to deliver high quality in early years without equal scrutiny by Ofsted to that required of private and voluntary
nurseries.
2.4 It is important that schools with nursery provision are inspected and rated on the basis of their capacity
and performance specifically in early years. This is especially so for ensuring opportunity and progress for
England’s most disadvantaged young children. It should not be assumed that a school performing well in
primary education will provide good or outstanding care and education for two-year-olds.
2.5 The protection of children by robust, consistent regulation should not be sacrificed to the drive to expand
provision for two-year-olds. Schools willing to offer places for two-year-olds should be prepared to commit
45 ‘Fair Employment’ report, February 2012. http://www.cas.org.uk/publications/fair-employment
Small Business, Enterprise and Employment Bill: Written evidence 69
to regulatory requirements that meet the needs of these children. If testing themselves against a regulatory
framework specific to the needs of young children is too burdensome, then schools should not be taking on the
responsibility of providing places. It should be noted that childminders and private and voluntary nurseries,
many of which are small enterprises without the resources of schools, manage to cope with the requirements of
Ofsted early years registration and inspection requirements.
2.6 It remains essential that the Early Years Foundation Stage applies in full to schools. The EYFS must
also be delivered in schools by specialists in the 0-5 years age range; primary school teachers are not trained or
qualified to provide for such young children. As a national framework that protects children and promotes the
best quality early learning for them, the full EYFS must follow the child whatever their setting.
2.7 Deregulation for schools would entrench a competitive advantage over private and voluntary childcare
provision. Schools providing childcare do not contend with the costs of business rates and VAT that private
and voluntary nursery provision must bear. In school early years provision many of the overheads are absorbed
by the general school budget and local authority back office functions, such as human resources support.
Relaxing regulation and thereby making it easier for schools to open up childcare places for two-year-olds than
private and voluntary providers will give schools further advantage without having to meet equal regulatory
requirements.
2.8 Clause 64 works directly against the stated purpose of the Bill to support business and enterprise; it will
make it harder for childcare businesses to grow and thrive. The private and voluntary nursery sector has already
seen occupancy of childcare places fall following the lowering of the school starting age to four, making
provision less sustainable, particularly in areas of disadvantage. If two-year-olds move into school provision
in large numbers, the private and voluntary nursery business model becomes unsustainable. With private and
voluntary provision accounting for 91% of full daycare the impact could be to destabilise childcare provision
with the unwanted effect of reducing choice, flexibility and quality for parents. Clause 64 should be removed
from the Bill.
2.9 Rather than investing in expanding school provision, government should focus on the capacity that
is available in high-quality early years settings which specialise in provision for under fives. Occupancy in
the nursery sector is 80%, with 25% of vacant places in areas of disadvantage (DFE). Private and voluntary
nurseries have the capacity, expertise and environment that best meets the needs of under-fives. The 2013
National Audit Office report on the pressure on school places caused by the increase in the birth rate also shows
that primary school capacity is very much stretched and would be best focused on over fives.
Part 2
2.10 We welcome the Bill’s introduction in Part 2 of a Small Business Appeals Champion—described in
the Bill as a Reviewer. There is presently no independent voice in the Ofsted appeals process for early years
providers, meaning that whilst the Independent Complaints Adjudicator for Ofsted (ICASO) may judge that
Ofsted’s process has been faulty, incorrect decisions can only be overturned by Ofsted itself. The consequences
of incorrect judgements are extremely serious for continuity of care and learning for children and for nursery
providers’ businesses and their employees’ jobs.
2.11 The powers of the Reviewer should be extended from merely reviewing the complaints and appeals
processes of regulators, to scrutinising and overturning flawed regulatory decisions.
2.12 As set out in Small Business: Great Ambition the aim of the Small Business Appeals Champion is
to ensure effective procedures for businesses to challenge regulatory decisions. The Focus on Enforcement
Review, to which NDNA contributed, found there were ineffective procedures with businesses left unable
effectively to challenge regulators’ decisions such as inspection judgments. In the case of nurseries, Ofsted’s
decisions can have a devastating impact, leading in some cases to closure, unemployment and the displacement
of many children. This became even starker when recent changes to statutory guidance for early education and
childcare came into force, meaning that an inadequate Ofsted judgment will result in the provider losing early
education funding and for satisfactory/requires improvement judgments, the loss of two-year-old funding.
2.14 Under current Ofsted procedures, there is no transparent, fair and effective appeal procedure against
regulatory decisions such as inspection judgments. There is an internal complaints procedure which at the first
substantive stage, in the case of inspections, the complaint is investigated by Ofsted’s outsourced inspection
service provider against whom the complaint has been made. Even at the third stage, ICASO has no power to
order Ofsted to change decisions or inspection judgments and it has a very narrow remit in looking at whether
or not Ofsted followed its own complaints procedures. There is therefore, no independent oversight. There is
no effective way to challenge Ofsted save for a Judicial Review which is prohibitively expensive and risky
litigation which places businesses on a very uneven playing field, as Ofsted is legally represented by either its
central government-funded legal department or the Treasury Solicitor.
2.15 Genuine transparency, independent oversight and a wide enough remit either to order Ofsted to change
a decision, or in the case of a finding of a flawed regulatory decision with an economic impact such as an
inspection judgment, to set aside that decision and order for example a further inspection would be key to
making the role of the Reviewer meaningful. The Bill’s provision for the Reviewer to review regulators’
complaints and appeals processes, reporting annually and recommending improvements, with the regulator
70 Small Business, Enterprise and Employment Bill: Written evidence
required to publish a response does not go far enough. Clause 15, subsection 5 explicitly preventing the
intervention in individual appeal or complaint cases should be removed and replaced with provisions to enable
intervention when the regulator’s appeal process has been exhausted. The procedure for this would need to vary
according to the regulator and under Clause 17 the Bill could allow for this to be set out in guidance. Guidance
should be developed in consultation with each regulator, its business stakeholders and their representative
bodies to ensure a fair process balancing strong regulation with fair and transparent processes for businesses.
2.16 A Reviewer must have the sector experience and technical knowledge to have the respect of the sector
and effectively to hold Ofsted to account against the revised Regulators’ Code for example ensuring that the
officers these regulators employ have “the necessary knowledge and skills to support those they regulate.”
2.17 The private and voluntary childcare sector is dominated by SMEs but does include a substantial number
of larger nursery groups who are subject to the same regulation under Ofsted. Together these large groups
provide 10% of places and make a significant contribution to provision of government funded free early
education. Our understanding of the Bill is that the scope of the Reviewer will include all childcare providers
regulated by Ofsted and not be restricted to those that fall into the SME category.
October 2014
Written evidence submitted by the Association of Licensed Multiple Retailers (SB 27)
The ALMR welcomes the opportunity to submit written commentary on Section 4 of the Small Business,
Enterprise & Employment Bill ahead of the oral evidence session being held on 16 October. As the only national
trade body dedicated to representing licensed retail businesses, including multiple lessees, we are well placed to
give an insight into the challenges independent small businesses faces in their relationship with their landlord
and how the Bill will help to address them. Although the fine detail will only be determined in secondary
legislation next year, the Committee Stage offers a unique opportunity to ensure the framework in which the
Code will be developed is robust and focused on securing a fair, free and flexible market in our sector.
By way of background, the ALMR has been actively involved, on behalf of its members, in the ongoing
political debate on the regulation of the relationship between pub companies and their tied tenants. We have
given evidence in the 2004, 2009, 2010, 2011 and 2013 Select Committee inquiries and initiated a sector-wide
mediation in 2008 to seek to resolve these issues.
Our membership covers the wide spectrum of licensed hospitality—high street bars, casual dining and night
club businesses, but over a third are traditional wet led community pubs—and reflect the diversity of size of
business within the sector, from national chains to single site venues, with two thirds of our members being
SMEs with estates of fewer than 20 sites. Between them our 175 member companies operate just under 16,500
outlets, employing 400,000 staff. Of these, just over half will be operated on some form of lease and just under
3,000 of our members’ outlets will operate on a tied lease from a brewery or pub company.
Summary
Overall, we are pleased that the Government has moved to take decisive action in this area and that the Bill
commits Ministers to implement these changes within a year. This draws a clear line under a long period of
uncertainty which has undoubtedly hampered investment. The sector needs stability and consistency to ensure a
fair, free and flexible market and its continued ability to generate jobs and growth right across the UK.
A Statutory Code is necessary to address persistent concerns about compliance with existing voluntary
measures and inequalities in the relationship between pub companies and their tied tenants. The clauses of the
Bill are a pragmatic, proportionate and measured approach and, given the extensive debate within Parliament
prior to its publication, we believe that full introduction of its provisions can follow swiftly to deliver material
benefit to tied lessees by providing market certainty and stability.
We are concerned to ensure that the proposed Code delivers statutory regulation at least as comprehensive
and effective as the current voluntary Code and that the most stringent provisions are properly targeted. The
focus on rent calculations, transparency of information provided by the pub-owning company and the ability
to request a review in exceptional circumstances is, in our view, the correct one and, together with access to
an Adjudicator in addition to existing dispute resolution mechanisms, will be key to addressing outstanding
problems.
Part 4—Clauses 35-63
The ALMR is particularly concerned to see the following issues addressed when the relevant clauses are
debated in Committee, and has provided comments by exception.
Clause 36—The Pubs Code
(1) ALMR welcomes the commitment from the Government to move quickly on implementing the
provisions in the Bill. This will be vital to ensuring that there is no diminution of the protection afforded to
existing lessees. The ALMR seeks clarity on whether the proposed timetable of a year after adoption of the Act
Small Business, Enterprise and Employment Bill: Written evidence 71
relates only to the regulations relating to the Code or to all secondary regulation under Part 4; it is vital that it
is the latter.
Moreover, we are concerned to ensure, however, that the timetable refers not just to the making of regulations,
but also their implementation. The ALMR would not want to see the Statutory Code exist after one year and
then wait a further lengthy period for the enforcement of that code; given the protracted preceding debate,
there should be no need for a transitional period. Therefore ALMR urges the Committee to ensure that the
regulations covering the Pubs Code and the Adjudicator come into effect within one year of the Act as part of a
comprehensive suite of legislation.
(4) We note the reference in this clause that the second overarching principle—namely that tied pub tenants
should not be worse off as a result of any product service or tie—should only apply to the tenants of large
pub-owning businesses. The ALMR would like to see this interpretative principle apply to all tied pubs and the
phrase “which apply only in relation to large pub-owning businesses” deleted.
The size of the company is not a determinant of behaviour but of potential risk—therefore the mitigation of
this risk needs to be calibrated accordingly for those larger pub owning businesses. While we therefore accept
that the way in which it will be applied and, more particularly, enforced against larger pub owing businesses
will be different, the requirement for the Code to be interpreted purposively in accordance with it will be vital
to delivering behavioural change across the sector.
(5) The Code must provide for full transparency of all business terms and disclosure of all relevant
information to place both parties on a more equal footing and to enable tied tenants are equipped to enter a
robust commercial negotiation. The ALMR has set out its views on the draft Code published in Annex F to the
Government’s Response to the Consultation in June 2014 at the end of this paper and made recommendations
on changes better to deliver this objective. We have also sought to cross-reference points in the Code where
they relate to specific clauses. The ALMR considers that the only outstanding issue is the planned consultation
on the tests that would trigger an open market rent review.
(6) This clause states that the Pubs Code would require large pub owning companies to provide parallel
rent assessments. Were this to be widely interpreted and applied, we believe that it would materially improve
transparency and the negotiating position of tied tenants. However, the current draft Code only requires parallel
rent assessments in very narrow circumstances, having to apply to the adjudicator for this level of information
and then only when negotiations have broken down. We believe that this will result in more cases being
referred to the Adjudicator than would be the case if full transparency and disclosure were introduced earlier in
the process.
The ALMR would like to see the Bill require large pub owning companies to provide parallel rent assessments
on request as part of a rental negotiation. Once the large pub owning companies have done this and there is a
dispute over the terms or the rental negotiation then breaks down should Part 8 of the Pubs Code apply and the
Adjudicator become involved. In our view, it is not for the Adjudicator to have to take action to provide for
greater transparency in rent setting—the statutory provisions in the Bill should ensure that this is automatically
the case.
The ALMR would also welcome greater clarity on part (a) of this clause. Is the intention for the Adjudicator
to test or determine the validity of a parallel rent assessment or is it the intention for the Adjudicator to
determine the rent where this assessment is requested? In our view, the focus of the Adjudicator’s role should
be in determining where and how the market has not functioned properly in specific cases.
Clause 37—Review of The Pubs Code
(1) ALMR would like to ensure that the reviews of the Pub Code (provided for in Clause 37) and the review
of the enforcement and adjudication process that supports it (provided for in Clause 56) should be undertaken
at the same time and findings shared as part of a comprehensive report.
(4) The ALMR would like to see the term ‘soon as practicable’ deleted from the Bill in favour of a specific
timetable. As part of the review process the ALMR would like to see the Secretary of State publish their report
to Parliament within 3 months.
Clause 38—Inconsistency with Pubs Code etc
(1) We are unclear what the intention of this clause is and how it will be applied in practice. It is not clear
from this clause whether the intention is to allow the Secretary of State to determine whether generic clauses in
specific agreements are incompatible with the Code or whether this is a more general provision akin to unfair
contract terms legislation. The ALMR would like to understand how the Secretary of State would be notified
of incidences where the terms of business were inconsistent with the provisions of the Pub Code. Who would
inform the Secretary of State that there had been a breach and regulation was necessary?
(4) The ALMR would like to ensure that this clause affords more general protection for tenants seeking to
exercise their rights under the Code and is not restricted solely to tenants referring disputes to the Adjudicator.
We would like to see clause (4)(a) amended as follows—“prevent the tenant from referring a dispute to the
72 Small Business, Enterprise and Employment Bill: Written evidence
Adjudicator for arbitration in accordance with section 39, or ‘to other independent dispute resolution or
arbitration mechanism (eg PIRRS/PICAS)’ or”
Clause 39—referral for arbitration by tied pub tenants
(3) The Bill makes provision for only certain aspects of the Pubs Code to be arbitrable but the current
draft Code does not identify which of the provisions would fall within the scope of this clause. However,
there is nothing in the current draft of the Pubs Code that says that any of its provisions are arbitrable. The
ALMR would like explicit references in the Code to those specific provisions that are arbitrable, if it is the
Government’s intention that this should be the case.
(5) It is our view, however, that all of the provisions of the Code should be capable of arbitration if we are to
effect behavioural change. We note that the industry’s own voluntary self-regulatory found that it was essential
to have a wider dispute resolution service rather than one which was restricted to arbitrating on rental matters
and it is vital that the Adjudicator has similarly wide-ranging powers.
(6)(b) The ALMR considers that existing bodies like PIRRS and PICAS could support (rather than compete
with) the Pubs Adjudicator in the arbitration process. PIRRS and PICAS could provide a ‘triage’ function to
an agreed criteria dealing with certain cases to avoid ‘bottle necks’ in applications to the Pubs Adjudicator.
The ALMR would like to see the clause amended as follows “appoint another person to arbitrate the dispute
‘including other independent dispute resolution or arbitration mechanisms (eg PIRRS / PICAS)’”
Clause 40—Timing of referral for arbitration by tied pub tenants
We are concerned that the timetable in these clauses may not be practical. The ALMR has noted that tenants
often raise the issue of potential non-compliance with the current voluntary code early on in any dispute with
their pub company, particularly with regard to rent negotiations. It is not unusual for there to have been six
months of internal discussion before a case is referred to PIRRS or PICAS. As such, the ALMR would like to
see the clause amended as follows:
(2) “…with the date on which the tenant ‘formally notifies the pub owning business in writing’ of the alleged
non-compliance”
(4) The ALMR would like to see 4 months replaced by 6 months.
Clause 42—Arbitration: supplementary
(3)(c) The ALMR would wish to see the details of the regulation before determining whether these provisions
are fair and do not deter tenants with genuine cases. Where a tenant’s case has merit, the ALMR believes that
the fee should be refunded.
(7) The ALMR considers that there should be transparency around the fees and associated costs of arbitration.
The fees should not be set at such a level that deters tenants from embarking on a course of arbitration.
Clause 44—Investigations by Adjudicator
(1) The ALMR would like to understand how the Pubs Adjudicator determines reasonable grounds for
holding an investigation and what the triggers are for such an investigation—is it own initiative or at the request
of an individual tenant, a representative body or under political direction. The ALMR would like to understand
where the Adjudicator would receive the information from and what research the Adjudicator would undertake
independently to inform whether an investigation was warranted.
(2) The ALMR suggests that the Adjudicator might like to set out in guidance (in Clause 52 of the Bill) the
criteria which interested parties should have regard to when considering writing to the Adjudicator to request
an investigation.
Clause 45—Adjudication reports
(3) The Bill suggests that any investigation report published by the Pubs Adjudicator need not identify the
pub owning business concerned. The ALMR considers that the withholding of such information should only be
considered in exceptional circumstances. Our experience with PIRRS and PICAS demonstrates the beneficial
deterrent effect that identification of companies has had. Given the importance of bringing transparency to the
sector the ALMR would like the Adjudicator to set out in guidance the exceptional circumstances in which such
information would be withheld.
Clause 46—Forms of Enforcement
(1)(a) The ALMR would like to see the clause amended as follows to replicate current best practice under
the self-regulatory regime—“make recommendations ‘that remedy the situation the tenant finds themselves,
rectify any errors or omissions and which may include financial compensation where this has been deemed
necessary’”.
Small Business, Enterprise and Employment Bill: Written evidence 73
Clause 49—Financial penalties
(5) We note all financial penalties will be paid into a consolidated fund and that this will be held by the
Treasury. We would welcome clarification as to whether these penalties would then be used to invest in the
work of the Adjudicator or to compensate successful claimants.
Clause 56—Review of Adjudicator and guidance from Secretary of State
(1) ALMR would like to make sure that the reviews of the Pub Code (provided for in Clause 37) and the
review of the enforcement and adjudication process that supports it (provided for in Clause 56) should be
undertaken at the same time and findings shared.
(6) The ALMR would like to see the term ‘soon as practicable’ deleted from the Bill. As part of the review
process the ALMR would like to see the Secretary of State publish their report within three months.
Clause 60 Pub-owning business and large pub-owning business
The ALMR agrees with the Government that the Code must apply to anyone who owns tied pubs and for
there to be enhanced provisions applying to those who own 500 tied pubs or more. We believe that there is
scope for there to be greater differential between the two codes.
The Code as currently drafted refers to micro businesses but we note that the Bill does not offer a definition
of them. The ALMR has set out in an annex to this paper what a definition could constitute and would like the
Government to make explicit that the measures contained in this Bill apply to them.
Clause 61—Tied pub tenant, landlord and tenancy
(2) The ALMR would like to see the Bill explicitly exclude ‘tenancies at will’ from these measures. These
are often emergency measures designed to keep the pub open on a temporary basis (usually for a period of 3-6
months but sometimes up to one year). They cannot be renewed; there is no danger of them being rolled over
and they can be exited at any time.
Clause 63—Regulations under this Part
(2) The regulations governing the abolition of the Adjudicator under Clause 57 (1c) should also be subject to
affirmative resolution.
Also, the ALMR notes that the Bill makes no provision for the abolition of the Pub Code. Would it be
possible to abolish the Adjudicator and still operate a statutory Code?
October 2014
Annex
DRAFT PUBS CODE—ALMR COMMENTARY
The ALMR has worked extensively with all stakeholders on the development of the current Industry
Framework Code and potential revisions to it. In particular, over the early part of 2014, we brought together
all lessee groups on the Pub Governing Body to refine the Government’s proposed draft code published for
consultation in 2013. Our comments below reflect the outputs from this group.
Definitions:
—— Business Development Manager: The ALMR is concerned that this is widely drafted and could be
taken to apply to anyone in the pub company who has ongoing contact with the tenant, e.g. sales people
taking calls about beer deliveries. The ALMR would like to see this focused on those “responsible for
the Pub Owning Business’s interactions with the tenant in respect of rent or future business planning
purposes” in order to ensure that the objectives of the Code are effectively delivered.
—— Micro business: The draft Code refers to definitions in legislation, but there is no reference within the
Bill. Our preference is for the basic code to apply to all tied landlords, but we accept that a derogation
for micro businesses might be helpful. This should be based on EU definitions, with employee numbers
referring to FTE workers and focused on those employed in the pub owning side of the business.
—— Temporary agreements: The ALMR consider that these should be excluded from the legislation.
Tenancy at Will (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 eg death
or bankruptcy. In these cases, the temporary agreement is usually offered to a management company
which specialises in such situations and provides a stop gap service. This relies on a low cost, quick
fix and the professional management company is well versed in assessing the risk. Occasionally, a
TAW will be offered on a temporary basis to an existing lessee pending the arrival of a new long
term tenant. It is extremely rare for a TAW to be offered to a new tenant and there is no possibility
of a TAW being rolled into a longer term agreement without the Code’s due diligence being applied.
One agreement ends and the other takes over. At present, under the Industry Framework Code, due
74 Small Business, Enterprise and Employment Bill: Written evidence
diligence checks are taking around 2-3 months to process and we are keen to ensure that there is no
diminution of existing requirements.
Part 2—Interpretation of the Code
—— Under the existing self-regulatory regime, the overarching principles of the Code apply to all. The
ALMR notes the suggestion that the principle that a tied tenant be no worse off than a free of tie
should only be applied to tenants of large pub companies. However, an over-arching principle and
one which is designed to allow the Code to be interpreted purposively should apply to all. The way in
which this is demonstrated or the compliance required to achieve it may well be different for different
types of companies, but the principle should apply to all.
—— The existing Framework Code also includes references to how the principle of fair and lawful dealing
is to be delivered, with explicit reference to transparency of business dealings and disclosure. It states
that “companies agree to act at all times within the spirit of the Code, with integrity, honesty and full
transparency, particularly with regard to terms of business and charges made or costs passed on.
The Code exists to promote transparency by requiring full disclosure of all relevant and appropriate
information to ensure both parties are equipped to enter into a commercial negotiation. Fair and
lawful dealing will be understood as requiring the Pub Company to conduct its relationships with
Tenants in good faith, without distinction between formal and informal arrangements and without
duress”. We believe there would be merit in mirroring this language.
Qualified Person Requirements
—— Point 8 requires the pub company to satisfy themselves that a tenant is a suitable and proper person
before a tenancy is ‘agreed’. In contrast, current due diligence required under the Industry Framework
Code must be completed “before a substantive agreement is offered” and we continue to believe that
this is preferable to “before a Tenancy is agreed”. The latter is quite late in the process—effectively
at the point that a decision has been made and the agreement is being signed—and the Tenant may
have made commitments and based their business, financial and personal planning on discussions held
with the Pub Company without either side entering full disclosure or satisfying themselves fully as to
suitability.
—— The purpose of this section is to ensure that the applicant has a degree of knowledge and competence
before entering a detailed commercial negotiation—but as drafted would only effectively come into
force once that commercial negotiation on a specific property and terms of agreement has been
concluded. That cannot be right—it would be sensible therefore if the requirements were pushed
further back in the process and the wording amended to “Before a substantive agreement/tenancy is
offered”.
Business Plan
—— Point 11: As per above, the requirement for a business plan to be in place should take effect before a
“substantive agreement/tenancy is offered” not “agreed or renewed”.
—— 12 (a)(i): this should refer to independent professional advice “from an accredited professional with
relevant experience of working in the licensed retail trade” as per the current Industry Framework
Code, to ensure that this is robust.
—— 12 (b) insert “and matters to which they should have consideration” after market comparisons as per
the current Industry Framework Code.
Information Requirements
—— Point 13: Again, the ALMR considers that it is vital that this is provided before a new agreement is
“offered” not just at the point of “commencement” or “renewal” and we believe a new 13 (c) at rent
review should be inserted.
—— Point 14 iii: insert two new bullet points—terms on which gaming machines were supplied and
arrangements for the distribution of income; and outline trading, payment and credit terms.
—— Point 14 iv: for the avoidance of doubt, at the end of this clause insert “unless otherwise specified in
the lease, all provisions should be considered to be ‘keep’ not ‘put’”. This will ensure that tenants do
not face unexpected additional costs or dilapidations or bear undue property risks without this being
reflected in the rent.
—— Point 14 vii: this clause requires the pub owning company to make clear the range of support services
it provides and which are available to the tenant. These are in effect SCORFA and are taken into
account by the tenant in assessing the proposed rent and trading terms. For tenants of large Pub
Owning Companies, the Code should make clear that any specific support services detailed under
14(vii) and indeed contractual discounts offered under 14(iii) form part of the terms of on which
the lease is offered and should not be capable of unilateral alteration—this could be a trigger for an
exceptional rent review request under clause 25. A reference to “any such services offered at the start
of the tenancy will be considered to form part of the terms on which the agreement was concluded”
should be inserted at the end of 14(vii).
Small Business, Enterprise and Employment Bill: Written evidence 75
—— Point 14 xii: it would help to include a reference to decorating or maintenance funds as well as rent
deposit arrangements. We also believe that these should be required to be kept in ring-fenced funds.
—— Point 15f i: experience suggests that this time frame be amended from 6 to 12 months.
—— Point 15f iv: insert “...a survey will be conducted by the landlord”.
Part 7—Rent Negotiations
The bullet point paragraph number is inconsistent and there is duplication—we have replicated this for ease
of cross-reference.
—— Page 141 Point 15: should be amended to read “the assumptions included in the rental assessment
model ‘must be reasonable’ and supporting evidence where available will be ‘provided and must be’
fully justified.
—— Point 16: The ALMR does not believe it would be appropriate for the timetable for information to be
provided in advance of rent negotiations to be left to the discretion of pub companies. This would be a
retrograde step and reduce the current requirements of the Industry Framework Code. This clause also
appears incompatible with point 24. We therefore believe this paragraph should be removed.
Under the Industry Framework Code, all information must be provided 6 months before a rent review
or renewal falls due and the negotiation should be concluded within 3 months of that date unless
the timetable is extended by mutual agreement. Tenants have a right to go straight to PIRRS if the 3
month timetable is missed and no agreement to extend it is reached. These timetables are important
new protections which must be replicated in the Statutory Code.
—— Point 18: we believe that this clause should also refer explicitly to minimum purchase obligations as
these deliver the same effect of UORR.
—— Point 19: The ALMR would like to insert “In particular, the level of detail provided should be
sufficient to allow the prospective lessee to take proper professional legal advice on the terms,
conditions and effect of the tenancy being offered” to mirror existing Industry Framework Code
requirements.
—— Point 20: The ALMR would like to insert “is fully justified and explained” at the end of that clause.
This continues to be a problem in respect of current rent negotiations.
—— Point 20(b)—The ALMR would like to insert “all” ahead of volumes and reference to “where
available” should be deleted; as these are purchased direct from the company, this information will be
available, particularly at rent review.
—— Point 21(b):—The ALMR would like to delete “seek to” to remove any degree of latitude for noncompliance. Again, this is an area where problems have arisen with regard to compliance with the
Industry Framework Code.
—— Point 22: The ALMR would like to delete “made” so the onus is on the pub company to make it
available and to only fail to disclose if the information is not available or if they have a legitimate
commercial reason. The ALMR suggest that there is a reference inserted here to third party
determination to mirrors the existing Industry Code. So this clause would read “If any information is
not available the Pub Owning Business must disclose and explain the reason for this. Information
which may be used in third party determination of rent should not be unreasonably withheld
and should be shared on request, subject to appropriate confidentiality agreements”. The ALMR
appreciate that the latter point is included later in the Code, but it would be helpful if it was reiterated
here for the sake of clarity.
—— Point 24: The ALMR would like to insert at end “and the parties should aim to complete negotiations
within 3 months after the due date, unless an extension to this timetable is mutually agreed”. This
mirrors the existing Industry Framework Code
—— Point 25 (iii)(iv) We believe that two new tests of exceptional circumstances should be inserted to
allow a tenant to ask for a rent review—if there is a change of owner; or if the contractual terms on
which the agreement was offered made have been substantially altered.
Parallel Free of Tie Rent Assessments
—— Point 26: while the Bill refers to the preparation of parallel rent assessments, the Code appears to
suggest that this can only be done by applying to the Adjudicator where rent negotiations have already
broken down. The ALMR believes this to be unhelpful and would suggest that a right to request a
parallel rent assessment to aid transparency in rent negotiations or where offer and counter offer have
been refused but without the input of the Adjudicator could be helpful. Production by the company
on request could help to resolve disputes without the need for independent recourse and could help
to focus Adjudicator resources to expedite the most challenging cases or instances of market failure.
—— Point 31(a): The ALMR considers that a 5 week failure to respond to a counter offer is a very long
time period indeed and is arguably too long, bearing in mind the aim is to conclude within 3 months of
rent review date. Standard terms would be 28 days
—— Point 33: The ALMR would like to include a reference to “reasoned and fully justified assumptions”.
76 Small Business, Enterprise and Employment Bill: Written evidence
Business Development Managers
—— Point 37: The ALMR would like to see this training to be accredited and for them to have a
qualification before carrying out a rent negotiation.
Assignment
—— Point 39: Industry recommended best practice is for requests for assignment to be responded to within
28 days of receipt of request. The ALMR would like to see this reflected in the Statutory Code.
—— Point 41: The ALMR considers that there are some practical difficulties in delivery of this objective
due to the way in which it is drafted. Whilst we agree that the Pub Owning Company should ensure
that an assignee has the relevant professional advice and experience required for a new lessee under
part 4 &5 of the Code, this is a requirement on the Pub Owning Company not the assignor. This is
missing from the current draft and should be reinstated. In terms of the information requirements, the
assignor will often not have this information and may not have been provided with it by the landlord
(assignments will tend to take place well in the life of the lease and some will relate to agreements
entered into before Industry Framework Code refinements). For the sake of clarity, it would also be
helpful if this section referred to the assignee or assignor rather than Tenant. Para 40 should therefore
require the Pub Owning Business to provide the assignee with information and para 41 should read
“the Pub Owning Business must provide the information at Part 6 of the Code to the assignee
within 28 days if requested by either the assignee or the assignor.” The alternative would be to make
clear that this clause only related to assignment requests for leases first taken out after the Code took
effect.
—— Point 42: Given that clause 41 only requires information to be provided if requested specifically,
it seems odd to reference a requirement to provide it in all cases as part of clause 42. The ALMR
suggests that this is reworded to replace “the information at Part 6” with “all relevant information
requested by the assignee” and notes that there is a requirement for a general proviso ensuring that
consent to assign is not unreasonably withheld.
Codes of Practice
—— Point 48: The ALMR would like to insert “and will form part of the tenancy and contract terms on
which the agreement is reached”.
Compliance
—— Point 49: Although the ALMR does not believe that this should be substantive or onerous requirement,
we nevertheless accept that the intention in the Industry Code was for these compliance requirements
to apply only to those businesses with more than 100 leases. We therefore recommend that the
requirement to nominate a compliance officer and produce and publish a compliance report should
only apply to Large Pub Owning Companies.
Dispute Resolution
—— Point 59: The ALMR considers that it would be helpful to refer to external independent dispute
resolution process, arbitration or legal proceedings.
Written evidence submitted by Insolvencylist.com (SB 28)
My organisation provides back-office support to insolvency practitioners and lawyers, as well as creditor
information and publicity for insolvency cases to those with an interest.
This submission concentrates on the proposals in relation to insolvency reforms (Part 10 of the Bill), as this
is the area in which we have most professional expertise.
Our representations relate to the processes for informing creditors of the existence and conduct of insolvency
matters, with an eye on the efficiency and cost-effectiveness of notification, ensuring that maximum visibility is
given to proceedings, and to the processes for decision-making in the initial stages of insolvency matters.
We hope that this document will be useful in considering what provisions should be included in the Bill, and
also in the amendments to the Insolvency Rules that will consequently be necessary to give full effect to the
changes that the Bill will make to the Insolvency Act.
The representations below relate to the proposals contained within clauses 108-114 of the Bill.
The value of creditor meetings
1. I do not think that the plan to generally remove the requirement to hold creditors meetings in accords
with the Government’s stated aim to have greater involvement and engagement for creditors in insolvency
proceedings. Indeed, I feel that creditors may consider this step as a barrier to their inclusion in the insolvency
process.
Small Business, Enterprise and Employment Bill: Written evidence 77
2. From the experience I have of creditor meetings (both as a creditor in a number of cases and from
discussions with other attendees and insolvency practitioners) I believe they provide a valuable opportunity
for information to be shared about how a business has operated prior to it becoming the subject of insolvency
proceedings.
3. Many creditors of a company are suppliers and are therefore in competition with other suppliers. For this
reason they are naturally wary about discussing their business and their current customers. It is only when a
company becomes insolvent the supplying creditors (who are otherwise in commercial competition with each
other) have an interest in disclosing and discussing commercial information with fellow creditors.
4. Attendance at a meeting of creditors—either physical or by video-conference—is the perfect opportunity to
discover and share information that may be of vital importance to the insolvency practitioner for understanding
how a business has operated, assist in tracing of assets and identifying conduct that may be worthy of further
investigation.
5. A significant amount of the information that will be shared and discussed at a creditor meeting is, in my
view, unlikely to be disclosed in any other way. As an example a creditor may have a hunch that something
untoward has happened in the course of his dealings with a company, but does not have concrete evidence
that the law has been breached. In these circumstances informal verbal discussion with other creditors and/or
the insolvency practitioner can be of great value in identifying common themes in the way the business of the
company has been conducted.
6. One of the reasons for proposing to remove creditor meetings as a default seems to be that the cost
(for hiring a meeting room and the administration time) is felt to be too high. From personal discussions
I understand that the administration time is marginal, and much of it would be incurred in any alternative
mechanism anyway—contacting creditors individually, counting votes—and that internal meeting room hires
are often not charged.
7. Having a licensed insolvency practitioner present is of great benefit to the creditors so that they can
discuss concerns verbally and informally, to establish whether something untoward has occurred. Many
creditors are not familiar with the finer points of company law, so having the opportunity to discuss with a
qualified insolvency practitioner, without having to have a formal professional consultation with a lawyer or
accountant, is a useful measure.
8. In conclusion on this topic I very strongly believe that every insolvency case should at the very least
have an initial creditors meeting. I also believe that the invitation to creditors to attend the meeting should be
worded to emphasise the value of investigating the affairs of the company fully, that creditors should feel free
to discuss anything with fellow creditors and in confidence with the insolvency practitioner, and that it will be
generally worthwhile for every creditor to participate.
The Gazettes (London Gazette, Edinburgh Gazette and Belfast Gazette)
9. The Gazette is well-placed to inform everyone (creditors, members, financial institutions, utilities,
insolvency practitioners and others) of key insolvency events, both online and in print. It is currently the
case that notices are published in the Gazette (known as ‘Gazetting’) in relation to most creditor meetings,
appointments, intended dividends and final meetings. It is a modern, cost-effective and official method of
disseminating statutory information.
10. The Gazette is used as a key reference source by those seeking information about insolvency events, as
well as by those providing information to creditors and the like. I understand that the Insolvency Service has a
good working relationship with the Gazette, and that the Gazette is currently developing their website further in
relation to suggestions from the insolvency and credit management sectors.
11. As part of the development of the Gazette website information is available in multiple formats for easy
re-use by third parties. With the ability for users to register free of charge to receive alerts to particular notices,
and to save searches, it is much easier for information that is published in the Gazette to be disseminated than
previously was the case.
12. The requirements for Gazetting each specific insolvency event are contained in the legislation, and are
split between the Insolvency Act and the Insolvency Rules. There are no specific references to publishing
notices in the Gazette in the Bill, but some of the provisions in the Bill would have the (perhaps unintended)
consequence of introducing gaps in the chain of Gazetted events in many insolvency procedures. It is important
that the value and comprehensiveness of the data published in the Gazette is not unintentionally diminished.
13. In November 2011 the Insolvency Service proposed to remove the requirement for the Gazetting of a
notice of presentation of a winding-up petition. In response Dr Stephen Baister, Chief Bankruptcy Registrar of
the High Court, gave a considered response (Accountancy Age, 19 January 2012) strongly against this and other
aspects of the proposal.
14. While I do not believe (as stated in this submission) that it is a sensible move to remove physical creditor
meetings in all circumstances, I would strongly suggest that if such a move is made then there should be
introduced a requirement to Gazette a notice stating what process is taking place.
78 Small Business, Enterprise and Employment Bill: Written evidence
15. Similarly, at the conclusion of most insolvency cases there is currently published a notice of the Final
Meeting so that interested parties are aware that the case is being closed. As the Final Meeting is proposed to be
abolished, I would suggest that a substitute requirement to Gazette a notice stating that the case is to be closed
and the final report is to be issued would have value for all concerned.
16. Given the comprehensive nature of the Gazette and that it is freely available to view, it could even be
considered that certain creditor communications (such as the availability of the final report) could be given
solely by way of Gazette notice. This would lead to a saving in administration time (and cost) for the insolvency
practitioner’s staff as well as avoiding printing and postal charges.
17. As an example, this option already exists for a notice of End of Administration (see Paragraph 80(5)
of Schedule B1 to the IA1986) and standardising it as an option in the conduct of Voluntary and Compulsory
Liquidations as well as Bankruptcy cases would seem a logical step.
October 2014
Written evidence submitted by the Chartered Institute of Personnel and Development (CIPD) (SB 29)
Background
1. The CIPD is the professional body for HR and people development. We are the voice of a worldwide
community of more than 135,000 members—working in HR, learning and development, people management
and consulting across private businesses and organisations in the public and voluntary sectors. As an
independent and not-for-profit organisation, the CIPD is committed to championing better work and working
lives for the benefit of individuals, businesses, economies and society.
2. Public policy at the CIPD exists to inform and shape debate, government policy and legislation for the
benefit of employees and employers, to improve best practice in the workplace, to promote high standards of
work and to represent the interests of our members at the highest level.
3. Our membership base is wide, with 60% of our members working in private sector services and
manufacturing, 33% working in the public sector and 7% in the not-for-profit sector. In addition, 76% of the
FTSE 100 companies have CIPD members at director level. We draw on our extensive research and thought
leadership, practical advice and guidance, along with the experience and expertise of our diverse membership
base to champion better work and working lives.
General Position
4. The Employment Section (section 11) of the Bill is where the CIPD’s area of expertise lies. On behalf
of our members we want to see a regulatory environment that makes it straightforward for employers to
recruit, retain and reward employees, whilst providing the protection for workers on which high trust working
environments and rewarding working lives our built. We believe section 11 of this Bill is a positive move
towards this and we welcome its contents. However, there are areas where we believe the legislation could be
improved, particularly regarding zero hours contracts.
Whistleblowing
5. The CIPD supports the whistleblowing provisions (clause 135) contained in the Bill, which would require
‘a prescribed person to produce an annual report on disclosures of information made to the person by workers’.
This will help to raise public awareness of the importance of whistle-blowing and give employers and workers
more confidence that issues raised will be adequately considered.
6. It must be recognised however that legislation can go only so far in supporting whistleblowing.
Organisational culture is critical to the extent people feel that they have a voice and can raise concerns without
risk of being penalised in any way. Leaders of organisations need to understand what type of organisational
culture supports whistle-blowing and what type of leadership and organisational development activities can
create environments where there is mutual trust and confidence. We are currently conducting research in this
area.
7. The CIPD plans to undertake case studies of management practice in responding to whistleblowing
complaints that have had positive outcomes, in the sense that the whistleblower has been protected from harm
and the wrongdoing has been successfully addressed. Most media reporting has focused (understandably) on
the experience of the whistleblower. We believe the employer perspective needs to be more fully explored and
understood, with positive outcomes and good practice championed and replicated across organisations where
possible. We anticipate that the CIPD case studies will focus on outlining the facts from an HR perspective,
including how the case was brought to management’s attention, how it was managed by the various players
(line, senior managers, HR, audit/compliance), communications and outcomes. Issues we intend to address
include the role of HR, encouraging whistleblowing (including ethics policies), choice of mechanisms for
people to speak up, distinguishing between whistleblowing and grievances (and dealing with each), supporting
line managers, protecting the individual, the role of trade unions, and circumstances in which it may be
appropriate to offer compensation terms.
Small Business, Enterprise and Employment Bill: Written evidence 79
Employment Tribunals
Failure to Pay Sums (clause 136)
8. The CIPD supports the provisions of the Bill that impose financial penalties on employers that fail to pay
employment tribunal awards. It is right that employees should have access to tribunals as an impartial way of
resolving disputes that cannot be solved by other means. It is therefore important that the tribunal system works
well and that there are penalties for those employers who do not abide by the rules. It should be noted however,
that whilst we believe the objective of the clause is sound and we believe penalties will mitigate the problem,
they will not remedy the problem of unpaid awards.
9. In general, the CIPD takes the view that conciliation and mediation can provide a better way for both
parties of resolving disputes than tribunals. Early conciliation is helping to resolve workplace disputes without
the need for claimants to go to an employment tribunal. From talking to our members they often say that ACAS
having the resource to tackle issues before positions have hardened is an effective, positive and satisfactory
way of resolving workplace issues for all concerned (ACAS is now receiving requests for early conciliation at
a rate of over 1500 a week).
Postponements (clause 137)
10. The CIPD has no research about the extent to which postponements are sought as a tactic by one party
or the other. However we recognise the importance of ensuring that the tribunal process is efficient and does
not lead to wasted time and cost. It is for the Employment Judge to decide in a particular case whether or not to
grant a request for postponement.
National Minimum Wage Enforcement (NMW)
11. CIPD supports the provisions in clause 138 as penalties are a necessary deterrent to deal with rogue
businesses who are intentionally not paying staff the NMW. We believe however that legislation of needs to
be coupled with effective enforcement. It is important HMRC is rightly resourced in terms of manpower and
correct processes to ensure enforcement happens.
12. From talking to our members we believe employers who are not paying the correct NMW fall into two
categories. The first is rogue businesses who seek to avoid paying the correct wage rate and the second is some
small and micro employers who may not understand who are eligible for what rates and when, and what factors
can be taken into account (such as the offset rate for accommodation or the various current apprentice rates).
13. We would like to see additional focussed support to give smaller businesses clearer information to ensure
that they do not fall foul of the rules. This is particularly important during the start-up and expansion phases of
business.
Exclusivity in Zero Hours Contracts
14. Zero hours contracts, when used for the right reasons and managed effectively, are a legitimate part of
the U.K.’s flexible labour market. Our research shows that people employed on this type of contract have at
least comparable job satisfaction and are more satisfied with their work life balance. It is not contract type
that determines how satisfied and engaged people are with their work, it is how people are managed. What is
important is ensuring there are appropriate measures to combat examples of poor management that can occur in
any part of the workplace.
15. The CIPD report Zero Hours Contracts; Myth and Reality finds the most common reason cited by
employers for using zero hours contracts is that the arrangements provide them with the flexibility to manage
fluctuations in demand, with two thirds or respondent organisations citing this. However, employers also regard
zero-hours contracts as means of providing flexibility for staff. Almost half of employers also say they use them
to provide flexibility to individuals.
16. The CIPD’s research into zero hours contracts, cited above, found that overall, zero hours contract
workers have comparable job satisfaction, are more satisfied with their work-life balance and are under less
pressure at work compared to the rest of the workforce. They are also less likely to report being treated unfairly
at work compared to workers on more traditional employment contracts.
17. We welcome clause 139 to outlaw the use of exclusivity clauses in zero hours contracts.46 Although our
research shows that only 9% of people employed on zero hours contracts are never allowed to work for another
employer, it is unfair for the employment relationship to swing so squarely in favour of the employer in this
instance by restricting an individual’s ability to find work elsewhere.
18. However, our research also shows that there is a considerable lack of awareness among employers and
those employed on zero hours contracts regarding which employment rights, such as maternity, paternity or
adoption or redundancy pay, zero hours contracts staff are eligible for; this is particularly prominent in the
public sector, with 20% of respondent organisations reporting that they ‘don’t know’ whether they classify
46 The CIPD is currently surveying members to explore how avoidance of a ban on zero hours contracts can be tackled. Survey
results will be published in November 2014.
80 Small Business, Enterprise and Employment Bill: Written evidence
zero hours staff as ‘employees’, ‘workers’ or as self-employed—a key determinant of eligibility for certain
employment rights. We believe the Small Business Bill can take a large step towards ensuring that individuals
on zero hours contracts are more aware of their employment rights through a relatively simple amendment to
the Bill. We recommend the following addition to the legislation:
(a) Including a clause in the Bill (that amends the Employment Rights Act 1996) that entitles all workers
to a written copy of their terms and conditions no later than eight weeks into employment so that
zero hour workers are aware of their rights (currently only employees are entitled to this)
19. Our research also found that 40% of workers say that they receive no notice at all when work is cancelled
or (6%) find out that work is not available at the start of a shift. This can have considerable impact on personal
expenditure (due to travel and childcare costs in particular), and on an individual’s ability to find employment
elsewhere on the day a shift is cancelled. As a result, we recommend:
(a) The development of a new Code of Practice on zero hours contract working, incorporating a
recommendation that zero hours contract workers be compensated, with at least an hour’s pay and
any expenses incurred, by employers who cancel prearranged work with very little or no notice.
Public Sector Exit Payments
20. It is important for the public sector to be able to recruit the best talent; competing against the private
sector and therefore job security and rewards are an important part of the equation as these roles may involve
relocation or other changes to the individual’s life. Exit payments are therefore appropriate and justified in
many circumstances, such as restructuring. However there is also a public interest question that inevitably
arises out of exit payments that needs to be addressed where taxpayer’s money is being spent.
21. The CIPD therefore welcomes clauses 140-142 to require certain public sector workers to repay specified
exit payments if employed again in the public sector within a prescribed period. However we do believe there
will be issues if the exit payment has been made in a single lump sum because it will be very hard to recover
the payment once paid.
22. CIPD policy experts recommend a way forward whereby redundancy could be paid through a capped
lumped sum and the rest monthly. This would enable monthly payments to be stopped if employment is
obtained within the prescribed period.
October 2014
Written evidence submitted by Enterprise Inns plc (SB 30)
Introduction and Summary
1. Enterprise Inns plc (Enterprise) is a leading operator of leased and tenanted pubs in the UK. We currently
have a portfolio of over 5000 premises offered for let, or already let, on a variety of different agreements,
ranging from 2-5 year tenancies to 30 year leases. Pubs available for let on such agreements may be occupied
initially for a short period on a tenancy at will (TAW). Within most of the agreements there are a variety of
purchasing obligations requiring the commercial tenant to source some or all of his drinks from Enterprise. We
also have agreements with no purchasing obligations, also known as free of tie (FOT) agreements, and a small
number of sites which we now operate on a managed house basis in order to fulfil the potential of the property
asset.
2. A key feature of the tied pub model is that it offers tenants the advantages of lower costs of entry and
rent and the opportunity to run their own businesses while enjoying support from Enterprise in the form of
SCORFA benefits throughout the lifetime of the landlord and tenant relationship. In contrast to other types of
commercial letting, it is genuinely in the interests of the property owner for its tied tenants to be successful.
3. As the OFT has repeatedly confirmed, the pubs market in the UK is characterised by a significant degree
of competition and choice. Our pubs may be located on the same high street, or in the same towns or villages,
next to or near tied pubs owned by other large or small pub companies, managed pubs, pubs operated under
franchise agreements, wine bars, restaurants, FOT pubs, clubs or other licensed premises (including restaurants),
and/or supermarkets that aggressively retail alcohol for home consumption, all competing to attract customers.
4. Enterprise operates in a heavily regulated industry which has faced challenging economic circumstances
in recent years. The UK pubs market is a fast developing environment which has moved on in the 18 months
since April 2013 when the Secretary of State for Business, Innovation and Skills (BIS) launched the Pub
Companies and Tenants Consultation (the Consultation). The industry continues to evolve to meet the demands
of consumers and Enterprise is concerned that the current uncertainty surrounding the regulation of the industry
and the anticipated statutory framework should not stifle investment, innovation and evolution.
General comments on process
5. We focus here on the most important of the specific issues raised by the presentation of the Pubs Code
(the Code) and the role of the Adjudicator in the Small Business, Enterprise and Employment Bill (the Bill), its
Small Business, Enterprise and Employment Bill: Written evidence 81
Explanatory Notes, in the second reading debate of 16 July 2014 and in Jo Swinson’s open letter of 5 August
2014.
6. Enterprise continues to believe that a statutory code is not necessary, but it is reassuring that many aspects
of the Bill reflect the existing voluntary provisions of the legally binding UK Pub Industry Framework Code
(version 6) (IFC). We welcome the attention paid to the success of the IFC. However, the Bill does contain
some errors and inconsistencies which we examine below.
7. The policy to be implemented in the Bill and Code was confirmed in BIS’ June 2014 Response to the
Consultation, which rejected calls for a mandatory free of tie or an introduction of a reduction in purchasing
obligations. We understand that the Committee stage is not the place for disappointed factions to attempt to
reverse policy decisions. The Government now has an opportunity through the committee scrutiny process and
later debates on the Bill to crystallise BIS’ policy as set out in the Response.
8. Our comments are made on the basis that the draft of the Code attached to BIS’ June 2014 Response is
substantially the text that will form the basis of the consultation on the secondary legislation in due course.
Should a further draft be released, Enterprise may need to make further submissions.
Contents of this submission
9. We comment below on:
A Scope of application—the 500 pub threshold
B Scope of application—definition of “tenancy”
C Scope of application—rent assessment provisions
D Parallel Rent Assessments
E Concluding remarks
A Scope of application—the 500 Pub Threshold
10. The Government’s proposal is that all tied relationships should be covered by the fair and lawful dealing
principle (s.36(3)), but that only pub companies having more than 500 pubs should be covered by the Parallel
Rent Assessment (PRA) methodology to test the “no worse off principle” (s.36(4)).
11. It is, however, necessary to be more specific as to the types of tenancy to which the Code should apply
and the situations in which any “no worse off” PRA should be carried out. Certain refinements are also required
to qualify that principle, including “no worse off” than whom and over what period and at what time.
12. The 500 pub threshold has not been justified and remains wholly arbitrary. The Consultation provided
no evidence for it, and the Government’s Response still failed to address the issue of why—if a threshold is
needed at all—500 pubs is an appropriate number. Jo Swinson’s 5 August 2014 letter perpetuates a myth based
on a misreading of calls to a BII helpline which BIS itself acknowledged in amendments to the Consultation
website were not complaints.
Consequences for operators
13. The enhanced Code would apply to only a small number of companies. This creates the potential for the
Code to influence the competitive position of pubs in the same high street, suburban or village location. For
example, where in close proximity there is one FOT pub, one tenant tied to a family brewer or sub 500 pub
company and one tenant tied to a large pub company, according to the current drafting:
(a) for the FOT pub, as with any commercial premises, the market effectively dictates the rent;
(b)for the family brewer/sub 500 tied tenancy, the parties agree the rent and other terms under a
requirement that the landlord treats the tenant “fairly”. The tenant can ask the Adjudicator to intervene
if he can point to treatment which is not “fair” and is a specific breach of the Code. The rent assessment
provisions would apply only in the defined exceptional circumstances, i.e. very rarely;
(c) the tenant tied to the large pub company can demand a PRA and/or seek arbitration of his rent
assessment. It has also been suggested that the Adjudicator might have extensive powers to reset the
rent and potentially to interfere with other aspects of the tied bundle, essentially to replace a free market
transaction with a regulated price controlled contract.
Consequences for tenants
14. The application of the Code to only a section of the industry, and the application of parts of that Code
to only the tied tenants of the large pub companies, would create a two tier system within the group covered
by statute. It appears that in a short while many tied tenants would have less protection than they previously
enjoyed when all parties worked together to develop the IFC and to support PIRRS and PIRC.
B Scope of Application—Definition of “Tenancy”
15. At s.61(2) the Bill defines a tenancy to include not only leases but also agreements excluded from the
protections of the Landlord and Tenant Act 1954 (LTA 1954) and tenancies at will.
82 Small Business, Enterprise and Employment Bill: Written evidence
16. The principle of fair and lawful dealing should, of course, characterise all relationships between landlord
and tenant. However, it seems that in an effort to demonstrate inclusivity and fairness, the Government may
have misinterpreted the varied nature of different letting agreements and the respective rights and obligations of
landlord and tenant that they contain.
Leased premises
17. The Code should apply to existing tenants who have a tied lease protected and assignable under the LTA
1954. Such leases represent for both parties a longer term investment and commitment to the business, to which
a value is attributable. There should be no distinction between tenants of large pub companies and others for
this purpose.
18. Insofar as the Government proposes the introduction of a PRA validation of a rent assessment, it is to
this category of tenant that such provisions should apply.
Excluded agreements
19. An agreement excluded from the LTA 1954 (an “excluded agreement”) is very different. Such agreements
are usually for up to five years, have no provision for cyclical rent review (unless the purchasing obligations
are released), are not assignable, have reduced tenants’ repairing obligations and end on contractual expiry of
the term or sooner at the tenant’s option. Upon contractual expiry, the landlord is entitled to deal with its own
property and recover possession or grant a new lease or a new tenancy of the same premises to the incumbent
tenant or to another party on the same or different terms, or consider other options for the use of the premises.
Tenancies at Will
20. A TAW is a commercial agreement entered into voluntarily on both sides. It is a short term arrangement—a
“gap filler” used for the tenant to enter into possession while the parties’ negotiations are ongoing.
21. A TAW benefits tenants, as it gives a new entrant an opportunity to test his aptitude for the business
before entering into a formal longer term arrangement. Both parties to a TAW are aware of its terms and choose
it as appropriate to specific circumstances.
22. It would be very unlikely for a TAW to continue for more than 12 months as it is an “easy in, easy
out” arrangement with very short notice periods intended to enable each party to terminate at will. It has been
described by the courts as the lowest estate known to law—the tenant has no certain estate as the landlord can
take back possession, and the tenant can hand back possession, as each pleases.
23. However, a TAW is the least profitable, most disruptive and management intensive arrangement for a pub
company, which will resort to a TAW only where the alternative is that the premises are closed and secured,
putting them at risk of vandalism, susceptible to squatters, a target for anti-social behaviour and in danger of
becoming unattractive, expensive to return to a usable state as a public house and eventually no longer viable.
All this produces a detriment to the environment and the local community. Recent reports by PwC and the
Local Data Company indicate that in the first nine months of this year alone, the UK’s town centres saw nearly
a thousand more shop closures than openings. We are extremely concerned that the deterioration of the high
street could be exacerbated by the inclusion of TAWs within the scope of the Code, meaning that those pubs are
more likely to close.
24. It is not sufficient or appropriate for BIS to rely on a supposition that it is “unlikely” that a TAW
tenant will request a Code rent assessment. Such a claim lacks the legal and commercial certainty that must
characterise the Bill and the Code.
25. Rent assessment provisions are wholly inappropriate for TAWs. Given the short term, at-will nature of
such contracts, no rent review could fit into TAW arrangements in practice.
26. The application of the PRA provisions to large pub company TAWs, but not to others, would mean that
while the former’s pub would likely remain closed due to the onerous enhanced Code provisions, a sub-500
could freely let a pub on the same high street on a TAW for as long a term as suited the landlord and tenant.
This would create a direct benefit to the sub-500 company and distort the market.
27. BIS suggests a concern that TAWs could be used as an avoidance mechanism and/or that TAWs that
extend beyond 12 months, and thus take on the characteristics of a longer term agreement could—whether by
accident or design—result in a tenant not having the same protections as one who signed a longer lease. Even
in those circumstances, the tenant will retain the ability to exit at will or to enter into negotiations with the
landlord about a different form of tenancy to which the Code would apply.
C Scope of Application—Rent Assessment Provisions
28. Having identified the types of agreement to which the basic and enhanced Code should apply, we would
like to address the circumstances in which it is appropriate to use the enhanced (PRA) provisions.
Small Business, Enterprise and Employment Bill: Written evidence 83
Existing tenant, tied lease
29. In the case of an existing tenant under a tied lease (not an excluded agreement) the enhanced provisions
can workably apply in full. This includes a rent assessment at lease renewal and on request if there has been
none for more than five years, as well as in the exceptional circumstances.
Existing tenant, excluded agreement
30. In the case of an existing tenant under an excluded agreement, the enhanced provisions should apply to
enable him to call for a rent assessment if he has been in continuous occupation of the same premises under
a tie for at least 12 months and he has a contractually enforceable agreement with his landlord to continue
his business in those premises on a tied basis for at least another 6 months, but only in the exceptionally rare
situation of there occurring an event outside the tenant’s control, unforeseeable at the time the agreement was
entered into and which impacts significantly and permanently on that tenant’s ability to trade.
Prospective tenant, tied lease
31. It is a novel and wholly inappropriate concept that in a free market parties who have not yet concluded
contractual negotiations, and have no compulsion to conclude them, might have their negotiating positions
fettered by legislation.
32. The application of the PRA mechanism to any prospective arrangements is highly speculative. It would
be extraordinary if in the case of a small, arbitrarily selected group of pub companies—but for no other
commercial property owner in England and Wales—every new lease offered on the open market were open
to a routine validation or adjudication of the rent and other terms before it was even entered into. We are
concerned that the practicalities of such arrangements have not been addressed. The potential for uncertainty
and disruption of the market place is huge.
33. If a prospective tenant in the final stages of negotiation for a new tied lease (not an excluded agreement
or TAW) is to be able to call for a PRA, then as a matter of law the landlord is under no obligation to enter
into an agreement with that tenant and is free to grant a lease to another bidder on whatever terms that other
bidder may agree. The law of property allows a landlord to choose whether and with whom he concludes an
agreement for the use of his property. It is not the function of the Bill, the Code, an Adjudicator or an arbitrator
to interfere with those rights.
Exceptional circumstances
34. We welcome the Government’s assurance in the Response that the precise definitions of the circumstances
in which the PRA provisions may have effect where an exceptional event occurs outside of the tenant’s control
will be the subject of further consultation. Two refinements in particular need to be considered during the
consultation on the Code.
35. The first point is to emphasise that the trigger of an upward alteration to the price of tied products ought
to be only where such an alteration is permanent. This would reduce the possibility that a tenant might use a
temporary change to engage the review mechanism. Guidance will need to explain that the mischief the Code
seeks to address would not include, for example, the passing on of government-imposed duty increases.
36. The second point is that trigger events outside the tenant’s control should be those which were
unforeseeable at the time of entry into the agreement (not simply unpredicted) and which have a significant
and permanent adverse impact on the tenant’s ability to trade. This would recognise that a tenant should carry
out due diligence on the premises and environment before entering into the agreement, just as he would when
purchasing a house or taking any commercial premises on a lease. The Code provides that the tenant must
take professional advice, and that the pub company must, where appropriate, provide information about likely
material changes in commercial conditions in the pub’s catchment area and how these might influence the
tenant’s trading environment.
D Parallel Rent Assessments
37. The Government has taken a policy decision to enable the Adjudicator to make—or to supervise the
making—of PRAs. The Bill currently suffers from some ambiguities and lacks consistency in its treatment of
the PRA. Some refinements are necessary to create a system of PRAs which is more reflective of the industry
and of the differences between the tied and the FOT models.
The challenge
38. There remain difficulties with the comparison of “an apple and an orange”. This view is shared by
many in the industry. London Economics has warned that ensuring that the PRA is carried out in the most
effective way is the key risk to BIS in the delivery of its policy. RICS has recognised the difficulty of industry
comparisons across different types of agreement.
39. Anyone carrying out a PRA must not only address the vexed issue of the different types of agreement,
but also recognise that all agreements are individual to the specific circumstances. There is no standard tied
agreement, just as there is no standard FOT agreement, nor any standard FOT drinks supply terms.
84 Small Business, Enterprise and Employment Bill: Written evidence
The role of the Adjudicator
40. The duty of the Adjudicator is to ensure compliance with the Code. There appears, however, to be some
confusion as to the extent of the Adjudicator’s powers in relation to PRAs and the tenant’s ability to seek
arbitration of a rent assessment.
41. A tenant’s request for an adjudication relating to a PRA would arise (i) where a pub company refuses a
legitimate formal request for a PRA; or (ii) where the tenant believes that the pub company has not justified the
rent assessment in accordance with the Code (the PRA was carried out improperly or its results not properly
applied) and that he will be “worse off” if the proposed rent is imposed than if he were to run a FOT business
at the same premises.
42. There would be a breach of the Code in those circumstances in the alleged failure of the pub company
to prove that the tied offer met the “no worse off” test. The Adjudicator must decide whether the PRA has
been carried out in accordance with the Code and relevant guidance and methodology and/or the results of
the PRA had been properly taken into account by the pub company, and advise the parties accordingly. If the
Adjudicator found a breach, then the Adjudicator could order the company to deliver or amend a PRA. If the
rent could not then be agreed, the Adjudicator could direct that the parties engage the arbitration or expert
determination provisions in the existing lease agreement between them.
43. We agree with the Government’s position in its Response that this should be the whole of the
Adjudicator’s role in relation to a PRA. There is no suggestion in the Bill or the Response that the Adjudicator
would have the power to set a new rent under the lease.
44. It is the Arbitration Act 1996 which must continue to apply to all rent arbitrations. Commercial leases
already provide for the appointment of an arbitrator and an arbitration in accordance with the Arbitration Act, or
of an independent expert and the conduct of an expert determination. It is not the purpose of the Bill indirectly
to amend that Act.
45. We are therefore very concerned at the recent suggestions by some that the Adjudicator would have
powers under the Code to intervene in the setting of any new rent. Jo Swinson’s 5 August 2014 letter stated “if
the Adjudicator finds that there has been a breach of the Code in relation to the [PRA] then one of the remedies
available to him is to set the tied rent figure so that the projected profit is equal to or greater than under the freeof-tie scenario”.
46. This goes much further than the position taken by the Government in the original Consultation and the
Response. We do not believe that this is necessary, desirable or realistic, or consistent with law and practice
elsewhere in the commercial property market.
47. The drafting at s.38(3) could be interpreted to suggest that the Government proposes that the Adjudicator
should be able to back-date the effect of his decisions. The Code needs to maintain the principle of no
retroactivity and must respect the legitimate expectations of business. Decisions must be forward looking.
Where a dispute concerns a lease renewal, the result of any adjudication should take effect from the date of the
renewal, including where the adjudication is completed after that date. In other cases—for example where a
tenant requests a rent assessment because one has not been carried out for more than five years—the new rent
should take effect no earlier than the date on which, following any initial discussions with the pub company, the
tenant delivered a formal, substantiated request for such assessment.
Rules and guidance
48. The Code and accompanying guidance will need to include very clear rules of the road on how a
comparison is made. The PRA concept needs to be implemented in a demonstrably fair, objective, transparent
and verifiable manner. Gaining acceptance of the regime through the adoption of workable PRA rules and
explanatory guidance will be the key initial activity of the Adjudicator.
49. Supervision of the drafting of the rules and guidance is an activity which must be undertaken by the
Adjudicator, not by BIS. That will best demonstrate the Adjudicator’s independence and objectivity.
50. The draft rules and guidance will need to be developed by a working group which represents all affected
facets of the industry, with a responsible and demonstrably independent chairperson (not aligned to any specific
industry interests).
51. The purpose of the rules and explanatory guidance will be to establish the criteria and methodology to be
applied in carrying out a PRA. They will need to be clear, objective and rigorous, while remaining workable—
flexible enough to reflect the different situations which may give rise to a PRA. In this context we note that the
role of the RICS qualified assessor is to “keep the score”, not to make the market.
52. Without those rules and guidance in place the Adjudicator will not be able to judge whether the Code has
been followed when a PRA is provided by a landlord, or be able to demonstrate to the industry that his decision
is correct.
Small Business, Enterprise and Employment Bill: Written evidence 85
The importance of RICS
53. The Bill inadvertently omits a specific reference to RICS. S.36(6) provides only that the Code may make
provision about how rent assessments are constructed and presented and may specify that such assessments
must be conducted in accordance with provisions of documents specified in the Code. This gives wide discretion
and creates an uncomfortable uncertainty.
54. The June draft Code, at Part 7 para 14, states that all rent assessments for the negotiation of new
tenancies, rent reviews and/or renewals must be produced, prepared and conducted in accordance with the
RICS guidance prevailing at the time and be signed by a qualified RICS valuer. Jo Swinson’s 5 August 2014
letter reiterates the use of the RICS guidance and oversight.
55. This is the appropriate approach. What is needed in the Bill is an absolute commitment to the use of the
RICS guidance by including explicit reference to RICS in the text.
Key issues in any PRA
56. It is common ground that one size cannot fit all assessments. The Committee must not think that “no
worse off” can be demonstrated in terms of a specific number.
57. It will be the task of the working group to produce the detailed rules and guidance, following industry
consultation. Nonetheless, we would like to highlight some key issues that we believe must be addressed in
those rules. The following list is by no means exhaustive.
58. The rules and guidance must utilise RICS guidance.
59. The free market plays a significant role in establishing rents of all types. The assessment of the open
market value of premises on any type of tenancy relies upon the market potential of each site. It is against this
background that the PRA rules and guidance must corral the huge number of moving parts that affect rental
values into a coherent, replicable methodology.
60. The assessment will consider the local competitive conditions, including what number, type and variety
of competing establishments are in the same catchment area.
61. The assessment must be based, not on the actual accounts of an incumbent operator, but on the realistic
maintainable business plan projections of a competent new operator bidding to rent the pub in the open market.
This highlights two key concepts—the realistic maintainable business or fair maintainable trade (FMT), and the
reasonably efficient operator (REO).
62. The realistic maintainable business plan will not be limited to the sale of beer. If demand in the market
for alcoholic beverages declines, the REO will seek to exploit all available sources of income appropriate
for the offering at the particular premises, which may include a range of drinks, food, amusement machines,
functions, gardens, the letting of accommodation and other uses.
63. As RICS explains, the objective concept applicable to the tenant is not the individual, but an REO.
Precise characteristics do not need to be set out in detail. The concept is that the same REO is tenant under the
different conditions of the tied and the FOT agreements.
64. From these elements the assessor will find a fair, maintainable total gross profit.
65. At s.62(1) the FOT contract is assumed to be on the same terms as the tied contract except for the
tie (“unchanged except in respect of terms relating to such ties”). This ignores and fails to quantify typical
differences between these types of contract, which may include the length of the agreement, the inclusion or
not of full repairing requirements, whether the contract includes upward/downward rent reviews, whether the
tenant has Code protection, different market conditions for access to finance and different exit values. These are
characteristics that the PRA analysis will need to accommodate.
66. The comparison has to account for SCORFA. It cannot assume that the FOT landlord provides the same
benefits as in a tied contract. The assessor will need to take into account the market price to a FOT tenant of
acquiring equivalent support and services. The point will also need to be recognised in the drafting at s.62(1)
(b).
67. The comparison is a realistic maintainable business over the lifetime of an agreement. Over that period
of years the pub will see good times and bad, when a tenant could sell more or less product, or enjoy income
from other sources at his premises, depending on the conditions in his local market, the state of the economy
and/ or other external factors as diverse as changes in government policy and the weather.
68. Valuation and rent assessment are not exact sciences. The many variables in producing a worked FMT
P&L create a real risk of cumulative error. Case law recognises that an assessor may allow a tolerance of 10%
either side of a figure which is suggested as an appropriate rent for premises. The same valuation tolerance
should be recognised by the Adjudicator in deciding whether a PRA has been properly carried out and should
be taken into account by an arbitrator.
86 Small Business, Enterprise and Employment Bill: Written evidence
Definitions/drafting points
69. The references to the “no worse off principle” and to the PRA need to be consistent.
70. We have explained above certain key elements which must drive the drafting of the Code, rules and
guidance in relation to the PRA. For convenience, they may be summarised in list format to include:
——
——
——
——
RICS and RICS guidance
the same premises facing the same local competition
the objectively defined tenant, i.e. the REO
the objective standard of the realistic maintainable business (or FMT), using the full range of options
to exploit the premises
—— accommodation both personal and for letting
—— assessment over the whole lifetime of the agreement, assuming the same period in each case
—— adjustments for the different fundamental characteristics of each form of lease, including rent review
provisions and repairing obligations
—— SCORFA, including the availability of discretionary financial support in tied agreements
—— a normal valuation tolerance, taking the assessment in the context of the local market as a whole
71. In this context we suggest that:
(a) the statement of the “no worse off” principle in s.36(4) needs to encompass these points, at least
including reference to a tied tenant being no worse off than a free of tie tenant on typical free of tie
lease and drinks supply terms in the same premises over the lifetime of the agreement;
(b) the definitions of a tenant and tenancy (s.61) must incorporate the concept of the REO trading at FMT;
and
(c) At s.62(1), the PRA concept is to understand the open market rent that would be payable by a tenant in
those premises if the tenant were free of tie, or if he were tied. For consistency with a revised s.36(4)
the reference should be to “those premises”, rather than to “the tied pub”.
E Concluding Remarks
72. If the proposed powers of the Adjudicator were to extend to a role as arbitrator to determine tied pub
rents and to force changes in other aspects of a tied agreement, which ought to be freely negotiated between
properly advised parties, those powers would deprive the affected pub companies of their rights to unfettered
use of property, raising concerns about restrictions on the operation of a free commercial market, arguably
incompatible with the Government’s obligations under European conventions and treaties.
73. The Government now has the opportunity to ensure, through the current process, that statutory
intervention interferes as little as possible with the freedom of all companies to compete fairly in a highly
competitive industry. We hope that the Bill will go no further than to implement Government policy as set out
in the Response, and that the resulting Act and Code will adhere to industry standards and guidance and the
Adjudicator will be enabled to develop a robust, sensible and flexible methodology for comparisons between
tenancy types in those few instances where such comparisons may be really useful to both pub companies and
tenants, and provide relevant protections to tenants in their ongoing relationships with their landlords.
October 2014
Written submission from R3 (SB 31)
Summary of R3’s views (Part 9 and Part 10 of the Bill)
30 out of 149 clauses in the Bill will reform parts of the UK’s insolvency regime. There are also a number of
clauses that will have a direct impact on the insolvency process, for example measures on financial redress and
the transparency of company ownership.
R3 represents the UK’s insolvency practitioners—the people appointed to resolve financially distressed
situations. It is insolvency practitioners’ role to recover and return money to creditors (small and large
businesses, individuals and government), help restore indebted individuals to financial health, and, where
possible, rescue businesses and save jobs. By its very nature, insolvency is a technical and complicated subject:
legislative change must be handled very carefully to avoid unintended consequences. As with any profession,
there is always room for improvement and R3 is very active in proposing reforms and supporting government
proposals that would get a better deal for creditors and debtors.
R3 is pleased to have worked with government to introduce measures that will help overcome public
concerns around transparency and costs within the insolvency process, and many of the measures in the Bill are
welcome, for example modernisation of the director disqualification process.
R3 is very concerned, however, that a number of measures in the Bill will undermine confidence and
transparency in the UK’s world class insolvency regime (currently ranked 7th best in the world by the World
Small Business, Enterprise and Employment Bill: Written evidence 87
Bank). The objectives of many of the proposals are welcome, however R3 believes that the unintended
consequences have not been properly thought-through and will run contrary to the Bill’s aims.
R3’s main concerns relate to four key themes:
—— Financial redress—clause 98 will have an adverse impact on the existing means of redress and will
reduce the number of director disqualifications. It would be more prudent for the government to use
this Bill as an opportunity to discuss concerns around the impact of 2012 legislation that is threatening
to undermine the existing financial redress regime.
—— Creditor engagement—clauses 110 and 111 will lead to a major erosion of creditor power/engagement
and are not welcomed by the profession or creditor representative groups.
—— Unintended consequences of wide drafting—clauses 117 and 132 could lead to adverse consequences
for the UK’s business rescue culture and insolvency regime.
—— Missed opportunities—this Bill is a missed opportunity to boost the insolvency regime as a means
of preventing and tackling fraud, and resolving the issue of collective redundancies at insolvent
companies.
R3 would like to see detailed scrutiny of its concerns, and in some cases see clauses dropped from
the Bill altogether, such as clauses 110 and 111. R3 would also like to see the Committee give further
consideration to its proposals to strengthen the UK’s insolvency regime.
About the UK’s insolvency regime
A few facts about the UK insolvency regime
—— The UK’s regime is the 7th best in the world, according to the World Bank. This means it has one of
the highest rates of returns to creditors, is one of the quickest, and one of the cheapest regimes.
—— UK Insolvency Practitioners (IPs) return more than £4bn a year to creditors (including HMRC and
businesses).
—— There are approximately 1,700 IPs in the UK and around 10,000 professionals who work in insolvency.
—— Most IPs are accountants or lawyers. They are all qualified and regulated (by one of eight regulatory
bodies) and have a statutory objective to maximise returns to creditors.
—— In 2012 UK IPs:
—— Saved more than 750,000 jobs.
—— Advised more than 95,000 businesses, with just under 50% (45,000) continuing in some form.
About R3
R3 is the trade body for the UK insolvency profession. From senior partners at the ‘Big Four’ accountancy
firms to practitioners who run their own small and micro-businesses, our members have extensive experience
of both corporate and personal insolvency.
Financial redress: clauses 98, 105, 106, 107 and changes by the Ministry of Justice that will undermine
financial redress
Clause 98: Compensation orders and undertakings
Summary of R3’s views
R3 supports the policy objective of the clause. However, as currently drafted, we believe clause 98 will have
an adverse impact on existing means of redress and could reduce the number of director disqualifications. R3
calls on the government to implement a more efficient and fairer way of administering this policy.
R3’s concerns
—— R3 is concerned that the number of directors disqualified will fall with the introduction of compensation
awards, as directors are more likely to contest the disqualification (around 80% of disqualifications
are by ‘undertakings’, where the director agrees to a disqualification for a specified amount of time).
This would invariably stretch the Insolvency Service’s already limited resources and may well see
disqualification rates decrease. By way of background, over the last decade (2003-4 to 2012-13) the
number of directors reported to the Insolvency Service by insolvency practitioners has risen by 57%.
The number of directors disqualified fell by 25% over the same period. A reduction in the number of
disqualified directors would be a significant blow to the UK business community: the government puts
the ‘value’ of this work at £100,000 per disqualified director47, in terms of the economic harm they
would otherwise cause.
—— Any monies identified in an insolvency would ordinarily go ‘back in the pot’ to be distributed to
creditors. There is concern that should a compensation award be targeted to a specific creditor(s), then
47 https://www.gov.uk/government/news/cable-takes-aim-at-dodgy-directors
88 Small Business, Enterprise and Employment Bill: Written evidence
this will reduce the money for other creditors, and those creditors ‘with the loudest voice’ will benefit
from the compensation order. It is likely that small businesses with limited resources to engage in the
insolvency process will ‘lose out’ to larger businesses.
—— Insolvency practitioners have a statutory duty to pursue funds for the benefit of the creditors who
have lost out as a result of the failed business, and they are very successful in this regard. Research by
the OFT48 indicates that insolvency practitioners in the UK return £4bn a year. The main reason that
creditors may not receive any or some of the money owed to them is not a result of the lack of ‘tools’
available to recoup monies, but that in the majority of cases there is simply no money available in the
insolvent business or in the possession of the director or directors. A number of cases may also not
progress due to lack of evidence against a director.
—— R3 would like the government to clarify whether the policy complies with the European Convention
on Human Rights (ECHR), specifically Article 1, Protocol 1 (rights to property). It could be argued
that creditors who have a right to ‘property’ (the proceeds of the compensation order) through the
order of priority would be denied this property should the proceeds of the compensation order be
directed to a specific creditor. The government has recently attempted to progress a policy for the nonpayment of small dividends in the Small Business, Enterprise and Employment Bill, but dropped the
proposal due to ECHR concerns.
Recommendation
—— Compensation awards should not be targeted to specific creditors, but instead be returned to the ‘pot’,
for the benefit of all creditors.
—— Compensation awards should be administered by insolvency practitioners who will be in possession of
the relevant information, not by the Secretary of State or Court.
Clause 105, new section 246ZB: Power for administrator to bring claim for wrongful trading
R3 believes that the proposal for administrators to bring a claim for wrongful trading is a positive idea in
theory, but it will have little or no impact in practice: Administration is a short-term procedure whereas it
usually takes over two years to bring a wrongful trading claim. Should the government wish to see any claims
for wrongful trading brought by an administrator, then consideration should be made to abolish the time limit
of administration.
Clause 106: Power for liquidator or administrator to assign causes of ‘Office Holder’ action
R3 welcomes moves to boost returns to creditors but anticipates that the new powers may be little used given
the difference in assigning ‘company actions’ and ‘Office Holder actions’. Therefore, the government should
either give further thought to how the process will work or drop the proposal.
Clause 107: Proceeds of office-holder claims not part of general assets of company
This provision has been included in the Bill without prior consultation. This new clause is technical in
nature—it is determining which ‘class’ of creditors are the beneficiaries of which type of ‘claim’. R3 believes
that this proposal should be subject to consultation as it has an impact on returns to creditors.
Ministry of Justice reforms will undermine financial redress
At the same time as the Department for Business, Innovation and Skills is seeking to improve financial redress
and tackle director misconduct, the Ministry of Justice is undermining the ability of insolvency practitioners to
return more than £160m a year to creditors (including HMRC and small businesses) from directors and third
parties who have negligently, wrongfully or fraudulently taken money out of an insolvent business. Changes
from April 2015 will result in directors who have committed misconduct getting away with their actions and
creditors out of pocket.
R3 calls on the government to grant insolvency litigation a permanent exemption from the 2012 Legal
Aid, Sentencing and Punishment of Offenders Act (LASPO) to ensure this does not happen.
Creditor engagement: clauses 110, 111, 112, 113, 121
Creditor engagement is integral to ensuring trust and confidence in the UK’s insolvency regime. Greater
creditor engagement—particularly with small businesses and individuals—is a key objective for the profession
and government, and both have been exploring ways to achieve that goal. However, we are concerned that
these clauses will actually reduce creditor engagement.
48 Office of Fair Trading (2010) The market for corporate insolvency practitioners: a market study.
Small Business, Enterprise and Employment Bill: Written evidence 89
Clauses 110 and 111: Abolishing the power of an Office Holder to hold a physical creditor meeting in an
insolvency (110: corporate insolvency and 111: personal insolvency)
Summary of R3’s views
R3 believes that this proposal is a charter for creditor disengagement. Were insolvency practitioners to be
prevented from holding physical creditor meetings (other than where 10% of creditors agreed to one), small
businesses in particular could be permanently excluded from engaging with insolvencies, returns to creditors
could be less, and the cost of some insolvencies could increase.
R3’s concerns
R3 and a number of business groups, such as the Federation of Small Businesses and the British Property
Federation, are concerned that rather than increasing creditor engagement, the clauses will actually reduce it.
R3 understands the government’s concern that creditor meetings are sometimes poorly attended. Professor
Kempson’s 2013 report showed that 4% of creditors attend creditor meetings—however, when that figure is
broken down into specific creditor groups, it shows that 86% of unsecured creditors (small businesses etc)
either attend or vote by proxy at initial meetings. It is these creditors who will suffer should the proposal go
through.
Even where they are poorly attended, they still remain a vital tool for both the insolvency practitioner and
creditors. R3 encourages insolvency practitioners to use new forms of media to hold meetings, but all options
should be available.
Specific concerns:
—— The first creditor meeting allows useful information about the financial affairs to emerge, for example,
who and how many creditors there are, any hidden assets, or any possible wrong-doing by a director
or an individual. This knowledge gives the insolvency practitioner the opportunity to increase returns
to creditors and ensure that any wrong-doing is dealt with by the justice system.
—— The first meeting is the one useful opportunity for creditors to participate in the process, agree the basis
of the insolvency practitioner’s fees and to establish a creditors’ committee (a committee which will
scrutinise the process of that insolvency and fix the office holder’s fees)—given the recent government
focus on Insolvency Practitioner fees it seems strange to propose removing an important check.
—— 10% of creditors required to call a physical meeting does not sound onerous but this could build in
delays to the insolvency process and also increase costs. In a recent insolvency of a wedding gift
website, 10% of the value of creditors was equivalent to hundreds of individuals. In the case of
small businesses, where debts are typically low in value, it would take a large number of creditors to
constitute the 10% threshold required to hold a physical meeting. Individual creditors with a small but
important ‘stake’ could struggle get a meeting called.
—— According to a recent report from the Federation of Small Businesses, 45,000 small businesses do
not have broadband and thousands of others have very slow broadband speeds. Holding meetings
over web-based video conferencing facilities is therefore not practical for tens of thousands of small
businesses.
Recommendation
R3 recommends these clauses are dropped from the Bill.
Clauses 112 and 113: Creditors’ ability to opt-out of receiving certain notices
R3 believes that creditors should not ‘opt-out’ of receiving information in an insolvency as this runs contrary
to the goal of achieving greater creditor engagement and transparency. Creditors can already choose what they
wish to read on insolvency practitioner websites and by choosing to read information sent to them via the post.
Moreover, this clause would lead to increased costs in the insolvency process.
R3 recommends this clause is dropped from the Bill.
Clause 121 and Schedule 9: Trustees in bankruptcy
Schedule 9 would remove the requirement for the Official Receiver to decide whether to hold a meeting and
to notify creditors of the decision, and would abolish the right of creditors to request a meeting. This erosion of
creditor power is likely to result in reduced returns to creditors.
R3 calls for the changes as set out in Schedule 9 to be dropped from the Bill.
Unintended consequences of wide drafting (pre-packs and Insolvency Practitioner Regulation)
R3 is supportive of reform of pre-packs and insolvency practitioner regulation. However, we are concerned
that the clauses as currently drafted are too broad, and suggest that amendments are made in order to avoid the
danger of ‘unintended consequences’.
90 Small Business, Enterprise and Employment Bill: Written evidence
Clause 117: Administrations: Sales to connected persons—a reserve power to prohibit or restrict administration
sales to connected parties
Summary of R3’s views
This clause has been introduced to give the government the power to ban or regulate business sales through
pre-pack administrations to connected parties. However, the current drafting of this clause captures connected
party sales in all types of administrations. R3 is concerned that businesses not involved in a ‘pre-pack’ at all
could end up going into liquidation instead of an administration as a result of the clause—this would lead to job
losses and undermine the UK’s business rescue culture.
R3 welcomed the findings of the most recent (June 2014) government-commissioned report on pre-packs (led
by Teresa Graham CBE) and is working closely with the government to implement the reforms. In her review
Teresa Graham was supportive of pre-packs; however this clause provides the government with a reserve power
to ban connected party pre-packs. R3 would like to see the wording amended to ban specific actions that lead to
‘bad’ pre-packs and further scrutiny of this clause to establish how the government will assess the ‘success’ (or
otherwise) of the Graham reforms to connected party pre-packs, which might lead to the reserve power being
used.
Recommendations
—— Delete 4) 60A (1) a) prohibiting or
—— Consider amended wording to address actions that lead to ‘bad’ pre-packs.
—— Clarity from government on how assessment of pre-pack reform will be judged.
Clauses 125—132: Insolvency Practitioner regulation
Summary of R3’s views
R3 is fully supportive of the government’s aims for an effective and robust regulatory regime and we support
proposals that improve the standard of regulation, improve the reputation of the insolvency profession, and are
beneficial to creditors.
R3 has a number of concerns with some of the wide drafting of a number of clauses and the potential
unintended consequences. For example, R3 is concerned that there is a lack of clarity in the definitions of the
proposed new regulatory objectives outlined in Clause 126: references to terms such as ‘public interest’ without
explicit definition, is vague, subjective and open to multiple interpretations.
R3 is supportive of an oversight regulator (the Insolvency Service) being given greater powers over the
Recognised Professional Bodies (RPBs—the regulators); the proposal for the Secretary of State to publically
reprimand an RPB appears appropriate. However, it is important that the circumstances in which, and for
what purpose, these new powers may be used are set out properly. In particular, R3 believes that more detail
and clarification needs to be provided to RPBs and insolvency practitioners by the Insolvency Service that
would specify the circumstances in which it would issue a direction to RPBs and apply to court to sanction an
insolvency practitioner. Failure to clarify these issues could lead to duplication of effort and increase the costs
of the regulatory process.
R3 understands concerns from stakeholders and politicians that such a small profession of just 1,700 is
regulated by eight different regulatory bodies. R3 agrees that further homogenisation of regulation in the
insolvency profession is desirable.
Recommendations
Clause 126:
—— Insert amendments: At the end of each section add ‘so far as is reasonably practical’.
—— Greater clarification should be provided on key terms, particularly the term ‘public interest’.
—— Delete 3 b) iii) that considers the interests of all creditors in any particular case.
Clauses 127—131: The government must publish guidance on how it will make use of its powers and how it
will interact with the Regulators’ regulatory actions.
Clause 132: R3 would like the government to clarify the circumstances that would lead them to implement
the reserve power to introduce a single regulator.
Missed opportunities (Fraud and collective redundancy)
Tackling fraud and increasing financial redress (Part 7 Companies Transparency; Part 8 Company Filing; Part
9 Director Disqualification)
R3 believes the government has missed an opportunity in this Bill to introduce greater reforms that will be
more effective in disrupting directors who commit fraudulent activities and make it more efficient to recover
Small Business, Enterprise and Employment Bill: Written evidence 91
funds for creditors. R3 has a number of recommendations that will achieve the government’s objectives for
part 7 and part 8 of the Bill that it would like the committee to consider. This includes a recommendation for
companies to confirm that all directors ‘howsoever be described’ have been notified to Companies House.
Collective Redundancies and Protective Awards: a case for clarity and cost-saving
The recent judicial decision on the consultation period for redundancies at Comet highlights the need for the
conflict between insolvency and employment law to be resolved.
The conflict between insolvency law and employment law is costing the government, and consequently the
taxpayer, millions of pounds each year. Increasingly, it risks inhibiting the UK’s business rescue culture, which
could result in fewer businesses rescued and jobs saved. This would have a serious negative impact on UK plc.
R3 is working with the government to produce guidance and a protocol for this process to work better.
However, there is also merit in considering a change in the law and altering the status of ‘Protective Awards’
from being treated as wages to a fine. This could potentially save the Treasury a considerable amount of money
each year by removing protective awards from the ambit of the Government’s guarantee and help better support
the UK’s business rescue culture. An amendment to the law as part of the Bill could therefore help resolve this
issue.
October 2014
Written evidence submitted by Admiral Taverns (SB 32)
1.0 Introduction
1.1 Admiral Taverns welcomes the opportunity to make this submission to the Bill committee to outline our
specific concerns around some of the current proposals within the statutory code for Pub Companies that is
currently being considered.
1.2 Admiral Taverns was founded in 2003 and operates a predominantly tenanted estate of 980 pubs. Our
estate is largely composed of traditional community pubs spread throughout England, Wales and Scotland and
we are disproportionately represented in more socially and economically challenged communities where our
pubs play a critically important role in terms of social amenity and local employment. Throughout the 18 month
consultation period we have provided compelling evidence that we are a responsible business which is totally
committed to fostering transparent positive working relationships with our licensees. We work hard to support
our licensees helping them to optimise the potential of their business and securing the long term viability of our
pubs despite the significant economic and social challenges facing the community pub sector. The low cost of
entry and highly supportive approach of Admiral Taverns is an important factor in the sustainability of many of
these more marginal pub businesses. We have a proven track record of investing significantly in a sector that is
les fashionable and would not attract alternative means of funding or investment without the shared incentive
that is a fundamental principle of the tied model.
1.3 As part of the evidence provided we were able to confirm that within the existing voluntary framework we
have never had a single complaint from one of our licensees referred to PICAS (Pub independent conciliation
and arbitration service) and furthermore we have never had a single rental valuation case referred to PIRRS
(Pub Independent Rent Review Scheme). More importantly we are extremely proud of the fact that 75% of our
licensees would recommend us as a business partner to another licensee as evidenced by the annual independent
tenant track survey. This level of advocacy (the ultimate endorsement) is exceptional, has improved every year
for the past 4 years and is consistent with a business that develops and enjoys positive and supportive working
relationships with its licensees. As further endorsement of our approach and relationship with our licensees
we received the industry award for the best Leased and Tenanted Pub Company in 2013 beating many of the
smaller companies in the process.
1.4 It is for these reasons that we do not believe that statutory intervention is appropriate or required in our
business and nor do we believe that the number of pubs owned should be the basis of inclusion or exclusion
from such a statutory code. In reality we are not a large business, we employ just over 100 full time employees
and generate modest returns given the scale of investment into our pubs. We feel that the imposition of statutory
regulation on us merely as a result of the number of pubs we own is wholly unjustified and potentially anticompetitive. That said we are now committed to working with government to reach a workable and lasting
resolution to the issues that have been raised within the BIS report so that we can have the confidence and
certainty to continue to invest in our pubs and support our licensees.
1.5 We would therefore highlight the following specific areas of concern within the proposed bill. Our
concerns are based on the potential unintended consequences that may result and proposals that will be
unworkable, anti-competitive or open to legal challenge in practise.
92 Small Business, Enterprise and Employment Bill: Written evidence
2.0 Specific areas of concern within the draft code
2.1 Clause 36 (4) Principle of no worse off and parallel rent assessments
It was our clear understanding that the government was looking to introduce a statutory code to deal with
behavioural matters and would not be looking to enforce a transfer of economic value from pub companies to
licensees. Rightly, this reflected the work performed by London Economics on behalf of BIS which identified
that any transfer in value would lead to increased uncertainty in the industry and would eventually result in a
significant number of pub closures and loss of employment.
2.1 We therefore have very grave concerns about the ‘no worse off’ principle. This provision would
introduce a system of regulated rents for a substantial part of the industry, with no appeal to a specialist tribunal
and limited rights of appeal to the courts. This appears to bring an element of price controls to a competitive
industry which appears to be inconsistent with the principles of an open market economy and a statutory code
dealing with behavioural matters only.
2.2 As stated above, we are very concerned about how this system of rent regulation would work in practice.
Our original understanding was that the parallel rent assessment would be available to licensees (for a small fee)
and this would purely provide additional information for licensees in their discussions with the pub company
regarding rents and commercial terms, consistent with one of BIS’s objectives of ensuring greater transparency.
However, it is implied within the letter from Jo Swinson dated 5th August 2014 that the adjudicator will not
only have the remit to ensure that the rent complies with the ‘no worse off’ principle and has been fairly
prepared but would also be able to set the level of rent. The leased and tenanted pub industry has c3,000–5,000
different rent ‘events’ per year and this could result in the adjudicator being involved in, and setting, a high
proportion of these rents. We do not believe that this was the original intention of the draft proposals from BIS.
2.3 It is also not clear that the full implications on adjudicating rents is understood within the proposed
legislation. The RICS guidance has already stated that comparing tied and free of tied rent is ‘problematic’.
There are significant differences in the wording and the approach under the two styles of agreement and it
should be noted that there is no current market for free of tie short term tenancies (3-5 years) where the licensee
would be free of tie but the pub company would retain the majority of the repairing obligations for the property.
It is unclear how an adjudicator would arbitrate on rent levels by comparison to rents for agreements that do not
exist in the open market. Equally, the draft legislation relating to the parallel rent assessment only allows for
one change between a tied and free of tie rent assessment, namely the cost price of product. However, it does
not require costs to be included in the rent assessment for services that are provided to tied tenants but would
not be provided to free of tie tenants, including a significant number of SCORFA benefits even though BIS has
recognised that these benefits are provided.
3.0 Clause 61 (2) (d)—The inclusion of Temporary Agreements
3.1 Temporary agreements have always played an important function within the industry for both landlord
and tenant. A decision to include all temporary agreements within the legislation would be unworkable in
practise and result in a higher rate of pub closure both temporary and permanent. This would result in a loss of
amenity for many communities and we do not believe that this is the intention of BIS.
3.2 Temporary agreements are used by Pub Companies to keep pubs open and trading in between periods
when a pub is let on a substantive agreement be that a tenancy or a lease. The ability to keep a pub trading
on such a basis enables pub companies to accept the surrender of an agreement on compassionate grounds or
indeed through a change of circumstance for the licensee and this would be more problematic if the pub was
likely to close as a result. Furthermore it affords the opportunity for a potential licensee to experience the
running of a pub prior to committing themselves to a longer term contractual commitment. At Admiral Taverns
we use temporary agreements in this way offering a “try before you buy” style of agreement which is popular
amongst many of our licensees. This agreement is used by us proactively to ensure that by the time a licensee
signs a substantive agreement they are fully aware of all aspects of the commitment they are entering into and
have received some of the training that they require to run a pub effectively should they then elect to commit to
a substantive agreement.
3.2 Such agreements have minimal risk to a licensee with even lower costs of entry (typically a small bond
and some working capital) and typically only require 28 days’ notice to bring the agreement to an end. As per
the BBPA (British Beer and Pub Association) submission we would recommend that a licensee that has been
operating a pub for 12 months even on a temporary agreement would automatically qualify for protection
under the statutory code thereby alleviating any concerns about the use of temporary agreements to avoid the
obligations within the code.
4.0 Clause 61 (1) (b) Who the statutory code safeguards should apply to
4.1 Presently, the wording of the Bill affords the same safeguards for someone making a tentative enquiry
into the letting of a tied agreement as to an established licensee or a prospective licensee that is engaged in
meaningful discussions with a pub company. Whilst we wholeheartedly agree that those entering meaningful
negotiations for a tied agreement should be protected by the legislation we also believe that the safeguards
should be afforded to them at the appropriate stage within the process. We currently receive in excess of
Small Business, Enterprise and Employment Bill: Written evidence 93
5000 enquiries each year with many of these enquiries being entirely speculative and it would be impractical
and unnecessary to adhere to the conditions of the statutory code with all of these enquiries. Furthermore
a significant number of these potential applicants will approach a variety of pub companies in order to find
the pub and commercial terms that suits their aspirations. If each Pub Company was required to fulfil all
requirements at this premature stage of enquiry not only would there be significant and unnecessary duplication
of work across the industry but the enquirer would be faced with an enormous administrative burden to fulfil
their obligations with the legislation.
4.2 We are aware that throughout the discussions held with licensee representative bodies at the drafting stage
of the code they recognised the unworkable nature of this specific issue. Along with the BBPA an acceptable
form of words was constructed that would work in practise and would ensure the necessary protections for a
licensee at the appropriate stage in the process.
5.0 Clause 37 (4) Future amendments to the Statutory Code
5.1 There are insufficient safeguards within the legislation as drafted to prevent future amendments to the
Statutory Code arbitrarily. We believe that any amendments to the code should follow due process and as per
the Grocery Code be subject to full parliamentary scrutiny and public consultation.
6.0 Summary
6.1 Admiral Taverns is a responsible landlord that enjoys positive and supportive working relationships
with the vast majority of our licensees. It is clear that we can only succeed if our licensees succeed and we
work hard to provide the necessary support and guidance whilst respecting the fact that our licensee are selfemployed business people with the right to run their business their way.
6.2 As stated we continue to believe that statutory intervention is unnecessary given that the voluntary
approach is working. This can be evidenced by the improving rating scores in the only robust and independent
annual Licensee Survey (him Tenant Track Survey) which sees approval ratings of over 70% across the larger
companies and higher in the case of Admiral Taverns (75%). These scores have improved year on year for the
last 3 years providing compelling evidence that the issues of the past are being resolved at pace in response to
market forces that sees the highest level of competition for licensees to run our pubs.
6.3 Furthermore we do not believe that we should be disadvantaged merely due to the number of pubs that
we own and that all efforts should be made to avoid anti-competitive legislation. In this regard we have always
felt that a more considered and rationale approach to differentiating legislation was on the style of agreement
operated. Traditional tied tenancies are very different to tied leases being shorter in term and less onerous in
terms of licensee obligations, with no ability to assign to a third party. It is widely recognised and accepted that
the vast majority of the issues highlighted by the most recent and previous investigations into the sector are
related to tied leases and therefore in our view differentiation should be based on this factor and not the number
of pubs owned.
6.4 That said and as outlined in our opening comments, we now wish to work with government to achieve a
timely and workable resolution and to help identify and avoid the significant risks of unintended consequences
that would inflict significant and lasting damage to the viability of our pubs and the prospects of our individual
licensees. Specifically, regarding the point of arbitrating on rental valuation, this would be open to legal
challenge on competition and human rights grounds and would inevitably delay any implementation of a
statutory code. We believe that any such legal challenge would result in continued upheaval for the sector at a
time when confidence and certainty are required and we do not believe that this is the intention of BIS.
October 2014
Written evidence submitted by the British Private Equity and Venture Capital Association (SB 33)
This memorandum summarises the key points made by the British Private Equity and Venture Capital
Association on the Small Business, Enterprise and Employment Bill 2014–2015 (the “Bill”) in the attached
letter. Detailed analysis of each of these points is included in the letter itself.
The PSC Register
1. In our view, the current drafting of the provisions dealing with the register of people with significant
control (the “PSC Register”) as they apply where shares are held indirectly through limited partnership
investment funds, would not lead to an appropriate and consistent treatment of such funds, nor one which meets
the policy objectives of the Bill.
2. In the UK, private equity and venture capital funds are typically structured as English Limited Partnerships
(“ELPs”) which do not have a separately legal personality, unlike many other (competing) partnership fund
structures such as those in Cayman, Delaware and elsewhere. As a matter of partnership law, each partner in a
limited partnership is deemed to have an indivisible interest in the assets of the ELP and, based on the current
drafting in the Bill, if shares or rights are deemed to be held ‘jointly’ by partners in an ELP, this might require
94 Small Business, Enterprise and Employment Bill: Written evidence
all individuals that are passive investors to be disclosed on the PSC register, irrespective of their economic
interest (and in many cases, such percentages will be negligible). Depending on the size of the fund, this could
lead to the disclosure of 200+ individuals which would be misleading, as none of these would have “significant
control”.
3. We believe the policy intent would be best achieved in this case by disclosure only of any individuals who
have an interest directly or indirectly as a limited partner in the ELP (itself ‘holding’ >25% shares/rights etc. in
a relevant company) which would equate to a “majority stake” in a limited partnership with legal personality.
Drafting amendments are included in section II in the letter accompanying this memorandum.
Shadow directors
4. Whilst we support legislative clarification of the scope of duties owed by shadow directors, we do not
believe that the current proposals do that in an appropriate way. In our view, as drafted, they do not provide
sufficient discretion to the courts to apply the duties in a fair and proportionate manner. In particular the
potential application to shadow directors of the duty of a director to avoid conflicts of interest or duties is a
concern. Drafting amendments and further detail are included in section III in the letter.
Prohibition of corporate directors and the extension of this policy to LLPs
5. Our letter also includes matters which relate to the implementation of the Bill and secondary legislation,
given their importance to our industry. We note that there are many reasons for using corporate directors in
group structures and so the limited exceptions to their general prohibition ought to cover legitimate uses of
corporate directors. We are very concerned about the potential extension of this policy to corporate members
in LLPs and do not believe there is a sound justification for this extension, since members of LLPs are not
equivalent to directors and do not usually have the same functions or duties. Any changes would cause very
significant disruption as corporate LLP members are widely used—and needed—for a variety of legitimate
reasons.
Dear Sirs,
Re: BVCA response to the Small Business, Enterprise and Employment Bill 2014–2015
The British Private Equity and Venture Capital Association (“BVCA”) is the industry body and public policy
advocate for the private equity and venture capital industry in the UK. With a membership of over 500 firms,
the BVCA represents the vast majority of all UK based private equity and venture capital firms, as well as their
professional advisers. This submission has been prepared by the BVCA’s Legal & Technical committee, which
represents the interests of BVCA members in legal, accounting and technical matters relevant to the private
equity and venture capital industry.
Our members have invested £33 billion in over 4,500 UK companies over the last five years. Companies
backed by UK-based private equity and venture capital firms employ over half a million people and 90% of
UK investments in 2012 were directed at small and medium-sized businesses. As major investors in private
companies, and some public companies, our members have an interest in financial reporting matters, the
conduct and information presented by such companies, and the burdens placed on the management of such
companies.
I. Background
3. he BVCA is supportive of the need to promote and enhance transparency and trust in UK business. We have
taken substantial steps to encourage disclosure and transparency in the private equity industry to demonstrate
our commitment to transparency to our stakeholders which include investors, employees, suppliers, customers
and the public more widely. In February 2007, the BVCA asked Sir David Walker to undertake an independent
review of the adequacy of disclosure and transparency in private equity, with a view to recommending a set of
guidelines for conformity by the industry on a voluntary basis. This review resulted in the publication of the
Guidelines for Disclosure and Transparency in Private Equity (the “Walker Guidelines”)49 in November 2007.
The Walker Guidelines require additional disclosure and communication by private equity firms and their larger
portfolio companies when certain criteria are met.
4. While we recognise the importance of enhancing transparency and trust, we are concerned about the
unintended consequences and increased burden placed on our members and their investee companies from some
of these proposals. Some of the proposals featured in the discussion paper could affect the competitiveness of
the UK and its attractiveness as a location for investment. This is at a time when the Government is promoting
the UK’s fund management industry (as announced in Budget 2013), recognising its role in stimulating growth
and investment in SMEs.
5. This letter sets out our views on the areas covered by the Small Business, Enterprise and Employment
Bill 2014–2015 (the “Bill”) which are considered to be most pertinent to the private equity and venture
49 Further detail can be found here: http://www.walker-gmg.co.uk/
Small Business, Enterprise and Employment Bill: Written evidence 95
capital industry, as well as areas we understand the Department for Business, Innovation and Skills (“BIS”) is
considering for further consultation and secondary legislation. Our key concerns are:
a. The provisions dealing with the register of people with significant control (the “PSC Register”) as they
apply where companies registered under the Companies Act 2006 (“CA”) are held indirectly through
certain types of investment funds, principally limited partnerships.
b. Proposals to increase the accountability of those who control company directors and in particular
shadow directors; and
c. The prohibition of corporate directors (with limited exceptions) and the possible extension of that
prohibition to limited liability partnerships (“LLPs”).
6. We have submitted a number of representations and held meetings with BIS over the course of the last
year, to discuss the concerns outlined in this letter. We would like to highlight that BIS had been responsive to
our concerns throughout and is considering the points we have made below.
II. The PSC Register
7. The provisions dealing with the PSC Register as they apply where CA companies are held indirectly
through limited partnership style investment funds is a very important matter for the UK’s private equity
and venture capital industry. In our view, the current drafting in the Bill may not lead to an appropriate and
consistent treatment of such funds, nor one which meets the policy objectives of the Bill. In the following
sections we have outlined how private equity and venture capital funds are typically structured in the UK and
how this issue arises, and suggested amendments to the Bill to deal with our concern.
Fund structures using English limited partnerships
8. Our comments here focus on the implications of investing into CA companies through an English limited
partnership (“ELP”) fund structure and its popularity. The limited partnership is the market standard vehicle
for private equity and venture capital funds, as well as many other types of private funds in the UK, and
ELPs are one of the most common type of limited partnership used, even though many foreign alternatives
are now available. In our view, the popularity of the ELP is an important reason for the dominance of the UK
as a centre for private equity and venture capital, and we understand this view is shared by the Government.
We note, in particular, various BIS and HMT projects over many years which have aimed to improve the
attractiveness of ELPs in the face of competition from vehicles established in other countries, and the very
important current project to bring forward a Legislative Reform Order in the current Parliament, as announced
in the 2013 Budget.
9. Investors in private equity funds typically include institutions such as pension funds, insurance companies,
family office vehicles, sovereign wealth funds and high net worth individuals. The popularity of ELPs stems
from their operational flexibility and tax transparency which allows for the accommodation of specific investor
requests, flexibility to determine how profits should be allocated and how the business of the ELP is to be
carried out, and tax neutrality for investors that are tax-exempt (e.g.pension funds).
10. The application of the specified conditions set out in Schedule 1A (in Schedule 3 of the Bill) to shares/
interests in a CA company held through an ELP is a considerably complex and factspecific area, based on the
structuring of the fund and the way it holds title to the underlying shares in the CA company.
11. Key features of ELPs are summarised below:
a. An ELP is governed by a limited partnership agreement, common law, the Limited Partnerships Act
1907 and the Partnerships Act 1890.
b. ELPs do not have a separate legal personality (unlike Scottish limited partnerships or those established
in many other jurisdictions).
c. An ELP must have at least one general partner (“GP”) with unlimited liability and the other partners
are limited partners (“LPs”). In a fund scenario, investors become LPs as they enjoy limited liability
status as long as they do not participate in the management of the ELP’s business. LPs are therefore
passive investors in private equity and venture capital funds (akin to beneficiaries under a trust, for
these purposes), and generally have no day-to-day connections with each other (as contrasted with, for
example, individual partners in a trading general partnership).
d. The GP is responsible for the day-to-day management of the business and affairs of the ELP as a matter
of law, but often delegates this responsibility to a separate investment manager. That manager will
typically be a separate corporate entity and, if operating in the UK, will be authorised and regulated
by the Financial Conduct Authority and now (for funds which are in-scope) must be authorised and
regulated by the FCA as an Alternative Investment Fund Manager. Where there is no such delegation,
the GP will be authorised and regulated. The manager will not typically be a partner in the partnership.
e. As the ELP does not have separate legal personality, practice will vary as to how legal title to the
shares is registered in the books of the underlying CA company. The GP/manager may register the title
to the shares in the name of the GP or manager on behalf of the ELP. Alternatively, the shares may be
registered in the name of the ELP itself, or in the name of a nominee company set up by the ELP or by
its manager. As a matter of partnership law, each partner in a limited partnership is deemed to have an
96 Small Business, Enterprise and Employment Bill: Written evidence
indivisible interest in the assets of the ELP even though its economic interest and voting rights will be
calculable based on the limited partnership agreement in place. However, depending upon how the ELP
has chosen to hold the legal title, there may be an argument that the shares are held by the partners,
including the LPs, jointly. This would not apply if the partnership were Scottish or established in
another jurisdiction which allows limited partnerships to have legal personality and in such scenarios,
dependent on the holding structure, the limited partnership with legal personality is deemed to be the
shareholder.
12. For illustration purposes, a simple fund structure that invests into a CA company through an ELP is
included in the appendix to this letter although in practice there could be a number of variations of this.
13. In the simple example set out in the appendix, for AML purposes, the regulated GP/manager would
identify any natural person who is an ‘ultimate beneficial owner’ in the CA company (even though from a legal
perspective this may represent an indivisible interest), based on its share of profits in/commitments to the ELP.
Any individual(s) who ultimately control the GP/manager would also be identified.
14. If shares or rights are deemed to be held ‘jointly’ by LPs in an ELP, this might cause all individuals
that are LPs to be disclosed on the PSC register, irrespective of their economic interest or voting rights.
Our view is that this does not accord with the policy intent when those individuals are passive investors in a
fund structured as an ELP and have an economic interest in the CA company that is less than 25% (in many
cases, such percentages will be negligible). The number of LPs varies across fund structures for a number of
reasons (typically size) and it is not uncommon to have over 200 LPs in a fund. The disclosure of all individual
LPs will be misleading. Those individual LPs, who do not have day-to-day connections with one another and
who have delegated management to another legal entity (which, if a CA company, would typically be a relevant
legal entity in relation to the CAcompany), cannot be said to have any meaningful influence over the underlying
CA company, and to suggest so would be misleading and would obscure meaningful information.
15. We would argue that the policy intent would be best achieved in this case by disclosure only of any
individuals who have an interest in the ELP (itself ‘holding’ >25% shares/rights etc. in a CA company) which
would equate to a “majority stake” in a limited partnership with legal personality. We note that paragraph469 of
the Explanatory Notes to the Bill provides as follows:
“The majority stake allows the person to control the legal entity in question. The person can then, by
extension, control—for example—the way in which the legal entity votes its shares in company Y.
Without a majority stake in the legal entity, the person will not have sufficient control to do this in
respect of company Y. He or she cannot therefore be said to have significant control over company Y.
In a chain of entities, this level of control needs to be reflected at each point in the chain in order that
the person can be said to indirectly hold the shares or exercise rights in company Y.”
16. The application of the specified conditions (as currently drafted in the Bill) creates a disincentive to
use an ELP as a fund structure for investment into CAcompanies and would encourage the use of limited
partnerships in other jurisdictions in its place (such as Scotland, Delaware and Guernsey). As mentioned above,
this proposal therefore has the real potential to affect the competitiveness of the UK and its attractiveness as
a location for investment at a time when the Government is seeking to promote the UK’s fund management
industry.
Proposed amendments to the Bill
17. To address the inconsistent treatment between funds which are structured as ELPs and those which use a
partnership with legal personality (or corporate entity), we propose:
a. The inclusion of an interpretive provision for the first (ownership of shares) condition. This provision
would state that LPs in limited partnerships that do not have legal personality would not be treated
as jointly “holding” shares in a CA company into which the limited partnership is invested, solely
by virtue of their being LPs, and would be regarded separately for the purposes of determining their
economic interest in the limited partnership (and therefore the underlying company). Given that as a
matter of law LPs are not involved in management and are therefore passive investors who operate
separately from each other (very much as individual shareholders in a company do) we think that this
provision would be entirely consistent with the aims of the Bill. This would also more closely reflect
the intended treatment in the legislation of beneficiaries under a trust, which is analogous with this
scenario.
b. Relevant amendments (reflecting our comments above) so that:
i. any individuals who have an interest in the ELP (itself ‘holding’ >25% shares/rights etc. in a
CAcompany) which would equate to a “majority stake” in a partnership with legal personality
should be disclosed; and
ii. any individuals who hold a “majority stake” in a legal entity (such as the GP) which itself holds
25.1% of the shares/rights etc. in the CA company would also be disclosed.
c. We would also like to raise the drafting of the fifth condition which could be amended to reflect whether
the Government is interested in the individuals with significant control over the company (and not the
firm/trust). We note that s.790C (4)/condition 5 in Schedule1A/paragraph 458 of the Explanatory Notes
Small Business, Enterprise and Employment Bill: Written evidence 97
to the Bill equates LPs in an ELP with the trustees of a trust. From a policy perspective, we believe
that it would be more appropriate to equate passive LPs in an ELP with beneficiaries under a trust,
with the trustees being more akin to the GP.
18. We remain of the view that, in a private equity and venture capital fund context, it would be more
appropriate and helpful from a transparency perspective only to disclose the identity of those individual LPs in
an ELP with an interest which would equate to a “majority stake” in a limited partnership with legal personality
and any individuals who hold a “majority stake” in the general partner or the investment manager to which
management responsibilities have been delegated. The latter would reflect who is in control of the day-to-day
activities of the ELP and ultimately the CAcompanies in which it has invested. We believe that our proposals
would achieve that goal.
19. We are also of the view that these amendments should cover all limited partnerships without a legal
personality and not just ELPs.
III. Shadow directors and proposed amendments to the Bill
20. We have closely monitored the Government’s proposals to increase the accountability of those who
control company directors and agree with the decision not to amend the definition of a “shadow director” in
the CA. However, the current proposals allow the application of the full range of directors’ duties to shadow
directors, leaving some discretion to the courts as to the precise application of those duties. While we would
welcome legislative clarification on this point, we think the wording used in the draft Bill in fact creates
considerable additional uncertainty, whilst not providing sufficient discretion to the courts to allow them to
apply the duties in a fair and proportionate manner.
21. The proposed wording, “where and to the extent capable of so applying”, is very broad and effectively
includes all duties since it would be hard to determine that any duty was incapable of applying. To afford the
courts the discretion which the Government wishes to afford them as a matter of policy this wording would
need to be amended, for example by using wording such as “The general duties apply to a shadow director of a
company to the extent it is reasonable, just and equitable for any such general duty to apply”.
22. We understand that as a matter a policy limiting the extension of these duties to the general duty to
promote the success of the company was considered too narrow by the Government. One of our particular
concerns (although not the only one) is the potential application to shadow directors of the duty of a director to
avoid conflicts of interest or duties. It is often not possible to prevent a conflict arising and therefore the prima
facie duty to avoid conflicts is typically addressed by having some mechanics allowing a director to recuse
himself from any meetings considering such matters and to prevent him from voting, for example, or by the
other directors approving the conflict. These mechanisms, which are specifically contemplated by the CA for de
jure directors, will not be available to shadow directors, who in most circumstances do not seek to be shadow
directors and indeed may not be subjectively aware they are shadow directors.
23. In addition, it is clear that the test of whether there is a conflict is an objective one, and there is no
requirement for bad faith on the part of the director, or even knowledge that there is a relevant conflict of interest
(see, for example, the recent case of Richmond Pharmacology v Chester [2014] EWHC 2692). Consequently
the application of this duty where it is “capable” of applying may result in automatic breaches of this duty by
otherwise “innocent” shadow directors. It does not appear to us to be proportionate or worthwhile to have such
an onerous duty imposed automatically on all shadow directors. As such we consider that a specific carve-out
for this duty would be appropriate, using the power of the Secretary of State to make such an exclusion under
Section 33(3)(b). We think it would be desirable in the interests of certainty to do this in addition to adopting
the suggestion above (giving the courts discretion to apply the remaining general duties when “reasonable and
just and equitable”) to make the position clear in relation to this particular duty.
IV. Prohibition of corporate directors and the extension of this policy to LLPs
24. This next section covers matters which relate to the implementation of the Bill and secondary legislation.
We have included further detail on these areas here given their importance to our industry.
Corporate directors
25. We understand that BIS intends to consult on the limited exemptions that will be available for the general
prohibition of corporate directors.
26. In many private equity structures, a series of private companies may be used as acquisition structures
in order to facilitate the acquisition of the target company. These structures are necessary for a variety of
reasons, including to ensure that senior debt is “structurally subordinated” to more junior debt. In our view, it is
legitimate to use corporate directors in these structures, where the private company is in effect a subsidiary of
another private company. We hope the proposed exemptions cover such a situation, as long as the top company
in the group does not have any corporate directors. In this scenario, it should be possible to allow corporate
directors of the intermediate companies, which would be administratively more convenient and should not
undermine the Government’s policy objective.
98 Small Business, Enterprise and Employment Bill: Written evidence
Corporate members in LLPs
27. We understand that BIS will also consult on whether the prohibition on corporate directors should be
applied to corporate members in LLPs. We are very concerned about this and do not believe there is a sound
justification for this extension, since members of LLPs are not equivalent to directors and do not usually have
the same functions or duties. Any changes would cause very significant disruption as corporate LLP members
are widely used—and needed—for a variety of legitimate reasons.
Differing duties
28. Members in an LLP are not equivalent to directors in a company as a matter of law as they do not
owe the same statutory duties to the LLP as a director owes to a company. Members and directors are treated
differently for good reason. The obligations and rights of the members of LLPs principally arise under the LLP
Act. However, certain parts of the CA and of the Insolvency Act 1986 have been applied to LLPs. The CA
specifically does not apply directors’ duties to members but has applied certain provisions which otherwise
apply to shareholders. Therefore this proposed change does not fit well with the existing legislative framework.
29. Whilst some LLP members may have a fiduciary relationship with the LLP, others may not, and this
will be entirely dependent on how individual members’ roles and responsibilities have been defined in the
LLP’s governing documents. Therefore, extending a general prohibition to corporate members in LLPs will be
equivalent to preventing corporate ownership in a company as, in many cases, corporate members are simply
equivalent to shareholders (as co-owners of the residual profits of the business, with certain shareholder-like
rights). This is clearly not the policy intention.
30. Designated members in an LLP do have certain additional statutory duties which are more akin to a
company secretary-like role rather than that of a director. As there is no proposal to require company secretaries
to be natural persons, then there is no benefit in requiring a designated member to be one either (if such a
proposal were to be put forward).
31. LLP members may have director-like functions if the other members give them executive management
or strategic responsibilities. Where this is the case, it is highly likely that a natural person(s) would have been
allocated this role either at the level of the LLP or on the board of the corporate member. Equally, it is perfectly
possible that no member of the LLP will have director-like responsibilities, but that these will have been given
to non-members instead.
32. Furthermore, where there are individuals with significant control (as defined in the Bill), they will be
disclosed on the PSC Register. This on its own would act as a suitable deterrent for abusive behaviour and
illegal activities.
33. We note the FATF recommendations do require the Government to consider extending transparencyenhancing policy proposals to LLPs; however they also suggest the Government takes into account “their
different forms and structures.” A comparable statutory “director role” simply does not exist in LLPs which is
why we—and many other respondents—have argued that the “consistency” justification for the extension is not
supportable.
The popularity of LLPs
34. The LLP combines the internal flexibility and tax transparency of a partnership with the external
disclosure and reporting regime of a company. Unlike partnerships, LLPs have the legal status of corporate
bodies, and offer limited liability to members—crucially, even those who are actively involved in the
management of the LLP’s business. This last point underlines the popularity of LLPs in the private equity and
venture capital industry (as well as the broader asset management industry). LLPs are frequently also used by
the private equity industry (and others) as vehicles for consortium arrangements and joint ventures precisely
because they permit members to act as “owners” and participate in profits. Excluding corporate LLP members
will shut down this avenue for such structures generally, limiting the flexibility for which they were introduced.
35. Many fund managers previously structured as companies have transferred their businesses to LLP
structures as they are able to operate with the added benefits of partnerships whilst retaining their limited
liability status. A partnership structure allows for effective succession planning by creating incentives for key
and valuable personnel (in terms of profit-sharing and partnership units’ allocation) without the rigidity of
a corporate share capital structure. This is desirable not only for the fund management business itself, but
more importantly, investors in the funds managed. In our industry (and this would equally apply to other asset
classes), retention of key personnel has become a primary investor concern with extensive time spent on due
diligence of the capabilities of the management team.
36. When companies convert to LLPs, the company transfers its business and assets in exchange for an
LLP interest as this ensures the transfer is not regarded as a taxable disposal. This makes perfect sense as no
change in the business or its ownership has occurred and the LLP’s governing agreement would reflect the
economic rights previously in place. Tax would still be due in later years if the LLP were to dispose of all or
part of the transferring company’s previous business. This is one reason why many fund management LLPs
have corporate members. Other reasons for corporate membership include the need for external seed capital
Small Business, Enterprise and Employment Bill: Written evidence 99
or to finance expansion, and where management entities have spun out from larger corporates which retain an
ownership interest (e.g. banks disposing of non-core business lines).
37. Given the prevalence of LLPs—not just in the private equity and venture capital industry but more
generally—the introduction of this change would cause widespread disruption and cost to a significant number
of businesses. It would in many circumstances not be permitted or contemplated by the contractual arrangements
applicable to the LLPs thereby potentially triggering dispute. It would also have tax consequences. We consider
that these effects are disproportionate relative to the impact such a change would have on achieving the policy
objective.
Other points
38. The cost of unwinding LLP structures with LLP members would be significant with a number of
consequences for many small businesses. If any proposal was put forward to ban corporate members, we would
urge the Government to carry out a full cost-benefit impact analysis.
39. HMRC has reviewed partnership taxation in the last year and implemented significant changes in the
Finance Bill 2014. These led to businesses in the UK (again including many small LLPs) reviewing their
structures at significant cost. The changes aimed to address concerns that certain practices in LLPs led to tax
avoidance and included proposals for mixed member partnerships. Therefore any concerns regarding abusive
tax practices would have been addressed by HMRC.
40. The BVCA remains supportive of the need to promote and enhance transparency and trust in UK
business. However, in our view, the present position, which permits corporate members of LLPs, should be
maintained. In our view any changes are not only unnecessary to achieve the Government’s policy objectives,
but would also be hugely disruptive and costly and not appropriate given the nature of LLPs and the disparate
roles of their members.
October 2014
Appendix – Simple English Limited Partnership fund structure
100 Small Business, Enterprise and Employment Bill: Written evidence
Written evidence submitted by Punch Taverns plc (SB 34)
1. Introduction
1.1 Punch Taverns plc (“Punch”) welcomes the opportunity to provide its comments to the Public Bill
Committee (the “Committee”) on the Small Business, Enterprise and Employment Bill (the “Bill”).
1.2 Punch is a pub company with approximately 4000 pubs; its tenants are usually tied for a variety of
alcoholic and non-alcoholic drinks. Punch is committed to treating its tenants fairly and lawfully, and opposes
abuse of the tie. Its interests are aligned with those of its tenants: put simply, successful tenants provide success
for the pub company.
1.3 Punch welcomes this initiative to help small businesses which have long suffered from ‘red tape’ and the
difficulties created by regulation.
1.4 As set out below Punch does however have serious concerns on Part 4 of the Bill and the draft Pubs
Code (the “Code”).50
1.5 Punch remains opposed to the introduction of the Code and the Adjudicator. If however statutory
regulation becomes enforceable, Punch would like to work with the Committee, and BIS, to ensure that the
legislation is well drafted and works as intended.
50 The draft Pubs Code is attached as Annex F to the Government’s Response to the Consultation published in June 2014.
Small Business, Enterprise and Employment Bill: Written evidence 101
2. Statutory intervention is unnecessary and disproportionate—and as envisaged in breach of the European
Convention on Human Rights
2.1 As a preliminary point, Punch rejects the need for statutory intervention as envisaged at Part 4.
Unnecessary
2.2 There is already an effective system of self-regulation for pubs in place; each pub company code is
already legally binding as it is included in new pub leases.
2.3 The Government has failed to provide evidence either that self-regulation is not working or that there is
a serious imbalance in the relationship between pub companies and tenants which requires intervention. In its
consultation,51 the Department for Business Innovation and Skills (“BIS”) relied on unreliable and discredited
information to support the need for intervention.52 Punch submitted a detailed response to the Consultation and
does not intend to reiterate its arguments in detail here.
Disproportionate
2.4 Statutory intervention is also disproportionate.
2.5 As recognised in the Explanatory Note to the Bill, the provisions of Part 4 engage the right to property
under Article 1, Protocol 1 of the European Convention on Human Rights.
2.6 Punch disagrees that the provisions are “justified and proportionate”. The measures are said to put the
parties on an equal footing and increase transparency for tenants. Yet:
(i) As above, there is no reliable evidence of a general imbalance in the parties’ relationship (the system of
self-regulation having addressed the issues identified by earlier Select Committee reports); and
(ii) The mechanism of parallel rent assessments envisaged by the Bill goes far beyond the objective of
transparency (instead creating the basis for an arbitrary and disproportionate value transfer from pub
company to tenant—see further below).
2.7 As such, the Bill risks infringing Article 1, Protocol 1of the European Convention on Human Rights.
3. Statutory intervention as set out in the Bill also amounts to abolishing the tie “by the back door” (with
serious adverse effects on tenants and the wider economy)
3.1 The tied business model provides significant benefits to tenants. It represents a unique opportunity to run
a small business, with a low capital entry cost (which allows the use of an asset worth an average of £650,000),
reduced risk and substantial support from the pub company. A range of benefits are provided to tenants which
are only possible through the economies of scale realised by the pub company.
3.2 BIS’ response to the Consultation explicitly recognised the tie as a valid business model and dropped
elements of the original proposal that would have risked eliminating the tie.53
3.3 At the time of the Consultation, economic research was carried out by London Economics (for the
Government) and by Compass Lexecon (for the British Beer and Pub Association (“BBPA”)). The research
concluded that the proposals could lead to large scale pub closures. In particular, London Economics acting for
the Government concluded that a free-of-tie option would result in up to 1,300 pubs closing, leading to a direct
and indirect loss of around 7,000 jobs. Having expressly recognised the risk of proceeding with the free-of-tie
option54, it now seems disingenuous for BIS to proceed with the provisions of the Bill which seemingly reintroduce that very same mechanism.
3.4 Punch welcomed BIS’ change as regards the mandatory free-of-tie option but, having read the Bill and
the proposed Code, is now concerned that the current provisions would reintroduce mandatory free-of-tie ‘by
the back door’ (with the same effects on pub closures, employment and the wider economy).
4. Overview of Punch’s concerns
4.1 Punch’s core concerns are around:
(i) The operation of parallel rent assessments;
(ii) The discriminatory treatment of large pub companies;
(iii) The scope of the Bill (in particular the inclusion of tenancies at will); and
Pub Companies and Tenants: A Government Consultation, April 2013 (the “Consultation”).
The Consultation referred to “complaints” to the BII hotline which BIS has since recognised may have been general enquiries
(see page 12 of the Government’s Response to the Consultation). The Consultation also referred to apparent hardship based on
a 2011 survey by the Institute for Public Policy Research which BIS recognises is “not very reliable” (paragraph 81 of the Pub
Companies and Tenants: Impact Assessment, April 2013).
53 Notably, the mandatory free-of-tie option and the guest beer option.
54 Page 6 of the Government’s Response to the Consultation: the mandatory free-of-tie option “would have been likely to cause a
high degree of uncertainty in the industry, with a likely negative impact on investment and the possibility that several pub owning
companies would abandon the tied market. It would also have unnecessarily risked leading to higher levels of closures and job
losses.”
51 52 102 Small Business, Enterprise and Employment Bill: Written evidence
(iv) Cost and penalties
(v) The requirement for information on assignments.
4.2 Each of these is outlined further below.
4.3 Punch also provides detailed comments on specific clauses of the Bill in the Annex.
5. The parallel rent assessment provisions are unclear and could
model—in breach of the European Convention on Human Rights
undermine the whole tied business
5.1 The parallel rent assessments are set out in Clause 36(6) of the Bill.
5.2 It is unclear how the assessments are intended to work. In particular:
(i) It is not clear how a parallel rent assessment would (or could) be calculated; and
(ii) Nor is it clear exactly what role the Adjudicator should have in relation to parallel rent assessments.
No clarity as to how a parallel rent assessment should be performed
5.3 The Bill should not provide for parallel rent assessments without a greater understanding of what is
involved in such assessments.
5.4 A direct comparison of tied and free-of-tie rents is not as simple as it would first appear or as appears to
be envisaged in the Bill. RICS guidance expressly provides that “comparability between public houses held on
different lease terms and with different supply terms is problematic, particularly between the tied and non-tied
sectors”.55 It is wholly misleading to say that “the parallel rent assessment does not need to be complex”.56
5.5 A proper rent assessment would need to reflect a myriad of factors including the parties’ risk, the
different lease terms available, the repairing liabilities and the intangible benefits (such as credit terms, shorter
rent payment periods, low or no interest loans) enjoyed by tied tenants.
5.6 The cost of beer is a key part of the assessment as envisaged by BIS but there is no “free-of-tie price” for
beer for a parallel rent assessment. This ‘free-of-tie price’ will depend on a wide range of factors specific to the
pub and the tenant in question, such as credit worthiness, volume, delivery terms, and product mix.
No clarity as to the role of the Adjudicator
5.7 The mechanics of the parallel rent assessment are also unclear from the Code.
5.8 BIS has suggested to Punch that parallel rent assessments would be for “information only”. And yet,
Punch understands that the parallel rent assessment may form the basis for arbitration requests and for the
Adjudicator subsequently to determine the rent in individual cases.
Adverse consequences
5.9 The combination of a naïve methodology as applied through arbitration and an Adjudicator would
effectively re-introduce the mandatory free-of-tie option—with all the adverse consequences as recognised by
BIS in its response to the Consultation.
Breach of the European Convention on Human Rights
5.10 Furthermore, by allowing the Adjudicator to intervene in individual rent disputes, and enforce a transfer
of value from pub company to tenant, the parallel rent assessments represent a direct interference with the pub
companies’ property rights as protected by Article 1, Protocol 1 of the European Convention on Human Rights.
5.11 The proposed mechanism cannot be justified in the public interest: as noted above, there is no evidence
to demonstrate that there is an imbalance between pub companies and tenants in need of re-balancing and the
proposed transfer of value would not in any case be a proportionate means of achieving such aim.
5.12 If the issue is transparency, there are less restrictive options which would not allow the Adjudicator to
intervene in individual rent disputes.
6. Discriminatory treatment of large pub companies will create a two tier market
6.1 Punch would also like to draw the Committee’s attention to the two tier system created by the Bill in
distinguishing between pub companies according to the number of tied pubs (see Clause 60).
6.2 There is no justification for such discrimination and it would distort the market. This concern was
highlighted by RICS in its response to the Consultation (“we perceive that this 500 pub threshold could result
in the creation of a two tier market”).57
RICS Practice Standards (2010), The capital and rental valuation of public houses, bars, restaurants, and nightclubs in England
and Wales, 1st edition (GN 67/2010), paragraph 7.21.
56 Open letter dated 5 August 2014 from Jo Swinson MP, paragraph 5.
57 Response of the Royal Institution of Chartered Surveyors (RICS), page 6.
55 Small Business, Enterprise and Employment Bill: Written evidence 103
6.3 The 500 pub threshold is an artificial break point which would exclude an estimated 33,000 pubs from
regulation out of a total of 48,000 in the UK.
7. Scope of application of the Bill should not extend to Tenancies at Will
7.1 Tenancies at Will should not be included as envisaged under Clause 61(2) of the Bill.
7.2 Tenancies at Will agreement help tenants as they as they allow flexibility and provide little or no cost of
entry to prospective tenants who would not be able to enter into a more formal agreement.
7.3 These temporary agreements play an important role in keeping pubs open until a formal substantive
agreement is ready to be put in place. The formal substantive agreement will usually be subject to capital
expenditure by the pub company.
7.4 Including tenancies at will within the scope of the Bill and the Code would impose an unsustainable
burden on pub companies and lead to pubs closing down rather than being kept open during the transitional
period.
7.5 Punch estimates that extending the Bill to Tenancies at Will, would lead to the immediate closure of an
estimated 5-8% of tied pubs, or 1100-1750 pubs, together with the associated loss of jobs.
7.6 If the Committee is concerned that temporary agreements of this nature could be exploited by
pub companies to avoid regulation, this could be addressed by way of an anti-avoidance provision. Punch
understands that suitable wording has been proposed by the BBPA.
8. Costs and Penalties
8.1 The cost burden associated with the Adjudicator and the Code has not been fully considered. Pub
companies will be required to pay: (i) an annual levy towards the Adjudicator’s expenses; (ii) the reasonable
fees and expenses of the arbitrator in cases of arbitration; and in certain cases, (iii) the costs of the investigation
and/or (iv) financial penalties.
Levy funding
8.2 Clause 54 allows the Adjudicator a very wide discretion to determine the amount of the levy this should
be based on the size of the pub company. Clause 54(5) should specify the criteria used to allocate the amount of
levy and should be based on the number of pubs a pub company owns. Furthermore, the option to refund any
surplus under Clause 54(9) should be an obligation to do so.
Costs of arbitration
8.3 The Bill provides limited protections to pub companies in cases of “vexatious” referrals or complaints
(Clause 42(6) and Clause 50(2)). These clauses are insufficient to protect pub companies against the costs of
defending multiple speculative and unfounded requests for arbitration or investigation and should provide for
the pub companies to be compensated for the reasonable costs of defending such claims. See detailed comments
in the Annex.
Financial penalties
8.4 Clause 49 should expressly limit the financial penalty which can be imposed rather than leaving this to
the Secretary of State. The amount should be significantly less than the penalties permitted for competition law
infringements (which are inherently more serious in nature).
9. Requirements for information should apply to sitting tenants on assignments
9.1 Finally Punch would like to comment that as currently drafted the Bill and the Code do not place a
duty on the tenant assigning its lease to another prospective tenant to provide information on the business it is
selling.
9.2 Punch believes that the greater level of due diligence is a good thing and should apply equally to
tenancy agreements, lease agreements and lease assignments. In the case of lease assignments, the onus for
this information requirement should not be placed on the pub company as the assignor will have most of the
information that the assignee requires.
9.3 Consistent with the Bill’s objective of increased transparency for new tenants, the Bill and the Code
should oblige the sitting tenant who is assigning its lease to provide suitable information to the assignee.
10. Conclusion
10.1 Punch is concerned that the Bill as drafted will lead to serious, unintended consequences and
threatens the future of the tied business model. The unwelcome level of uncertainty risks pub closures
and job losses—the opposite of what should be intended from a Bill meant to assist small businesses and
create employment.
October 2014
104 Small Business, Enterprise and Employment Bill: Written evidence
Annex
PUNCH COMMENTS ON INDIVIDUAL CLAUSES
In this Annex, Punch outlines its comments on individual clauses of the Bill, in addition to the core points
above.
Clause 36(3). The principle of fair and lawful dealing should be reciprocal and apply to both pub companies
and tenants. The same concern applies to the information requirements in Clause 36(5)(a) (see further above in
relation to assignments).
Clause 36(4). This clause implements the discriminatory treatment of larger pub companies as highlighted
in the submission. If the ‘no worse off’ principle is to be implemented, it should apply to all pub companies.
How to achieve the ‘no worse off’ principle is however fraught with difficulty. The Committee should ensure
that the provisions referred to in this clause do not become a means of re-introducing the mandatory free-of-tie
option. In particular, the parallel rent assessments envisaged by Clause 36(6) appear to be an ill thought-out
means of achieving this principle. By seeking to rebalance the fundamental relationship between pub companies
and tenants and effect a disproportionate value transfer to tenants, the provisions risk infringing the ECHR.
Clause 36(5)(f). This clause is too wide and risks introducing unnecessary and disproportionate measures
into the Code. The scope of the Code should be limited now, with the option to introduce amendments if
necessary in the future on the basis of the review provisions set out at Clause 37.
Clause 36(6). As noted above, Punch has major concerns about the operation of this clause. The parallel
rent assessments risk introducing a free-of-tie option by stealth—despite BIS’ rejection of the initial proposal
due to concerns over pub closures and job losses. The vague reference to “functions” which may be conferred
on the Adjudicator should be replaced with clarity as to how the Adjudicator proposes to use the parallel rent
assessment.
Furthermore, by limiting the parallel rent assessments to the larger pub companies, the Bill again enforces the
creation of a two tier market
Clause 37. As drafted, this clause does not allow for proper consultation. This contrasts with the Groceries
Code Adjudicator Act 2013 which obliges the Secretary of State to consult a prescribed list of stakeholders in
carrying out a review. The same concern applies to Clause 56 of the Bill.
At Clause 37(5), the Secretary of State’s report should also consider whether a Code is still necessary and
appropriate.
Clause 38(3) and (6). These clauses allow for retrospective claims which should be dealt with under the old
self-regulation regime. Agreements will still be brought within the scope of the statutory regime as they come
up for renewal.
Clause 39. The Bill, not the Code, should determine which provisions are subject to arbitration. The
arbitration function should deal with behavioural issues and breaches of the Code, not rent disputes. Rent
disputes should be specifically excluded.
Clause 42. This clause should expressly provide that the parties can appeal the decision of the arbitrator
on the grounds set out in the Arbitration Act 1996 (consistent with the equivalent provision in the Groceries
(Supply Chain Practices) Market Investigation Order). This would be of particular importance if the arbitrator
nominates the rules of an arbitral body which does not allow appeals on points of law under Clause 42(5)(b).
Clause 42(6). This clause is insufficient to protect pub companies against the costs of defending multiple
speculative and unfounded requests for arbitration by tenants. As drafted, it encourages tenants to bring
speculative requests for arbitration. The drafting should be extended to cover claims which have no prospect
of success even if they do not meet the ‘vexatious’ standard. Furthermore, where claims are unfounded or
vexatious, the tenant should have to pay the reasonable costs of the pub company as well as the arbitrator.
Clause 49(6). The Bill should set out the maximum financial penalty which the Adjudicator can impose
following an investigation rather than leave this to the Secretary of State. The maximum amount should be
significantly below the maximum penalty for breaches of competition law (10 per cent. of turnover) which are
inherently more serious in nature.
Clause 50(2)(b). As with Clause 42(6), this clause provides insufficient protection against the costs of
defending unfounded or vexatious complaints. If a complaint is found to be vexatious or wholly without merit,
the complainant should be required to compensate the pub company for the costs incurred in defending itself
against the complaint.
Clause 52(4). The obligation on the Adjudicator to consult before publishing guidance should oblige him/her
to consult any affected person (and not simply who the Adjudicator thinks appropriate).
Clause 54. The Adjudicator has a very broad discretion in terms of determining the amount of the levy for
different pub companies. Clause 54(5) should specify that the criteria used to allocate the amount of the levy
should be based on the size of the pub company. Furthermore, the permission to refund any surplus in Clause
54(9) should be amended to ensure that this is mandatory rather than optional.
Small Business, Enterprise and Employment Bill: Written evidence 105
Clause 61(1)(b). This extends the protection of regulation to ‘window shoppers’, i.e. individuals who contact
the pub company with no serious intention of taking a pub. Punch receives thousands of enquiries every year of
which only a small percentage result in an agreement to take on a pub. The scope of this clause would impose
an excessive burden on Punch with limited benefit for tenants and prospective tenants. This clause should also
clarify that advisors to the principals in the negotiation are not themselves “party” to the negotiation and do not
benefit from the provisions of the Bill and the Code.
Clause 61(2)(d). As noted above, tenancies at will should not be included within the scope of the Bill. This
will impose a disproportionate burden on pub companies and lead to the immediate closure of 1100-1750 pubs
which would otherwise have been kept open on the basis of temporary agreements. Suitable anti-avoidance
provisions could be drafted to stop parties using temporary agreements to escape the regulatory regime.
Clause 62(1). The definition of “parallel rent assessment” refers to rent which would be payable if the tenant
was not tied “assuming that the tenancy is unchanged except in respect of terms relating to such ties”. Once
again, the Bill gives a misleading impression that the parallel rent assessments will be a simple mechanism
based on a straightforward comparison of rents with and without the tie. As noted above, this completely
disregards the level of complexity involved in comparing tied and free-of-tie rents.
Written evidence submitted by The Quoted Companies Alliance (SB 35)
Introduction
We are the Quoted Companies Alliance, the independent membership organisation that champions the
interests of small to mid-size quoted companies. Their individual market capitalisations tend to be below
£500m.
The Quoted Companies Alliance is a founder member of EuropeanIssuers, which represents over 9,000
quoted companies in fourteen European countries.
The Quoted Companies Alliance Corporate Governance Expert Group has examined your proposals and
advised on this response. A list of members of the Expert Group is at Appendix A.
Response
We have focused our response on ‘Part 7—Companies: Transparency’ and ‘Part 8—Company Filing
requirements’ of the Small Business, Enterprise and Employment Bill, as these are the areas of greatest
significance to small and mid-size quoted companies.
Small and mid-size quoted companies are a key driver of growth in the economy. We welcome and support
changes to legislation which promote and facilitate good corporate governance. As we state in our Corporate
Governance Code for Small and Mid-Size Quoted Companies (the QCA Code), “good corporate governance
provides a powerful management tool to ensure that the values of a public company and the related structures
and corporate behaviours are optimised to create long term shareholder value with management compensated
in a complementary fashion”.
Nonetheless, we are very concerned with the proposed rules on registers of persons with ‘significant control’
(Part 7–70/71). We understand that this requirement will not apply to companies applying DTR 5, thus
effectively excluding companies on the Main List and the growth markets AIM and ISDX. However, this could
be dependent on the outcome of the negotiations to adopt the EU’s 4th Money Laundering Directive (MLD)
proposal on beneficial ownership.
Article 29 of the 4th MLD proposal requires all companies to “obtain and hold adequate, accurate and current
information on their beneficial ownership”. As it is currently phrased, companies on regulated markets will be
exempt from this requirement. However, companies on MTFs with a primary market function, such the growth
markets AIM and ISDX in the UK, will have to report their beneficial owners.
We believe that this was not intended by the spirit of the directive—the recommendation of the Financial
Action Task Force was not to apply these rules to companies quoted on markets subject to disclosure
requirements and it appears particularly obtuse for the burden to be placed on growth businesses. To apply
these rules to companies quoted on MTFs with a primary market function would negatively affect small and
mid-size quoted companies’ ability to grow and create jobs. It would also create the perverse situation where
small and mid-size companies would have to report more information than their larger counterparts on the
London Stock Exchange’s Main List.
Moreover, quoted companies would face significant difficulties identifying their beneficial owners since it is
sometimes impossible for them to identify beneficial owners through the multiple layers of ownership which
often occur. The current text of the proposed 4th MLD, in its article 29, 7, establishes that Member States will
impose sanctions on companies failing to comply with the requirements to obtain and disclose information on
their beneficial owners.
We believe that, with the EU Market Abuse Regulation now extended to all markets, there is no reason why
companies on MTFs with a primary market function should not be exempt too.
106 Small Business, Enterprise and Employment Bill: Written evidence
We believe that companies on SME Growth Markets (as defined in MiFID II and which we expect AIM
and ISDX to be classified as once MiFID II comes into effect on 1 January 2017) should be exempt from
the requirement to report on their beneficial owners and would urge the UK Government to purse this policy
change in the EU ahead of the adoption of the 4th MLD.
Accordingly, it will be very useful for the consideration of this Bill to be coordinated with an initiative to
remedy this aspect of the 4th MLD. The UK and EU initiatives in this regard should be better coordinated.
Responses to specific sections
Part 7—Companies: Transparency
70/71—As mentioned above, we note that the ongoing efforts to amend the current text of the proposed
Directive of the European Parliament and of the Council on the prevention of the use of the financial system
for the purpose of money laundering and terrorist financing (4th MLD). Article 29 of the 4th MLD proposal
requires all companies must hold adequate, accurate and current information on their beneficial ownership.
We also note the ongoing negotiations on the Shareholder Rights Directive proposal, which will also establish
requirements regarding the identification of shareholders.
Therefore, we believe that it would be advisable to see the transparency elements of the Small Business,
Enterprise and Employment Bill developed once the pending legislative changes at EU level are finalised.
Otherwise, very substantial changes may be required to the UK provisions, which would both place an
unnecessary burden on business and would leave the UK legislation open to major criticism. A bill intended
to support small business should not be subject to criticism as to its detail which challenges small businesses.
More generally, we believe that creating a new public register for persons with significant control will increase
the administrative burden on companies for little tangible benefit and also have unnecessary costs related to
introducing new systems to store data and potential consequences for failure to comply (e.g. sanctions). We
would urge the House of Commons Public Bill Committee to conduct a thorough cost-assessment analysis prior
to the introduction of such a register. Such an assessment must also include the data protection issues arising.
71—PSC Register
We have had discussions with BIS on this point and we appreciate that BIS has been advised by ministers
that, from a policy perspective, amendments to part 22 Companies Act 2006 would not be sufficient and
that it is necessary to create the new, complex part 21A with supporting subordinate legislation. However,
we continue to believe that greater disclosure of beneficial ownership of equity ownership (and indeed nonequity securities) for all companies (not just public companies) could be achieved through minor amendment
to the understood and respected part 22 regime together in combination with an expansion of the accounting
disclosure of ultimate control as is required under relevant accounting standards.
76—Corporate Directors
Whilst we may not agree with the current policy intention to prohibit corporate directors, we appreciate that
this is a firm element of government policy.
Dilatory directors are best prevented and punished through proper enforcement of those Companies Act and
Insolvency Act provisions which are already on the statute book.
However, on the basis that there is likely to be a general prohibition on corporate directors it is vital that a list
of sensible exemptions is set out, including:
—— use of directors throughout a group structure as an aspect of efficient and effective corporate
governance oversight;
—— corporate directors required under certain financial services regulatory requirements; and
—— usage of corporate directors where outsourcing of functions take place.
In all of the above examples, the corporate directors and the persons standing behind the same cannot shirk
from liability and exercise of proper oversight.
77—We welcome the introduction of the need for the Secretary of State to carry out a review of the
requirements of section 76 and publish a report setting out the conclusions gathered. We believe that this is
necessary thoroughly to assess the impact of the legislation, ensuring that the objectives with the change of
policy have been achieved or if further changes are necessary.
78/79—It remains conceptually flawed to seek to apply statutory duties to shadow directors.
Shadow directors are not directors, but they are persons for whom policy, rightly, imposes certain specific
liabilities. Accordingly, the legislation should be drafted along the lines that if a person is a shadow director
that person’s conduct will be viewed through the lens of statutory duties as if he/she were a director i.e. a
comparative application. We consider it dangerous for duties to apply directly to shadow directors. We have no
interest in seeking to protect the interest of shadow directors but are interested to ensure that the law is clear,
effective and proportionate.
Small Business, Enterprise and Employment Bill: Written evidence 107
Part 8—Company Filing requirements
80/81—We do not believe that the change to confirmation statements instead of annual returns will have any
material beneficial impact on the running of companies and, indeed consider it to be an unnecessary change to
a system which is well understood and operates effectively.
82/83—We welcome these proposed changes as we believe they offer flexibility to small and mid-size
companies. To keep information on the register may decrease companies’ administrative burdens and costs.
84—We welcome the special attention that has been given to the protection of a person’s date of birth, which
should be restricted personal data.
If you would like to discuss any of our responses in more detail, we would be happy to attend a meeting.
October 2014
APPENDIX A
QUOTED COMPANIES ALLIANCE CORPORATE GOVERNANCE EXPERT GROUP
Edward Craft (Chairman)
Colin Jones (Deputy Chairman)
Anita Skipper
David Isherwood
David Fuller
Nicholas Stretch
Louis Cooper
Nick Gibbon
Andrew Hobbs
Eugenia Unanyants-Jackson
Melanie Wadsworth
Rob Burdett
Richie Clark
Victoria Barron
Julie Stanbrook
Claire Noyce
Peter Swabey
Andy Howell
Nicola Green
Eleanor Kelly
Jane Mayfield
Anthony Carey
Mebs Dossa
Gabriella Olson-Welsh
Peter Fitzwilliam
Cliff Weight
Jo Chattle
Julie Keefe
Dalia Joseph
Marc Marrero
David Firth
Kate Elsdon
Nick Janmohamed
Madeleine Cordes
Wedlake Bell LLP
UHY Hacker Young
Aviva Investors
BDO LLP
CLS Holdings PLC
CMS Cameron McKenna LLP
Crowe Clark Whitehill LLP
DAC Beachcroft LLP
EY
F&C Investments
Faegre Baker Daniels LLP
FIT Remuneration Consultants
Fox Williams LLP
Hermes Equity Ownership Services
Hogan Lovells International LLP
Hybridan LLP
ICSA
KBC Advanced Technologies PLC
LexisNexis
Mazars LLP
McguireWoods
The Mission Marketing Group PLC
MM & K Limited
Norton Rose Fulbright LLP
Oriel Securities Limited
Penna Consulting PLC
PricewaterhouseCoopers LLP
Speechly Bircham LLP
TMF Corporate Secretarial Services Ltd
108 Small Business, Enterprise and Employment Bill: Written evidence
Edward Beale
Alexandra Hockenhull
Western Selection Plc
Xchanging plc
Written evidence submitted by the Local Government Association (LGA) (SB 36)
1. About the Local Government Association
1.1 The Local Government Association (LGA) is the national voice of local government. We work with
councils to support, promote and improve local government.
1.2 We are a politically-led, cross party organisation which works on behalf of councils to ensure local
government has a strong, credible voice with national government. We aim to influence and set the political
agenda on the issues that matter to councils so they are able to deliver local solutions to national problems.
The LGA covers every part of England and Wales, supporting local government as the most efficient and
accountable part of the public sector.
2. Summary
2.1 The LGA supports enabling more small businesses and voluntary sector organisations to bid successfully
for public sector tenders.
2.2 However, we are concerned that the Government intends to use the powers in clauses 33 and 34 of
the Bill to centralise procurement, which will not work for local government and small businesses who are
interested in providing goods and services within their localities. For this reason, the LGA will be seeking the
deletion of these clauses.
2.3 Local authorities support the objectives that the Government is seeking to achieve with this legislation.
They are keen to work with small businesses and voluntary sector organisations because this increases the
potential for retaining value within the local economy. There is no need for legislation to address these issues
and the continuing work of the LGA and the Local Government National Advisory Group for Procurement
creating a National Procurement Strategy will do much more to enforce these messages.
2.4 We fear that over-regulation may have the effect of discouraging local authorities from thinking
strategically about procurement opportunities and preventing access to markets for small scale providers who
may not have the capacity to acquaint themselves with and respond to statutory procedures.
2.5 Moreover, the National Procurement Strategy has identified that successful procurement, and with it the
opportunity to maximise economic and social value, has to be seen in terms of the whole procurement process,
not just the tendering phase. The use of legislation to regulate the tendering stages, however, tends to focus the
attention of public bodies on this part of the process to the detriment of the equally important phases of contract
deployment and contract management.Local authorities need to be given the flexibility to respond to local
circumstances and meet local needs in order to optimise public value.
2.6 In respect of the provisions in the Bill to recover certain exit payments paid to public sector workers,
we support appropriate mechanisms to safeguard public money. However, we have concerns about the ease of
legislating on this issue given the complex relationship between various pieces of statute law and individual
contract law. The LGA suggests that better transparency in governance arrangements, such as those applying in
local government, might be an alternative.
2.7 In general the employment provisions in relation to whistleblowing, employment tribunal measures, zero
hours contracts and national minimum wage would not be expected to have a substantive impact on local
government. The introduction of higher penalties for breaches of the minimum wage provisions will require
greater clarity on their interpretation and application, particularly where there is a conflict between case law
and government guidance.
Part 3: Public sector procurement
3.1 Clause 33(1) in Part 3 of the Bill allows the Government to implement further measures relating to
public procurement in the future, and as it deems necessary. According to the Explanatory Notes to the Bill,
the Government “may use the power to make regulations which require procuring authorities to run an efficient
and timely procurement process, including a duty to accept electronic invoices and make available, free of
charge, information or documents necessary for any potential supplier to apply for a contract”.
3.2 The LGA and its members support the Bill’s aim of enabling more small businesses and voluntary
sector organisations to bid successfully for public sector tenders. However, in accordance with the existing
EU regulations and the principle of localism, it is for local authorities to decide how to conduct procurement,
provided they comply with the principles of transparency, non-discrimination, proportionality and value for
money.
Small Business, Enterprise and Employment Bill: Written evidence 109
Rationale for deletion of clauses 33 and 34
3.3 The LGA is concerned that the Government intends to use the power in the Bill to centralise procurement.
Such a move is signalled by the abolition of the Pre-Qualification Questionnaire (PQQ) and mandating the use
of a single online portal for all contracts across the public sector in the Public Contracts Regulations 2015 which
transpose the package of EU Directives on Public Procurement into UK law. A centrally imposed procurement
process would reduce local authorities’ ability to ensure public value by working to local circumstances.
3.4 The LGA is therefore seeking the deletion of clauses 33 and 34 and puts forward various arguments in
support of this:
—— Councils and other contracting authorities are already bound by existing EU Directives for ‘above
threshold’ procurements. The corollary of this is that the duties relating to ‘below threshold’
procurements should be determined by contracting authorities themselves; for councils this would be
through their own contract standing orders.
—— Clause 33 as drafted would give central government wide power in relation to procurement. This could,
for example allow central government to mandate the use of Cabinet Office framework contracts even
if other, better value, framework contracts exist.
—— Clause 33(5) provides for the imposition of duties on contracting authorities, including duties to
exercise functions relating to procurement in an efficient and timely manner (33(5)(a)) and duties to
publish reports about compliance with the regulations (33(5)(e)). Given the Transparency Code 2014
already requires councils to observe due process and publish data in relation to procurement, the LGA
believes these duties would place an unnecessary additional burden on councils.
—— Clause 33, which would allow central government guidance and regulations to be imposed on local
government, is contrary to the principle of localism as set out in the Localism Act 2011.
—— Clause 33(5) sets out a number of examples where the Small Business Bill powers may be used,
these examples all currently form part of the draft Public Contracts Regulations 2015 and separate
legislation is not therefore required.
—— Guidance issued by the Minister for the Cabinet Office or the Secretary of State is not currently
mandatory for all contracting authorities, including councils. By implementing a further duty on
councils to have regard to guidance, particularly without councils having any means to consult on the
guidance, procurement processes will become less efficient and effective.
—— Clause 34 operates in tandem with clause 33. As it sets out a means to investigate compliance with
regulations made under clause 33, clause 34 would no longer be needed if clause 33 was deleted.
—— LGA national procurement strategy for local government.
3.5 The LGA launched a new national procurement strategy for local government in July setting out how
councils should be simplifying processes in order to engage with a wide supplier base, whilst at the same time
using procurement to grow their local economies. We have already gained much support for the strategy and
believe that a sector-led improvement approach on this issue is the way forward. Likewise, the LGA continues
to encourage the sharing of best practice within the sector, so that local authorities can learn from each other’s
experiences as to what works well when it comes to effective and efficient procurement.
4. Part 11: Employment
Exit payments
4.1 LGA always supports efforts to safeguard public money and agrees that, in certain circumstances, it may
be appropriate to place limits on or consider the recovery of exit payments. However, there may be more merit
in pursuing wider transparency arrangements such as those applying in local government. HMRC evidence
suggests that exit payments in local government are on average significantly less than in other parts of the
public sector.
4.2 Any recovery system for exit payments would be required to take into account the complex interplay
of statutory employment law, pension law, contract law, public law and practical employment relations and
human resources considerations. The LGA has outlined the technical details in its response to the recent HMRC
consultation on the recovery of exit payments. There is little detail yet on the practical measures envisaged to
implement the proposal. The HMRC consultation and the wide scope of possible qualifying payments listed in
clause 140(4) of the Bill raises questions as to the need for amendments to other pieces of primary legislation,
for example the Employment Rights Act 1996 (on redundancy pay, settlement agreements), the Equality Act
2010 (on settlement agreements) or the Working Time Regulations in respect of recovery of pay for untaken
annual leave. The LGA is concerned that the Bill could undermine established employment and equality law.
4.3 Further detail is needed on the proposals in the Bill. The LGA envisages a significant administrative
burden on the sponsoring government department in maintaining definitive lists of the individual legal employers
to which the policy applies. This will be particularly important in local government, if local government and
private contractors are to be covered, and clarity is needed as to which types of school are covered. Generally, it
is essential that employees who are restricted by these new provisions are clearly informed and able to rely on
up-to-date national government guidance on the exact nature of the restrictions as they apply. Failure to achieve
110 Small Business, Enterprise and Employment Bill: Written evidence
the requisite clarity will create inefficiencies in the labour market, including delays in making appointments
and disputes over obligations resulting in time-consuming and costly litigation.
4.4 The LGA questions whether the intention in clause 141(4) is to limit the obligation to repay only to
situations where an ex-employee returns as an independent self-employed contractor or whether it is intended
to include employment in senior positions in a contracting company or via agency arrangements.
4.5 The unanticipated effect of introducing recovery provisions may be to inflate the cost of initial settlement
agreements and also make them less reliable, as any compensation won through litigation could presumably not
be recovered.
4.6 At this stage, and taking into account the HMRC consultation already undertaken, the limitations on reemployment are unclear. However, an additional and concerning feature for public sector employers in general
and particular areas of local government is that the provisions could act as a disincentive for an employee to
return to employment in the sector to which their experience and skills are most suited. Indeed, some might
see the provisions as an encouragement to remain unemployed for a time. This would dilute the value of the
proposal in terms of financial savings.
4.7 Clause 142 provides a power for the Secretary of State and appropriate bodies in the devolved
administrations to waive the requirement to repay the whole or part of any exit payment. The HMRC
consultation clearly suggested that this power would also be vested in local authorities where they had made
the payment, which would be appropriate. The LGA suggests that the clause should be amended accordingly
rather than rely on subsequent regulations.
Other employment provisions
4.8 We would not expect clauses 135 (Whistleblowing), 136-137 (Employment Tribunals), 138 (National
Minimum Wage) and 139 (Zero Hours Workers) to have a substantive effect on local government. However,
the higher penalties payable in relation to underpayment of the minimum wage mean there must be clarity on
the interpretation of the Minimum Wage Regulations. For example, on the issue of payments when asleep on
call, rulings in the Employment Appeal Tribunal now contradict established government guidance produced by
the Department for Business, Innovation and Skills. In these circumstances, it would be unfair if an employer
was penalised for following government guidance.
October 2014
Written evidence submitted by Grant Thornton UK (SB 37)
1. Grant Thornton UK LLP provides independent assurance, tax and advisory services to over 40,000
public interest entities, privately owned and publicly listed businesses and individuals. We are led by more
than 185 partners in 25 offices across the UK and employ nearly 4,200 people, who use insights, experience
and instinct to advise dynamic organisations on growth. We deliver a number of government programmes that
support business growth (including GrowthAccelerator, the Manufacturing Advisory Service and UKTI events
management). Through our Audit Commission appointment we are the leading auditor to local government and
the NHS.
2. We have the following comments on the Small Business Enterprise and Employment Bill.
3. Overall we welcome the Bill. The majority of provisions are positive measures in support of economic
growth in the UK and in particular we strongly support the Bill’s aims of reducing regulatory burdens,
supporting SME access to finance including export finance, and increasing competition. Our comments concern
two areas:
i. Mid-Sized businesses
4. Grant Thornton, through its ‘Agents for Growth’ programme, has looked extensively at the mid-sized
business market. In the UK there are 34,000 mid-sized businesses—firms with 50-499 employees and/or
turnover £25m-£500m. These 34,000 mid-sized businesses (MSBs) play a disproportionate part in economic
growth: over recent years MSBs have out-performed small firms and large corporates on employment growth
and productivity and on R&D and capital investment growth. We would encourage the government and the
Public Bill Committee to consider how the Small Business, Enterprise and Employment Bill impacts on
mid-sized businesses as well as small and medium sized enterprises (SMEs). Some provisions may create
unnecessary burdens for MSBs (eg the duty to publish a report on payment practices) and some clauses
unnecessarily exclude MSBs from the benefits of provisions currently limited to SMEs (eg on access to finance
and credit information)
ii. Company Transparency
The provisions on Company Transparency aim to improve law enforcement by requiring companies to take
steps to identify persons with significant control and makes failure to do so a criminal offence. We support
crime-fighting initiatives but are concerned that these additional disclosure requirements may impose additional
Small Business, Enterprise and Employment Bill: Written evidence 111
regulatory burdens on the honest and risk criminalising honest mistakes, while the dishonest would be able to
evade them.
Detail
PART 1: Access to Finance
Clause 3. Duty to Publish report on Payment Practices
6. Late payment is as much an issue for mid-sized business as it is for SMEs. A Grant Thornton / ICAEW
Business Confidence Monitor in 2013 showed that 27% of MSBs were finding late payment a greater challenge
than the previous year (compared to 22.7% of the entire business population). The Grant Thornton International
Business Review showed that sales invoices of UK MSBs took on average 48 days to be paid, compared to
the G7 average of 42 days, 32 days in Germany and 26 days in Latvia. So potentially UK MSBs can benefit
from steps to reduce invoice payment periods. Equally, MSBs may face increased costs and regulatory burdens
from the proposed new reporting requirements in the Bill. Micro, small and medium sized businesses (up to
£25 million turnover) are exempt from the reporting requirements. This leaves a large group of 34,000 midsized businsses who do not have the resources of large corporates but will be faced with additional reporting
requirements. We would strongly recommend that the Bill sets a higher turnover threshold for these
reporting requirements—eg 499 employees or turnover of at least £100 million. We would also welcome
an acknowledgement on the face of the bill that provisions to reduce payment periods should assist mid-sized
businesses as well as SMEs, to inform any subsequent secondary regulations.
Clause 4: provision of credit information on small and medium sized businesses
7. The Bill limits the provisions on credit information (designed to increase competition and supply of
finance for businesses) to SMEs, defined as businesses with turnover up to £25 million. The bill therefore
excludes mid-sized businesses from the benefits of these provisions. Our experience of working with clients to
access finance is that a funding gap exists for businesses below £5 million EBITDA; the funding gap doesn’t
have a turnover threshold but rather a profit threshold. Grant Thornton Agents of Growth research found that
there is limited diversity in the market and a MSBs reported difficulties in accessing finance—particularly in
long term finance. In order to maximize the benefit of these provisions to stimulate economic growth, the
Bill should set a higher turnover threshold for those firms who would benefit. We would recommend use of
the SME definition used in the R&D Tax Credit, which defines SMEs as firms with turnover up to 100 million
euros (this should cover most firms with EBITDA below £5 million).
Part 7: Companies: Transparency
Clauses 70-71: Register of people with significant control
Clause 72: Register of interests disclosed
Schedule 3: Register of People with Significant Control
8. Clauses 70-72 aim to improve law enforcement by requiring companies to take steps to identify persons
with significant control and make it public at Companies House. Failure to do so is a criminal offence. We
support crime-fighting initiatives but like the ICAEW we are concerned that these additional disclosure
requirements may impose fresh burdens on the honest, while the dishonest evade them. The Bill needs to
avoid a number of unintended consequences which could arise as currently drafted:i.
The provisions will not apply to overseas companies operating in the UK through a branch, so overseas
criminals can circumvent the rules by using a branch.
ii. In the absence of multilateral arrangements in other countries, this could put UK businesses at a
disadvantage.
iii. Criminals who use ‘front’ companies are unlikely to comply with the new law, at least not properly,
and detection may prove difficult.
iv. Public availability of the register of persons with significant control is unnecessary for crime prevention
and may increase the risk of identity theft and threats to individuals.
v. The new rules may deter genuine investors from taking substantial stakes in business (including inward
investors) and might make it harder for businesses to raise finance from entrepreneurial investors or
even family members.
vi. The new provisions will be complex and there is a significant risk that many companies will fail to
comply because they don’t understand the requirements or make mistakes. The proposed remedies
provide for up to two years in prison without the need to show any dishonest intent or knowledge of
breach.
vi. Tracing through a corporate structure to identify the controller may be very difficult where foreign
companies are interposed and there are no effective powers that can be applied to obtain information
from those companies.
vii. Complying with the new law could result in additional costs for many businesses, increasing regulation
and red tape.
112 Small Business, Enterprise and Employment Bill: Written evidence
9. We would welcome further reflection from government on how the legislation can be amended and
implemented to prevent an additional administrative burden, to avoid criminalising businesses who make
honest mistakes, and to ensure that this will actually assist law enforcement against international criminals.
October 2014
Written evidence submitted by Equiniti David Venus (SB 38)
1. Equiniti David Venus is a leading firm of chartered secretaries, and part of the Equiniti group. We are
professional company law specialists providing complex company law and corporate guidance advice to
both public and private companies, acting as company secretary to many of these, and consultant and adviser
to many more. We act for public companies listed on the Main Market including 17 of the ftse350, AIM or
ISDX, private companies, UK establishments of foreign companies, and overseas subsidiaries of UK parent
companies. We also provide outsourced support to accountants, tax advisers, and lawyers.
2. We are grateful for the opportunity to comment on the Bill and support the work of BIS to further
deregulate compliance for the smallest corporate entities whilst also ensuring a robust framework is in place for
larger entities. Our comments are focused on the proposed amendments to the Companies Act 2006 set out in
Part 7 of the Bill.
Summary of Points Raised
—— Application of PSC Register to directors under significant control provisions
—— Application of duty to make enquires for the purposes of PSC register in circumstances where owner
is unresponsive or claims foreign privacy rights
—— Concern that the requirement for a Court Order when cancellation share warrants may place
unnecessary expense on companies and place burdens on the Companies Court
—— Query the ability of the Court Funds office to receive funds in the timescale set out in the Bill
—— Querying the rationale for replacing the annual return with, for all practical purposes, an identical
return but called a confirmation statement
—— Querying the removal of the ability of companies to withhold information using the proper purpose
test where they take advantage of the optional filing arrangements.
Register of People with Significant Control (PSC Register)
3. We have three areas of concern being the scope and interaction between interests deriving from share
ownership and control by virtue of influence or control of a company and secondly the practical implication for
UK companies with unresponsive owners and lastly the process for rectification.
4. Directors, and certainly CEOs and MDs clearly have significant influence and control over the company
they are employed by. However they may not necessarily have any significant ownership either directly or
indirectly. As details of directors are already made public are the directors of the company to be exempt from
being entered on the PSC Register if their interest arise solely out of their being a director of the company?
5. In our own case as a group we are owned by a private equity fund. We know that no one individual has
a beneficial interest in more than 5% of the share capital. The private equity firm manages this investment on
behalf of the fund members. Are they likely to fall within the definition of exercising significant control even
though their economic interest would fall below the 25% level?—I suspect yes.
6. We are also concerned that in certain circumstances the requirement on directors to enquire and obtain
information on those with significant control may pit them against their company owner. Identification of the
true owners/controllers of companies is of legitimate concern however failure to provide those details may also
be for legitimate reasons.
7. Proposed section 790D imposes a duty on company officers to investigate and obtain information
and proposed section 790F imposes liability in the event of failure to do so. However it is feasible that this
obligation may place an officer of a company under a statutory duty to make enquiries of their employer
that that employer specifically instructs them not to do. Additionally whilst there are sanctions available to a
company for failure to reply it is difficult to understand the circumstances in which a company and its directors
would seek to impose sanctions against its significant owners.
8. In addition there may be a conflict of laws. For example we have clients where, if these provisions were
currently in force, a registrable interest would exist for a Swiss resident nominee. We are aware from our
experience of issuing requests under section 793 Companies Act 2006 that these nominees simply refer to
Swiss privacy laws and refuse to disclose underlying beneficiary information, even in circumstances where the
beneficiary has instructed them to co-operate.
9. Proposed section 790U sets out the procedure for rectification of the PSC Register which mirror the
existing provisions for rectification of the register of members and only permit rectification supported by a
Court Order. Obtaining a Court Order is a time consuming and expensive process and one that currently deters
Small Business, Enterprise and Employment Bill: Written evidence 113
companies, shareholders and beneficial holders from seeking rectification where the cost of obtaining a Court
Order is greater than the value of the holding. Whilst a Court process for disputed cases should be retained we
would welcome the inclusion of a simpler process, not requiring Court approval, in circumstances where all
relevant parties agree. This might include the company, the person whose details are incorrect and if relevant
the person whose details should be included. Extending such a simpler process for rectification of the register
of members would also be greatly valued.
Abolition of Bearer Shares
10. Schedule 4 section 5 of the Bill will require a company with share warrants remaining unsurrendered to
obtain a Court Order to reduce its capital by cancelling the warrants and shares specified therein.
11. Chapter 10 of the Companies Act 2006 sets out a procedure for private companies to undertake reductions
of capital supported by a declaration of solvency so as t avoid the expense of obtaining a Court Order. We are
concerned that requiring all companies to obtain a court order to implement the cancellation of any remaining
share warrants will be unduly expensive and may also place undue strain on the companies court given the very
tight timeframe imposed on companies.
12. Although the reduction of capital supported by a solvency statement is generally only available to private
companies will this procedure be made available to both private and public companies in respect of cancellation
of share warrants?
13. Schedule 4 section 9 will require companies to make a payment into Court within 14 days of the Court
Order being made. This is wholly impractical. Currently a draft of the witness statement in support of a
payment into court is submitted to the Court officer for review and once confirmed payment can then be made.
This review process currently takes approximately 10 weeks due to the backlog at the Court funds office.
14. The current process for payments into court requires the last known details of beneficiaries, names,
address and amount, to be provided to the Court Funds Office. Clearly I the case of bearer shares this is not
possible.
Replacement of annual return with confirmation statement
15. At first sight it is difficult to see what if any benefit this change has over the existing annual return
regime. Much has been made of the need to allow companies, where there have been no changes to the
information from one year to the next, to be able to confirm that in a simple and quick check and confirm
process. In addition much has been made of the ability for companies to file a confirmation statement at any
point during the period of 12 months from the previous one and specifically when making any other changes
such as change of director.
16. Companies making use of the Companies House web filing service are already able to check and confirm
the details of their annual return in less than 1 minute and I find it difficult to believe that a newer check and
confirm service will be any quicker or provide any tangible benefit when compared to the current system. This
feels like change for changes sake.
17. Companies are already able to file an annual return earlier than the anniversary of the made up date.
18. Companies are not currently offered the opportunity to file an updated annual return whenever changes
to the content of the annual return are made however it is not credible that such a change cannot be made by
Companies House without the need for new legislation.
19. As currently drafted the Bill appears to remove the requirement for an annual return and replace it with
an almost identical obligation to file a confirmation statement.
Optional filing
20. s.80 of the Bill introduces the ability for companies to hold their statutory registers on the central registry
kept at Companies House. Any company that does this will automatically have details of the directors and
members residential addresses freely available to those searching the public register. Whilst this does of course
replicate the ability of anyone to inspect a company’s registers what is missing is the proper purpose test which
allows companies the ability to protect sensitive data from anyone seeking the data for an improper purpose.
21. This proposed change also flies in the face of recent trends to prohibit access to residential addresses
introduced by the Companies Act 2006.
October 2014
Written evidence submitted by the Association of Professional Staffing Companies (APSCo) (SB 39)
Summary
APSCo, the only trade body dedicated to representing the interests of the UK professional staffing industry,
are calling for recognition of the damage that ‘pay when paid’ clauses can cause and for a backstop to be
114 Small Business, Enterprise and Employment Bill: Written evidence
included in all future clauses of this kind. APSCo would also like to demonstrate the unique position of the
professional staffing industry and the negative impact that pay when paid clauses can have upon it.
1. In a recent report, payments service Bacs noted that the cost to small and medium enterprises (SMEs) of
government inaction to tackle late payments is some £9.4 billion per annum. Bacs’ figures reveal that 60% of
small businesses are owed in late payments and the average small business is owed £38,186 in overdue bills.
Around a quarter of small companies are predicted to be at risk of bankruptcy if these figures continue to rise.
While the Small Business, Enterprise and Employment Bill is a necessary step in tackling these problems, this
legislation should go further. In particular, a backstop should be introduced to provide greater security within
the supply chain and evidence that payment will be forthcoming.
2. The Association of Professional Staffing Companies (APSCo) welcomed the Government’s focus on the
payment issues faced by businesses as detailed in the 2014 Queen’s Speech, however, in its current form, the
Small Business Bill does little to help SMEs facing payment difficulties. This is a particular concern in the
recruitment sector, where firms pay their contractors (temporary workers) and must then fund the time it takes
to receive payment from the client. For APSCo members one of the biggest challenges they face is gaining
access to finance where master vendors include ‘pay when paid’ clauses in contracts. These mean that the
recruitment firm will not be paid until the client receives finance from the master vendor. They may then find it
difficult to source the capital they require to meet immediate expenditure and fall into negative equity.
3. While ‘pay when paid’ clauses affect some other sectors, most notably shipping and construction, the
recruitment industry is particularly vulnerable to them for four reasons.
i.
The time lapse between the payment of temporary staff by recruitment firms and the payment for these
services by end clients. In many cases staff will be paid on a weekly basis, while payment for services
will be monthly, or even quarterly. As such, delayed payments causes a quick drain on cash reserves.
ii. Recruitment firms are often small, highly-specialist companies which are simply unable to raise
the large stocks of reserve revenues needed to compensate for delayed payment. More than 85% of
APSCo’s members are SMEs and late payment, unfair payment terms and a lack of transparency of
payment terms are routinely cited as key issues they face.
iii. The recruitment supply chain lends itself to complicated supply chains. For example, recruitment
process outsourcing companies (RPOs) may contract with end-clients directly, acting as a conduit for
recruitment services to the end-client and payment to the suppliers. In this instance the removal of a
direct relationship between the recruitment firms APSCo represents and their end clients can lengthen
payment terms and add to financing problems.
iv. Recruitment firms struggle for leverage vis-à-vis larger clients and are often under great pressure to
enter into contracts that contain ‘pay when paid’ clauses.
4. Clear, affordable access to cash flow is vital for any business to prosper and grow and the success of
the recruitment sector is necessary in maintaining a fluid and flexible labour market. APSCo has worked in
partnership with the Asset Based Finance Association to raise awareness of financing difficulties, launching
the APSCode in May 2012. 20 major RPOs signed up to this document, which affirms that all ‘pay when
paid’ clauses should be supported by a backstop date and/or direct recourse to the client. However, despite this
improvement, APSCo continues to receive complaints from its members regarding ‘pay when paid’ clauses.
5. More recently, APSCo has engaged with the Institute of Credit Management, the body which set up the
Prompt Payment Code in conjunction with the Department for Business, Innovation and Skills regarding the
possibility of the APSCode becoming the recruitment sector derivative of the Prompt Payment Code. It is
hoped that this could inform discussions and help to form the basis for future legislation.
6. The Small Business Enterprise and Employment Bill is welcomed by APSCo as a necessary move to
ease the financial pressures small businesses can be burdened with. However, further amendments are needed
to ensure that it is of benefit to APSCo members and the recruitment sector more generally. The inclusion of
an amendment to require the inclusion of backstops in ‘pay when paid’ clauses would ease financial pressure
on recruitment firms and reduce the burden of risk to small and medium sized businesses. The APSCode has
demonstrated that legislation along these lines can be successful, but also that greater cooperation is needed
between the public and private sectors.
October 2014
Written evidence submitted by Wilkins Kennedy LLP (SB 40)
1. We have been examining the proposals for the Small Business, Enterprise and Employment Bill with
interest. We think it is, on the whole, a very positive development to support enterprise in the UK, with one
main concern.
2. The Bill may allow the opportunity for foreign companies to not comply with UK rules.
Small Business, Enterprise and Employment Bill: Written evidence 115
3. The Bill outlines in Clauses 70-72 that companies will be required by law to identify and make public any
persons with significant control to Companies House, as this is thought to deter misleading information.
4. However, the disclosure regime is not extended to foreign companies operating in the UK. As the rest
of the world has not yet implemented a similar scheme, this entitles a foreign business to choose to preserve
privacy, whilst still operating in the UK. This means that transparency becomes optional for these companies,
and represents a significant loophole.
5. We would recommend that this issue is examined to ensure that this loophole is closed.
6. As background, Wilkins Kennedy LLP was established in 1882 and has grown to become one of the UK’s
top 20 firms of Chartered Accountants and Business Advisers with a turnover of over £34 million. The firm has
72 partners and approximately 500 staff in fifteen UK offices.
October 2014
Written evidence submitted by the National Federation of Roofing Contractors (SB 41)
Executive Summary
—— Most NFRC members believe that the Government does not provide businesses with enough
information on accessing finance. This issue must be addressed.
—— Archaic payment practices such as late payments and retentions impact on almost all businesses in the
roofing industry; these practices can severely stunt business development.
—— The Government must be much more active in addressing these practices, and commitments to better
payment practices must be enforceable. Voluntary agreements are not enough.
—— A requirement for companies to publish information about their payment practices and policies
could make a difference to the culture of late payments if the requirement was enforceable and the
information readily available.
—— Government should be setting the standards of best practice in its own procurement. This includes
taking action to ensure that full payment reaches the bottom of the supply chain in a timely manner.
1. The National Federation of Roofing Contractors (NFRC) is the UK’s leading trade association for the
roofing industry. The Federation has over a thousand contractor and associate members and is an active member
of the International Federation of Roofing Contractors. With a turnover of £1.6bn, NFRC members represent
70% of the UK roofing market by value. Companies vary from the very smallest local company to some of the
largest in the country, carrying out new build, repair and maintenance on existing buildings, and heritage work.
The NFRC is also a key member of the National Specialist Contractors’ Council (NSCC) and TrustMark.
2. This response addresses parts one and three of the Small Business, Enterprise and Employment bill,
relating to access to finance and public sector procurement.
Access to Finance—Information
3. It is well established that, in order for businesses to become successful and therefore to make valuable
contributions to the UK economy, they need access to funding. This is true throughout all stages of business
development, and for all types and sizes of business. The Government should support businesses by providing
clear and concise guidance on the sources of funding that are available to them, how to apply for this funding,
and what the options are when funding falls short of a business’s needs.
4. With this in mind, it should be of some concern that, in a survey of NFRC members conducted in
September 2014, most respondents agreed that the Government does not provide enough information to help
businesses access funding. Additionally, the majority of NRFC members are not aware that funding from nontraditional sources, i.e. sources other than banks, exists. It is vital that this lack of awareness about funding
options is actively addressed. Trade Associations can play an important role in ensuring that information on
funding is accessible. Many Trade Associations, like the NFRC, already have communication networks in
place that allow them to pass information to large number of businesses in their industries. They are also able
to collect specific information from their members on what additional funding information is needed. Any
Government information campaign which aims to inform businesses about funding options should make use of
Trade Associations as tools for communication.
Access to Finance—Payment Practices
5. The vast majority of NFRC members surveyed stated that archaic payment practices have a significant
impact on their businesses and others in the industry. The main culprits are late payments, part payments, and
retentions. With regard to late payments, a National Specialist Contractors’ Council (NSCC) Payment Survey
found that 95% of specialist contractor respondents routinely waited more than 30 days for payment; one in
seven waited over 45 days. This waiting period prevents businesses from growing.
116 Small Business, Enterprise and Employment Bill: Written evidence
6. ‘Retention fees’ (where money is withheld from sub-contractors for excessive periods of time to cover
potential faults) and part payments are also particularly damaging. The NSCC estimated from the survey
findings that approximately £680 million was being held in retention payments from its 7000 members. Having
such large amounts of money out of reach in this way can severely affect cash flow. At worst, this can even
be the primary contributor to businesses failing. Retentions and part payments also take up considerable time
and energy to pursue, as subcontractors must actively chase contractors in order to receive the money they are
owed. Sometimes the only way to recover the payment is through an expensive legal process—a process that
many small businesses simply cannot afford, not to mention a waste of valuable time that specialist companies
could otherwise be putting into growing their businesses. In short, these practices are extremely harmful to
many businesses. Below is a small selection of comments from NFRC members on the impact poor payment
practices:
‘Late payments delay us from paying our supply chain on time and prevent growth of the business.
Retentions are an archaic way of ensuring that a contractor returns to site at the end of the defects
liability period to carry out any remedial work that may be required and should be replaced by other
methods which are more secure and readily available in the current market.’
‘Retentions are a perennial problem, soaking up time and resources to pursue, as well as tying up vital
cash that could be used to grow the business. In our case approximately 40% of the net asset value of
our business is held up in retentions.’
‘Retentions are one of the biggest problems we face; margins are so low, that often retentions tie up a
significant proportion of profit again hindering growth and reinvestment.’
‘Some contractors use queries on small amounts/items to delay payment of large invoices.’
7. The Government must do more to address these practices and mitigate their impacts on all businesses.
Retentions are easily tackled by schemes such as bonds, warranties and project bank accounts, which may be
adopted in the future by the Scottish Government as part of its new procurement policy. ‘Insurance Backed
Guarantees’ are another alternative, which protect a contractor should a supplying subcontractor cease to trade
or is unable to complete the work or honour the contract. However, the offer of insurance is rarely taken up
by contractors, despite only increasing the price of a project by around 1%. Despite the existence of many
alternate methods of protection, the use of retentions has not decreased.
8. The steps taken to date, such as the introduction of specific payment terms on construction projects down
to the first 3 tiers of suppliers, and the use of Project Bank Accounts and BACS payments, are all positive steps.
However, the lack of policing and monitoring of these payment systems has prevented their intended aims from
being fully realised, with late payment still widely practiced.
9. The first action delivered under the Industrial Strategy: Construction 2025 is the new Construction
Supply Chain Payment Charter, which was published on 22 April 2014. Developed by the Institute of Credit
Management (ICM) and endorsed by the Construction Leadership Council (CLC), the charter sets out the
industry’s ambition for 30 day payment terms and no retention by 2025. This is severely lacking in ambition.
The problems caused by retentions could be fixed relatively simply (as outlined above), without requiring
another 11 years. NFRC members are in full agreement about the how payments should work. Payment, in full,
should always be cleared 30 days from billing.
10. The major step forward is on private sector projects with a commitment to payment terms of 60 days from
April 2014, 45 days from June 2015 and 30 days from January 2018. The existing public sector commitment
of 30 days is embedded within the Charter and will apply to all central Government and wider public sector
projects in line with the Late Payment of Commercial Debts Regulations 2013.
11. The Charter requires that cash retention is either not withheld at all or that any arrangements for retention
with the supply chain are no more stringent than those implemented by the client in the Tier 1 contract.
12. While this is a positive and welcome step forward towards ending poor payment practices in the
construction industry, it is a small one. By the terms of the Charter, SMEs will still have to wait four years
until they will be promised payment within 30 days. There is also a risk that Government policy could change
following the 2015 General Election and the Charter’s timescale could be put back further, or even cancelled
entirely.
13. In this regard it lacks ambition, as there is no real reason that prevents contractors from paying on
time now. The Charter also remains a voluntary agreement, with no policing or penalties in place, and thus is
ineffective. A simple spot check of companies all the way through the chain could be enough to ensure that the
Charter is being adhered to.
14. Most NFRC members do believe that a requirement for companies to publish information about their
payment practices and policies could make a difference to the culture of late payments. Two stipulations would
be needed to make this successful, though. Firstly, the requirement must be enforceable. If their payment
terms are conditions are not already publicly available, large contractors are unlikely to begin disclosing this
information without being legally compelled to. Secondly, this information would need to be readily available
to subcontractors and other businesses that would wish to use this information to make choices about who
Small Business, Enterprise and Employment Bill: Written evidence 117
they work with. One NFRC member suggested that this could be achieved by having the information for all
companies available at a single point, like a dedicated website.
Government procurement
15. Government itself needs to take the lead in improving payment practices. Currently, ‘Some of the worst
offenders are main contractors working on government funding projects’, one NRFC member argued. Recent
statistics add weight to this assertion. The Government has made payment within 30 days down to the third tier
of the supply chain a requirement on all central Government contracts, with central government departments
aiming to pay 80% of undisputed invoices in five days. While Government departments are, on the whole,
prompt at paying their main contractors, they act no further to ensure that full payment reaches the bottom
of the supply chain in a timely manner. The latest figures from the National Specialist Contractors Council
(NSCC) show that in the first quarter of 2014, of the 44% of Specialist Contractors that carried out public
sector work, only 72% of these contracts were paid within 30 days. In the industry as a whole:
——
——
——
——
63% of SMEs received payment between 30 and 60 days
23% were paid between 60 and 90 days
Only 14% had their payments delivered within 30 days.
16. In Q4 2013, 77% of subcontractors surveyed by the National Specialist Contractors Council had
monies withheld against them in retentions at an average of £121,283 per SME. Of these, 26% of all
retention monies withheld from Specialist Contractors were overdue for release, which take a great
deal of time, effort and expense on the part of subcontractors to reclaim. Only 55% of Specialist
Contractors report recovering all retentions. Of the remaining respondents, on average, 30% of
outstanding retentions are written off as bad debts.
17. Government should be setting the standards of best practice through its own procurement. A contractor’s
history of compliance with payments terms should be used as a way of vetting all those contracted to do
Government work. If the suggested requirement for companies to publish payment practices and policies goes
ahead, Government should use this information just as any sub-contractor would—to make informed decisions
about which businesses they will choose to work with.
October 2014
Written evidence submitted by Robert May (SB 42)
SMALL BUSINESS, ENTERPRISE & EMPLOYMENT BILL: “NO WORSE OFF”
This letter comments on the sections of the Bill relating to the pub industry. It expresses my own views,
concerns and opinions, and should not be taken as a representation on behalf of Enterprise Inns plc, or of the
RICS.
1. Curriculum Vitae
a. I am Robert May. I hold a Master’s degree in Land Economy and I am a Fellow of the RICS.
b. I have worked as a pub property manager and property director undertaking, inter alia, pub asset and
rental valuations since 1979, mostly employed by pub companies. I was self-employed between 2004 and the
end of 2006 acting for both publicans and pub companies.
c. I was a member of the RICS trade-related property group (TRPG) between about 1996 and 2013. This
group sets valuation standards for all RICS members specialising in all property types where the assessment
of open market value relies upon an understanding of the trading potential of each site. This includes hotels,
nightclubs, casinos, golf, garden centres, care homes, some restaurants and other specialist property types, as
well as pubs. I chaired the TRPG between 2000 and 2009 and served on the Valuation Standards Board of the
RICS (VSB) for that same period. The VSB sets and monitors the standards for RICS members undertaking
all real property valuations worldwide. The scope of that Board has recently been extended to include going
concern Business Valuations as well as Real Property Valuations.
d. I am currently employed as National Rent Controller of Enterprise Inns plc.
2. RICS Pubs Working Party
a. After the 2009 BISC report the RICS convened a special working party to review RICS Guidance for
valuers undertaking pub valuations in the UK. I was a member of that working party, alongside a wide crosssection of pub valuers acting for or working for both pub companies and pub lessees/operators. The membership
included campaigners and representatives of campaigning groups; notably Simon Clarke, David Morgan and
Garry Mallen.
b. The group completely rewrote previous RICS guidance and the wording of a new Guidance Note was
agreed unanimously. It was published in December 2010 as RICS GN67/2010 “The capital and rental valuation
118 Small Business, Enterprise and Employment Bill: Written evidence
of public houses, bars, restaurants and nightclubs in England and Wales”. Its status as RICS Guidance is
strongly advisory but not mandatory. If a member departs from this guidance and is then subject to an allegation
of negligence the member will need to explain why they decided not to adopt this recommended best practice.
3. Section 36(4) of the Bill expresses a principle that “that tied pub tenants should not be worse off as a
result of any product or service tie”.
a. “Not worse off” requires a definition of what or whom “Not worse off” is measured against. I think the
draughtsman may have missed out the words “than a free of tie tenant of the same premises at a specified date”.
Those words should, in my opinion, be added to the end of this section.
b. A definition along these lines appears at 62 (1) when the Bill defines “parallel rent assessment”, but
that definition also seems to be too narrowly. It proposes that the free of tie agreement is to be on all the
same tenancy terms apart from the tie, which means that most of the tied Special Commercial or Financial
Advantages (SCORFA) differences that are written into customary tied lease and tenancy terms (not Full
Repairing, lower fixed rent cost, upward/downward rent reviews, easy exit terms, insurance, tech services,
one order/one delivery, guaranteed long-term discounts, management of operators’ legal compliance, cellar and
heating maintenance and any other contractual service ties provided by the lessor) must be assumed also to
be delivered to the hypothetical FOT operator by their commercial lessor, therefore rendering them no longer
SCORFA available only to tied tenants.
c. The commercial lessor of a free of tie lease would have no business reason to offer the free of tie lessee
any of these concessions and services. It would be irrational for them to incur these costs with no return of
value, so that form of free of tie tenancy does not exist in the open market. In a free of tie agreement the only
return on the lessor’s capital and management time will be a fixed rent with periodic rent reviews.
d. A core principle of RICS valuation practice is that the valuer does not make the market; the valuer is a
score-keeper. The valuer is expected to base his or her opinion of value on an understanding of supply and
demand in the open market, the terms of leases that are usually available in that market and the rent or capital
value evidence arising from the willing buyer and willing seller or willing lessor and willing lessee haggling
to a successful conclusion. If the Bill is intended to constrain tied pub lease rents using a formulaic adjustment
from the open market for free of tie leases it is vital that unadjusted real-life open market evidence of free of tie
rents exists. As stated at para 3(c ) above, the customary terms for free of tie pubs leases are completely armslength; including for example a full repairing liability, upward-only rent reviews, no break clauses, no ancillary
services as well as no supply tie. That is the only real-life evidence valuers will be able to assess as a basis for
comparison with tied rents.
4. Parallel Rent Assessment (PRA)
If this is intended to be a comparative assessment of the tied trading potential of the business, gross
margin, operating costs and then the split of net profit between rent and lessee net earnings, compared with an
hypothetical free of tie letting on customary free of tie lease terms, the PRA should be carried out in accordance
with International Valuation Standards and with RICS Guidance on the valuation of property by the profits
method. The latest version of the RICS Valuation—Professional Standards (“the Red Book”) was published in
January 2014 and includes sections on the valuation of Businesses and Business Interests and on Valuation of
Individual Trade Related Properties. These mandatory rules have world wide application to all RICS members.
The valuer is required to identify “Market Participants” and to understand how they would interact with the
supply of businesses and business interests available to buy or lease in the open market. The Red Book provides
two definitions that are relevant to the proposed Parallel Rent Assessment, as follows:
Personal goodwill (of the current operator)
2.9 This is the value of profit generated over and above market expectations that would be
extinguished upon sale of the trade related property, together with financial factors related specifically
to the current operator of the business, such as taxation,depreciation policy, borrowing costs and the
capital invested in the business.
Reasonably efficient operator (REO)
2.10 This is a concept where the valuer assumes that the market participants are competent operators,
acting in an efficient manner, of a business conducted on the premises. It involves estimating the
trading potential rather than adopting the actual level of trade under the existing ownership, and it
excludes personal goodwill.
5. So does the drafting of this bill propose that the actual tenant is to be no worse off, or a hypothetical
REO should be no worse off?”
a. I attach a graphical risk/reward illustration taken from evidence to the MMC during their investigations,
which remains relevant now. For this purpose, it can illustrate two issues:
—— The difference between the meaning of “no worse off” for the actual tenant and for the Reasonably
Efficient Operator
Small Business, Enterprise and Employment Bill: Written evidence 119
—— The instability of the concept of “no worse off” over time.
Actual tenant vs REO.
b. The point at which we can determine that the tied publican is no worse off than a free of tie one is the
point where the lines all cross on this graph. That assumes there is a single fair maintainable wet trade (FMT) to
be derived from the operation of the pub. Using the RICS definitions above the FMT should be the level of wet
trade achievable by a competent operator, operating in an efficient manner, which excludes personal goodwill.
c. The graphic then shows that the risk line is steeper for a free of tie operator than for a tied one. This is
because the higher expected free of tie rent is a higher fixed cost, with no instantly-variable tied “wet rent”.
When trade goes bad, the free of tie lessee reaches a higher level of break-even sooner and is therefore likely
to go bust more quickly than the tied publican, but when trade booms the free of tie lessee makes more money
than a tied publican because the latter shares some of the value of their extra volume with the pub company
landlord in the form of an increased “wet rent” as delivered tied volume grows.
d. Thus the free of tie lease package is riskier for the publican but the rewards for success can be greater. So
long as the actual publican happens to trade at the same volume as the REO, a valuer may be able to show he
or she is actually in simple terms “no worse off” because that is the point on the operating profits graph where
both the free of tie and tied trade align and from which the respective open market rental valuations will be
derived by any valuer who follows RICS guidance. But this equivalence falls apart if the actual tenant trades
above or below the assessed FMT volume:
(i) If the actual tenant sells 50 barrels per annum more than FMT, the FOT lease line climbs more steeply
than the tenanted line, showing that the extra 50 barrels will make the FOT lessee more incremental
profit than the tied lessee will. The ACTUAL tied tenant will be worse off.
(ii) If the actual tenant sells 50 barrels per annum less than FMT, the FOT lease line falls more steeply
than the tenanted line, showing that the missing 50 barrels will make the FOT lessee lose more profit
than the tied lessee will. The ACTUAL tied tenant will become better off than FOT when beer volume
shrinks (which is the long-term on-trade beer market trend). This supports the London Economics
Report (December 2013) conclusion that this intervention is likely to make the tied model in a declining
on-trade beer market too risky for the pub companies to continue with it. See page 13 of that report for
their comment:
“We do consider that a key risk to BIS in relation to this policy is exactly how such assessments will
be carried out in a transparent way that is not overly reliant on assumptions that may not materialise
or change over time.”
The instability of “no worse off” over time.
e. Let’s assume that the crossing point in the attached graph is a fair maintainable beer and cider volume
of 200 barrels as at September 2014. Then assume that this was supported by off-invoice discounts of £60 per
barrel from the pub company. In order to enhance earnings for both parties the pub company agrees to increase
discounts to £120 per barrel so that the tied publican can promote certain brands of beer to his customers at a
lower price in order to increase volume, and the end result is that by Sept 2015 the actual volume has grown
to 250 barrels. Is the tied tenant still no worse off? We can’t tell because, although the tied tenant has £3000pa
more net income (50 barrels x £60 more tied discount) from the pub company, how much did he pass on to
the customers as lower prices? Would the hypothetical free of tie lessee of the same pub also have reduced the
retail prices in order to gain an extra 50 barrels of throughput and would his or her free trade suppliers have
reduced their beer prices in order to part fund it?
6. RICS Guidance on “No worse off”
a. The RICS Pubs Working Party (see 2 above) addressed this point at para 7.21 of the Guidance as follows:
“Comparability between public houses held on different lease terms and with different supply terms is
problematic, particularly between the tied and non-tied sectors. There is nothing within this guidance
that should result in rents in one sector being set at any advantage or disadvantage to another. In
arriving at a market rental value, it is preferable for analysis to be made of transactions relating to
similar properties with similar lease terms. Indeed the efficiency of the market relies on transparent
market evidence.”
b. This follows the decision of Hughes J in Chancery in the case of Brooker v Unique Pub Properties (2009)
but remains open to further judicial interpretation. This was the only way the RICS working group was able to
reach unanimity.
c. Most practising valuers would understand this to mean that, if there is a plentiful supply of both tied and
free of tie pubs to let or to buy on assignment, the bids made by well-advised prospective pub lessees will
reflect all the features and benefits of each package in their rental bids. It does not assume that the Dog & Duck
is available on either free or tied lease terms; rather this assumes that active bidders would assess available tied
terms for the Dog & Duck against the available free of tie terms for the Hare & Hounds and choose the one
that gives each bidder what they see as the best overall deal for them. Thus if any tied pub company is asking
120 Small Business, Enterprise and Employment Bill: Written evidence
too much rent with too little drinks price margin their pubs will remain un-let because they will have priced
themselves out of the market. Alternatively if a pub company offers their pubs at very cheap rents it is likely
that competitive bidding for those “bargain pubs” will push the final agreed rent up to the general market level.
d. The existence of a tied pubs code of practice is just one of benefits of a tied lease as compared to a free
of tie lease, and the more onerous the terms of such a code the closer the tied rent should come to the free of
tie rental valuation. In theory, an exceptionally onerous tied code could make tied leasing so advantageous for
publicans that a tied rent would exceed the free of tie rent.
7. Conclusion
I conclude by suggesting that if it is intended that the Adjudicator should follow RICS Guidance on the
valuation of pub rents the evidence of open market transactions, especially new lettings of both tied and free
of tie pubs, the Adjudicator need only evaluate the available open market evidence to establish whether the
tied rents that existing tied lessees pay are “fair”. I suggest that there is no need for any formulaic comparative
assessment which tries to break down the overall difference between tied and free of tie pub leases into the
multiplicity of their differences. I think there are simply too many moving parts for such an exercise to be
practical or fruitful.
September 2014
Written evidence submitted by the International Financial Centres Forum (SB 43)
1. Introduction
1.1 The International Financial Centres Forum (“the Forum”) is a member-funded, not-for-profit organisation.
The Forum advocates responsible cross-border financial intermediation in support of trade and investment as a
means of promoting economic growth and enhancing development prospects. Members of the Forum include
professional service firms and businesses headquartered in Bermuda, the British Virgin Islands (BVI), the
Cayman Islands, Guernsey and Jersey with offices in a number of the other leading IFCs.58
1.2 The Forum notes the UK’s G8 Action Plan published on 18 June 2013, in which the UK commits to
introducing new rules requiring private companies to obtain and hold “adequate, accurate and current”
information on who owns and controls them and to implement a central registry of company beneficial
ownership maintained by Companies House. It also notes draft legislation on company transparency and filing
requirements contained in the Small Business, Enterprise and Employment Bill published on 25 June 2014.
1.3 We note G8 and G20 policy provides that tax, regulatory and law enforcement agencies should have
access to complete and (critically) accurate information in a timely fashion and be able to disseminate the data
internationally through recognised gateways. We accordingly support United Kingdom efforts to develop an
effective system to track beneficial ownership of companies. All else, including a public register of beneficial
ownership, is essentially collateral.
1.4 Forum member firms are in jurisdictions which have substantially implemented corporate transparency
standards promulgated by the Financial Action Task Force (FATF) and accordingly have relevant experience
with corporate transparency protocols and an interest in UK efforts to ensure that such standards are applied in
the UK and globally.
1.5 The Forum has been engaged in the UK consultation process including meeting with Dr Vince Cable
and his officials bilaterally. We attach our correspondence with Dr Cable as Appendix A59 and suggest review
of IFC Forum’s letter dated 30 September 2014 which includes submissions designed to make UK plans
more effective. We have also participated in Department of Business Innovation and Skills (BIS) roundtable
discussions and provided a submission dated 16 September 2013 to the BIS consultation on Transparency and
Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business (the “BIS
Consultation”) (submission attached as Appendix B).60 We have also liaised with HMT and the Cabinet Office
dating back to meetings in advance of the G8 meeting in June 2013.
1.6 The Forum has also discussed beneficial ownership registers with the European Commission, White
House officials and US Secretaries of State (responsible for company supervision in the US). We also liaise
regularly with governments in British offshore centres in respect of corporate data tracking policy.
1.7 The Forum welcomes the opportunity to submit comments to the House of Commons Public Bill
Committee on the Bill. Given Forum member experience, comments focus on part VII of the Bill relating to
company transparency.
Members are professional services firms and financial institutions including Appleby, Attride-Stirling & Woloniecki (ASW),
Bedell Group, Butterfield Group, Conyers Dill & Pearman, Harneys, Maples and Calder, Mourant Ozannes, Ogier, Rawlinson
& Hunter and Walkers. The Forum is advised by Canadian and international lawyers Stikeman Elliott (London) LLP and public
affairs agency Lansons.
59 Not published
60 Not published
58 Small Business, Enterprise and Employment Bill: Written evidence 121
2. Summary
2.1 UK proposals for a model urged by NGOs has led to a confused plan to publish asset ownership by law
abiding persons at the expense of accurate data collection to expose the dishonest. The failure of the UK model
to meet the core FATF requirements in the most effective manner means it has little or no prospect of gaining
traction as an international standard. As the UK has claimed leadership in this area, others not sharing in the
approach would be visible and therefore politically embarrassing. We urge you to reconsider the defective selfreporting model proposed by the Bill.
2.2 Third party verification is required to meet FATF objectives but provision for this is absent in the Bill.
2.3 Public registers are unprecedented and not required by the FATF. Furthermore, public registers are likely
to be counterproductive in securing information for law enforcement purposes as they may degrade reporting
candour.
2.4 UK proposals are likely to impair investment appetite for the UK particularly from strategically important
investors in China and other emerging markets. Publication of asset ownership is anathema to such investors
from both a business and cultural perspective.
2.5 Proposals are very costly for business. The Impact Assessment that accompanied the Bill estimated costs
at nearly £1.1bn with only £2m of that cost allocated to government.
2.6 Public registers are a poor allocation of resources. The Impact Assessment estimates benefits at £0 given
“little quantified data about the benefits resulting from this policy proposal”.
2.7 UK proposals are unlikely to produce benefit for the business community which is frequently cited to
justify data publication (we note the survey conducted for BIS reported in the Impact Assessment showing that
“only 10% of respondents indicated that the proposed reform would ensure they know with whom they are
doing
business”—https://www.gov.uk/government/publications/company-ownership-transparency-and-trustimpact-assessments).
2.8 We recommend that:
2.8.1data verification be conducted by third parties subject to government supervision as foreshadowed in
paragraph 6 of the UK G8 Action Plan;
2.8.2the UK examine other alternative models for data collection including the regulated corporate service
provider regime that has operated in the British Crown Dependencies and Overseas Territories for more
than a decade and is regarded by the World Bank as the most effective approach;
2.8.3the requirement to publish beneficial ownership data be removed from Part VIII of the Bill. This is
inconsistent with Part VII of the Bill which provides that beneficial ownership information be available
at the registered office only upon showing of proper purpose. If this is not accepted, we would propose
that provisions requiring publication are not made operational until after the report on the functioning
of the PSC regime from the Secretary of State (within 3 years, pursuant to section 71 of the Bill); and
2.8.4the UK drop plans to make ownership information available at the registered office. Should that
proposal not find favour we propose to shift the burden of taking court action when a request for
information is declined, from the company to the requesting party.
3. Impact on UK Competitiveness and Foreign Investment
3.1 The UK aims to be the most appealing investment destination in G7. In particular, it seeks to attract
business from strategically important emerging markets, including China. Publication of asset ownership is
anathema to such investors from both a business and cultural perspective. UK proposals for publication of asset
ownership will be seen as disproportionate and will materially damage UK efforts to attract such investment.
3.2 Of the approximately 300 responses to the BIS Consultation, a significant number raised concerns about
its impact on the competitiveness of affected firms and its impact on, inward investment. The Forum shares
these concerns.
4. Cost/Benefit
4.1 Recent policy direction in the UK and international companies legislation has sought to reduce the
administrative burden imposed on business. Benefits of new regulations must be properly balanced against
compliance costs for UK business.
4.2 The Final Stage Impact Assessment (IA) prepared by the Department for Business, Innovation and Skills
estimates costs of the collection and publication of beneficial ownership data at £1088.2 million. Benefits are
estimated at £0 given “little quantified data about the benefits resulting from this policy proposal” (paragraph
104). As to the intended benefit to the business community, paragraph 106 of the IA notes a survey
conducted for BIS disclosing that “only 10% of respondents indicated that the proposed reform would
ensure they know with whom they are doing business”.
4.3 The IA conclusions proceed from the usual (but implausible) assumption of 100% compliance. Persons
establishing a company for criminal purposes will not self-report fully and accurately to a corporate registrar
122 Small Business, Enterprise and Employment Bill: Written evidence
with little effective enforcement capability. If the system is to be made fit for purpose costs already forecast at
nearly £1.1bn will need to rise significantly to include proper means for third party verification.
4.4 Registered ownership is simple, empirical and easily ascertained. Determining beneficial ownership or
persons with significant control, by contrast, is not so. Assume, for example, two persons own shares in a
company which together exceed a 25% interest. They usually vote those shares similarly, but are not obliged
to do so. Should each shareholder be seen as holding a disclosable shareholding, or not? Costly expert input
will be invariably be required to properly comply in any complex situation. Even investors not deterred by
UK plans to create a national public register of their assets in this country will baulk at the extra cost and time
imposed by the proposed regime.
4.5 The vast majority of UK businesses are compliant. Dishonest persons and criminals are unlikely to
self-report accurately ownership of companies established for fraudulent purposes. The plan will result in
substantially increased costs (quantified in the IA at nearly £1.1bn borne by compliant business with little
improvement in the behaviour it is actually intended to address. Furthermore, making the register public could
in fact mislead investors and stakeholders if data provided is inaccurate.
5. Global Adoption of UK Plans Unlikely
5.1 We agree with the comments made in the research paper prepared by the House of Commons Library on
the Bill dated 10 July 2014 that “[i]t is generally accepted that any commitment to improve the transparency of
ownership and control of corporations, if it is to be effective, needs to be a worldwide effort.” 61
5.2 No public registry of beneficial ownership data yet exists anywhere. To date, only one other G8 country
(France) has committed to the establishment of public registers.
5.3 There are a number of overlapping and potentially duplicative initiatives underway on collection and
access to beneficial ownership data. At this stage there are no settled outcomes on any of the plans. Key
initiatives, outlined in summary form in Appendix C,62 include:
—— UK proposals for a public central register of beneficial ownership;
—— EU plans in the context of the 4th Anti-Money Laundering Directive;
—— FATCA and the OECD Common Reporting Standard (CRS);
—— US proposals for data collection through the IRS; and
—— FATF guidance regarding recommendations 24 and 25.
5.4 European Union policy on beneficial ownership registers is split. The EU Parliament favours beneficial
ownership data readily accessible by the general public. However, the EU Commission seeks to ensure that EU
Parliamentary proposals comply with EU data protection standards by restricting register access to governments
and “obliged entities” where permitted at national level. The EU outcome is yet to be determined. A briefing on
the EU position is attached as Appendix D.63
5.5 Current US proposals do not contemplate public registers of beneficial ownership.
5.6 FATCA and the OECD CRS program will lead to bank verified identity data and financial accounts,
exchanged annually. For government purposes, at least, plans for registers of beneficial ownership are arguably
now superseded by the FATCA and CRS projects.
6. Establishing a UK System Fit For Purpose
6.1 The main purpose of the various international initiatives underway in this area must be that regulatory,
legal and tax enforcement agencies have access to “adequate, accurate and timely information on the beneficial
ownership and control of legal persons”, as required by FATF Recommendation 24. This requirement is widely
agreed as the international standard. All else, including a public register of beneficial ownership, is essentially
collateral.
6.2 UK proposals are inferior to the corporate service provider model deployed in the Crown Dependencies
and Overseas Territories. Any moves to replace those systems with the UK model would degrade current
standards in the British offshore centres.
6.3 Systematic verification: an effective mechanism for verification of data is essential to ensure the key
objective of collection of accurate data is met. The UK suggested regime is based upon “self-reporting”. There
is no provision for verification of data, omitting a basic requirement for an effective system. Penalties and
public scrutiny will not achieve accuracy for reasons as follows:
—— the notion of separate interests between company and shareholder (which underpins the proposed
model) does not exist, as a practical matter, in most private companies;
House of Commons Library research paper 14/39 on Small Business, Enterprise and Employment Bill (Bill 11 of 2014/15) dated
10 July 2014 at page 55.
62 Not published
63 Not published
61 Small Business, Enterprise and Employment Bill: Written evidence 123
—— the criminally minded will not be deterred by the prospect of additional penalties arising from a failure
to self-declare their dishonest activity; and
—— sporadic error spotting by the general public has no prospect of being regarded by FATF as a credible
means of discharging the obligation to collect accurate data.
6.4 Exemption for Foreign Entities: The Impact Assessment accompanying the Bill indicates it is not
intended to include “foreign entities” in scope. This will undermine the policy objective of the UK draft
legislation by permitting persons to carry on business in the UK with a full branch presence of a foreign (e.g.
US) corporation with no disclosure obligations in the UK. It will prompt a migration from UK to foreign
companies for investment in the UK. US, Hong Kong and Singapore companies are all substantially free of tax
in their home jurisdictions where used for international investment.
7. The Regulated “Gatekeeper” Approach
7.1 The British offshore centres operate a model which provides for systematic verification of beneficial
ownership for companies and trusts (in accordance with FATF requirements) by regulated and supervised
corporate service providers (CSPs) and have done so for over a decade. A briefing on the CSP regime is
attached as Appendix E.64
7.2 The Forum does not represent this system as infallible. However, it is regarded by the World Bank and
other expert studies as the best means of collecting accurate data on beneficial owners. The table attached as
Appendix F65 confirms that, in practice, this system has led to world leading compliance levels by our member
jurisdictions with FATF requirements.66
7.3 Article 29 of the proposed EU Council model (available at register.consilium.europa.eu/.../srv?l...
f=ST%2010970%202014%20INI) appears to accommodate this regime.
7.4 The UK G8 Action Plan67 tabled at the conclusion of the Lough Erne Summit promised review of the
supervision of CSPs. We understand there is an intention to look at the regimes in place in other jurisdictions.
The Forum has urged this in meetings with HMT and BIS from an early stage and welcomes this plan. As
the Bill has already been drafted and has gone though second reading, we question how this plan will be
accommodated in the current process?
7.5 The Forum notes plans for this to be considered as a part of the National Risk Assessment. We have
pursued this point assiduously in dialogue with all of HMT, BIS and HMRC. Our inquiries have generated
concern that the reference to the NRA process reflects a government desire to skirt or defer the Action Plan
commitment so as to shift (nearly) the full cost of data collection to the private sector. If the UK is to implement
a credible system to collect accurate data, HMG must resource the process with more than the minimal £2m
forecast in the IA. The £1.1bn cost must be properly shared between public and private sector else the entire
investment will produce a model that no responsible jurisdiction could adopt.
7.6 The Forum encourages consideration by the UK and other jurisdictions of a model which includes
provision for data verification, and comprehensive application. Forum members have considerable experience
in this area and would be happy to contribute to the development of an effective model.
8. Public Access: Does it Help or Hamper UK Objectives?
8.1 We note the intention to make data public which PM Cameron has acknowledged is unprecedented
internationally. Making the data public is not required for law and tax enforcement purposes and may even
be counterproductive degrading candour and data accuracy. Shareholder and private sector confidence in data
integrity and safety underpins truthfulness required in reporting information to government authorities. In the
tax context, the OECD describes data security as a “cornerstone” of tax systems:
Confidentiality of taxpayer information has always been a fundamental cornerstone of tax systems.
In order to have confidence in their tax system and comply with their obligations under the law,
taxpayers need to have confidence that the often sensitive financial information is not disclosed
inappropriately, whether intentionally or by accident.68
Not published
Not published
66 Professor Jason Sharman, co-author of the World Bank “Puppet Masters” report (the leading global study on shareholder data
collection) worked with two other academics to empirically test the effectiveness of the three approaches identified by the OECD,
including strong investigative powers, data tracking in corporate registries (as proposed by the UK) and collection by corporate
service provider. He concluded as follows: “the first two suggestions [investigative powers and corporate registries] are not
feasible and in practice corporate service providers afford the only reliable (though certainly not infallible) route to the real
owner.” Michael G. Findley, Daniel L. Nielson and J.C. Sharman, Global Shell Games: Experiments in Transnational Relations,
Crime, and Terrorism, Cambridge Studies in International Relations, 2014, p. 45.
67 UK Action Plan to prevent misuse of companies and legal arrangements, Published 18 June 2013. See https://www.gov.uk/
government/publications/uk-action-plan-to-prevent-misuse-of-companies-and-legal-arrangements/uk-action-plan-to-preventmisuse-of-companies-and-legal-arrangements, Point 6.
68 See “OECD Guide on the Protection of Confidentiality of Information Exchanged for Tax Purposes”, 2012, p.5.
64 65 124 Small Business, Enterprise and Employment Bill: Written evidence
8.2 Public registration of share ownership amounts to public registration of ownership of substantive
assets given the widespread use of the corporate form to hold assets. A public register is unnecessary and a
disproportionate intrusion on an individual’s right to privacy. Some examples of the Forum’s concerns:
—— information collected may be exploited by criminals, particularly those engaged in identity theft and
cybercrime;
—— individuals or extremist groups may object to legitimate business activity making the beneficial
owners targets; and
—— privacy may be sought by companies seeking to invest in possible acquisition targets or by investors
concerned their interest in a company may trigger market speculation.
9. Proposed Amendments to the Bill
9.1 The Forum has considered amendments to the Bill and recommends:
9.1.1Public filing of PSC Data in the Corporate Registry (Part VIII of the Bill): We propose deletion
of 853I in section 80 (part VIII of the Bill) which requires public filing of persons with significant
control in the corporate register together with consequential changes. This provision is puzzling given
Part VII of the Bill ensures that access is, at minimum, limited to those with a “proper purpose”. If this
is not accepted, we suggest that the requirement for public filing is not operational until Parliament
receives the report on the functioning of the PSC regime from the Secretary of State (within 3 years,
pursuant to section 71 of the Bill). This will allow time to determine if the UK system is operating
properly before data is made public and gauge prospects for a level playing field (to better assess UK
competitive concerns).
9.1.2Requests for share ownership data from the registered office (Part VII of the Bill): We also
recommend that the UK drop plans to make ownership information available at the registered office.
Public disclosure of beneficial ownership is not required by FATF or other international standards. We
also note that the Final Stage Impact Assessment for the Bill notes (at paragraph 106) that “only 10%
of respondents indicated that the proposed reform would ensure they know with whom they are doing
business”, so the “transparency” benefits promoted by the NGOs are not valued by business interests
and disproportionately outweighed by privacy concerns.
Should that proposal not find favour given the political intentions already announced, we propose to
shift the burden of taking court action when a request for information is declined, from the company
to the requesting party, on the basis that the company is required to have regard to whether the request
is founded on a “proper purpose”, a term which is not defined in the legislation. Also, a five day
period is too short for an application to the court in the event of refusal; if the company carries the
burden of application to the court it would need to proceed to their solicitors nearly immediately on
receipt of a request if it is to be declined.
The IFC Forum thanks the House of Commons Public Bill Committee for the opportunity to comment and
would be happy to meet to discuss these comments. Please direct any questions to IFC Forum counsel, Richard
Hay at [email protected] or 020 7367 0189.
Written evidence submitted by the Institute of Chartered Accountants for England and Wales (ICAEW)
(SB 44)
This ICAEW submission concerns the access to finance (part 1), company law provisions of the Bill (parts
7-8) and insolvency provisions (part 10).
About us
ICAEW is a world leading professional membership organisation that promotes, develops and supports over
142,000 chartered accountants worldwide. Our members provide financial knowledge and guidance based on
the highest profession, technical and ethical standards.
ICAEW is the largest single insolvency regulator in the UK licensing some 750 of the UK’s 1,700 insolvency
practitioners as a Recognised Professional Body (RPB).
Overview
1. We are focusing on areas of the Bill which we consider to be particularly problematic but, we note that
there are positive aspects of the Bill too. For instance, it addresses issues that have long been of concern in
relation to registered office disputes and statements of capital. We support the abolition of bearer shares. We
also welcome the deregulatory aspects of the Bill, measures to reduce red tape and barriers to business. But
we are concerned that a number of the clauses outlined in the Bill will place further regulatory burdens on
business, particularly SMEs.
2. The UK is rated 7 out of 189 countries by the World Bank and International Finance Corporation’s ‘Doing
Business’ survey at resolving insolvency. It’s important that these measures don’t affect the UK’s reputation
Small Business, Enterprise and Employment Bill: Written evidence 125
as being a good place to do business. We are concerned about some of the new powers being introduced, but
support the measures to improve the efficiency of insolvency processes.
Access to Finance, Clause 4—Provision of credit information on small and medium sized businesses
3. The chosen route for delivering finance rejected SMEs to alternative lenders is via competing internet
platforms. These platforms would be expected to ensure SMEs understand the landscape of finance available.
Our concerns with this proposed method of accessing finance are:
—— If the platform has commercial objectives they may find it difficult to provide a balanced,
objective assessment of all the competing finance options and which is best for a particular SME.
—— SMEs may get false re-assurance that this is a government scheme and therefore assume that any
approach from a finance provider will be legitimate and appropriate.
ICAEW recommendation
4. We recommend that ‘finance rejected’ SMEs require advice before finance from independent advisors
before being channelled to alternative lenders. As a result of appropriate financial advice, SMEs who have been
rejected for finance can become ‘finance ready’. This will also allow banks and new investors to more easily
find ‘finance ready’ SMEs, avoiding the need for multiple credit checks as well as SMEs responding to multiple
enquiries.
Clauses 70-72, sch 3—registration and disclosure of persons with significant control
Proposals to make registered information public
5. We do not believe the proposed public disclosure regime will meet its objective of reducing crime in
the UK and the suggestion that it will increase trust is unsubstantiated. However, it could increase the risk of
identity theft of individuals and companies, and decrease investment in UK companies.
6. The public registers may not be accurate. It is not proposed that Companies House (CH) will verify the
information and given the complexities, even where companies conscientiously seek to comply with the law,
there may be errors. The AML regulated sector will not be able to rely upon the information given.
7. The new laws leave a significant loophole. Unless the rest of the world adopts the same approach,
criminals, who control companies but still want to keep their name and details hidden, will be able to use a
foreign company and still operate in the UK through a branch because the new powers do not extend to foreign
companies doing business in the UK. This adds a significant layer of red tape for SMEs and individuals that are
law abiding, but does not eliminate the problem.
8. The disclosure regime could deter law abiding citizens from investing in the UK if they want to keep
their investments private. This could have a negative impact on the UK’s economy as this requirement is not
expected of investors anywhere else in the world, including other G7 nations.
9. Information on significant controllers on the company registers kept by the company and CH should
be kept confidential and only accessed by law enforcement agencies and the AML regulated sector where
appropriate. Making it public will not stop criminal activity and could even make identity theft easier.
10. Closing gaps in the existing anti-money laundering (AML) regime by requiring AML check on those
establishing companies at Companies House could prohibit criminal activity more effectively than making
registered information public.
Clauses 70-72 will produce complex regulation, will be costly to apply and risk criminalising simple mistakes.
Why?
11. It is not always easy or straightforward for directors to know who meets the definitions of ‘significant
controller’. For complex cases, the cost of seeking advice could be substantial, especially when a company has
many connected shareholders or layers of holdings. Breaching these requirements could criminalise business
owners who are not involved in any unlawful activity for inadvertent error.
12. The significant controller provisions mainly affect small and medium-sized private companies (e.g.
family companies) because companies with existing disclosure requirements, such as public companies
listed on the London Stock Exchange, are excluded. This therefore places a burden on the very sector that
Government is looking to for growth.
13. Unless the 4th Money Laundering Directive imposes equivalent public disclosure requirements
and penalties for non-compliance across the EU, the UK requirements will constitute ‘gold plating’ of EU
regulation.
126 Small Business, Enterprise and Employment Bill: Written evidence
ICAEW recommendations
14. Information on significant controllers on the company registers kept by the company and CH should
be kept confidential and only accessed by law enforcement agencies and the AML regulated sector where
appropriate. Making it public will not stop criminal activity and could even make identity theft easier
15. Closing gaps in the existing anti-money laundering (AML) regime by requiring AML check on those
establishing companies at Companies House could prohibit criminal activity more effectively than making
registered information public.
16. Amend the commencement clause (148) to postpone implementation of these proposals until after the
4th Money Laundering Directive has been finalised and it is clear if the proposals in this Bill are in line with
international requirements or represent ‘gold plating’.
17. We recommend the requirements of companies be explained more simply so it can be understood easily.
Many SMEs are often operated by families who may need to seek professional advice to understand the
complex provisions, so adding to the costs of enterprise in this sector.
18. We recommend that an offence is only committed when a person dishonestly or knowingly breaches the
law and the breach is connected to a crime.
Clauses 82, sch 5—Option for companies to keep information on central register
The proposals give companies the choice to keep their registers at Companies House
19. The provisions which will give companies a new option to maintain their registers at CH may not,
increase transparency or reduce red tape and we have concerns over the role CH will play in this process. Why?
20. If a person is looking for information about a company over a period of time they may need to look at
both CH and the company registers, depending on when and how often the company exercises the option.
21. The new laws do not make it clear whether CH will verify and reorganise information filed to create
the traditional type of ‘value added’ registers that are currently provided by private sector registrars. If so, this
would constitute unfair competition with the private sector which currently provides services of this kind. If
not, the central register would be less useful for persons seeking information as the traditional register would
no longer be kept.
ICAEW recommendation
22. The government should provide clarification over what role CH will play and if it will be expected to
reorganise the information filed into a ‘value added’ register Government should publish details of the extra
resource to be provided to CH to do so and publish legal advice it has obtained that the regime would not result
in unfair competition.
Clauses 110 and 111—Abolition of requirements to hold meetings
This proposal removes the ability for Insolvency Practitioners (IPs) to convene creditors’ meetings
23. We believe this is an extreme, cost saving measure that contradicts the government’s aim to engage
creditors with the insolvency process. Why?
24. IPs should maintain the professional judgement and discretion to convene physical meetings where they
feel it’s appropriate. Creditor engagement is essential to maintain a transparent, fair and trusted insolvency
regime. Creditors make significant decisions at these meetings, which can involve substantial sums of money.
Holding this kind of meeting virtually, as the bill sets out, is likely to be inappropriate in a complex insolvency
case.
ICAEW recommendation
25. Amend clauses 110 and 111—physical meetings should not be the default approach but IPs must
have the power and ability to call meetings of creditors where they consider it in creditors’ best interests.
IPs should be able to justify why they considered it necessary—this should be reviewed by their RPB on
monitoring visits.
Clause 127—Oversight of recognised professional bodies (RPBs)
This proposal gives the Secretary of State the power issue directions to an RPB; this could be a direction
to investigate individual Insolvency Practitioners or to compel an RPB to change its rules
26. We believe this power is too far reaching, undermines the independence of the regulatory procedure and
risks politicising regulation. Why?
27. This clause allows the SoS not only to require investigations, but direct IPs to take action—whether it is
a public interest case or not. There is no systemic failure in the insolvency regime that justifies these measures.
Small Business, Enterprise and Employment Bill: Written evidence 127
This proposal could undermine the independence of the procedure and enable the SoS to pursue a political
agenda. In our view, the system of regulation works best when the oversight regulator and the RPBs work
together, as demonstrated through the introduction of the complaints gateway.
28. A change to an RPB’s rules directed by the Insolvency Service could be contrary to the regulatory
objectives of another regulator, creating confusion. All but one RPB are subject to oversight of other bodies
such as FRC, LSB, FCA, and IAASA, so this could undermine the fairness of the system.
ICAEW recommendation
29. Remove clause 127—it will not improve the regulatory system. If this clause is implemented, the
government must provide more detail and clarification to RPBs and insolvency practitioners on what
circumstances it would issue a direction to RPB. Also, being able to identify which regulator has priority is
important.
Clause 129—Court sanction of insolvency practitioners in public interest cases
We believe this clause causes regulatory confusion, has substantial cost implications and does not explain
what constitutes a public interest case
30. We have concerns about the Insolvency Service potentially taking on complaints which affect the public
interest. The proposals would see the Insolvency Service being investigator, prosecutor and judge. There seems
to be no provision for a fair trial by independent tribunal.
31. The lack of definition on what a public interest case is could create conflict and confusion with another
oversight regulator that might want to get involved and use their investigatory powers in a public interest
context. For instance, the Financial Reporting Council has the power to get involved in public interest cases if
the IP is an ICAEW member.
32. Who will bear the costs of the court case? Any cost incurred will ultimately be passed onto the consumer,
increasing the cost of insolvency cases. Court fees are likely to be charged to the RPBs, who would pass it to
their IPs, who in turn would need to increase their fees to run a commercial viable business.
ICAEW recommendation
33. Clarify clause 129: the government must explain what constitutes a public interest case and if RPBs will
be expected to shoulder the costs of court cases.
Clause 132—Power to establish single regulator of insolvency practitioners
34. We believe that the power to introduce of a single regulator could undermine confidence in the current
regime. The UK is ranked 7 out of 189 countries by the World Bank and International Finance Corporation’s
‘Doing Business’ survey at resolving insolvency. This means the UK’s insolvency system provides some of
highest rates of returns to creditors, is one of the quickest, and cheapest regimes. There is no systematic failure
that justifies the government taking this power upon itself.
35. Multiple regulators are a key driver that encourage a competitive market and raise best practice—a
single regulator would be contrary to the ‘competition goal’ which is set out elsewhere in this legislation. It
goes against the government’s commitment for independent regulation in other sectors such as legal services,
audit, and non-mainstream financial services.
ICAEW recommendation
36. Remove clause 132—multiple regulators are key to encourage a competitive market and don’t
necessarily lead to inconsistency. Ensuring there is effective oversight of those bodies is a better solution.
October 2014
Written evidence submitted by the Royal Institute of Chartered Surveyors (RICS) (SB 45)
RICS are pleased to submit our comments on the Small Business, Enterprise and Employment Bill and
Draft Statutory Code relating to the proposed Pubs Code.
RICS, as the leading professional body representing valuation and author of professional guidance on Capital
and Rental Valuation of Public Houses, Bars, Restaurants and Nightclubs in England and Wales, provides
comment, from a valuation point of view, on aspects of the Small Business, Enterprise & Employment Bill
(Part 4, The Pub’s Code Adjudicator & the Pub’s Code) and also the draft Statutory Code at Annex F. Our
advice is provided in the public interest and in relation to the valuation implications of the proposals.
128 Small Business, Enterprise and Employment Bill: Written evidence
Background Information
RICS is the leading global organisation for professionals working in real estate, land, and construction and
on related environmental issues as well as those working in the personal property and business assets sectors.
Over 120,000 RICS members, who are Chartered Surveyors, exist globally and operate out of 146 countries,
supported by an extensive network of regional offices located in every continent. RICS Headquarters is based
in London and our international work is supported by a network of regional offices and national associations.
RICS members play a vital role throughout the entire asset life cycle—from initial inspection and
measurement of real estate, through development and investment to occupation and use of physical structures
and other assets, including valuation of financial and business interests. RICS also provides impartial advice to
Governments, policymakers and non-Government organisations.
RICS is an independent professional body, which was established in 1868 and has a UK Royal Charter. It is
committed to setting and upholding the highest standards of excellence and integrity, providing impartial and
authoritative advice on key land and asset issues affecting businesses and society.
RICS is a regulator of both its individual members and firms enabling it to maintain the highest standards and
providing the basis for unparalleled client confidence in the sector.
The general ethical principles for all RICS regulated members and firms are set out in our professional and
ethical standards from which the following is an extract:
Act with integrity—Be honest and straightforward in all that you do
Always provide a high standard of service—Always ensure your client, or others to whom you have
a professional responsibility, receive the best possible advice, support or performance of the terms of
engagement you have agreed.
Act in a way that promotes trust in the profession—Act in a manner, both in your professional life and
private life, to promote you, your firm or the organisation you work for in a professional and positive
way.
Treat others with respect—Treat everyone with courtesy, politeness and respect and consider cultural
sensitivities and business practices.
Take responsibility—Be accountable for all your actions—don’t blame others if things go wrong, and
if you suspect something isn’t right, be prepared to take action.
Members of RICS are Chartered Surveyors who are qualified professionals and generally have five or six
years of both study and professional training as a minimum. Thereafter, after qualifying, they gain sector
experience in their chosen field. They are required to continue lifetime learning (continued professional
development) throughout their career. Many Chartered Surveyors have trained to a higher level in particular
specialisms.
As well as learning about legal aspects of property ownership, occupation and management, a Chartered
Surveyor is trained to analyse market transactions and, if valuation is the chosen career path, to apply such
analysis for valuation purposes. Valuation is not a formulaic process which is one of the common misconceptions
held by the layman.
RICS and Valuation Standards
The first RICS Valuation Standards were produced in 1976 and have undergone considerable expansion and
refinement through successive editions since then. The current standards and associated guidance are contained
in the publication of the “RICS Valuation—Professional Standards”, incorporating the International Valuation
Standards, which took effect on 1st January 2014. The standards are commonly known as “the Red Book”
and contain mandatory rules and best practice guidance for valuations of real estate and other assets. Whilst
an obligatory reference work for RICS members and RICS-regulated firms worldwide undertaking valuation
work, it is also widely referred to by non-RICS valuers.
The global section of the Red Book provides a broad ethical framework which can be applied to valuations
of any asset type in any jurisdiction, in harmony with national legislation and covers the following:
—— Compliance, competence, independence and ethical requirements;
—— Terms of engagement;
—— Valuation bases (global);
—— Valuation applications;
—— Investigations, inspections and verification of information; and
—— Valuation reports.
The requirements relating to application, competence, independence and objectivity are set out in Practice
Statement 2.
Small Business, Enterprise and Employment Bill: Written evidence 129
The global standards and guidance are accompanied by detailed national standards and guidance, of which
there is an extensive suite for the UK.
Public houses fall within a category of property known within the valuation profession as Trade Related
Property. This is property which has been specially built or substantially adapted for a specific use. In fact most
forms of leisure property are trade related properties. They are bought, sold or leased on the basis that it is the
trading potential that drives value, both capital and rental.
The valuation of trade related property is normally undertaken using the profits method of valuation, as
acknowledged by Valuation Practice Guidance—applications (VPGA) 4 of The Red Book, which has been in
existence for many years. Although a profits method valuation is not a formulaic calculation, it reflects a number
of inputs derived directly from property markets analysed and where appropriate adjusted by application of the
skills, knowledge and judgement of the valuer. Inter alia it has to take into account the terms of the lease, the
physical attributes of the property and the trading potential that the property offers an operator, not necessarily
that which is being achieved.
Valuation is by its very nature, subjective. It is an art, not a science. In the UK, the majority of disputes that
get referred to a third party—which is very few in both actual number and percentage of reviews undertaken
annually—usually have Chartered Surveyors acting on both sides. This clearly demonstrates how even highly
qualified, experienced valuers can have differences of opinion. It is not a matter of failure in the landlord and
tenant relationship. It is a difference of opinion on one or more of the individual aspects of the rental valuation.
For more information please visit http://www.ricsvaluation.org/
RICS Guidance Note GN 67/2010 “The capital and rental valuation of public houses, bars, restaurants and
nightclubs in England and Wales”
This RICS Guidance Note has been mentioned numerous times throughout the consultation paper. It is an
update of the previous RICS Valuation Information Paper No 2 and was produced in 2010. It sets out the wellestablished practice of public house valuation derived from the 1970’s, when public houses started to be let on
commercial leases in addition to the traditional tied tenancy. In the remainder of this response, references to the
“Guidance Note” mean references to GN 67/2010.
The procedures in this Guidance Note are recommended for specific professional tasks and are intended to
embody “best practice”. It recognises six different categories of pub type and four different ways of operating
the business. The experienced licensed property valuer will understand the complexities of the individual
sectors and how they interact with each other, depending on the circumstances of each property and their ability
to be converted. In addition to the above factors, each type of pub and each way of operating it relate to both
the tied and free of tie markets. It is important to note that members are not required to follow the advice and
recommendations in the guidance note i.e. it is not considered mandatory from an RICS perspective, but they
are asked to consider the following:
1. Where an allegation of professional negligence is made, the court is likely to take into account any
guidance issued by RICS as to whether the surveyor had acted with reasonable competence.
2. Members conforming to the guidance should at least have a partial defence to an allegation of
negligence if they have followed the guidance.
3. Members have the responsibility of deciding whether the guidance is relevant in each instance. If it
is followed in an inappropriate instance then the member will not be exonerated merely because they
followed the guidance.
4. Where members do depart from the good practice recommended in the guidance note, they should do
so for good reason and they may be required to explain why they did so.
The consultation includes the proposal that all valuers should make reference to the guidance RICS has
produced. Whilst we do support this position, we refer you to point 3 above which states that there may
be specific instances where the valuer feels that it is inappropriate to follow the guidance. RICS makes an
allowance for this depending on the circumstances of the case but it appears that the Statutory Code will force
him/her to follow it regardless. The government may wish to consider whether there might be exceptions to this
proposal, but on the proviso that the Guidance will be followed unless there is a very good reason why it has
not been, such reason to be made clear.
General Observations
The Principles of Valuation of Public Houses
RICS is specifically mentioned in the draft Statutory Code, particularly in connection with its Guidance Note.
The Code is to make it compulsory that a qualified Chartered Surveyor approves the landlord’s assessment of
rent.
Public houses (pubs), are recognised as trade related properties, and are seen as a specialist market. The
reason the pub market is specialist is because each public house is a unique business entity. It is a property asset
and business, and often a home, valued as a single entity. It is rare for two public houses to be the same.
130 Small Business, Enterprise and Employment Bill: Written evidence
An individual public house can be operated in a number of ways. For example, a wet led operation, perhaps
with considerable gaming machine income; a wet led operation with bar snacks; a wet led operation selling
premium products; a traditional community local with a mix of wet sales and food sales; a business that
concentrates on food sales; and an out and out food operation more akin to a restaurant.
Pubs are valued by reference to their trading potential. In the Guidance Note this is referred to as the Fair
Maintainable Turnover (FMT) and Fair Maintainable Operating Profit (FMOP). In valuation terms, the valuer
considers the operation of the business in the hands of a reasonably efficient operator, assuming that the
property is properly maintained and decorated. The actual choice of the style of operation is a matter for the
property owner, whether that be an owner/occupier or a landlord granting a lease to an incoming tenant.
The different styles of operation will produce differing trading results, both in terms of turnover and profit.
Valuation Variables
When dealing with leased or tenanted premises, the deal that is struck between the landlord and the tenant
with regard to the terms of the lease and in particular, the rent to be paid, will be dependent upon a number of
variables emanating from the above. Often the terms of the transaction will be confidential. The transaction may
involve matters other than rent, for example, an undertaking by an incoming tenant to invest in the property
or perhaps extend the property. Very rarely are the full terms of a letting transaction made available to parties
other than the landlord and tenant who sign the formal contract, the lease.
Valuation is an art not a science. The Courts have historically allowed latitude in a valuer’s opinion of value
when considering professional negligence, 10% either way being acceptable, a greater tolerance where there
are complex matters involved.
The tied pub sector has a plethora of tied leases in place. These have varying:—— lengths
—— repair obligations
—— rent adjustments—periodic or annual
—— ties—beer, lager, cider, alcopops, wines, spirits, minerals, etc
—— discounts
—— tied release fees (a recent innovation)
—— levels of tenant investment—repair, refurbishment, improvements
Thus, analysis of market transactions is both complex and difficult.
The principle of a profits valuation is the assessment of three key fundamentals—Fair Maintainable Turnover;
Fair Maintainable Operating Profit; and the split of the divisible balance (known as the tenant’s bid).
A small change at each stage of the valuation calculation can have an exponential effect on the end result. The
valuer needs to have market knowledge and experience of freely negotiated transactions to make appropriate
adjustments to ensure that the end result sits within the tone of values for the type of business in the local area.
Valuers analyse market transactions and apply that analysis to reach an opinion of value. Market transactions
are freely negotiated contracts between a landlord and a tenant. The agreed rent is a negotiated sum; it is not a
formulaic calculation.
Occasionally, one or other party has particular reason, perhaps timing, dispute resolution, etc, to agree terms
which might not sit within the general tone of values in the local area, thus the transaction can produce distorted
analysis. In general terms, a value will fall within a reasonable range. The final terms of the transaction will
depend on the willingness of the parties to transact.
Valuation Based on Transactions
RICS has reservations of the unintended consequences of requiring transactions involving lettings, to be
based on a valuation, as opposed to market supply and demand interaction.
By requiring all rental agreements to be based on valuation as opposed to market forces, it may significantly
reduce the number of open market, freely negotiated transactions. Eventually, the number of open market
transactions may fall to zero in the tied lease market, thus the market will become artificial. There will be no
true market evidence. This may deter market participants (landlords) from investing in the sector. It will put
pressure on existing landlords, including pubcos and brewers, to exit the market or find different methods of
operation.
Register of Rents
RICS does not support the introduction of any form of register of rents in the tied lease sector due to the wide
variation of lease terms and tie provisions.
Small Business, Enterprise and Employment Bill: Written evidence 131
Benchmarking
RICS does support the principle of benchmarking—providing the inputs are genuine and correctly analysed
to produce consistency. Access to benchmarking statistics needs to be carefully considered.
The Bill
Arbitration by Adjudicator
With regard to Clause 39 under the Section headed ‘Arbitration by Adjudicator’, RICS is concerned that
confusion may arise over the term ‘arbitration’.
In its simplest form, arbitration means settlement of a dispute by an arbitrator. However, in the property
world, arbitration is a familiar term, primarily in connection with rent review disputes.
Most commercial leases include a dispute resolution clause that, in the event that the parties are unable to
agree a rent at review, the matter can be referred to either an Arbitrator or an Independent Expert. There is
usually reference that if the parties cannot agree an appropriate third party, an application can be made to the
President of the RICS for the appointment of a suitable individual from the President’s Panel of trained experts.
Where an Arbitrator is appointed, it is usual for the lease to provide for him to act in accordance with the
Arbitration Act 1996 which sets out in detail the obligations and duties of the parties, their representatives and
the Arbitrator. We note that there is reference in the Bill to the Arbitration Act 1996.
Arbitration, as acknowledged in the Groceries Code Adjudicator Arbitration Policy Guidance Note, can be
expensive. It is rarely an economic option for tied lease rental disputes, where rents are likely to be in the range
of £20,000 to £50,000 per annum. This was the reason the industry introduced the Pubs Independent Rent
Review Service (PIRRS), being a swifter and cheaper dispute resolution process adopting the Independent
Expert approach as opposed to the Arbitration approach. The PIRRS service has had the backing of RICS and
many practising specialist Chartered Surveyors.
It should be noted that under the Arbitration Act 1996, the parties are jointly and severally liable for the costs
of the Arbitration. It is for the parties to agree how the costs should be apportioned, or for the Arbitrator to
decide if they cannot agree. RICS requests that assurances a given in respect to the inter-relation between the
new legislation and the internationally accepted Arbitration Act 1996.
Tenancy At Will
At paragraph 61, reference is made to the form of ‘tenancy’. RICS notes that the drafting includes a Tenancy
at Will.
Within the public house sector, Tenancies at Will are often used to sustain the value of the trading entity by
keeping the pub open pending a sale or letting.
Unlike shops or offices, which can be simply closed or boarded if vacant, pub owners need to ensure that the
business continues, when a substantive tenant vacates. Otherwise, there would be a significant fall in the value
of the freehold asset. Such Tenancies at Will are granted on varying but usually soft terms, to operators for a
temporary holding period; sometimes to companies that specialise in such holding arrangements; sometimes to
a nearby publican.
RICS believes that requiring the landlord and tenant, when agreeing the terms of a Tenancy at Will, to comply
with the Statutory Code may have the unintended consequence of effectively closing a valuable and important
sub-market.
Parallel Rent Assessment
Under the definition of ‘parallel rent assessment’, RICS believes greater clarity is required.
The definition as stated would produce a parallel rent assessment which is a hybrid and not backed up by
any market evidence. Any assessment would also have to take account of the variety of benefits available to
different tenants, which are difficult to quantify and would have different values dependent on the type and
experience of the tenant. It would thus be wholly theoretical.
We believe the definition should be drafted so as to ensure that in the free of tie scenario, the tenant does not
enjoy the benefit of any landlord support—what the industry refers to as Special Commercial and Financial
Advantages (SCORFA).
Draft Statutory Code
Our general comments above apply. RICS makes the following specific comments:
The differences between a Lease and a Tenancy are not addressed in the consultation. In the pub
sector these two terms have very different meanings, with different risks and obligations attached.
These distinctions should be addressed to avoid future confusion.
132 Small Business, Enterprise and Employment Bill: Written evidence
The draft code is intended to apply to pub companies with more than 500 public houses. Whilst the
RICS understands the reasoning behind this distinction, we perceive that an unintended outcome of
this would be the creation of a two tier market, with distinctions between pubs that fall either inside or
outside the code. The valuation of pubs is already complex and two tiers could result in difficulties in
sourcing appropriate comparable evidence of recent transactions in the appropriate market tier. There
would be additional difficulties in the event that a pub is sold, subject to a tied tenancy, from one tier
to another. This would render the previously agreed passing rent inappropriate, as the assumptions on
which the rent was originally based will have changed.
Part 5—Business Plan
Section 10 of part 5 refers to the possibility of providing the right to request an open market rent review in
the event of a significant change occurring to lease terms or trading conditions. In essence this equates to an
interim rent review. Periodic rent reviews are already an industry standard (usually three or five yearly), aimed
at reflecting changes in trading conditions. The introduction of an additional right to an interim review will
introduce an extra element of uncertainty to those who invest in the pub sector. This is likely to result in further
caution or a withdrawal of investment, which may have significant adverse effects on the industry as a whole.
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. (RICS members advise that
where tenants are private individuals, they are often reluctant to incur the costs of taking such advice).
Under 12 (b) the Statutory Code requires the POB to advise the tenant to consult RICS Guidance and any
relevant industry benchmarking reports. Firstly, RICS Guidance sets out best practice for Chartered Surveyors
operating within the sector. The Guidance Note includes many technical issues which are directed towards a
qualified and trained valuer, rather than a prospective publican. The fact that under paragraph 12 (a) i. the POB
must ensure that the tenant has taken rental valuation advice, we suggest makes the reference to the Guidance
Note under 12 (b) superfluous.
Part 7—Rent Negotiations
RICS would like to raise the following points:
—— Should the valuer, whether acting for the landlord or the tenant, be provided with the agreed business
plan?
—— RICS notes that the POB must provide sufficient information to the tenant to allow them to negotiate
the rent. Should the tenant not be required to declare actual trading results for the business in the case
of rent reviews and lease renewals? Perhaps for the previous three years?
—— RICS believes the wording under paragraph 20, relating to a manager, needs further consideration.
In practice, a manager is appointed for larger trading entities. Different types of business will have
different turnover/profit thresholds. Where the business is a typical managed house operation, the cost
of the manager should, of course, be reflected. However, where a tenant wishes to retire or semi-retire
and appoints a manager to run the business, as a lifestyle decision, it would lead to artificially high
costs and thus a lower rent which would be unfair on the POB.
Part 8—Parallel Free of Tie Rent Assessments
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. How is it proposed that it will help to resolve the rental dispute?
RICS also believes the drafting needs greater clarity with regard to the ‘point at which negotiations have
failed’.
In the general property market, the point of failure would usually be when either the landlord or the tenant
makes an application to the President of the RICS for the appointment of an Arbitrator or Independent Expert.
This involves the applicant in a cost. However, in practice, negotiations invariably continue. The number of
applications that follow through to a final Arbitration Award is a very small percentage. RICS believes that the
parties should be encouraged to continue discussion and negotiation.
Annex A
CONTENT FOR PROFIT & LOSS ACCOUNT (FAIR MAINTAINABLE TRADE)
RICS avoids providing standard valuation pro forma templates wherever possible; leaving it up to the
expertise and discretion of the surveyor to decide how to value an asset and what level of detail it is appropriate
to apply. Valuers are, in any event, required to apply the Red Book standards of transparency in all valuations.
Small Business, Enterprise and Employment Bill: Written evidence 133
The imposition of a template encourages a formulaic approach to valuation, using artificial calculations for
items that are subject to variation based on open market evidence. This takes no account of real world scenarios
and results in an artificial calculation.
If a pro forma approach is adopted, RICS believes the terms of the proposed or actual agreement should be
stated towards the top of the pro-forma, i.e. agreement type, term, repairing obligations, rent review pattern,
tie provisions, discount terms, etc. This is important so that the context of the rental value assessed is not
misrepresented.
RICS suggests that showing the breakdown of all tied purchases is overly complicated. Few valuers practising
in the market have access to such detail on all of the comparables, particularly when one is dealing in the free
of tie market. In practice, licensed property valuers refer to wet sales, food sales and machine income. Such
information can be sourced from a variety of transactions such as sales, assignments, valuations etc. Very rarely
are volume statistics available in these circumstances. Accountants state sales either in total or split between
wet, food and machines and show the gross profit on wet sales and food sales, often as a single figure. RICS
believes the pro-forma as drafted is overly complicated and likely to give rise to unnecessary disputes.
With regard to the list of expenses, RICS believes the Statutory Code offers an opportunity for the industry to
introduce a standard for public house accounting and the matter should be given very careful consideration. At
present, different bodies produce statistics with differing cost headings.
October 2014
Written evidence submitted by Spirit Leased—Spirit Pub Company PLC (SB 46)
1. Overview of Spirit Pub Company PLC
1.1 Spirit Pub Company plc owns and operates 1227 pubs across England, Scotland and Wales. Our
managed division consists of over 750 branded pubs including the award winning Fayre & Square and Flaming
Grill brands alongside the renowned Taylor Walker local pubs and Chef & Brewer country pubs. We currently
employ over 16,000 people and have been awarded 16th place in the Sunday Times 25 Best Big Companies
to work for in 2014. We currently have 1400 apprentices training in our pubs and are recognised with the Star
Train Gold Standard for our work experience programme and are part of the Trailblazers Phase 2 group of
companies designing the apprenticeship standards for the future.
1.2 Spirit Leased is the leased and tenanted division of Spirit Pub Company and currently operates 433
pubs with independent operators on lease or tenancy agreements. Our vision is to become the No 1 Hospitality
Company in the UK and therefore in Spirit Leased our mission is to continue to have strong, long term and
mutually beneficial relationships with our Licensees and provide compelling reasons for Guests to visit our
pubs. Eighty experienced and high calibre multiple pub operators operate a quarter of our pubs. Spirit Leased
has employed a Code of Practice Compliance Manager since May 2012; we have no recorded breaches of our
Code or any cases at PICAS or PIRRS.
1.3 Whilst we fully support self-regulation and believe that it is working, we understand and appreciate
the requirement for a Statutory Code and Adjudicator. In this paper we have outlined some specific concerns
regarding the drafting of the Small Business, Enterprise and Employment Bill in three key areas—Definition
of Tied pub, Parallel rent assessment and assignments. We make some recommendations for improvements to
the drafting and are keen to see that the proposed new Statutory Code and Adjudicator work effectively and
provide a sensible and workable solution for all stakeholders in these three areas in particular.
2. The Definition of a Tied Pub (Clause 59) and a Tied Tenant (Clause 61—(2b))
We are concerned about the definition of a Tied Pub and Tied Tenant as proposed in the Bill. Tenancies at
Will (TAW) provide practical solutions to temporary problems in some pubs and in our view the inclusion of
TAW temporary tenants in the bill is seeking to address a problem that does not exist in practice.
2.1 Background—why we use TAW agreements
We only use TAWs as temporary solutions to keep pubs open and trading and do not use TAWs as a way of
avoiding our obligations under the current Industry Framework Code (IFC); neither would we under a Statutory
Code.
TAW agreements are mainly used in the following circumstances:
(a) Where we do not currently have a permanent tenant and we are recruiting for a pub vacancy or a rapid
temporary transfer is required to keep a pub open if a permanent tenant leaves unexpectedly such as
loss of personal licence; breach of agreement; bankruptcy; death; criminal prosecution.
(b) Where a pub is to be sold with vacant possession and the best solution is to keep the pub open and
trading whilst the sale progresses and is finalised.
134 Small Business, Enterprise and Employment Bill: Written evidence
(c) Where a pub is being assessed as to whether we should invest in it or transfer it to our managed
business; we would not wish to recruit a permanent tenant to take the pub until these decisions have
been finalised.
(d) Where we have a tenant who wishes to take a pub on a substantive agreement and they are undertaking
the training and recruitment Code of Practice processes so that a substantive tenancy or lease agreement
can be granted to them. This allows the pub to remain open with the new operator and enables both
parties the time to meet all of our respective obligations both legally and under the Code of Practice.
As additional context, 96% of the Spirit Leased pub estate is occupied on a substantive agreement i.e. long
term tied tenancy or tied lease. Our current estate has a total of 15 TAW agreements in place (Aug 2014) as
detailed below:
—— TAWs converting to Substantive Tenancy & Lease with current operator: 2
—— TAWs in place due to disposal of the site: 0 (5—July 2014)
—— TAWs to convert to managed division: 2
—— TAWs whilst review of site being undertaken: 0
—— TAWs whilst we recruit a substantive tenant: 11
2.2 Advantages and disadvantages
Extensive or long term use of TAW agreements have real disadvantages because:
(a) We do not have the security of income afforded to us by a permanent tenant and as a result we do not
invest in these businesses on this agreement (we would not receive sufficient return on investment).
(b) Costs normally borne by the tenant sit with us in the areas of compliance certification/testing,
dilapidations and occasionally business rates.
(c) Our shareholders perceive value in our business based on the number of permanent tenants we have
operating our pubs; a high proportion of TAW or closed pubs has a negative impact on the confidence
of investors.
Any closure of a pub is unwelcome and we believe there is real risk that more pubs would be closed if TAWs
are included in the definition of tied pub. The unintended consequences of this are:
(a) Local communities lose an amenity to be replaced by the risk of an eyesore and the risk of vandalism,
fly tipping and squatting that occurs when a property is left empty and boarded. Keeping a pub open
via TAW agreement can mitigate these risks.
(b) It will become harder for new entrants to take on a tenancy as pub companies will limit tenancies to
substantive agreements only and not allow a new entrant to dip their toe in the water first.
(c) Closed pubs are harder to re-let in terms of arrangements for prospective tenants to visit and to evaluate
the real business opportunity.
(d) Re-opening becomes costly in the areas of utility reconnection, compliance retesting, clearing up
external vandalism, undertaking dilapidations; much of this cost would rest with the incoming tenant.
(e) Closed pubs have a negative impact on the supply chain. If a pub is closed then it won’t generate the
requirement for example to buy food from local wholesale suppliers. Closed pubs would also mean a
reduction in tax revenue—Local authorities would see a reduction in business rates as pub companies
claim empty property relief, businesses would not employ staff leading to a loss in income tax and
national insurance.
Any tenant on a TAW agreement negotiating with us to take a lease will fall within the definition of a
“tied pub tenant” under Section 61(1)(b) and so have the protection of the Code since they will be a party to
negotiations relating to a prospective tenancy or lease. The Code obligations will already have begun whether
they are trading the pub or not.
It is also important to note that temporary management companies often take TAW agreements to provide
a temporary management service to a pub company. The management company does not need the protection
outlined in the Bill, nor do they seek it. It would make it very unwieldy for the pub company to work alongside
these companies and still comply with the Code.
2.3 Conclusions and recommendations regarding TAWs
TAWs meet a genuine need. Few pub companies would want a TAW to continue beyond 12 months; we
accept that the case for a TAW beyond this timescale is questionable. We currently only have four TAWs that
have been in place longer than 12 months and will either shortly let these on substantive agreements or divest
them.
As far as we can see, there is no evidence to suggest that the complaints about conduct by pub companies
relates to tenants on TAWs.
Small Business, Enterprise and Employment Bill: Written evidence 135
If TAWs are still to be covered by the Code, an exemption is recommended so that a TAW can remain in
place for up to 12 months. This would enable pubs to remain open and also offer a solution to the concerns
identified by the consultation.
We would suggest the following wording is added to Section 61(1)
In this Part a “tied pub tenant” means a person:
(a) who is the tenant of a tied pub other than a temporary management company; or
(b) who is a party to negotiations relating to the prospective tenancy of premises which are, or on completion
of the negotiates are expected to be, a tied pub.
“temporary management company” means a company whose business involves the temporary operation of
public houses without the intention of entering into a more permanent form of tenancy.
We would also suggest the following changes are made to the definitions at Section 61:
“tenancy” means a tenancy created either immediately or derivatively out of the freehold, whether:
(a) by a lease or sub-lease,
(b) by an agreement for a lease or sub-lease,
(c) by a tenancy agreement or sub-tenancy agreement’ or
(d) in pursuance of a provision of, or made under, an Act’
and includes a tenancy at will
“tenancy at will” means a tenancy at will or series of tenancies at will granted to a tied pub tenant (whether
or not jointly with another person) that has continued for a period exceeding 12 months.
3. Parallel rent assessment
Clause 62 (1) The definition of a parallel rent assessment for tied tenants—the assessment of the rent
which would be payable by a tied pub tenant to the pub-owning business which is the landlord of the tied
pub if the tenant were not bound by any product or service tie (assuming that the tenancy is unchanged
except in respect of terms relating to such ties).
Clause 36 (4) Provisions of the Pub Code…are consistent with the principle that tied pub tenants
should not be worse off as a result of any product or service tie.
Clause 36 (5c) make provision about the information that such assessments must contain and how they
are to be calculated and presented.
Clause 36 (5d) specify that such assessments must be conducted in accordance with provisions of
documents specified in the Pubs Code.
3.1 Background and recommendations for parallel Free of Tie assessments
Clause 62 (1) and Clause 36 (4), in our view, take a too simplistic view of this critical area and we would ask
that the definition in Clause 62 (1) “assuming that the tenancy is unchanged except in respect of terms relating
to such ties” be removed. We recommend this because a parallel rent assessment created with the assumption
that the tenancy is unchanged except for terms relating to such ties is basic in understanding; a tied agreement
does not simply become a Free of Tie (FOT) agreement solely from the removal of the product tie. In its current
format the Bill takes no account of the ownership of the pub asset itself and as such the ability and freedom to
operate that property as a commercial entity whether that is on a tied basis or as a pure commercial property
rent. We would therefore recommend that as per Clause 36 (5c) the following be recognised to accurately
deliver Clause 36 (4):
(a) The ownership of the asset by the pub company and therefore the ability or the need to charge full
market commercial rents (not restricted by RICS guidance) when a tie is not in place.
(b) The increased costs of entry associated with a general commercial property relationship.
(c) Upwards Only Rent Reviews applied by head landlords would also be passed on to the tenant (normally
absorbed by the pub company).
(d) The cost benefits normally received through SCORFA under a tied agreement would be withdrawn and
therefore a higher cost for an individual operator seeking the same on the open market.
(e) The withdrawal of any pub company investment in their own asset.
This leads us to the view that the parallel rent assessment template provided in the Pubs Code is also too
basic and as outlined in Part 4; 36: The Pubs Code point 5(d) specifies that such assessments must be conducted
in accordance with the provisions of documents specified in the Pubs Code. We would recommend that the
template is adapted to accurately assess the cost differences between a tied tenant and a tied lessee and an
assessment of the real difference a FOT model depicts are properly shown. There are additional costs that
would be included if the assessment were to really reflect a true FOT scenario:
136 Small Business, Enterprise and Employment Bill: Written evidence
(a) Cost of capital in terms of a business loan or mortgage for the same business.
(b) Cost of the deposit.
(c) Attainment of business services (SCORFA) at a higher cost than that offered by the pub company and
or the lack of utilising SCORFA benefits to grow the business.
(d) Higher costs in terms of insurance as an individual.
(e) Higher costs of gaining investment capital and securing the work as an individual instead of from the
expertise and buying power of the pub company).
If the parallel rent assessment were to include the above we would see a true and accurate reflection of what
the real difference is between tied and FOT scenarios and this would be a fair interpretation of whether a tied
pub tenant was worse off as a result of any product or service tie. Without this understanding and inclusion, we
believe that the proposed rent assessment template in its current format would always show that a tenant was
worse off with a tied agreement.
3.2 Clause 36 (6) provide parallel rent assessments in relation to their tied pub tenants in specified
circumstances and in connection with such provision a) may confer on the Adjudicator functions in relation to
parallel rent assessments
We would also reference our concern with Clause 36 (6a) outlined above. Parallel rent assessments are there
to provide a tenant with the information as to whether they would be paying more under a tied agreement vs
a free of tie arrangement; it is there to provide transparency so that a tenant can make an informed decision as
to whether to take a tied agreement or not. It is not there to dictate what a pub company can charge or what
agreement a pub company can offer. We would like to seek assurance and clarification that the Adjudicator
would not be given the rights to set the rent level for individual agreements or the terms. This would have
unintended consequences for the sector and would appear to go beyond the reasoning for the provision of a
parallel rent assessment.
4. Assignments
Clause 36 (f) impose other obligations on pub-owning businesses in relation to their tied pub tenants.
4.1 In reference to this and the draft Code it appears that Part 10 of the Code; Assignment of a lease (42)
if the tenant can demonstrate that they have provided the prospective assignee with the information at Part 6 of
this Code the pub owning business must not unreasonably withhold consent to a request for assignment.
4.2 We would first ask that an inclusion be added to require the tenant wishing to assign the lease be
responsible for providing accurate statements of accounts and VAT returns for the last three years.
4.3 Secondly, most leases and tenancy agreements that are assignable set out in detail the circumstances
in which the pub company can reasonably refuse consent or attach conditions (such as the provision of a rent
deposit or a guarantee). In the Bill, the way in which this provision is worded suggests that the only relevant
condition is that the tenant has provided the relevant information to the proposed assignee when in practice
there may be a number of reasons why the landlord will be perfectly entitled to refuse consent (in law). This
may include serious breaches of the lease, concern over the covenant strength being offered, the suitability
of the proposed assignee and his experience of running a pub and concern that the proposed use may breach
the user covenant in the tenancy agreement. The provision in the Code should make clear that this is without
prejudice to the landlord’s (the pub company) right to withhold consent or make consent conditional under the
terms of the lease.
4.4 Finally, we believe that a formal process in which to amend the Pubs Code at a later date would be
beneficial to all parties involved. This would enable a full consultation and Parliamentary scrutiny to assess
the effectiveness of the Code in its current format. This process will also provide stability for all those working
within the Statutory Code.
5. Summary
Spirit Pub Company is committed to fair and lawful relationships with our tenants and the recommendations
outlined in this submission are done so in the conviction that the Statutory Code and Adjudicator provide a
workable resolution for all parties involved. We will continue to participate in further consultation undertaken
in respect to the Statutory Code to reach this end.
October 2014
Written evidence submitted by Stephen Beales (SB 47)
I am Stephen Beales, latterly chief executive of an SME in the construction industry for some 16 years
during which the business grew from under £3m to over £20m.
Small Business, Enterprise and Employment Bill: Written evidence 137
Summary
This note covers:
—— Adverse impact of current payment practices on SME growth.
—— Inability of SMEs in construction to obtain invoice financing.
—— Confirmation that payment In the part of the costnstruction industry in which I work takes about 80
days.
—— The need to address both the culture of clients and that of the supply chain and the effort that will be
necessary to make any headway with a voluntary approach to payment improvement.
—— The benefit of enabling industry organisations to present grossly unfair payment practices to an
authority other than the courts, to get such practices banned as requested in the EU payment Directive.
—— A suggestion that the Bill should include enabling powers to make directors accountable for their
business’s payment practices, and thosE that fall short to be subject to penalties through Companies
House. Ultimately the directors control the culture.
Submission
1. I have read the debate on the late payment issues of the bill on 16 October, and offer a few personal
thoughts in case they might be helpful.
2. I point to the financial growth above in the context of the discussion of invoice financing. Due to the long
run nature of construction contracts and the disputatious culture of the industry, invoice discounting was never
available. Even had it been available the costs of such finance were not attractive and it appeared at the time I
investigated it to be a strategy of last resort if it were available.
3. I can confirm that there are issues in the construction industry. It takes members or the part of that
industry in which I work, on average, about 80 days to get paid. Some main contractors do not pay until after
90 days knowing that we do not want to prejudice the business relationship. I sit on the board of our industry
association and I know that the problem extends to large firms too.
4. Payments within the supply chain are not the only problem. Some types of clients order work through
shell companies that simply do not have the funds in place to pay for what they order. As a result payments
to main contractors can be delayed and such delay gets passed down the chain. On the other hand I know also
some clients are very keen to support improvement in the payment processes of the industry because they want
to employ fully functioning and the most effective supply chains. Both clients and their suppliers are targets for
messages about forming the right culture.
5. I applaud the observation that it is culture that needs to be changed. The construction industry is being
asked to work more collaboratively to better serve the community at large. That requires trust and it can not
exist where underlying distrust is fuelled by reluctance to pay in a reasonable time. A new prompt payment
code has been produced as part of voluntary strategy but having no teeth it appears to be a repetition of an
unsuccessful strategy that has been tried and failed. How this can succeed is not clear. Some companies survive
and prosper by taking credit from their suppliers. Such voluntary action will not inspire everyone. A huge effort
will be needed to make a significant impact. Who do you anticipate will provide that effort?
6. What was not mentioned in the debate was the identification of corporate behaviours that are grossly
unfair and should be declared illegal under the EU Payments Directive. In the UK there appears to be no forum
for identification of such issues other than the courts. No trade association or individual company is likely to
be able to afford to test whether behaviours are unfair in that forum. It would be a great step forward if the Bill
included powers to create an administrative approach that would allow such behaviours to be examined in an
affordable manner. By drawing attention to practices that are unacceptable cultural change could be accelerated.
7. The opportunity exists now for you to both provide for the voluntary approach and equip the government
with the powers needed for the alternative if, as I suspect, it will be needed later. I would therefore suggest
empowering at this stage the ability to make if necessary:
(1) regulations relating to directors being made more stringent at Companies House to see that directors
who continue to avoid paying in reasonable time are struck off (because it is the directors who set the
culture) and
(2) regulations to define how a reasonable time for payment should be determined, including the option of
simply insisting that everyone gets paid within 30 days unless there are really good reasons why not.
If nothing else such background powers would focus the minds of those who are least willing to listen to the
voluntary approach.
8. Were that 30 day payment regime to exist already, the business I was running would overnight be financed
to double or more, as the capital already contained in the business could work for that business rather than fund
those of its customers. I appreciate that some other businesses would be looking for finance, but as many of
them are larger their access to equity and bank finance is probably a bit easier than it it is for an SME.
138 Small Business, Enterprise and Employment Bill: Written evidence
Written Evidence Submitted by Chris and Von Lindesay, The Sun Inn, Dunsfold, founders and
coordinators of The Punch Tenant Network (SB 48)
Summary
Based on our experience of the self-regulatory process we have concluded that a statutory system is required
to facilitate continuous improvement in the relationship between PubCo and tenant with the intermediation of
an independent adjudicator.
We offer an example of a widespread problem in the specific case of cask conditioned ale which would
require the immediate intervention of an independent adjudicator. If it existed today.
Regrettably the adjudicator does not exist so without special action this problem will remain unresolved for
the whole industry.
1. Introduction
1.1 We are grateful for the opportunity to make comments to the committee on the subject of the Small
Business, Enterprise and Employment Bill (The Bill).
1.2 In this context, we have been Partners and Leaseholders in the Sun Inn, Dunsfold since August 12th2002.
The Sun Inn is leased from the Securitisation A subsidiary of Punch Taverns plc under a 20 year FRI Growth
Lease established in 2001.
1.3 In addition we act in an informal and voluntary capacity as coordinators of the Punch Tenant Network
which comprises a number of tenants and leaseholders of the Punch Taverns group whose objective is to share
information and mutual support in what has over the past few years been a very worrying and difficult time for
Punch tenants.
1.4 We are delighted to note that after 4 select committee inquiries the government has at last responded to
the clear will of the house to introduce this Bill. We believe there are shortcomings most importantly the failure
to include the Market Rent Option but we confidently anticipate most of these will be tackled by comments
from others.
1.5 The main purpose of our submission is to wholeheartedly support the establishment of an industry
adjudicator envisaged in section 4 of the bill. We would be delighted to be able to contribute towards ensuring
that the focus of the adjudicator is directed towards the primary issues, which will be most effective in achieving
the objective of ensuring transparency and fair treatment of tied tenants. In particular to new entrants to the
industry and profession who so frequently seem to fail early in their tenure, and by doing so, frequently trigger
a cycle of decline which ends with the failure of the Pub and its loss to our heritage stock of Public Houses.
2. The failure of self-regulation
2.1 It has been our experience in the twelve years that we have leased The Sun Inn that it is extremely
difficult to communicate and prevail in any dispute with a PubCo landlord.
2.2 We have during our tenure at the Sun Inn engaged in two rent reviews which were subject to the “rules
of engagement” that prevailed at the time.
2.3 In the first review the negotiation continued for over a year after the contractual deadline. It was only
after writing a direct letter to a member of the main board of Punch Taverns and attaching an extract from the
evidence, taken from Hansard, that he personally gave to the Trade and Industry Select Committee enquiry, and
pointing out the stark contrast between that evidence and the actions of his staff on the ground, that the rent was
resolved in mid 2007.
2.4 Our second rent review commenced in 2010 and was conducted after the introduction of the “Non
statutory” Code of Practise. We were dismayed to find little inclination from Punch employees to adhere to
the Code. Within days of starting the review Punch were forced to admit what was described by BIIBAS
as a “technical” code breach. This was subsequently, and inaccurately, testified about by Punch’s then chief
executive Roger Whiteside to the next Select Committee inquiry. This second review involved an exchange
of letters between the Chief Executive of Punch and our own MP, who has been stalwart in his support of
our battle with Punch for many years. The review involved long meetings with the “most senior executive on
rent” at Punch also attended and witnessed by the senior constituency case worker of our MP. Finally, as it
had been impossible to agree by negotiation, it was concluded through the binding PIRRS process which as it
must, arrived at a rent. No reasoned decision was given and therefore no contribution was made to the process
of rent setting to inform future negotiations. We acknowledge that PIRRS has now introduced the option of
reasoned decision, possibly partially as a result of our objections at the time and if made public this will be an
improvement.
2.5 Our experience under the “Self-regulatory” system in this industry, is that when it is a matter of absolute
survival at the 5 year “rent review” opportunity to achieve a sustainable rent—it is only possible to achieve
a reasonable outcome at the expense of months of total dogged obsession and dedication to the exclusion of
anything else. We were finally able to hold our own against the professional surveyor instructed by Punch to
conduct the PIRRS case, and while we do not agree with the outcome, it was significantly better than what
Small Business, Enterprise and Employment Bill: Written evidence 139
was ever on offer from Punch. We do not regard this experience as a satisfactory relationship with a business
partner.
2.6 At the end of the rent review process we developed a long list of issues concerning adherence to the
Code of Practise which we believed might have been helpful in future cases arising from our experience and
to inform and guide BIIBAS in the future conduct of these kind of reviews. We did this in the hope that future
tenants would benefit from some new findings of best practise, but regrettably, these remain on the shelf at
BIIBAS and were never addressed. Only two breaches out of seven allegations submitted were even considered
by BIIBAS and both were accepted. Then the BIIBAS process changed and eventually became PICA Service
which is now only constituted to address specific disputes in need of arbitration, not to establish best practise
and facilitate continual improvement in the way in which negotiations are conducted. Every case starts from
ground zero and owing to the obsessive confidentiality there is no process of precedent informing best practice
and improvement as is found in more transparent regulatory regimes. We regard this as a major failure of
process.
3. The establishment of
“Best practise memory”.
an independent adjudicator is essential to achieve fairness and transparency and
3.1 It is our view that the establishment of an independent adjudicator is essential to achieve the degree of
fairness and transparency that will be required to ensure that the cycle of failure, closure and loss of our Pub
heritage is minimised.
3.2 It is to be hoped that the Adjudicator will be able to investigate and rule on matters of best practise in
the ongoing engagements between Pub Company and tenant in a way that will ensure that poor practise in one
case will immediately inform practise in all PubCos. In this way best practise will be able to evolve across the
industry as problems in one case can inform practise in others. It is to be hoped that the adjudicator can from
time to time issue public guidance based on one or more specific cases but without compromising commercially
sensitive or confidential matters of any of the participants.
3.3 We believe that the establishment of the adjudicator will facilitate a continually improving set of practices
which will be able to propagate across the industry significantly more swiftly than has been possible under the
“self-regulatory” regime where progress has been very fairly described as “glacial” on more than one occasion
and prompted by long, complex and ultimately powerless parliamentary inquiries where PubCo executives are
free to say what they will without accountability.
4. Best Practise Example
4.1 By way of illustration and prompted quite fortuitously by the Committee meeting on Tuesday
14thOctober where the St Austell brewery was briefly mentioned, we have discovered a startling example of
how the tied tenant is massively disadvantaged as a result of PubCo practise.
4.2 In reviewing the St Austell brewery mentioned in glowing terms in committee it was noted that it
publishes on its website a page described as ”End Product Duty” which states:
“In accordance with the agreement reached between St Austell Brewery Co Ltd and H M Customs &
Excise in relation to non-drinkable sediment in cask-conditioned beer by reference to which duty has
been paid is shown below:
Normal Volume Sediment Duty Paid Volume
Metal 18’s 81.83 Ltrs 1.7 Ltrs 80.13 Ltrs
Metal 9’s 40.91 Ltrs 0.85 Ltrs 40.07 Ltrs
4.3 Further investigation has revealed that the changes to Beer Duty in June 1993 were intended to harmonise
the European duty regime and to ensure that duty is only levied on beer that is sold and consumed rather than
beer that is brewed. The unique British Cask Conditioned ales have undrinkable sediment in each cask, this
resulted in an unfair duty regime for our unique product. As a result it was determined that all brewers could
declare the volume of beer that was of merchantable quality in a cask conditioned ale and only pay the duty on
that volume. The current HMRC guidance Notice 226 (April 2014) makes the following statement at paragraph
11.3.5:
“Duty need not be charged on any undrinkable sediment in your cask-conditioned beer, provided:
your customer (for example, the publican) is made fully aware in writing, at or before the time
of receipt, of the quantity of beer on which duty has been charged. If, for example, a barrel
(163.7 litres) contains 2.3 litres of undrinkable sediment, the customer must be made aware,
by a statement on the label, delivery note or price list and so on, that duty has been charged on
161.4 litres (a copy of the notification to customers must be retained)”.
4.4 It seems clear that since 1993 it has been recognised by HMRC that a residue of undrinkable sediment
exists in cask ales and, in the interests of not disadvantaging this product, unique to Britain, HMRC has agreed
that Beer duty is only payable on cask ale that is “drinkable”.
4.5 Allowing for the fact that the brewers may well have regarded the Pubco as their customer, rather than
the publican, who must be made “fully aware” we are astounded that this vital information appears to have
140 Small Business, Enterprise and Employment Bill: Written evidence
been actively suppressed in rent assessments and FMT calculations price lists and delivery notes by every
Pubco whether “Large” or Family brewer.
4.6 Intensive investigation has failed to discover any single case where a PubCo, be it property only, or
indeed Family Brewery has suggested to its tenants that anything less than 72 pints in a 9 gallon cask or 288
pints in a brewers barrel is capable of being sold for the purpose of establishing revenue and profit from FMT,
and subsequently for establishing a rent which is based on a share of the “net profit before rent” arising from
the sale of cask ales.
4.7 Further, in examining the introductory brochures and training material charged for by the PubCos, as a
mandatory requirement of entering into a tenancy or lease, we have not found any suggestion that it may not
be possible to sell 72 pints from a 9 gallon cask of Cask conditioned ale because a certain number of them will
have been declared by the brewer to be undrinkable and therefore unsaleable.
4.8 It has long been a point of contention between tenants and landlords that there is a proportion of
“Wastage” associated with testing, proving, line cleaning, spillage and fobbing which results in a reduction of
“yield” from both kegs and casks. These issues are quite rightly a matter for discussion around the quality of
the dispense facilities and skills of the tenant and staff. However the issue is of unsaleable beer as agreed with
HMRC is of a wholly different nature.
4.9 As far as can be determined the tenancy and lease management departments of both “Family Breweries”
and large Pubcos continue to insist that every 9 gallon cask of British Cask conditioned ale contains 72 saleable
pints and gross profits and rents are determined on that basis.
4.10 The following was received from Carl Heron Head brewer at Sharps Brewery, on 21st October 2014 in
response to an inquiry concerning our own concerns over yield on Doombar this country’s largest selling Cask
conditioned ale.
“We declare 1.9 litres of unsaleable sediment in a firkin to HMCE, which means that you should be
able to yield 68 pints.
We brim fill our casks so it is likely that the yield should slightly better than theoretical.
4.11 Further investigation reveals that the Nominal capacity of a Doombar 9 gallon Cask is 41 litres =
72.15pints, so the maximum possible “yield” from a cask of Doom bar is 68.8 pints not 72. The additional 3.2
pints simply do not exist and yet are charged for and the revenue , including duty and putative gross profits are
fully included in FMT and Rent assessments.
4.12 Inquiries have been made with the Trading Standards Agency concerning this issue, but beyond
confirming that Trading Standards do require every pint sold to a consumer be a fully compliant pint, thus far
it seems that Trading Standards do not regard any volume discrepancy between brewer and publican to be a
matter of concern to them.
4.13 By way of example Jonathan Neame the Chairman of the BBPA and Chief Executive of his family
brewery Shepard Neame, who was tied trade director from 1994 until 1999 declares on labels attached to
his product that a 9g cask of Master Brew has “Firkin Duty paid on 38.9 litres” which is 68.45 pints yet the
Shepard Neame Tenanted Price list states that A Master Brew 9G Cask contains 72 “Measures” and helpfully
suggests gross profit % and cash amounts based on suggested retail prices. It is now chillingly clear that the
inexperienced tenant will have his expected profit largely extinguished if he were to follow the clear advice
given in this “helpful” Price list and profit guide.
4.14 Perhaps to add insult to injury the 3.5 “measures” of non-existent beer that the tenants are being charged
for in addition to those that the brewer deems “Drinkable” are charged at the same duty paid price so in effect
these non-existent measures are the most profitable ones that the PubCo sells to its tenants. This issue arises
even before the cask has been broached and the subsequent loss of “drinkable” beer from conditioning, testing,
proving, line-cleaning,and spillage further reduces the achievable profit.
4.15 The discovery of this kind of issue presents a major problem in the absence of an independent
adjudicator as there is no one to whom it can be taken for rapid resolution, and there are many very similar
issues that have bedevilled the relationship between PubCo and tenant for a decade.
4.16 We believe that the establishment of a powerful adjudicator has potential to galvanise our industry and
make a significant contribution to the survival of our great British Pubs.
4.17 We would encourage the government to remain resolute and ensure that the adjudicator is equipped
with all the necessary tools and powers to achieve this essential task which has been delayed for far too long.
October 2014
Small Business, Enterprise and Employment Bill: Written evidence 141
Supplementary written evidence submitted by Shepherd Neame (SB 49)
We are writing to you, following oral evidence given to the Small Business Enterprise and Employment
Bill Committee concerning the Pub Adjudicator and Statutory Code by Mr. Dave Mountford on 14th October
and by Mr. Simon Clarke on 16th October 2014, to correct any misleading impressions given about Shepherd
Neame.
By Mr. Mountford’s own admission, he is choosing to raise these points because the Chief Executive of
Shepherd Neame, Jonathan Neame, is also Chairman of the British Beer and Pub Association.
By way of background, Shepherd Neame is Britain’s Oldest Brewer, based in Faversham, Kent. We own
and operate 347 pubs of which 299 are tenanted or leased, and the vast majority of these on the traditional tied
tenancy model protected under the Landlord and Tenant Act, with rent reviews every three years and tenants
able to issue six months’ notice to quit at any time.
Our constituency MP is the Rt. Hon. Hugh Robertson and he would be happy to be consulted if the Committee
wishes for an independent assessment of our contribution to the local economy.
In the company’s recent annual report, we highlighted the improving performance of our tenanted business,
after many years of continuous investment during the years of economic downturn. Specifically, we referenced
increased business support in areas such as food development, coffee offer and licensee training. Additionally
we highlighted investment in our existing tenanted estate was up by 16% to £3.7m for the year ended
June20th2014. Furthermore, at our financial year end, our estate was fully let, licensee applications were up on
the prior year and, independently verified, licensee satisfaction scores were also up.
In answer to some of the specific points made in oral evidence and in the report entitled ‘What’s there to
Cheer About?’, we would draw the Committee’s attention to the following:
—— Between July 1st 2013 and June 30th 2014, Shepherd Neame appointed 67 new tenants.
—— The average tenure for our licensees per pub is 5.4 years.
—— Three pubs—The Chequers, Doddington; the Bricklayers Arms, Dover and Chequers, Lamberhurst—
were specifically identified as having high turnover of tenants. It is true that the operation of these
pubs has been particularly challenging but the implication in the evidence is exaggerated. The facts
are as follows:
—— Chequers, Lamberhurst: 5 tenants since 2006 (not 8 as stated).
—— Chequers, Doddington: 5 tenants since 2007 (the tenant prior to 2007 had been at the pub for
more than 20 years).
—— Bricklayers Arms, Dover: 6 tenants over 12 years (not 7 as stated).
—— We analyse these 16 tenures as follows:
—— Ongoing tenants: 3.
—— Appointed as temporary tenants only: 2.
—— Transfer to alternate pub: 2.
—— Personal, family or ill health departure: 4.
—— Business failure: 5.
—— Business failure is always disappointing but it would be incorrect to imply that all such failure should
be attributed to the behaviour of the landlord.
—— Although fulfilling repair obligations is not part of the Code, we have in total invested £126K in these
three outlets in the last six years and given full or partial rent reductions on several occasions in each
outlet including on occasions charging £1 per week for a period of time to allow the tenant to build the
business.
—— It is, of course, very frustrating for the landlord when licensees move on quickly, but it is perhaps
testimony to the flexibility of the tenanted system that, when circumstances change, tenants can
issue six months’ notice to quit and leave the challenge to recruit a new tenant to the landlord. The
alternative in situations where a landlord cannot find a new licensee is to shut the pub and so the
community loses a vital facility.
—— It is alleged that we do not maintain our buildings. We have had one incident, the Chequers,
Lamberhurst, where the Parish Council wrote to ask us to carry out work which we have now done.
In this particular instance we were in discussions with a third party to acquire adjacent property which
may have resulted in a significant development of the pub. Sadly, this did not subsequently materialise.
We are in regular and ongoing dialogue with Conservation and Building Inspectors in local Councils
about all our pubs.
—— Within the report, ‘What’s there to Cheer about?’, it is alleged (p.4) that Shepherd Neame investment
level in our estate is reducing. This is wholly incorrect. We cannot reconcile the quoted 2011 and 2012
numbers with any number we have; the 2013 number includes managed house investment and new
acquisitions. The investment in our existing tenanted estate for 2014 was £3.7m, up 16% on the prior
year, which was up by a similar amount on the year before that.
142 Small Business, Enterprise and Employment Bill: Written evidence
—— In Mr. Clarke’s evidence on October 16th, he states that we put a perceived value of £6,000 a year on
the provision of the website. We do not. We cannot find his reference. In our formal submission to the
most recent Select Committee Enquiry, we have estimated the total SCORFA benefit to our licensees
at £25K per annum including below market rent, discounts on beer, property investment and business
support services. With regard to web services, we provide the hosting, maintenance and development
of web and social media sites, a helpline, training and marketing advice as part of our overall business
support package.
—— It is implied in oral evidence and in the ‘What’s there to Cheer About?’ report that brewers have
increased beer prices significantly above the rate of inflation in recent years. We have not. For the
record, our increases (ex duty) are as follows:
Standard Ale
Standard Lager
2012
2.7%
3.0%
2014
2.8%
2.8%
2011
2013
0.0%
1.9%
0.0%
1.9%
Furthermore, the excise duty cuts in 2013 and 2014 have been passed on to our tenants in full.
—— It is implied in Mr. Mountford’s evidence that Shepherd Neame are in breach of the voluntary Code
of Practice, but he has brought no evidence of this. No formal written complaints concerning Code
breaches have been lodged with us. There have been no referrals to PICAS and no rent reviews
determined by PIRRS. To the best of our knowledge, tenants have relied on third party involvement
from Fair Pint in two specific situations, both of which were resolved amicably. Such third party
advice and involvement is encouraged by the Code and is not prima facie evidence of bad practice by
the landlord.
Shepherd Neame has consistently increased investment and added business support services to our tenanted
offer throughout the last few years against a difficult trading environment. During this time we have also
introduced significant procedural changes to update our own Company Code and adopt the Industry Standard
Code Version 6. We are not 100% perfect nor do we profess to be so but we seek continuous improvement in
all we do and pride ourselves in generally having an excellent working relationship and good dialogue with
our licensees. Any ‘assertions’ or ‘evidence’ tabled against us should be set against the backdrop of countless
discussions, negotiations and actions taking place between the brewery and its licensees every week. In a 2009
survey of our tenants conducted by Elliott People 88% agreed or strongly agreed that they were happy with
their relationship with Shepherd Neame. In a 2013 HIM survey 94% of our tenants stated that they think the
company ‘sticks to the Code of Practice’.
In summary, we hope that the Committee will find this information useful and will take a proportionate and
balanced view based on factual evidence when reaching its ultimate conclusion.
October 2014
Written evidence submitted by Fair Pint Campaign (SB 50)
Fundamentally Fair Pint Campaign welcome the Bill and Code but have grave reservations about its lack
of content. We appreciate the legislation may offer a foundation for future development to a material and
meaningful resolution but as it stands we envisage no significant change and a continuation of the UK’s pub
market decline.
In general terms the Bill and Code emulate the current self regulatory regime, which has already been
accepted by Government to have failed. The one fundamental difference is that the enhanced part of the code
contains a Government proposal, the parallel rent assessment, which seeks to deliver the principle of fairness
in the relationship between larger pub owning businesses and their tied tenants. This PRA on its own can not
deliver the Government commitments—fairness and to ensure a tied tenant is no worse off than if they were
free of tie.
We do not doubt that the pub companies will seek to have PRA omitted from the Bill by amendment. We
would like to stress that without MRO or PRA then the Bill contains very little at all of interest for tied tenants
and will ultimately fail to deliver any of the Governments commitments. The Bill will basically become Version
6 of the self regulatory Industry Framework Code, which failed for an number of reasons the primary one
being it did nothing, and had no aspiration, to rebalance the risk and reward between landlord and tenant and
permitted the pubcos to continue to take an excessive and unfair proportion of a pubs profits to the detriment of
the tied tenant.
The Public Consultation revealed that 96% of the respondents to the online survey supported Government
regulation and 67.6% agreed that the best way to deliver the Government commitments was to introduce a
Market Rent Only option. This support for Market Rent Only option seems to have been largely ignored by
Small Business, Enterprise and Employment Bill: Written evidence 143
Government. In contrast, only 29.6% supported a measure to ensure that is a tenant pays more for drinks they
must be charged a lower rent (the parallel rent assessment proposed) and 52.6% were in favour of the statutory
code applying to all pub owning companies, instead of those with over 500 pubs. Government seemed to have
listened to the minority when making their rent assessment proposal and very marginal majority proposing the
code, at least in some part, applies to all.
Like the Bill is co-dependent on the Code, the parallel rent assessment (PRA) relies on the existence of
an Market Rent Only option (MRO). The initiative is to empower the tenant, currently in a subservient and
financially weak negotiating position, in order to restrain a multi million pound pub owning business from
taking advantage of their dominant position over a much smaller, unsophisticated, business by abusing the
terms, unique to tied agreements to the other parties detriment.
That is not to say all pub owning businesses are abusing their position. St Austell brewery, we are told,
have an exceptional relationship with their tenants. If true we consider this is a relationship all pub owning
companies would seek to emulate and improve upon. The likelihood is a St Austell tenant if offered a MRO
option would remain in their tied agreement. Evidence has been presented that the tenants of other bigger pub
owning companies may not enjoy the same, apparently, symbiotic relationship and as such may take comfort in
the existence of a MRO option.
No organisation has proposed the PRA on its own. Both landlord or tenant organisations know it will be
largely ineffective as it is both mechanical and time consuming—that is why the pub owning businesses and
their parliamentary supporters are allowing it to slip by relatively un-resisted.
Put simply, the Market Rent Only option means a tied licensee can choose whether to remain in the same tied
agreement, paying extra for tied products and a lower rent to compensate for them or swap on to an agreement
under which they simply pay a market rent and acquire products from any source if they consider the tied rent
is not fairly reflecting the tied product prices.
We would like to reiterate our original proposal based on the recommendations of four all party select
committees.
A statutory code should be introduced, policed by an independent Adjudicator, containing a Market Rent
Only option. This code should apply to all pub owning businesses with more than 500 pubs (not 500 tied
pubs).
This ensures the tied tenants of the pub owning businesses with a threshold market share are protected by
statue. Regional family brewers are exempt due to their size and will be influenced by market forces.
Government seem to have rejected this proposal largely on the pub owning businesses stated grounds that it
may create a two tier system. There are two obviously and simple counter arguments to this contention.
1. The Government proposal itself has a core and enhanced code—so would create a two tier system
anyway.
2. The pub sector is not single tier now—there are a multitude of tiers, tied and free of tie—freehold,
managed, leased, tenanted—short leases, long leases—variations in discount levels and lease terms.
This proposal for an MRO and a 500 statutory threshold simply rebalances the equilibrium allowing all
tiers to operate on a level playing field.
We stand by this proposal.
Turning to the Bill itself. We have a number of additional minor points which may assist the committee in
considering its content.
We address each comment as it relates to the paragraph numbering in the proposed Bill:
36(3) There appears to be no definition or guidelines to the underlying principle of “fair and lawful
dealing”. We would suggest this is going to be the subject of great debate and dispute and would
suggest a stronger and clearer principle statement. As things stand the self regulatory codes all contain
an underlying ‘Minimum Obligation’ that “All contracts will be fair, reasonable and comply with
legal requirements.”. The pub owning businesses have all agreed to this wording which, despite being
difficult to enforce due to the constraints upon the regulatory body, seem stronger that that currently
proposed in the Government proposal.
36(4) We would assume an expectation that ALL tied tenants should be no worse off than if they were
free of tie. The wording in this provision seems to imply, assuming brewers are to be covered by the
code, that it is acceptable for their tenants to be worse off. This seems contrary to the Government
commitment and grossly unfair.
36(5) “The Pubs Code may.....”. The use of the word “may” offers no comfort at all as it offers no
commitment at all. The Bill should be conferring an obligation that certain terms ‘will’ be contained
within the Pubs Code.
36(6) as above. Our reservations in respect of the PRA should not be misinterpreted as a dismissal
of the principle. A PRA can be a very useful tool to a tenant considering a MRO option, their
144 Small Business, Enterprise and Employment Bill: Written evidence
circumstances and profitability tied and free of tie but these should be hand in hand with a remedy
within the tenants control (MRO) should they determine that the combination of PRA and any other
unquantifiable considerations does not result in fair tied terms. We would not want to see this provision
removed as it is an essential component to demonstrate the whole picture of fairness and with out it
the Pubs Code is little more than an abbreviated self regulatory code covering some peripheral issues
but once again missing the main issue of contention and dispute.
We are somewhat surprised that PRA is not defined in the draft Bill ‘Interpretation’ section and would
suggest this would be a welcome clarification.
We would proposed an additional provision—36(7)—this provision would largely mirror 36(6) but
would replace the wording ‘parallel rent assessment’ with ‘market rent only option’.
37 If the draft Pubs Code is to remain largely unchanged then we will see the accelerated sale of
pubco pubs for alternative use, what many see as asset stripping the nations heritage. Punch and
Enterprise alone have divested in a third of their pubs (over 5,000) in four years to 2012. This exercise
has accelerated since. No one argues we have lost about 10,000 pubs in 10 years. We estimate a
two year opportunity to maximise the pub disposals without offering tenants a MRO option before
sale will see thousands more closed. The pub companies will be arguing for a longer period before
review to maximise their efforts. Conversely if MRO is included in the Bill then we believe, given the
Governments reservations, an opportunity to review its immediate affects would be encouraged by
the pub companies. Also, consider that no organisation has offered their support of the Governments
proposed parallel rent assessment on its own but MRO has received overwhelming support by all but
those who perceive they would benefit from its absence. With the later in mind, depending on the
code content, it seems both camps would welcome a shorter review period. The review period should
be annual to assess the evolving effects or failings of the Pubs Code. After a period of say 3 years of
annual reviews the review could be conducted on a rolling 3 yearly basis as proposed.
38 We very much welcome this provisions and subject to the over riding principle “fair and lawful
dealing” being strengthened we consider it may be influential in the longer term. Clearly we again face
the problem of time—how long would it take for a determination by the Secretary of State following
a referral on inconsistency grounds? What the Code lacks is an effective and immediate remedy, this
could be delivered with an MRO option. A tenant finding themselves in an unfair tied relationship
need not refer the matter to an Adjudicator or the Secretary of State, they can implement the MRO
and the new market rent, reflecting the relaxed terms of trading, can be negotiated or determined by a
third party, at a later date and back rent paid to the date of the MRO notice. Fundamentally this gives
the pub owning business an opportunity to amend and represent their tied agreements on tied terms
that may be considered by the tenant to be fair and mutually beneficial.
39 One of the principle problems in the industry is the time consuming exercise of referral to third
parties in the event of dispute. Tied agreement terms can be used to restrict choice and/or increase
product prices resulting in tenant failure within a few weeks. If another referral mechanism is to be
introduced, as proposed, it must be accompanied with some kind of powers to freeze product choice
and price until the determination is concluded. This power may be conferred in 38 but we doubt the
Secretary of State will be able to make regulations necessary within a period of a few weeks.
39(6)(b) Whilst we appreciate and accept an Adjudicator may need to ‘subcontract’ their
responsibilities, it is vital that the issue of rents does not end up back in the hands of a small group
of conflicted surveyors claiming to be able to offer an impartial position. Rob May, National Rent
Controller of Enterprise Inns was chairman of the specialist group dictating rent assessments on pubs
and still remains a member of that group alongside other surveyors who derive a large proportion of
their fees from the pub companies and brewers (is it any wonder when they collectively own about
50% of the 50,000 pubs in the UK). The RICS were asked by the select committee and Government
in 2010 to reconsider the pubs rent assessment guidance document as it had been acknowledged
that there were some fundamental failings in the guidance interpretation. No action has been taken
to rectify this situation. The RICS have been asked to confirm that if a pub valuation is conducted
appropriately the resultant tied rent should represent an amount that leaves the tied tenant no worse off
than if they were free of tie. The RICS have declined to comment. It is essential that the Adjudicator
does not appoint surveyors to arbitrate the dispute with this level of organisational uncertainty and the
influence of conflicted surveyors persists within the profession.
40(2) Timing of referral 21 days—the tenant can be forced into financially instability in days and
collapse in weeks by simple restriction of choice and/or price permitted by the terms of the tied
agreement. This circumvents any protection intended by the Landlord and Tenant Acts. As mentioned
earlier an immediate and effective remedy, neutralising the powers uniquely made available in tied
agreements is needed if the tenant is to stand any chance of continuing to trade whilst awaiting a
determination. MRO offers such a remedy.
41 Does this mean that if a rent review arbitration (through the standard lease procedure or PIRRS)
has already begun a tenant can not refer the matter to the Adjudicator?
Small Business, Enterprise and Employment Bill: Written evidence 145
49 (5) There is no apparent definition of the “Consolidated Fund”.
51 (and more generally) Terminology / definitions—we believe it is important to make the definitions
clear, e.g. where the Bill reads ‘tenant’ this does not preclude “lessee”.
57 If the Bill does not contain an MRO option we foresee very little changing and the work of the
Adjudicator would be fairly ineffectual. The danger is that the failure of the Bill and Code to effect
the necessary changes will be seen as a failure of the Adjudicator and lead to their abolition. In
fact, like a police force without meaningful laws the Adjudicator would be rendered toothless and
inconsequential much the same as the self regulatory regime was. This is would be a failing of the
Bill and Code not the Adjudicator.
59(5) Ties are not limited to the sale of alcohol. Tenants can be tied on non alcoholic products and
indeed bound to take certain services all at unregulated prices. Condition D should read “is that the
tenant of the premises is contractually obliged to buy from the landlord, or from a person nominated
by the landlord, some or all of the products to be sold at the premises and / or bound by any tied
services.”
60(1) The current wording would appear to exempt companies from this definition. This should not
be restricted to “person”—it should be any “entity” of one or more tied pubs.
60(2)(3) The original proposal was for the Pubs Code to apply to any pub owning business with more
than 500 pubs. The introduction of the wording “tied pubs” is not welcome. The 500 threshold we
supported was founded on a market share of all pubs, being about 1% of all pubs. Potentially a pub
owning business could have thousands of pubs and only 499 tied and be bound by no regulation, or
under the current proposal only regulated by the core code. Companies such as Fullers and Shepherd
Neame are intent on expanding their managed portfolios, they buy tied pubs and ‘encourage’ the tied
tenant to leave. This in itself should not be discouraged but we should ensure that once a company
has a greater market share their tied tenants are not ejected unfairly using tied terms. If the current
proposal, of 500 tied pubs, remains this safeguard is removed. The incentive should be introduced,
if a company wishes to avoid the cost of compliance they should not expand beyond 500 pubs. We
envisage owning more than 500 pubs the company would have a multi million pound turnover,
Fullers and Shepherd Neame already turnover £288m and £139m respectively with well under 500
pubs, compliance costs would therefore be relatively negligible if they expand beyond 500.
60(5) There will be many attempts to subvert the Bill and Code should it be implemented with
meaningful provisions capable of effectively delivering the Governments commitments. One method
of overcoming regulation may be by selling ownership but retaining tie—contractual obligation to
purchase from someone other than the landlord and not nominated by them. Heineken have just
sold 111 pubs to Admiral but retained the tied terms themselves. Heineken (formerly Scottish and
Newcastle) have done this before and in the late 1990’s and early 2000’s sold their entire estate to
various other banks and pubcos retaining the tied terms for themselves on about 2,000 pubs. The
Secretary of State must be given as much latitude as possible to react to any efforts to circumvent the
principles of the legislation.
62 Code says—‘Tied tenant’ defined in legislation it does not appear to be. ‘Tied pub tenant’ is defined
in the Bill. A small point but the Bill and Code should be using the same phraseology.
October 2014
Letter from George Mudie MP, Chairman of the Joint Committee on Statutory Instruments to John
Robertson MP, Chair, Small Business, Enterprise and Employment, Public Bill Committee, House of
Commons (SB 51)
The Small Business, Enterprise and Employment Bill, clause 30
I am writing to inform you about the work that the Joint Committee on Statutory Instruments has undertaken
which is relevant to clause 30 of the Small Business, Enterprise and Employment Bill. I hope that this letter
will offer helpful background information which may assist the Public Bill Committee in its consideration of
this clause, and that it will be treated as written evidence to your Committee.
As you know, the clause seeks to introduce statutory definitions for the terms “new business” and “micro
business”. The clause states that these terms should be defined using the definitions found in the Annex to EU
Commission Recommendation 2003/361. Paragraph 42 of the Explanatory Notes to the Bill explains that the
clause is intended “to ensure that these definitions are available for use in other legislation, for example where
smaller businesses are exempted from new regulatory obligations.”
My Committee has recently looked at two regulatory instruments which included such an exemption for an
initial period:
—— The Consumer Rights (Payment Surcharges) Regulations 2012 were reported for requiring elucidation,
on the basis that the definitions of “new business” and “micro business” did not make clear how it is
146 Small Business, Enterprise and Employment Bill: Written evidence
determined, in the case of related operations, what would count as a separate business and what would
count as part of a larger business (Twenty-first Report of Session 2012-13, Consumer Rights (Payment
Surcharges) Regulations 2012 (2012-13 HL 141, HC 135-xxi)).
—— Almost identical provisions for defining new and micro businesses were contained in the Draft
Equality Act 2010 (Equal Pay Audits) Regulations 2014. We considered this instrument at our meeting
on 21 July 2014 and reported it for requiring elucidation for the same reasons (Seventh Report of
Session 2014-15, Draft Equality Act 2010 (Equal Pay Audits) Regulations 2014, (2014-15 HL 33,
HC332-vii)).
The relevant extracts from these Reports are attached to this letter.
As a Committee, we remain concerned that these terms should be defined in a way that is sufficiently clear
and robust and that will deliver the policy as intended. While we recognise that factors beyond our Standing
Orders may be relevant to consideration of primary legislation, our Standing Orders call for us to report
secondary legislation if it appears to be drafted in a way that is insufficiently clear. We have not had occasion to
consider a secondary legislation provision based on the formulation used in clause 30 of the Bill. Had we had
occasion to do so, we would have expected to consider whether the Annex to the Commission Recommendation
(which, unlike Regulations, Directives and Decisions, does not have legal force) was sufficient to overcome the
problems of precision seen in the examples cited without adding difficulties of its own.
We would have also preferred to have seen the substance of the definitions set out in the clause itself.
I am sending this letter to the other Chairs of the Committee, and copying it to Mr Fergus Reid, Clerk of the
Committee.
INSTRUMENT REPORTED
At its meeting on 6 March 2013 the Comm ittee scrutinised a n umber of Instruments in accordance with
Standing Orders. It was agreed that the special attention of both Houses should be drawn to one of those
considered. The Instrument and the grounds for reporting it are given below. The relevant Departmental
memorand um is publ ished as an appendix to th is report.
SJ. 2012/3110: Reported for requiring elucidation
Consumer Rights (Payment Surcharges) Regulations 2012 (S.I. 2012/3110)
1.1 The Committee draws the special attention of both Houses to these Regulations on the ground
that, in one respect, they require elucidation.
1.2 These Regulations, made under section 2(2) of the European Communities Act 1972, provide for staged
implementation of Article 19 of Directive 2011/83/EU of the European Parliament and of the Council. Article
19 requires member states to prohibit traders from charging consumers, in respect of a given means of payment,
fees that exceed the cost borne by the trader for the use of such means. Atticle 28 requires implementation from
13 June 2014.
1.3 Regulation 4 accordingly prohibits such charging. However the prohibition is introduced in stages.
Thus, subject to qualifications not requiriug analysis for the purposes of this report, the prohibition in these
Regulations applies as from 6 April 2013 for traders operating neither as new businesses nor as existing
micro- businesses but, as a result of a temporary exemption in regulation 6 as read with the Schedule, they
apply only after a grace period, ending at latest on 12 June 2014, to any trader operating as a new business or
as an existing micro-business.
1.4 While the Regulations contain significant distinctions about start times for new businesses and employee
numbers for micro-businesses, there appeared to be no indication as to how one distinguishes, in any case of
potentially related operations, what counts as a separate single business and what counts as part of a larger
business (apart from the fact that a franchise operation is to count as one business of the franchisor rather than
separate businesses of each franchisee—see Schedule, paragraph 10). Yet characterisation as one or other may
well give rise to different results according to whether—for example—the employee numbers cause it to be
regarded as an existing micro-business or not.
1.5 The Committee therefore asked why, given the multiplicity of operations that, in the absence of
assessment criteria, might equally count as a single business to which the temporary exemption in regulation
6 did not apply or as a number of separate businesses to each of which (or to some of which) it applied, there
appeared to be no indication of how one established what a separate business was, apart from the franchise rule.
1.6 In a memorand um printed at Appendix I, the Department for Business, Innovation and Skills argues that
“it will be sufficiently clear on the facts of each case what is a separate business” on the grounds that “this can
be determined from the ordinaty meaning of “business”.” The Department adds some discussion of how the
criteria might work, including examples. The Department concludes as follows: “However, we acknowledge
that there may be scope for greater detail .... on the factors to consider when determining what constitutes a
separate micro-business, drawing in particular on the issues addressed in relation to separate new businesses
Small Business, Enterprise and Employment Bill: Written evidence 147
in paragraph 3(3) and (4) of the Schedule.” Those provisions cover continuity of activities in establishing what
counts as a new business.
1.7 The Committee considers the discussion in the Department’s memorandum is helpful so far as it goes;
but the Committee agrees with the Department’s conclusion that further thought is required (particularly in the
light of the stated intention to use the exemption as a model for implementation exercises in other instruments).
In addition the Committee is not convinced that greater detail on what counts as an activity alone will
provide clarity in the absence of express provision on other factors that might be relevant in deciding whether
an operation counts as a separate business—for example location or economic interest. The Committee
accordingly reports the Regulations as requiring elucidation, partly provided by the Department’s
memorandum.
INSTRUMENTS REPORTED
At its meeting on 21 July 2014 the Committee scrutinised a number of Instruments in accordance with
Standing Orders. It was agreed that the special attention of both Houses should be drawn to one of those
considered. The Instrument and the grounds for reporting it are given below. The relevant Departmental
memorandum is published as an appendix to this report.
1. Draft SJ: Reported for requiring elucidation
Equality Act 2010 (Equal Pay Audits) Regulations 2014 (Draft S.I.)
1.1 The Committee draws the special attention of both Houses to these draft Regulations on the
ground that, in one respect, they require elucidation.
1.2 Regulation 2(1) requires an employment tribunal to order a respondent to carry out an equal pay audit
where the tribunal finds there has been an equal pay breach. However, regulation 4 excludes a tribunal from
making such an order, during a specified exemption period, where the respondent carries on a business that is
an existing micro-business or a new business. ·rhe definition of what constitutes an existing micro-business or a
ne’v business is set out in the Schedule to the draft Regulations.
1.3 Almost identical provisions for defining new and existing micro-businesses were included in the
Consumer Rights (Payment Surcharges) Regulations 2012 (SI 2012/3110) to which the Committee drew
special attention in its 21st Report of the 2012-13 Session. In that report, the Committee noted that, while
the provisions contain significant distinctions about start times for new businesses and employee numbers for
micro­businesses, no indication is given in the provisions as to how one distinguishes, in any case of potentially
related operations, what counts as a single business and what counts as part of a larger business. In that case,
while arguing that it would be sufficien tly clear on the facts of each case what is a separate bnsiness, the
Department for Bnsiness, Innovation and Skills acknowledged that there may be scope for giving greater detail
in the Regnlations about the factors to consider when determining what constitutes a separate micro-business.
The Commi ttee agreed that further thought was required, and expressed the view that further consideration
should be given to including provisions which set out the factors which are relevant in deciding whether an
operation counts as a separate business.
1.4 In this case, the Department confirmed in paragraphs 3.4 and 3.5 of the explanatory memorandum that
it took note of the Committee’s report on SI 2012/3110. However, it explains that it did not include the kind
of additional provisions referred to in the Committee’s report because any decision by the Tribunal on whether
or not the exemption applies can be appealed. Reference is also made to clause 30 of the Small Business,
Enterprise and Employmen t Bill which sets out definitions of “small business” and “micro­ business”. The
Department states in the explanatory memorand um that the government does not want to pre-empt the will of
Parliament by defining micro-business by reference to that clause.
1.5 The Committee was not convinced that the availability of an appeal, given that it is l ikely to require
the expenditure of further money and resources by a respondent, was by i tself an appropriate reason for not
includ ing further provisi on to resolve any doubt about what constitutes a separate business for the purposes
of the draft Regulations. The Committee was also not convinced that any provision would “pre-empt the will
of Parliament’’. Express provision in the draft Regulations would only have effect for its own purposes, and
would not carry with it any implication for how the expression “micro­ business” should be defined in other
circumstances. Also, any provision in the draft Regulations would relate to new businesses, a matter which is
not dealt with in clause 30 of the Small Business, Enterprise and Employment Bill. Accordingly, the Committee
asked if any other mechanism existed, apart from an appeal, to assist a tribunal in determining whether a
set of related operations constitute a single business; and what consideration was given to including express
provision.
1.6 In a memorand um printed as an Appendix, the Department states its view that what constitutes a
separate business will be sufficiently clear on the facts of each case. It notes that no concerns were expressed
about this issue when the Presidents of the Employment Tribunal for England and Wales and for Scotland were
consulted. The Department confirms that it considered whether to include further express provisions in the draft
Regulations; but decided not to do so because it considered that it would be inappropriate to go further than
the existing model provisions used in earlier statutory instruments until such time as Parliament approves the
148 Small Business, Enterprise and Employment Bill: Written evidence
definitions of “small business” and “micro-business” in the Small Business, Enterprise and Employment Bill.
As to other mechanisms for assisting in determining what constitutes a separate business, reference is made to
employment tribunal rules of proced ure which allow a respondent to request reconsideration by the tribunal
before making an appeal. The Department indicates in its memorandum that it will keep the operation of the
Regulations under review and that, if it becomes clear that tribunals are finding it difficult to determine whether
related operations constitute a single business for the purposes of the Regulations, it will consider making
amendments.
1.7 The Committee considers that the information provided in the Department’s memorandum is helpful, in
particular in clarifying that no issue was raised when consulting on the draft Regulations, and that the matter
will be kept under review with the possibility of future amendments. However, the Committee considers
that, given the large number of different circumstances in which related operations may occur, there will
necessarily be cases in which it is unclear whether those related operations constitute a single business. The
Committee remains of the view that consideration should be given to whether it is possible to reduce the
number of cases in which doubt arises by making express provision. The Committee is not persuaded by the
Department’s reasons for not doing so. Any definition of “micro-bnsiness” contained in the Small Business,
Enterprise and Employment Bill will not apply retrospectively to these draft Regulations, nor would it apply
to the extent that the draft Regulations make provision about new businesses. Any provision included in
the draft Regulations would only have effect for its own purposes, and would not, in the Committee’s view,
cany any wider implications as to how the expression “micro-business” should be defined. Accordingly, the
Committee reports the draft Regulations as requiring elucidation, partly provided by the Department’s
inemorandum.
Written evidence submitted by The British Exporters Association (SB 52)
http://www.publications.parliament.uk/pa/bills/cbill/2014-2015/0011/15011.pdf
1. The British Exporters Association (‘BExA’) is a membership organisation representing some 90 corporates.
Our membership is drawn from across the exporting community, including capital goods manufacturers and
international traders (large corporates, MSBs, SMEs and Micro exporters), and their bank, credit insurance
and other service providers. BExA takes a particular interest in trade finance and export credit insurance and
supports the objectives of the 2011 National Export Challenge.
2. BExA’s interest in the Small Business, Enterprise and Employment Bill (‘the Bill’) is focused on the
provisions contained in Clauses 9 and 10 to widen the powers of the Secretary of State under UK Export
Finance’s (UKEF) governing Act, the Export and Investment Guarantees Act 1991 (as amended) (‘EIGA’),
Clauses 4 and 5 regarding access to finance for small and medium sized enterprises (‘SMEs’), the protection of
credit data and retention of control by the SME over disclosure to third parties of its credit data and Clause 33
regarding Public Procurement processes.
3. The proposals in Clauses 9 and 10 demonstrate the Government’s acknowledgement that UKEF operates
in a competitive OECD Export Credit Agency (‘ECA’) environment. When enacted, these changes have the
potential to represent a key driver towards the Chancellor’s stated ambition to make UKEF the most competitive
European ECA. The changes will not, however, address the continued actions of non-OECD ECAs (including
China) in offering enhanced terms that OECD ECAs are unable to match. Work should continue to bring these
nations under the OECD framework to enable a level playing field for all exporters.
4. We welcome the intention to change the EIGA through Clause 9 of the Bill to address some key BExA
recommendations for UKEF including the widening of UKEF’s remit since this has the potential to maximize
UKEF’s ability to support exports. We trust that the changes will address:
a. Provision of direct support, including export credit insurance, finance risk support, guarantees of
general working capital facilities, or advice or information to UK businesses that are, or wish to
become, involved in exporting.
b. Support where there are complex contracting chains or financing arrangements including where exports
are made via overseas subsidiaries or joint venture companies.
c. Support for SME exports worldwide, whatever the destination.
d. The ability to support both the development of and export of software, intellectual property rights,
financial services and other intangibles.
e. Support where the customer or end-customer is overseas yet delivery is within the UK or in UK waters.
f. Scope to support projects and business ventures overseas to which goods or services sourced from UK
exporters are directly or indirectly supplied.
We trust that the phrase ‘which the Secretary of State considers are conducive..’ will not be a barrier to
support for exports as methodology and processes naturally evolve.
5. It is critical that in future UKEF should be able to provide facilities for ‘the exporter’ rather than
individual ‘export contracts’. Support is needed whether the exporter is in an export supply chain, a contractor,
or is exporting in its own right. Global trade is conducted under a wide variety of contractual arrangements,
Small Business, Enterprise and Employment Bill: Written evidence 149
including the increasing prevalence of delivery via or by utilizing the services of overseas subsidiaries of UK
corporates or joint ventures, to meet overseas buyer’s local content requirements. A broadening of UKEF’s
remit to accommodate all types of contracting structure, including those that will evolve in future, and all
exporters, be they direct or indirect, is logical and something BExA fully supports.
6. In October 2014, BExA’s also launched its Manifesto for Exporters—http://www.bexa.co.uk/docs/
BExA%20Manifesto%20October%202014.pdf. The Manifesto sets out 5 recommended Action areas for UKEF
focused on Accessibility, Support to SMEs, Medium Term Products, Co-operation with the Private Market and
Resourcing. These Actions are supported by BExA’s annual benchmarking of UKEF’s product portfolio and
business performance against its ECA peers ‘UK Export Finance: Supporting the National Export Challenge’—
http://www.bexa.co.uk/docs/BExA%20UKEF%20ECA%20Benchmarking%20pape%20Oct%2014.pdf. BExA
believes that the enactment of the Bill will increase demand for UKEF’s support. In order to maximize the
impact of the changes to UKEF’s remit as set out in the Bill, BExA believes that action needs to be taken by
UKEF in each of the areas identified in our Manifesto.
7. BExA supports the provisions of Clause 10 of the Bill which would allow the Secretary of State to
increase by order, up to three times, the foreign currency and sterling limits on the liability incurred by UKEF
in supporting UK exports and investments overseas and managing its portfolio of risks, but such limits should
be calculated after any purchase of reinsurance from investment grade carriers. Such flexibility represents an
appropriate management practice that should be retained by the Secretary of State. In addition the removal of
the requirement to consult with the Export Guarantees Advisory Committee (EGAC) on matters of re-insurance
with other ECAs is welcomed by BExA as being practical change to EGAC’s role which is to focus solely on
ethical issues related to export contracts.
8. BExA welcomes moves to improve access to finance for SMEs. The provisions of Clauses 4 and 5 of the
Bill relate to the potential widening of access to finance for SMEs and to ensure the appropriate safeguarding of
credit data. We do not see that the option to regulate the sharing of financial information will necessarily lead to
improved lending; financial institutions and credit reference agencies cannot be compelled to share opinion and
strategy. SMEs should be encouraged to share more information about themselves to financiers. The Consumer
Credit Act can be used by SMEs to correct data. Rather than each Act having its own definition of SME, the
Government should set a ‘universal’ definition, for example based on the EU guideline.69
9. A strong domestic market is invariably key for manufacturers wishing to export. A track record of selling
to, or being part of the supply chain for, UK public procurement programmes represents a UK ‘stamp of
approval’ for the manufacturer. The relationship between domestic sales success and consequent export potential
needs, in the context of a free and open tendering regime, to be recognised through the public procurement
process. In addition so as to ensure a level playing field between the domestic bidder and overseas competitor,
the domestic supplier should not be disadvantaged in instances where the international competitor can access
support from its ECA. BExA believes that these considerations should be recognized under the provisions of
Clause 33 of the Bill.
Summary
10. BExA supports the objectives of the Bill and its motives of increasing support for SMEs in a number of
areas. In relation to export, the bill has the potential to extend UKEF’s remit enabling UKEF to support a wider
base of UK exporters and to more complex export contracting structures.
October 2014
Dear Sirs
Written evidence submitted by Carol Ross (SB 53)
My name is Carol Ross, I am the licensee of Roscoe Head, 24 Roscoe Street, Liverpool L1 2SX. I have a
15 year lease with Punch Taverns (Fully repair and insuring Lease (“FRI Lease”)). I have been at this pub for
over 30 years, living with my parents, who had the lease before me which was a 10 year Vanguard Lease with
free of tie on Guest Beer. I bought the tenancy from my parents in 1997, with very much the same terms as my
parents. Roscoe Head Pub is one of the Magnificent 6 pubs. (Only 6 pubs in the England to have featured in
every edition of the Good Beer Guide) Roscoe Head was famous for its beer, also the choice of beers.
In 2006, Punch Taverns changed my lease to a FRI Lease and took away my guest beer option. They also
changed the terms of the lease so it was a FRI lease. This was detrimental to my business as I could not have
guest beers of choice, and also could not afford any dilapidations. My business was successful before with the
guest beer option. My pub is very old, I could not afford the dilapidations inside and out as this is a very old
pub. Before I was only responsible for inside.
All I ask for is a chance to be on the same level playing field. There is a lot of competition around my pub,all
free houses who purchase different ales from around the country, these pubs are all thriving, customers come
into my pub look at the guest beers on the board and go back out. If there is nothing different on the board they
69 http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf
150 Small Business, Enterprise and Employment Bill: Written evidence
will not come in. Punch Taverns directors have been invited to my pub on many occasions to have a look, firstly
at the size and secondly to understand my need for ever changing guest beers to grow my own business. Also
to show them my customer comments from the box, virtually all the customers ask for choice. i.e. “Lovely pub
but choice of ales not great,would like some micro brewers beers and stouts”. Beer choice is always a common
concern. I know I can grow my business with a free choice of beers, I should be allowed to source my own
beers. It is the beers that keep the Roscoe Head so successful. UnfortunatelyPunch Taverns make all the money
from the Roscoe Head with their old session beers which they get good discounts on and then charge us nearly
double. I earn less than the minimum wage.
Attached to this e-mail is a List of Beers which were out of stock at the time of ordering, this is not good,
this would not happen if I was to source my own beers. This is my business, I should be able to run my pub
according to my customer needs. Punch Taverns cannot provide me with the beers I need to grow my trade.
Only MRO would balance this out. We need this balance to survive.
If we were given a fair market rent only, I know my business would grow, and I would employ extra staff.
The Great British Pub is about the pubs being part of our community which is what they are famous for, i.e. the
banter, the jokes the pie and the pint, the outings. it is about making the pub your own and your customers have
a nest to come back to and feel you belong to, which is where the community pub stems from.
MRO is the only possible way of government ensuring a fair relationship between Pubcos and their Tied
tenants.
The survival of the Great British pub is in your hands. Please I urge you to help the tied tenants.
October 2014
Annex
PUNCH TAVERNS
Out of Stock Beers 2012/14
10th July 2011
No FC
16th October 2011
No Finest Cask Available
18th July 2011
24th January 2012
7th February 2012
13th February 2012
16th February 2012
20th February 2012
6 March 2012
12th March 2012
26th March 2012
23rd April 2012
15th May 2012
25 June 2012
3rd July 2012
24th July 2012
13th August 2012
4th November 2012
27th November
7th December 2012
18th December 12
5th February 2013
19th February 2013
2nd April 2013
No FC
One Finest Cask (FC) out of Stock
Finest Cask missing from order
No FC Hooky Dark, No Jennings, re-ordered for Thursday
No Jennings—Re order for Friday
No Jennings in stock
No FC Spring Zing
No St. Parick’s Day Beers
FC Celtic Glory out of stock
No Tetleys Bitter
3 FC missing—out of stock Gunpowder,Golden Glow, Hill Climb
2 FC missing—Lemon Dream, Citra
Paid for 4 Finest Cask—not delivered—O of S
No FC Torchlight—Tetleys broken cask, Leaking, Case Peroni missing
1 FC missing—out of stock
Phoned Alan Wills to arrange delivery out of Tetleys asked for Monday
delivery instead of Tuesday—did not arrive—No Tetleys, No Jennings,
No FC—Exmoor Dark
Tried to get Tetleys would not deliver any unless I paid for off day
delivery
Tuesday No dray, no phone call, said they would delivery Wednesday
3.00pm no delivery. Dray arrived 8.05pm in the evening. Normal
delivery day Tuesday.
No FC Farriers Best, no Magners
No FC Airedale out of stock
No FC Yorkshire Pride out of stock—No Manns Brown
Small Business, Enterprise and Employment Bill: Written evidence 151
9th April 2013
England’s Glory out of stock FC
2nd June 2013
No FC—An Howl, Penpont Brewing
1st May 2013
4th June 2013
17th June 2013
18th June 2013
24th June 2013
24th June 2013
25th June 2013
9th July 2013
3rd August 2013
5th August 2013
6th August 2013
12th August 2013
26th August 2013
1st September 2013
1st September 2013
1st October 2013
17th December 13
24th December 13
29th December 13
28th January 2014
28th January 2014
28th January 2014
22nd February 2014
22nd February 2014
22nd February 2014
22nd February 2014
22nd February 2014
22nd February 2014
22nd February 2014
22nd February 2014
3rd March 2014
11th March 2014
18th March 2014
18th March 2014
MILD MONTH—NO MILD
FC Tripple FFF, Altons Pride Out of Stock
No Timothy Taylor Landlord (request AW to look into it)
No Timothy Taylor Landlord
No FC Backyard—The Hoard—Backyard
No FC Old Moor Porter—Acorn Brewery
No FC on wagon Audit Pale—Westerham Brewery
No FC Golden Best—Green Jack Brewing
No Timothy Taylor—asked AW to look into again
Spoke to Gail re Timothy Taylor Landlord looking into it
FC—Highland Pale out of stock
FC—Stunner—Cotswold—O of St—not getting any more in
FC—Foxy Blonde—Scottish Borders—out of stock
FC—Box Steam—Tunnel Vision—Item currently out of stock
FC—Red Head—Pin Up Beers—Item currently out of stock
FC—Castle Rock— 2 x Black Gold—Out of Stock
Telephoned Help Desk, told them I needed beer urgently. I do not want
any other beer as I have paid for it. Asked if I could get it direct from
Castle Rock, told to get permission from AW. Emailed AW no reply,
telephoned Alan Wills, answer phone. No replies up until 5.30. Told
them it was urgent.
A Good Stuffing—out of stock
A Good Stuffing—Discontinued.
Manchester Pale Ale out of stock
FC Goosbery Blond out of stock
FC Adnams Gunhill out of stock
FC Just Jane—Ambridge—not delivered
FC Bengal Lancer—Fullers Out of Stock
FC Spire—Stonehenge Out of Stock
FC Umbel Magna—Growler Out of Stock
FC Flintlock—Coachhouse—Out of Stock
FC Gooseberry Blonde—Wharfbank Out of Stock
FC Winters’ Tale—Warwickshire Brewery Out of Stock
FC Thunderbird—Kite Brewery Out of Stock
FC Otter Bright—Otter Brewery Out of Stock del. Day after
Raised my concerns with Punch about absence of beers in this rotation,
they said it was because of end of rotation. I have asked Alan Wills
what happens next week when the FC is not available because we have
a further week to go before next rotation. Awaiting a reply.
No Finest Cask available at all.
First weeks on new Rotation—Two Finest Cask not on wagon. Sarum
IPA and Hoptimum Prime. Have text Punch (BDM) on Tues 11/3/14.
No reply, text again on Thur. 12/3/14 to inform him again no beer
arrived. Not replied by Friday 14th March 2013. AW sent me a text on
Saturday 15th March to get some beer in. Cannot get any cask ales on
Saturday (as he knows).
2 Finest Cask missing (no phone call) Cornish Mutiny
Hoptimum Prime (no phone call)
152 Small Business, Enterprise and Employment Bill: Written evidence
24th March 2014
FC—Cornish Mutiny (see List 24.03.14)
31st March 2014
FC—Cornish Mutiny (see List 31.03.14)—Out of Stock
24th March 2014
31st March 2014
31st March 2014
1st April 2014
4th April 2014
15th April 2014
16th April 2014
16th April 2004
22nd April 2014
5th May 2014
5th May 2014
5th May 2014
12th May 2014
20th May 2014
21st May 2014
26th May 2014
9th June 2014
10th June 2014
22nd July 2014
22nd July 2014
29th July 2014
30th July 2014
3rd August 2014
10th August 2014
10th August 2014
19th August 2014
19th August 2014
19th August 2014
26th August 2014
26th August 2014
26th August 2014
26th August 2014
29th August 2014
9th September 2014
21st October 2014
FC—Sarum IPA (see list 24.03.14)
FC –Coiled Spring—Thwaites—Out of stock (see list 31.3.14)
FC—Sarum IPA (see list 31.03.14)
FC—Camerons—Tontine out of stock—not on wagon
FC- Camerons—Tontine out of stock—won’t be coming
FC—Wight Gold—Island Brewery O of S deliver tomorrow
FC—Wight Gold not delivered as promised.
FC—Wight Gold still not delivered
Rosies Pig Cider—not delivered on order
FC—Exhibitionist Out of Stock
FC— Hill Climb—Out of Stock
FC—Inferno—out of stock—will arrange for Wednesday del.
FC Punter—Out of Stock—don’t know when it will be in.
FC Rio Gold—Out of Stock—re-arranged for Wednesday
FC Rio Gold—not arrived. Called to say it will be next week
FC Rio Gold Out of stock (see sheet attached)
FC—Oakham—Inferno out of stock.
FC Piddle in the Goal—Wyre Piddle Brewery
FC Northumbrian Blonde—Mordue—Out of Stock
BIB Cider Rosie’s Pig Out of Stock
FC Schiehallion Craft Lager—Harviestoun Re-ordered for tomorrow
FC Schiehallion Craft Lager—Harviestoun Out of stock.
FC Schiehallion—Harviestoun—Out of stock
FC Okells—Aile—Out of Stock
FC Red Squirrel—Hopfest Out of Stock
FC—Mordue—Northumbrian Blonde—Out of Stock—Ordered
Weetwood—Cheshire Cat
FC Hopfest—Red Squirrel Out of Stock—not on dray wagon
FC Okells—Aile—Out of stock
FC—OSM—Cotswold—Out of Stock
FC—Red Dawn—Red Squirrel Brewery—Not in stock
FC—Shere Drop—Surrey Hills
FC—Gunners Gold—Loose Cannon
FC Red Dawn—Red Squirrel Brewery—out of stock.
Jennings Bitter—Out of Stock
Jennings Bitter—Out of Stock
Supplementary written evidence submitted by the Law Society of England and Wales (SB 54)
1. The Law Society of England and Wales (“the Society”) is the professional body for the solicitors’
profession in England and Wales, representing over 160,000 registered legal practitioners. The Society
represents the profession to Parliament, government and regulatory bodies and has a public interest in the
reform of the law.
2. This evidence has been prepared by the Society’s Company Law Committee. The Committee is a
specialist body of practitioners and experts in company law matters, whose purpose is to review, and promote
improvements in, company law.
Small Business, Enterprise and Employment Bill: Written evidence 153
3. The following supplementary evidence is provided in answer to Question 97 asked by Mr Andy McDonald
MP at Column 45 in Committee Debate: 2nd sitting: House of Commons 14 October, 2014.
4. Mr McDonald asked the following question:
“Mr Beattie, you mentioned belonging to other jurisdictions as perhaps being more attractive if we
are burdened with this declaration of beneficial interests and beneficial ownerships. Have you looked
at the Crown dependencies for their experiences? My understanding is that the Isle of Man, Jersey
and Guernsey have embraced declaration of beneficial ownership well ahead of the UK. Have you
looked at that experience and has that put off companies from locating there?”
5. The Law Society’s has made enquiries in relation to the practices in the Crown Dependencies mentioned
by Mr McDonald. The Society’s enquiries have not revealed any dependencies that require the disclosure of
beneficial ownership to be made public.
6. Many dependencies have made considerable changes to their regulatory regimes to improve disclosure
and transparency to regulatory authorities, for example, requiring verification of the information provided.
7. Verification can be, for example, the certification by a solicitor/accountant or other specified person that
the passport copy (for proof of name) is a true copy of the original and also a true likeness of the individual.
The advantage of this is that it means that the solicitor/accountant has to see the individual in question in order
to certify true likeness. For proof of address this would be a certification that the copy utility bill is a true copy
of the original (not more than three months old). The advantage of the three month rule is that the address is
reasonably current.
8. This type of disclosure is similar to the regime in the UK in relation to compliance with anti-money
laundering regulations.
October 2014
Written evidence submitted by Finance & Leasing Association (SB 55)
1. Introduction
1.1. The Finance & Leasing Association (FLA) represents the UK’s providers of asset finance (leasing
and hire purchase). Our members include banks, independent asset finance businesses, and captive finance
companies owned by equipment manufacturers. In 2013, our members provided £22.4 billion to businesses and
the public sector to invest in vehicles, plant and machinery and business equipment. This represented almost
30% of UK fixed capital investment (excluding property and own-account software).
1.2. FLA members are a vital source of new finance for small and medium-sized enterprises (SMEs). Of
the total new business written by FLA asset finance providers in 2013, £12.6 billion was provided to support
business investment by SMEs. The majority of SMEs which apply for asset finance are successful in obtaining
the finance they need. A recent BDRC Continental SME Finance Monitor survey showed that 87% of asset
finance applications are successful. FLA members had more than 2 million outstanding business finance
contracts on their books at the end of December 2013, worth £63.4 billion.
1.3. The FLA welcomes the opportunity to comment on the Small Business, Enterprise and Employment
Bill. The Bill sets out a range of provisions that aim to encourage SME growth. We comment below on two
particular proposals in the Bill, which concern access to finance: a new statutory requirement to share credit
data, and a loan referral system.
1.4. In principle, the FLA supports initiatives which will assist the UK’s SMEs in accessing appropriate
finance. FLA members believe it is in the interests of customers, and the asset finance industry, to share credit
data and make appropriate referrals. If changes are to be made to improve access and increase approval rates
(which for asset finance are already high, as shown in para 1.2 above), we have advised the Government that
it should identify very carefully the problems it seeks to solve, and look in the first instance for market-based
solutions.
2. Credit data sharing
2.1. The Small Business, Enterprise and Employment Bill proposes that the ‘the Treasury may make
regulations that impose a duty on designated banks to provide information about their small and medium
sized business customers (subject to the latter’s consent) to designated credit reference agencies’ (the proposed
shared data will be taken from business current accounts, commercial credit cards and loans) and impose a duty
on ‘designated credit reference agencies to provide information about small and medium sized businesses to
finance providers’.
2.2. The FLA believes that it is important that when making suggestions for new arrangements to share
credit data, the Government is aware that such arrangements already exist, under the Principles of Reciprocity.
The Principles are administered by the Steering Committee on Reciprocity (SCOR) and have been developed
by representatives of the credit industry and the credit reference agencies. The main thrust is that data must
154 Small Business, Enterprise and Employment Bill: Written evidence
only be shared for the prevention of over-commitment, bad debt, fraud and money laundering, and to support
debt recovery from debt tracing. Under this regime banks and non-banks currently share a wide range of credit
data.
2.3. The existing arrangements are also aimed at ensuring that data protection law is strictly adhered to
when credit data is shared. The FLA supports the Government’s commitment to data protection in the Bill
(Clause 4.4b). We would like reassurance from the Government that any data which will be exchanged under
the proposed new regime will be handled to the same exacting standards.
2.4. The FLA would be happy to assist the Government when it drafts secondary legislation on credit data
sharing.
3. Loan referral system
3.1. Via a new clause to the Bill (NC1), the Government seeks to establish a referral system for companies
that have had their loan applications rejected. The Government proposes that multiple online platforms be
created to facilitate these referrals. Secondary legislation may also be required to create rules governing the
operation of multiple online platforms. The FLA would be happy to assist the Government when it drafts
secondary legislation on the proposed loan referral scheme.
3.2. The Government’s proposal raises a number of issues. The FLA would like the Government to explain
further how the multiple platforms will work in practice, as it is unclear in the legislation how the banks will
decide which platform to use when referring a customer. There is potential for confusion and unnecessary
administration. If the owner of an online platform is also a finance provider it will also be important to address
potential conflicts of interests. For the multiple online platforms to work effectively it is important that the right
questions are asked of the small businesses concerned. For instance, a small business may be seeking a loan in
order to purchase equipment and not have thought of using leasing or hire purchase.
3.3. The FLA notes that the major banks already refer loan applicants to other providers when appropriate.
The Government believes that a large proportion of SMEs who are turned down for finance do not approach
another lender. It would be useful to understand more about this group of companies and why the Government
thinks that they would be more likely to be obtain finance from another provider after having their application
rejected.
3.4. The FLA believes that one role for Government in this area would be to support the creation of a
comprehensive online directory of finance providers. It would allow businesses which need finance quickly to
find local and national providers, commercial finance brokers, and professional advisers who could introduce
them to the right kind of lender. Existing directories only provide partial coverage. The FLA believes there
might be a role here for the British Business Bank to fill current gaps.
3.5. The FLA welcomes the Department of Business, Innovation and Skills creation of a lenders’ working
party to explore the practicalities of implementing the loan referral system. We have been invited to join the
working party and look forward to contributing to its work.
4. Recommendations
4.1. We would like the members of the Small Business, Enterprise and Employment Bill Committee to
consider the following questions:
—— What procedures will be put in place to ensure that customer consent has been obtained before credit
data is shared?
—— How will the banks know which online platform to use when referring a customer?
—— How will conflicts of interest be dealt with if the owner of an online platform also is a provider of
finance?
—— How will the online platforms ensure they are matching the small businesses concerned with the right
finance providers?
—— Will the Government consider establishing a definitive directory of all UK finance providers to help
SMEs source the right finance solution?
October 2014
Written evidence by Adam Robertson (SB 56)
Summary
My remarks focus on Part 4 of the Bill which proposes a Statutory Code for the regulation of the tied pub
sector. The measures are welcome and will help to correct years of abusive and anti-competitive practice by a
small number of rogue companies. They are proportionate. However, the key aspect which would give the Bill
the power it needs to root out the widely-documented abuses by the rogue pub companies—the Market Rent
Only [MRO] option—is missing, and without it the Bill can never be as effective as it should be.
Small Business, Enterprise and Employment Bill: Written evidence 155
Detail
1. My name is Adam Robertson and until recently I was a tied publican along with my fiancée Hailey
Gammage. We ran a pub called The Eldon Arms which is based in Reading, Berkshire and tied to a brewery
called Wadworths who are based in Devizes, Wiltshire.
2. The bill is trying to stop companies like Enterprise Inns and Punch charging unfair amounts of rent and
on beer to landlords but unfortunately smaller family brewers like Wadworths have caught on to their way of
doing things and are doing exactly the same.
3. We were being charged a rent that was one fifth of our turnover which doesn’t sound like excessive but
when accompanied with a tie on all wet products that were nearly double normal market value. This tie was
worth an extra £30,000 per annum on top of the free of tie buying price. This again does not seem a lot but
when the turnover of the business is £125,000, you have £25,000 for rent and £70,000 for wet goods, leaving
£30,000 to pay all other bills and then try to take a wage from as well.
4. As stated above we were nearly paying double for a keg of lager or barrel of ale compared to our free of
tie counterparts. Allowing a price war that we could not compete in, it would have been cheaper for us to walk
to a Weatherspoon’s pub, buy the drink at retail and then walk it back to our pub and serve it to our customers.
On top of this we had a very limited selection of what products we could stock which again hampered the
business.
5. The business for us was unviable no matter how much hard work we put into it, however if a MRO
had been available this pub that is an asset of the community would have prospered with a wide selection of
products available at half the price.
6. Due to the above I implore you to include the MRO option to allow small businesses to flourish instead of
being stripped of any possible profits by large companies. Without this I am fairly certain you may as well not
bother with the bill as it will be nigh on useless to stop this continuing trend of pub companies extorting large
amounts of money from people trying to make a living.
October 2014
Written evidence submitted by James Watson (SB 57)
Introduction
1. I am a professional engineer and lifelong lover of British Pubs. I represent a community association in
East London, which has suffered for the last two years at the hands of a rapacious developer who is attempting
to turn our historic local pub into flats. Through fighting this developer, in conjunction with our local Council, I
have learned a huge amount about the history and evolution of the British Pub, and about the corporate scandal
which is the tied pub company business model.
2. I am commenting on the provisions within Part 4 which aim to deliver a fair deal for pub landlords through
the introduction of a statutory code and an adjudicator. Whilst I welcome the inclusion of such provisions,
which are long overdue, this is an example of legislation and reform which is too little, too late.
3. The indebted pub-owning companies (Pubcos) and the so-called family brewers have controlled the
majority of the nation’s pubs since the Beer Orders of 1989. We have seen a gradual shift away from community
champions and responsible custodians of our heritage and culture to greed-driven property speculators. The
years since the Beer Orders have seen a 25% reduction in the total pub stock in Great Britain.
4. The Pubcos are shamefully asset stripping and destroying historic pubs which they acquired during a
reckless spending spree on false credit, based on over-inflated valuations of their burgeoning estates during the
boom years in which Punch and Enterprise publicly ‘raced’ each other towards a target of 10,000 pubs. Their
credit binge caught up with them and we are now witnessing the wanton disposal of treasured community
facilities to supermarkets, property developers and pawn brokers.
5. Ordinary people, who rely on their pubs for daily social interaction, are suffering as a result of corporate
irresponsibility. The weak planning system and Pubco greed are the two principal reasons for the appalling rate
of pub closures, which stands at 31 per week.
The Need for Market Rent Only (MRO)
6. The proposed provisions in the bill do not go far enough. In order to ensure the survival and sustainability
of the Great British Pub, the shameful corporate scandal of the grossly unfair and exploitative tied pub model
must end.
7. Market Rent Only is the one essential measure that is missing!
8. The evidence submitted by CAMRA, Fair Deal for Your Local and Licensees Supporting Licensees is
compelling. Indeed, government select committees have recommended Market Rent Only four times.
156 Small Business, Enterprise and Employment Bill: Written evidence
9. The key relevant principle of Part 4 of the Bill, “that a tied tenant should not be worse off than one free of
tie” is outlined in Section 36 (4) The Secretary of State for Business in addressing CAMRA, at a parliamentary
reception which I attended, and during which I spoke to him personally, outlined his commitment that the bill,
“whilst much longer in coming than we all expected, will ensure a fairer balance of risk and reward between
pub company and tenant”.
10. This bill will fail to deliver any real improvement to the pub industry unless it contains Market Rent
Only (MRO). The legislation is pointless and ineffective without MRO.
11. I spend a large amount of my life within the treasured institution of the British Pub. I have spoken to
thousands of publicans, Pubco employees, brewers, campaigners, politicians, and ordinary honest drinkers. In
my home town of London we are drowning in a sea of closed and threatened pubs. MRO is a vital and simple
measure that would assist in saving countless.
12. The established practices of the Pubcos (and some of the family brewers, who really ought to behave
better) are destroying pubs by exploitation of the tie, right under our noses. It is amazing to those lay observers
that they have got away with it for so long. Indeed, many people struggle to believe that such a business
practice can even be lawful in modern Britain.
13. Two very recent examples:
a. Turner’s Old Star in Wapping, E1W
I. This conservation area pub in the historic core of Wapping was acquired by Punch Taverns from
Ind Coope in the 1990s. The existing tied tenants have two years remaining on their lease. In the
summer of 2014, Punch sold the pub, valued at around £300,000 as a public house, to a private
property investment company based in the British Virgin Islands. The sale price was £1.2m—
4 times the market value. The tenant was not even aware of the sale until the new freeholder
introduced himself in the pub. The tenant found out that their so-called ‘business partner’ had sold
their livelihood, and their home, to an offshore shell company, without their knowledge.
II. Since the new owners have inherited a tied lease, they can make the tenant’s position totally
unviable, simply be restricting beer choice or raising beer prices to an unsustainable level or
both. The owner has made it clear that his intention is to demolish the pub and replace with flats.
150 years of culture, heritage and community social capital, sold to the highest bidder to pay off
Punch’s debts.
III. A planning battle is to be fought over the future of the pub but the developer will be in a strong
position if he is able to bully the tenants into quitting. He can then present an empty building, with
false arguments of “non viability” to the planners. The apparent non viability has been brought
about entirely by the tied lease Pubco model.
IV. MRO would ensure the future survival of Turner’s Old Star.
V. MRO would give the hardworking tenants a chance to keep the business they have built up. It
would allow them to continue to employ people and pay taxes and rates, and it would allow them
to remain in their family home.
VI. MRO would save the pub!
b. The Duke of Wellington in Spitalfields, E1
I. The Duke of Wellington is a rare survival of a typical back-street East End pub, popular with
market traders and city workers as well as local residents on account of its simple, fuss-free,
down to earth feel and basic affordable food and drink offer. It still retains a dart board, two bars,
competitively priced pizzas, and a collection of regulars who know each other by name. It is a
true community pub that London’s neighbourhoods are renowned for.
II. Punch Taverns sold the freehold to an investment company according to the all too familiar
pattern, again without the tenant’s knowledge.
III. The tenant has personally advised me that the new owners, exploiting the terms of the tied lease,
have increased the price at which he can buy an 11 gallon keg of Guinness from £144 + VAT to
£215 + VAT. In order to maintain the same level of gross profit, the tenant would be forced to
sell Guinness at £5.97 a pint, as opposed to the present £4.00 a pint. The Wetherspoon Freehouse
around the corner can sell the same Guinness at £3.25 a pint.
IV. By forcing the tenant to buy beer and wine from the new owner, according to the terms of his tied
lease, pub freeholders, with no interest at all in continuing to operate their premises as pubs, can
force a tenant to quit in a matter of weeks, by making them homeless and bankrupt.
V. This shameful destruction of perfectly viable businesses is leading to homelessness, a burden on
the benefit system, an unnecessarily high level of working family and child tax credits and is
harming our economic recovery.
VI. The committee will be well aware of the fact that 57% of tied tenants earn less than £10,000 a
year. Running a tied pub is no route to a rich retirement; it is most certainly a labour of love.
Small Business, Enterprise and Employment Bill: Written evidence 157
VII.Once again, MRO would allow the tenant at the Duke of Wellington to continue to serve his
community.
VIII.
MRO would also allow him to invest in the pub, expand the food and drink offer and employ
more people by growing his business.
IX.MRO would ensure this precious pub is retained in the use class for which it was designed.
Without MRO, it is likely the weak planning system will allow the demolition of the Duke of
Wellington and replacement with yet more unaffordable flats for private investors.
X. The destruction of our community pubs is ruining British society. MRO is your opportunity to
right these wrongs.
14. Thank you for reading my submission. Please accept the proposed amendments for MRO.
October 2014
Written evidence submitted by Gareth Epps (SB 58)
Summary
My remarks focus on Part 4 of the Bill which proposes a Statutory Code for the regulation of the tied pub
sector. The measures are welcome and will help to correct years of abusive and anti-competitive practice by a
small number of rogue companies. They are proportionate. However, the key aspect which would give the Bill
the power it needs to root out the widely-documented abuses by the rogue pub companies—the Market Rent
Only [MRO] option—is missing, and without it the Bill can never be as effective as it should be.
Detail
1. My name is Gareth Epps. I am a campaigner and member of the Campaign for Real Ale. I am a member of
CAMRA's Public Affairs Committee. I am Branch Public Affairs Officer for Reading & Mid-Berks CAMRA.
Formerly a councillor for ten years, I have a direct interest in issues relating to the closure or otherwise of
local pubs and in particular community pubs. Having become more active in this area in recent years I am
now a member of the steering group for the Fair Deal for your Local campaign coalition. I write in a personal
capacity.
2. In general terms while I welcome the provisions of the Bill with regard to regulation of the pub owning
companies, in overall terms its contents is disappointing as the vital element of reform is missing. I refer to the
opportunity for the lessee to consider a Market Rent Only [MRO] option.
3. To start on a positive note, there are a number of welcome aspects of the Bill that should be retained.
First, the provision of a basic Code covering tenants of those companies owning fewer than 500 pubs. While
some sort of de minimis provision—say 20 pubs owned—may be proportionate, there is growing evidence to
suggest that the bad habits of the largest pubcos have affected members of the 'Independent Family Brewers'
in particular. I am aware of a number of cases where Fullers—a company currently rapidly acquiring pubs in
central London—has resorted to abusive practices to try and kick sitting tenants out. Around the corner from
where I live, Wadworths—a traditional family brewer evocative of bucolic Middle England—has closed the
Eldon Arms after a rapid breakdown in relations of tenants of barely six months' standing: principally due to
Wadworths failing to discharge responsibilities for maintenance that led to the pub ceasing to supply food and
adverse attention from the council’s Environmental Health department.
4. It is also important that franchises of pubs (and only of pubs) should come within the scope of this
legislation. In the final week of March 2014 I walked into a Marstons premises in Streatley, West Berkshire, to
find purely by chance that the landlady was announcing to regulars that she was being forced out of the pub.
The only reason I had visited was because of the good reviews of the pub and the significant improvement
it had undergone under this publican. Installed on a ‘rescue’ franchise that included a reasonable share of
gross profit, the pubco was removing her because she was making too much money. She was to be replaced
by a ‘retail’ franchisee, with no job security and far less incentive to make the premises succeed. This is an
unsustainable position given that pubs are recognised by the Government as community assets (in the National
Planning Policy Framework and elsewhere) and need to be well-maintained as well as well-run. They are not
the same as a retail unit.
5. Where the scope of the legislation is at present flawed is that it gives loopholes to an industry whose worst
elements have already explicitly stated their intent to avoid or evade statutory action. I refer to the enhanced
code only covering pubcos with 500 tenanted pubs or more. Already we see a number of pubcos switching
premises from the tied to the managed model. Fuller’s—who have a poor reputation among some tenant
bodies—are in rapid acquisition mode and are approaching the 500 threshold, but have a number of managed
pubs. Why should their tied estate be excluded, when the arguments of proportionateness around compliance
costs do not apply?
6. As I stated in my response to last year’s BIS consultation, the tied sector is the most recent Annual Report
for Enterprise Inns for which figures are available makes it clear that they are struggling to attract lessees
under the current arrangements; a little over one-quarter of current tenants in their lease estate are on transitory
158 Small Business, Enterprise and Employment Bill: Written evidence
management arrangements on temporary leases or similar. There is much dispute about the extent to which
pubcos are responsible for pub closures in the UK. Reading & Mid-Berks CAMRA has extensive records
covering the whole branch and has documented every closure. During the period 2008-12 some 61 per cent
of our closures came from the tied sector, with only around 20 per cent being free houses. [Ownership of the
remainder was unclear.] What is not in dispute is the statistic that most tied publicans earn less than the national
minimum wage, creating pressure on the State for in-work benefits such as tax credits and making clear that
this is a case of market failure.
7. It is also essential that the Adjudicator be given adequate funding and robust powers to do the job s/he is
appointed to do. It is essential the appointee and all other staff are thoroughly independent of trade interests but
have appropriate experience.
8. The central tenet of Part 4 of the Bill—that a tied tenant should not be worse off than one free of tie—
enshrined in Section 36 (4) is fundamental and it is deplorable that pubco industry vested interests should seek
to have this struck from the face of the Bill. Without it, there might as well be no Statutory Code at all as it
would be meaningless and unenforceable. Of course, this is exactly why the pubco industry and its allies wish
it to be removed. The Secretary of State for Business has made clear throughout the consultation process and
since that to a considerable degree his objective is to ensure a fairer balance of risk and reward between pub
company and tenant; strike the ‘no worse off’ clause from the Bill and that objective is fatally undermined.
9. However, the provisions to enact this ‘no worse off’ principle are ineffective in their current form. A
parallel rent assessment will attempt to quantify the purported benefits that the proponents of tied agreements
advocate. Rather like banks mis-selling Payment Protection Insurance, the pubcos and their lobbyists in
the British Beer & Pub Association [BBPA]—which does not represent more than a small number of large
companies—will attempt to inflate the value of what they call SCORFA. Typically the seller of a lease will
place a high value on items of little practical value. The Adjudicator would have to place some sort of guide
value on these items.
10. Without the clear alternative of a Market Rent Only option, cases being taken through the parallel rent
assessment process are likely to be protracted. This is unhelpful to business owners, to customers whose pubs
may well have failed while dispute continues—and certainly to publicans themselves. Unless clear timescales
are set out as part of the process, many publicans approaching the Adjudicator may have been bankrupted by
the pubco before a decision is reached. To not stipulate clear timescales would skew the process in favour
of pubco. Furthermore, whereas under MRO a publican could opt for the market rent and be able to trade
relatively unfettered [the pubco retaining ultimate control over the tenant’s longevity of tenure], without it the
pubco can [as Wadworth did in the case of the Eldon Arms above] restrict product choice or increase price
without any kind of restraint. If they want them out in a couple of weeks, they’ll find a way to do it.
11. For the above reasons, the parallel rent assessment process alone will not secure the Government
principle of fairness nor that of ‘no worse off’. Only MRO will achieve that.
12. A good case study of why this is needed is the Reading pub that has most consistently featured in the
CAMRA Good Beer Guide over the last 40 years: The Retreat on St John’s Street. It is a wet sales-only,
backstreet local owned by Admiral Taverns, formerly by Enterprise Inns.
a. From late 2002 after a period of uncertainty over the pub’s future a couple, Jane and Bernie, took on
a 10-year lease. Due to the actions of a previous licensee the living quarters were uninhabitable when
they arrived. The couple were ‘locals’ and evidently cared about the premises considerably; and the
pub quickly regained its reputation for good quality beer with occasional music events.
b. From a point midway through their lease it was evident that there were frustrations with the pubco. In
particular the Business Development Manager was unresponsive to calls. It had also become evident
that on what was a fully-repairing lease, the amount of work needing to be done to even keep open a
building that had seen little investment in decades was considerable. Nonetheless, the pub’s reputation
grew to such an extent that a book was produced, entitled simply: ‘The Retreat: The Jane & Bernie
Years’.
c. Another Reading pub, the Nags Head (winner of CAMRA awards) had rarely been able to negotiate a
free-of-tie lease: enabling it to mount a phenomenal offer as a specialist real ale bar which would have
been impossible under the inflated wholesale beer prices charged by Admiral and other pubcos. Jane
and Bernie asked for a similar lease on similar terms, stating they were prepared to negotiate. However,
Admiral refused to entertain any discussion of a free of tie lease.
d. As a result, relations between pubco and lessee had completely broken down. Having decided not
to renew the lease despite the popularity of the pub, Admiral set out to make their life as difficult
as possible, in particular exploiting the absence of a survey from 2002 to demand a significant fivefigure sum for dilapidations. A huge amount of works were done by the licensees and regulars amid
significant publicity. After their departure a series of tenancies at will were created, with a sub-lease
handed to a holding company that left the pub open but without beer on numerous occasions. The
effect on trade was predictable. Had a MRO lease been offered, Jane and Bernie would have stayed and
the pub continued to thrive.
Small Business, Enterprise and Employment Bill: Written evidence 159
13. For these reasons it is essential that licensees are able to request an open market rent review according
to the MRO option set out by the All-Party Save The Pub Group and the Fair Deal For Your Local coalition
that includes 11 organisations including CAMRA—Britain’s biggest consumer group; trade unions, and the
Federation of Small Businesses and Forum of Private Business.
October 2014
Written evidence submitted by Simon Clarke (SB 59)
PART 4—THE PUBS CODE ADJUDICATOR AND THE PUBS CODE
1. Introduction
2. The committee witnesses were aware that the session would be an hour long and might touch on any one
of a number of subjects and sought to prepare accordingly. I appreciate that here were perhaps many issues
that were not discussed or could have been discussed at more length but time constraints inhibited detailed
consideration of everything. With the latter in mind, I thought it might be useful to supply the committee with
an updated version of my notes which address issues that were discussed and issues that were not.
3. Summary
4. Fair Pint Campaign welcome introduction of statutory regulation. We remain gravely concerned that the
proposal as drafted will not deliver the Government commitments of “fairness” and circumstances where “a
tied tenant is no worse off than if they were free of tie”.
5. Whilst containing provisions for a Parallel Rent Assessment (PRA) the Bill lacks the all important Market
Rent Only option (MRO), the PRA and MRO are co dependent on each other just as the Bill and Code are.
6. The PRA, on its own, may be a useful tool to those coming into the pub sector as it truly demonstrates the
detrimental effect of over inflated tied prices on pubs profitability unless the tied rent is significantly reduced
to countervail the loss to the tenant. PRA is, however, of little comfort to the 20,000 or so existing tenants. The
process leaves the pub owning businesses in the dominant negotiating position allowing them to drain a tenants
resources and effectively out litigate them before a tied rent determination is reached. The absence of MRO
also leaves a huge loop hole available to pub owning businesses where they can manipulate tied product prices
and choice causing the tenants ultimate financial failure within a matter of weeks. Rent review negotiations and
procedure can typically take over a year to conclude so without MRO a tenant is left at the mercy of the pub
owning company.
7. MRO
8. The Government have accepted that, as the tied model is currently operated, some pub owning businesses
are using the provisions of tenancies and leases, unique to tied agreements and absent from other ‘normal’
commercial agreements, to extract more than a fair share of a pubs profits to the detriment of their tied tenants.
Furthermore it is well recognised and acknowledged by Government that there needs to be a transfer of
value, a rebalancing of the share of profits taken by those pub owning businesses to their tied tenants, if the
Governments commitments are to be delivered.
9. Put simply, the Market Rent Only (MRO) means a tied licensee can choose whether to remain in the
same tied agreement, paying extra for tied products and a lower rent to compensate for them or swap on to an
agreement under which they simply pay a market rent and acquire products from any source, like any other
normal commercial agreement, if they consider the tied rent is not fairly reflecting the tied product prices.
10. Essentially MRO puts rent and product price regulation in the hands of the open market not the
Government.
11. Like any business model, the tied model needs to survive on its merits, operated fairly, instead of relying
upon the subsidies of tenants income, government benefits, pensions, nest eggs and war chests.
12. Self Regulation
13. We are at this point in the regulatory process today because Select Committees and indeed now
Government have concluded Self Regulation did not work.
14. Self regulation was a pubco inspired idea tabled by their mouthpiece the BBPA to primarily avoid any
statutory regulation but at worst buy time to circumvent what might be coming. To the latter extent it has been
highly successful. The so called “Industry Framework Code” is NOT industry agreed. Self regulation did not
work because it did not deal with the primary issue—the issue of pubcos taking more than a fair share of the
pubs profitability. With the exception of the BBPA the other three organisations have all stated openly their
reservations, and the drawbacks, of self regulation.
160 Small Business, Enterprise and Employment Bill: Written evidence
15. By its own admission the self regulator regime has conceded it can not deal with legal issues and is not
designed to address the problem of the split a pubs profitability between the pub owning business and the tied
tenant.
16. Self regulation requires compliance with RICS guidance for rent assessments but that guidance has some
significant flaws in interpretation which have been the cause of fundamental dispute between landlord and
tenant representatives. The dispute revolves around the issue of a tied tenant being no worse off than if they
were free of tie. The pubcos claim the RICS guidance does not provide for such a principle whereas the tenants
consider provision has been made to deliver this outcome. There is no way the self regulatory regime can
begin to deliberate over such an issue. The self reg’ panels amount to a group of, in the main, well meaning
amateurs—the only surveyor is Roger Vickers, a panel chairman, who was acting for Punch on his appointment
to the position against Dave Mountford and despite requests can not confirm whether he accepts or not the
principle that the tied tenant should be no worse off than if free of tie, which is our interpretation of RICS rent
guidance intent.
17. Andrew Griffiths mentioned in witness session with Dave Mountford a trade press survey earlier in the
year indicating greater tenant satisfaction. It has to be asked, if such surveys are to be believed then why are
the pubcos not offering MRO voluntarily ? What Mr Griffiths did not acknowledge was that the same survey
outlined an increased awareness of codes amongst tenants but with it came increased perception of failure
in pubcos code compliance. 66% of tenants said their pubco complied with code—to put some numbers to
that this seems to indicate that 670 survey participants did not believe code compliance was being adhered
to. Extrapolated this could mean around 6,700 tenants may believe their pubco do not comply with code.
The question we must ask is, with such a belief of none compliance with the code why are there not more
complaints ? It could be tenants are fearful of raising their heads above the parapet ? (6 tenants who raised
code complaint have now lost their pubs) or, as I believe, most believe there is no point. The remedy does not
outweigh the hassle—self regulatory code content is simply not material or meaningful enough. It neither deals
with legal issues or appropriate pub profit share.
18. Investment
19. We are being told by the pub owning businesses a MRO option would lead to a drop in pubco investment
in pubs. The external and structural repair liability under most pubco leases falls upon the tenant, not the pub
owning business, this is different in standard brewery tenancies where the brewery, not the tenant, is liable.
20. I have never seen a breakdown of the pubco claimed investment in pubs but as a tied publican I can
safely say I am not aware of any of this investment coming to me.
21. Who actually invests ? Many tenants are massively overcharged with a combination of inflated product
prices and rent. A small proportion of this may then be redistributed to some of the tenants struggling to survive
under the tied model the rest of this profitable revenue is used for other purposes, e.g. to service bad debt or for
executive pay remunerations. So it’s actually the over charged tenants not the pubcos that are paying for any
reinvestment.
22. Pub owning business investment in improvements is generally rentalised so actually this investment
represents a loan, only, unlike a bank loan, it can never be paid off. A tenant continues to pay for the loan over
the period of their occupation.
23. At the moment pubcos have multiple revenue streams if MRO were implemented, rent would be the only
one. As pub rentals are valued on profitability, unlike commercial shop restaurant or bars which are valued on
an over area basis. As a result it would absolutely be in the pubco’s interest to ensure they work with the tenant
in a genuine partnership to encourage improved profitability that would in turn increase their rental income
prospects.
24. If tenants chose MRO they would at least perceive that they would have a better chance of improving
profitability. Using ETI figures I estimate the average tenant could see an improvement in net profitability of
around 7.5% that translates to £20,000 per pub. The current, questionable, pubco claimed level of investment is
only about £10,000 average per pub.
25. OFT
26. This intervention is not as a result of an issue of competition—it is proposed on the basis of a necessity
to deliver fairness in the relationship between landlord and tenant.
27. In the past the OFT have considered the artificial market presented by the existence of the beer tie is not
anti competitive yet they now state that allowing tenants the option to choose between a tied agreement and an
open market agreement presents competition issues. How do they reconcile that contradiction ?
28. The OFT appear to have failed to consider changes in legislation—the OFT response to the CAMRA
super complaint was 2010, since then the then legislation has changed requiring that Land Agreements (of
which the supply tie would be one) need to be competitive and now fall under the Competition Act 1998. Anti
competitive land agreements, or provisions within them, like ties on pubs, are now prohibited restrictions.
Small Business, Enterprise and Employment Bill: Written evidence 161
29. The OFT did not believe there would be a significant rental adjustment to rectify the perceived
imbalance rendering the tied tenant no worse off than if they were free of tie. They then raised concern that the
implementation of the “no worse off” principle may lead to significant rental adjustments. These two statements
are contradictory and show a conflicting understanding of the ‘no worse off’ principle.
30. The OFT showed a lack of understanding of Landlord and Tenant Act legislation. A pub can not simply
be closed by a pubco without first gaining vacant possession and a lessee generally has protection granted from
eviction by legislation. The collapse, and subsequent sale, of Admiral Taverns should show us this, the tenants
are still trading, the pubs still open.
31. London Economics
32. I draw the committees attention to the Save the Pub Group report—Feb 2014
33. London Economics measured pubco viability not pubs—if the pubco goes bust the tenant is relatively
unaffected. Admiral Taverns should have taught us that.
34. A concluding statement of the London Economics report—“It is our conclusion that the reforms
proposed in the consultation will close up to 1,600 pubs, although there is very great uncertainty about the
precise value;....” what I believe they meant was pubs sold not necessarily closed. Other statements included
“In particular, the size of the transfer from pubcos to tenants resulting from the ‘no worse off’ principle is very
hard to estimate,...”and “Unravelling these streams, including ‘special commercial or financial advantages’
(SCORFA) which, by common (dis)agreement are extremely difficult to quantify,....”.
35. Like the OFT, London Economics show a lack of understanding of Landlord and Tenants Act legislation.
A pubco can not simply evict a tenant because they earn less money from the pub. they may seek to sell it but
they can not easily close it.
36. The report was based on confidential data supplied by pubcos—who are actively lobbying to try and
prevent the Government taking appropriate action—and information provided by the pubcos mouthpiece the
BBPA. There is no verifiably independent research at all and consultation was only held with anti reformist
organisations.
37. We believe London Economics were basically paid £40,000 for representing the BBPA’s data.
38. Compare this to genuine independent research undertaken by the FSB
39. SIBA—Society of Independent Brewers
40. There are 1,400 micro pubs. SIBA represent 400 therefore about 2/3 of the micros are not represented by
SIBA.
41. It was SIBA that came up with a prototype of the MRO option in the industry mediation in 2009. they
called it ‘Easy-pub’—a straight forward open market commercial agreement with no product or service ties.
The pubco could offer tied terms in exchange for a lower rent, or the tenant request a lower rent in exchange
for tied terms.
42. In 2010—following failure of mediation—SIBA joined up with 8 other organisations and formed the
Independent Pub Confederation (IPC). The IPC manifesto included a MRO option which they signed up to.
43. Not until Public Consultation submissions were we made available was anyone aware that SIBA had U
turned and no longer supported MRO.
44. I deal with dozens of SIBA members, I have yet to find one that was aware that SIBA had put in a
submission or that they had U turned on MRO.
45. Some of the top SIBA executive are benefiting from direct delivery scheme (DDS) scheme negotiated
with some pubcos so I can see why they may now be enjoying the protection the tied model affords at a
personal level.
46. It seems SIBA executive and SIBA membership are not aligned. I suggest the committee members talk
to micro brewers in their own constituencies to gauge the level of support for MRO option.
47. Tenancy At Will (TAW)
48. The ‘Kill Zone’. A mechanism of short term agreements to trade a pub with a new tenant, avoiding
the necessity for pre entry training and awareness. This system ‘hooks’ new, potentially naive tenants to a
tied future. The tenant commits funds, puts kids in school, moves in, decorates advertises and starts working,
committing themselves to the pub before taking any advice.
49. TAW’s should be covered by the statutory code if they are to include tied terms. There is an easy way to
overcome statutory regulation on TAW’s—make them FOT, this does not preclude the pub owning company
offering to supply products on open market terms. This gives the tenant an opportunity to trade under open
market circumstances, and, since reforms are often claimed to be about ‘increasing awareness’, what better
way than experience—enabling tenants to compare the proposed tied deal with open market circumstances and
162 Small Business, Enterprise and Employment Bill: Written evidence
profitability. By making TAW’s open market trading opportunities the incentive is on the pub owning business
to undertake to complete the secure contract terms quicker and make sure their tied deal is seen as competitive.
Experience has to be better than the current pre entry training and awareness course that takes about 2 hours on
line, costing £20 and contains no ‘health’ warnings relating to the tenants likely chances of business survival or
likely earnings.
50. Brewers
51. The Fair Pint Campaigners position is that the Bill requires that the Pubs Code contains a MRO option.
The statutory code should apply to all companies with more than 500 pubs, NOT tied pubs but pubs (which
exempts the family brewers). Clearly we would not want a brewer to expand to 5,000 pubs, only 499 tied, and
not be bound by any statutory regulation. This is about a market share and we are satisfied that those with less
than 500 pubs will behave appropriately towards their tied tenants. An advantage of the legislation is that it is
capable of amendment on review so if brewers do act poorly the threshold can be alerted to encompass them in
statutory regulation in the future.
52. Having said that we do believe the complaints about the associated costs of compliance with a core
statutory code are little more than red herrings. After 4 years of self regulation the brewers must have someone
undertaking a compliance officers role, compliance reporting is only necessary if the brewer breaches the code
and if surveyors are not used now to establish rental values then it begs the question how are they assessed?
53. The brewers real issue is that MRO on the big six pub owning businesses undermines their protected
market brand dominance on the bars of almost 20,000 pubs in this country, as confirmed in a letter from James
Staughton to George Osborne in October last year.
54. Criminality
55. We have long since believed that the way the tied model is operated by some companies is a scandal
waiting to happen, possibly with legal repercussions. To many tenants it is little more than a “boiler room”
scam, selling worthless investments to unsophisticated and naive people who are sucked dry of their savings.
56. There are misrepresentation cases progressing right now and allegations recently made implying a duty
scam and/or misrepresentation to tenants on barrelage volume quotes, under selling, leading to business plans
based on false information.
57. Assuming the self regulatory code is legally binding, every code complaint that has been found to be a
breach we believe amounts effectively to a breach of contract.
58. We have heard of cases of alleged threatening behaviour and intimidation.
59. Some tied agreements, run by the bigger companies, may now be in breach of the Competition Act 1998,
since the Land Exclusion Revocation Order came into effect in April 2011.
60. Flow monitoring may be considered to be fraud under section 17 Weights and Measures Act 1985—(3) If
any fraud is committed in the using of any weighing or measuring equipment for trade, the person committing
the fraud and any other person party to it shall be guilty of an offence and the equipment shall be liable to be
forfeited.
61. We believe when one or more of these allegations sticks the entire scandal will begin to unravel and the
merry go round will stop. It is at this point many MP’s will appreciate that they may have been misled and
duped by a sophisticated organisation, acting much the same as a Cartel, into supporting an unfair and in some
cases abusive model to the detriment of the countries heritage whilst those who had the foresight to remove
themselves from the limelight (the previous company executives) will no doubt escape without reprimand.
62. The game is up. We liken this to a bunch of thieves in a bank vault, they hear the sirens, it’s about getting
out at the last minute with as much as they can carry. For the pubco’s it is no longer about avoiding reform it’s
about buying more time, on top of the 10 years bought so far with inquiries, to squeeze out as much as possible.
63. Notes
EVIDENCE
64. FSB
65. PROBLEM is revealed—in their survey 79% of tied licensees felt their pub company was taking too
much of their pub’s profits
66. MISLEADING around one in four tied licensees signed their contracts in the mistaken belief that tied
beer prices were the same or lower than open market prices
67. POSITIVES When questioned about how they’d run their pub if a given this option, 75% of tenants said
they would take on more staff or increase staff hours, 78.04% would invest in pub maintenance and 73% would
Small Business, Enterprise and Employment Bill: Written evidence 163
invest in modernisation. Almost all tenants (98%) agreed they would have more confidence in the future of
their business if they were free of the tie.
68. Select Committee 2008
69. Similar to CAMRA study found 67% earning less than £15,000.
70. CAMRA
71. Licensees tied to the large pub companies were asked how much they personally earn from their pub
and 57% reported earning less than £10,000 per annum (80% earn less than £15,000) If that were a franchise it
would most likely be kicked off the BFA as it would not be considered sustainable business.
72. BBPA
BBPA figures show 10 years we have lost around 10,000 pubs and in the same period the number of tenanted
and leased pubs has declined by over 8,000, in the same period the ownership numbers of Free/Independent
pubs has increased by 1,600.
73. CHURN or tenants business failure. No clear evidence has ever been disclosed by the pub companies
but Enterprise Inns annual report suggest about a third of their tenants might have churned in 2013. We heard
earlier, from David Mountford that Shepherd Neame have possibly churned a 1/3 of their tenants since 2013.
The former BII chief executive, Neil Robertson, said one brewer he knew churned 64% in 18 months (43% a
year) we were later informed this brewer was Marstons. If we extrapolate 1/3 as an industry churn rate about
7,000 tenants a year could be suffering business failure.
74. Public Consultation
75. 96% agreed Govt should regulate (6,729)
76. 67.6% agreed MRO option best way to ensure tied tenant is no worse off than if they were free of tie
(4,718)
77. ONLY 29.9% backed Govt proposal for a parallel rent assessment
78. 47.4% in favour of 500 pubs or more threshold, 52.6% in favour of all pub companies
79. Of the written responses 100% of political representatives in favour of MRO (98)
80. PMA
81. March—No questions about product range or pricing?
82. The results imply 44% of tenants believed their pubcos were not complying with the codes
83. Extrapolated = 6,700 tied tenants—why only 9 complaints to self regulation authority ?
84. Also if satisfaction is up to 72% then one wonders why they don’t simply avoid all this uncertainty and
offer a MRO option voluntarily—then there is no necessity for us to try and joust with survey findings.
October 2014
Supplementary written evidence submitted by R3 (SB 60)
Small Business, Enterprise and Employment Bill: Insolvency measures (part 10)
It was a pleasure to give evidence to the Bill committee last week, many thanks for inviting me. Iwanted to
write to you ahead of the Cornmittee’s debate on the insolvency clauses later this month to summarise three of
the issues raised during the evidence session.
Financial redress (clause 98 and Ministry of Justice reforms)
Compensation awards for creditors is a welcome proposal in principle. However, it could lead to a fall in
director disqualification rates, get caught up in long court processes, and target specific creditors (potentially
those who ‘shout the loudest’).
It also doesn’t replace the current system used by insolvency practitioners that returns more than £160m a
year to the taxpayer and small businesses from rogue directors. From April 2015, Ministry of Justice reforms
will mean that up to £160m could be left in the hands of rogue directors (see enclosed briefing). R3 would
very much welcome a discussion during committee stage around concerns that these reforms are undermining
the objectives of the Department for Business, Innovation and Skills for financial redress and tackling director
misconduct.
164 Small Business, Enterprise and Employment Bill: Written evidence
Creditor engagement (clauses 110, 111)
Along with the Federation of Small Businesses, British Property Federation and others, R3 is concerned
that the proposal to abolish the power of the Office Holder to call a physical creditor meeting will lead to a
reduction in creditor engagement. Physical creditor meetings are a vital tool in allowing useful information
about financial affairs to emerge, for example how many creditors there are, whether there any hidden assets,
and whether has been any wrong doing by a director. A 2013 report by Professor Kempson showed that 86% of
unsecured creditors (small businesses) attend or vote by proxy at these meetings—it is these small businesses,
who are not familiar with insolvency processes, that will suffer as a result of this proposal.
With 45,000 small businesses not having access to broadband, and tens of thousands more having poor
internet, it is far too early to introduce a measure which relies solely on technology that many businesses and
individuals do not have.
Administration sales to connected parties (clause 117)
R3 is supportive of reforms to pre-packs and is working closely with the government and creditor
representative groups to implement the recommendations in the government commissioned Teresa Graham
pre-pack review. However, this clause provides the government with a reserve power to ban or regulate all
connected party administrations—not just pre-packs. Such a power would lead to job losses and undermine the
UK’s business rescue culture; businesses are Iikely to be liquidated rather than sold. R3 would like to see the
wording of the clause amended to focus solely on connected party pre-packs.
Preventing a ‘Rogues Charter’: LASPO Act 2012
From April 2015 directors who commit fraud, are negligent or who wrongly take money out of a business
can walk away with more than £160 million a year: money that is owed to creditors including small businesses
and HMRC.
To prevent this from happening, R3 and creditor groups including the Institute for Credit Management and
British Property Federation are calling on government to grant insolvency litigation a permanent exemption
from the 2012 Legal Aid, Sentencing and Punishment of Offenders Act (LASPO).
What do the reforms mean?
The new regime for insolvency litigation from April 2015 will leave creditors more than £160m a year70 out
of pocket and create a system that would see directors who have committed misconduct get away with their
actions—creating a ̒Rogues Charter’. This is contrary both to the Government’s objectives for the LASPO Act
and to the good work the Government has been doing on tackling director misconduct and improving financial
redress.
The current funding regime for insolvency litigation already protects the public interest and public money—
the two objectives that LASPO originally sought to address. It deters white collar crime and puts money back
in the hands of creditors—something the new changes will reverse.
Insolvency litigation and the current regime
Insolvency litigation is a vital tool for recovering and returning money from rogue directors back to
creditors., Conditional Fee Arrangements (CFA) and After the Event (ATE) Insurance are needed to fund
insolvency litigation because there is often no money in an insolvent estate to fund this type of action.
There are·many other benefits to using this current regime: the costs in a successful case are paid for by the
director who has committed misconduct. In most cases, the simple threat of the CFA/ATE regime leads to the
director or third party settling before being taken to Court. This quick resolution helps keep other insolvency
costs down too.
However, under the new regime the costs of a successful case would have to be paid for by creditors at a
time when they have already lost money; this will make the majority of cases uneconomical to pursue—leaving
money in the hands of the director who has committed misconduct.
Are there any alternatives to the current regime?
The impact of the reforms on insolvency litigation was not considered during the consultation phase of the
policy, nor in the Bill’s Impact Assessment. It was therefore granted a two year exemption to allow time to
seek alternatives to the current regime.
Independent research71 has since shown that no alternatives will ensure the same amount of money is returned
to creditors or will prevent white-collar crime.
70 71 Independent academic report from Professor Peter Walton, University of Wolverhampton
Independent academic report from Professor Peter Walton, University of Wolverhampton
Small Business, Enterprise and Employment Bill: Written evidence 165
The Government’s justification for not providing insolvency litigation with a permanent exemption is that
there must be consistency across all forms of civil litigation funding. R3 believes that letting rogue directors
walk away with money that belongs to small business and HMRC, and establishing a ‘Rogues Charter’ of
directors, is too high a price to pay for consistency.
Case study 1
A small business which made electrical products based in the South of England went into liquidation late
2013. One of its clients, based on mainland Europe, owed approximately £500,000 for goods received but
refused to pay this sum arguing that the goods were defective. The UK liquidator was able to provide evidence
to counter this, and threatened to take action, using a CFA and ATE as funding. There were no other funds in
the estate to fund this claim.
The threat of the CFA and ATE led to the client making an offer of £400,000 to settle the case; the offer
was accepted by the liquidator. All funds went to benefit the creditors of the UK company—that £400,000
contributed to £1.6m of money returned to unsecured creditors (including small businesses and HMRC). The
liquidator would have not been able to return this money without the threat of CFA action. The liquidator said
that whilst a third party could have been brought in to fund the action instead of using a CFA; it would have
taken longer and less funds would have been returned to the creditors.
Case study 2
In a recent case, an insolvency practitioner required CFAs to pay 50% of the legal costs towards exploring
the circumstances around a company (with a turnover of approximately £66 million) in liquidation. Creditors
have since received approximately 20p in the pound on their claims and HMRC has received £200,000 to date.
The insolvency practitioner said: “No realisations would have been made unless we had access to a CFA”.
About R3
R3 is the trade body for the UK insolvency profession. From senior partners at the ‘Big Four’ accountancy
firms to practitioners who run their own small and micro-businesses, our members have extensive experience
of both corporate and personal insolvency in large and small companies. In 2012, lnsolvency Practitioners:
—— Saved 750,000 jobs in the UK.
—— Advised more than 95,000 UK businesses, with just under 50% (45,000) continuing in some form.
—— Assisted UK businesses with combined turnover of more than £270 billion.
October 2014
Written evidence submitted by Pre-school Learning Alliance (SB 61)
1. About the Pre-school Learning Alliance
The Pre-school Learning Alliance is the largest and most representative early years membership organisation
in England. A registered educational charity, it also provides high quality affordable childcare and education to
support children and families in areas of deprivation throughout the country.
The Alliance represents 14,000 member settings and supports them to deliver care and learning to over
800,000 families every year. We deliver family learning projects, offer information and advice, produce
specialist publications, run acclaimed training and accreditation schemes and campaign to influence early years
policy and practice.
2. Summary
2.1 This written evidence concerns Part 5, Clause 64 of the bill: the proposed extension of the exemption
from the requirement to register as early years provider to schools taking children agreed two and over—and
Part 2, Clauses 15—17: the proposal to introduce a Small Business Appeals Champion or ‘reviewer’ for each
national non-economic regulator.
2.2 We are firmly opposed to the former proposal, as we believe that this will have a detrimental impact
on early learning experiences, as outlined below. We broadly support the latter proposal insofar as it may
assist early years providers when appealing against Ofsted inspection judgements—however, we have serious
reservations about the limited powers of the reviewer as the role is currently proposed.
3. Part 5, Clause 64—contextual notes
3.1 There are two important, but distinct, key issues related to this proposed change. The first is whether it is
appropriate for schools to take children as young as two. The second is whether schools should have to register
separately to take children aged two. As schools are already permitted to take children aged two (providing they
register separately), only the latter point is directly relevant to discussions on clause 64. As such, arguments
166 Small Business, Enterprise and Employment Bill: Written evidence
such as ‘Allowing schools to take two-year-olds will make it easier for parents with older children as they can
be dropped off and picked up from the same site’ are based on a false premise, as schools are already ‘allowed’
to take two-year-olds. The question at hand is whether or not they should be required to register separately to
do so. It’s important that this distinction is clear when discussing this proposal.
3.2 It is also important to be clear what we are referring to when we say ‘schools’. Primary school nursery
classes and standalone nursery schools tend to be discussed as if they are one and the same. This is not the
case. Nursery schools specialise specifically in delivering care and learning for under-fives and have early years
specialist headteachers. This is not true of primary schools. It is particularly important to bear this distinction
in mind when discussion the quality of the different types of provision. The performance of nursery schools
is often incorrectly ascribed to primary school nursery provision. According to the Ofsted Early Years Annual
Report, published in April 2014, there are over 16,000 maintained schools providing early years care, and
of these, 94% are primary schools while just 3% are standalone nursery schools. As such, we believe that
discussions on the suitability of schools with regard to the provision of care and learning for two-year-olds
should focus on primary schools as they make up the vast proportion of maintained early years provision. All
references to schools in this evidence submission should therefore be taken as references to primary school
nursery provision.
4. Part 5, Clause 64—Pre-school Learning Alliance evidence
4.1 We are fully opposed to the proposal to allow schools to take children aged two without being required
to register separately with Ofsted.
4.2 There is a tendency to talk about two-year-olds as if they were essentially small three-year-olds. This
is a flawed and potentially dangerous misunderstanding of child development. The time between turning two
and turning three is a pivotal and unique period of early growth; a time during which most children experience
rapid development in their language, cognitive and motor skills.
4.3 It is vital, therefore, that any school that wishes to take two-year-olds be assessed on their ability to
provide appropriate care and early learning opportunities for this particular age group, in an age-appropriate
physical environment, through a separate Ofsted registration or inspection process. It is not simply a case of
‘extending their existing offers downwards’ or ‘reducing a bureaucratic burden’ as stated by the Department for
Business, Innovation and Skills in its Small Business, Enterprise and Employment Bill Childcare and Schools
factsheet (page 2). If a school views the requirement to demonstrate how it is meeting the specific needs of twoyear-olds as a ‘bureaucratic burden’, we would strongly argue that they are not suitable to provide this care.
4.4 According to the Childcare and Early Years Providers Survey 2013, published in September 2014, twoyear-olds only account for 2% of all children attending primary schools with nursery provision. Similarly, the
Provision for children under five years of age in England, released in June 2014, revealed that, as of January
2014, only 1% of funded (i.e. eligible for the free entitlement) two-year-olds were in primary school nursery
settings (in comparison, 96% were in PVI settings). This clearly demonstrates that, as a provision type, schools
have extremely limited experience in providing care and learning for this age group. We would argue that, for
this reason, it is even more important that the requirement for schools to register, and be inspected, separately if
taking two-year-olds remains in place.
4.5 We reject the argument that Clause 64 will “help improve the quality of childcare [as] research shows
that having a teacher-led provision has the biggest influence on quality of that provision”, as stated by the Small
Business, Enterprise and Employment Bill Childcare and Schools factsheet. Firstly, much of the evidence on
the impact of qualifications on early years outcomes relates to children aged three or over and so should not
be automatically extrapolated to younger children. It should also be noted that the Initial Teacher Training
criteria, as published by the National College of Teaching and Leadership, states that the foundation stage
age range is from three to five years. This means that most trainee teachers, though broadly defined as being
‘highly-qualified’, will not be trained to meet the specific needs of two-year-olds. The suggestion, therefore,
that schools can offer a higher quality of care for children of this age because school-based provision is more
likely to be graduate-led is fundamentally flawed.
4.6 The Department for Education’s Two-year-old demonstration project in schools: baseline survey—which
surveyed 49 schools which were either offering or considering offering two-year-old provision—found that
34% of the participating schools had reported challenges around identifying/allocating funding for their current
provision, while 37% had voiced concerns about the future financial stability of offering places. It is important,
therefore, that only those schools committed and able to invest in suitable provision for two-year-olds are
permitted to offer such provision, and we believe that separate registration is a vital step in ensuring this.
5. Part 2, Clauses 15-17
5.1 We are broadly supportive of the proposal to appoint a ‘reviewer’ or Small Business Appeals Champion.
We believe that having an independent body to support early years providers who are appealing against—or
making a ‘complaint’ about, as is the official Ofsted terminology—an Ofsted inspection or judgement is much
needed. However, we believe that scope of the reviewer’s proposed duties as currently proposed is far too
limited to have any notable positive impact on the current complaint process.
Small Business, Enterprise and Employment Bill: Written evidence 167
5.1.1It should be noted that, as highlighted in the Department for Business, Innovation and Skill’s report,
Review of enforcement in the childcare sector: Focus on Enforcement regulatory reviews, Ofsted do
not currently provide childcare providers with a separate channel through which to appeal an Ofsted
judgement (as opposed to complaining about an inspector’s conduct). Both such grievances are termed
as ‘complaints’ and must be filed through the same ‘complaints process’. We believe that this is a
flawed approach and that a formal, separate appeals process should be introduced.
5.2 At present, formal complaints about early years inspections are, at the first stage, investigated by an
investigating officer from one of the two third-party inspection contractors Tribal or Prospects, the very same
companies who will have carried out the original inspection. This has understandably led to serious concerns
about the lack of objectivity within this part of the process, as these companies are essentially investigating
themselves.
5.3 The next step in the formal complaints process, as advised by Ofsted, is to file a complaint with
Independent Complaints Adjudication Service for Ofsted (ICASO). However, ICASO can only look into
complaints regarding: failure to follow procedures; failure to respond in a timely manner; discourtesy; failure
to apologise or accept mistakes; or inspector/staff conduct. It cannot review judgements or decisions made by
Ofsted. It should also be noted that by the time providers are able to seek an independent assessment of their
situation from the adjudicator, significant damage may have already been done to their reputation and business.
ICASO’s powers following a review are also limited. It can provide recommendations, advice and guidance
to Ofsted on how to improve the complaints handling process; however, Ofsted is not required to act on these
recommendations (in 2011-2012, Ofsted acted less than three-quarters of ICASO recommendations). ICASO
also cannot overturn inspection judgements.
5.4 We are concerned that the reviewer’s duties and powers, as currently proposed in the Bill, do not differ
in any significant way from those of ICASO. ICASO already produce an annual report which reviews the way
in which Ofsted has handled complaints, and includes recommendations, and this would seem to replicate the
proposed role of the reviewer as outlined in subsection 2. As such, we would call for the subsection 5 to be
amended to allow the reviewer to address, make recommendations on and, where appropriate, make overriding
decisions on individual cases. It may be that such an approach is not appropriate for all national non-economic
regulators and so separate supplementary guidance for the role, duties and powers of the reviewer in relation to
childcare businesses in particular may be necessary.
5.5 Equally, just as it is vital that early years inspectors have an in-depth understanding of early learning and
child development, it is important that any reviews of early years inspections are undertaken by individuals
with a knowledge and understanding of the provision of early care and learning. As such, we also propose
that, with regard to Ofsted inspections of childcare providers, the reviewer be required to review inspection
judgements in conjunction with one or more independent sector representatives.
5.6 We believe that it is vital that, with regard to the current Ofsted complaints process, the reviewer be
given the power to review and where necessary overturn decisions on individual cases for a number of reasons,
as outlined below.
5.6.1Only a tiny proportion of childcare providers are successful in getting an Ofsted judgement overturned
after going through the current complaints process. An Alliance Freedom of Information request filed in
September 2013 found that, out of 990 complaints made by childcare providers against Ofsted between
September 2012 and August 2013, only seven resulted in an improved Ofsted grade.
5.6.2There are more questions being raised about the quality and consistency of early years inspections
than any other type of Ofsted inspection. The Ofsted Annual Report and Accounts 2013-2014,
published in June 2014, revealed that 66% of formal complaints against Ofsted and 72% of internal
review complaints come from early years providers. Given that early years providers only account for
around half of Ofsted inspections, this is disproportionately high.
5.6.3Recent changes to local authority statutory guidance have meant that a childcare provider’s Ofsted
judgement is now a key factor in whether they can offer funded early education for two-, three- and
four-year-olds. This means that if a provider is unfairly downgraded, they are at risk of losing their free
entitlement funding as a consequence. For this reason, it is imperative that flawed inspection decisions
are rectified as soon as possible and we believe that a reviewer with the power to review individual
decisions would be crucial to this. It should be noted that because of the significant negative impact that
an unfair inspection judgement can have on the viability of a childcare business, failure to implement
a fair, transparent and inclusive inspection appeals process will inevitability result in an increase in
formal legal challenges, including judicial reviews.
5.7 Despite the fact that the reviewer is termed a ‘Small Business Appeals Champion’, it is important that all
childcare providers, regardless of size, benefit from the introduction of the reviewer. As such, we would request
that it be made clear, either in the Bill itself or in supplementary guidance, that this is the case.
October 2014
168 Small Business, Enterprise and Employment Bill: Written evidence
Written evidence submitted by Justice for Licensees (SB 62)
Background
Justice for Licensees is a campaign group formed in December 2007 by Inez Ward, who wished to ascertain
the level of discontent within the estates. In March 2008 we formed ‘The Save the Great British Pub campaign’
which garnered in excess of four hundred and thirty thousand members through its social media campaign, this
gave JFL the opportunity to collect and collate the thoughts and opinions of a large cross section of society,
it also gave us the opportunity to produce a large database of contacts. Justice for Licensees also founded
British Pub Week an initiative designed to positively promote and celebrate the Great British pub whilst gently
encouraging footfall for the pubs. Due to the large nature of JFL and its campaigns we formed a council,
council members are from across the country and have different interests in the trade, all care passionately
about the Great British pub. JFL submitted evidence to previous enquiries by government select committees(1),
we were involved in the trade mediations(2) and are members of the Fair Deal For Your Local campaign(3).
Summary
Government should be under no illusion, self-regulation has been an abysmal failure, it has failed to
address the issues clearly highlighted by successive Select Committee enquiries and in particular the problem
of unsustainable rents intrinsically linked with restrictive price lists which appear to increase exponentially.
The pubcos and their supporters have continually, since 2004 subverted, side-lined or ignored government
recommendations. The pubcos have had since 2004 to reform and they have failed miserably. Tied rents remain
higher than FOT rents for the third year running (4), tied products lists remain excessive when compared to
those available in the free market and alleged SCORFA is either charged for or not worth any value to the
tenant. The pubcos have argued that it is taxes, duty, government legislation and red tape which have affected
the trade, these are areas which affect all sectors of the trade, that is tenanted/leased, managed and freehouses.
The number of tenanted and leased pubs has declined from 30,800 in 2007 to 21,000 now. Meanwhile,
freehouses have increased in number from 17,700 in 2007 to 19,500 now. The number of managed pubs has
increased from 9,000 in 2007 to 9,300 now. Total UK pub stock stands at 49,800, down from 57,500 in 2007
(5). It is clear from this that the tenanted/leased sector is in freefall, whilst freehouses and managed are in
growth, despite facing the same adversities as defined by the pubcos, ergo it has to be assumed that it is the
onerous practices within the tenanted/leased sector which is at fault. The Statutory Code should include:
—— A mandatory market rent only option.
—— RICS rental valuation guidance to be vastly improved to counter the negative impact on people and
communities by continual abuse of the system by pubcos.
—— A guest ale right for those who choose to remain tied.
—— Removal of the AWP tie.
—— A truly independent adjudicator which has the ability to completely and thoroughly investigate
complaints, have the ability to readdress any issues and the ability to heavily fine pubcos for any
abuses.
—— The ability for previous tenants who feel that they were abused, ripped off, scammed or they believe
they were misrepresented to by their pubco to seek justice and redress through the Adjudicator.
1. Market rent only option (MRO)
MRO is an option only, it would only become a problem to the pubcos if they were abusing the rental system
by continuing to demand and obtain unsustainable rents when the complexities and true cost of the tie are taken
into account. Their screams of Armageddon are one of two things either nothing more than:
—— scaremongering , if their claims that the majority of their estates are happy and dissent is from a vocal
minority, then there would be no need for tenants to invoke MRO, the majority would remain tied
because they are happy in their relationships with their pubco.
—— a tacit admission of the volume of abusive practices across the estates. It is only if the pubcos were
aware that there would be a fallout across the estates, with the majority of tenants invoking MRO, that
they would have cause for concern. There is no excuse for abusive practices, they must be addressed
and remedied, clearly the pubcos have no intention of doing this themselves, they have had a decade,
therefore it is incumbent upon government to do it for them.
2. RICS rental valuation guidance
Guidance(6) remains opaque and open to interpretation and is only guidance for RICS members. As tied rents
have remained higher for the third year running,(7) it is clear that the new guidance has done little to address
the issue of unsustainable rents, despite the problems being clearly highlighted by Select Committees.(8) This is
disappointing and continues to ensure the demise of the British pub, with a detrimental effect on licensees and
consumers alike, with both having to pay for pubco excesses, abuses and incompetence. RICS, as a recognised
body should hang their heads in shame for failing to ensure that pubcos did, indeed, demand sustainable rents,
rather than the Fantastic Mythical Targets which appear to be the reality.(9) From JFL’s perspective very little
has changed from a grassroots level, the pubcos questionable practices continue unabated and the carnage
Small Business, Enterprise and Employment Bill: Written evidence 169
created is not a pretty picture, the destruction of people’s lives and livelihoods and the destruction of a valued
asset to many a community and a wider asset to the country.
3. A guest ale right for those who choose to remain tied
This will improve the ability of licensees who chose to remain tied to be able to offer a product not of the
restrictive product lists at a price freely available in the open market, so ensuring a benefit to the licensees and
consumer of a wider choice, at a competitive price whilst enabling brewers who are restricted from access to
the estates to be able to sell their products. If a guest ale right were to be introduced under the proviso that it
can only use products not supplied by the pubco, this would make the pubco arguments mute whilst ensuring a
benefit to licensees, consumers and brewers alike.
4. Removal of the AWP tie
There is no sound reasoning for the protection of the AWP tie, this has been clearly highlighted by successive
government enquiries and recommendations.(10)
5. A truly independent Adjudicator
It is clear from successive enquiries and the continuing contact of tenants who are less than happy, which is
a complete understatement, with the modus operandi and business practices of the pubcos. It is clear that selfregulation has failed to address a number of issues highlighted by the successive Select Committees,(11) it is
also patently clear the want and need for an independent Adjudicator. We believe that there have been too many
questions raised over the independence of self-regulation and remain disappointed at the lack of transparency
and answers. JFL has offered on occasions to discuss our concerns, the concerns of tenants, over self-regulation,
our offers remain ignored. We believe that they clearly have no intention of listening to tenants, which is why
this sector of the trade now finds itself in its current position. Tenants need an independent adjudicator, an
adjudicator who has no conflicts of interest, who does not receive remunerations or other benefits from either
side, who does not run the risk of personal loss if he/she were to find against either side, free from the shackles
of cronyism.
6. Justice for previous tenants
From successive government enquiries(12) it is clear that there has been consistent questionable practices by
the pubcos over a considerable period of time. We can see no justification for previous tenants not to be able to
seek justice and redress, when there are clear examples of dishonesty and/or abusive practices by the pubcos.
We do not believe that people should be restricted from seeking justice and redress just because they do not
have the financial ability, due to the injustices they perceive they have been dealt, that is clearly unfair.
7. Office of Fair Trading
We have noted that members of the Committee have mentioned the OFT and its investigation and report
concerning pubcos, we believe that the OFT submission to the Statutory Code Consultation was questionable.
We filed a complaint with the OFT,(13) after a considerable amount of time the CMA responded to our complaint.
8. Self-regulation
JFL had serious concerns over self-regulation as highlighted in our submission to BISC(14) and our submission
to the Statutory Code(15) following on from a complaint filed with the BII(16) and the response from the CEO(17)
and Board of Trustees(18) JFL responded(18). We also filed a complaint with the PGB,(19) following advice received
from Tim Hulme, CEO of the BII, the PGB response is annexed.(20) This experience has been drawn out, lacking
transparency and costly in time and effort, we are bitterly disappointed at the lack of professionalism displayed
and remain convinced that information supplied to BII members should not then be disseminated on an open
forum by BII members without the full, written permission of all parties involved. We no longer maintain that
the BII are best placed to ‘police’ the industry, the thought of the BII having access to tenants information and
the simple fact that BII support said information being disseminated by BII members and associates, under
the pretext of personal opinion, we believe is unprofessional and not fitting of the organisation charged with
the task of ‘policing’ the industry, we believe that this trade deserves better, much better. Filing a complaint
against the practices of the self-regulatory bodies is far from transparent, it is severely lacking in clarity and
complaints have to go through the BII, if a campaign group such as JFL has difficulties, then what hope a lone
tenant? We believe that the system is not fit for purpose, which was to regulate the industry, JFL Council are
of the opinion that self-regulation fails to address the imbalance between landlord and tenants, fails to address
the recommendations of successive government enquiries and completely fails to address fair, reasonable and
lawful dealing and that a tied tenant should be in no worse a financial position than a FOT tenant.
9. Society of Independent Brewers
We remain concerned and disappointed at the change of opinion by SIBA to not supporting a Statutory
Code(21) JFL was supplied with a SIBA Brewers Price List,(22) JFL contacted a member of SIBA, who wishes
to remain anonymous, JFL wanted to ensure that the figures contained within the brewer’s price list were
170 Small Business, Enterprise and Employment Bill: Written evidence
indeed reflective of the reality of the situation, it became clear that they were. From this price list when studied
alongside pricing in the open market(23) it is clear to see who benefits most from SIBA, clearly it is the pubcos
who benefit most. We do not understand SIBA’s position, if it became legislation for MRO then SIBA would
be able to include the numerous small brewers and microbrewers that are currently excluded from the tied
houses, therefore ensuring growth of their organisation. They would be able to raise their prices to similar to
the open market, therefore ensuring a bigger return for their members. The market would become vibrant and
competitive. Licensees would benefit from a much wider choice and pricing consistent with the open market,
so enabling them to improve premises and to be able to compete in their own market place with other sectors
of the trade. Consumers will benefit from increased choice, improved premises and more competitively pricing.
Communities will benefit from a competitive trade, the destruction of pubs that have the unfortunate position
as to be in the tied/tenanted sector of the trade will be in a better position to become viable when not strangled
by unsustainable rents and expensive pricing strategies. Even the pubcos will benefit as the pubs flourish into
competitive, viable going concerns. Considering that tied rents are more expensive than the FOT sector clearly
the pubcos are going to have to take a haircut, they can expect no less, they have gained, to the detriment of
licensees, consumers, brewers and communities for far too long, the unbalance requires immediate attention
and redress. Following on from discussions with small brewers we were concerned over SIBA’s change of
opinion, it did not seem to reflect the thoughts of some members, with this in mind we asked our contact, a
member of SIBA, a simple question “Did SIBA vote on it’s submission to the Consultation?” The response is
as follows “From memory it was delegated to senior management.”
10. The British Beer and Pub Association
The BBPA represents the interests of its members, the pubcos, some larger family brewers and the
multinational brewers. As successive enquiries and the Statutory Code Consultation have clearly highlighted the
interests of BBPA members are often clearly out of kilter with the interest of licensees, consumers and brewers
that are not members of the BBPA. BBPA have launched a Campaign called “Better Rates for Pubs” yet were
instrumental in assisting the VOA with the FMT definition in the first place—leading to inflated assessments
and passing on significant operating costs to consumers (though strangely enough not its members). We feel that
it somewhat bizarre that the pubcos would act against the interest of the licensees and consumers as it is clearly
these people who earn them their revenue. The BBPA did not wish to become involved in discussion, preferring
to let government consider(24) the issues raised. We believe a rather bizarre approach from an organisation
that clearly represent the interests of the pubcos and does not want legislation, the intransigence remains as it
always has, even when the threat of legislation hangs over their heads. The pubcos have had a decade to reform
sufficiently and we believe they have failed miserably, they should not be given any further time to reform, they
have had every chance under the sun for over a decade, we believe that that is totally unacceptable when taking
into account the cost to licensees, consumers and communities.
October 2014
1a http://www.publications.parliament.uk/pa/cm200809/cmselect/cmberr/26/26we74.htm
Annexes:
1b http://www.publications.parliament.uk/pa/cm200910/cmselect/cmbis/138/138we44.htm
1c http://www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1690/1690iw16.htm
1d http://www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw34.htm
2 http://www.morningadvertiser.co.uk/General-News/Mediation-a-cathartic-process-for-all-involved
3 http://www.fairdealforyourlocal.com/quote/
4a http://www.morningadvertiser.co.uk/General-News/ALMR-benchmarking-survey-shows-red-tapethreatening-recovery
4b http://www.morningadvertiser.co.uk/General-News/Tied-rents-remain-higher-than-free-of-tie-rents-forsecond-year
5 http://www.propelinfonews.com/pi-Newsletter.php?datetime=2014-07-07%2008:00:00
6 Attached—Not published
7 http://www.morningadvertiser.co.uk/General-News/ALMR-benchmarking-survey-shows-red-tapethreatening-recovery
8 www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw01.htm
9a http://www.morningadvertiser.co.uk/Business-Support/Fair-Maintainable-Trade-or-Fantastic-MythicalTarget
9b http://www.morningadvertiser.co.uk/Opinion/My-Shout/Dixon-Time-to-get-real-about-how-much-pubscan-actually-turn-over
10 www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw01.htm
Small Business, Enterprise and Employment Bill: Written evidence 171
11 www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw01.htm
12 www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw01.htm
13 Attached—Not published
14 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/1369/1369vw34.htm
15 https://www.gov.uk/government/consultations/pub-companies-and-tenants-consultation
16 Attached—Not published
17 Attached—Not published
18 Attached—Not published
19 Attached—Not published
20 Attached—Not published
21 https://www.gov.uk/government/consultations/pub-companies-and-tenants-consultation
22 Attached—Not published
23 https://www.justiceforlicensees.org.uk/news.php?story=39
24 Attached—Not published
Written evidence submitted by Mr Ron Piper and Miss E. Piper
(Formerly of The Sir John Barleycorn, Hitchin, Herts. SG5 2JZ) (SB 63)
1. Summary
1.1. Based on our experience of the self-regulatory process we have concluded that a statutory system
is required to facilitate continuous improvement in the relationship between PubCo and tenant with the
intermediation of an independent adjudicator.
The Government has already committed to introducing a new Statutory Code and independent Adjudicator
to ensure that publicans who are tied to a pub owning company are treated fairly and to deliver fairness and to
enshrine in law the long accepted but largely ignored principle: that the tied licensee should not be worse off
than a free of tie licensee.
1.2. We have been associated with the pub industry for over 29yrs and for the last 11yrs tenants of Punch
Taverns at The Sir John Barleycorn. In 2003 we took over the Sir John Barleycorn (myself and daughter aged
15—being a single dad) having taken out a loan of £15000.
We were the 4th landlord in 5yrs & were informed we were the last chance saloon and despite Punch’s
practices eventually become the longest serving landlord in the pubs history.
1.3. So how did our ‘partner’ treat us? From the onset we experienced heating problems which took over
a year to fix with new boiler. It then took 3yrs of complaints to solve problems in the cellar; inc out of date
lines; but only when the cooler finally broke down. We have had leaks in toilets, roofs that have taken months
to repair.
We asked for a lease at the Barleycorn as we had which was put on hold when we were asked in 2005 to take
on another pub The Peartree, Bassingbourn with a promised investment plan and refurbishment to help us turn
that around as well; with the idea of that after 2yrs we could sell the tenancy thus securing our future and lease
at the Barleycorn which now had become our home.
1.4. The Peartree was at a high rent due to the planned refurbishment program that was supposed to be
on taking over the pub but took over 9 months and a lot of complaints to actually materialize and even then
was of low standard with floors buckling, tiles falling off walls and electrical problems. From the outset were
writing to Punch stating they had broken their agreement, asking for a rent reviews due to breach of contract
with regard to refurbishment etc and that we were under financial strain. Punch’s reply was to send bailiffs in
without notice adding a further cost of £800. Believe it or not during this time we were offered a 3rd pub on a
cheap rent with the idea of that we could use this pub to make money to help pay off the debts, but still no rent
review, no arbitration or anything else as requested. We refused.
1.5. Eventually Punch said I could re-assign at a cost of £1000 plus a penalty clause of £15,000 for selling
within 2yrs. In the end they took us to court and evicted us from the Peartree. We lost all our deposit, f&f
and the remaining debt of £16,878.86 (predominately made up of fines & solicitors fees added before and
during court cases)) was transferred to the Barleycorn account on 05/03/2007. The new tenants of the Peartree
however were offered a revised reduced rent—We were victims of the great pub ‘churn’ as indeed were the new
tenants within a year.
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1.6. This obviously put a great financial burden on us and eventually in 2009 it was decided that I (R.Piper)
had no option but to go bankrupt. Punch agreed to transfer the Barleycorn tenancy into a Ltd Co with Miss E.
Piper acting as guarantor (E.Piper—daughter 20yrs old with a child of 5 months on benefits) with no credit
check and once again transferred the debt—this time of £2235.03(inc fines/solicitors).
1.7. It was at this stage that the agreement also changed, but without notification.
We continued to have problems with non-repairs and maintenance issues inc. gable end repairs where light
and weather was emitting into loft for over 17 months.
In 2011 it was reported that the premises had ‘undersized gas pipes’ and in Feb. 2013 the Gas Service
Inspection disconnected our cooker in the Kitchen which is in the pub itself. There is no kitchen upstairs in
the residential area so we were left without means to use a cooker with a 4yr old living there. This was due to
‘undersized pipes’ that was 1st reported in Sept 2011 as NCS—There was nothing wrong with the cooker itself.
1.8. When we complained to Punch they decided that instead of honoring their legal and moral duty to start
legal proceedings for eviction over trespass as the Ltd Co had been dissolved despite the BDM being informed
and us being told that as long as Miss E.Piper was still guarantor this was acceptable as my bankruptcy was due
to finish and we could do a new tenancy etc.
This precedent had already been set in court with in the case of Punch v Eastcote Arms which is well
documented.
Eventually after nearly a year and at a cost of £1000 to ourselves to re-instate Ltd Co to transfer the tenancy
they discontinued the case in Jan 2014. However they then started eviction proceedings for Rent arrears despite
us being in dispute, notifying them of the reasons for withholding rent and awaiting PICAS hearings that were
put on hold due to court action.
1.9. In Feb of this year 2014 at the next Gas Inspection it was classed as ‘At Risk’ and the gas to the whole
premises was almost cut off. We were allowed to keep it on due to my Granddaughter living above. Punch
eventually changed the pipe work first reported in 2011but we were still unable to use the cooker as it needed
new cut-off valves and extraction. Over all this period Punch has stated that they are ‘not prepared to pay for
extraction etc for a pub that does little or no food.’
1.10. Due to these problems we withheld some rent until all work was carried out and are looking at a
counter claim for all the stress which has taken its toll on our health/quality of life for our whole family.
Once again another pubco scam came into play—
2. The Anti-set off clause:
2.1. The majority of leases contain a clause called ‘anti-set off’ which is the cause of many publicans losing
their home, job and business when the situation reaches the point of legal procedures by the pubco.
2.2. We withheld rent due to historical complaints concerning Health/Safety and whilst we went through
the ‘voluntary’ Code of Practice and PICAS. However the pubco can apply for forfeiture 14 days after default,
irrespective of any lease or code of practice breach claims that the publican may have against their pubco
which can result in the loss of business, homelessness and unemployment, leaving many of us never having the
opportunity to pursue our legal rights or any other form of redress for the now recognised abuses as they are
evicted before they get anywhere near a court to seek settlement for failures, or breaches, by their pubco.
Our own PICAS case was ‘stalled’ due to legal action by punch.
3. PICAS:
3.1. We exhausted Punch’s complaints procedure over a period of time and eventually complained to PICAS
on 21/5/13 concerning various issues as highlighted above.
All statements were filed with the defendant replying on 3/7/13 and yet the case was put on hold on 26/7/13
due to court action that punch had bought against us after we initiated the complaint. The reason given by
PICAS was ‘The process will not, and can not, deal with legal issues’.
3.2. In May 2014 after various correspondence PICAS copied us in on a letter to punch that stated that
even though there was a new possession hearing that ‘This is not to say however that the complainants cannot
progress their complaint in respect of the issues they have identified (e.g. Repairs/redecoration, maintenance,
role of Pub Co Business Manger, renewing the tenancy, gas cylinder claim, pricing, fines/solicitors costs)...must
not contain any legal argument’—
3.3. The question has to be asked is WHY were we not advised or allowed to do that a year earlier instead
of being put on hold? We have also requested information from PICAS under FOI Act 2000 regarding
correspondence between BBPA, BIIBAS, PICAS & PUNCH concerning our case and who instigated the case
be put on hold and were informed ‘that PICA-Service does not come within the jurisdiction of this legislation’.
3.4. It is our conclusion that all the above are so heavily interlinked and funded by the pub companies
that it is not and cannot be classed as ‘independent’ and would call into question the bias that appears on the
Small Business, Enterprise and Employment Bill: Written evidence 173
committee with ‘conflict of interests’. Even when found guilty it is only ever the ‘spirit of the code’ that is
breached—NO it’s the code!
3.5. On the BBPA site it states—‘This diversity of membership enables us to speak up for the industry,
championing its cause, whilst also being able to credibly claim a wide representative base.’ & ‘The Association
exists to promote and protect one of the nation’s most iconic and important industries’. Yes it’s the industry that
funds it—NOT the tenants—Therefore it represents the pubco’s only—it’s biased. As an example please note
the following:
3.6. Letter to BBPA 30/10/13— ‘I also request copies of the letters sent and received from Stuart Gallyot—
Punch Taverns, Punch’s Solicitor, Jonathan Neame—Chairman BBPA and Jane Hartsholme—BIS’—NO
RESPONSE:
3.7. Miss B. Simmonds BBPA response on various occasions has been—‘I’ve nothing further to add’.
3.8. Jonathan Neame (Chairman)—No response
3.9. The BBPA have claimed in their submission that claimed ‘Self-regulation is working. It is flexible, lowcost, effective—and legally binding’
But in our own court case when fighting against eviction and stating that we would like an adjournment until
the outcome of our PICAS case, Punch Taverns in official court papers logged at Luton County Court stated on
17th July 2013 that:
(3) The IFC is a non-statutory code, to which Pub Companies, such as the Claimant, voluntarily subscribe.
The IFC is not, therefore, enforceable in law.
(4) Similarly, a PICAS determination is not legally binding. Whilst it might be stating the obvious, PICAS
has no jurisdiction to make binding decisions or orders in respect of legal issues, such as determination
of leases, arrears rent or otherwise.
(5) Neither is PICAS a mediation service.
3.10. The BBPA Pub Company Submission have also claimed that: ‘Brewers rely on tied pubs for their
route-to-market. Without the tie, many British breweries would close’—Were you aware that last year Punch
delisted Timothy Taylors to all its pubs with a letter giving alternatives and also have done over the years to
various breweries ? Many local breweries cannot supply to punch at the low rate required by punch to make
such a mark-up and also that despite such an impressive list of breweries most are unavailable due to depots not
stocking them.
3.11. The BBPA also claims it will: ‘Review the self regulatory system regularly—a suggested timeframe is
every three years—by an independent body or person; and promote PIRRS, PICA-Service and the provisions
of the Code across the entire leased and tenanted sector and raise awareness’—facts indicate otherwise.
3.12. Threats have also been made by the industry that to remove or restrict the tie would breach international
law. However in Canada tied houses are banned , in the USA tied houses are generally illegal due to competition
laws. In Punch’s own 2 ‘RISKS RELATING TO BUSINESS OPERATIONS’ statement it states:
“(ii) Competition Law and Tied Estates
Tied pub tenancy arrangements that require tenants to obtain beer (and other beverages) from
a nominated supplier may constitute a breach of Article 81 (formerly Article 85) of the EC
Treaty (Article 81) and/or Chapter 1 Competition Act (Chapter 1) in circumstances where the tie
arrangements contribute significantly to the foreclosure of the U.K. market.
In addition, a breach of Article 81/Chapter 1 can also give rise to claims for damages against one
or more parties to the contract in question. Following the recent decision of the European Court of
Justice and the judgment of the Court of Appeal in Courage v Crehan,”
3.13. It is my understanding that the BIS Select Committee, the Federation of Small Business, the Forum
of Private Business and CAMRA all believe that the only way to deliver the Government’s commitment is to
include in the code an option for tied publicans to only pay a independently assessed market rent—a ‘market
rent only’ option.
The market rent only option was suggested as far back as 1969, by the Consumer Council and quoted by the
Monopolies Commission in their report ‘Beer: A report on the Supply of Beer’.
3.14. The Market Rent Only (MRO) option as it offers tenants a negotiating tool and a genuine remedy. It
will tackle the above issues by instituting fair and reasonable terms at the point of use, and take forward the
industry in a constructive and long-term way, at the lowest cost and in the easiest manner available. In fact, in
the way recommended by every one of the All Party Parliamentary BIS Select committees, 4 times following
an 8 year inquiry.
The Market Rent Only option, put simply, offers tenants the opportunity to consider whether their tied rent
and any purported benefits offered by their pub owning company truly balance against the prices charged for
tied products like beer. If a tenant does not feel that this balance is being achieved they can serve notice that
174 Small Business, Enterprise and Employment Bill: Written evidence
they wish to be released from the tied purchasing obligation in exchange for an agreement like any other
normal commercial agreement, like a shop or office.
3.15. MRO can be presented and applied almost immediately; any rent variation can be negotiated after
notice and retrospectively adjusted. There is no need for publicans to get into debt, make complex and
sophisticated choices, struggle for red-tape parity or lose all to the detriment of many. They will be at liberty to
choose which ever option is going to make their business viable therefore stopping the churn at the grassroots
level, before the need for lawyers and courts and to the betterment of both business partners. In a simple way it
will redress the balance of power instantly. A market solution to a market problem available to all tied tenants
which ensures the Government adjudicators time is better spent on other code related issues.
3.16. The manipulation of tied products and their prices is easily overcome with MRO. The beer market
is currently non-competitive and closed caused by an artificial environment, absent in any other business
sector, permitting it to persist, effectively keeping out the majority of the smaller 1,442 brewers in the UK as
mentioned above by de-listing.
3.17. The BIS Consultation online survey resulted in 67.6% (of all respondents) in favour of a market rent
only option and of the written responses from tenants, of those who answered the question should there be the
market rent only option in the statutory code, 84% said there should be.
4. Conclusion
4.1. The industry will not regulate itself and the BBPA etc have proved they are just tools for the pub
companies. They have proved time and time again that they are a law unto themselves.
4.2. If allowed the pubco’s will continue to be a law unto themselves as indicated by our own case above and
recent developments by Punch to take Emily Piper (26) on JSA with a 5yr old for £30,329.49 through the courts
as the ‘guarantor’ although the IFC clearly states ‘the initial stage of your application involves us conducting a
credit check......Assuming you pass the credit check...’—No credit check was carried out. Yet another breach of
the IFC along with many others; once again showing their complacency—a feeling of being satisfied with how
things are and not wanting to try to make them better.
4.3. The Small Business, Enterprise and Employment Bill Clause 36 states the 2 important principles:
(1) That there should be fair and lawful dealing between pub companies and their tenants;
(2) That tied pub tenants should not be worse off as a result of any product or service tie. This is not the
case—They are a law unto themselves!
4.4. To echo the words of CAMRA’s Head of Communications Tom Stainer:
“We are delighted that after our 10-year campaign the Government is now introducing a Pubs
Adjudicator to protect the nation’s pubs… vital that publicans, who are on the frontline of keeping
our valued community pubs open, are given protection from heavy handed business practices from
the big pubcos..we urge the Government to go further by introducing guest beer and market rent only
options for tied publicans’
4.5. On another legal note Punch have recently been reported to the FCA, FRC and KPMG concerning not
complying with IFRS (IAS 40 “Investment Properties”), which requires annual revaluations to be undertaken
with gains and losses recognised in the determination of profit and loss. Enterprise Inns are also under
investigation.
At least we feel confident that these institutions will regulate and investigate as they have to report to the
Secretary of State for Business, Innovation and Skills and are accountable.
October 2014
Written evidence submitted by Fair Pint—supplementary (SB 64)
SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT PUBLIC BILL COMMITTEE
PART 4—THE PUBS CODE ADJUDICATOR AND THE PUBS CODE
PARALLEL RENT ASSESSMENT AND THE RICS
1. Introduction
2. We believe the RICS submission to committee may as well have been written by the pubco placemen
within the organisation or is at the very least heavily influenced by them.
3. The RICS representation seeks to muddy the water to what is a relatively simple concept.
Small Business, Enterprise and Employment Bill: Written evidence 175
4. Rob May (National Rent Controller for Enterprise Inns) was chairman of the RICS Trade Related
Valuations Group who wrote the pub rental guidance until it was amended in 2010. He stayed on that group
until last year.
5. It is this group we understand blocked clarification of the new guidance, as requested by Government and
Select Committee—hence the Government sought to offer the clarification the RICS would not and indicated
that the RICS rent assessment guidance should be undertaken ensuring that the result was a tied rent which left
the tied tenant no worse off than if they were free of tie, a prospect confirmed by the RICS previously in 2009.
6. The problem is that the field of pub valuations is specialist and there are relatively few surveyors in the
field. Given the pubcos and brewers own almost half the pubs in the country almost all surveyors will have
been ‘touched’ by the pub owning companies and, to a reasonable man at least, would be seen to be conflicted
and compromised.
7. Take any of the larger firms dealing with pub valuations, rent reviews or lease renewals, many of their
directors are high up in the RICS influencing rent assessments—a considerable portion of their annual incomes
are derived from pubco and brewer instructions.
8. Simplicity of Parallel Rent Assessment
9. The RICS report seeks to over complicate the ‘parallel rent assessment’ (PRA), implying that a formulaic
approach is not the current approach used. This is none sense everyone in practice uses a formulaic approach.
The PRA simply adds another column to an existing methodology.
10. The implication is that a free of tie valuation has never happened and is almost impossible to deliver but
what they omit to say is that free of tie valuations take place now.
11. Free of tie leases on pubs are not as common as tied agreements, granted, but the valuation approach for
a pub is the same regardless of whether it is tied or free of tie.
12. Unlike most shops and restaurants, which are valued on a rate per sq metre, pubs are valued using the
profits method. Put simply the valuer must establish a level of sales (from market comparables). The procedure
then is to and apply an estimated gross profit (GP), dictated by the prices that can be achieved by the tenant
both on purchase and sale of goods. This is where the terms of the agreement come in, tied GP generally being
substantially less than free of tie GP due to inflated tied product prices. From GP an estimated level of costs are
deducted leaving what is called a divisible balance, which is the net profit before rent, put simply, the amount
to be split between the pub owning business and the tenant.
13. It is common for the divisible balance to be split 50:50 (but not set in stone). If a tenant running a pub on
a free of tie basis paid a rent of say £30,000 and earned £30,000 (the free of tie divisible balance being £60,000)
there is no reason, all other things being equal, why they would not expect to earn the same if they were tied.
14. As the pubco take a slice of their income from tied products, the resultant tied divisible balance is lower
than if free of tie so their ‘cut’ of the divisible balance should be less, leaving the tied tenant no worse off.
15. The Challenges
16. All things may not be equal in the hypothetical free of tie and tied agreements.
17. Of course there are some complications, every pub is different. There are a multitude of variables creating
a multi tiered system (so binding the larger pubcos and excluding the smaller brewers from the statutory code
do not split an existing single tier system, they just add another tier to many existing), but the terms of trading
(fully tied, part tied or free of tie) are just one of the variables to consider and not that difficult to estimate
compared to say location, demographic or size.
18. Some pubcos claim to offer special benefits to their tied tenants, which generally would only be beneficial
if they make or save the tenant money. These are quantifiable and can be incorporated into the assessment
formula altering the likely level of sales and/or costs and should be going some way to countervailing the
disadvantage of being over charged for a limited supply of tied products.
19. These surveyor would have to consider the longevity of these purported benefits, if they are discretionary
they hold little more than a perceived value. I would suggest a rent should not be assessed having regard to a
cost saving that can be withdrawn the next day.
20. What PRA seeks to do is compare the likely circumstances and profitability, using existing RICS
guidance outlined in Section 5 of the guidance note, to balance the hypothetical tenants earnings under each
scenario, free of tie and tied. This level of earnings is deducted from the divisible balance to be split between
the parties and the resultant tied rent is then established.
21. The Problem
22. For all the wrong reasons the RICS have sought to over complicate the PRA but the fact remains
that PRA should be the tool used hand in hand with the MRO option. There are terms in free of tie and tied
176 Small Business, Enterprise and Employment Bill: Written evidence
agreements that are difficult for any valuer to place a number on and typically the pubco will seek to imply that
a perceived benefit has a disproportionate value, whereas the tenant may place no value on it all.
23. In order to seek to justify artificially inflated tied product prices, and essentially take a greater piece of
the action, the pubcos have invented spurious ‘so called’ benefits.
24. You will often hear pubcos claiming they offer benefits like external repair to be undertaken by the
landlord not the tenant, this generally only occurs in brewery tenancies and is accounted for in the calculation
by simply adjusting the tenants likely repair costs. Lower fixed rent—this is exactly what the PRA seeks to
establish. Easy exit terms—these are not contractual the pubco has only committed to ‘considering’ so called
easy exit, usually for a fee, in their code of practice. Cellar and heating maintenance and tech services are all
generally charged at a separate price and therefore no benefit at all.
25. This is where the necessity for MRO comes in, to work hand in hand with PRA. A tenant would establish
their likely earnings free of tie using the PRA and consider whether the tied rent proposed would enable them
to achieve such an income. If it does not then it is possible there are benefits, that the tenant may not have
considered, it is for the pubco to justify their existence and value to the tenants satisfaction. If the tenant
does not concur and disputes either the existence or value of the purported benefit they may sever the trading
obligation and potentially lose those benefits that they place little or no value on—is that not what market
forces are all about ?
October 2014
Written evidence submitted by Paul Crossman (SB 65)
Background
My name is Paul Crossman and I am a licensee living and working in York. I am involved with four pubs,
one leased by myself from Punch Taverns and three more which are owned freehold by myself and a business
partner.
I have had my Punch lease since Sept 2007. We bought our first freehold pub from Marstons in 2008, our
second from Punch in 2011 and our third also from Punch in 2013.
All of our pubs are wet-led operations specialising in cask ale.
1. Introduction
1.1 This report is intended to lend support to the contents of the bill, and to counter any possible claims that it
should in any way be “watered down”. Indeed quite the contrary, the intention is to highlight the vital need for
the Bill to go further by including a “Market Rent Only” (MRO) option.
1.2 As someone who operates both tied and free-of-tie (FOT) pubs I hope I am well placed to comment on
the differences between each sector, and therefore offer some insight as regards the complex array of grievances
likely to be brought before an adjudicator.
1.3 My experience is that the tied model as operated by Punch Taverns (and by extension other large
“pubcos”, whether brewers or not, who operate a similar model) is highly detrimental to the individual small
businesses which are actually operating their tied pubs.
Particular areas of concern are:
Highly excessive tied wholesale drinks prices.
Total lack of control over tied wholesale prices.
Limited product choice.
Excessive rents.
Flawed rent assessments under non-binding RICS guidelines.
Lack of “countervailing benefits” otherwise known as “SCORFA” (Special Commercial or Financial
Advantage).
Punitive contractual obligations enshrined with pubco leases.
An imbalance of risk and reward within the relationship between pubco and tenant.
An imbalance of power within the relationship between pubco and tenant.
An imbalance of sophistication between the parties upon entering a tied agreement.
1.4 It is therefore my strong view (consistent with the conclusions of the four recent Select Committees) that
“self-regulation” has not worked that reform of this market is now desperately needed. Therefore, unlike the
authors of some of the other submissions to the committee (including Punch Taverns themselves), I very much
welcome the aim of this Bill to enshrine in law the principle of “fair and lawful trading” and in particular the
prime principle that “the tied tenant should be no worse off than the FOT tenant”.
1.5 The Bill currently proposes a statutory code and an adjudicator, both of which are very welcome
suggestions, and may well prove part of an effective solution. However, due to its sheer scale, I fear the task
Small Business, Enterprise and Employment Bill: Written evidence 177
facing the adjudicator will quickly assume overwhelming proportions, resulting in delays in processing cases, to
serious detriment of the interests of individual tied licensees and the wider pub industry. Furthermore each case
actually brought before the adjudicator is highly likely include technical complications and intricacies making
the process cripplingly labour-intensive and time-consuming when in fact, for most struggling licensees, time is
of the absolute essence and all other resources are similarly limited.
1.6 It is therefore my firm opinion that there needs to be another swift and effective option included in the
form of MRO. This is a simple and elegant solution which would provide the speedy resolution so desperately
needed by struggling licensees throughout the industry.
1.7 I believe the introduction of MRO is perfectly justified by continued industry claims that the tie is
beneficial to lessees due to the SCORFA they claim is on offer. It is important to note that ONLY the pubcos
and those that represent them or benefit directly from them, are making these claims. If they are to continue to
make such claims in the face of enormous evidence to the contrary then they must be prepared to have those
claims put to the test. If their claims are true then they have nothing to fear, as lessees will clearly choose to
remain tied. However, if lessees are receiving insufficient SCORFA in return for being tied then they must be
able to opt out of the relationship since the pubcos will have defaulted on the legal obligations which justify
their operation of the tie in the first place.
2. The Need for Statutory Intervention
2.1 Tenant earnings are under intolerable pressure in most cases (CAMRA quote 57% of tenants tied to the
large pub companies stating their annual earnings as being below £10,000 in 2013, as opposed to only 25% of
free of tie tenants).
2.2 This higher incidence of low earnings is a function of many factors which conspire against tenants, but
ultimately it illustrates the fact that too little profit is being left in pub as a result of the problems within an
unfair tied relationship.
2.3 Excessive profits are being extracted from individual sites by pubcos in the form of vastly inflated
wholesale drinks prices as well as in unreasonably high property rents. This arrangement means that the pubcos
benefit twice over from the efforts of each of their tenants, since they not only make huge profits on the drinks,
they then also enjoy an unreasonable share of the resultant (reduced) net profit (usually 50%) in the form of
fixed “dry” rent on the buildings.
2.4 This situation all too often results in hardship and genuine suffering for tenants, and accelerates business
failure. It also contributes greatly to the ongoing dilapidation of our national pub stock, and the accelerated
level of pub closures we are currently seeing (31 per week at present). The long-term failure of the abusive
tied pubco model has resulted in business failure and hardship for many licensees, and is culminating in the
decimation of our pub heritage, as debt-laden pubcos are raising funds by divesting themselves of their assets
(our pubs) and reinventing themselves as simple property companies through participating in alternative use
conversions. (In this they are of course aided by our flawed planning laws.) The estates of both Punch and
Enterprise for example have roughly halved in size over the past eight years or so, and it is no coincidence that
we have permanently lost 20% of all of our pubs in the last 15 years. This is frankly catastrophic.
2.5 Many pub closures are unnecessary and are the direct result of failures in the tied model. Pubcos are
causing pubs to become “non-viable” through their profiteering and neglect, and then using that non-viability
as a justification for disposal of redevelopment. Our three free houses are all ex-pubco. One is a work in
progress and two are already utterly transformed. Both of those (formerly moribund) pubs are now awardwinning, thriving social hubs which are deeply valued by their local communities, employing many staff and
contributing enormously to the local economy and of course to the exchequer. (One of our thriving free-houses
would now be two homes if Punch’s own planning application had been granted three years ago.)
2.6 It should be noted that with so many tenants on low earnings the cost to the exchequer in tax credits is
enormous, as are the losses in potential income tax and trade-related taxes.
2.7 There are several specific factors within the typical tied arrangement which conspire against tenants, all
of which will require some attention from the adjudicator in each individual case. Points 4-7 below simply
begin to give an indication of the scale of the task facing the adjudicator.
3. Wholesale Prices—Excessive levels and inability to negotiate.
3.1 Pubcos often refer to the “discounts” they offer their tenants, but it is important for the committee to
understand what is meant by discount in this context. The use of the term discount could be interpreted to mean
that they are sharing with their tenants the benefits of their enormous buying power, and in fact the pubcos
themselves attempt to present these “discounts” as SCORFA. This is absolutely NOT the case.
3.2 Breweries in the UK have initially high wholesale list prices which are ALWAYS discounted heavily to
anybody in the trade. The more “buying power” a customer has the more discount they typically command.
Due to their scale the pubcos command huge buying power and therefore receive large discounts, higher than
can be achieved, for example, by ourselves in our three freehold pubs. Yet it is crucial to understand that
the “discounts” they quote to their tenants are based on the initial wholesale price quoted by the breweries
178 Small Business, Enterprise and Employment Bill: Written evidence
themselves, and invariably fall very far short of the level of true discount achievable by any (single) freehold
pub dealing direct with the brewery.
3.3 Consequently the fact is that in my tied pub I routinely pay 70-90% MORE for tied beer than we pay for
the exact same (or equivalent) drinks in our three freehold pubs.
3.4 If tenants were actually sharing the benefits of pubco buying power then this would be an example of
SCORFA, and yet the fact is that tied tenants of the large pubcos are invariably paying significantly higher
wholesale prices than their FOT counterparts. Wholesale price differentials are an absolutely crucial issue
which would frequently be brought before the adjudicator.
3.5 This problem is of course exacerbated by the complete inability of tied tenants to exercise any control
over the wholesale prices they pay. They cannot shop around and have to accept the significant annual price
increases imposed upon them by their pubco. This means that tied tenants are denied a fundamental ability
required by any small business, that of negotiation.
3.6 In our freehold pubs our buying freedom allows us to maintain our gross profit levels at a viable level,
while keeping price increases to our customers to an absolute minimum. Tied tenants are completely unable to
do this and therefore have no choice but to try to pass on the annual above-inflation price increases (typically
4-5% every year) imposed by their pubco. Given the fact that those prices are already 70-90% higher in our
case it is clear that there is an ever widening gulf opening up between the prices we must charge in our tied pub
as opposed to our freehold pubs. This is one of the most worrying aspects of the beer tie for many tenants, as
logically it can only lead to one eventual outcome in either the short or longer term; i.e. business failure due to
being rendered incapable of achieving a viable margin at a price which the market will tolerate. Relative annual
price increases would also be an issue for the regulator.
3.7 This gulf is also inevitably widening in relation to the gross profit (GP) margins achievable in each sector.
In our freehold pubs we are able to keep prices reasonable and minimise annual retail price increases whilst
also maintaining a viable GP of around 60% (universally recognised as the optimum minimum level of GP for a
pub). In our tied pub we have to charge 25-40p more for most drinks, and yet we struggle to achieve an average
GP of more than 43% on our tied products. Such a low GP is intolerable in any pub, but is a particular problem
for a tenant with a “fully repairing” lease (as we have) which effectively imposes all the cost responsibilities of
a free house. GP inequality is another crucial issue requiring attention from the regulator.
3.8 Incidentally GP is a particular problem for pubs dealing largely in cask ale. All four of our pubs are
entirely wet-led cask ale outlets, so we can quite legitimately claim to be experts in this field. Many feel that
the pubcos consistently fail to acknowledge the limited yield possible from cask-conditioned ale, to the further
detriment of their tenants’ businesses. During my 2012 rent review I produced a detailed report explaining why
it was quite impossible to serve the entire contents of a cask of real ale. My conclusions were disputed and
rejected despite the fact that my estimates were without any doubt demonstrably and factually “conservative”.
This is an extremely serious issue of “fair and lawful trading” with very far-reaching implications, which
perfectly illustrates the urgent need for a statutory code, and an adjudicator with meaningful powers.
4. Lack of product choice
4.1 Tied tenants have a severely restricted product choice in comparison to their FOT counterparts. This
places them at a serious competitive disadvantage in a changing market which is increasingly embracing local
products, as well as innovative new styles of beer. Free houses can adapt quickly. In our tied pub we can only
move at Punch’s relatively glacial corporate pace.
4.2 This is a seriously restrictive factor inhibiting the ability of tied pubs to compete in a fair market and
places tied tenants at a very real disadvantage. Restricted product choice (and lack of agility) is another pressing
issue which requires attention from the statutory code and the adjudicator if the tied tenant is truly to be “no
worse off”.
5. Excessive rents and a flawed rent assessment process
5.1 Last year a benchmarking survey showed that tied rents were equal to and in some cases in excess of
FOT rents.
5.2 One of the major items the pubcos claim to offer as SCORFA is a reduced rent in return for higher tied
drinks prices. They are largely manifestly failing to deliver on that commitment.
5.3 A major part of the problem with rents is the manner in which they are assessed whereby surveyors are
able to interpret the non-binding RICS guidelines in a partisan fashion. Therefore, at one point during our
own rent review for example, the surveyor acting for Punch estimated that our rent should be exactly double
the figure suggested by our own surveyor. This is a case of two RICS surveyors apparently applying the same
RICS guidance but achieving hugely different conclusions based on the interests of their clients. Throughout
our review we were referred to by Punch’s surveyors as inefficient operators (despite Punch having heaped
praise upon us in the preceding five years, during which we increased trade by 50% against a backdrop of the
most catastrophic years on recent record for the wider pub industry).
Small Business, Enterprise and Employment Bill: Written evidence 179
5.4 It is widely believed by licensees that pubcos ALWAYS begin a rent review on the assumption that the
tenant is not achieving “Fair Maintainable Trade” and is thus not a “Reasonably Efficient Operator”, even when
that tenant is clearly exceptionally successful. This gives rise to the frequent allegation that pubcos always seek
to “penalise success”. My own experience tallies exactly with this allegation. RICS themselves are completely
failing to remedy this situation, and are seen by many as part of the problem. Furthermore the PIRRS route is
mistrusted by many licensees, including myself, due to its industry patronage and lack of transparency. The
adjudicator needs the power to intervene in flawed rent assessments, and if necessary must to be able to set
rents on an impartial basis when requested by lessees.
6. Lack of countervailing benefits (SCORFA)
6.1 Under EU law the pubcos are permitted to operate a tie on the strict condition that they offer their tenants
“countervailing benefits” (otherwise known as SCORFA) in return for trading under the restrictions of the tie.
6.2 It is my experience, as well as that of every publican with whom I have discussed the matter, that Pubcos
fail to provide sufficient SCORFA, (I have mentioned “discounted” drinks and rents already) thus leaving their
tenants at a very serious competitive disadvantage.
6.3 The services which Punch and other pubcos claim to offer as SCORFA can invariably be sourced for less
on the open market by a FOT operator, and many of them are actually unnecessary and unwanted. SCORFA is
an issue which needs scrutiny by the adjudicator and within the statutory code.
7. Imbalances of risk and reward, power and sophistication within the relationship between pubco and tenant
7.1 Tenants commonly enter into agreements where they are the less sophisticated party. Even where
professional advice is taken they are unable to foresee the intricacies of the forthcoming tied relationship,
which are of course completely clear to, and dictated by, the pubco.
7.2 Tenants have very little power to affect the relationship once they are subject to a tied agreement, and are
generally intimidated by the prospect of challenging their far better resourced “partners”.
7.3 The relative risk faced by a tenant is huge in comparison to that faced by the pubco, as testified by the
great many victims of pubco “churn” who have lost not only their homes and businesses, but in many cases
their savings, their solvency and their health, and yet this is in no way reflected in the relative rewards available
to lessees.
7.4 Imbalances of risk, reward, power and sophistication all have important implications in terms of “fair and
legal trading” and are all therefore vital considerations for the statutory code and the adjudicator.
Conclusion
Statutory intervention is desperately needed by tied tenants, and therefore the contents of this Bill are very
much to be welcomed. However the problems in the tied sector are both highly extensive and complex, factors
which will clearly inhibit the pace of remedial action on a case by case basis.
Pubcos have consistently abused their position and continue to do so, placing their tenants at a severe
disadvantage, profiting unfairly from a protected market which in turn distorts competition in the wider industry
and accelerates business failure among their tenants.
Due to the failings of their business model large pub companies are currently actively exploiting our
inadequate planning laws and divesting themselves of pubs, as well as leasing for alternative uses as they
realise they can increase profits elsewhere.
Pub closures (currently recorded at 31 per week) are having a devastating effect on our communities, our
precious pub heritage and our economy. They also have an immeasurable human cost in terms of the lives
of those being evicted. There is a constant stream of evidence to support this assertion in terms of local and
national press stories about pub closures and tenant evictions by pubcos.
Tenants need to be given more power to improve their own prospects, and time is very much of the essence.
The most vitally needed option is MRO as this will give tenants the immediate bargaining power they so
desperately need in order to act in the best interests of their businesses, as well as those of the communities
they serve, the wider pub industry and ultimately those of the exchequer.
The supposed dangers of MRO are being absurdly overstated by the pubcos and their lobbyists. Claims of
1300 or so pubs closing as a result must (if even to be believed) be contrasted with the current reality of 31 per
week which will equate to 1612 pubs this year alone under the current circumstances.
October 2014
180 Small Business, Enterprise and Employment Bill: Written evidence
Written evidence submitted by Luke Howell (SB 66)
Introduction
As a professional in the hospitality industry, having worked across Europe and in America managing
restaurants, bars and hotels, I am grateful for the opportunity to submit information relevant the small business
committee. Returning home to Great Britain to fulfill my dream of running a country inn and set up my own
business I became a tied tenant in the South East. Entering into a business partnership which I soon found
out was wholly one sided and verging on criminal. I helped produce a publication that can be found here;
innmyhonestopinion.weebly.com/publications.html, that takes many of the facts and figures produced by the
London Economics report and interprets them as they should, and not with the spin used in the Cheers 2014
report from the BBPA. Here, I touch on many of the issues again, but supplying more personnel evidence.
1. The Market rent only (MRO) would be a major boost to local economies. The untied pub would be free
to develop more local contracts with brewers and wine merchants allowing finances to remain in the local area
rather than being centralised and servicing share dividends. In my case, MRO and the parallel rent assessment
would result in the village pub being almost 25k better off. This would allow greater investment in the site (at
present I cannot get the brewer to fulfill its contractual obligations, never mind any investment) to increase
profit, employ staff members from the community (at present I work 80 plus hours a week and would still be
eligible for tax credits) and compete competitively with the free houses in the area.
2. The present micro brewery explosion is very exciting for the future of the trade and demonstrates the
strength of the trade, with only half the market open and free. Managed properly, giving the option of doing
business with these entrepreneurs, the industry will be able to balance itself and remain strong. At present, with
half the pubs tied, it drastically limits the success of these small businesses. Many will begin to struggle rather
than expand. SIBA and the pubcos will force the small brewer to sell their cask ale at a much lower price,
limiting profit and ability to expand and employ more people all for the gains of the pubco/family brewer.
MRO will enhance the trade, not merely protect the leasee.
3. The fears that the family brewers would need to close are unfounded and blatant scaremongering. If the
likes of Greene King, Shepherd Neame etc. produce a product competitive in price and quality delivered with
competitive service by a company that maintains a good image then they will have no fears in a world where
MRO exists. Many come to my site due to the quality of my cellar and how it makes a staple family brewers
beer taste wonderful. If I could purchase that at a competitive price I most certainly would continue to. What
the industry fears is natural competition that exists in almost every other trade. The family brewer could in fact
benefit, being able to sell their products direct to free of tie houses, for more than they sell them to their Pubco
partners. What the Pubco/Family Brewer fears is the fact they will not be able to profiteer from their tenants
any longer, they will have to work closer with them, forge stronger relationships and more credible business
partnerships.
4. Many of those responsible for the abuse of the beer tie will feel a little safer due to the ‘500 rule’. In my
opinion this is absurd, many family brewers already operate unique relationships, Mr Neame being heavily
involved with both St Austell and Shepherd Neame. This allows him to have influence and benefit from
businesses of over 500 sites. Family brewers often pass their own products onto their tenants at higher prices
then Enterprise or Punch Taverns sell the same product to theirs for. This is huge profiteering and SCORFA
is certainly not adhered to. I had to virtually close my restaurant down due to the water damage and mould
problems we were experiencing for over seven months to name but one of many issues.
5. Had the Tie been operated in a fair and moral manner, had self-regulation been taken seriously we would
not still be having these discussions. The very fact these issues are discussed time and time again is proof
enough that action must be taken and drastic action at that before these companies bankrupt more of their
business partners with no concern for their well being.
6. Having been the victim of being misled by representatives of my family brewer on numerous occasions,
it is now second nature to record every meeting, every discussion and follow it up with emails. There is no
doubt in my mind that everything should be recorded between tenant and representatives of the Pubcos/Family
brewers. Again, had business been operated honestly, openly and morally, there would be no call for this. The
fact there is shows real concern about the operations ongoing in the industry.
7. Neglect in the maintenance of many tied sites is worrying in itself. On a traditional 3 year brewer’s
tenancy, the family brewer is responsible for the up keep of the structure to the building. When I am put in a
situation where I need to cut off electrics to parts of the building due water coming through the roof. It takes
twenty minutes to access my fuse board. Thick mould growing on the restaurant walls. At one point we had no
gas shut off in the kitchen, yet we were told by the brewer that we should cook anyway. This shows a complete
disdain for the safety of the tenant and the building (a grade II listed I might add). It demonstrates the lack of
willingness these companies have to construct a healthy business relationship within the trade.
8. The BBPA seem to complain such moves are against ECHR. However, to maintain such and closed
artificial market allowing the few to profiteer is much more a violation of ECHR. The tie is against article 81
of the EC treaty, the benefits simply are not what the Pubco/family brewer claims them to be. Our Government
decrees the tie is acceptable here; this has to change as the evidence against it is now staggering.
Small Business, Enterprise and Employment Bill: Written evidence 181
9. CAMRA stats that shows 57% publicans earn less than 10k and year, and 80% earn less than 15k whilst
Family Brewers accounts show record profits year on year, even in times of a recession is solid proof that the
structure of the industry needs addressing. The pub sector is sick, but it can be cured with the correct measures.
My pub isn’t owned by the brewer, it is owned by a local lord. If I was paying rent half way between what the
Family Brewer pays them and I what I pay the Family Brewer, plus being free of tie this small pub would be
almost 30k better off since 1 January this year. 30k is a massive amount of money to be taking from a small
village pub with very little in return.
10. A churn of 5000 tenants a year speaks volumes in itself. These Pubcos and Family Brewers lure publicans
into ‘low cost entry’ sites where they service the bills and offer up their savings. Price increases incompatible
with inflation and free trade increases result in even the best worked financial plan failing. To the new comer
in the trade, the blatant misrepresentation of the price lists offer by my Family Brewer is disgraceful. They
offer a price guide to achieve a certain GP that claims you get 72 pints out of a firkin. Those in the trade will
be aware that you get at best 69 pints and GP should be worked out on 66 pints, resulting in the GP advised
by the Family Brewer being impossible to achieve. Add that to the many promises that are made and never
fulfilled (I shall refer you back to the water coming in from the roof and guttering, repairing that was part of
our offer letter when we signed over two years ago, that letter included repairing the 100 broken windows in
the building, work is still to be completed). It is time to regulate the Pubco/Family Brewer and put a stop to the
havoc they have been allowed to reap on our beloved industry.
Conclusion
The aim of this bill is “…to help make the United Kingdom the most attractive place to start, finance and
grow a business”. This bill can achieve that aim by following the recommendations for MRO. As an individual
who returned to this country to start, finance and grow a business, it is now something I fully regret. MRO
is merely an option; if being tied is truly better the tenant would not wish to enact this option. Enforcing this
option will protect the entrepreneurs, help publicans and small businesses expand and offer employment and
sustainability in a free and open market. The right decision here will result in increased investment, a reduction
in those on tax credits, a boom in the industry and those it supports, more employment across the industry,
protect the micro brewery boom as well as the tenant and entrepreneur. The list goes on; the committee cannot
ignore the overwhelming evidence that the only way forward is the Market Rent Only option.
October 2014
Written evidence submitted by Public Concern at Work (PCaW) (SB 67)
Introduction
1. Public Concern at Work (PCaW) is an independent charity and legal advice centre. The cornerstone of the
charity’s work is a confidential advice line for workers who have witnessed wrongdoing, risk or malpractice
in the workplace and are unsure whether or how to raise their concern, or have raised concerns and have been
victimised as a result. PCaW has advised over 17,000 individuals to date; this experience informs our approach
to policy and campaigns for legal reform.
2. We were instrumental in setting the scope and details of the law that protects whistle-blowers in the
UK, the Public Interest Disclosure Act 1998 (PIDA). PIDA makes it unlawful for an employer to dismiss or
victimise a worker for raising concerns about wrongdoing or malpractice in the workplace. The easiest way
to gain protection is to raise the concern with the employer; PIDA also protects an individual who approaches
either a regulator or even the media where the wrongdoing has been covered up, not addressed, where the
individual fears victimisation, or where the concern is exceptionally serious. The law provides an incentive for
organisations to deal with potential wrongdoing when first raised by a worker, and do so openly.
3. In 2012 and 2013 we campaigned for improvements to PIDA. Some of our campaign points led to
legislative improvements to PIDA, through the Enterprise and Regulatory Reform Act 2013. In order to identify
areas of the whistleblowing framework that are in need of reform, PCaW established the Whistleblowing
Commission (the Commission) in 2012/13 to examine the effectiveness of whistleblowing in the UK and to
make recommendations for change. The Commission was formed of the following members:
—— The Right Honourable Sir Anthony Hooper (Former Court of Appeal Judge and Member of Matrix
Chambers (Chair))
—— Gary Walker (Former NHS Chief Executive and whistleblower)
—— Michael Woodford (Former Olympus President & CEO and whistleblower)
—— Lord Burns (Chairman of Santander UK and Channel 4)
—— The Very Revd Dr David Ison (Dean of St Paul’s Cathedral)
—— John Longworth (Director General British Chambers of Commerce)
—— Michael Rubenstein (Independent legal publisher and discrimination law expert)
—— Sarah Veale (Head of Equality and Employment Rights at the Trades Union Congress)
182 Small Business, Enterprise and Employment Bill: Written evidence
4. The Commission considered evidence from several pieces of research including a public consultation
to which there were 142 responses, a YouGov survey of public attitudes to whistleblowing and a survey of
business practice with EY. Additionally the analysis of 1,000 cases from the PCaW advice line contained in the
report “Whistleblowing: the inside story”.72
5. The Commission published their report in November 2013, and its recommendations continue to inform
our ongoing campaigns for the reform of whistleblowing in the UK. This submission will focus solely on the
elements of the Small Business, Enterprise and Employment Bill that relate to whistleblowing.
Small Business, Enterprise and Employment Bill (SBEEB)
6. PCaW welcomes clause 135 of SBEEB, conferring a power on the Secretary of State to require
prescribed persons to report annually on whistleblowing disclosures. The collection and publication of the
data proposed should improve public information on how prescribed persons are dealing with whistleblowing
concerns received by them, the data will give an indication of how well an industry or sector’s whistleblowing
arrangements are working in practice, and provide regulators with an early warning system for potential
problems in specific sectors. If effective, the understanding of whistleblowing as a tool for good governance
both within prescribed persons and individual organisations, might well be improved.
7. However, we believe that the draft provisions in SBEEB do not go far enough as there are significant
gaps in the protection provided by the current legal framework. Following a number of recent scandals in
our banks, care homes and newspapers, this Bill offers an opportunity to improve the remedies available for
whistleblowers, and in doing so, help them to protect the public interest. The Whistleblowing Commission
has identified a number of areas in which the current law is failing, and proposed measures to remedy them.
We urge Committee members to adopt the following measures as part of the Small Business, Enterprise and
Employment Bill.
A Code of Practice with statutory underpinning
8. The Government have committed to publishing guidance for employers on dealing with whistleblowing.
The Government’s position is that this guidance should be voluntary; while the Whistleblowing Commission
did not advocate that whistleblowing measures should be mandatory it recommended that the Government
should embed guidance in statute using the Commission’s code of practice in a similar way to existing ACAS
Codes.73 An extract of the Code of Practice can be found at Annex A, alongside a link to the full report.
9. There is an increasing understanding of the importance of the role of regulators in reviewing
whistleblowing arrangements. For example, the Health Select Committee recommended that the Care Quality
Commission included an assessment of whistleblowing arrangements as part of their inspection regime.74
10. A code of practice that is underpinned by statute would allow regulators to enforce good practice in
whistleblowing more effectively. For example, the International Civil Aviation Organisation, the Financial
Conduct Authority (FCA) and the Financial Reporting Council (FRC) require or encourage the organisations
they regulate to have whistleblowing policies, yet there are no sanctions available where organisations fail to
have these arrangements in place, and no framework for assessing the adequacy of those arrangements.
11. Given that so many regulators are moving in this direction, it would make sense to provide a blueprint as
to what good practice looks like. A code of practice would provide a guide for individuals looking to raise their
concerns in a complex regulatory environment, as well as a common set of standards which prescribed persons
could use to measure organisations against. Prescribed persons could then report on how entities they regulate
are performing based on their compliance with the code.
12. The Public Interest Disclosure Act 1998 (PIDA) should be amended to give the Secretary of State
the power to issue a code of practice, which can be taken into account by regulators, courts and tribunals
when issues of whistleblowing arise.
Blacklisting
13. The construction blacklisting scandal in 2009 and the experience of Sharmila Chowdhury highlight the
gap in protection for job applicants.75 Sharmila Chowdhury’s case best illustrates the issues around blacklisting.
14. Choudhry, an NHS radiographer manager raised concerns in 2009 with senior managers about the
fraudulent practices of consultants, and the dangerous clinical practices of another radiographer within her
department. In response false allegations were made against her and the case proceeded to employment tribunal
where she won an interim relief action that proved she was unfairly treated due to blowing the whistle.
15. During this period Choudhry applied and was offered a job at a different trust. She was interviewed by a
clinical panel where she was upfront about whistleblowing in her previous job. This offer was then withdrawn
http://www.pcaw.org.uk/files/Whistleblowing%20-%20the%20inside%20story%20FINAL.pdf
http://www.pcaw.org.uk/files/WBC%20Report%20Final.pdf
74 Para.96, http://www.publications.parliament.uk/pa/cm201314/cmselect/cmhealth/657/657.pdf
75 Blacklisting in construction- http://www.independent.co.uk/news/uk/home-news/thousands-of-workers-blacklisted-over-politicalviews-8010208.html & http://sharmilachowdhury.com/blacklisting-of-whistleblowers/
72 73 Small Business, Enterprise and Employment Bill: Written evidence 183
by the Trust’s HR department when questions were asked about her ongoing legal claim against her previous
employer.
16. This pattern was repeated again in 2014 when Choudhry applied, through an agency, for a temporary
radiology position at the same Trust. The agency assured her that the trust were keen to hire her. Again the HR
department stepped in and withdrew the job offer.
17. Unfortunately where a prospective employer accesses a blacklist or becomes aware of a job applicant’s
whistleblowing history and decides not to give them a job on this basis, they would have no cause of action.76
The 2010 blacklisting regulations only deal with lists of individuals that have been involved in trade union
activities. The Equality Act provides protection at the point of recruitment and we think it is vital to send the
message to employers that discrimination against whistleblowers at this point is also unacceptable.
18. The Government’s response to these issues is to point to increases in the amount of money an
organisation can be fined and the existing legal protection where a whistleblower receives a negative reference.
The Government hopes that other measures proposed in their response will signal a cultural change where
businesses value an employee who has blown the whistle.
19. PIDA should be amended to include job applicants within the scope of those defined as workers,
bringing whistleblowing protection for blacklisting in line with the Equality Act.
Gagging clauses
20. As demonstrated by the furore in the NHS about gagging clauses, the law needs to be made clearer. The
National Audit Office’s report on severance payments identified confusion in this area with individuals feeling
that they have been gagged when this might not be the case in law.77
21. Section 43J of the Employment Rights Act 1996 currently states:
“(1) Any provision in an agreement to which this section applies is void in so far as it purports to
preclude the worker from making a protected disclosure.
(2) This section applies to any agreement between a worker and his employer (whether a worker’s
contract or not), including an agreement to refrain from instituting or continuing any proceedings
under this Act or any proceedings for breach of contract.”78
22. Section 43J provides a defence for whistleblowers who have signed a compromise agreement but feel
there are public interest concerns that still need to be raised with a regulatory body, a Member of Parliament or
the press. There is evidence of a perception that where compromise agreements include a non-disparagement or
confidentiality clauses that these in effect amount to a gagging clause.79
23. Two recent cases highlight this problem. The first case is that of Gary Walker, the NHS whistleblower
and former Chief Executive of United Lincolnshire NHS Trust, who broke his gag live on Radio 4’s Today
programme. He was then threatened by NHS lawyers even though his disclosure was protected in law.80 The
second case is of former inspectors at the Care Quality Commission giving evidence to the Mid Staffordshire
Inquiry who were so concerned about breaching the compromise agreements they had signed prior to giving
evidence, that they required specific assurance from the chairman of the Inquiry before they felt able to provide
their evidence to give to the Inquiry.
24. Our recommendation to the committee is that the wording of Section 43J is simplified using the wording
suggested by the Whistleblowing Commission—
“No agreement made before, during or after employment, between a worker and an employer may
preclude a worker from making a protected disclosure”.
We also recommend that when a worker receives legal advice on a settlement agreement, as is required under
Section 203 of the Employment Rights Act 1996, this should be extended to include advice on section 43J.
25. Section 43J of the Employment Rights Act 1996 should have a clearer wording as to the full rights
and protection for those who sign compromise or settlement agreements.
26. Section 203 of the Employment Rights Act 1996 should be extended to provide legal advice on 43J
in the event of a compromise or settlement agreements.
Definition of a worker
27. PIDA protection extends to those who are considered workers under the Act. The law has not been
updated despite changes in the way many professionals are now trained, within Universities with attendance
Paragraph 37: “It is true that the statute does not prohibit action against a whistleblower should he be recognised as one when an
applicant for employment, as it might have done.” BP v Elstone [2010] ICR 879
http://www.nao.org.uk/report/confidentiality-clauses-and-special-severance-payments/
78 Section 43 J the Public Interest Disclosure Act 1998
79 P.g 22 The Whistleblowing Commission Report
80 http://www.bbc.co.uk/news/uk-18639088
76 77 184 Small Business, Enterprise and Employment Bill: Written evidence
accompanied by periods of practical experience gained in the workplace. For example student nurses, doctors
and social workers are not covered by PIDA when their training takes place in a work setting because they are
not considered workers.
28. The Government proposed in their response to the consultation on whistleblowing to extend the definition
of a worker to include student nurses, and they will “also consider other student arrangements similar to student
nurses”. 81
29. It should be noted that under the Employment Rights Act the Secretary of State already has the power
to extend the category of workers through existing statutory instruments. Further changes would not require
further legislation, yet the Secretary of State is being overly cautious. The narrow definition of a worker does
not only exclude students; there are many other excluded groups including volunteers, non-executive directors
(consider the reluctance of Royal Bank of Scotland non-executives to question Fred Goodwin),82 public
appointments (as in the case of Kay Sheldon- a board member of the Care Quality Commission),83 partners,
priests (covered by the Equality Act 2010) and foster carers.
30. There is also confusion regarding whether or not all GPs are covered. The Department of Health states
that all those on NHS contracts are covered by amendments to a collection of other laws which has created a
maze of legislation which is hard for GPs and their legal representatives to decipher.84 Guidance giving clarity
on this point is required.
31. The statutory instrument should be used to include workers:
—— student health care professionals
—— volunteers
—— interns —— non-exec directors
—— public appointments
—— priests and ministers of religion
—— foster carers
—— members of armed forces
—— all categories of workers listed under Equality Act
Greater protection for those seeking advice from a Trade Union
32. From our experience on the charity’s whistleblowing advice line, many individuals seek advice from
their trade unions and early advice can help individuals raise concerns constructively, allowing the public
interest to be addressed. At present, seeking advice from a trade union would be considered as a wider public
disclosure (carrying the highest burden of proof for the individual to gain protection) unless it is authorised by
an employer (i.e. where reference is made to the trade union in the employer’s whistleblowing policy).
33. It is clearly sensible for individuals to be protected when seeking advice from a trade union in the same
way as they would be when seeking legal advice and an amendment of 43D of PIDA would achieve this.
This is a view that was backed by both the Whistleblowing Commission and the Trade Union Congress in its
submission to the Whistleblowing Commission’s consultation.
34. PIDA should be amended to place trade union advice on the same level of protection as seeking
legal advice.
Extension of the law to include victimisation of a worker wrongly identified as a whistleblower
35. PIDA does not offer protection to workers who have been dismissed, forced out of their job or victimised
in some other way where they are wrongly identified as a whistleblower. In these circumstances a worker may
not have any legal protection if they lack the required two year service period for normal unfair dismissal
claims.
36. We have experience of this situation arising on PCaW’s whistleblowing advice line. Our recommendation
would be to amend PIDA to include protection against dismissal or victimisation where a worker has made, or
is thought to have made a protected disclosure.
37. Workers wrongly identified as having made a protected disclosure should be protected under
PIDA.
P.24 The Governments Response to the Whistleblowing Framework Call for Evidence
http://www.theguardian.com/business/2009/mar/22/rbs-threats-directors-lord-foulkes
83 http://www.telegraph.co.uk/journalists/laura-donnelly/10156161/CQC-whistleblower-re-appointed.html
84 See former health minister Anne Milton’s answer to a Parliamentary question which highlighted the complicated nature of the
protection of GPs at present- HC Deb, 9 March 2011, c66WS
81 82 Small Business, Enterprise and Employment Bill: Written evidence 185
Extension of the categories of wrongdoing in PIDA
38. For a whistleblower to gain protection under PIDA they need to have made a “protected disclosure”
about something that is included within the categories of wrongdoing contained within the Act. The categories
are as follows—
—— That a criminal offence has been, is being or is likely to be committed,
—— That a person has failed, is failing or is likely to fail to comply with any legal obligation to which he
is subject,
—— That a miscarriage of justice has occurred is occurring or is likely to occur,
—— That the health and safety of any individual has been, is being or is likely to be endangered,
—— The environment has been, is being or is likely to be damaged, or
—— That information tending to show any matter falling within any of the preceding categories has been,
or is likely to be deliberately concealed.85
39. One of the difficulties with the current drafting is the fact that the categories of wrongdoing are finite
and are then also subject to a public interest test. We support the Whistleblowing Commission’s suggestion that
PIDA should contain a non-exhaustive list of wrongdoing that includes gross waste or mismanagement of funds
and serious misuse or abuse of authority. Equivalents of these two extensions can be found in US Australian
and Irish whistleblower protection laws. This change is also supported by the Whistleblowing Commission.86
40. The Government’s response to these arguments is to acknowledge that the wrongdoing covered by
these two categories could be missed by the current categories of wrongdoing, yet no alternative wording was
proposed on the basis that legal advice indicated that it would cause too much uncertainty in the law.87 Given
that these two categories have worked internationally, it would be possible to draft an amendment that would
extend the legal protection while keeping the definition of what is in the public interest flexible.
The Categories
of wrongdoing in
PIDA
should be extended to include gross waste or mismanagement of
funds and serious misuse or abuse of authority and they should be non-exhaustive
Simplification of concepts of “allegation” and “disclosure of information”
41. The courts have made an artificial distinction between making an allegation and disclosing information,
which means that individuals are not protected if they make statements such as “you are not complying with
health and safety requirements”.88 From the experience on PCaW’s advice line, there have been numerous cases
where individuals have stated to their employers that they would like to raise a health and safety concern, only
to be dismissed before they have the opportunity to disclose further information.
42. PIDA should be amended to ensure protection applies to allegations.
Victimisation of overseas workers raising concerns about their UK subsidiaries
43. The Commission notes there is no longer any express territorial limitation provision in the Employment
Rights Act (ERA) 1999 since the abolition of section 196 of the ERA 1999. The case of Foxley v GPT Special
Project Management Ltd illustrates that territorial jurisdiction can prove a barrier to workers seeking PIDA
protection when raising concerns about UK registered companies overseas.89 This contrasts with the approach
taken in the US as evidenced by the US Department of Labor’s decision in Walters v Deustche Bank et al.90
Most recently the UK Supreme Court held in the case of Ravat v Halliburton Manufacturing and Services Ltd
that the relevant jurisdictional test should be whether the worker has a sufficiently strong connection with Great
Britain.91
44. PIDA should be extended to cover overseas workers raising concerns about their UK employers
and subsidiaries.
Summary of PCaW Recommendations
1. PIDA should be amended to give the Secretary of State the power to issue a code of practice, which can
be taken into account by regulators, courts and tribunals when issues of whistleblowing arise.
2. PIDA should be amended to include job applicants within the scope of those defined as workers, bringing
whistleblowing protection for blacklisting in line with the Equality Act.
3. PIDA should be amended to include categories of workers currently excluded from the acts protection.
43B the Public Interest Disclosure Act 1998
P.g. 17 The Whistleblowing Commission Report
87 P.g. 10 The Governments Response to the Whistleblowing Framework Call for Evidence
88 [2010] IRLR 38
89 Employment tribunal case no. 220087931/2011
90 http://www.kmblegal.com/wordpress/wp-content/uploads/Walters-v.-Deutsche-Bank-et-al.-ALJ-decision1.pdf
91 [2012] UKSC1
85 86 186 Small Business, Enterprise and Employment Bill: Written evidence
4. Section 43J of the Employment Rights Act 1996 should have a clearer wording as to the full rights and
protection for those who sign compromise or settlement agreements.
5. Section 203 of the Employment Rights Act 1996 should be extended to provide legal advice on section
43J in the event of a settlement or severance agreement.
6. PIDA should be amended to place trade union advice on the same level of protection as seeking legal
advice.
7. PIDA should contain a non-exhaustive list of the categories of wrongdoing, including gross waste or
mismanagement of funds and serious misuse or abuse of authority.
8. Workers wrongly identified as having made a protected disclosure should be protected under PIDA.
9. PIDA should be amended to ensure protection applies to allegations.
10. PIDA should be extended to cover overseas workers raising concerns about their UK employers and
subsidiaries.
October 2014
Annex A
EXTRACT FROM THE WHISTLEBLOWING COMMISSION REPORT ON THE EFFECTIVENESS OF
EXISTING ARRANGEMENTS FOR WORKPLACE WHISTLEBLOWING IN THE UK, PAGES 28—29,
PUBLISHED NOVEMBER 2013
“Draft Code of Practice Whistleblowing Arrangements
Introduction
Every employer faces the risk that something will go badly wrong in their organisation and ought to welcome
the opportunity to address it as early as possible. Whenever such a situation arises the first people to know of
such a risk will usually be “workers”92yet while these are the people best placed to speak up before damage is
done, they often fear they have the most to lose if they do (otherwise known as “whistleblowing”).
This Code of Practice provides practical guidance to employers, workers and their representatives and sets
out recommendations for raising, handling, training and reviewing whistleblowing in the workplace. The Code
is issued under section X of the Employment Rights Act 1996 and it was laid before both houses of Parliament
on X. It comes into effect by order of the Secretary of State on X.
A failure to follow the Code does not, in itself, make a person or organisation liable to proceedings. However,
courts and tribunals must take the code into account when considering issues of whistleblowing.
The Code of Practice
1. This Code sets out standards for effective whistleblowing arrangements. It is designed to help employers,
workers and their representatives deal with whistleblowing.
2. Whistleblowing is the raising of a concern, either within the workplace or externally, about a danger, risk,
malpractice or wrongdoing which affects others.
3. When developing whistleblowing arrangements employers should consult staff and their representatives.
4. As part of the whistleblowing arrangements, there should be written procedures covering the raising
and handling of concerns. These procedures should be clear, readily available, well-publicised and easily
understandable.
5. The written procedures for raising and handling concerns:
a) should identify the types of concerns to which the procedure relates, giving examples relevant to the
employer;
b) should include a list of the persons and bodies with whom workers can raise concerns, this list should
be sufficiently broad to permit the worker, according to the circumstances,93 to raise concerns with:
i. the worker’s line manager;
ii. more senior managers;
iii. an identified senior executive and /or board member; and
iv. relevant external organisations (such as regulators);
c) should require an assurance to be given to the worker that he/she will not suffer detriment for having
raised a concern, unless it is later proved that the information provided by the worker was false to his
or her knowledge;
92 93 Worker is defined in section 230 of the Employment Relations Act 1996
By “according to the circumstances” we mean workers should be able to bypass their manager, where they fear that they will
suffer a detriment or that their concern will not be listened to.
Small Business, Enterprise and Employment Bill: Written evidence 187
d)
should require an assurance to be given to the worker that his or her identity will be kept confidential
if the worker so requests unless disclosure is required by law;
e)
should require that a worker raising a concern:
i.
be told how and by whom the concern will be handled; ii. be given an estimate of how long the
investigation will take;
ii. be told, where appropriate, the outcome of the investigation[3]
iii. be told that if the worker believes that he/she is suffering a detriment for having raised a concern,
he/she should report this; and
iv. be told that he/she is entitled to independent advice.
6. The employer should not only comply with these procedures but should also sanction those who subject
an individual to detriment because he/she has raised a concern and should inform all workers accordingly.
7. In addition to the written procedure for raising and handling concerns, the employer should:
a) identify how and when concerns should be recorded;
b) ensure, through training at all levels, the effective implementation of the whistleblowing arrangements;
c) identify the person with overall responsibility for the effective implementation of the whistleblowing
arrangements;
d) conduct periodic audits of the effectiveness of the whistleblowing arrangements, to include at least:
i. a record of the number and types of concerns raised and the outcomes of investigations;
ii. feedback from individuals who have used the arrangements;
iii. any complaints of victimisation;
iv. any complaints of failures to maintain confidentiality;
v. a review of other existing reporting mechanisms, such as fraud, incident reporting or health and
safety reports;
vi. a review of other adverse incidents that could have been identified by staff (e.g. consumer
complaints, publicity or wrongdoing identified by third parties);
vii. a review of any relevant litigation; and
viii.a review of staff awareness, trust and confidence in the arrangements.
e) make provision for the independent oversight and review of the whistleblowing arrangements by the
Board, the Audit or Risk Committee or equivalent body. This body should set the terms of reference for
the periodic audits set out in 7(d) and should review the reports.
8. Where an organisation publishes an annual report, that report should include information about the
effectiveness of the whistleblowing arrangements, including:
a) the number and types of concerns raised;
b) any relevant litigation; and
c) staff awareness, trust and confidence in the arrangements.”
The full report is available on the PCAW website, http://www.pcaw.org.uk/whistleblowing-commissionpublic-consultation
Written evidence submitted by the Charity Law Association (SB 68)
Summary
—— This evidence is submitted by the Charity Law Association members of which originally formed
a working party for the BIS discussion paper of 2013, Transparency & Trust: Enhancing the
transparency in UK company ownership and increasing trust in UK business, which has given rise to
the transparency provisions in Part 7 of the Bill.
—— The working party raised concerns in response to the BIS discussion paper regarding the potential
effect of the proposals for the charity sector.
—— The working party wishes to draw those concerns to the attention of the Committee and asks that the
Committee, in its scrutiny of Part 7 of the Bill, in particular clauses 70-75 and Schedule 3 and clause
76-77, considers the potential impact on the charity sector.
—— In particular, the working party would support the exception of charities from the provisions prohibiting
corporate directors and an exception for and/or suitable modifications for charities and their trading
companies in respect of the requirement to keep a register of people with significant control.
1. We are grateful to the Committee for the opportunity to submit written evidence on the Small Business,
Enterprise and Employment Bill 2014-15 (the Bill).
188 Small Business, Enterprise and Employment Bill: Written evidence
About the Charity Law Association
2. The Charity Law Association (CLA) has over 900 members, mostly lawyers but also accountants and
other charity professionals. We are committed to sharing knowledge and experience for the benefit of the
sector. We work together to respond to consultations from Government and regulators and we act together to
raise issues where we believe improvements are needed.
3. Often, such actions relate to policy proposals in areas of the law which are not specifically “charity
law”, but where the impact will be felt in the charity sector. The provisions in the Bill relating to company
law, including those in Part 7 of the Bill, are relevant to charities, because, for example, many charities are
established as companies and/or maintain a trading company and/or have a corporate charity trustee.
4. In relation to the transparency proposals in the Bill, the CLA formed a working party (the working party)
to consider the discussion paper produced by the Department for Business Innovation and Skills (BIS) in July
2013, Transparency & Trust: Enhancing the transparency in UK company ownership and increasing trust in
UK business. The working party submitted a response to that discussion paper.94 The working party wishes to
draw those concerns to the attention of the Committee in its consideration of Part 7 of the Bill.
Clause 76-77—Corporate directors
5. Clause 76-77 would replace the current requirement in the Companies Act 2006 for at least one director
of a company to be natural person with a new prohibition on corporate directors of a company. The prohibition
would be the default position for all companies, subject to a power to make exceptions by regulations (in which
case, the current requirement for at least one natural director is retained).
6. The Government’s response to the BIS consultation95 indicated, at paragraph 170, that it was considering
exemption applying to charities (among others). This view is supported in the Final Impact Assessments
covering Transparency and Trust96 produced in June 2014 (at paragraph 187 on p.189, with further discussion at
Annex D on p.228 and Annex E on p.231).
7. We support the view that charities should be exempted from the prohibition on corporate directors.
As noted in the Final Impact Assessments document above, charities benefit administratively from the use
of corporate directors, while such use represents limited risk, due to existing regulation and transparency
requirements.
8. We appreciate that the Bill provides only for the power to provide for exceptions, without any reference
to which groups may be excepted. We would suggest, however, that the existence of the power to provide for
exceptions is relevant to the discussion of clause 76, as it affects the general default position. We would ask
the Committee to give consideration to the importance of the use of the power to provide for exceptions in
appropriate cases, one of which, we would say, is that of charities. In particular, if the Committee supports the
view indicated in the Government’s response noted above, we believe that it would give comfort to the charity
sector if such support was expressed.
Clauses 70-75 and Schedule 3—Register of people with significant control
9. Clauses 70-75 and Schedule 3 introduce a duty on all companies, other than DTR5 issuers and other
companies as may be specified by regulations, to keep a register of people with significant control (PSCs) over
the company, as well as a duty on “registrable persons” and “relevant legal entities” in relation to the company
to supply certain information to the company.
10. “Significant control” is defined by reference to control via a significant proportion (more than 25%)
of the voting rights in general meeting, or through the appointment or removal of a majority of the board of
directors of the company. Such control may also extend to trustees of a trust (among others).
11. As for the corporate director provisions above, the default position is that the transparency provisions
will apply, save as specified by regulations. However, unlike for the corporate director provisions, it is not clear
what consideration has been given to likely exclusions from these provisions and, in particular, exclusion (or
other suitable specification) for charities.
12. There is an oblique reference in the Final Impact Assessments document referred to above (at paragraph
6 on p.76), which notes that charities are already regulated elsewhere. To the extent that that reference is
intended to indicate that charities will be excluded from the requirement to maintain a register of PSCs, we
would support it.
94
95
96
http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=2&cad=rja&uact=8&ved=0CCYQFj
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a4XHA
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/304297/bis-14-672-transparency-and-trustconsultation-response.pdf
http://www.parliament.uk/documents/impact-assessments/IA14-14E.pdf
Small Business, Enterprise and Employment Bill: Written evidence 189
13. The PSC provisions appear to be based upon the money laundering regulations (for similar reasons of
transparency). However, the potential impact on companies is not the same, as they will need to identify their
PSCs and obtain, and maintain, the relevant information, against potential criminal liability if they get it wrong.
14. For some charities, we consider this would be a serious concern and a significant additional administrative
burden, only, it seems, to provide information which is, in most cases, already publicly accessible.
15. The Bill also introduces, in Part 2, a new duty on the Secretary of State to report in each Parliament on
the economic impact of (certain) regulatory provisions which come into force, or cease to be in force, in that
Parliament on, among other things, activities of charities. The report must also describe actions of Government
departments to mitigate any disproportionate economic impact of such provisions on activities carried on by
voluntary or community bodies. If the PSC provisions are implemented as they stand with no consideration for
charities, we are concerned that the Secretary of State will be in the uncomfortable position of his or her first
report on regulatory reform under the Bill reporting on the disproportionate impact on charities of provisions
introduced under the same Bill.
16. We suggest that consideration should be given to the potential impact of the PSC provisions on charities,
with a view to suitable provision being made for charities in line with the transparency aims of Part 7. However,
we consider that the specifications required are not straightforward. We set out in paragraphs 17 to 19 below
some examples, and possible solutions, but we do not suggest that these are exhaustive. Rather, we set them out
as an illustration as to the problems which could arise from the PSC provisions and the need for a considered
solution.
17. As noted in the working party response to the BIS consultation, the provisions would be problematic for
charities. Charities are not “owned” in the commercial sense; the charity trustees are obliged to run the charity
and apply its assets for the furtherance of its purposes.
17.1. Those who have the general control and management of the administration of a charity are defined (in
s177 Charities Act 2011) to be its “charity trustees”. The charity trustees are under a duty to act only
in the best interests of the charity, no matter who has the right to appoint or remove charity trustees.
17.2. Under the money laundering regime, often it is sufficient to identify only that the charity is a
registered charity. Where further enquiry is needed, it focuses on the control of management, and
hence the charity trustees, as there is no “beneficial owner”.
17.3. It may be, therefore, that it would be sufficient for charitable companies if their register of directors
stands as their register of PSCs.
18. However, the problem extends beyond charitable companies, because charities are structured in many
different ways. We are concerned that it will in many cases be time-consuming for charities to identify whether
they are bound by the rules and, if so, how to comply.
18.1. For example, because of the risks of personal liability, a charitable trust may have a company as its
trustee. Often, the directors of the corporate trustee are also its members. It seems that, if there are 3
directors/members, they would all be “registrable persons” under the rules; but if there are 4 or more
directors/members, they would no longer have “significant control”. Clarity is required on this point.
18.2. We suggest, therefore, that specification may be needed for a company which acts only as a charity
trustee. It may be that the solution suggested in paragraph 17.3 above may also address such a situation.
19. In addition, there is the question of trading companies of charities. Charities often own a (whollyowned) trading company, which carries out trading activity, the profits of which are paid to the charity. Our
understanding is that, under the rules in the Bill, the “registrable persons” for such a company can vary
according to the legal form of the charity. For example:
—— If the charity is a charitable company, the charitable company would be the sole member of the
trading company. The “registrable” persons of the trading company would then depend upon how the
charitable company is treated under the rules. If no dispensation is made for charitable companies, it
would seem to depend upon how many members the charitable company has, and how its directors are
appointed or removed.
—— If the charity is a charitable trust, the members of the trading company would usually be one or more
of the charity’s trustees, who hold the membership on trust for the charity and act in accordance with
the decisions of the charity trustees. In that case, the charity’s trustees would be “registrable” persons
of the trading company.
—— If the charity is a charitable incorporated organisation (CIO), a corporate entity which is registrable
only with the Charity Commission and not subject to company law, the CIO would be the sole member
of the trading company. In that case, the trading company would appear to have no “registrable”
persons.
We believe that the PSC requirement should be the same for such a company whatever the legal structure of
the charity. We suggest that the information which is important for transparency purposes, and so which should
form the PSC information, is that the company is wholly owned and controlled by the charity.
20. As noted above, we do not claim to offer a full analysis of the potential issues for charities at this stage,
or to offer a full solution. We hope, however, that we have demonstrated that, without some specification
190 Small Business, Enterprise and Employment Bill: Written evidence
designed for charities, the PSC provisions will impose upon charities, either directly or through their trading
companies, an administrative burden. In view of the different forms and structures charities may adopt, and the
fact that they are already subject to a regulatory regime based in transparency, we consider that administrative
burden would be disproportionate and unnecessary.
21. We suggest that the PSC provisions risk creating a serious problem for charities, which is complex,
but which needs a considered solution. Without such a solution, we think it would be wrong to impose the
PSC provisions on charities and their trading companies. If the Committee agrees, we believe that an
acknowledgement to that effect would alleviate some of the concerns in the sector, albeit without removing the
underlying uncertainty.
Conclusion
22. We hope that the Committee will consider the potential impact on the charity sector of the transparency
provisions in the Bill if no exception or appropriate specification is provided by way of regulations.
23. We do not believe that the transparency provisions are aimed at charities, which are already subject to a
specific regulatory regime and disclosure and accounting requirements.
24. We would support the exception of charities from the prohibition of corporate directors. We would
also support an exception for and/or a proper simplified regime for charities and their wholly owned trading
companies in respect of the provisions on PSCs.
25. We welcome the discussion paper issued by the Department for Business Innovation and Skills in
relation to the “the register of People with Significant Control (PSC register), issued October 2014.
October 2014
Written evidence submitted by Alan Yorke (SB 69)
COMMENTS ON THE SMALL BUSINESS, ENTERPRISE AND EMPLOYMENT BILL:
PUB COMPANIES
1. Summary
2. My name is Alan Yorke. I was a former tenant of the Foresters Arms, Forest Row, East Sussex, in a pub
owned by Enterprise Inns. I was the first person to use the Pub Independent and Conciliation Service (PICAS),
which I found quite frankly to be a farcical experience and flawed process.
3. Since leaving my pub in 2012, I have analysed the pub self-regulation process in detail and written
numerous letters to stakeholders within the self-regulation process identifying weaknesses, contradictions and
non-enforcement of self-regulation mechanisms. Unfortunately, there is an inability and reluctance within the
various self-governing bodies to effectively address their shortcomings.
4. The necessity for a statutory code and independent Adjudicator as proposed in the Bill is therefore
necessary, supported and very welcome as the current self-regulation regime is ineffective, self-serving and not
sufficiently independent.
5. Information on the churn rate of tied pubs not given to BIS or this Committee
6. BIS, in drafting the proposed Code, and this Committee in considering this Bill, have not been given
accurate information on the “churn rate” by pub company landlords or the BBPA. Although this information is
easily available from their own records and has no commercial sensitivity, pub companies have never publically
disclosed the rate of churn within their estates, particularly the number of agreements that were terminated
before the agreement end date due to business failures by tenants. I believe that if aware of accurate “churn
rates” within the tied sector, this Committee would better understand the demand for a Market Rent Option
(MRO).
7. To give this Committee an indication of possible churn, I attended an Enterprise Inns “Business
Foundation” course in London in July 2011. Based on my own research (through websites, Facebook and
TripAdvisor), it appears that only 9 out of the 17 attendees were still in their pubs in October 2014. This
suggests a churn rate of 47%. A model that churns so many tenants in a short period of time cannot be defended.
8. There are two other matters to consider. Firstly, if tenants were better informed, which is one of the
objectives of the current self-regulation regime, the “rate of churn” should have reduced significantly in recent
years. It would be expected that the BBPA and the pub companies would be trumpeting reduced “churn rates”
as a key success indicator of self-regulation rather than merely stating self-regulation is working “because
we say it is”. Secondly, the BBPA quotes from a CGA Survey on the number of pubs in each sector to justify
its bizarre contention that the tied model is more successful than the free of tie sector (using absolute pub
numbers) but yet will not use accurate information from its own members to support its arguments. I cannot
and do not believe that this is an accidental oversight.
Small Business, Enterprise and Employment Bill: Written evidence 191
9. London Economics Report
10. As some Committee members have quoted from the London Economics report, it is important to note
the significant shortcomings in this report, some of which have been brought to the Committee’s attention by
other stakeholders. The most bizarre inclusion in the report is London Economics claim that a single “guest”
beer option would have a far greater impact on pub closures than if all beers were “guest” (free of tie). This
conclusion discredits their report.
11. Another major flaw in the London Economics report is that it ignored current trends in pub closures.
Whilst claiming that the introduction of a statutory code could result in 1600 pub closures, London Economics
did not predict the current closure rate if a statutory code was not introduced. In other words even if Government
did not introduce a statutory code, there is a possibility that more than 1600 pubs would close based on the tied
model as it is currently operating. Why this scenario was not tested by London Economics is astounding and
further discredits their report.
12. Temporary Agreements
13. A tenant running a pub business has to make certain financial investments (pay a deposit, purchase
stock, employ staff and acquire fixtures and fittings, amongst others). These investments are incurred regardless
of whether a prospective tenant signs a temporary agreement or a standard agreement. Why these financial
investments should not be afforded protection under the Code when a tenant has entered into a temporary
agreement is not understood. The inclusion of temporary agreements in the scope of the proposed statutory
code is therefore supported.
14. There is a perception that a pub will close and not be able to trade in the absence of temporary agreements.
There is nothing that stops a landlord pub company from operating the pub in their own name in between one
tenant departing and another tenant signing an agreement (after having done all the due diligence processes
prescribed in the proposed Code). If it is important that a pub remains trading between exiting and entering
tenants, the landlord can operate it in their own names thereby negating the need for temporary agreements or
special exclusions in the Bill.
15. It should be noted that the BBPA actively promotes and defends the tied model as having “a low cost
of entry” so the pub companies should not require significant financial investments to run their own pubs as a
temporary measure.
16. Market Rent Option
17. The current RICS guidelines using a “Fair Maintainable Trade” (FMT) misleads prospective tenants and
their financial advisors (thereby undermining the usefulness and relevance of business plans). The reason is that
FMT indicates the so-called trading potential of a pub but there is seldom a relationship between the current
or recent trading performance of a pub and the FMT that has been assessed for that pub. This is a fundamental
flaw in the current tied rental model and why a MRO is needed.
18. The fact that a pub company owns a pub building does not imply that there is a viable pub business.
Changes in consumer spending habits does mean that fewer people visit pubs and that there is likely to be an
over-supply. This over-supply should reflect in falling rental prices and tied beer prices; the fact that it does not
is a flaw in the current tied rent setting process and a manipulation of the market.
19. Tied Beer Pricing
20. Beer duty is often claimed to be a major challenge to the pub industry but strangely high tied beer prices
are not. Between 2012 and 2014, Enterprise increased the cost price of Doom Bar by 13.65 pence, despite beer
duty declining by approximately 2 pence a pint in the same period. If a publican aimed to maintain a modest
45% gross profit, selling prices would have had to increase by a net 25 pence a pint over 2 years. There is
obviously no justification for such price increases in the current economic climate.
21. Family Brewers
22. It is worth noting that whilst there are moves to exclude family brewers from the scope of the proposed
Code, some Family Brewers have taken the lead in starting reform of the tied pub industry. Batemans, a
Lincolnshire brewer and pub company (based on an article in the PMA dated 3 September 2014) has offered
some of its tenants tied products at free of tie pricing. Batemans indicated that whilst there had been “short
term pain” in the form of lower profits, it did consider that there would be “longer term gains”.
23. Robinsons, a Cheshire brewer and pub company, has indicated in an article in the PMA dated 18
September 2014, that it too is innovating its tenancy agreements and is offering greater tied drink discounts
(equivalent to free–of–tie pricing) based on local competition and what consumers are prepared to pay.
24. It is ironic that these family brewers have recognised that beer pricing is fundamental to tenant viability
and appear to have taken steps to transfer profit from their own company to tenants; noting that it will have
longer-term benefits to them and their tenants. Other family brewers, the BBPA, larger pub companies and
192 Small Business, Enterprise and Employment Bill: Written evidence
London Economics have seemingly ignored the issue of excessively high tied beer prices as a key contributor
to the failure of the tied model.
25. Conclusion
26. I care passionately about the British pub industry because of its heritage, its uniqueness and its
importance. I therefore look forward to reading the report of the Committee and hope that it will make
recommendations that benefit the pub industry as a whole, not merely pub companies or brewers.
November 2014
Written evidence submitted by David Morgan (SB 70)
I have had the opportunity of viewing the Small Business Enterprise and Employment Draft Bill and have
the following thoughts from the perspective of a Chartered Surveyor having specialised in licensed and leisure
property for over thirty-five years.
1.0
1.1 My name is David Morgan. I am a Fellow of the RICS, a Fellow of the British Institute of Innkeeping,
a Member of the Academy of Experts, and a Member of the Expert Witness Institute and am registered by the
RICS as an Accredited Expert.
1.2 My initial involvement in licensed property began in 1975 as a Divisional Estates Manager for Courage
(Western) Limited. I entered Private Practice in 1978 and am currently a Director of Morgan & Clarke Chartered
Surveyors, specialising in the Licensed/Leisure Industry with a strong focus on public houses. The majority of
the Clients of Morgan & Clarke are lessees although we do act for private companies who own public houses.
We do not act for Brewery Companies or Pubco’s. My day to day professional involvement in the Industry
concerns rent and lease renewal, focusing specifically on issues of viability. I have confined my observations on
matters where I have specific expertise and market experience.
2.0 Market Rent Only Option
2.1 I have reviewed the proposed Bill, Clauses 26-33 and note the detailed structure of the ability of a tenant
or a prospective tenant of a pub owning business to serve a Formal Notice of the intention to implement a
Market Rent Only Option. The definition of Market Rent, (Clause 28) mirrors the generality of modern public
house rent review provisions and are reasonably standard throughout the Industry. It is however important to
provide background commentary on the RICS Guidance Notes 67/2010 that form the template for Chartered
Surveyors in the consideration of rent review matters within licensed property. GN67/2010 is not a mandatory
requirement but recommended as ‘Best Practice’ for Chartered Surveyors. The Guidance Notes do not apply to
non-Chartered Surveyors.
2.2 I had the opportunity of serving on the Special Working Party convened by the RICS in 2010 which
included representatives of Punch and Enterprise, Regional Brewers and other Specialist Chartered Surveyors.
The Lessee’s point of view was more specifically represented by myself, my co-Director, Simon Clarke, and
Gary Mallon. All three of us have the unique perspective of either currently or previously having hands’ on
experience of trading and operating public houses. That experience was, to my knowledge, not shared by any
other members of the Working Party.
2.3 The Working Party re-wrote previous RICS Guidance Notes which in part, with the final document,
represented a compromise solution but the ultimate wording was agreed unanimously by the Members of the
Working Party. The new guidance was published in December 2010. The content of GN67/2010, in terms of
methodology, has direct bearing on evaluating the proposal contained within Section 36 (4) of the Draft Bill
that proposes “that tied pub tenants should not be worse off as a result of any product or service tie”.
2.4 The transfer from a supply-tied rental to a free-of-tie rental is, to some, initially complicated by the
purported advantages of SCORFA (Special Commercial OR Financial Advantages) which include the following
items.
2.4 (a) Upwards/Downwards Rent Reviews—if this is written into the current lease, there is no reason
why this advantage should not be continued. Pub rents are undertaken on a profits’ test basis which is intended
to reflect viability. There are a substantial number of short and long term leases that are the subject of rent
increases tracking the annual upwards movement of the Retail Price Index. This method of rent calculation
has no bearing upon viability and would remain active whether or not the lease is supply-tied or free-of-tie or
capable of downwards revision at periodic open market review.
The Industry Framework Code does not apply to supply-free leases and thus the market recommended
advantage of upwards or downwards rent review is not currently available for existing free-of-tie leaseholds.
There has been noted resistance, specifically by Wellington Pub Company, to the notion of upwards and
downwards’ rent reviews at lease renewal to which they have exercised strenuous objection on the basis that
such upwards and downwards’ rent reviews are not generic in a supply free market.
Small Business, Enterprise and Employment Bill: Written evidence 193
2.4 (b) Lower Rent—rent review clauses often state that the rent shall be the best rent obtainable in the
Open Market and the only difference between supply-free and supply-tied rent is the assessment of gross
profitability which would be greater in a free-of-tie lease.
2.4 (c) Not Fully Repairing—Brewery tenancies and certain short-term leaseholds are the general basis of
occupation, not being on a full repairing obligation.
The majority of medium/long term leases contain the repairing covenant that the lessee has to put and keep
the entire property, both decoratively and structurally, in good and substantial repair. This obligation would not
change in a supply free lease agreement. However, it is considered to be a substantial disincentive, for Brewers
who hold short term tenancies, to consider the grant of free of tie if there is not a full repairing obligation.
However, it is recognised that the intention of exempting pub owning companies with less than five hundred
properties would, in the main, remove the majority of brewery companies from the intended legislation.
2.4 (d) Technical Services Assistance—it is sometimes the case that lessees now have to pay for technical
services help such as the repair of cellar temperature control equipment. One recent example had an attendant
cost of £550 for servicing CTC equipment.
2.4 (e) Cheaper Insurance—the insurance market is highly competitive with individuals being able to
secure advantageous insurance premiums. Block insurance cover is now no longer seen as an automatic cheaper
option.
2.4 (f) Easy Exit Terms—no tenancy agreement or short term or long term lease contains a structured basis
of surrender other than by a break clause. If a break clause has been inserted, that would carry over to the freeof-tie situation. Lease surrender is a negotiable position with the strength of negotiating powers lying with the
freeholder. Often Pubco’s “fine” lessees wishing to surrender and, in certain instances, this can be represented
by six months’ rent plus an automatic Terminal Schedule of Dilapidations.
2.4 (g) One order/one delivery—no specific financial advantage. Certain Pubco’s now levy an extra charge
if an order is not placed online but made over the telephone. No such charges exist in the free trade market
which would be to the advantage of the supply-free lessee.
2.4 (h) Guaranteed Long Term Discounts—Pubco’s do not make or manufacture transport or deliver
draught and bottled beer. The discounts that they achieve from brewers are only in small part passed on to the
supply tied lessee. The resultant wholesale cost of supply tied products results in a lower gross profit margin
than a supply free situation. No financial advantage.
2.4 (i) Cellar and Heating Maintenance—the lessee is responsible for the maintenance and upkeep of
heating appliances and, with the exception of some brewery tenancies and short-term leases, is also responsible
for maintenance of cellar cooling equipment.
2.4 (j) Statutory and Civic Legislation Compliance—almost always the financial responsibility of the
tenant or lessee who, in lease terms, is deemed to observe all statutory and civic regulations.
2.4 (k) It is considered that the financial advantages of ‘Special Commercial OR Financial Advantages’ (if
indeed they can be accurately quantified in financial terms) are not of great magnitude and are of no particular
sacrifice to the lessee if a free-of-tie situation is to exist and if the only income that was derived from the
property to the freeholder was that of rent. There are an appreciable number of supply-free leases currently
within the Pubco Estates that operate viably without the so-called advantages of “Special Commercial OR
Financial Advantages.”
3.0 Function of the Valuer
3.1 Many years ago, all brewery companies had an Estates Department, generally staffed by Chartered
Surveyors (Pubco’s only came into being after the Beer Orders in 1989). That regime has now long since
been replaced by non-RICS-qualified Retail Field Staff (RFS) who act as “Valuers”. The vast majority of rent
negotiations are undertaken between the non-qualified RFS and the lessee on a face-to-face basis after the RFS
has obtained, as far as practicable, the accountancy information of the trading operations of the property. Many
modern leases require that accounts are made available. The RFS have continuously up-dated access to current
and previous supply data, either through flow-monitoring equipment or through the delivery records which
cross-reference with their company’s accounts department.
3.2 In a practical sense, the Retail Field Staff “Valuer” does indeed make the market at rent review rather
than lease renewal. This is based upon the freeholders’ general perception that rents, if at all possible, should
increase rather than decrease on the basis of a Rent Pro Forma that has been pre-prepared in-house and which
requires “deliverance” in accordance with corporate objectives. Retail Field Staff are not professionally bound
by the established RICS Guidance Notes although, in accordance with the Industry Framework Code, are duty
bound to observe their stipulations.
3.3 It is only if there is a no agreement as to rent, principal to principal, that the direct services of a Chartered
Surveyor are utilised, either internally within the company concerned (National Rent Controller or Portfolio
Manager for example) or externally with the engagement of a qualified Chartered Surveyor specialising public
house valuations.
194 Small Business, Enterprise and Employment Bill: Written evidence
3.4 In situations of Third Party Referral (TPR), certainly concerning Enterprise Inns, the external Valuer
reports to the National Rent Controller and is engaged, specifically, to present the case at TPR and is precluded
from entering into any form of negotiation, professional to professional. There is thus no continuing dialogue.
3.5 The above scenario is commonplace whether or not the public houses are supply- tied or free-of-tie with
the exception that free-of-tie properties would not necessarily have any trade supply records upon which the
rent calculation is based. Accounts may or may not be made available.
4.0 Rent Calculation
4.1 Much has been made of future trading potential of a business which, in reality, is little more than
guesswork. Pubco’s and Brewers, as mentioned earlier, always seek the guidance of current on-site trading
performance and accounts. This can then form the backbone of a rent calculation to be utilised in a Parallel
Rent Assessment.
4.2 Basically there are three elements to the profits’ test valuation. First, the actual trade or reasoned and
estimated ‘Fair Maintainable Trade’ on a VAT exclusive basis, second, the Assessment of Gross Profit Margins
and third, a detailed understanding of the reality of the business expenses incurred in the achievement of the
fair maintainable trade. The last item would not be the subject of variance to any great extent whether the
property was supply-tied or supply-free.
4.3 The Parallel Rent Assessment could envisage an up-lift in wet trade as a result of free-of-tie status. The
dry or food trade would not necessarily be the subject of variance. However, the core principle of understanding
the current levels of trade is of paramount importance linked with the previously mentioned guidance of
GN67/2010 which, at times, can be utilised to selectively promote a particular point of view concerning the
trade levels that should be adopted in the rental valuation exercise.
5.0 The Art or Science of Public House Valuation
5.1 Much has been made that valuation is an art not a science. Market evidence however would indicate
that there is a strong bias towards the science of valuation based upon a large number of input factors or direct
evidence. The days have long gone when an Expert could stand up in Court and, under cross-examination,
airily declare “I am an Expert. The evidence that I have given is my Expert Opinion and there the matter rests.”
Arbitrations, Courts and Tribunals, in the current era, require a high level of proof to support Expert Opinions
expressed with the request often being made that an Expert Opinion should be backed up by incontrovertible
evidence either by on-site circumstance or direct comparability.
5.2 The Industry Framework Code and, indeed, the vast majority of Codes of Practice, require that a detailed
Rent Assessment Form should accompany an expressed opinion of Open Market Rental. By way of illustration
to those unfamiliar with Trading and Profit & Loss Accounts and Pub Rent Assessment Forms, I have included
in Appendices A and B, actual market examples. For the sake of confidentiality, names, addresses and Pubco
referencing coding have been deleted. The information in the Trading and Profit & Loss Accounts is derived
from retail sales set against purchase invoices, producing a gross profit margin. The accounts ‘Expenses’ are the
detail of actual on-site costs, with the exception of depreciation which is a taxation allowance.
5.3 Appendix A
This is an example of a Punch Taverns’ Rent Review Form which, for wet trade purposes, is loosely based on
delivery records. Documents A2 and A3 represent the Trading and Profit & Loss Accounts for the year ending
31 October 2012 and 2013. It will be observed that the on-site records for total sales in 2012 were £311,150
and £284,727 in 2013. The Punch rent assessment has an estimate of total turnover of £398,108. All numbers
exclude VAT.
5.4 Appendix B
An example of an Enterprise Inns’ Rent Assessment Form in B1 with supporting barrelage data from flow
monitoring sources in B2. In this instance, the trade accounts for the financial years ending 31 March 2011 and
2012 were split separately between bar sales and kitchen sales. It will be observed that Enterprise Inns’ estimate
of Fair Maintainable Trade expressed as total turnover is £402,700 with the on-site accounts for 2012 recording
bar and food sales at £193,009. Again all numbers exclude VAT.
5.5 It is not relevant to analyse the content of each example save to illustrate the detail that has now become
generic in all pub rent review pro forma which is reflected industry-wide to a greater or lesser extent. This
market evidence would appear to underscore the proposition that valuation is now very much more a fact based
science than an opinion-related art form.
5.6 It is considered that the transfer between supply-tied and supply-free is primarily sales volume related,
linked to an adjustment of gross profit margins. Each item is naturally site specific and is capable of detailed
analysis if required.
5.7 The accounts’ evidence and pub rent pro forma, as outlined above, has at its core the assumption of
‘Reasonably Efficient Operator’ status which transposes into Fair Maintainable Trade. It is important to have
clarity in respect of ‘REO’ status which is the start point for the formulation of Fair Maintainable Trade.
Small Business, Enterprise and Employment Bill: Written evidence 195
6.0 Reasonably Efficient Operator (REO)
6.1 RICS GN67/2010, paragraph 2.10 defines the status of REO as follows:“a concept where the Valuer assumes that the market participants are competent operators acting
in an efficient manner of a business conducted on the premises…..it involves estimating the trading
potential rather than adopting the actual level of trade under the existing ownership and it excludes
personal goodwill”.
This paragraph is quoted extensively in the support of the estimation of trading potential which, almost
always, underscores an increase in the guesswork of future trade.
6.2 However, what is almost never quoted is the subsequent paragraph 2.13 “trading potential” which states
as follows:“the future profit in the context of a valuation of the property that an REO would expect to be able to
realise from occupation of the property. This could be above or below the recent trading history of
the property. It reflects a range of factors such as the location, design and character, level of adaption
and trading history of the property within the market conditions prevailing that are inherent to the
property asset” (Emphasis Added)
6.3 The definition of trading potential requires, as its initial benchmark, the trading history of the property
and allows for the future potential to be above or below the recent trading history of the property. This fact
transcends the often quoted concept of “stand back and look” which is considered the promotion of (educated)
guesswork as to future levels of increased trade.
6.4 If, as is often the case (and, indeed, illustrated in Appendix A1 and B1) the proposed Fair Maintainable
Trade and the assumed trading potential is substantially higher than the current trading performance. The
automatic assumption is that the hypothetical tenant would trade at a superior level to the current tenant which
would indicate that the current tenant is not of Reasonably Efficient Operator status. This factor is rarely, if
ever, addressed in any form of incontrovertible evidence that would validate the lack of REO status by the
current incumbent.
6.5 REO status is also linked with the concept of personal goodwill (of the current operator) which is defined
in GN67/2010, paragraph 2.9 as follows:“the value of profit generated over and above market expectations that would be extinguished upon
sale of the trade related property together with the financial factors relating specifically to the current
operator of the business such as taxation, depreciation, policy, borrowing costs and the capital
invested in the business”
6.6 Goodwill as a valuation concept is very difficult to quantify with certainty and, from experience, is nearly
always disregarded by Freeholders with the ultimate result that a highly successful lessee or trade operator is
valued on their trading success on the basis that goodwill does not exist.
7.0 The “No Worse Off” Principle
7.1 It seems to me that the underlying concept of the proposed Bill is to create a system of Parallel Rent
Assessment that allows for the mathematical consideration of the adjustment of rental between being supplytied and supply-free. There is ample evidence in the open market of both sales levels and profit margins being
achieved by supply-tied and free-of-supply-tie public houses.
7.2 From experience, it would appear that the average stay or hold in a supply-tied leasehold property is
approximately three years. Exit from the lease is usually by open-market disposal or, to a lesser degree, the
surrender of the current lease with the Brewery Company or Pubco openly offering the new lease or tenancy for
market competition. Far less often is the exit route at lease end when the new lease is not taken up.
7.3 The open market has a very large number of examples of leasehold public houses being offered for
sale through such national agencies as Christies, Fleurets, Sidney Phillips, Guy Simmonds, Davis Coffer
Lyons, RTA, Davy & Co, etc. In any given seven-day period, there are hundreds of examples being offered
for open sale with a large number quoting in the particulars of lease rent and accountancy details. It is difficult
to conceive that the availability of market evidence would show a marked reduction in future years, let alone
cease to exist.
7.4 It is clear that there is market evidence of profit margins being achieved by supply-tied lessees who have
varying levels of product discount. In the situation of a known level of product discount and associated gross
profit margin, it is relatively simple to illustrate such evidence of the difference between the two (i.e. free-of-tie
versus supply-tied) levels of gross profit.
7.5 There would be an increase in the free-of-tie divisible balance which would result in an increase in the
rent concerned and also a commensurate increase in the profit retained by the lessee.
7.6 To explain this concept on a simple mathematical basis (the science rather than the art)—if the supplytied divisible balance (estimate of current/future trade and the calculation of gross profit margins less operational
196 Small Business, Enterprise and Employment Bill: Written evidence
expenditure) resulted in a divisible balance of £60,000 with the tenant’s so called ‘bid’ being 50%, the resultant
rental would be £30,000 and the remuneration to the lessee would also be £30,000.
7.8 However, if the gross profit margins were significantly increased from, say, 54% up to 65% (or even
higher) and, for example, the divisible balance was £90,000, the 50% ̒bid’ would yield a rental of £45,000 and
a tenant’s remuneration of £45,000.
7.9 This simple concept would ensure a fair and higher level of remuneration for the tenant and an increased
site rental to the freeholder.
7.10 The negative result is that, in a free-of-supply-tie situation, the Freeholder would not have the hidden
income of wholesale contribution from the substantial discounts that, for example, the Pubcos achieve from the
brewers who supply their estates. This sacrifice of income by way of wholesale contribution would not occur
with smaller brewers if, as is proposed, the Bill does not apply to freehold estates of less than 500 units.ɸ97
8.0 Conclusion
8.1 The concept of Parallel Rent Assessment is a relatively straightforward mathematical exercise which can
either be undertaken, principal to principal, or as is proposed in the Bill, by an Independent Assessor. RICS
GN67/2010 is a solid template for considering all the relevant issues, not least the concept of Reasonably
Efficient Operator and the detailed study of actual on-site circumstance rather than the guesswork associated
with increased trade as a result of “future potential”.
8.2 The issue of “future potential” is often linked with the provision of a business plan to accompany either
the grant of a new lease or the affirmation of the suitability of an assignee. Practical considerations, however,
transcend the concept of realistic future potential illustrated by a disturbing recent example whose identity must
remain confidential due to on-going issues.
8.3 The potential assignee had approached the retail field staff and expressed interest in taking the
assignment of the supply-tied leasehold but was concerned over the current level of rental. The assignee was
clearly informed that, if the Business Plan did not justify the current rental, then the application for assignment
would not be approved. The Business Plan was suitably adjusted with a substantial over-estimation in Fair
Maintainable Trade on the basis that there was a rent review within eighteen months and the opportunity of
downwards’ revision. The assignment was granted.
8.4 Current Industry Code of Practice and the Industry Framework Code make the stipulation that the
prospective lessee or prospective assignee is encouraged to take independent professional advice including
business, legal, property and rental valuation assistance. We have a confidential number of examples that
illustrate that the concept of full professional advice is very rarely taken up, almost always due to the perceived
associated expenditure, with disturbing examples of Retail Field Staff backing up that level of potential
expenditure. There are current examples of new leases being entered into, and assignments’ being taken, where
there has been no professional advice taken whatsoever. This position can only be addressed if the details of the
identities of all of the professional advisers are confirmed between both parties
8.5 The hypothetical tenant, being properly and closely professionally advised, would not sensibly consider
paying an inflated rental based upon his own achievement of future potential and would almost certainly be
advised to utilise the template of current trading success/records in the formulation of a rent bid.
8.6 It is considered that there is a genuine opportunity for the readjustment of supply-tied lease rentals to
reflect viability in the concept of being free-of-tie or being “no worse off”. If however this financial adjustment,
linked with product discounting and levels of rental, is artificially influenced by annual increases in rental
linked with the upwards movement of the Retail Price Index (RPI), the question of viability, looking forward,
comes under considerable strain. It is inevitable that the expenses of running a business will increase year on
year as a result of in-built inflation and statutory pressures such as the annual rise in minimum wage rates.
8.7 Free-of-tie operators, by their very nature, have far more flexibility in the style of trading operation and
wet product selection than supplied-tied operators. The free-of-tie option can be adduced by the parallel rent
assessment which, in concept, is seen as relatively straightforward in terms of calculation.
8.8 If agreement is not reached as to Parallel Rent Assessment, principal to principal, the Bill allows for a
Rent Assessor who is charged with the duty of assessing the Parallel Rent Assessment and of giving reasons.
8.9 In a practical sense, the requirement for a market rent only option would seem to me to only be relevant
if there was dissatisfaction with the current supply-tied tenancy or leasehold deal. If properly applied with
genuinely viable rental levels and appropriate product discounting, together with identified ‘Special Commercial
OR Financial Advantages’, the situation could easily exist that the supply-tied tenant or leaseholder is in
fact no worse off than the supply-free tenant or leaseholder. It is noted that with only one or two exceptions,
there are very few cases of rent disputes with regional brewery companies. This would appear to indicate a
97 ɸ FOOTNOTE.
This numerical benchmark of 500 units was first proposed by myself at a Fair Pint Steering Group meeting in April 2008
and was subsequently adopted into Fair Pint proposals. I have for some time been no longer involved in the Fair Pint
Steering Group.
Small Business, Enterprise and Employment Bill: Written evidence 197
genuine caring, hands-on approach that is sympathetic to both their tenant’s or leaseholder’s requirements and
ensuring continuing future viability. The vast majority of the case load that reaches Morgan & Clarke Chartered
Surveyors is concerning Pubco lessees whose Retail Field Staff are the only point of liaison with the lessee.
8.10 It is also noted that the majority of regional and family Brewery Companies would be exempt from the
proposed Bill having estates of less than 500 units.
October 2014
Written evidence submitted by AGMA (SB 71)
1. Summary
1.1. The submission made by the AGMA Collaborative Procurement Hub on behalf of the various authorities
in the Greater Manchester region welcomes many of the provisions of this Bill in relation to the removal of
barriers to growth for small firms, strengthening the foundations for a sustainable recovery & creation of jobs
building on the government commitment to help make the UK the most attractive place to start, finance and
grow a business.
1.2. The provisions in relation to cutting red tape, access to finance, improving company transparency and
information on director’s disqualification and the measures in relation to prevention of abuse of zero hours
contracts and stronger penalties for breaking national minimum wage legislation present a balanced set of
measures that will assist small businesses to grow.
1.3. The AGMA Authorities feel very strongly, however, that the provisions of the Bill in relation to Public
Sector Procurement are out of place in this legislation. It is considered that the parallel process of implementation
of New EU Procurement Directives early in 2015 will assist Small Businesses in accessing public sector
contracts and that inclusion of Section 33 (regulations about procurement) of the Bill is unnecessary.
1.4. Given the current and continuing climate of austerity in the public sector, it is considered unnecessary
to impose additional regulations that “require local authorities to exercise…….functions in an efficient and
timely manner”. Procurement teams, like all other local authority functions have always been under scrutiny to
demonstrate their value / contribution in delivering savings and this scrutiny/expectation has increased under
the austerity programme whilst available resources have diminished.
1.5. The AGMA Authorities are less concerned in relation to the provisions included in section 34
(investigation of Procurement Functions) in relation to the Cabinet Office’s Mystery Shopper as the authorities
are confident that procurement and contract management exercises are undertaken professionally, competently
and transparently. Given the decreasing resources available to public sector contracting authorities however,
there are concerns that any increased scrutiny will divert resources from delivering procurement projects in an
efficient and timely manner which is the expressed intention of Section 33 of the Bill.
2. About the AGMA Collaborative Procurement Hub
2.1. The Association of Greater Manchester Authorities (AGMA) acts as the voice of the ten local authorities
of Greater Manchester and works in partnership with a wide range of private, public and voluntary organisations
within the city-region and beyond.
2.2. On behalf of the AGMA Executive Board, the Improvement & Efficiency Commission has an
overarching remit to:
—— Lead the improvement of value for money public services, collectively and within individual Councils
and partners for the mutual benefit of our customers and communities
—— Support the City Region and Regional agenda by developing collaborative ways of working, which
are both ambitious and inclusive, realising efficiencies and transforming the way we do business
—— Create a culture within AGMA and our partners of openness, trust, generosity and support, to improve
outcomes for our communities.
2.3. The AGMA Procurement Hub was established by AGMA to support these objectives. Membership
includes the AGMA Councils (Bolton, Bury, Manchester, Oldham, Rochdale, Salford, Stockport, Tameside,
Trafford and Wigan) plus the Greater Manchester Fire and Rescue Service, GM Police, Transport for Greater
Manchester and Manchester Airport. In addition, Cheshire East, Blackpool, Warrington and Blackburn with
Darwen have joined as associate members.
2.4. The Procurement Hub also maintains the link to the wider NW regional collaborative working through
participation in the iNetwork and the LGA co-ordinated National Advisory Group for Local Government
Procurement. This helps the participating Councils and Authorities to link into regional and national initiatives
and to participate in development of national policy as a united entity.
2.5. This evidence for the Public Bill Committee on the Small Business Enterprise and Employment Bill is
therefore submitted as a collective response on behalf of the AGMA Members and Associate Members who
welcome the opportunity to provide comments on this important issue.
198 Small Business, Enterprise and Employment Bill: Written evidence
3. Response to the consultation
3.1. The AGMA Authorities are supportive in relation to many of the provisions of this Bill, and this
response to the request for evidence will therefore concentrate on the Sections of the Bill that give serious
cause for concern.
3.2. It is considered that Part 1—Access to finance, Part 2—Regulatory reform, Part 4—The pubs code
adjudicator and the pubs code, Part 7—Companies: transparency, Part 8—Company filing requirements, Part
9—Directors’ disqualification etc, Part 10—Insolvency and Part 11—Employment are all supportive of the
intentions set out in the Bill.
3.3. It is possible that some of the AGMA authorities may provide comments under separate cover in relation
to Part 5—Childcare and Schools and Part 6—Education and Evaluation so this submission does not include
reference to these Parts of the Bill.
3.4. The AGMA authorities have significant reservations in relation to part 3, Sections 33 and 34 in relation
to Procurement for the reasons set out below.
4. Section 33
4.1. The AGMA Authorities are very supportive of the proposals to implement the new EU procurement
Directives “early” so as to ensure early use of the provisions that cut red tape and will support more small
business and voluntary sector organisations in engagement with public sector procurement.
4.2. The AGMA Authorities are, however, disappointed that the Bill includes measures to impose as yet
unspecified regulations on “contracting bodies” (a definition that clearly is restricted to Local Authorities)
with a requirement to only undertake such consultation as the Minister or the Secretary of State considers
appropriate.
4.3. This is especially of concern following the announcement of the abolition of PQQs for below threshold
procurement exercises and a duty for Councils to advertise procurement opportunities on Contracts Finder
which was made one week before the consultation period had been completed. This decision was made in
spite of a series of representations to the Cabinet Office via the LGA and by individual authorities expressing
opposition to the proposals.
4.4. Section 33 allows that future regulations may impose:
—— duties to exercise functions relating to procurement in an efficient and timely manner;
—— duties relating to the process by which contracts are entered into (including timescales and the extent
and manner of engagement with potential parties to a contract);
—— duties to make available without charge:
—— information or documents;
—— any process required to be completed in order to bid for a contract;
4.5. Whilst there is little detail in the Bill as to what each of these “duties” could include, it is considered
that this level of involvement by the Minister or Secretary of State is unnecessary as local authorities already
carry out these functions in as efficient and timely a manner as is permitted by the resources that are available
to them.
4.6. In addition, Section 33 provides the Minister or Secretary of State to impose duties relating to the
acceptance of invoices by electronic means (including a prohibition on the charging of fees for processing such
invoices, the publication of reports relating to the number of such invoices received or the electronic systems
that must be used by a contracting authority) and duties to publish reports about compliance with regulations.
4.7. Again, it is considered that this is unnecessary as the majority of local authority suppliers would find
it difficult and expensive to move to producing invoices by electronic means. This is particularly true of the
SMEs and Small Businesses that this legislation is designed to assist.
4.8. There is a strong view within the AGMA Authorities that providing the Secretary of State or the Minister
with powers to make regulations that are designed to assist Small Businesses may conflict with the Local
Authority’s need to abide by and support the principles of localism as outlined in the Localism Act 2010 which
provides freedom in how councils organise themselves and the ability to run their affairs in a way that suits
local circumstances.
4.9. The ability to impose regulations that support Small Businesses may indeed conflict with a Local
Authority’s ability to deliver Social Value and the principles of the Localism Act 2010 in that Councils should
be empowered to act innovatively and in general terms have the same freedom to act as an individual.
4.10. The recent Lord Young Reforms and the new EU Procurement Directives are presented as “deregulatory
measures” to speed up the procurement process and to make it more transparent and less bureaucratic. The
AGMA Authorities are of the view that any additional regulations imposed under this legislation are likely to
have a diametrically opposite effect.
Small Business, Enterprise and Employment Bill: Written evidence 199
4.11. The AGMA Authorities have helped develop and fully support the recently launched new national
procurement strategy for local government (July 2014) which includes a commitment to simplify processes
in order to engage with a wide supplier base, whilst at the same time using procurement to grow their local
economies.
4.12. There is a strong view that additional regulations will increase the administrative burden on local
authorities and diminish the capacity available to bring further contracts to the market given the limited
resources available which will effectively negate any positive benefits intended for Small Businesses under this
particular legislation.
5. Section 34
5.1. Section 34 of the Bill outlines how the Minister or Secretary of State may conduct “Investigation of
Procurement Functions” which related directly to the Cabinet Office’s “mystery shopper” initiative.
5.2. The existing “mystery shopper” initiative has been in operation for some time and, in general, it is
considered that a suitable mechanism should be in place to ensure that the principles of transparency and
proportionality are applied to all procurements whether above or below the EU Thresholds.
5.3. The AGMA Authorities are fully committed to the application of the principles of transparency, nondiscrimination, equal treatment and proportionality and expect that the powers given to the mystery shopper
also commit to these principles.
5.4. Sections 33 and 34 of the Bill are drafted as separate sections but Section 33 could provide the power
for the Minister or the Secretary to impose additional measures in relation to the mystery shopper which may
increase the administrative burden on Local Authorities and subsequently impact on the ability of procurement
functions to “exercise functions relating to procurement in an efficient and timely manner”.
5.5. Section 34 also identifies powers to investigate the way in which a contract is managed. It is considered
that there is an overlap with the recent amendments to the Transparency Code which further increases the
administrative burden on Local Authority Procurement functions at a time when resources are under increasing
pressure to deliver.
6. Conclusion
6.1. Given the above, the AGMA Authorities are of the view that Sections 33 and 34 of this Bill are
unnecessary in the context of the intentions of this legislation and actually cut across other parallel initiatives
by the Government in the new EU Procurement.
6.2. The Public Bill Committee is therefore requested to consider removing Part 3, Sections 33 and 34 of
this Bill as, for the reasons outlined above, they are unnecessary and will prove detrimental to the objectives of
this legislation which in the main seeks to reduce regulatory burdens and facilitate the inception, financing and
growth of business.
November 2014
Supplementary written evidence submitted by Chris and Von Lindesay, The Sun Inn, Dunsfold,
founders and coordinators of The Punch Tenant Network (SB 72)
THE ROLE OF THE ROYAL INSTITUTE OF CHARTERED SURVEYORS (RICS)
IN REGULATING PUB RENT ASSESSMENTS
Summary
1) The submission from RICS to this committee has brought into focus an issue that has been discussed
among the Punch Tenants Network concerning the highly ambiguous role that RICS and Surveyors specialised
in the Pub trade seem to occupy. There is a misconception that RICS can influence the behaviour of Surveyors
employed by PubCos or the behaviour of surveying firms instructed by them.
2) In order for an RICS surveyor to execute the assumed by BIS, BISC, and the self-regulatory process,
(BIIBAS, BBPA, PGB,ALMR etc..) they would have to act in a manner that does not favour the best interests
of the paying client or employer. We do not believe this can possibly happen in practise.
Rent Review Experience
3) When our highly acrimonious first rent review was concluded in 2007 with a 38% rent reduction and
apology from the then Punch Operations Director, we commented that we had expected a higher standard of
integrity from their RICS surveyor and received the reply “you have to understand who pays his salary”.
4) By the time of our second rent review, matters had evolved in that PubCos had agreed to incorporate the
RICS GN 67/2010 into their “Voluntary” codes of practice.
200 Small Business, Enterprise and Employment Bill: Written evidence
5) In addition the PIRRS process had been introduced, purportedly designed to promote the resolution of
rent disputes simply and at an affordable cost.
Rent “Negotiation”
6) In preparing for our rent negotiation we had researched and applied what we believed to be at least 4
different RICS compliant approaches to evaluating evidence supporting our “rent bid”.
7) We learned that the previous rent review negotiation had not served us particularly well as after
indexation we had, five years later, achieved only a 20% reduction in rent at the half way point of our “High
Rent, low drinks price” FRI 20 year Growth Lease. Our comparable “Sister Pub” on the identical terms, was
enjoying a rent reduced by more than 70% having been reset by “Open Market Transactions” by way of serial
abandonments and TAW episodes in the preceding decade.
8) None of our detailed market analyses found favour with Punch, these included:
a. Contemporary Open Market Transaction offers
b. Comparable Sister Pub
c. Stock counter Business mix evaluation
d. Demographic Share of spend evaluation.
9) Punch’s view was that we were “under trading” but presented no evidence for this at all.
10) We concur with RICS that comparing the situation with regard to pubs on different tenure agreements and
obligations is a complicated process. In conducting our research we applied a sensible research methodology. A
brief paper detailing the thought process that the REO might use and the consequent rental bid was presented
and is offered as an appendix to this submission (Appendix 1—“Rent Comparables and the Reasonably
Efficient Operator.)
11) Regrettably what the RICS describe as “not a matter of failure in the landlord and tenant relationship. It
is a difference of opinion on one or more of the individual aspects of the rental valuation.” became increasingly
acrimonious.
12) Our negotiations, such as they were, had moved from a 15% increase to a 17.5% rent reduction, which
was still not yet sufficient to offer a prospect of sustainability, considering the risk factors in the economic
outlook, never mind funding repair obligations or a “Partners profit” for the next 5 years. The review ended up
being referred to PIRRS.
13) The reference to PIRRS was not a signal of confidence in the self-regulatory system but was more by
way of defence from thinly veiled threats, that if we continued to argue our case through the Code of Practise
route, the review would be unilaterally referred to arbitration and we would, by implication, be buried in costs.
14) The risk of further delay, more costs and the potential lottery of “Calderbank Offers” with uncertain
cost implications was unattractive. So the PIRRS route was seen as the least bad way of resolving the matter—
this “difference of opinion” is all very well when “differing” on an hourly fee but is not so amusing when a
business and home is at stake.
15) In the PIRRS process we felt we were subjected to all the tactics of ambush, partiality and misdirection
that one might expect from a professional doing what he regarded as his job in representing his client’s interests
and achieving as high a rent as possible. This was not a friendly uncomplicated DIY process as advertised.
16) The absence of a reasoned outcome was frustrating as nothing was learned by anyone from the
coruscating exercise, which felt about as satisfactory as one might do being judged against an unclear set of
rules, in absentia, by a secret process sitting in camera.
17) PIRRS, is an unsatisfactory process, born out of a tradition of backroom horse-trading. It has little to do
with transparency and fairness but has the single benefit of resolving an irreconcilable “difference of opinion”
arising from a non-mandatory and therefore wholly un-enforceable set of RICS guidelines, which will therefore
only be used to serve the best interests of the employer or client. The only benefit to the tenant is to keep the
costs relatively low, but only if he attempts to handle his own case.
BISC Frustration with RICS
18) In the Tenth BISC Pub Companies report, BISC expressed its frustration and dismay that there was
continuing controversy over the actual interpretation and observance of the RICS Guidance Note GN 67/2010.
19) RICS evidence was that the guidance must be being observed as no one was complaining that it was not.
“60. Mr Rusholme argued that there was “not an avalanche—there is not even a trickle—of complaints
coming in about non-compliance of our members in using the guidance”.”
20) The BISC report continues:
“64. The improved RICS guidance was one of the few positive messages to come out of the 2010
Report on Pub Companies. The continued disagreements between lessees and the pub companies on
Small Business, Enterprise and Employment Bill: Written evidence 201
the level of adherence to that guidance is therefore a major point of concern. RICS must investigate
as a matter of urgency whether its members are signing off rent reviews which have been
prepared without clear application of its RICS guidance or benchmarked costs and to report
back its findings to us.”
This illustrates the confusion between what RICS, BIS and BISC believes the role of RICS might be. RICS
in their submission have alluded to this confusion.
A trickle of complaint to RICS
21) Our second rent review concluded at about the same time as the 10th report from BISC, and the
instruction to RICS to “investigate” the performance of its members was taken at face value. However the then
Chief Executive of the BII, Neal Robertson, advised “not to bother with RICS as you will get nowhere with
them”.
22) We took immediate steps to make a complaint to RICS about the apparent failure to apply GN 67/2010
by two RICS surveyors employed by Punch and a third surveyor, a member of a RICS regulated professional
firm instructed by Punch.
23) Our approach to RICS was pushed back effortlessly on several grounds:
a. The RICS complaints service was not aware of any instructions from BISC “to investigate as a matter
of urgency ……. and to report back its findings to us.” nor was there any apparent intention of
doing anything of the sort.
b. On the matter of making a complaint about RICS surveyors employed by Punch, this was not seen as
an issue for RICS as Punch was not a firm regulated by RICS.
c. When attempting to make a complaint about a firm regulated by RICS and employing a surveyor who
had, in our view, not applied the RICS guidelines, this was not a matter for RICS to consider because,
we, the complainant, had not instructed the firm.
d. Finally it would seem that the RICS guidelines themselves contain a provision fully worthy of Alvin
Toffler’s “Catch 22” in that, as the RICS state in their submission:
“It is important to note that members are not required to follow the advice and recommendations
in the guidance note i.e. it is not considered mandatory from an RICS perspective,”
As RICS will only investigate complaints about non observance of Mandatory Practice guidelines and
GN 67/2010 is not mandatory, there is no disciplinary offence in ignoring them. This is taken to mean
that an RICS surveyor can fully comply with the requirements of the GN 67/2010 by deciding not to do
so.
24) This might explain the lack of a “flood or even a trickle” of complaints to RICS but is not evidence of
widespread compliance, that RICS should suggest it did, is entirely disingenuous.
25) Apart from some utility in providing a forum to develop some kind of methodology RICS has no role
at all in enforcing its use for its intended purpose. The impression that it does is another of the many elegant
illusions which have kept the “PubCo Problem” unresolved for so many years.
26) The real issue is the assumption in commercial law that each party has equal access to resources,
expertise and information to allow an adversarial process to be effective. This is acknowledged not to be the
case in the PubCo / Tenant situation the negotiating power is stacked totally one way. The aspiring tenants, who
may be taking their first steps into the enticing world of “Running your own business” will have a very limited
understanding of the complete absence in commercial contract law of the notions of “Consumer Protection”
with which they have been familiar hitherto. They will be much more likely to trust in offers of “partnership”
and support. This leads to a worrying hypothesis that Pub Companies cannot be trusted to recruit their partners
fairly.
Conclusion
27) There seems to have been an assumption in BIS and BISC that under the self-regulatory system somehow
the RICS guidelines imposes a duty of care on RICS surveyors to not utilise their skills and training on behalf
of the organisation that employs them. This is absolutely not the case, and in the cold light of day one might be
surprised that anyone might think otherwise.
28) PubCos must be permitted their right to “enjoy” their property but in the wider public interest this
“enjoyment” must be carefully controlled, unless they are prepared to expose their “wholistic package” to the
ultimate test of the Market Rent Option that is the preferred option of BISC, CAMRA, FDFYL, FairPint, JFL,
GMB, FSB, LSL and PTN and the other main political parties who stand in opposition to the status quo.
202 Small Business, Enterprise and Employment Bill: Written evidence
APPENDIX 1
RENT COMPARABLES AND THE REASONABLY EFFICIENT OPERATOR
Without Prejudice—prepared October 2010 for the Sun Inn, Dunsfold
We have conducted a survey of Punch Pubs on offer on the market as evidenced by their website. www.
punchpubs.co.uk.
We have analysed the “earnings”, FMT, costs and rent figures provided there. All this information is in the
public domain data and therefore easily available to the Reasonably Efficient operator. (REO)
On the Punch website the REO will note that the barrelage FMT quoted is, on average, 176% of trade in the
past 12 months and 138% of average trade earlier than 12 months. This indicated that Punch is signalling a huge
growth in beer consumption in the immediate future. The REO might reflect that there might be considerable
of risk in this forecast.
If the Sun Inn were marketed on this same website the FMT Barrelage would represent a 5% increase over
the past few years. This will signal to the REO that the Sun Inn is operating near or at its capacity at the present
time and therefore the current operators of the Sun Inn are more than reasonably efficient.
The REO would take a view as to the likelihood of achieving high double digit growth in barrelage in
the light of the industry body BBPA signalling a continuing double digit decline in beer and general alcohol
consumption nationally. He would probably conclude that a 5% reduction in barrelage would be minimum for
this site.
The REO’s analysis would continue to ascertain the cost profile presented on the Punch website and would
discover that the overall cost to revenue profile of the Sun Inn is given as 76%. He will further note that the
average cost to revenue profile of 14 Pubs marketed on the Punch Website is 82%. He will reflect that if
this is a true reflection of cost / revenue at the Sun Inn then costs are under exceptionally tight control and
would probably adjust his view of cost revenue to 82% to reflect his reasonable efficiency as opposed to the
exceptional efficiency exhibited at present.
The REO would then continue to consider the proportion of divisible balance that he might offer in his
bid. He would note from the Punch Marketing website that the average proportion of divisible balance on
offer is 45% to Punch and 55% to the operator, he would reflect that what Punch are offering on their website
is presented as a “Rent Guide” suggesting that more favourable divisible balances would be available on
negotiation. Reviewing the situation of the Sun Inn FMT he would reflect that the 50% divisible balance on
offer was significantly out of tune with the rest of the Punch Pubs on the market.
The next analysis the REO would make is to consider the validity of the turnover profile for the Sun Inn in
comparison with other properties. His analysis will disclose that the underlying revenue model used by Punch
on its marketing website differs from the model provided by Punch for the Sun Inn in that the Sun Inn revenue
is overstated by 14%. The REO will reflect that the real revenue potential of the Sun Inn will probably be closer
to the Punch website model.
Having conducted this analysis he might take the view that his bid should be based on:
1) Barrelage at 5 to 9% lower than the past 12 months as indicated by BBPA
2) An overall cost to turnover Profile of 82%
3) A share of divisible balance over 45%.
4) Revenue should be about 86% of the Punch model for the Sun Inn.
These considerations arrive at the following conclusions:
Turnover £ xxx,xxx wet, £xxx,xxx dry 0 machines £x,xxx other
Overhead £xxx,xxx (82% of Turnover)
Divisible Balance £ xx,xxx max
Share 55% tenant—45% Landlord
This
calculation
would
set
the
opening
realistic
negotiating
position
rent without any particular consideration of the site characteristics or
Including: Construction, state of repair, Structural Issues re heating, etc.
November 2014
for
other
Punch
risks.
Small Business, Enterprise and Employment Bill: Written evidence 203
Supplementary written evidence submitted by Chris and Von Lindesay, The Sun Inn, Dunsfold,
founders and coordinators of The Punch Tenant Network (SB 73)
DISASTROUS IMPACT OF PROCESS RISK AND MISREPRESENTATION
CONTRIBUTING TO TIED TENANT BUSINESS FAILURE
Summary
1) RICS expresses itself not to be in favour of standard valuation pro-forma templates for rent valuation
purposes “leaving it up to the expertise and discretion of the surveyor to decide how to value an asset”.
2) RICS believes “the pro-forma as drafted is overly complicated and likely to give rise to unnecessary
disputes” but also says “A small change at each stage of the valuation calculation can have an exponential
effect on the end result.”
3) We take issue with these statements on the ground of mutual contradiction and contend that it is imperative
to develop and enforce standard valuation proforma with calculations, rules, and independently reviewed data
which can be consistently applied, diligently audited, by an accountable and unimpeachably independent
source.
4) An example is given of the disastrous impact, already being experienced by tied tenants, of negligent,
possibly criminal, failure to monitor, audit and control the complex calculations in rent assessments.
5) It is suggested that a more rigorous standard should be required from this profession assisted by ubiquitous
and abundant data.
Rent assessment Proforma and Process Risk.
6) Having analysed many rental assessments as a result of the growing support networks among tied tenants,
the constantly changing formats and methodologies arising from “the expertise and discretion of the surveyor”
preferred by RICS, causes many errors and omissions. The insidious, “exponential” impact of these has
potential to be disastrous for both PubCos and tenants alike. Arguably Pubcos are better resourced to mitigate
and survive these risks while tenants are not; it is the tenants who bear the main cost.
7) RICS surveyors, who are PubCo employees, must be understood to be acting in accordance with the
commercial imperatives of their employer, and only loosely guided by a set of non-mandatory and unenforced
guidelines produced by RICS. In PubCos, on the brink of financial meltdown, it is inconceivable that an
employee would act against the best interests of their employer. Nor should they be expected to do so.
8) The many assessment models we have seen may not have been subjected to the rigorous control one is
entitled to expect from such an important document. They appear to be unaudited, with no apparent testing or
control, “errors” frequently can and do occur. Strangely these errors seem rarely to benefit the tenant.
9) We believe that some of these assessments show signs of starting at the “required rent” and being reverse
engineered and “force fit” into an FMT and “industry standard” cost profile that suits the PubCo need arising
from overleveraged debt.
10) We take issue with RICS suggestion that:
“showing the breakdown of all tied purchases is overly complicated. Few valuers practising in the
market have access to such detail on all of the comparables, particularly when one is dealing in the
free of tie market.”
11) This is quite extraordinary, given that members of the Punch Tenant Network have no difficulty at all
in acquiring this information, when required, at almost any level of resolution, from members of the Institute
of Licensed Trade Stock Auditors or their equivalents. The problems arise when trying to convince PubCo
employed RICS surveyors that they may NOT have the best grasp of the local market.
12) It is unacceptable that RICS seek to minimise the scope for argument by seeking to limit the assessments
to untraceable and un-auditable summaries without clear safeguards. Many RICS surveyors known to our
members and not involved in the pub trade are very uncomfortable with the practises in this specialised corner
of the profession.
13) While no tied tenant should be expected to aspire to the mathematical capability of a city derivatives
trader, not having these skills during a rent review frequently results in the tenant being misled into an inflated
expectation of profit.
14) RICS has submitted that a small mistake in a valuation can have “exponential effect” on outcomes.
In this we wholeheartedly concur, particularly when “errors” result in an overstated expectation of profit,
consequent higher rents, which must be paid out of lower than expected achieved profits. The outcome for the
tied tenant can be, and frequently is, disastrous.
204 Small Business, Enterprise and Employment Bill: Written evidence
Exponential effects—an example:
15) We discovered in October 2014 that since 1993 HMRC and cask ale brewers have agreed to a
methodology to ensure that beer duty is paid only on drinkable, and therefore saleable, cask conditioned ale.
This will not come as a surprise to any brewer or indeed the BBPA, as the methodology is agreed with Trading
Standards and HMRC, and BBPA have issued guidance to brewers as to the sampling and record keeping
required to satisfy HMRC that no drinkable cask ale passes the “Duty Point” without suffering the required
beer duty. The BBPA have also issued guidance that invoices, delivery notes and other commercial documents
must not mention specific volumes but only cask descriptions, to avoid being caught by trading standards
regulations. To all tied tenants this is very worrying.
16) With cask conditioned ale, there are allowances to accommodate the fact that the ale will not reach its
final alcohol content (abv) until it has been fully conditioned in the pub cellar. The target abv is checked, as is
the amount of undrinkable sediment that will remain in the cask. This is declared, audited and adjusted from
time to time, and beer duty is paid only the drinkable ale.
17) It is a condition of the HMRC procedure that the “Customer—for example the publican be made fully
aware” of the amount of drinkable beer that has duty paid and therefore is saleable. HMRC require that these
“Customer notifications” are retained on file for inspection.
18) Investigations thus far suggest that some brewers print the “duty paid volume” in litres on their cask
labels, the implications of which have only now become apparent to tied tenants. Many other brewers do not do
this, and some appear to regard “their customer” as the PubCo, who must have been informed of the saleable
volumes.
19) That the PubCos have chosen not just to fail to pass this information on to their tied tenants, but to
assert in training courses and rental assessments that the saleable volume of ale in a 9 gallon container is 72
pints when they knew that this is not the case is a major scandal, possibly even criminal according to barristers
opinion. Trading Standards have been notified, but have not yet signalled what they propose to do.
20) This revelation has come as a shock to tied tenants, whose rents have been set via the RICS “profits
test” method on the universal and erroneous assertion that 72 pints could be sold from a 9 gallon firkin of cask
conditioned ale if the operator was “reasonably efficient”.
21) In reality, the volume of drinkable beer in a “72 pint firkin” is more likely to be around 68 pints as
agreed between BBPA and HMRC and Trading Standards.
22) The impact of this revelation on the net profit after rent of a benchmark wet led pub is that the expected
tenants share of net profit from a leading firkin of cask ale will be as much as 33% lower than planned, at
£19.88 compared to £29.92. This amounts to a £40.20p reduction in the tenant’s net profit per brewer’s barrel
of 36 gallons.
23) To be clear, this is not an “operational risk” such as wastage, spillage, testing, spoiling or other hazards
dependent on the skill of the operator, his staff and the quality of the dispense equipment onsite. These risks
still exist and must be funded out of wastage allowances provided for in the profits test method.
24) The tied-tenant’s loss of £40.20 expected profit from a barrel is a 100% certainty, arising from the “error”
in assuming that 72 pints, not 68, can ever be sold from a firkin. This error may be included in every rent set by
RICS surveyors applying the profits test method in every pub in the industry.
25) The logic of the RICS profits test method means that this £40.20 per barrel loss is entirely borne by the
tenant’s side of the divisible balance calculation. In a number of typical tied pubs consulted in a rapid survey,
this amounts to a loss of profit in the region of £3,100 per year for a pub selling around 70 brewers barrels of
cask conditioned ale, the unique selling point of the Great British Pub.
Tenant response to the unexpected loss
26) The only truly variable overhead cost that can rapidly respond to lower than expected revenues and
profits in a tied pub, is the wage bill. This unexpected loss will immediately impact the Tenant’s potential
drawings, the only mitigation option available is for the tenant to reduce the wage overhead by shedding jobs
and working longer hours him/herself. This is because the only resource available that can legally be paid less
than the minimum wage is the tenant as he/she is deemed to be self-employed.
27) It is unsurprising that a very high proportion of tied tenants are doing exactly that, and multiple
research reports have found that a very high proportion of tied tenants, for example 80% in a recent survey,
are earning less than £15,000 per year, less than the minimum wage for the statutory maximum 48 hour week.
No one suggests that a tied tenant works anything like as little as a 48 hour week, so the hourly earnings are
significantly below the minimum wage.
28) These “exponential effects” weaken the finances of the pub and deplete the tenant’s reserve, and an
increasing proportion of tied tenants become dependent on government benefits and tax credits.
Small Business, Enterprise and Employment Bill: Written evidence 205
29) The value of tax credits allowed to tied tenants is a direct government subsidy to sustain the beer tie,
perhaps as an ongoing penalty imposed on the state by practitioners of the tie for daring to interfere with the
industry in the first place, and having botched the job so badly.
Conclusion
30) Serial Select Committees have found that the PubCos are exploiting and abusing the tie and taking too
much profit from the trade. In the process they continue to ruthlessly extract value from the British Pub as a
consequence of exponential effects of flawed RICS valuation methods resulting in excessive borrowing and
exploitative pricing to the detriment of the consumer, tied tenant and Britain’s Pub Heritage.
31) For the government to continue to rely on the OFT response to the CAMRA super complaint as evidence
that the consumer has not been negatively impacted by the beer tie is contemptible.
32) We now discover that, despite years of protest and calls for the excesses to be curbed, we did not know
the full story. The PubCos, in conjunction with the RICS, appear culpable of basic errors of misrepresentation
and negligence.
33) Barristers opinion is clear, considering recent revelations every tied pub in the United Kingdom since
1993 has been rented on overstated profits amounting to several thousand pounds per pub per year. This may
help explain some of the bankruptcies and closures. There are clear implications of corporate criminality which
must be investigated.
34) As one of the least rewarded, but universally appreciated callings, that contribute significantly to British
Culture and Community wellbeing, it is submitted that the abuse of the tied tenant must stop, and compensation
paid to tenants both in occupation and defeated by this spectacular and negligent misrepresentation.
35) The Great British Pub is a unique cultural icon envied worldwide, but perversely, and in a uniquely
British way it is under attack from our own institutions from all sides. It is clear that this must end and the most
appropriate way for this to happen is for the tied arrangement to be exposed to the reality of the market reality
as envisaged in the “Market Rent Option” supported by a wide spectrum of bodies who have considered the
matter in detail.
November 2014
Written evidence submitted by Federation of Licensed Victuallers Associations (SB 74)
PART 4
THE PUBS CODE ADJUDICATOR AND THE PUBS CODE
The Following response to the Governments Small Business, Enterprise and Employment Bill is made by the
Federation of Licensed Victuallers Associations which is a self employed Licensees association first established
in 1992 administered through a Management Committee comprising of licensee members supported by a
trustee body.
It is made in respect of Part 4 of this Bill regarding the Pubs Code Adjudicator and the Pubs Code specifically.
The current Industry Framework Code V6 (IFC) goes into great detail on the requirements of the actions of
the Pub Companies towards their Tenants, negotiations which were being undertaken with the Pub Companies,
by the FLVA, prior to the publication of the proposed statutory code (SC), to enhance and strengthen the
voluntary code (VC) were at an advanced stage and some of these hard won undertakings would be well woven
into the SC.
Our comments are therefore based upon what we believe are best practices of the current IFC and those
benefits which were gained during negotiations and are not currently provided for within the proposed SC.
Executive Summary and Recommendations.
1. We have previously sent submissions in respect of consultations into Pub Companies and Tenants and we
are relieved that the initially proposed options of a mandatory free of tie and a “guest beer” option have been
set aside.
2. The FLVA believe that there should be no substantive size differential between a Pub Operating Business
(POB) which is captured by the SC and one which is not. The code should be all encompassing.
3. The Current roles of PIRRS and PICAS should be retained and there is a strong need for a Triage Service/
Helpline to filter and assist Tenants and the Adjudicator in the working of the SC.
4. There is a need for strong guidance notes, which should be further consulted on, from the Adjudicator
to ensure that there is a culture of best practice and not lowest common denominator within individual POB
codes, where produced. These guidance notes should reiterate the need and requirement for essential industry
information such as benchmarking, in that it must be retained, detailed, and updated by the POB’s. Common
206 Small Business, Enterprise and Employment Bill: Written evidence
and prescriptive timescales which are to be used and published by the POB in their codes should also be
defined within these guidance notes.
5. The national wholesale price list for tied products as published by the POB should mirror, or be lower
than the prices as published by the individual brand owners of the products concerned.
6. All agreements which have at their heart a tied beer supply arrangement should be captured by the SC
including “Franchise” models.
FLVA Response
7. There is a need that there be one code for all companies which is readily available on company web sites
and is distributed to all existing and new tenants. The SC provides for this, but only on the assumption that all
POB’s are captured by the code. Very importantly the distribution as above should also encompass the audit
statistics as detailed in the SC. This helps to make the code and a POB’s performance in relation to the code
transparent to all. However the required complexity of the SC along with the resultant cat’s cradle of differing
POB codes will require some form of interpretation to the layman to ensure a practical implementation of the
proposed measures.
8. The threshold of Companies who are to be bound by the code should be minimal in number (say 10). In
short what is good law and practice for one, is good law and practice for all in the industry. We hear of many
cases where the smaller family brewer is as guilty of malpractice as the larger organisations. Indeed many of
the difficulties we faced in the voluntary negotiations were due to the reticence of the smaller companies. This
low number would also capture the potential sell off, of sections of an estate where potential new landlord
practices should also be controlled to avoid malpractice towards the Tenant.
9. A code needs to be descriptive of the various styles of letting that are available and the specific implications
of that tenure. We especially refer to the wholesale practice of contracting out of the Landlord and Tenant act
1954 which seems to be the method of choice of some of the larger pub companies. This practice removes from
a tenant any rent review provisions that are included within the body of the SC. There was a will within the
VC agreement to provide some form of” letter of intent” in line with the rent review provisions which would
allow a contracted out tenant to have time to fully consider the proposals being made to them and be able to
re-plan their personal circumstances if the circumstances dictated such. This voluntarily agreed practice should
be captured within a new SC or guidance.
10. All styles of letting, both existing and new, which have a tied beer supply arrangement should be
encompassed by the SC. This would capture Franchise agreements, profit share and any form of turnover related
agreement. The one exception to this may be the Tenancy at Will (TAW) which would give the flexibility to
keep a pub open in exceptional and unforeseen circumstances. The practice of a continual renewal of a TAW
requires to be tightly controlled to avoid any sidestepping of the SC.
11. The wording of the requirement for a prospective tenant to prove completion of Pre Entry Awareness
Training (PEAT) prior to the discussion of terms requires to be “water tight” in order that the negotiations are
transparent and are as fully understood as is possible. General terms of the letting should be provided at the
initial meeting.
12. The same safeguards as required in 5 above should also be required in respect of the preparation of
business plans, legal, property, financial and rental advice.
13. Industry benchmarking data, as provided for within the SC proposed content for an FMT profit and loss
statement, needs to be enshrined within the legislation. Whether the SC itself or the Adjudicators guidance
notes to the POB is the correct home, is for debate, but this essential indicator to a prospective tenant must be
retained and annually updated by POB’s.
14. The provision of a Parallel FOT rent assessment may in practice be problematic in the format as proposed
within the FMT Profit and Loss statement. We believe this to be the case because any defined SCORFA benefit
is specific to an individual Tenant at a given point in time and may be open to many and varied interpretations,
as indeed will be the benefit of having a fully kitted out and operational Public House on a given site. The basic
RICS principle of the landlords share being between 35% to 65% of the Divisible Balance encompasses all
and takes into account these and many other principles when deliberating on a market rent. Even a slight move
towards the lower end of this scale would be obviously advantageous to the Tenant and would balance the test
of a tied pub tenant being no worse off than a free of tie pub tenant.
15. Any information which may be used by a 3rd party in a determination of a rent should be shared.
16. Sufficient information to allow a Reasonably Efficient Operator (REO) to understand the business
into which he is entering should not only provide known issues effecting the business or property, purchased
volumes of product but should also provide a detailed inventory of Tenants fixtures and fittings and practices
relating thereto at the onset and conclusion of an agreement.
17. Assignees of agreements should also be provided with the same information as new prospective Tenants
to enable them to understand the nature of the business which they are purchasing. (albeit that the inventory
will form part of the purchase price of the Business from the assignor).
Small Business, Enterprise and Employment Bill: Written evidence 207
18. There is a need for specific time scale for POB’s to respond to a request for assistance from a Tenant
where they are experiencing business difficulties which are beyond their control.
19. The practice of “Licences to Alter” and “Consents to Alter” need to be fully defined especially in respect
of any future rent review provisions whenever any Tenant led capital investment takes place. Again this could
be placed within the SC or the Adjudicators guidance.
20. Company funded capital developments must provide detailed implications in respect of Rent and Tenants
fixtures and fittings. E.g. write off/purchase.
21. Both the property and financial implications of a “put and Keep” agreement should be highlighted via a
schedule of condition at the onset of an agreement and the financial implications are to be reflected within the
FMT Profit and loss calculations as detailed within the SC.
22. POB’s should undertake that the National price list as required to be published by them for tied product
supply should provide for the fact that their Wholesale selling price be no more than the brand owners
Wholesale selling price of the relevant product and that subsequent price increases should be made in the same
cash quantum as the increase to the POB by the same brand owners.
23. Dispute resolution provisions as provided for within the current IFC namely PIRRS and PICAS should
be at the very least replicated within the remit of the Adjudicator. The existence of these current bodies is every
bit as important, if not more so, than the individual cases which go before them. They have proved to be an
invaluable tool to the FLVA and can be used by an individual Tenant during negotiations and the enhanced
powers that the adjudicator will have in respect of a SC transgression will further bolster their usefulness. The
affordability of such schemes to the Tenant must also be retained.
24. The user friendliness of PIRRS/PICAS must be retained and the potential reticence of an individual
tenant to approach a government official or department either because of lack of knowledge or a working
understanding of the SC or an individual POB code must be overcome. Whether this is at the initial interview
stage or as an existing Tenant. There needs to be some form of “triage” which identifies the potential issue and
assists in balancing the risk and reward for a new Tenant and guides an existing Tenant towards an acceptable
and defensible course of action. This “helpline” will be of double benefit in that it will act as a filter before the
Adjudicators direct involvement, as does the current existence of PIRRS/PICAS, and can also flag up to the
Adjudicator where there would appear to be a routine transgression of the SC by any individual POB. This
could facilitate an early investigation by the Adjudicator prior to the publication of POB code audits.
25. The practice of wholesale “contracting out” of the landlord and Tenant 1954 act should not circumvent
the best practice of a rent review procedure as outlined within the SC.
November 2014
Written evidence submitted by J Mark Dodds (SB 75)
J Mark Dodds FRSA, Ba(Hons), Dip. Kew Garden Design.
My submission is about parts of the bill that impact on Tied pub tenants. Particularly Market Rent
Option (MRO).
I’ve worked in the catering trade since 1977 and have been a Licensee since 1986. I’ve run successful, high
profile, very busy bars, restaurants and clubs in London’s West End and for twenty years have been a London
publican. I am a co-founder of the Fair Pint Campaign and sit on the steering group of Fair Deal For Your
Local and I administer Licensees Supporting Licensees, a forum of more than 250 professional tied and free of
tie publicans.
1) Consider that:
A) In the last ten years four Select Committees have found that Tied tenants are perennially abused by
bullying freeholders;
B) Each committee has announced Statutory Legislation will have to be forced on the sector if it proves
incapable of ‘Self Regulation’;
C) No-one is in disagreement that many pub owning companies act improperly toward their tenants;
D) Tied pub rents are higher than open market;
E) Tied supply prices are profiteering, being up to double the open market;
F) The majority of Tied tenants earn substantially below the minimum wage;
G) With start up costs from £10K to more than £100K there is no such thing as a ‘low cost entry’ into Tied
pubs; rather a Tied lease is proven to be a costly entry into almost certain penury;
H) ‘Self regulation’ has manifestly failed;
208 Small Business, Enterprise and Employment Bill: Written evidence
I) Government representatives have told tenant representative groups verbatim that a Market Rent Option
will NOT be introduced in statutory regulation under any circumstances and therefore to consider how
to push for the best outcome for Tied tenants without MRO.
J) The Communities and Local Government Select Committee has found there is not enough protection
for pubs from failing and being put to alternative use;
K) The only people who object to Market Rent Option (MRO) are those who say that Tied tenants are
happy with their business relationship with pub freeholders: Pubco’s; Family Brewers and trade
organisations representing freeholders who operate Tied leases and say the Tie promotes the health,
strength and vitality of the British Pub Sector.
L) All the people who ask for MRO support the rights of millions of customers and the human rights
of thousands individual pub tenants to have a free and fair market in the Pub Sector: CAMRA; FSB;
LSL; JFL; Fair Pint; GMV; FPB; PAS; UNITE and GMB. These people all recognise MRO is the only
regulatory tool that will deliver a workable solution that Tenants can use as a tool to address all the
above points and stand equal to their freeholders in contract negotiations.
M) The tenant groups are all absolutely clear that no MRO will leave Tied Tenants without any effective
tools to defend themselves with against their freeholders’ profligate abuse of the terms of their leases;
N) The published business plans of the two largest British pub companies (owned by private equity) show
that their strategy for paying interest only on the debts raised to buy the thousands of pubs they ‘own’
is to sell each year a number of pubs considered ‘no longer economically viable’ equal in value to the
amount of annual debt interest.
O) These pubs will be sold ‘vacant possession’ which clearly demands the business failure of the tenants
who occupy them on tied leases.
P) Successive ‘Ministers for Pubs’ have ignored publican representative groups about MRO while
supporting the views of BBPA et al on the part of freeholders.
Q) 20,000 pubs have closed forever; removing vital social hubs from communities everywhere—as
evidenced by hundreds of campaigns nationally by people hoping to ‘save’ the last pub in their locality,
and many more hundreds of pubs are being listed, ineffectually, as Assets of Community Value by local
people from Land’s End to John O’Groats.
2) When looking at these points together it’s impossible to not to deduce that the British Government is
being wilfully blind to enormous evidence that the Beer Tie is systemically abused against public interest and
common good in favour of private equity greed.
3) Government ignores the findings of its own colleagues who work diligently on Select Committees
exposing the shocking behaviour endemic in the Tied Pub Sector that any rational observer could easily deduce
to be the workings of a cartel.
4) Government listens to the Directors of Pub Companies and Family Brewers and ignores thousands of
publicans whose extraordinary industry, hard work and perennial tenacity against odds pays all the salaries and
buys the yachts and country homes those same Directors earn as reward for their bad management.
5) Government is complicit with ‘Tied Pub Company’ and ‘Family Brewer’ boards of directors and the
British Beer and Pub Association, in the dismantling, asset stripping, and permanent removal of Britain’s
traditions, solid social foundations, cultural heritage and community assets that pubs really are.
6) The further inaction of Government will destroy what is left of a unique and especially British institution
and way of life and rob thousands more communities of vital social hubs; damaging future generations’ ability
to integrate maturely, competently and healthily into society at large.
Conclusion. We are a cultural crossroads in the pub sector from where there is no going back. All that it
will take for us to see the end of independent characterful pubs forever is for good people to stand by and do
nothing. Government must act responsibly, give the Tied Pub Sector the opportunity to prove that the Tie is
benign and bring in MRO. It will lead to thousands of pubs surviving economically instead of being turned into
rubble or inappropriate alternative use that is blighting the landscape and damaging communities everywhere
in the British Isles.
November 2014
Written evidence submitted by Dr N. Orkun Akseli (SB 76)
Dr. Orkun Akseli is Senior Lecturer in Commercial Law at Durham University Law School. He has law
degrees from Turkey, USA and the UK and teaches in the field of commercial/corporate law. He published
on secured transactions law and financial regulation. His relevant publications are ‘International Secured
Transactions Law: Facilitation of Credit, International Conventions and Instruments’ (Routledge, 2011);
‘Financial Regulation in Crisis? The Role of Law and the Failure of Northern Rock’ (edited with J. Gray)
(Edward Elgar, 2011); ‘Availability of Credit and Secured Transactions in a Time of Crisis’ (O. Akseli ed.)
(Cambridge University Press, 2013); ‘Vulnerability and Access to Low Cost Credit’ in Consumer Credit, Debt
Small Business, Enterprise and Employment Bill: Written evidence 209
and Investment in Europe’ (M. Kenny & J. Devenney (eds)), Cambridge University Press (2012), pp. 4-21;
‘Contractual Prohibitions on Assignment of Receivables: An English and UN Perspective’ Journal of Business
Law [2009] issue 7, pp. 650-678.
Summary
Small businesses’ access to finance needs to be facilitated. A regulation to this end will help reduce
their financial vulnerabilities in the face of financial crisis. Recognising the effectiveness of assignments
notwithstanding contractual prohibitions (non-assignment clauses/anti-assignment clauses) as part of measures
to facilitate access to finance is a welcome initiative. This will align the law with international commercial
law initiatives as well as other notable common law jurisdictions that invalidate contract terms prohibiting
assignment of receivables.
1. I give this evidence as a Senior Lecturer in Commercial Law, who has taught and published in the field of
commercial and corporate law since 2003. It represents my independent view.
2. I will address the specific issue of small businesses’ access to finance. This is a pressing issue for
small businesses and the economy as a whole. The financial crisis has highlighted the vulnerability of small
businesses in economic downturns, particularly in relation to access to finance. Small businesses account for
about 90 percent of businesses worldwide with 50 percent of employment around the world98 and 58 percent
in the UK by employing 13.5 million people.99 Facilitating small businesses’ access to finance may support
economic growth100 and contribute to social mobility and renewal.
3. Asymmetric information is a significant problem in small businesses’ access to finance. It is also one of
the reasons why small businesses are refused finance.101 Unincorporated businesses or small businesses do not
release information as large firms do. Large firms release information through their access to stock market,
financial statements, ratings conducted by the rating agencies or registration of earlier security interests by
previous creditors.102 Thus, lenders cannot ascertain small businesses’ ability or willingness to pay. Sometimes
the small business purposely keeps this information opaque. In order to ascertain whether the small firm’s project
is viable, investors incur transaction costs in due diligence (more so than they would normally incur when
dealing with large firms) and this creates reduction in funding causing an ‘equity gap’. These disadvantages are
caused by the concept of ‘information asymmetry’.103 The use and availability of collateral or clear information
about the financial strength of the borrower (i.e. small business) encourages lending and reduces the financial
vulnerability of lenders.104 Financiers lend to small businesses provided there is clear information about their
previous transactions. Although financiers have their own reliable information systems (credit card information,
exclusive and informal relationships with small businesses etc.), it is important to reduce the effectiveness of
information asymmetry as a ground for refusing finance to small businesses.
4. Raising finance through factoring or invoice discounting is important for small businesses. The significant
advantage of factoring is that receivables owed to the small business are sold (outright assignment) to a
factoring company. The factoring company pays a discounted amount in return, rather than collateralising
these receivables. In other words, in collateralisation the financier takes the assets as security to satisfy the
claims of creditors. If the receivables are collateralised the title stays with the small business and in the case of
bankruptcy, receivables will become part of the bankrupt small business’ estate. The credit risk, thus, stays with
the small business. This is a significant point in the decision of credit supplied by the factoring company which
is based on the value of the small business’ receivable rather than the creditworthiness of the small business.105
Thus it is important to encourage small businesses to utilise factoring more often as a method to raise finance.
5. Receivables are significant assets for small businesses. Small businesses, unlike large businesses, are
usually only able to borrow on a secured basis rather than unsecured basis.106 Removing legal barriers before the
assignability of receivables is an important step in achieving small businesses’ access to finance. Recognising
the effectiveness of assignments notwithstanding anti-assignment clauses will facilitate the use of financing
methods, such as factoring, more often by small businesses.
IFC Issue Brief, ‘IFC and Small and Medium Sized Enterprises’ (2012) http://www.ifc.org/wps/wcm/
connect/277d1680486a831abec2fff995bd23db/AM11IFC+IssueBrief_SME.pdf?MOD=AJPERES (accessed 02 November 2014).
In the OECD area small businesses account for 99 percent of all enterprises and employ half of the work force. See ‘The Impact
of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses’, (OECD Publishing, 2009), 6.
99 Federation of Small Businesses (FSB) ‘The Number Crunching the Credit Crunch’ http://www.fsb.org.uk/frontpage/assets/
credit%20crunch%20figures.pdf (accessed 02 November 2014). http://www.fsb.org.uk/stats (accessed 02 November 2014). At the
start of 2013 in the UK there were 4.9 million small businesses which accounted for 59.3 percent of private sector employment
by employing 24.3 million people.
100 e.g. ‘SME Access to External Finance’ BIS Economics Paper No. 16, DBIS (January 2012); CGAP/World Bank Financial Access
Report 2010 http://www.cgap.org/sites/default/files/CGAP-Financial-Access-2010.pdf (accessed 02 November 2014).
101 ‘The SME Financing Gap Theory and Evidence’, volume 1, 19 (OECD Publishing, 2006).
102 B. Carruthers and L. Ariovich, Money and Credit A Sociological Approach (Cambridge: Polity Press, 2010) at 85 and 149 et seq.
103 J. E. Stiglitz, ‘The Contributions of the Economics of Information to Twentieth-Century Economics’ 115(4) Quarterly Journal of
Economics 1441 (2000).
104 Carruthers and Ariovich, ibid, 155.
105 L. Klapper, ‘The Role of Factoring for Financing Small and Medium Enterprises’ World Bank Policy Research Working Paper
3593 (2005); see also O. Akseli, Vulnerability and Access to Low Cost Credit’ in Consumer Credit, Debt and Investment in
Europe’ (M. Kenny & J. Devenney (eds)), Cambridge University Press (2012), 4, at 15.
106 The Law Commission, ‘Company Security Interests A Consultative Report’ Consultation Paper No.176, xiv (2004).
98 210 Small Business, Enterprise and Employment Bill: Written evidence
6. Recognising the effectiveness of assignment clauses made in violation of an anti-assignment clause is
also an important feature of a number of international instruments prepared by the internationally mandated
organs (e.g. the United Nations Commission on International Trade Law-UNCITRAL), international financial
institutions (e.g. European Bank for Reconstruction and Development-EBRD) and international institutions (e.g.
International Institute for the Unification of Private Law –Unidroit). The UN Convention on the Assignment
of Receivables in International Trade article 9 partially invalidates contractual limitations to the assignment
of receivables and recognises the effectiveness of an assignment as between the assignor and the assignee
and as against the debtor.107 As in the Small Business, Enterprise and Employment Bill section 1(4), the UN
Convention excludes financial receivables and confined to trade receivables.
7. The EBRD Model Law on Secured Transactions article 19.6 also invalidates contractual prohibitions.
Unidroit Convention on International Factoring article 6 follows the same idea and recognises the effectiveness
of assignment made in violation of an anti-assignment clause. The UNCITRAL Legislative Guide on Secured
Transactions (recommendation 24) and the draft UNCITRAL Model Law on Secured Transactions (draft article
10) support the idea that in order to facilitate the flow of credit and access to finance, receivables should be
freely assignable.
8. Recognising the effectiveness of an assignment made in violation of an anti-assignment clause is an
important reform to the law and may compel a change in judicial attitudes with respect to anti-assignment
clauses.
November 2014
Written evidence submitted by Paul Davies (SB 77)
1. Introduction
2. I write this in the vain hope that action will be taken against the scam operated by the Pub Companies to
transfer wealth from a leaseholder to the company, it’s executives and shareholders. A scam that can be easily
stopped by offering a Market Rent Only option in this legislation.
3. Together with my Partner, Stephanie Law, we have run The Cricketers Arms, a Punch owned pub, taking
the tenancy on 26th April 2003 and subsequently transferring to a lease on 15th March 2006. We are well
respected licensees by the authorities. We are recent victims of these questionable and possibly criminal
practices. We have lost all our investment and are currently awaiting eviction.
4. In this submission I will highlight some of these practices used by Punch to increase their share of the
pubs profit at our expense and how they forced us to cease trading and break the terms of our lease.
5. Example 1
6. Punch Taverns Rental calculations are based on Fair Maintainable Trade (FMT). This involves comparing
the trade of similar pubs to arrive at a figure a Reasonably Efficient Operator can achieve.
7. The expected % Gross Profit (GP) is calculated on beer and other sales and this expected profit is divided
by two. This profit is known as the divisible balance and is shared 50-50 with the licensee and Punch Taverns.
An example of such a calculation is given in Appendix 1.
8. Recent information has come to light that in these calculations, Punch assume the full contents of a cask
of real ale is available to the tenant to achieve this profit. This is not true. It also assumes that this figure of 72
pints is available when doing comparisons to arrive at the FMT figure. Again not true.
9. In agreements with HMRC brewers are able to declare a proportion of the contents of a cask of real ale as
unusable and unsaleable. Duty is not paid on this declared volume.
10. The Brewers’ declaration of the useable, saleable quantity in a firkin (9 gallons) of cask ale varies but is
never the 72 pints assumed for the calculation of divisible balance used to arrive at a rental figure. Also Brewers
are allowed to under fill a container by 2% (1.4 pints for a firkin), this is an arrangement made between the
BBPA and Weights and Measures.
10. Sharpe’s Brewery, the brewers of Doombar the UK’s most popular cask ale, do not declare a duty
paid volume on their casks, but they declare to HMRC there is 1.9 litres of unmarketable beer. This leaves
a marketable quantity of 68.6 pints. They say that they brim fill their casks, but only to 41 litres, the nominal
capacity of the cask which is 72.2 pints.
See generally O. Akseli ‘Contractual Prohibitions on Assignment of Receivables: An English and UN Perspective’ Journal
of Business Law [2009] issue 7, pp. 650-678; O. Akseli, ‘International Secured Transactions Law: Facilitation of Credit,
International Conventions and Instruments’ (Routledge, 2011); O. Akseli ‘The Utility and Efficacy of the UN Convention on the
Assignment of Receivables and the Facilitation of Credit’ in ‘Availability of Credit and Secured Transactions in a Time of Crisis’
O. Akseli (ed.) (Cambridge University Press, 2013), pp. 185-215.
107 Small Business, Enterprise and Employment Bill: Written evidence 211
11. From analysing the declared saleable quantity from various brewers and the potential legal under fill, the
average volume for the purposes of calculating the %GP, the divisible balance and therefore the rental for the
property should be 67 pints or less and not 72 pints.
12. HMRC state that the customer should be made aware of this declared volume of unusable beer on the
cask label, price list or delivery note. But the lessee of a pubco tied pub is not the direct customer of a brewer
and this vital piece of information to determine accurate profitability and calculate accurate %Gross Profit is
conveniently not passed on.
13. The convenient exclusion of this information and deliberate deceit has resulted in us paying approximately
£2000 per annum more in rent for over 11 years. This explains, in part, why we have never achieved greater
than 43%GP when we have been aiming for 50%GP on cask ale sales. When you add this to the acknowledged
losses for serving cask ale we were left in the position of having nearly £10000 less than the expected profit to
pay £2000 in overcharged rent.
14. Add to this the high tied price for cask ale, which can be double that which can be found on the open
market for the same beer, it is no wonder pub operators such as ourselves are being forced out of business.
15. Example 2
16. As part of the efforts of Punch Taverns to ensure a lessees adherence to the purchasing obligations
contained within the lease, they install beer flow monitoring equipment to compare dispense and delivery
volumes to ensure compliance. A comparison that is prone to error due to delivery volumes not being equivalent
to container size.
17. This equipment comprises of a simple turbine flow meter installed in each beer line. These are then
connected to a data recorder which transmits the collected data to the headquarters of Vianet, the company
contracted to supply and operate this equipment.
18. Punch distribute a leaflet titled ‘Brulines Benefits’ (Brulines now go under the name Vianet) extolling the
virtues of flow monitoring as an excellent t ool for the lessee.
19. I applied my knowledge as a degree qualified electronic engineer with extensive experience of
measurement systems to further explain the high wastage figures associated with serving cask ale.
20. Due to the way cask ale is dispensed with a suction pump, called a beer engine, I concluded that the
extra suction required overcome the resistance of the flow meter might be a cause for excess fobbing, the
generation of a foam head on beer.
21. This excess fobbing causes beer to be wasted and collected in the drip tray to ensure compliance with the
weights and measures definition that a pint of beer should contain no more that 5% head.
22. To test the validity of this theory a simple trial was conducted at The Cricketers Arms. The report
compiled concluded there was a measurable effect of statistical significance on fobbing. More testing would be
required to quantify this effect more accurately.
23. The results of this initial testing suggested that the flow meter installed in the beer line is responsible for
an extra 2.2% in wastage. Wastage that results in a further loss of profit to us of up to £1000.
24. Far from being a useful tool to the lessee, Punch’s effort to ensure adherence to the obligation to only
purchase beer through Punch, results in extra losses to the leaseholder. Losses that again are not taken into
account when calculating and setting rental levels, losses that the lessee has no control over and has to bear the
full cost of.
25. Example 3
26. he beer flow monitoring equipment is also the subject of an anti-tamper clause within our lease. This
means that the beer dispense equipment cannot be touched by us the lessee.
27. A well documented and accepted cause of excess fobbing and beer waste is the build up of yeasts and
bacteria in the beer line. To keep this to a minimum a rigorous cleaning schedule should be adhered to. In the
case of a tied public house this cleaning can only be achieved by chemical means, the ability to strip down and
manually clean all components having been removed by anti-tamper seals and clause.
28. This raises a question on whether the lessee is able to fully comply with legislation with regards to their
obligations to serve safe food. Beer for the purposes of Environmental Health and legislation is classed as food.
29. Preliminary testing of a fob detector removed from a public house showed alarming levels of
contamination both yeast and bacterial.
30. Resources have prevented further testing of the build up of yeast within the dispense components and to
identify the bacteria types, so the effect cannot be quantified on beer wastage or customer satisfaction, but it is
an accepted cause of waste and customer dissatisfaction by all the major brewers, even Punch Taverns actively
212 Small Business, Enterprise and Employment Bill: Written evidence
encourage weekly chemical cleaning. Cleaning losses are again ignored by Punch in their rent calculations and
profit expectation and are born solely by the lessee.
31. Example 4
32. Furthermore, as the leaseholder of The Cricketers Arms, it was my responsibility for adherence to Health
and Safety legislation and to prepare risk assessments for all aspects Health and Safety as laid down by the
various legislations.
33. During my duties in preparing a risk assessment I questioned the contents of the Vianet data collection
box fitted to the wall of the cellar. The unit carries a CE mark although no declaration of conformity is supplied.
My professional experience as an electronic engineer, the CE mark is a self issue mark and is open to misuse
and should be accompanied by a declaration of conformity to the relevant EU directives to confirm correct
issue.
34. In an effort to exercise due diligence, I contacted Punch by letter for a declaration of conformity and a
list of the contents that may require me to hold a copy of the safety data sheet to comply with the Control Of
Substances Hazardous to Health (COSHH) legislation.
35. The reply I received along with a declaration of conformity stated that ‘As the dispense monitoring
equipment doesn’t contain any substances needing COSHH documentation there is none to provide.’
36. The declaration of conformity lists a backup lead acid battery. A piece of equipment that does require a
safety data sheet to comply with COSHH. Sulphuric acid, even in gel form requires a safety data sheet.
37. The inclusion of a lead acid battery on constant trickle charge in a sealed container has further safety
implications with the possibility of an Hydrogen build up should a fault in either the battery or power supply
occur. This was confirmed by an email received from Yuasa, a world leading manufacturer of this type of
battery.
38. It would appear that neither Punch Taverns nor Vianet are adhering to the British Beer and Pub
Association (BBPA) code of practice for electrical safety in beer dispense equipment an organisation of which
Punch Taverns is a member.
39. This is an example of Punch deliberately misleading with untruth about benefits and withholding
information on the safety of this equipment which is forcibly installed upon the leased premises.
40. Punch Tactics
41. During our time at The Cricketers Arms, we did not earn more than £20000 between us in any year. The
profit was so small that any change in trading would affect us hugely. This change came in 2011 in the form of
increased competition. A fact that Punch chose to ignore.
42. Punch make full use of the beer tie to cause the most damage to an already fragile existence. Their first
step was to stop credit for our beer order insisting on cash with order. This had a negative effect on our cash
flow making a precarious financial position even worse.
43. Withholding credit for our beer order allowed Punch to tie the beer order to the rent. If the rent was not
paid in full, the beer order, paid for in advance, would not be released putting us in a viscious circle. No beer,
no profit for rent, no rent, no beer to sell, it just goes on.
44. This behaviour gave us little option, break the conditions of the tie and buy beer elsewhere or close and
stop paying rent. Either way we were put out of business so we chose to close.
45. Conclusion
46. I have for many years been vocal about the inaccuracies and misuse of beer flow monitoring equipment.
I have also been active in Fair Pint and Fair Deal For Your Local in campaigning for a better deal for tied
lessees especially those tied to the large money grabbing pubcos.
47. I am convinced Punch have taken this opportunity to make life as difficult as possible to remove me
from The Cricketers Arms in an effort to silence me and my criticisms.
48. Punch deliberately withholds vital information for a lessee to establish fair treatment. Punch are deceitful
to protect their beer monitoring equipment playing loose with the lessees safety and legal obligations under
Environmental and Health and Safety legislation.
49. Punch partner trading rules make very little business sense until you realise their eventual aim. That
aim is to relieve the lessee of all their money, throw them out and start again with a new ‘victim’. And if they
cannot find a new ‘victim’, declare the pub unviable and sell the Public House for other uses.
50. A dictionary definition of a partnership is:
a contractual relationship between two or more persons carrying on a joint business venture with a
view to profit, each incurring liability for losses and the right to share in the profits
Small Business, Enterprise and Employment Bill: Written evidence 213
Punch call us ‘Partners’ in a ‘Partnership’ and conveniently ignore the liability for losses and contrive that
their share of the profit is much greater than their partner.
51. If legislation with an MRO option had been implemented at any time in the 10 years or more that this
inequality has existed and been debated, we would still be in business running The Cricketers Arms. We firmly
believe the inexcusable delay by successive Governments have contributed to our financial demise along with
the disgraceful behaviour of our landlords, Punch Partnerships.
52. For this to stop the only logical step left to Government, bearing in mind the total failure of the previous
initiatives, is to legislate and include a MARKET RENT ONLY OPTION.
November 2014
Written evidence submitted by Ms R Gresham (SB 78)
I write in relation to Part 7 and Schedule 3 of the Small Business, Enterprise and Employment (SBEE) Bill.
(1) I submit that the provision of a compulsory register of people of significant control (PSC) over a company
that is (i) publicly available, and (ii) has a protection regime that extends only to PSCs at serious risk of harm
as provided for by Part 7 and Schedule 3 of the SBEE Bill violates Article 8 of the European Convention on
Human RIghts (ECHR).
(2) The compulsory public disclosure of PSCs amounts to interference in a PSC’s private life. Whilst
shareholder information is public, the beneficial owner of a company can—at significant expense—currently
use an offshore holding company to prevent public disclosure. The effect of the PSC register in its present form
is to place into the public domain information regarding the wealth of certain people. The effect of this would
be such that it may have a significantly detrimental effect on a person’s private life, from concern regarding
increased risk of fraud to disruptions in relationships with friends and distant family.
(3) In some cases such as my own, the net asset value (wealth) involved is not particularly great (low
hundreds of thousands, not millions). However, public disclosure—i.e. disclosure to parties other than HMRC,
the company bank, potential creditors, credit reference agencies, certain suppliers and customers, and certain
other public authorities—would have a significantly detrimental effect on my private life.
(4) To clarify, my concern is not disclosure to public authorities such as HMRC for whom it is right and
proper to fully disclose information as it pertains to the payment of tax, it is the indiscriminate public disclosure
of information that affects my right to a private life under Article 8(1) of the ECHR.
(5) In paragraph 80 of the memorandum prepared by the Department for Business, Innovation and Skills
(DfBIS) addressing issues arising under the ECHR in relation to the SBEE Bill (BIS/13/991), it is claimed that
the compulsory public availability of the PSC register does not violate Article 8(1) since it is justifiable under
Article 8(2) as being necessary for the economic well-being of the country.
(6) In the DfBIS document ‘Understanding the new requirements, recording control on the PSC register
and protecting people at serious risk of harm’ (BIS/14/1145), Ms Jo Swinson, the Minister for Employment
Relations and Consumer Affairs, states that the objectives of the PSC register are for the UK to be and be seen
to be “an open and trusted place to invest and do business”. More specific objectives are stated further down:
“to deter and disrupt the misuse of companies, and identify and sanction those responsible when illegal activity
does take place”, where misuse of companies ranges from “money laundering to tax evasion, corruption to
terrorist financing”.
(7) I contend that identifying PSCs in companies, whilst necessary in and of itself to help achieve some of
the above objectives (close the tax gap and deter money laundering as well as the use of proceeds to finance
illegal activities), does not have to be publicly available to meet these objectives and, more broadly, public
availability of a PSC’s information is not a necessary tool for the economic well-being of the country and as
such is not justifiable under Article 8(2) and thus is not compatible with Article 8 of the ECHR.
(8) I am not contending that public availability is a useful tool, but that it is not necessary. As such, I propose
that protection from public disclosure should be extended to PSCs other than those that are at serious risk of
harm as provided for by section 790ZF of Part 21A of the proposed amendment to the Companies Act 2006
(CA06) in paragraph 1, Schedule 3 of the SBEE Bill and further expanded upon in Chapter 3 of document
BIS/14/1145. The following paragraphs provide a brief discussion as to the criteria a company and its PSCs
should have to meet to be protected from public disclosure.
(9) A company and its PSCs should be given the option of electing to undergo a full compliance check in
return for protection of their register of PSCs from public disclosure if they pass the compliance check.
(10) The cost of this compliance check should be borne without exemption by the company ensuring that
extending the protection regime is cost-neutral to the state.
(11) A compliance check should be individually tailored to the complexity of a company’s corporate
structures and could include a tax audit, money laundering checks as to the sources of a company’s share
214 Small Business, Enterprise and Employment Bill: Written evidence
capital, checks as to the use of a company’s proceeds, along with standard Know your customer (KYC) checks
carried out by banks.
(12) A compliance check could be conducted annually in preparation for a company’s filing of the proposed
confirmation statement as provided for by section 80 of the SBEE Bill.
(13) A company would still be required to maintain a register of PSCs with the same information recorded
but this would not necessarily be publicly available. It could be shared with relevant public authorities such as
HMRC and credit reference agencies (CRAs) providing such disclosures are confidential.
I hope that consideration of the above is given and that the proposal to extend protection in a manner that
is (i) cost-neutral, and (ii) does not jeopardise the objectives of the provisions of Part 7 and Schedule 3 of the
SBEE Bill, is implemented.
November 2014
Dear Sir/Madam
Written evidence submitted by Bates Wells Braithwaite (SB 79)
Small Business, Enterprise
and
Employment Bill (“the Bill”)—the
impact on charitable and community
interest companies
1. This firm specialises in providing legal advice to charities and voluntary sector organisations. We act for a
large number of clients in the voluntary and community sector, ranging from household name charities to very
small community organisations. We have been specialising in this work for several decades, and are regarded
as one of the leading firms in this area.
2. Many of our clients are structured as companies—particularly companies limited by guarantee—and
therefore stand to be affected by the changes to company reporting in the Bill.
3. One of the challenges for charities and community organisations, particularly those at the smaller end
of the scale, is keeping up to date with regulation. We welcome the proposals to simplify the filing of annual
returns, and the simplified procedures for notifying Companies House of the appointment of new directors and
secretaries. However, we have serious concerns about the potential impact which the proposed new rules on
“people with significant control” (“PSCs”) may have on companies in the voluntary and community sector.
4. The rules, which are complicated, and therefore difficult to understand easily, may, as drafted, affect
voluntary and community organisations structured as companies, including charitable companies and
community interest companies.
Charitable companies
5. Charitable companies are usually structured as companies limited by guarantee, although in exceptional
circumstances they may be limited by shares. While it would be unusual for a small number of individuals to be
in control of a charitable company in the way envisaged by the Bill, there may well be circumstances where the
proposed new rules would apply. These might include the following:
—— Situations where the only members of a charitable company are its directors (called charity trustees),
and there are less than four directors.
—— Other situations where a charitable company has less than four members.
—— Cases where a third party has a right to appoint members of the board.
—— More complicated structures, involving a group of charities, where one or more charities have
membership rights in another.
—— A situation where a charity chief executive has “significant influence or control”, depending on the
definition of that term in the guidance accompanying the legislation.
6. If the proposed new rules are applied to charitable companies, these companies will first need to establish
whether they are, in fact, caught by the PSC regime: this may well entail seeking legal advice. They will
then, if appropriate, need to spend time compiling and maintaining their PSC register, and making appropriate
returns to Companies House. The bureaucratic burden is exacerbated by the fact that, at present, companies
limited by guarantee are not required to submit details of their membership to Companies House.
7. We are not convinced that this is a good use of charity resources. It is at odds with other moves to cut
red tape for charitable and community organisations. Given that charities are already subject to considerable
regulatory scrutiny and significant disclosure requirements, we find it difficult to believe that this additional
bureaucratic burden is warranted in the circumstances.
8. We endorse the suggestion of the Charity Law Association Working Party on the Department for
Business Innovation & Skills 2013 Discussion Paper: Transparency & Trust: Enhancing the Transparency of
UK Company Ownership and Increasing Trust in UK Business to the effect that it should be sufficient for
Small Business, Enterprise and Employment Bill: Written evidence 215
charitable companies to meet the disclosure obligations under the legislation by simply stating that they exist
for charitable purposes and the public benefit.
Community interest companies limited by guarantee
9. It is our view that similar considerations apply to community interest companies limited by guarantee.
10. Community interest companies are legally obliged to pursue a stated community interest and report
annually to the CIC regulator on how they do this. There are statutory restrictions on the distribution of assets
to members, except where this achieves the company’s purposes. While shareholders of community interest
companies limited by shares have some rights to dividends, community interest companies limited by guarantee
may not distribute profits to the