9 Mar 2015 : Column 433

House of Lords

Monday, 9 March 2015.

2.30 pm

Prayers—read by the Lord Bishop of Leicester.

Death of a Member: Lord Molyneaux of Killead


2.36 pm

The Chairman of Committees (Lord Sewel): My Lords, I regret to inform the House of the death earlier today of the noble Lord, Lord Molyneaux of Killead. On behalf of the House, I extend our condolences to the noble Lord’s family and friends.

Domestic Violence


2.37 pm

Asked by Baroness Gale

To ask Her Majesty’s Government, following the rollout of the domestic violence disclosure scheme by all police forces in March 2014, whether a review has been held of how the scheme has been implemented by police forces in England and Wales; and if so, what are the results.

The Parliamentary Under-Secretary of State, Home Office (Lord Bates) (Con): My Lords, the Government are currently reviewing how the domestic violence disclosure scheme has been implemented. Early indications show that it is highly regarded by practitioners, and we are encouraged by the latest data, which show that 1,335 disclosures have been made. We are committed to working with our partners to ensure that good practice is disseminated, and the scheme is optimised to help keep victims safe.

Baroness Gale (Lab): I thank the Minister for his response. I am not too clear about when this review will be published. I understood that it would be contained in the report that the Home Office published yesterday. But that report contained only about two paragraphs on Clare’s law. It is welcome that this law is in place as it does help to reduce domestic violence, but will the Minister say why only 39 police forces responded? Does the Home Secretary have any power to compel the other four forces to give their reports? We need a clear understanding of what is happening. After the pilot scheme a very good report was produced with 29 pages of recommendations. Is a similar report going to be given after we have a full review of the scheme? It is important that it is implemented properly throughout all the police forces.

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Lord Bates: The review that the noble Baroness refers to is actually ongoing. It started in January. Data are being collected and interviews with survivors are taking place. It is probably not going to be published until about May but it will include a report and recommendations to be acted upon. With regard to the police forces, one of the recommendations that came out of the excellent report by Zoe Billingham at HMIC, which the noble Baroness referred to, was that all forces should have an action plan, including reports, and that should apply to all 43 police forces. That is something that the national oversight board is looking into now.

Baroness Hussein-Ece (LD): My Lords, alongside the disclosure scheme, police and magistrates in England and Wales are able to issue domestic violence protection orders. Can my noble friend the Minister say how many of these have been issued and how effective they have been in protecting victims?

Lord Bates: Domestic violence protection orders are part of a suite of things, including the domestic violence courts and independent domestic violence advisers. We have been a little bit unsure about how these are working in practice on the ground. They have been included in the review that is ongoing. So there will be a review, and recommendations as to how they could be strengthened will be brought forward as well.

Baroness Seccombe (Con): My Lords, does my noble friend agree that in November of last year an extra £10 million was put into a fund to help support this very vulnerable group of women in their time of anguish?

Lord Bates: My noble friend is absolutely right. We have sought to ring-fence resource—£40 million—during the lifetime of this Parliament for support of victim and survivor groups. The £10 million to which my noble friend refers was an additional amount to support in particular the availability of places in refuges for victims of domestic violence.

Baroness Thornton (Lab): The Minister is quite right: that £10 million was made available to try to make way for all the refuges that have had to close down and all the women and children who have been made vulnerable by the cuts programme of his Government. Why was it necessary to use a freedom of information request to obtain the release of the information in January of this year which led to us now knowing that there have been 3,760 applications under Clare’s law so far and 1,300 disclosures? Can the Minister assure the House that it will never again be necessary to use the freedom of information legislation to get important figures on how Clare’s law is progressing, that such figures will be available annually, with the kind of breakdown that my noble friend has mentioned, and that each police force reveals how it is delivering Clare’s law?

Lord Bates: The publishing of data is a very important part of the plans which the police should have. The reality is that we would have preferred to take the time to cross-check as part of the review all the data that

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had come forward, the number of applications for release of information and the number of releases which were granted and the reasons for that. We had to honour the freedom of information request, but if there had not been that request, the data would have been published anyway in the annual review.

Lord Laming (CB): My Lords, can the Minister assure the House that the police will be encouraged to pay particular attention to family situations which involve young children, not only because of the vulnerability of young children but because of the awful role model that is given to them when they think that violence between adults is acceptable on any basis at any time?

Lord Bates: The noble Lord is absolutely right. Some excellent work is going on through the troubled families programme, which DCLG is leading. In our schools, the This is Abuse campaign is addressing young people’s own issues around how they conduct relationships.

The Earl of Listowel (CB): Is the Minister looking at the perpetrators of domestic violence, the men and sometimes women who do it, and ensuring that if they have drug or alcohol problems those are being addressed? If they have a history of domestic violence in their families, will those problems also be addressed, so that, ideally, many such families can begin to work again and become safe over time?

Lord Bates: The noble Earl is absolutely right in the sense that, according to the crime survey, while there were 1.4 million female victims of domestic violence in 2013-14, there were also 700,000 male victims. It is very important that perpetrators come forward to get help where they need it. There are perpetrator programmes being piloted at this very time.

Gender-based Violence: Screening


2.44 pm

Asked by Baroness Gould of Potternewton

To ask Her Majesty’s Government what steps they are taking to improve screenings at healthcare settings, including HIV clinics, to screen for gender-based violence and to provide the necessary support for affected women.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con): Routine inquiry of domestic abuse is in place in maternity and mental health services. It will be introduced in maternity services for FGM from April 2015 and for child sexual abuse in some targeted services next year. Accident and emergency departments in England have been sharing data on attendances involving body injuries with their local police forces to help prevent violent crime.

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Baroness Gould of Potternewton (Lab): I thank the Minister for his reply. Currently, there is professional guidance on screening, particularly for domestic violence, for health visitors, school nursing programmes and antenatal clinics. Does he not agree that such guidance should be expanded to HIV clinics, because we know that there is a correlation between women who have HIV and domestic violence, so that they can get the help and support that they need, because they have two problems to sort out for themselves?

Earl Howe: I do agree. Sexual health and HIV services are already sensitive to the risk of domestic violence, including gender-based violence, in their routine consultations. One of the most important elements in that is to have an environment and atmosphere that is welcoming, comfortable and calm, so that it engenders a sense of trust. Most sexual health clinics have developed local templates to identify those at risk of domestic violence, with signposting and referral to police and other support services if needed.

Baroness Knight of Collingtree (Con): My Lords, could there be a greater example of gender violence than the acceptance that it is perfectly legal to abort an unborn child who is a girl? There is so much disagreement about that—I know my noble friend agrees that it is a wrong policy and ought to be illegal—but the fact is that abortion nursing homes do it every day, and there is great uncertainty about whether this is illegal or not. Ought it not to be quite clear that it is an illegal practice?

Earl Howe: My noble friend has emphasised an issue which I am sure all noble Lords feel equally strongly about. The Department of Health has been quite clear that abortion on grounds of gender alone is illegal. We reissued that guidance last year in no uncertain terms. It is a pity if there is any misconception about that.

Baroness Barker (LD): My Lords, health and well-being boards have a responsibility under the Health and Social Care Act to commission sexual and reproductive health services and HIV services. Are they being asked to include gender-based violence in the commissioning formats that they put forward to the NHS?

Earl Howe: Most certainly. Gender-based violence is one of the issues which sexual health clinics, and indeed all parts of the NHS, are now alert to. New guidance from NICE was issued in February last year on domestic abuse and how health and social care services and the organisations with which they work can spot and respond to abuse earlier in a more joined-up and preventive way.

Baroness McIntosh of Hudnall (Lab): My Lords, does the noble Earl agree that not all domestic abuse results in physical symptoms? In his Answer, he mentioned mental health services. What is being done to deal with emotional abuse and to discover and refer people who suffer from it?

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Earl Howe: My Lords, the provision in the Serious Crime Act on controlling behaviour is one of the ways in which we have addressed that. The noble Baroness is absolutely right: abuse can take many forms. It can be physical, sexual, emotional or psychological. Thirty per cent of this abuse starts in pregnancy, and existing abuse may get worse during pregnancy or after giving birth. In the context of health and care services, the challenge is to alert staff to all those possibilities in a way that avoids them stereotyping the person sitting in front of them.

Baroness Wheeler (Lab): My Lords, more than 26,000 women in the UK received HIV care in 2013. What are the Government doing to assess the relationship between women with HIV and domestic violence, so that effective counselling, advice and support can be given to the women at greatest risk?

Earl Howe: My Lords, NHS England is working with the Department of Health to identify the right pathways, access to and availability of psychotherapeutic support for victims of sexual abuse and, in that context, the risk factors at play for women who have HIV. It is vital that the support services that we have and the alerts in the system are sensitive to the issue which the noble Baroness raises.

Baroness Farrington of Ribbleton (Lab): My Lords, would the Minister care to reassure the House on the progress towards parity between mental health services and the rest? It is no good identifying people who need mental health service support and psychological support if those services are not there, and in many parts of the country they have been decimated.

Earl Howe: My Lords, we are concerned about the sometimes patchy provision of mental health services in certain parts of the country, and we have channelled additional money to address that in recent months. One of the main ways in which we have demonstrated our commitment to parity of esteem is by introducing, for the first time, waiting-time standards for mental health treatment. That it is a landmark.

Baroness Manzoor (LD): My Lords, can the Minister please give an assurance that FGM is given a high priority in the health commissioning groups’ plans?

Earl Howe: Yes, my Lords. The Government hosted the first ever Girl Summit last year on ending female genital mutilation as well as forced marriage and other issues. We set up a specialist female genital mutilation unit following that summit. We provided money last year for the FGM prevention programme, and as part of this we introduced the first ever data collection in the NHS for all acute trusts, which are now required to record in a patient’s healthcare record whenever FGM is identified. We have also said that front-line professionals will in future have a mandatory duty to report cases of FGM in those under 18.

The Earl of Listowel (CB): My Lords, following on from my noble friend Lord Laming’s question on children in these circumstances, is the Minister ensuring

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that where gender-based violence is at play, any children in those circumstances are being identified and getting the help and support that they need?

Earl Howe: The noble Earl makes an extremely important point. I can reassure him that children and young people are very much the focus of the work that we have been doing, and that a guidance document was issued recently to that effect.

Millennium Development Goals: Women and Girls


2.52 pm

Asked by Baroness Kinnock of Holyhead

To ask Her Majesty’s Government what is their assessment of the United Nations Women analysis of the progress made towards meeting the Millennium Development Goals for women and girls.

The Parliamentary Under-Secretary of State, Department for International Development (Baroness Northover) (LD): My Lords, despite many gains, progress across the millennium development goals has been uneven for girls and women. The MDGs did not effectively address the factors which underpin gender inequality. The United Kingdom is pushing for a post-2015 framework that has a strong and explicit commitment to gender equality and that will seek to transform outcomes for girls and women.

Baroness Kinnock of Holyhead (Lab): I thank the Minister for her response and agree that we must build upon what has been achieved by the MDGs but acknowledge those goals’ shortcomings up until now, particularly on gender equality, women’s empowerment and violence against women—three major issues which have been neglected. The Minister will be aware that women across the world continue to face economic, social and political exclusion. At the current pace of change, it will take 81 years to reach parity in the workplace and more than 75 years to reach equal pay for work of equal value. Will the Minister clarify whether the Government have responded to the UN Women position paper on the post-2015 development agenda, which advocates a stand-alone goal geared to achieving gender equality and women’s empowerment? Has the UK responded to the UN Women proposal that there should be rigorous mainstreaming of gender equality concerns across the other priority areas and goals of the post-2015 agenda?

Baroness Northover: The noble Baroness is right to note that very uneven progress. We are indeed committed to the standalone goal and to mainstreaming.

Baroness Maddock (LD): My Lords, the Minister will be aware that the Department for International Development and UNICEF have a project in Nigeria that is aimed at getting 100% of girls into school by, I think, 2020. How do they intend to monitor this project to ensure that it is making good progress?

9 Mar 2015 : Column 439

Baroness Northover: It is extremely important to get girls as well as boys into school. A lot of progress has been made and there is almost gender parity, except in areas where there is conflict and, particularly, rural areas. The noble Baroness rightly highlights the project in Nigeria. We are working with UNICEF to manage the girls’ education project, which aims to get 1 million girls in school, and the results monitoring process has been agreed with UNICEF and is being implemented.

Baroness Hayman (CB): My Lords, as the Minister acknowledged, the goal relating to maternal mortality reduction will not be met by 2015. However, a great deal has been achieved by programmes such as Making It Happen by the Centre for Maternal and Newborn Health at the Liverpool School of Tropical Medicine, and I declare an interest as a supporter. Will the Minister assure the House that support from her department for progress like this that has made a huge difference will continue, so that this is not unfinished business past 2015?

Baroness Northover: It certainly must not be allowed to be unfinished business after 2015. The noble Baroness is right that progress has been made—maternal mortality has dropped by 45%—but we need to take that much further forward.

Baroness Turner of Camden (Lab): My Lords, is the Minister aware—I am sure she is—that, unfortunately, in large parts of the world there is a lot of conflict and fighting, and that it is always the women who suffer the most in such circumstances? What is being done at UN level to see that women who are caught up in battles and fighting are properly looked after? I fear that they are suffering more than the general population. It is women who suffer in these conflicts.

Baroness Northover: The noble Baroness is right that women and girls are especially vulnerable in such circumstances; I was hearing this morning about the particular vulnerability of adolescent girls. She will know that the international community is beginning to address this issue and that DfID is playing a leading role in trying to ensure that, for example, the women and girls displaced in Syria are well supported. She is right, however, that we need to move this further forward.

Lord Quirk (CB): My Lords, mention has been made of Nigeria. What is the Government’s response to rumours that, as a result of Boko Haram activity in northern and eastern Nigeria, parents are reluctant to send their children to school there? This may be happening in other places where there is extremist activity, in Africa and elsewhere.

Baroness Northover: The noble Lord is right. Many families are concerned about the safety of their daughters and about sending them to school, not only in situations such as northern Nigeria but, if the girls have to travel by themselves to school, simply due to the question of whether they are vulnerable. This is something that DfID, along with other partners, is working to address.

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Baroness Hussein-Ece (LD): My Lords, what is the Government’s position on reports in the past week that there may be a risk that the rights that women in Afghanistan have earned in the last 10 years may be compromised, rolled back or lost as a result of the Afghan Government’s discussions with the Taliban?

Baroness Northover: We are acutely aware of the position of women in Afghanistan and the progress that has been achieved, and we are determined, along with them, to ensure that it is secured. We are in dialogue with the Government of Afghanistan about the position of women.

Baroness Gould of Potternewton (Lab): My Lords, I have a question for the Minister about another country, regarding the effect of Ebola in Sierra Leone and the fact that girls are no longer able to go to school and schools are actually closing down. Can she give some indication as to what support we might be giving to help to get the schools reopened so that girls can start their education again?

Baroness Northover: The Government’s priory is to eliminate the Ebola epidemic in Sierra Leone. We are making extremely good progress, as the noble Baroness will know. We are not there yet, but one of our aims is to reopen the schools. In the mean time, we are seeking to support children who are out of school by distance learning.

Lord Collins of Highbury (Lab): My Lords, very early this morning Radio 4’s “Thought for the Day” mentioned the impact of microfinance in giving women control over their own lives. What action is the Minister’s department taking to ensure that such programmes are supported in what are now described as middle-income countries? What steps are the United Kingdom Government taking to ensure that financial inclusion is properly addressed in the SDGs?

Baroness Northover: We have a wide range of programmes supporting financial inclusion. I stress that we need to make sure that in general in the economies of developing countries women have as many opportunities as men at every level.



3 pm

Asked by Lord Spicer

To ask Her Majesty’s Government what is their most recent assessment of the situation in Ukraine with regard to its implications for United Kingdom defence policy.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con): My Lords, developments in Ukraine and elsewhere underscore the need for flexible and adaptable Armed Forces. We are committed to providing a defence posture that is ambitious and responsive to the challenges we face, while being affordable. UK defence policy is underpinned by a defence budget that is the largest in the EU and the second largest in NATO. This Government are committed to the NATO 2% target.

9 Mar 2015 : Column 441

Lord Spicer (Con): My Lords, after what has happened in Ukraine and with the Russians probing our defences at sea and in the air, is it not time now to raise our guard and spend not less but more on defence? Will my noble friend confirm that the first duty of any British Government is the defence of the realm?

Lord Astor of Hever: My Lords, I absolutely agree that defence is the first duty of the Government. I reassure my noble friend that we will remain a first-rate military power. Sufficient defence spending will be required in light of all recent events. As well as maintaining our standing commitments, we must be able to deal with multiple challenges across all forms of the military spectrum, including new threats, such as cyber and asymmetric warfare.

Lord West of Spithead (Lab): My Lords, in this very dangerous world, clearly defence cuts have gone too far. It gives the wrong message to people such as Mr Putin. What was the reaction of the Minster’s right honourable friend the Prime Minister when he asked him, as he promised he would last week, to talk to the leader of the Opposition about putting a commitment to 2% of GDP on defence in each party’s manifesto? What exactly did he say when he asked him that question?

Lord Astor of Hever: My Lords, I think my answer was that I would take it back to my department. I am sure that the Prime Minister will take notice of the discussions in this Chamber, but decisions on departmental budgets are a matter for the next Government.

Baroness Falkner of Margravine (LD): My Lords, I welcome the Secretary of State’s decision to supply Ukraine with non-lethal arms worth £850,000. It is an important gesture. My noble friend will recall that in the recent battle for Debaltseve there was only one set of night-vision goggles for several units to use. Do the Government intend to build on this by providing extensive training as well as further equipment of a non-lethal nature?

Lord Astor of Hever: My Lords, we are providing non-lethal assistance that has been requested by the Ukrainian Government to enhance the capability of their armed forces, enabling them to defend themselves better and to reduce the number of fatalities and casualties that they are suffering. All this training will be conducted well away from the conflict zone in the east.

Lord Foulkes of Cumnock (Lab): Does the Minister recall that Ukraine gave up its nuclear weapons in return for guarantees of territorial integrity from a number of countries, including Russia. Will he remind the people of this country, particularly the SNP, of that fact?

Lord Astor of Hever: My Lords, I do recollect the point the noble Lord made, and I agree entirely with what he says.

Lord Cormack (Con): My Lords, there may be a great deal to be said for speaking softly and carrying a big stick. However, does my noble friend agree that there is very little to be said for using a megaphone and carrying a tennis racquet?

9 Mar 2015 : Column 442

Lord Astor of Hever: My Lords, we very much follow the wise advice of former President Teddy Roosevelt to talk softly and carry a big stick.

Lord Rosser (Lab): My Lords, so far there has been no real attempt by the Government to engage in any public debate about the 2015 strategic defence and security review and the future direction of defence strategy in the light of developments both at home and abroad, including in Ukraine—unlike the previous Government, who issued a Green Paper. Why have the Government so far declined to have any such public engagement, and is it not as a result becoming increasingly likely that if the next SDSR is to be finalised in 2015— in less than 10 months’ time—it will, like the last one, have to be another rush job carried out without the level and degree of engagement with key stakeholders and the public which such an exercise surely both merits and requires?

Lord Astor of Hever: My Lords, we are thinking very seriously about the next SDSR. The MoD has conducted some early thinking to prepare for the review, and this programme of work will provide a solid and sound basis on which we can consider whether adjustments to current policy and plans will be required when the review gets under way later in the year.

Lord Stoddart of Swindon (Ind Lab): My Lords—

Lord Palmer of Childs Hill (LD): My Lords—

Lord Stoddart of Swindon: My Lords, it is this side—we have not had a turn yet. Did I hear the Minister correctly when he gave the assurance that the 2% of GDP would be maintained? That seems to conflict with what the Foreign Secretary said yesterday when he refused to confirm it. Finally, can he comment on the reports in the Daily Telegraph today that after the election the Armed Forces will be cut to 50,000?

Lord Astor of Hever: My Lords, I said that this Government are committed to the NATO 2% target—I said that clearly. I did read the article in the Telegraph about the RUSI report, but we do not recognise a lot of the figures it used.

Lord Palmer of Childs Hill: My Lords, my noble friend, in replying to the original Question, said, “if it is affordable”. Can he please tell us who will take the decision on whether the defence expenditure is affordable or not?

Lord Astor of Hever: My Lords, the decision will be made by the next Government.

Lord Dobbs (Con): My Lords—

Lord Davies of Stamford (Lab): My Lords—

The Lord Privy Seal (Baroness Stowell of Beeston) (Con): My Lords, time is up.

9 Mar 2015 : Column 443

European Union (Definition of Treaties) (Association Agreement) (Georgia) Order 2015

European Union (Definition of Treaties) (Association Agreement) (Moldova) Order 2015

European Union (Definition of Treaties) (Association Agreement) (Ukraine) Order 2015

Motions to Approve

3.08 pm

Moved by Baroness Anelay of St Johns

That the draft orders laid before the House on 13 January be approved.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 26 February.

Motions agreed.

Electricity Capacity (Amendment) Regulations 2015

Motion to Approve

3.08 pm

Moved by Baroness Verma

That the draft Regulations laid before the House on 19 January be approved.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 3 March.

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con): My Lords, with the leave of the House, I beg to move the six Motions standing in my name on the Order Paper en bloc.

Lord Foulkes of Cumnock (Lab): I object—they should be taken individually.

Motion agreed.

Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015

Motion to Approve

3.09 pm

Moved by Baroness Verma

That the draft Regulations laid before the House on 19 January be approved.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 3 March.

Motion agreed.

9 Mar 2015 : Column 444

Electricity Market Reform (General) (Amendment) Regulations 2015

Motion to Approve

3.09 pm

Moved by Baroness Verma

That the draft Regulations laid before the House on 19 January be approved.

Relevant document: 20th Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 3 March.

Motion agreed.

Electricity and Gas (Market Integrity and Transparency) (Criminal Sanctions) Regulations 2015

Motion to Approve

3.09 pm

Moved by Baroness Verma

That the draft Regulations laid before the House on 22 January be approved.

Relevant documents: 21st Report from the Joint Committee on Statutory Instruments, 25th Report from the Secondary Legislation Scrutiny Committee.Considered in Grand Committee on 3 March.

Motion agreed.

Renewables Obligation Closure (Amendment) Order 2015

Motion to Approve

3.10 pm

Moved by Baroness Verma

That the draft Order laid before the House on 27 January be approved.

Relevant documents: 21st Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.Considered in Grand Committee on 3 March.

Motion agreed.

Infrastructure Planning (Radioactive Waste Geological Disposal Facilities) Order 2015

Motion to Approve

3.10 pm

Moved by Baroness Verma

That the draft Order laid before the House on 21 January be approved.

Relevant documents: 19th Report from the Joint Committee on Statutory Instruments, 24th Report from the Secondary Legislation Scrutiny Committee.Considered in Grand Committee on 25 February.

Motion agreed.

9 Mar 2015 : Column 445

Scotland Act 1998 (Modification of Schedule 5) Order 2015

Courts Reform (Scotland) Act 2014 (Consequential Provisions and Modifications) Order 2015

Motions to Approve

3.10 pm

Moved by Lord Wallace of Tankerness

That the draft Orders laid before the House on 14 and 29 January be approved.

Relevant documents: 20th and 22nd Reports from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 4 March.

Motions agreed.

International Development (Official Development Assistance Target) Bill

International Development (Official Development Assistance Target) Bill

Third Reading

3.11 pm


Moved by Lord Purvis of Tweed

That the Bill do now pass.

Lord Purvis of Tweed (LD): My Lords, I beg to move that the Bill do now pass. In so doing, I place on record my appreciation of those from across and outside this House, including the noble Lord, Lord Collins of Highbury, and my noble friend Lady Hodgson of Abinger. I am particularly grateful to my Liberal Democrat colleagues and, especially, my noble friend Lady Suttie, who displayed the true skill of a great Whip in persuading people on occasions not to speak, rather than to speak, during the passage of this Bill. I am indebted to the kindly and professional advice of the Public Bill Office, and at each stage the support of my noble friend Lady Northover and her team could not have been stronger. However, I also recognise those who offered full and testing scrutiny to the Bill, over many hours, and agree with them that proper scrutiny of the effective delivery of aid going forward is now of the utmost importance.

Finally, this Bill was brought to us from the Commons by my right honourable friend Michael Moore. His vision to see this Bill on the statute book, and the manner in which he took it through the Commons, is a real testament to his own formidable skills. However, this Bill is not about Peers or MPs; it is simply about a girl who wants to have an education and to learn in a safe school; a mother who wants to feed, wash and nurture a child with good health, clean water and access to a hygienic hospital; a woman who wants to be empowered to represent others or to lead in a corrupt-free political system; and a boy who simply wants to play outside and have a childhood not in a war zone. If we can help others to take these simple things for granted, as we do here, we will be making a worthwhile contribution.

Bill passed.

9 Mar 2015 : Column 446

Small Business, Enterprise and Employment Bill

Small Business, Enterprise and Employment Bill11th Report from the Delegated Powers Committee13th Report from the Delegated Powers Committee19th Report from the Delegated Powers Committee

Report (2nd Day)

3.13 pm

Relevant documents: 11th, 13th and 19th Reports from the Delegated Powers Committee.

Schedule 1: The Pubs Code Adjudicator

Amendment 33A

Moved by Baroness Neville-Rolfe

33A: Schedule 1, page 150, line 6, leave out from “arrangements” to end of line 7 and insert “for persons to be seconded to the Adjudicator to serve as members of the Adjudicator’s staff.”

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con): My Lords, we come to several sets of amendments on pubs, a subject that has been much debated in this House and in the other place. We need to set the scene for today’s debate, which I think falls more naturally under the heading of the next grouping of amendments on market rent only. I suggest we proceed on that basis if noble Lords are content and treat this group of government amendments as the relatively technical group that it is.

For the first time, tied tenants will have a statutory code they can rely on, with an independent adjudicator to enforce it, with real sanctions at its disposal. There seems to be agreement in both Houses that a statutory Pubs Code and an adjudicator should be established. In setting up the Pubs Code Adjudicator, we have generally followed the Groceries Code Adjudicator model. This included specifying in this Bill:

“The Adjudicator may make arrangements with the Secretary of State or any other public authority for staff to be seconded to the Adjudicator”.

However, the GCA has experienced significant difficulties in securing staff on secondment from within the public sector. There is no single reason for this, but both the niche nature of the GCA and the ongoing pressures on departmental staffing levels are factors. We are keen to avoid the Pubs Code Adjudicator encountering similar problems. Amendments 33A and 33B to Schedule 1 therefore enable the adjudicator also to take secondees from the private sector. This will provide much needed flexibility for the adjudicator to find suitable staff from a wider pool—for example RICS-qualified surveyors to advise on rent assessments. We considered whether the adjudicator should have the ability to employ staff directly. However, we concluded that allowing secondments from the private sector would provide the flexibility needed without imposing employer responsibilities on the adjudicator.

Amendment 33C ensures that the adjudicator’s secondment policies are approved by the Secretary of State. This will enable the Secretary of State to specify that remuneration and the terms and conditions of persons on secondment to the adjudicator are in line with the department’s secondments policy. The amendment also provides that a person seconded to the adjudicator remains an employee of the employer he or she was seconded from.

9 Mar 2015 : Column 447

Finally, Amendments 33E and 33F ensure that the staff of the adjudicator are subject to the House of Commons Disqualification Act 1975, in common with staff of government departments. I beg to move.

Lord Mendelsohn (Lab): My Lords, we are happy to support these government amendments and are grateful to the Minister for the way in which she has dealt with this matter. We believe that our debate on the more substantive issues in the next group of amendments will cut to the heart of many of the important issues.

We support these technical amendments and are encouraged that the Government have learnt lessons from the introduction of the Groceries Code Adjudicator, which will be applied to ensure that the Pubs Code Adjudicator works effectively from the beginning. The only point we would make is that secondees should be drawn not just from the private sector but from a range of different areas so that they will provide the necessary experience to make the adjudicator’s work as effective as possible. Indeed, even within the context of the private sector they should be drawn from a range of disciplines. Apart from that point, on which we would be grateful for clarification from the Minister, we are happy to support these amendments.

Baroness Neville-Rolfe: My Lords, I am happy to clarify that we will take secondees from the best place possible, which could include—the noble Lord is probably referring to this—another Government, a non-profit organisation or some other source. This is to give us the flexibility to find the right people.

Amendment 33A agreed.

Amendments 33B and 33C

Moved by Baroness Neville-Rolfe

33B: Schedule 1, page 150, line 8, at end insert “to the person with whom the arrangements are made, or directly to seconded staff (or both).”

33C: Schedule 1, page 150, line 8, at end insert—

“( ) A period of secondment to the Adjudicator does not affect the continuity of a person’s employment with the employer from whose service he or she is seconded (and a person employed in the civil service of the State continues to be so employed during any period of secondment to the Adjudicator).

( ) Before making arrangements under sub-paragraph (1), the Adjudicator must obtain the approval of the Secretary of State as to the Adjudicator’s policies on—

(a) the number of staff to be seconded;

(b) payments to be made to or in respect of seconded staff;

(c) the terms and conditions on which staff are to be seconded.”

Amendments 33B and 33C agreed.

Amendment 33D

Moved by Baroness Neville-Rolfe

33D: Schedule 1, page 152, line 14, after first “rent” insert “only”

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Baroness Neville-Rolfe: My Lords, in the light of the concerns raised about our government amendments in Committee, I committed to further engagement with noble Lords and wider stakeholders, with a view to returning with further amendments on Report. My ministerial colleagues, officials and I have since had extensive discussions with noble Lords, honourable Members in the other place, and pub company and tenant stakeholders. I am grateful for the constructive engagement of noble Lords opposite, including the noble Lords, Lord Stevenson, Lord Mendelsohn, Lord Whitty, Lord Snape and Lord Berkeley, as well as my noble friends, including my noble friends Lord Hodgson, Lord Borwick, Lord Younger, Lord Stoneham and Lord Ridley, who joined us last week.

I should say before I turn to my amendments that the problems we are trying to address in the pubs industry have a long history. The difficulties that arise from the imbalance in bargaining power between tied tenants and their pub-owning companies have been well documented. The measures in the Bill are designed to ensure fairness for tied tenants of large pub-owning businesses and to respond. They are a proportionate and targeted response, and represent a significant step for the sector.

Incorporating the “market rent only” option into the Bill in the limited time available to us, while also ensuring that it will work in practice, has not been easy. But we have made good progress, which has enabled us to bring forward these amendments. We believe they will make for a better Bill and more closely reflect the wishes of the other place. The principle of market rent only is that at certain trigger points a tied tenant should have the right to move to a free-of-tie agreement and pay a market rent for the property. A market rent will generally be higher than a tied rent, because a free-of-tie tenant is free to purchase all drinks and other products and services from wherever he or she wishes, rather than from the pub-owning company. The only exception to this is insurance, where it is common practice in any commercial lease for this to be arranged by the landlord and charged to the tenant.

I was clear at Second Reading that the Government accept the will of the other place that there should be a market rent only option. Our work since has been to ensure that it delivers the protections for those tied tenants without potential unintended consequences. The questions that have arisen and the discussions that have taken place are over exactly how the market rent only option should work in practice. I am pleased to say that we have now reached a position where the Fair Pint campaign and CAMRA are content with our amendments. I also met my honourable friend Greg Mulholland last week and he is supportive of the approach we are proposing. I should like to say we discussed it over a pint, but actually I had a scotch, supporting another of our important industries. I pay tribute to his dedication to this cause, his relentless campaigning for the rights of tied tenants and his willingness to move forward.

I am also pleased to say that, although some differences remain, at a recent meeting that Jo Swinson and I hosted with stakeholders from all sides, pub companies, too, seemed to recognise that much progress had been

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made. Two of the issues most keenly debated in our discussions since Committee have been how to ensure that investment in tied pubs continues, which is important for the industry, and whether the pub franchise agreements should be covered by the code.

We have made good progress here, too. I can announce that Government will be using existing powers in Clause 42 to set out in secondary legislation how tenants and pub companies can agree the waiver of two MRO triggers in exchange for significant investment in a pub. We will also use powers in Clause 71 to exempt genuine franchise agreements from the market rent only clauses of the Bill. I am conscious that noble Lords have tabled amendments relating to these issues. If noble Lords are content, I will turn to the detail of the Government’s proposals in these areas when we debate those amendments.

I now turn to Amendments 33AC to 33AF, which deal with the process of agreeing a rent after the MRO trigger is engaged. Those amendments provide that the Pubs Code must specify a reasonable period in the market rent only process for both stages of that process. The first stage is where a tenant and their pub company try to agree a rent; this was over a 21-day period in the original MRO clause laid in the other place. The second stage involves the settling of a market rent by the independent assessor. The other amendments in this group, Amendments 33AA, 33AB, 33AD and 33AE, clarify that the term “market rent” applies only to a rent set in the second stage by an independent assessor.

The market rent only clause introduced in the other place established the principle that, when MRO is triggered on a brewer’s pub, the brewery should retain their route to market as long as tenants can buy the brewer’s beer from any source. This route-to-market principle was accepted by all sides. Amendment 33AS clarifies the requirements that may be placed on pubs in terms of stocking requirements after MRO has been triggered. The Bill as drafted already allows brewers to place conditions around the stocking of their own brands of beer and of cider in terms of volume and range. The amendment confirms that brewers may also protect their route to market by allowing some restrictions on the sales of competitors’ products. Brewers will not be able to require that their market rent only pubs sell only their products; they will need to satisfy themselves that they are compliant with competition law.

Turning to Amendment 33AV, there was concern in Committee about removing the sale of title and administration triggers for market rent only, which were in the original Commons amendment. Noble Lords were worried that this would leave tenants at risk if their pub was sold or if their pub company went into administration. What has become clear through our various discussions is that it is not a pub sale or administration itself that is of concern; rather, it is the potential for a pub sale—whether as part of an administration or the normal course of business—to result in adverse consequences for the tenant. The sale of a pub to another of the large pub companies is not a problem as the code will still apply. The concern is therefore the potential loss of protection for tenants if their pub is sold to a company that is outside the scope of the Pubs Code—for example, if Fuller’s or Young’s buy a pub from Punch Taverns.

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The Government are addressing this concern through Amendment 33AV, which extends the protections of the code—apart from the market rent only option—to tenants whose pub is sold by a “code company” to a company outside the statutory code. The protection will last until the next rent assessment and will mean that the tenants concerned will be able to refer any code breaches during that period to the adjudicator.

As soon as the purchasing pub company presents the tenant with new terms, the deal it offers will have to be fair and comply with the code. The tenant will have the right to refer these terms, including the rent, to the adjudicator if he thinks that the code has been breached. If a breach is found, the adjudicator has wide powers of redress. The tenant will also have the option to request a parallel rent assessment—a provision we have brought back since Committee, as I will explain—if agreement is not reached.

If the purchasing company does not change the tenant’s terms when the sale is made, the protection of the code remains until there is a new rent assessment or when the lease agreements expire, whichever comes first. In that period, if there is an event outside the tenant’s control that affects his ability to trade, or a significant price increase, this would trigger a rent assessment, which must comply with the code. The tenant could also request a parallel rent assessment in these circumstances. These provisions preserve tenants’ rights to a fair tied rent after sale.

Noble Lords will remember that, in the other place, there was concern about overburdening family brewers through our provisions. We agree and therefore we do not propose to include market rent only in the continuation of protections when a pub is sold. Nor would the adjudicator have investigatory powers relating to those companies. This is because the investigation function is designed to uncover systemic breaches of the code. It would not be right to include in that power companies that are obliged to follow the code only because some of the pubs they own used to belong to a “code company” and which are covered by the code only in respect of those pubs.

3.30 pm

The details of how the code extension will work will be set out in secondary legislation following a consultation. The regulations will be subject to the affirmative procedure. To deter avoidance and ensure fairness, we are also continuing code protections—excluding the market rent only option—until the next rent review for the tied tenants of pubs owned by a code company which, by selling a number of its other pubs, falls below the threshold of 500 tied pubs. These tenants, too, would have continuing rights and expectations regarding their existing lease, as well as the protections they should have under the statutory code, and they should not lose their protections because of events beyond their control.

During our consultations since Committee, a number of further points have been made about the definitions and terminology used in Part 4. I turn now to a number of amendments that we are making as a result of those representations.

Amendments 33D, 33N, 33P, 33S, 33T, 33V, 33Z to 33AB, 33AG to 33AN, 33AQ, 33AAA and 33AAB change the references in the Bill from “market rent

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option” to “market rent only option” to give reassurance that the intention is that a tenant who exercises market rent only should pay a market rent only for the pub and not for other services.

Amendment 33G clarifies the comparator for the “no worse off” principle in Clause 42 but does not change the substance of the clause.

Amendments 33Q, 33R and 33X change the definition of “market rent” to bring it in line with the industry guidance prepared by the RICS.

Amendment 33U provides that all MRO triggers “must”, rather than “may”, be set out in the code. It is right to clarify “must” for the introduction of MRO triggers, as it clarifies for Members of the other place that we will honour the intent of the original MRO clause. This has the effect of constraining the flexibility of these powers but we think that this is an acceptable compromise to give clarity on this important point. We are aware of the potential for unintended consequences for the tenant where a pubco might feel constrained from voluntarily offering a rent reduction as a result of a tenant’s personal circumstances for fear of triggering a right to MRO. We will explore whether there is a need to improve the drafting to avoid such consequences.

I am aware that my noble friend Lord Stoneham has tabled a similar amendment with regard to the parallel rent assessment. With his leave, I will discuss that in more detail when we reach his other amendments.

Finally, I come to the parallel rent assessment itself. Following the introduction of market rent only in the other place, the Government sought to restrict the scope of this assessment so that it applied only to prospective tenants, as they will not have the right to market rent only. This was an attempt on our part to reduce bureaucracy and increase simplicity. However, it is clear from discussions since Committee that tenant stakeholders actually like the parallel rent assessment and feel strongly that it should be retained for existing tenants. There are tenants who have no wish to exercise market rent only but who want to ensure that they have a fair tied deal. They would far prefer to gain this reassurance by requesting a parallel rent assessment, rather than by starting the market rent only process. There are also arguments that the transparency of the PRA may help a tied tenant to decide whether market rent only is for them.

Therefore, Amendment 33J seeks to reinstate the parallel rent assessment. We will consult on how best to streamline this with the market rent only provisions so that, as far as possible, the processes are integrated to help both pub companies and their tenants and to minimise bureaucracy. I know this is something that my noble friend Lord Hodgson is very keen to ensure.

I hope that the House will recognise the Government’s commitment to producing legislation that is effective in addressing problems in this important industry and workable in practice. We have tried hard to find common ground between all the stakeholders and to respect the view of the other place. We are confident that the amendments we have produced do indeed do that. I hope that noble Lords will feel able to support them and I beg to move.

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Lord Hodgson of Astley Abbotts (Con): My Lords, in this group I have tabled Amendment 33L in response to government Amendment 33J, to which my noble friend was kind enough to refer in her opening remarks. It tackles the reintroduction of parallel rent assessments, which were abandoned, or removed from the Bill, at an earlier stage. Before I go any further, I need to remind the House, as I have previously, that I was until January a year ago a non-executive director of one of the companies affected by this Bill. It was one of the integrated pub companies: we operated five breweries and about 2,000 pubs, of which about 500 were managed and about 1,500 were tied in various forms.

That having been said, I regret that this Government, my Government, should have allowed themselves to be carried along on a tide primarily fuelled by emotion and with insufficient attention to the underlying hard economic realities of the pub trade. The trade faces acute pressures as a result of fundamental changes in our society and in our way of life. I fear that the changes we are proposing to endorse today may well increase those acute pressures rather than reduce them. However, I recognise the settled will of the other place and this House about the introduction of a market rent only policy. I also recognise another acute pressure; namely, that faced by my noble friend on the Front Bench in trying to square the circle. I would like to place on record my thanks to her and her long-suffering team of officials for the time and effort that they have taken.

I begin my remarks from a point on which I hope all parties can agree. We want to find a way to keep as many pubs as possible open and the challenge is how to achieve that. The answer must be to agree policies which balance, on the one hand, tenants’ rights and, on the other hand, the need to provide a degree of certainty about the future to the pub owner, the brewer and the pub investor, and to do so while incurring a minimum degree of bureaucracy, paperwork and administrative cost. I recognise the steps that the Government have taken in introducing amendments to the Bill today. In this group, for example, government Amendment 33AV, while far from ideal, at least recognises the need to provide for an aftermarket in pubs. I trust that the Government will resist the blandishments of the noble Lord, Lord Whitty, in a few moments when he speaks to his Amendments 33AW, 33AX and 33AY. I have to warn the Government that there may be unintended consequences even from that change.

CAMRA and others claim that there is a wave of money wanting to pour into the pub trade if and when the tie is removed. As I explained in Committee, that is far from the truth. Even if it were true, this amendment will not reassure individuals or companies wishing to buy pubs from big companies. Big companies own the bulk of the pubs and therefore usually will be the seller. Those individuals seeking to buy will try to avoid taking on a property carrying with it the uncertainties of the Pubs Code and the adjudicator, and the way in which he may operate. When looking to sell a pub, the pubcos may well be left with no option but to look more readily at alternative non-pub uses for their assets.

I am afraid that I am forced to the conclusion that the Bill does not provide the appropriate balance between the parties. I have tabled just three amendments,

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which would redress that balance and give an appropriate degree of certainty to pub owners and their investors. The first of these, Amendment 33L, is in response to the Government’s proposal in Amendment 33J to reintroduce parallel rent assessments.

Parallel rent assessments were introduced voluntarily by the pubcos as a means of reassuring tenants that, by providing an assessment of what a free-of-tie rent would be, they were being fairly treated. It was not the case that the pubcos got any credit for doing this. These PRAs were not popular with the Royal Institution of Chartered Surveyors, first because of the challenge of finding comparable properties—imagine trying to find a comparable property for a small village pub—and secondly, and no less significantly, the challenge of how to value the back-up provided by the pubcos to the tenant, known in the trade by the rather unattractive name of SCORFA, special commercial or financial advantages, which vary a great deal from company to company and pub to pub.

When the open market rent option was introduced, it was right that the PRAs were abandoned. After all, tenants could now apply for a market rent option as of right. However, for reasons that are quite obscure, other than riding the wave of emotion, the Government are reintroducing parallel rent assessments through Amendment 33J. I hope the Government will accept—I think from her comments in her introductory remarks my noble friend does accept—that to have two separate and different valuation methods to procedures cannot be a good way of providing clarity to tenants, certainty to the pub companies or even a level playing field for the adjudicator. Nor should we forget the administrative costs of having two entirely separate procedures. This trade is insufficiently profitable and its profitability is probably still falling. Let us not establish duplicate procedures which will still further reduce that already inadequate return.

Amendment 33L proposes one procedure. If a tenant asks for a parallel rent assessment—I accept that the Government wish to bring that back—the procedure to be followed should be the same as the first step in the market rent only procedure. At the end of the assessment the tenant can decide whether to stay as he or she is or to proceed with the MRO option. What should not happen in the latter case is to go back to square one and start again with an entirely separate procedure which, in due time, the tenant may or may not wish to accept either.

When my noble friend comes to wind up, could she confirm on the record that the rent assessment trigger for MRO relates only to rent assessments carried out in formal rent reviews and renewals of existing agreements? I am sure this is the case, but concern has been expressed in the industry that the MRO assessment trigger is wider than that. If my noble friend wants to cut down duplicative administrative costs for the pub industry, she will accept my amendment, which does nothing more than require that PRA and MRO evaluation procedures follow the same steps.

3.45 pm

Lord Whitty (Lab): My Lords, I too have some amendments in this group. The House may be surprised, but I agree with the first remarks of the noble Lord,

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Lord Hodgson, that we have seen a clear response from the Government to the anxieties on this section. While there was some concern that the Government had come up with a whole new clause to the Bill rather than the one that was passed in the Commons, and a fear that the Government were under some pressure to dilute the effectiveness of the amendment carried in the Commons, the Minister and her officials, in the amendments they are proposing, have seriously recognised that danger and have responded admirably in general to fulfilling the intent of the Commons’ Motion while making it less subject to doubt or indirect unforeseen consequences.

It is quite a complicated amendment in the first place, and the additional amendments which, under pressure, the Government have added today make it more complicated. Nevertheless, it is a basis on which we can all move forward. Certainly most of the campaigning groups in the area recognise that this is a huge step. There are, however, three anxieties which these and my later amendments address in part.

The first is that by leaving quite a lot of this to secondary legislation, it is probably inevitable that the actual right to the MRO will not come into force until about a year later. That is a disappointment. Nevertheless, I understand the reasons for it. I also have some problems about the threshold, which I shall come to in a later group. In this group, my main anxiety and that of other noble Lords and those who have met the Minister is that one of the triggers for the MRO, which was clearly required under the Greg Mulholland proposition and relates to the point of the MRO still being available after sale, is greatly reduced as a result of the government amendments. I agree with some of the amendments tabled in this area by the noble Lord, Lord Stoneham, as I do with some of the others.

I am sorry about the complication here, but my Amendments 33AW, 33AX and 33AY are themselves amendments to the fairly long government Amendment 33AV. They deal with a situation where the pub is sold in the course of a rent agreement to an owner who is not covered by the code. All the protections in the lease seem to move over, but the right to the MRO does not. The Government have addressed this in part by ensuring that the restructuring of companies will not be a way around the provision. In other words, the large pub companies cannot break themselves up so that they fall under the threshold. However, it is still the case that if a non-large brewer or pubco takes on a tied pub, while all the other protections in the code will apply the MRO option will not.

The Government have said that the option will apply for the duration of the lease, but that is not much comfort to those who are nearing the end of their lease. My first two amendments therefore deal with giving a bit more certainty to people who are faced with the sale of their pub, generally speaking over their heads, when they are not at the end of their lease. In other words, they suggest that there should be a 10-year period. I am not absolutely wedded to 10 years, but there should be a period during which whoever is the new owner, this one aspect of the rights of the tenant should be carried over with the lease in the same way as all other rights are carried over. The two amendments assume a period of

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10 years. As I say, if the Government want to come up with a slightly different formulation, I will be happy to consider it.

The final amendment, Amendment 33AY, relates to the drafting of government Amendment 33AV, which seems to drive a coach and horses through the interaction of proposed new subsections (2A) and (2E). They would both restrict the availability of the MRO post sale to a non-qualifying company and dilute the role of the adjudicator in relation to the new circumstances. There may be a more subtle way of doing this, and the Government may say that there already is one, but I cannot see it in their amendment. A tenant who has the lease and by the clear will of the House of Commons now has the right to an MRO ought to continue to have that right under a new owner for a period of time and to have the right to enforce the MRO option by right of access to the adjudicator. Taken together, my three amendments would do that.

The Government may have a better way of doing this, and if they do we would like to hear about it either now or at Third Reading. Indeed, I remind the Minister that the point of sale issue was one of the great many contentions put forward by Greg Mulholland in the Commons and was clearly one of the triggers which the House of Commons voted for. If that is pulled away, the will of the Commons will not be fully represented in that respect. I repeat that I pay tribute to the Minister and her officials for respecting the other aspects of the Commons amendment. I would be interested in what the Minister has to say on this point, but I think that my amendments would actually help the situation.

Lord Stoneham of Droxford (LD): My Lords, I congratulate the Government on making significant moves with these amendments to deal with some of the problems that we identified in Committee. Obviously, one of our major concerns is that a lot is still to be decided by secondary legislation. We have to make sure that as far as possible we are precise at this stage about what that legislation is going to seek to do.

I accept all the points that the noble Lord, Lord Whitty, made about the point of sale issue. I would like to see stronger safeguards, but I also recognise the move that the Government have made, which I give them credit for, in ensuring that even though sale is not a full trigger point, the amendment will enable certain protections to still be in place, particularly that of the code.

I would also like to hear my noble friend spell out the timescale, because I share some of the concerns of the noble Lord, Lord Whitty, that we need some clarity on the timescale, although I suspect that 10 years is probably a little optimistic. I support the government amendments and ask for clarification on the point of sale issue.

Lord Berkeley (Lab): My Lords, I support everything that my noble friend Lord Whitty said, but my main reason for rising is to challenge the noble Lord, Lord Hodgson. He said that there is a wave of money wishing to flood into the market—I hope I have got that right—but that the investors are not planning to do so at the moment.

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Lord Hodgson of Astley Abbotts: I said that CAMRA claims that there is a wave of money. I said that there is not; the briefing that CAMRA sent us claims that there is a wave of money and that if you remove the tie, people will start to put money into pubs.

Lord Berkeley: I am grateful for that clarification. I do not know whether the noble Lord is aware that a dozen or so tenants of Punch and Enterprise Inns have gone public today, listing all the defects that have not been corrected by their owners—including unsafe gas appliances, leaking roofs, unsafe fire exits and so on —with the companies claiming that they have done the work and having put up the rents to some extraordinary degree to cover that when they have not actually done it. It confirms that something is seriously wrong and needs to be put right.

Viscount Ridley (Con): My Lords, I declare an interest in that I own two properties that are operated as pubs but they are not beer-tied pubs. I congratulate my noble friend on guiding us through the complexities of these amendments. I have to say, I found the topic of mitochondrial heteroplasmy two weeks ago much easier to understand.

On the whole, I subscribe to the revolutionary idea that people should be free to come up with any commercial arrangements between consenting adults that they wish to, but I certainly recognise that there is a clear wish in this House and the other place for some version of a pub code and a market rent only option. I welcome the Government’s sensible and measured approach to bringing all sides together in this but, as my noble friend Lord Hodgson said, the key question is whether this will keep pubs open.

The industry is clearly warning us that the Bill, unamended, could cost a lot of money—maybe £20 million a year—and could result in the closure of hundreds of pubs. This is confirmed by an independent study by London Economics. It may be wrong and it may be crying wolf, but if it is not, the Bill will have done precisely the opposite of what we all want: it will have closed pubs and thereby damaged communities. It behoves us to tread carefully.

The Government have listened carefully to all sides of this debate and made, as the Minister said, a proportionate and targeted response. They have made important changes to the MRO which will make it more workable, less open to legal challenge and fairer to all stakeholders, while maintaining its spirit. Without the government amendments, there is a risk that we would see less investment. It is a simple fact that many beer-tied pubs have received significant investments. Without the safeguards, the MRO would create uncertainty that deterred investment. We would thereby also lose a low-cost entry into the sector: tenants without the capital to invest in a free-of-tie pub would not necessarily come forward at the same rate—we have heard something on that already. It is crucial that if tenants want to go to an MRO and find investment outside they can do so, but if they want to defer MRO to the next rent review in exchange for investment they should be able to do that, too.

The one law that we keep passing in this House is the law of unintended consequences. Can my noble

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friend give the House some reassurance that these complicated amendments will minimise the risk of widespread pub closures?

Lord Snape (Lab): My Lords, I join noble Lords on both sides in welcoming the government amendments and particularly the amendment proposed by my noble friend Lord Whitty—I cannot say the same about the amendment proposed by the noble Lord, Lord Hodgson, but that will not surprise him given our discussions during the passage of the Bill.

As I understand my noble friend’s amendment, he seeks to ensure that if a pub is to be sold, a tied tenant can take action to ensure that the tie terms are not used by a future owner to restrict choice of products or unreasonably increase tied product prices. I think that that would be the effect of the Government not accepting the amendment. I would be grateful for the Minister’s comments.

I have some concern about the emasculation of the adjudicator as far as any code protection is concerned and the events which I have just outlined taking place. I wonder why the Government have decided in the way that they have as far as the adjudicator’s powers and duties are concerned.

The noble Lord, Lord Hodgson, as ever, warned us all of the consequences of what we are doing, as did the noble Viscount. I appreciate the view expressed on the law of unintended consequences—it has happened on lots of other occasions, particularly in the pub business. Nowhere did it operate in greater detail than in the case of the Conservative Government’s beer orders back in the 1990s. I thought that they were a good idea at the time, but the law of unintended consequences meant that, instead of brewers owning pubs, pubcos owned them. If we could turn the clock back, I think that we would prefer to rely on the charity of the brewers, although that might in itself be a fairly inexact term, rather than rely on the pubcos.

The noble Lord, Lord Hodgson, told us again that the pubcos would look elsewhere for investment if some of the provisions of the Bill were to go forward. I have to say that the pubcos have been looking for alternative investment for very many years. If one looks at the investment that they have made in their pubs compared to the money that they have taken out from the sale of their properties—I could give the House the figures—one sees that far more has been taken out in the form of sale of buildings by pubcos than has ever been invested. Indeed, I could give the noble Lord a list of deeply unhappy tenants who have been promised and have expected investment in their property from the pubcos which has either turned out to be pretty shoddy or has never materialised. If the noble Lord is going to try to frighten us all during the remaining stages of this Bill, he will have to do a bit better than he has done so far.

I would be interested to hear the Minister’s view about the noble Lord’s Amendment 33L. I hope that she will reject it as the ploy that it is it on behalf of the pubcos to, if not maintain the status quo, undermine the decisions taken by the other place, which, by and large, have been welcomed by both sides of your Lordships’ House.

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4 pm

Lord Mendelsohn: My Lords, I shall speak to Amendment 33Y and cover some other issues. I congratulate the noble Baroness on her helpful approach to this. A great deal of work has been conducted and the Government are to be congratulated on the spirit in which they have worked to try, consistent with their word, to replicate the amendment passed in the Commons. They have done some very good work. The officials, of whom I have seen rather more than I expected, have worked diligently to do that, and I am encouraged and pleased to be able to say that we have made a great deal of progress. I think that the amendment meets the objectives of the Commons, which is to support all participants in the industry while recognising that we have challenges in the history of relations between the pubcos and the tenants which also need to be addressed.

I am not a pessimist regarding the concerns of some noble Lords about the commercial interests that will be affected by this. I have read the London Economics report—I was not convinced by it, but I have read it. I think that the impact of supermarket prices, for example, has been far more significant than other factors, so we have to put this into context. Our opportunity through the amendments and the Bill is not just to make those changes but to create a framework that will work for the industry and the development of the sector. That is an important objective for us to keep in mind.

This large series of amendments covers a lot of ground and a number of issues which lie at the heart of what was agreed in the other place on the issue of the market rent only option. As I said, the noble Baroness and her team have worked diligently in the face of time and other constraints to deal with them. In the particular circumstances of this part of the Bill, it is inevitable that our debate today has been rather more like Committee than Report, and it may be helpful to the Government if I explain that I think that the right thing to happen now is for a very limited range of issues to be given further consideration—a process in which we are happy to participate—and brought back for final decision at Third Reading. The noble Baroness stated in her introduction that she was happy to say that there is a great deal of support for some of the government amendments from CAMRA, Fair Pint, and others. In their briefings, they expressed their support for the amendments tabled by the noble Lord, Lord Stoneham and my noble friend Lord Whitty and others standing in our names. There is a great deal of support for the amendments, which need to come together in some fashion to provide a coherent Bill.

We believe that the Government have made excellent progress on some matters, which we are pleased to support. I will outline those shortly. However, we still have profound reservations and are strongly opposed to some of the amendments before your Lordships’ House today. We are keen to ensure that they are dealt with through further discussion at this stage, and strongly recommend that they be finalised in time for Third Reading—and certainly before they go back to the other House. As I said, we are keen to work constructively with the Government, as we have done to date.

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In that context, I particularly support the point made by the noble Lord, Lord Stoneham, that much of what we are now considering will be in secondary legislation. At this stage and at this time, as we move towards Third Reading, we need a lot more clarity on some things to know what is meant by the amendments, because that is where the direction of secondary legislation will go. It is worth being as expansive as we can in those circumstances.

We are happy to support a number of the government amendments: for example, making the minor but vital drafting changes to “market rent only option” and the “no worse off” principle, although I should be grateful if the Minister can confirm, as a tidying up exercise, that if the Government have missed a change, they will bring it forward at Third Reading. We are happy to support the reinstatement of the parallel rent assessment for existing tenants—which means by implication that we are resolutely opposed to Amendment 33L.

We are very pleased to see one particular drafting change. I note that despite being told constantly of the legal impossibility of changing a “may” to a “must” in discussion on the Bill, we have one in government Amendment 33U. I had previously said that I might not mention that but I cannot resist. We understand that this drafting change is also there to express properly the Government’s commitment to this, which is very welcome.

We are also pleased to support the definition of market rent being brought in line with the guidance by the Royal Institution of Chartered Surveyors, and are content with the changes to the market rent only option procedure. We also hope keenly that the Minister will make a few comments on timings.

We have some questions in relation to the protections of the brewers’ routes to market. In general, we are happy to ensure that there are some protections. Our Amendment 33AR seeks clarification in the Bill that this route to market will allow some restrictions on the sales of competitors’ products, although not a complete ban. As now, brewing companies will have to look at their individual circumstances and ensure that they comply with all aspects of competition law. We will probe this to see what “some restrictions” means and are keen to seek some assurances on a number of points. Will the Government confirm that their provisions mean that tenants can be sure that they are no worse off than a free-of-tie tenant, because they will have access to free-of-tie pricing for all the alcohol that they sell? Will the Government assure the House that the stocking restrictions mean that brewers could require that their beer or cider is sold in their pubs, but not that products made by other specific brewers are purchased? We would also be grateful if the Government can confirm that tenants could purchase the required products from any supplier, and therefore access free-of-tie prices.

We are also keen to have the Government’s clarification as to how this will work. Tenants are not prevented from selling beer and cider from other brewers. The stocking requirement can restrict these sales but cannot provide exclusivity for the brewer. It would be interesting to understand how this will work. Any restrictions

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could be tested by the adjudicator as being reasonable or unreasonable but it would be very useful to get some better understanding of how the Government see this operating, since it covers placement, category, offers and marketing. If the stocking requirement was drawn too tightly, it could be deemed to be a tie in and of itself. We hope that the Government will acknowledge this possibility and confirm that it must comply with competition law.

As an example of what has been considered reasonable or unreasonable in the eyes of industry, and what it considers that it might look like, it has been suggested to us that the starting point would be what products are sold in the pub prior to a market rent only option. A stocking requirement which restricted the choice significantly post-MRO would likely be unreasonable. We would like to have the Government’s observations on this point.

We accept that there has to be a balance and agree with the aim of the amendment: to ensure that the stocking requirement is meaningful. However, we also believe that there should be protections to ensure flexibility for the licensee to be able to vary their businesses to deal with the varied, and usually local, factors that they may need to address to ensure that theirs is a viable business—albeit those may be national trends about prices in supermarkets, other leisure facilities and substitutional activities. We believe that this leaves a lot of flexibility for the adjudicator and while we accept that the amendment allows for tenants to choose which wine, spirits, soft drinks, food and other services can be provided for all aspects of their pub, and who the providers can be, we are keen to ensure that nothing in the Bill allows for the asymmetries of power and information to be enshrined in legislation which in and of itself is designed to support small businesses and deal with those asymmetries. Together with the pub companies and tenants, we are keen to make sure that the balance of judgments is reasonable.

I look forward to the Minister’s reply and hope that she can address the issues in detail. We are of course happy to have further discussions on this between now and Third Reading. In the circumstances that she is unable to provide sufficient clarity of the tramlines on which this should operate, I am happy to address it again at Third Reading.

However, we are strongly opposed to the Government’s decision to weaken and water down the amendment from the Commons by eliminating the market rent only option on the sale of title or in administration. We are grateful to the Government for their discussions on this but are yet to be satisfied that there is any substance to the arguments that they presented to us. I am sure that threats of being taken to the European Court of Human Rights by the pub companies have exercised the Government, who have sensibly sought legal advice, but we strongly believe that either or both the legal advice and the client’s examination of that advice are wrong or flawed.

We have sought to deal with this question before coming to the Floor of the House; indeed, we asked for the advice that the Government had sought from counsel, which is experienced in competition, European and public law, to be published so that this could be

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dealt with. Our consultations with learned counsel and experts in these areas, and indeed in property law litigation including the European dimension, led us to vastly different conclusions. I know that the Minister has had a very distinguished career in business, and there is a crucial element when taking the advice of lawyers: beyond briefing them—indeed, in some cases I have heard of occasions when you can tell them what you want to hear—there is also a role for a client to examine the advice that is given and to challenge it. It is of course a choice for Ministers to decide what level of risk there is, but in this case Ministers seem to have chosen a threshold so low that we cannot fathom why, in our view, they have been as timid as they have.

The Government have said to us that they are restricted in publishing the legal advice that they received because it is privileged. The claim to privilege is quite odd, as all legal privilege can be waived. What are they worried about in relation to any such waiver? Not the advice falling into the public domain and hence fortifying any challenge, as it is already equally in the public domain that they believe there would be a basis for any such challenge. It is our view that this matter can be resolved in discussion, not on the Floor of any Chamber, if they would allow a full and open legal debate.

I hope that noble Lords will forgive me if I quickly outline why we do not accept the Government’s legal arguments on these provisions—if they were retained—fettering rights, causing improper pre-emptions, being challenged on the grounds of affecting value or, in the Government’s view, being uniquely placed for certain destruction under the weight of the ECHR. First, let us not forget that the MRO option is at market rent—by definition—so Clause 43(10) imposes on the parties only a method of determining rent that affects supply and demand for those premises. Infringements of property rights occur when you depart from the free workings of supply and demand, not when you insist on them. Therefore, the more numerous the points at which this can be insisted upon—point of sale rather than just point of entry—the better.

Secondly, without a sale triggering the MRO option, the option could be gamed as there is no benefit during the currency of the existing lease term, and this could become an avoidance tactic to ensure that delays in some cases could lead to tenants being the subject of improper pressures.

Thirdly, the point of sale of the reversion—the landlord’s interest—is a natural point to introduce MRO because the purchaser of the reversion, the new landlord, will be deemed to know the new law and hence that its purchase triggers the MRO option. The new landlord will know the effect of their purchase and be under no illusions as to where they stand.

Fourthly, there are many statutes that infringe property rights, some of them doing much more than simply adjusting the terms of the lease, as this proposes. Some actually confiscate property rights, such as the Leasehold Reform Act 1967, which gives tenants of houses the right to “enfranchise”—that is, buy the freehold off the owner against their will—and the Landlord and Tenant Act 1987, which gives owners of flats a right of first refusal to buy the freehold on any sale by the

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freehold owner. If this proposal raises human rights or other fundamental issues, so would most of the lease-related legislation on the statute book already.

Fifthly, there is enormous scope for safeguards, flexibility and evolution by the MRO option being overseen by the provisions of the Pubs Code, as reviewed every couple of years, and with the adjudicator’s retained rights to resolve disputes about MRO. This machinery has the ability to limit unfairness to landlords in individual cases because of the swifter introduction of the MRO option.

Sixthly, recent legislation has shown the need for, and has included, wider, more catch-all anti-avoidance provisions. The most effective is in the Landlord and Tenant (Covenants) Act 1995, enforcing the release of original tenant liability on assignment of the leasehold term, which, in Section 24, prohibits anything that seeks to avoid or frustrate the Act. The experience is that the wider the anti-avoidance net, the more it will catch. Making MRO triggered by sale strikes down in one go attempts by landlords to sell to get below the threshold applying to large pubcos.

We have been presented with other partial legal arguments, which I think are useful to set out our understanding and complete rebuttal. There is an argument that the pub company is not free to dispose of its property as the MRO trigger binds the new owner. There is no real limitation—it can still sell or choose not to. It is no different from restrictions on the freedom to dispose of freeholds of blocks of flats under the Landlord and Tenant Act 1987 and other such measures. There is also a variety of other restrictions placed by means of legislation in other areas that have a similar effect and have not been struck down or even significantly challenged.

Additionally, there is an argument that the MRO trigger results in preferential treatment for this class of commercial tenant. It does not give preferential treatment; it simply removes discriminatory, anti-competitive treatment. All these clauses and, indeed, much of this Bill are about this. I am rather pleased that this counsel has not pronounced on most of the rest of the Bill, because obviously that would undermine other provisions.

4.15 pm

In addition, there is an argument that it affects the value of the property and would be likely to cause a significant decrease, but that is not necessarily the case. Market rent will usually exceed the rent under a tie and hence offset any loss caused by the removal of the tie—which is, in any event, the object of the legislation. As it is, a variety of decisions are made which have an effect on the value of property, from planning to care home regulations. I believe that this sort of argument has frequently been given short shrift by noble and learned Lords, among many others, over the years.

The final argument is that ECHR challenges would provide certain grounds for defeat. I do not believe that this is the case. There is no greater risk than with much property-related legislation that regulates relations between landlord and tenant. As I outlined before, there are a number of statutes that relate to this. These challenges—not that I have been able to identify many—

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have not been successful. Learned counsel we have consulted does not agree with the case law justifications that have been mooted. I believe that one case in the UK on the grounds for a landlord to have a right to vacant possession has been cited. Two other cases on blight and rental values and pre-emptive rights relating to situations in other countries, which came before the court for judgment 21 and 25 years ago, are in my view and that of counsel not sufficient to strengthen the Government’s argument. Our view is that similar UK law is robust and has never been struck down. It is not generally challenged, and there are reasons for that. Adopting a transfer of title trigger is entirely proportionate and has legal precedent.

The Government need to consider their position on this one and come back to the House with a much clearer and greater explanation of their position. We are happy to allow further legal debate if they are willing to publish the advice, but we say this with a practical consideration, too. The legal arguments we have been presented with have been very widespread, so the cost to us of securing formal opinions from leading counsel across the areas of contention has been pretty vast. In many ways, this seems to replicate much of the Government’s intention in the Bill to equalise the information and resource asymmetry between a small business and big business. While I do not always wish to refer to the Opposition Benches as a small business, in this case, it would certainly be very helpful for us to have the publication of that advice as it would help us clarify and make our contribution much more precise and meaningful when coming back to the Government.

The Government’s position on this needs much greater detailed scrutiny. I do not believe that the Bill as it stands on these issues would be consistent—with any justification—with the intentions of the Commons amendment. We should not allow the Bill back without addressing this flaw. It would be deeply flawed if we sent it back to the Commons in the knowledge that it should be, and would be likely to be, challenged.

Baroness Neville-Rolfe: My Lords, I thank noble Lords for their contribution to this important debate within this Chamber and outside it. I especially thank my noble friend Lord Hodgson for his broader comments about the industry and his warnings about investment in the industry, which of course warms all our hearts, and my noble friend Lord Ridley for similar comments. Clearly, we are seeking to create certainty on the basis of the new system that Parliament will, I hope, pass in a very few days’ time. One would hope that that would lead to more investment in the industry and fewer closures. The planned consultation on the subordinate legislation will give us an important opportunity to look again at these important issues.

Before I answer the various points, I should also thank the noble Lords, Lord Whitty and Lord Stoneham, and all noble Lords for their acknowledgement and empathy and the thanks that they have accorded to my excellent team, who have worked long and hard on all this. I also thank the noble Lords, Lord Berkeley and Lord Snape, in particular for the pivotal role that they played in our discussions in Committee.

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On Amendment 33L, I emphasise to my noble friend that the parallel rent assessment and the market rent only are different tools. PRA is a comparative illustration of the likely tenant profit in a tied and free-of-tie scenario for their pub; it has at its heart a projected profit and loss account for both scenarios. MRO, on the other hand, is about the market rent for the pub: in other words, what it would fetch as a pub on the open market. That starts from a different premise from a PRA. In addition, apart from being technically different, we have decided to reinstate PRA for existing tenants for a specific reason: because some tenants who do not wish to be free of tie would prefer the PRA, as they consider it a less confrontational way to secure a fair tied deal.

None the less, my noble friend will know that I am always keen to minimise bureaucracy, and as I said earlier it is our intention to streamline and integrate the two processes as far as possible, but we need to do the detailed work and process mapping to understand where and how the processes dovetail. This will benefit from further formal consultation, which will inform how we set this out in secondary legislation. I look forward to input from other noble Lords, including my noble friend, on our consultation.

My noble friend Lord Hodgson also felt that PRA was complicated and expensive. Pub companies are generally experts on the costs of running their own pubs under different models and their trading history. Therefore the extra complication and expense will be limited. As I have said, my officials will work with stakeholders on all sides when finalising the code to ensure the optimum streamlining.

My noble friend also asked about the rent assessment trigger for MRO. As I said in my opening remarks, we are aware that we need to ensure that the MRO triggers for rent assessments and renewals do not cover, for example, a predetermined rent increase, or a rent reduction to help a tenant through a difficult time. We will look at whether the drafting of the Bill needs to be improved to avoid such consequences.

Amendments 33AW, 33AX and 33AY from the noble Lord, Lord Whitty, would amend the Government’s own Amendment 33AV, which relates to the extension of code protections. I thank him again for his constructive contributions to our debate. As I said earlier, the Government will provide the continuation of protections when and where it matters. After a sale from a code to a non-code company, when the purchasing company offers new terms those must be prepared in line with the statutory code. This includes the transparency and rent negotiation provisions, and these changes will ensure that we have preserved the tenant’s right to a fair tied rent.

If the terms do not change, the tenant will not be in a worse situation but will have the right to a rent review under the code if local economic circumstances change and impact on their trade or if there is a significant price increase. If the purchasing company breaches the code, the tenant can refer the dispute to the adjudicator, who has ample powers of redress under the Arbitration Act, including the power to set a fair rent. It is appropriate and proportionate to ensure that the code protections apply until the first

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occasion when the tenant negotiates a new deal with the purchasing company, because this is when any disadvantage from the sale first presents itself and can be remedied through negotiation between parties.

In setting the threshold of 500 tied pubs for the code, the Government respected the wishes of the other place not to overburden smaller regional and family brewers. Therefore if we are to require that they are to be subject to the code in certain circumstances, this must be in a targeted and proportionate manner.

The noble Lord, Lord Whitty, would like to provide code protections for a longer, 10-year period. While I can accept that in one sense it is attractive to protect the tenant for a longer and fixed period, we need to have evidence for the period we would choose. Bearing in mind the concern of the other place not to overburden family brewers, the Government consider that it is proportionate to continue with the code protections until the first rent assessment and that after that the tenant is on the same footing as existing tenants of the purchasing company. Independent Family Brewers of Britain has committed to continuing the industry’s self-regulation system for its members, with access to a dispute resolution system.

Finally, I also do not consider that the noble Lord’s Amendment 33AY meets the test of proportionality. It would mean that despite not being subject to the code, a family brewer buying a code pub would be required to provide the market rent only option for that pub. This would potentially deny the family brewer the right to exercise their chosen model and discourage them from buying pubs from code companies for continued use as pubs. In addition, after taking advice from government lawyers and from external counsel—a highly respected competition, public law and European specialist—it is the Government’s view that it would be a disproportionate infringement of the property rights of pub-owning companies for the market rent only protection to continue in the case of a sale. Frankly, I do not agree with the noble Lord, Lord Mendelsohn, having seen the advice, and it is not normal practice to publish such advice because of loss of legal privilege.

The uncertainty created by the possibility of MRO would negatively impact on the property’s sale value. We have therefore sought a more proportionate way of protecting the tenant’s interests, which I have already set out. Achieving a proportionate balance between the interests of tenants and pub-owning companies is important to successfully defend any legal challenge.

The noble Lord, Lord Mendelsohn, referred to the Landlord and Tenant Act 1987, whose purpose was to protect the co-tenants of a block of flats in the event of a sale by the landlord. The Act allows tenants to be collectively offered the purchase of the residential property before the landlord can offer it for sale on the open market. Business tenants, and so pub tenants, are excluded from such protections, as the purpose of Parliament was to protect residential tenants of a multi-occupier property. This is not analogous with the case of pub tenants. Furthermore, we do not think that this protection is appropriate in relation to pub premises, as pub tenants are not constrained from making an offer for the property should the pub company wish to sell it.

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The noble Lord’s amendment would also mean that the investigatory powers of the adjudicator, and its related enforcement powers, would be included in the code extension. These powers have a specific function, which is to investigate systemic breaches of the code. It would not, therefore, be reasonable to apply them to family brewers who are covered by the code only by virtue of pubs they have purchased from code companies.

The noble Lord, Lord Snape, expressed a fear that the adjudicator would be emasculated—I think that was his word—in cases of the code being extended to tenants when their pub is sold. I assure him that the adjudicator is not being emasculated. He will be able to arbitrate on any alleged code breaches, including setting a fair tied rent, if necessary. The only powers that the adjudicator will not have after a pub is sold are the power to investigate a purchasing company and to impose such sanctions afterwards. That seems to me to give the right balance.

I share the noble Lord’s wish to extend protections to give a fair deal for the tenant where his pub is sold to a new company. This we have done in the amendments that we have proposed today, and this includes the ability to turn to the adjudicator for arbitration if they have a problem in doing so. That will be an important guarantee of tenants’ rights. The noble Lord has been very persistent and very constructive, and I hope in the circumstances that he will not press his amendments and that my noble friend Lord Stoneham will also feel content with my explanation.

The noble Lord, Lord Mendelsohn, asked how the stocking requirement would work. Under Clause 43(5), the Secretary of State may set out in the code terms that are required to be in a lease for it to be MRO compliant, including any terms that would be considered unreasonable. For example, if the requirement has the effect of reintroducing a product tie-in, the lease will not be MRO compliant. We will consider this in detail when we come to implement these provisions in the code. Of course, Clause 62(3) gives the adjudicator the power to set out guidance in relation to any matters regarding the Pubs Code, including the application of its provisions as well as steps that pub-owning businesses must take to comply with the code.

4.30 pm

The noble Lord, Lord Whitty, asked about the MRO implementation time. I think he asked about timing, but I will clarify it anyway. I answered the point about the 10 years, but I add for the record that MRO must be included in the Pubs Code, which must be implemented within 12 months of the Bill coming into force. The Bill comes into force two months after Royal Assent, so the code, with MRO, will be in place within 14 months of Royal Assent.

I hope noble Lords will agree that much progress has been made since Committee. I very much hope that I have covered noble Lords’ principal questions on this extremely complex area. We have had constructive engagement from all sides, for which I am grateful. The best way of thanking my team would be to agree these government amendments. Although I am sure there are places where noble Lords would prefer us to go further, and some where they would prefer us to go less far, the resulting package of government amendments

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meets the concerns of the supporters of the original MRO clause, including my honourable friend Greg Mulholland, CAMRA and Fair Pint, whose energy and determination have made this legislative reform possible. We are keen to bring this to a conclusion.

Lord Mendelsohn: Will the Minister confirm that we may return to matters contained in Amendments 33AS, 33AW, 33AX and 33AY at Third Reading?

Baroness Neville-Rolfe: My Lords, I was about to make the point that there are concerns on both sides. If the noble Lord wishes to press these amendments, we should test the opinion of the House.

Amendment 33D agreed.

Amendments 33E and 33F

Moved by Baroness Neville-Rolfe

33E: Schedule 1, page 153, line 7, leave out “place” and insert “places”

33F: Schedule 1, page 153, line 7, at end insert—

“Member of staff of the Pubs Code Adjudicator.”

Amendments 33E and 33F agreed.

Clause 42: The Pubs Code

Amendment 33G

Moved by Baroness Neville-Rolfe

33G: Clause 42, page 38, line 29, leave out “as a result of” and insert “than they would be if they were not subject to”

Amendment 33G agreed.

Amendment 33H

Moved by Lord Stoneham of Droxford

33H: Clause 42, page 39, line 7, leave out “may” and insert “must”

Lord Stoneham of Droxford: My Lords, I do not want to detain the House too long on these amendments and have a long argument on the respective merits of “may” and “must”, as I understand there are certain legislative interpretations of that. However, as I said earlier, we are concerned that a lot remains to be decided in the secondary legislation. Therefore, we want to be as firm as we can about what the primary legislation lays down. If the Minister can confirm that “may” means “must”, I understand that there will be no problem. All I seek is clarity and to leave the draftsmen to draft what is appropriate in the circumstances in legislative speak, hoping that “may” equals “must” in a layman’s understanding.

However, Amendment 33AR is a more substantial and significant amendment as it seeks to align and clarify the definition of “tie”. Clause 68(5) defines “tie”, saying:

“Condition D … is subject to a contractual obligation that some or all of the alcohol to be sold at the premises”,

et cetera. Amendment 33AR seeks to widen that by inserting,

“product or service tie supplied or provided by”,

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as other ties exist in pubs. We want to align this definition with the definition in Clause 43(4)(a)(ii), which states,

“does not contain any product or service tie other than one in respect of insurance in connection with the tied pub”.

We are seeking to clarify the definition of a tied pub. I beg to move.

Lord Mendelsohn: My Lords, I rise briefly in support of the amendments tabled by the noble Lord, Lord Stoneham, who has been an assiduous follower of the Bill. These are important, tidying-up amendments that help correct and clarify some key measures in the Bill. In particular, Amendment 33AR is an essential requirement to make sure that there is consistency in the Bill. I hope that either the amendment will be accepted or the Government will agree to bring it back at Third Reading.

Baroness Neville-Rolfe: My Lords, I am afraid that I cannot agree to this amendment. I explained why we could agree to “must” elsewhere in the Bill but we are unable to agree to this amendment for reasons that I have also explained.

Lord Stoneham of Droxford: In that case, is my noble friend going to talk about Amendment 33AR? I will probably have to accept what she says about the other amendments, but I should like a definitive response on Amendment 33AR.

Baroness Neville-Rolfe: My Lords, I apologise for the confusion. There are a lot of different amendments here and perhaps I may have noble Lords’ patience. Perhaps the noble Lord could clarify to which amendments in which groups he seeks a response, because there are two or three different ones that relate to “must” and “may”. I explained where I was happy to accept “must”. If he is asking me to accept it in other places, there are reasons that I can go through.

My apologies to the House; we have moved on more rapidly than I could possibly have believed. I thank the noble Lord, Lord Stoneham, for his amendments. Perhaps I may now explain that Amendments 33H and 33K would change two references to “may” in Clause 42. This would turn the powers in the Pubs Code to require pub companies to provide parallel rent assessments and turn the adjudicator functions in relation to PRAs into a duty. We have made a commitment to this House to introduce PRA. This commitment, together with the duty on the Secretary of State to produce the Pubs Code in Clause 42(1), means that the Government must deliver on these provisions in the secondary legislation one year after these provisions come into force, as I explained a minute ago. There can be no doubt that we will introduce these provisions.

We had similar debates on a number of topics in Committee. As I set out then, it is standard legislative drafting to refer to provisions that “may” be set out in secondary legislation to preserve some flexibility. If we were to change these “mays” into “musts”, we would need to be aware of the possibility of overly restricting and restraining the use of these powers. For example, we have said that the adjudicator “may”, in the interests

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of fairness and administrative effectiveness, choose not to charge fees to smaller pub companies that have bought only one pub formerly owned by a pub company. These amendments would remove such flexibility and I hope my noble friend will recognise the undesirability of that. I can assure him that the Government will include all the provisions set out in the Bill in the statutory code, which will be made by secondary legislation and subject to parliamentary scrutiny by the affirmative procedure.

With noble Lords’ permission, I shall comment on Amendments 33AJ, 33AL and 33AP. Where the Bill provides that the Secretary of State “may” by regulations give the adjudicator functions in relation to dispute resolution and determining rent for market rent only, it is clear that the Government must set out these functions for the adjudicator in secondary legislation. Clause 42(1) sets out a clear duty on the Government to introduce the statutory code within 12 months of the Bill coming into force—14 months from Royal Assent, as I have said—and to establish an adjudicator to enforce the code. The code must include the market rent only option and the adjudicator must therefore be able to enforce the market rent only option.

I turn now to Amendment 33AR. The definition of a tied pub set out in Clause 68 determines the scope of the regime and deliberately focuses on the alcohol tie, rather than other product and service ties. This is because it is in the abuse of the combination of the alcohol tie and property rent that we have evidence of problems in the relationship between tenants and pub-owning companies. This has been documented in the evidence we received to the Government’s consultation, in the continued correspondence the department receives from tied tenants, and in the multiple reports into the sector carried out by the BIS Select Committee. These reports and the evidence we have received point to problems with the alcohol tie.

The requirements for a market rent only-compliant agreement set out in the Bill specify that an agreement made once the tenant has opted for MRO must not include any alcohol, product or service ties. This is to ensure, when a tenant opts for MRO, that he or she is offered a genuinely free-of-tie agreement. However, it does not follow that all pubs with any kind of tie should be brought into the scope of the code at the outset. Amending the definition of a tied pub in the way proposed is a different prospect, as this changes the scope and application of the measures as whole. For example, this would mean that a pub with no alcohol tie but with a service tie of some description would be covered by the legislation. This would bring into scope a pub that is contracted to a pub-owning company for something like cleaning services, but is in all other respects free of tie and able to purchase beer and other products from any source. This is not the sort of pub where we have evidence of a problem, and I believe we must avoid inadvertently capturing free-of-tie pubs and creating greater uncertainty in the regime. Focusing these measures on those pubs that are tied for their beer and alcohol will ensure that we target that part of the market where we have evidence of a problem.

I hope that my noble friend Lord Stoneham has found my explanation reassuring. I know it is all very complex, but on the basis of my full explanation,

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which I think has explained why the Bill says “may” and “must” on different occasions, I hope that he will feel reassured and able to withdraw his amendment.

Lord Berkeley: My Lords, could the noble Baroness clarify—I, too, feel that it is a bit complicated—that the first five amendments in this group from the noble Lord, Lord Stoneham, which replace “may” with “must”, will in fact be done in secondary legislation? Even if she does not accepting these amendments, will their spirit and meaning be in the secondary legislation?

Baroness Neville-Rolfe: I thank my noble friend Lord Berkeley—

Lord Berkeley: I am not a noble friend.

Baroness Neville-Rolfe: I am sorry; I think he is a friend on this occasion. The noble Lord, Lord Berkeley—I will have to go back to Lords school shortly. As I explained in my long reply, it is standard legislative drafting to refer to provisions that “may” be set out in secondary legislation. In practice, we will do all the things that I have described. Therefore, I feel that these “musts” are not needed.

Lord Stoneham of Droxford: I thank my noble friend for the reassurance that we will do these things. On my last amendment, Amendment 33AR, which I will be happy to withdraw, all I ask, in the final phases of looking through, is that the clauses I mentioned, Clause 68(5) and Clause 43(4)(a)(ii), coincide with each other.

Amendment 33H withdrawn.

Amendment 33J

Moved by Baroness Neville-Rolfe

33J: Clause 42, page 39, line 8, leave out “falling within section 70(1)(b)”

Amendment 33J agreed.

Amendments 33K and 33L not moved.

4.45 pm

Amendment 33M

Moved by Lord Mendelsohn

33M: After Clause 42, insert the following new Clause—

“Investment agreements

(1) The Secretary of State shall establish regulations and guidance for cases where the extension of the rent assessment for pub tenants beyond usual terms is granted in return for a sum of investment from the pub company.

(2) These regulations and guidance shall include, but are not limited to, the following—

(a) the definition and amount of investment;

(b) the maximum deferral period of MRO in return for investment to be five years;

(c) the deferral period for MRO to begin after investment sums are fully expended;

(d) the buyout of agreement provisions whereby a tenant can opt for MRO;

(e) the tenant’s option to allow for alternative and blended finance to maintain MRO;

(f) an investment agreement will be a trigger event for MRO;

(g) an investment agreement will trigger the Parallel Rent Assessment; and

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(h) clarification that an agreement of investment means no opt out of the Landlord and Tenants Act 1954.

(3) Any investment agreement must recognise the different nature and size of pubs and relevant investment requirements.”

Lord Mendelsohn: My Lords, Amendment 33M makes provision that the Secretary of State may, through secondary legislation, create an opt-out for an MRO in return for a sum of investment. The amendment tries to outline important provisions and considerations and to ask the Government to be clear on what that means. It also asks that they implement safeguards to ensure that the MRO is not watered down. Our belief is that if the investment offer is fair, reasonable and attractive to a tenant, there will be little or no risk of the tenant taking up the MRO at that time. The MRO trigger would be there to ensure that pub companies made reasonable investment offers and were not just bullying or cajoling tenants into signing away rights cheaply.

My reasons for tabling the amendment are twofold. First, we do not fully accept the Government’s argument concerning Clauses 42 and 43 on the Pubs Code. We think that the legislation is insufficient and would be very interested to hear the Minister’s view on this. Secondly, this measure has the capacity to undermine the Commons amendment. We do not feel that it is appropriate to accept the measure without a detailed indication of what it entails and without some markers on the face of the Bill.

There are many horror stories in relation to this, as in relation to the operation of how pub companies deal with the provision of a sale. Indeed, I heard this morning from a tenant about how all their rights were bullied out of them and how they were moved dramatically from a position of reasonable success and security, with the pub company using the provision in a dispute over a sale. Many Members of this House will have heard stories from a variety of sources about issues concerning investment. We are concerned to make sure that these are dealt with adequately, and that the problems that led to this part of the Bill and to the issues that arose in the other place are dealt with properly.

We are also very keen to make sure that the industry, in and of itself, has the capacity to continue to develop and invest, finding a way to work with its tenants productively, sensibly and creatively so as to grow, commercialising the sector to full effect. Therefore, we are looking to the Government to provide a clear view on how they will deal with this. We accept that much of this will be dealt with in secondary legislation, as with other things, but because of the nature of some of these provisions, and the speed at which they have been made, we will be very keen to have some idea of what the Government see the regulations and guidance as including and how they will be framed.

We would be very grateful for some clarification on the following: the definition and amount of investment; what the Government consider to be the maximum deferral period of MRO in return for investment, and their view on whether it should be capped at five years; the stage at which the deferral for an MRO will begin— that is, will it be after the sums are agreed or when they are all fully expended?—the buyout of agreement provisions, whereby a tenant can opt for MRO; the tenant’s option to allow for alternative and blended

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finance to maintain MRO and how this will operate with investment agreements; and the ability for an investment agreement to trigger the parallel rent assessment. We would also like to have a strong reassurance about how the investment agreement will be a trigger event for the MRO. We would like clarification that an agreement of investment will mean that there is no opt-out of the Landlord and Tenant Act 1954, and an assurance that the investment agreement will recognise the different nature and size of pubs and relevant investment requirements. There is a considerable difference between a large pub in, say, the centre of London and one in a remote village, and it needs to be recognised that a one-size-fits-all model does not work.

There are other considerations, such as who commissions the work, to what standard, who signs it off and is responsible for overruns, the examination of the current condition of properties and other matters. These are not the only relevant factors. We have also received correspondence on problems between pub companies and tenants, and on how these mechanisms have specifically been used. We believe that it is in everyone’s interests to have a working mechanism that allows for investment and makes that investment work. We feel that more clarity now will ensure that problems can be avoided in the future.

I hope that the noble Baroness the Minister will be happy to consider these matters in full. Given their sensitive nature, we will be happy to return to them at Third Reading following this debate on the substantive points. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I have Amendment 33W in this group. The noble Lord, Lord Mendelsohn, has done us all a favour by tabling Amendment 33M, which has the great virtue of ensuring a reference in the Bill to the importance of investment in the sector. There are aspects of his amendment which would be operationally and definitionally problematic, which I will come to in a minute or two, but there is a germ of a good idea and I hope that we may be able to persevere with this over the next few days. By contrast, I find the Government’s position less satisfactory, in that, as I understand it, there is to be no reference to the importance of investment in the sector anywhere in the Bill. It will all be left to the consultation process, with all the attendant uncertainties which all sides of the House have referred to during the debates this afternoon.

The Government have made a practical argument that the pubcos could achieve certainty by offering tenants a new agreement at the same time as the offer of investment. In the explanatory note that the Government circulated last week, there is a suggestion that the Bill does not prevent pub companies from issuing a tenant with a new lease alongside the offer of investment. Sadly, most tenants will not be attracted by this because of the problems of stamp duty. A lessee on a 15-year lease with a rent, say, of £50,000 will pay stamp duty of around £5,000 at the outset. If they are in year two or year three of the lease, and the pub company has to grant them a new agreement in order to make an investment with a five-year payback, they will have to write off the £5,000 they have already paid, pay another £5,000 in stamp duty for the new

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lease and then pay all the legal costs associated with it, which are estimated at around £1,500. Not surprisingly, this is not a particularly attractive option for the lessee. In essence, the Government’s position now is to force small businesses who want to take advantage of pub company investment to pay additional tax to do so. That is surely contrary to the aim of the Bill, which is to increase access to finance for small companies.

I think all noble Lords agree that investment in pubs is urgently needed if the trade is to prosper, because pubs are having to reinvent themselves to meet new competitive conditions, with a greater emphasis on food, facilities for families and so on. These investments are what bankers called “messy lends”, because they tend to be a mixture of: land works, for example extending the car park; construction—increasing the footprint of the pub; internal fittings, such as enlarged kitchen facilities; and general work such as new signage, new fixtures and fittings, and general decoration. A banker will have some doubt as to the ultimate value of that investment if it is unsuccessful. They are not always therefore very attractive to third-party lenders, but they are attractive to integrated pubcos, because their own estate is an important route to market for their own beer, often accounting for up to 25% or 30% of their production. It needs to be made clear that there is no requirement for a tenant to accept the pub owner’s money. If he or she can find funds elsewhere, on better terms, so be it, although the fact is that an integrated brewer usually is able to offer the best terms.

I referred to the need for pubs to reinvent themselves as a result of changes in society. That brings me to the downside of the amendment of the noble Lord, Lord Mendelsohn, as currently drafted. He referred to the vast range and diversity of investment needs, but I fear that parts of his amendment represent a straitjacket. What is a “rent assessment” in relation to MRO in the introductory section of his amendment? Reinventing yourself as a gastropub in a prosperous London suburb is a vastly different proposition from reinventing yourselves as a value-conscious family-friendly pub in Middlesbrough, but both are important if we are to maintain the pub trade in all its glory and all its diversity.

I argue that the maximum deferral period of five years, as proposed in subsection (2)(b) of Amendment 33M in the name of the noble Lord, Lord Mendelsohn, is not appropriate to appear in the Bill. Secondly, the proposed buyout provisions under subsection (2)(d) are likely to act as a disincentive to investment. Thirdly, for reasons that were clear from my previous amendment, I am anxious to pull MRO and PRA together, whereas the noble Lord has separated them under paragraphs (f) and (g) of his amendment.

My Amendment 33W does not suggest a new clause— as the amendment in the name of the noble Lord, Lord Mendelsohn, would do—but the insertion of two paragraphs in Clause 43, “Pubs Code: market rent option”. My amendment envisages a situation where the Pubs Code would clearly set out what can and cannot be included in such a deferral agreement. Tenants would continue to enjoy all the protections of the Pubs Code and the Pubs Code Adjudicator. No tenant

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could enter into a deferral agreement without having first taken appropriate professional advice to ensure that he or she is aware of the terms of the agreement and has taken advice on its suitability for their business. The tenant must choose to opt into the deferral agreement; that is, he or she has the right to refuse to enter into any such agreement. The adjudicator should oversee the deferral system to allay concerns from tenants around the process of entering a deferral. A deferral would apply only to significant investments to be defined in the Pubs Code and would not therefore be available for incidental investments for maintenance or repairs which are the responsibility of the owning pub company. The deferral agreement could last for a mutually agreed period of time.

The Pubs Code could set a maximum period of time for a deferral agreement if appropriate. Some flexibility may benefit both tenants and pub companies depending on the scale of the investment, as the noble Lord, Lord Mendelsohn, pointed out, and the length and nature of existing lease arrangements. For the avoidance of doubt, during the deferral agreement the tenant will maintain their right to exercise all other MRO triggers, including significant price increases and material change in circumstances as defined in the Pubs Code.

Whatever approach is followed, it is critical that there is some reference to the importance of investment in the sector in the Bill. Without that certainty, the flow of investment, most of which will inevitably come from the big pubcos and are the subject of the restrictions in this Bill, will reduce. Having heard the remarks of the noble Lord, Lord Mendelsohn, as well as my own, I hope very much that my noble friend will be able to accept the spirit of what is intended and agree to table a suitable amendment to address this issue at Third Reading.

Lord Snape: My Lords, following what the noble Lord, Lord Hodgson, has said, I hope that the Minister will do no such thing as regards his amendment. Amendment 33W seeks to legitimise a loophole in the legislation. The pub-owning businesses are seeking to introduce a provision in the Bill permitting them to defer market rent only option in exchange for significant investment. The fact is that there is nothing now and, as I understand it, nothing proposed in the Bill to restrain pub-owning businesses from undertaking such an exercise. A pubco could simply offer an investment in conjunction with the surrender of the existing lease in exchange for a new lease and a deferred period until the next rent review. I hope that the noble Lord, Lord Hodgson, who has tabled this amendment, agrees with that. I do not believe, and I think that most pub tenants do not believe, that there is any necessity to have this opt-out in the Bill.

As ever, the noble Lord talks about investment being urgently needed in some of these buildings. The reality is that this investment is not taking place. There is a queue of licensees and tenants who are anxious to tell noble Lords on both sides that this investment is not taking place. It would not take place if the Minister were to be unwise enough to accept this amendment, no matter how ably spoken to by the noble Lord, Lord Hodgson. As licensees see it at present, only pubs which accept an increase in rent to cover any investment

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by the pubco receive any investment. Much of the investment, such as it is, that takes place in pubs takes place in closed pubs in order to tart them up to sell them on the market. I am afraid that pubcos have a pretty bad reputation in these matters.

5 pm

If one goes into a Wetherspoon house in any high street, one is immediately aware of who is the proprietor. Enterprise Inns and Punch never use their own names on the front of their premises. They are always, in theory at least, run by landlords and are therefore independent businesses. The noble Lord, Lord Hodgson, knows as well as me that the flow of investment out of the pubs business over the years, particularly as far as the two main pubcos, Punch and Enterprise Inns, are concerned, has been all one way. For every pound they have invested in their pubs—most of them not as going concerns—or the buildings that they own, which is perhaps a more accurate description, they have taken £1.30 or so out of the business in sales of properties countrywide. That is the reality of the relationship between pubcos and their tenants at the present time. For those reasons and for reasons of common sense, I hope the Minister will reject the amendment.

Viscount Younger of Leckie (Con): My Lords, I shall speak to Amendments 33M and 33W.

In Committee I supported my noble friend Lord Hodgson in proposing an exemption from an MRO for a tenant in return for an investment by a pub-owning company. It is necessary for the companies to have reassurances that investments—some of which are significant—made in their pubs are realised in both financial and non-financial returns. The latter would include good will and more intangible aspects such as reputation, quality of service and better atmosphere, which all serve to draw new customers in over a longer period of time. My noble friend the Minister was not minded to accept an exemption but I am pleased that she has been willing to engage with all after Committee and the word “deferral” seems to have replaced “exemption”.

Like my noble friend Lord Hodgson, I have some sympathy with many of the inserts proposed by the noble Lords, Lord Mendelsohn and Lord Stevenson, in their Amendment 33M, which, essentially, seeks to place considerable detail in primary legislation in the Bill by seeking clarification of the regulations, the Pubs Code and guidance. However, the noble Lords would place too much information in the Bill and the detail is more suited to secondary legislation and proper debate at this stage.

For example, subsection (2)(f) of the proposed new clause states that regulations and guidance shall include an investment agreement as a trigger for MRO. This is too vague and there is no substance in the timescales attached. Equally, in Amendment 33M subsection (3) of the proposed new clause states:

“Any investment agreement must recognise the different nature and size of pubs and relevant investment requirements”.

This is an aspiration but it is too short on detail. Finally on Amendment 33M, in subsection (2)(b) of the proposed new clause, the noble Lord, Lord Mendelsohn, cites

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that the maximum deferral period of an MRO in return for an investment should be five years. My noble friend Lord Hodgson alluded to this. That is too prescriptive and further work is required to determine the length of deferral time in relation to the amounts invested.

However, the overall tenor of Amendments 33M and 33W, tabled by my noble friend Lord Hodgson, I hope will go some way to persuade and encourage the Minister to commit to giving more thought to the details in a review—or is it called a consultation?—and to debate it thoroughly as secondary legislation.

There remain important unanswered questions, including what constitutes a major or minor investment, over what periods these investments might be considered to be reasonable to allow a decent rate of return and how one might describe “decent” and how it should be defined. Perhaps my noble friend can give the House further reassurances here on Report as to the process of how the details will be debated and presented.

Baroness Wheatcroft (Con): My Lords, it is clear that pub companies need to be encouraged to invest in their estate: it is an obvious thing to do. The pubcos claim that they invested £200 million in their properties over the past two years and so, although there are complaints from tenants, there must be some happy ones out there.

Lord Snape: I apologise for interrupting the noble Baroness so soon in her speech. If there are some happy ones out there, could she list them for the benefit of the House?

Baroness Wheatcroft: I am afraid that I do not have the details of the happy ones because they are obviously getting on with running their businesses rather than contacting me, and I hope that they are doing very well.

Lord Hodgson of Astley Abbotts: My noble friend might like to know that I produced three or four examples for the noble Lord in Committee. He just regards them as anecdotal evidence, but the fact is that there are anecdotes on both sides of this argument. There are just as many happy ones—or perhaps more—as unhappy ones.

Baroness Wheatcroft: I thank my noble friend Lord Hodgson and I support him in his amendment because it finds the balance between being overly prescriptive and legislating to give some comfort to pub owners, thus persuading them that it is safe for them to invest. I cannot support the noble Lord, Lord Mendelsohn, in his amendment. It seems to be far too prescriptive for the Bill, as others have said, and somewhat contradictory. The Bill already states that a trigger event for an MRO will be something that was unforeseen. An investment agreement, by its very nature, will have to be something that is negotiated.

Surely there are pub owners and pub landlords who are capable of negotiating an investment agreement that suits both sides. I do not subscribe to the view that all pub owners are out to do the dirty on their tenants or that all tenants are weaklings. Indeed, the Pub Landlord, that character who is so well known to

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television viewers, is standing up to Nigel Farage in South Thanet, although it has to be said that that particular pub landlord has not been seen there very often.

We need to offer landlords some protection so that, if owners invest in their pubs, they will not immediately be forced into an MRO. The trigger, as cited in the amendment tabled by the noble Lord, Lord Mendelsohn, would have that option. What sensible landlord is going to put money into his pub if the recipient could instantly trigger an MRO? There needs to be some scope for negotiation. My noble friend the Minister has shown that she is open to negotiation and consultation, and the amendment tabled by my noble friend Lord Hodgson would be the best way forward. However, perhaps the Minister could reassure us that she sees the need for investment to be encouraged and that she will find a way of giving pub owners and landlords the protection they need in order to invest in their estate.

Baroness Neville-Rolfe: My Lords, I am grateful to the noble Lord, Lord Mendelsohn, and my noble friend Lord Hodgson for their amendments and for providing us with an opportunity to debate further the very important question of continued investment by pub-owning companies in tied pubs. That is especially the case because, as my noble friend Lord Hodgson has just said, pubs are having to reinvent themselves in the 21st century. As we have heard, these two amendments approach the issue in rather different ways, and I understand the motivations behind both. I can reassure the noble Lord and my noble friend that the Government absolutely want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. We want to see pubs thriving and the new arrangements to work.

I think we all accept that the possibility of pubs exercising the market rent only option will create some uncertainty for pub companies, and it is possible that there might be more uncertainty than they can live with if they are thinking of making a substantial investment in a pub. It is equally clear that there is some nervousness around asking tenants to defer some of their MRO rights in return for investment and that serious consideration needs to be given to how this would work in practice and the safeguards that need to be in place. As I said earlier in our debate, we have been considering how best to address this and strike the right balance. I can reassure my noble friend Lord Hodgson that the Bill as drafted does not prevent pub companies issuing the tenant with a new lease alongside an offer of investment, and no amendment to the Bill is necessary to enable companies to do so.

As my noble friend pointed out, a new agreement may attract costs for tenants, including legal costs and stamp duty.

The situation means that the MRO triggers on rent review or renewal would not be available to the tenant for a period of five years, as that is the maximum interval that the code will currently allow between rent assessments. It would, however, provide the pub company with some certainty. We recognise that there will be occasions where a larger investment—

Lord Hodgson of Astley Abbotts: I am not quite clear whether my noble friend said that there was or was not a problem with stamp duty. My understanding

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is that there are repeat stamp duty obligations; in other words, you write off the stamp duty of the lease that is running and have to start again every time you have a new agreement, and for five years that is another £5,000, plus whatever you have written off before, plus the legal costs. I am not clear whether she said that was a problem. If this is too difficult and technical, I am happy for her to write to me.

Baroness Neville-Rolfe: My noble friend is right: a new agreement would appear to attract costs for tenants, which would include legal costs and stamp duty.