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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1369-i
House of COMMONS
TAKEN BEFORE the
Business, Innovation and Skills Committee
Thursday 30 June 2011
Neil Robertson and Phil Dixon
David Rusholme and Garry Mallen
Evidence heard in Public Questions 1 - 116
USE OF THE TRANSCRIPT
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Taken before the Business, Innovation and Skills Committee
on Thursday 30 June 2011
Mr Adrian Bailey (Chair)
Mr Brian Binley
Examination of Witnesses
Witnesses: Neil Robertson, Chief Executive, British Institute of Innkeeping, and Phil Dixon, member of BII, board member of the Licensees’ Charity and Independent Pub Adviser, gave evidence.
Q1 Chair: Good morning, and thank you for agreeing to come before the Committee. We will crack on quickly, but just before I open with questions, could you just introduce yourselves with your title for voice transcription purposes?
Neil Robertson: I am Neil Robertson, Chief Executive of the British Institute of Innkeeping.
Phil Dixon: I am Phil Dixon, and I think I am here as an independent consultant.
Q2 Chair: Thank you very much. First question to Neil: how do you think the BII is shaping up as the industry policing body?
Neil Robertson: I think what BII is doing is administering a self-regulation scheme. It is a development of previous schemes, it is an improvement on previous schemes, and I think it is delivering what we said it would deliver to your predecessor Committee. We have learned in the process, of course, and we will continue to learn and will apply that learning. But in comparison to other regulatory regimes that I have been associated with, I think the standard of investigation, the rigour of questioning, has been good.
Q3 Chair: The predecessor Committee to this one made a number of demands. How quickly do you think you have responded to them?
Neil Robertson: Probably you can never be quick enough. We have put a lot of time and energy into developing the codes. The fundamental changes that were required of the operating companies by the codes meant that there was always going to be an implementation period. That was the priority, so we focused particularly on setting up a more regular system of accreditation and review, and working with the companies on the implementation questions. There were some other areas of recommendations that the Committee made that we came to later in the process, notably mediation.
Q4 Chair: Phil, do you have a view on this? As an independent adviser, you may not have quite the same perspective.
Phil Dixon: I have a very similar perspective, but I gave your predecessor an undertaking that we, the BII, could make our industry a fairer place and a better place, and we certainly began that. It is certainly a fairer place than it was two years ago. As to whether it is a better place, I think most licensees would say that they are no better off, because of the recession, but the procedures we have put in place are having a very positive effect, I am pleased to say.
Q5 Chair: On the basis of the evidence I have, they would say that they are no better off. I am not sure they would attribute it just to the recession, but we will come to that as an issue later. Getting back to you, Neil, do you think you have enough staffing and finances to carry out the roles that you have?
Neil Robertson: One would always like more staff and finances. The answer is that it is economically resourced, I think would be the right word. It has been a very fulltime job for the administrator, for Phil, who does most of the investigations, and the others, and it has relied on a lot of goodwill. We are certainly not overresourced for it.
Q6 Chair: Could you have moved quicker if you had had more resources?
Neil Robertson: Not necessarily. I think we could process individual complaints faster if we had more resources. It does take several weeks to respond to complaints, and that can be an immense frustration for complainers. We would not want the system to be discredited by timescales. There is no evidence of that at the moment, but it is an area that we would like to improve.
Q7 Chair: The predecessor Committee recommended that your website should list details of pub agreements, pricing and discounts. Your submission does not mention this at all. Have you done as they have recommended?
Neil Robertson: No. We looked at it, and we found that in practice that would be very difficult. We believe that the way to a fairer market for pub leasing and tenants, is for there to be greater competition between the pub operating companies, and a greater variety and innovation of agreements. We have encouraged this. That has to a certain extent happened, and the net effect of that is that there is not an infinite number but a very large number of variables. It would not be practically possible for us to list all of them. It is difficult from a practical point of view.
Phil Dixon: Can I just add, Chairman, for example, one company alone, because of their acquisitions, at one stage about three years ago had 48 different agreements in their estate. 82% of their licensees received discounts, but they received a variety of discounts based upon those 48 agreements. It would be an impossible task. If you go on that company’s website, there are the current agreements that are on offer. The BII website takes you to a link to those websites.
Q8 Mr Binley: Two things, really. The first is that your saying no to a recommendation seems to me to say that they are not very important. Is that so?
Neil Robertson: No, quite the opposite, and we certainly would not want to give that impression. We think discounts are extremely important, and my colleague here made a very strong argument for them just two days ago at a conference. The most important thing is in fact that tenants get good advice prior to and in the course of making the big business decisions that they are making. We are utterly passionate about that question and we will do everything we can. If it was practically possible for us to have done it, we would have done it.
Q9 Mr Binley: But wouldn’t it be practically possible for the pubcos to do it, banding the various levels of discount in relationship to rent? Couldn’t you ask them to provide that-it would be very easy for them to do so-to give you the information that you need to do your job? Just a minute, Phil; I will come to you. Bearing in mind the serious nature of what we are saying, and what the Government said in support, which was repeated under the new Government, I am concerned that a recommendation from this body has not been taken much more seriously. I am disappointed. But back to the bit about pubcos. Couldn’t you have got them to do it?
Neil Robertson: It is a fair challenge, and thank you for it. I wouldn’t want you to think that we didn’t take it seriously. I would reiterate the very significant practical questions. I hear your strength of feeling on it, and I think we can take another look at it. There might be ways of doing it in a broader way. We will ask that question, and the answer we will get is that there is an almost infinitely variable range according to the type of agreement. That is what we will get.
Mr Binley: You can band it. It is not beyond the wit of man, quite frankly.
Q10 Chair: What concerns me is that our predecessor Committee made a recommendation; you have ignored it and, in the evidence that you have submitted, you have not even made any reference to it or tried to give an explanation of it, let alone looked, even if you could not accept the recommendation in its purest form, to come up with something that would at least try to address the spirit of the previous recommendation.
Neil Robertson: Detecting the strength of feeling on this, I certainly regret that your Committee feels that we have not taken that seriously, and we will come back to it. I would wish to reassure the Committee that your predecessor Committee’s report has dominated our lives for the last period. We have put a lot of time and energy into this, and we have prioritised where we thought we could best make a contribution to that. But I take your point.
Chair: It would seem, if this is so, that there is something lacking in the communication of that to organisations such as ours, and that might be an issue you wish to address.
Q11 Nadhim Zahawi: Mr Robertson, can you just explain to me the challenge? Is it that the infinite number of variables is very difficult for your very small but very perfectly formed organisation to be able to deal with? Is that right?
Neil Robertson: It is not so much that. The principle here is that the prospective tenant gets clear and sensible advice about what business options are available to them. That is the problem we are all trying to solve. Words like, "When you are approaching a prospective pub company, you should ask about discounts because those are available," are what is in the preentry awareness training course, which is the thing we think has made the biggest single difference. Those words are in there. If we were to then put something on the website, it would be repeating those words. We would be saying that actually suchandsuch a company offers a range of discounts according to the different agreements. I think it would be very hard to find something that was useful to the group we are talking about.
Q12 Nadhim Zahawi: And you could not put all of those agreements because, as Mr Dixon said, one company would have 48 different discounts or variations of discounts. Is that right?
Neil Robertson: Yes. In practice it would be a cumbersome document.
Q13 Nadhim Zahawi: But the great thing about the internet, as you know, is the ability for it to take very complicated data and allow the wisdom of crowds to do that work rather than you. Your own customers, your own clients, would be able to feed into that and to filter it in such a way that makes it manageable. That is one of the strengths of technology.
Neil Robertson: Yes. I think there is scope for us to do more there. I still remain concerned about the practical value we would be able to get from the process.
Chair: Brian is hopping up and down again.
Q14 Mr Binley: The business model of the pubcos, and the business model of every pub, is dependent not only upon the level of rent but on the level of discount and the relationship between the two. That is why information on this particular matter is vital to the trade, to people who are making a decision when they come into pubs. Our point was that there is not enough real information available to people when they take that initial decision to sink some of their money, in fact quite a lot of their money in most cases, into a new business. That is the reason we wanted this to happen, and if I may say so, I did work as an area manager for some time in this particular trade. I know the variations, but I worked in the days when we had a patrician but beneficial situation where the breweries owned the pubs, and you could get that information, even though you did not have the internet ability or the computing ability you have now. I think you need to take this as a very serious point indeed. I think you need to come back to us before the end of this inquiry, and tell us what you will do about our recommendation.
Phil Dixon: May I just say that I too remember those days with some affection.
Mr Binley: I know you do.
Phil Dixon: I also remember why breweries don’t own pubs, and why Enterprise Inns exists.
Q15 Mr Binley: Because the Monopolies Commission told them not to.
Phil Dixon: Yes, I know. However, I share Mr Binley’s concerns, obviously. I made a speech calling for more discounts only two days ago. To be fair, every code of practice states quite clearly: first, that you will be informed of what discounts you will receive; and secondly, there will be a shadow profit and loss, which will clearly show the price you are paying for your products. That has to be done so that the ingoing licensee will know exactly what their profitability is on that particular agreement. Certain codes, to be fair, say exactly what the discounts will be if they go for a different rent. There is that transparency out there, Mr Binley. I just think that it is impossible for us to take an everchanging dynamic, which is the discounts, and put that daily on a website.
Q16 Mr Binley: Well, let us see. You have not looked into it. You have not talked to the pubcos about how they might be able to help you. But one point I would make to you is that in my surgery I get people who have leased pubs who are told exactly what their profitability ought to be, but that is from the perception of the pubco, and very often it is about their business that they are creating-that business plan for new entrants. It is about what they want from it. It is not about what an average tenant might expect in a number of cases, and I have found that myself. There is something going on here that is unacceptable to many people’s minds. We want to make it more acceptable. The pubcos would do well to listen to this particular section of this particular inquiry. They need to look and find how much more they can help you to produce this. I believe it is within their remit, and I do not believe they are doing it as effectively as it needs to be done.
Neil Robertson: Chairman, I passionately agree with the principle that is being argued by Mr Binley, and I assure the Committee that we will take Mr Binley’s recommendation and come back to you with some suggestions.
Mr Binley: Thank you very much.
Q17 Chair: I welcome that. Earlier you said that you thought that the preentry awareness training was one of the most successful things that you were doing. How many lessees have already signed their agreements before they undertake their preentry awareness training?
Neil Robertson: PostOctober of last year, which was the first date of full implementation, no substantive agreement should be given where the tenants or lessees have not done PEAT, unless they are provably experienced in the industry. We estimated that that would be 85% of new agreements, and I know the recent survey came up with a figure just slightly below that. 2,500 people have done PEAT since last October.
Q18 Chair: Let’s just get this right. Roughly 85% will not have signed the agreement when they have done their training.
Neil Robertson: Sorry, no. We broadly estimated that 85% of new tenants or lessees would need the training, i.e. 85% would be new to the industry or insufficiently experienced. Therefore we expected that 85% of new tenants would be doing PEAT. The recent survey is that it was just slightly less than that, but the vast majority of new tenants since October are doing the PEAT course. The fact that 2,500 people have done it is good.
Q19 Chair: Sorry, but you have not answered the question that I posed. How many of them will have signed their contracts before they did their training?
Neil Robertson: None.
Phil Dixon: Every code of practice is quite clear. If they are new to the industry, they cannot be given a lease or tenancy agreement until they have done PEAT. They should not be getting an interview for the pub until they have done PEAT. I was really pleased, because I participated in the process, that there is a director of a company behind me who says that the quality of the questions he is now getting at interview following PEAT is far better. He says that they now have an understanding of the difference between the full repair and the partial repair, an understanding of what it means to be protected by the Landlord and Tenant Act and not protected. I am quite pleased. Any company that let a tenant sign an agreement without doing PEAT who was new to the industry would be in breach of their code.
Q20 Chair: Can we just come to that? On the surface of it, that would be reassuring, but you said 85% of tenants take the PEAT. If they cannot sign their contract until they have done that, what happens to the other 15%?
Neil Robertson: We estimate that 85% of new entrants will need to take PEAT. It is a known principle within qualifications that people who have prior experience in whatever discipline won’t need to do it. We estimated that 15% of new agreements would be given to people who had sufficient prior experience. It is for the pub companies to show that they have established that there was sufficient prior experience to our satisfaction. In every code of practice complaint, the first question we will ask is "Did you do PEAT?"
Q21 Chair: Right. How do they satisfy you that they are compliant?
Neil Robertson: They need to satisfy themselves. This is a selfregulation process. They need to satisfy themselves, and then we will look at that evidence when we need to, through a complaint. If we see percentages, we can estimate the percentages of new agreements, we can see the numbers of PEAT courses being taken. We keep that under review. We get a very clear sense of whether it is being applied properly.
Q22 Dan Jarvis: I would like to ask about code accreditation, and how the pub companies have reacted to the new framework code of practice. Did they fully embrace it?
Neil Robertson: Yes, I think they did. They have had to significantly change their systems to respond to it. We have had good co-operation with them throughout the process. The accreditation meetings were extremely challenging, I have to say, for the pub companies, and had a rigour that you would be comfortable with. The panels consisted of a range of disciplines, including surveyors, so the technical aspects would be picked up as well as procedural aspects. I think they have embraced them.
Q23 Dan Jarvis: In the process that you have just spoken about, what were the main areas of disagreement that you had to resolve?
Neil Robertson: The amount of detail in the shadow profit and loss account. Mr Binley, I can tell from his earlier comments, would agree that information, theoretical as it is, about the shadow profit and loss for that particular pub is extremely important. We have pushed companies hard on that. Some needed more pushing than others, but we have pushed hard on that, because that is an area where information is extremely important for the prospective tenant and their adviser to make a judgment about the viability of that particular pub.
Phil Dixon: Mr Binley will be pleased to know that we have basically returned the industry to the transparency that existed before computers, when handwritten, detailed rent calculations were given to tenants. I am passionate about the issue that a tenant needs to be given sufficient detail that, when they take advice, advice can be given. Also, one of the great problems in our pubs is the lack of financial management on the part of the retailer. By setting out in detail what the profitability should be, it enables them to take a view and say, "I am not getting that. Why is that?" It also, to be fair, exposes mistakes on the part of the landlord, by making them submit to detail, but it has not caused any issues. There was a bit of reluctance, but we got there in the end on that one.
Q24 Dan Jarvis: Thank you. Finally from me, can I ask, why are some codes still to be accredited?
Neil Robertson: You would probably need to ask colleagues in the pub companies that question. My gentle observation would be that this is a significant departure in practice for some of the companies. Some of the small companies have found it particularly difficult to respond to it. There are one or two smaller ones that have still not got there. None of the major ones are in that category though.
Phil Dixon: To be fair to some of the companies, Mr Jarvis, it is alright if you are a big company; you just give it to your marketing department and say, "Go ahead and write one." We had to go, Mr Chairman, with the BPPA, into somewhere called the Black Country to find Holden’s Brewery, to speak to Mrs Holden, who was the person who would have to write it, to give her assistance. There was reluctance from a brewery in Lewes. You do not tell people in Lewes what to do. De Montfort defeated the King. Where did Thomas Paine reside before he went to the Americas? You had to go and ask them if they would please participate in the process. It has been challenging for the small companies, but we have given them every assistance. There is only one outstanding now that has not come in. Okay, there is one, but that is not a bad record.
Chair: Shall we say that they do have a streak of independence in the Black Country, but the beer is excellent?
Q25 Mr Binley: You will have had feedback on the basis of the relative accuracy of the business performance plan for new tenants, ingoing. What is your understanding of that? How accurate, from the information you gather, have they been, recognising that there ought to be some relationship between the businessman and the quality of the tenant going in, because they are selected? So the pubcos have some responsibility in that respect, don’t they? How many people have come back to you and said, "This was not good at all; it was wildly out," or whatever? What is your information there?
Neil Robertson: We have certainly had a few people saying they found it hard to achieve their fair maintainable trade. There is an element of this question that you probably need to ask the group later, because the basis of renting pubs is primarily on fair maintainable trade; the trade that would be achieved by a competent operator. There is a fundamental tension in the fact that it normally takes people new in the industry a while to be competent, doesn’t it? So I think there is a question mark in the model there, which is how quickly you can expect to be competent. I think it is fair also to say that there has been a degree of optimism in some of those shadow profit and losses. You may agree with that.
Mr Binley: That was nicely put.
Neil Robertson: But I think that the critical question there, and the point we emphasise almost ad nauseam, is: take professional advice. I know you feel there are some areas we have not done, but we have gone further in an area that was not recommended, which was to set up a panel of independent advisers that we quality-assure to ensure that tenants can be confident of getting the right professional advice in that respect, because I am quite new to the industry and have looked at those shadow profit and losses and think they look okay to me-cannot fault them-but in practice, in that particular pub at this particular time, that is not going to be viable. You need an experienced expert to be able to say that.
Phil Dixon: Part of the problem, Chair, is emotion. I tell the pubcos all the time that FMT stands for "fantastic mythical target"; it is not a fair maintainable. But the person applying for the pub has an emotion-75%. In between Mr Jarvis’s and Mr Blomfield’s constituencies, where I was brought up, I have affection for about three or four pubs. They are part of my youth. When people apply for pubs, you cannot tell them they won’t do what they think they will do, because they are convinced that they are going to do more. The good caveats in most codes of practice are coolingoff periods. Typically, in the major two pubcos, it is six months. If you read the Punch one, if something goes wrong in the first six months and you don’t like it and you aren’t hitting the thing, you can ask to be released and you are released within 28 days. So there are some safety valves in those codes of practice that I think are welcome.
Q26 Nadhim Zahawi: How many companies outside of the BBPA have had their codes accredited?
Phil Dixon: One: Greene King.
Q27 Nadhim Zahawi: That is the only one? Do you expect any more to apply?
Neil Robertson: We have had a relationship in the past with Trust Inns; there have been some personnel changes there and we would hope to bring Trust Inns back into the process.
Phil Dixon: I don’t think there is any chance of anything from the Wellington Pub Company, whose property managers are instructed not to speak to the BII and who ironically-it does not suit the argument for some people-is a complete freeoftie estate.
Q28 Nadhim Zahawi: Thank you for that. Were there any noticeable differences between the accreditation process of the BBPA members and the nonBBPA members?
Neil Robertson: No. The one nonBBPA member code is a very good code, so it would benchmark favourably against the spread of BBPA members, but no.
Q29 Nadhim Zahawi: There is nothing significant there?
Neil Robertson: No.
Q30 Nadhim Zahawi: Did the major companies go past the de minimis benchmark, as recommended by our predecessor Committee?
Neil Robertson: A debate could be had about that, but my simple answer would be yes. But I think there is scope for them to go further and there are areas that we will want to be suggesting to them to go further on in the light of our experience so far.
Q31 Nadhim Zahawi: That sounds like a very hedged response.
Neil Robertson: Well there are a lot of pubs, a lot of companies and lots of codes.
Q32 Nadhim Zahawi: I am talking about the major companies.
Neil Robertson: Yes. You could not point to one code and say, "That is great. That one is not very good." Some go further in some areas; some go further in the others. One code is 120 pages; another one is 60 pages. So there is more detail in that one and more evidence, I think, of being crystal clear about what the relationship is. We welcome that, but equally the important thing is perhaps not so much in the number of pages but in the steps taken.
Phil Dixon: They didn’t go through the motions. They got quite competitive with each other; they tried to outdo each other. So we have got to be very careful. If I single out Shepherd Neame in a speech because of their code then I offend half the industry by not mentioning theirs.
Neil Robertson: You just have.
Phil Dixon: I know. I will pay for that later.
Q33 Mr Binley: Just a very general question first of all. How well are the pub companies complying with the new codes?
Neil Robertson: I think the tangible evidence is well. We have had five breaches of the codes since September. Let me just give you the most up-to-date number of complaints. As of yesterday, we have had 28 significant complaints leading to five minor noncompliances.
Q34 Mr Binley: How balanced were those complaints? Were they across the industry? Was the average per pubco reasonably the same or was there one that stood out?
Neil Robertson: There is a spread. The website would show that, of the minor breaches so far, one is attributed to Enterprise, three to Punch and one to Scottish & Newcastle. The range of complaints does cover the full spread of the industry-smaller companies as well as big-so no one company stands out in relation to the code complaints. I think if you ask that question of some of the other services that are offered, it would be a slightly different answer.
Q35 Mr Binley: What would the answer be for other services?
Neil Robertson: It depends which service you were looking at. On the rent review service, one particular company has got a slightly different policy to the PIRRS process, and that is Enterprise, so they feature more heavily in the PIRRS process.
Q36 Chair: Before you go on, Brian, could I just pick up one thing? You gave what might be interpreted as a slightly coded response to Brian’s earlier question. You said in terms of "tangible" complaints-those were your words. Have you any evidence of intangible complaints?
Neil Robertson: All complaints are highly tangible and there is a human being, often distressed, at the other end of them. I think there are inevitably some grey areas in all of this, which is a huge frustration to the many people that respond to those.
Q37 Chair: Not all complaints are highly tangible. There may be an undercurrent of dissatisfaction about something that individuals do not wish to formalise.
Neil Robertson: Yes. If I was to pick out one-and this would be very much an observation rather than a finding, so I would want you to be clear on that-I think an overly muscular approach to the business relationship would be a common undercurrent in relation to complaints.
Q38 Chair: How would you interpret "overly muscular"?
Neil Robertson: It could be a number of things. I would say first of all that the number of complaints, at 28 serious complaints, is a remarkably small number given the number of pubs we are talking about. I worried that we would have more than that. But the examples of it would be what might be considered premature use of debt collection and perhaps overly rigorous tie compliance monitoring. Those kinds of areas are areas that we have learned from the process and will be making recommendations on to the steering committee for BIIBAS under the review.
Chair: Thank you; that is very interesting.
Q39 Mr Binley: Following on from Adrian’s point, you have had 28 complaints received. Is there any fear amongst tenants not to come to you? Are they fearful of middle management being overrobust-because you mentioned that phrase-and therefore they don’t come to you? They might not be legally trained and so they might not have a specific complaint about the code, but all of the time the pressure is applied, is applied, is applied. Is there fear in the trade in that respect that is relevant?
Neil Robertson: I think that is a good question, and it is one we have worried about. My answer would be simply that we have not seen levels of fear-which must be there, mustn’t they?-getting in the way of the process significantly. Two things have helped with that. One is that where we get those fairly general complaints-unspecific, quite emotional-we work very hard. We put a lot of time into these-more time than I expected we would-to try to form that into a complaint. We are not making the complaint but we are trying to interpret it.
The second is-and I must record at this point-the support we have had from the groups who are, you would say, more critical of the business model, who have worked very hard with some of the more reluctant to come forward to reassure them that it is okay to come to the BII and your complaint will be taken very seriously. I am very grateful for their support. I think thirdly we are starting to get some appreciative comments from those who have been helped through the process and that has helped reassure people. Lastly, my colleague on the left who does most of the investigations is noted for being a somewhat outspoken member of the community and I think that helps reassure people as well.
Phil Dixon: If I am asked to investigate, I see the word used that I am some sort of policeman. I don’t see myself as that at all. I was born in Mr Jarvis’s constituency, and as you will know, you get a cricket bat on your first birthday. I am a qualified cricket umpire and I take that philosophy to investigations. I look firstly at: is it outside the rules? Even if it is not, is it in the spirit?
I will give you a recent example. There was a case with Admiral Taverns-and I asked permission to quote this-where the lady complained under the code of practice. There was no breach of the code of practice; she just hadn’t been treated with the right courtesy. So I said to the Managing Director, Kevin Georgel, "Kevin, I just don’t think this lady has been treated with the respect she deserves, particularly after a service." The next thing, the lady phoned me and said she had had a written apology from Mr Georgel with a cheque for £1,000 as a goodwill gesture. There was no breach of code, but it was not in the spirit.
I can assure you all, if anyone complains, I always tell them, "If you have any comments at all from your landlord company, you let me know straight away," and there has not been any of that. In fairness to some of the companies, people have lost their jobs. This is genuine. I have investigated a couple of complaints and the business development managers have lost their jobs because they did not act within their procedures. So companies are taking this very seriously; I would want to assure you of that.
Q40 Mr Binley: I was going to ask you the question, "Where do the problems lie?" but I am going to turn it around. If you were in our position, knowing what you know now, how would you see a strengthening of the code to solve the problems that appear before you? What would you suggest we should do to strengthen the code?
Neil Robertson: There are some areas that we have identified from operating the codes where we think there should be greater clarity, and I will be recommending those to my steering committee to look at. I guess I would have to say those areas are areas we think the code could be strengthened in. I gave some examples of some of them earlier and it is in my report. I think the slight frustration we would occasionally have-and perhaps the most recent example is a good one-is where there is not a specific problem that you can identify and attribute to a code, but there is still either a poor practice or an overly muscular approach. I have not really thought about how you could accommodate those in codes other than in the way that Mr Dixon has identified. I wonder if we could have stronger provision for mediation in some of the areas where there are disputes and disagreements.
Q41 Mr Binley: So it is almost a roughness at the interface between middle management and the tenant?
Neil Robertson: In some cases. So much rests on the relationship with the business development managers. There are some very, very good ones and there are some who perhaps need to move on and certainly some who need to be trained.
Q42 Mr Binley: Just following on from that, can I ask you a question about practice? In my day, it was in your interest as a manager to help the tenant; to go along, to look at his P&L, to look at his aged debt analysis, to look at his cash flow projections, to look at how he was running the pub-to develop that person on a regular basis. For those that were real problems, maybe you would visit every two months; others that were good tenants you would perhaps only see as tenants every six to eight months. Does that exist? Is there enough of that working together to make what is, in the end, a joint business between the pubcos and the tenants-this is back to your umpiring, Phil-work more effectively?
Phil Dixon: Certain codes give clear undertakings about how often they will see their business development manager. The issue, I suppose, is does the BD stand for "business development" or "business debt"? In a lot of cases, they are taken off to problem sites. But we have now got a qualification being developed for BDMs to address that. It is in every company’s interest that the person is helped.
I often deal with people who have asked for a code of practice request because they are in trouble, and the pubco or the brewery will say, "Show us your stock take," and they will say, "What is a stock take?" They don’t have them. There is a clear correlation between people getting in trouble and their poor financial management. That issue needs to be addressed. It costs the companies something between £15,000 and £20,000 every time they need a change of tenancy, so they need to get that right. Many codes of practice give clear undertakings.
We challenge them and say, "Do you want to improve the service to your tenants? Then commit your BDMs to responding within the timescales." Some BDMs don’t thank me for this; they say, "I now have to respond within 24 hours, blah, blah, blah. We’ve got one lady who sits there and when it gets to 24 hours and one minute, she files a complaint." That has been one of the effects of codes; it has made people respond properly. The codes of practice only came in on 1 October. By 3 October I was reading on the blogs they were not working. This is a start. This is the beginning of a journey; this is not the end.
Q43 Mr Binley: That is fair. Have the breaches been highlighted on your website? That was a part of our recommendations.
Phil Dixon: Yes.
Q44 Mr Binley: What evidence do you have that tenants are encouraged, both by you and by pubcos, to look at that website and use it as part of their development tools?
Neil Robertson: The best opportunity is the pre-entry awareness training course. Remember this is prior to signing an agreement. They are being referred to this website to see, "Is the landlord I am about to sign with up there?" That is the most important area. It has also got the links from the wider BII site and a number of other people use it as well. I think it is an area where we need to remain vigilant, and I would like to see it being part of the process that tenants use when deciding whether or not to take a pub.
Phil Dixon: We supported a number of Punch roadshows back in October, so we were at Hampden Park and we were at Twickenham. At every single one of those road shows, a Punch director began them with: "This is our Bible; this is our code of practice. A copy is there." There is no evidence of any lip service to those codes at all; there is a commitment in those companies to make them work.
Q45 Mr Binley: And that is across the piece in terms of pubcos?
Phil Dixon: Yes.
Q46 Mr Binley: That is your experience?
Phil Dixon: Enterprise has made sure every single person has been given one and they sign that they have received it. I would think there are a couple of little family brewers who went through the motions and just submitted something that was standard, and it has probably gone onto a shelf and has not been taken out. That would be an honest answer. The vast majority have embraced it.
Q47 Mr Binley: Back to your umpiring analogy, they are all doing what they should do according to the code, then; that is rather good to hear. But the spirit of it?
Phil Dixon: That is the beauty of the flexibility. People say to me, "Don’t we need statutory regulation?" I say, "Try to make a complaint against Ryanair and then come back and tell me if it’s any good." The spirit is what this industry is about. I believe by taking a view on that, it is the right approach. "You may not have breached your code, but did your BDM act in a proper, courteous and professional manner?" That is where we need to go.
Q48 Mr Binley: Is that pretty even across the trade as well? The two go hand in hand; they are two sides of the same coin, aren’t they?
Phil Dixon: I would be misleading you if I said every single person out there was courteous and professional.
Q49 Mr Binley: No, does every single pubco do its very best to achieve that spirit as well?
Phil Dixon: I would hope so.
Q50 Mr Binley: You hope so?
Phil Dixon: I have not been to everything, but if you go to the St Austell awards, every single St Austell tenant is there, paid for by the company. There is a wonderful atmosphere. I was at the John William Lees awards three weeks ago; all their tenants are there. You listen to Christopher Lees-Jones and you actually want to move to Oldham-until you go there. There are some great relationships out there still. The problems are, as you know, with the property companies. Let’s face it, you know why they came in. They are big property companies. Roger Whiteside knows-and he says it all the time-"We need to get closer to our retailers; we need to restore that trust." I said this two days ago: Enterprise need to take a lesson from Punch and they need to get closer to their retailers.
Q51 Mr Binley: I am not sure about your trying to encourage us all to move to Oldham, but can I ask one last question? It is about the table that relates numbers of pubs in a pubco to the number of breaches prior to expulsion. Is that still serving its purpose properly? Secondly, is the sanction that they are thrown out of the BBPA a good enough sanction to make sure that they do what they should do? Does it matter that much to some of them?
Neil Robertson: The first point is, certainly in the first nine months, we have not seen any reason to change it. Where we derived the figures from was by benchmarking against other regulatory regimes, which look for between a 95% and a 98% compliance to be satisfactory. Those figures ended up at a higher percentage than that. That is where we got it from, although my colleagues still say if the big companies had 24 major breaches they could still be in, and that would be 24 families’ lives ruined. People make that point to me. I think it is an emotional point but it is a valid point. However, being objective, I think the compliance levels we have set for this are benchmarked well.
I think the sanction is more debateable, so I will offer you a personal opinion on that. If your company was to breach its threshold, code accreditation would be withdrawn and you would be thrown out of the BBPA. BBPA membership and the value of it is something that you will have to ask the BBPA about, but I think that, certainly from our perspective, we would then be recommending people not to work with that landlord. To the extent to which we train, have early contact with and have a significant membership within the industry, I think that would be a commercial disadvantage for that company. The extent to which that is the case I could not give you an exact figure on, but if I were that company I would worry about having the code accreditation removed.
Q52 Mr Binley: Phil, do you have any comment on that particularly?
Phil Dixon: I am the one who keeps telling him 25 is too many. I think it should be 10. But we had an open discussion on it in the committee, and in a democracy you don’t always get your way, as you all know-so it’s 25. We will look at that. I think if any company got near that then that would be disastrous for them in terms of public relations.
Q53 Paul Blomfield: Can I follow up one of Mr Binley’s points there? I understand that some companies have voluntarily left BBPA. Do you recommend your members not to have any dealings with them?
Neil Robertson: No. BBPA membership is not a factor in our advice.
Q54 Paul Blomfield: But you suggested it would be if they were expelled.
Neil Robertson: No, because remember the BIIBAS process confers accreditation and a brand on that particular company’s code of practice.
Q55 Paul Blomfield: I am trying to get some sense of what the real sanction of expulsion would be.
Neil Robertson: Can I explain more on what I think the issue would be? We would take away accreditation from that particular company; that is what would happen. In every piece of advice we would be recommending that they work with someone with an accredited code of practice, on the basis that we would have no knowledge of the business practices in that other organisation so we would not be able to recommend them. That would be one.
Secondly it would be very public. I know that there are a number of people in the industry who are critical of the business model. I would expect them to make sure that a number of people were aware of that code withdrawal. And it would be the biggest single thing we would do. My guess is-and it is only a guess, because we do not know-it would be a commercial disadvantage in relation to having their code not accredited. BBPA membership is a separate question.
Phil Dixon: One of the reasons I was keen that the industry’s professional body’s approval would be on those codes is, going back to Mr Binley’s time in the 1980s, there was a Brewers’ Society code.
Mr Binley: Earlier.
Phil Dixon: Earlier? It was a bit before that. Every now and again a company would go, "Oh sorry, we have breached the code, but it was not expedient on this occasion to abide by it." The fact now that the industry’s professional body’s stamp of approval is on that code and it can be withdrawn gives it more enforceability than it has ever had.
Q56 Paul Blomfield: Do you think that is enough or would you welcome, for example, the power to fine those who do not comply?
Neil Robertson: My FD would probably say yes to that. However, I think that we have to be clear there is a wider debate about regulation and deregulation in the Department that you are interested in. Let us be clear: this is selfregulation. We are not dressing this up as pseudostatutory. We are trying to have the advantages of selfregulation-to make the most of that. There are advantages to selfregulation; there are disadvantages. The disadvantage is we cannot require a fine. The advantage is it is a different style of regulation because, rather than record noncompliances and then issue a fine, which is one statutory regulatory model, we can instead pursue each case until it is resolved. So there is more focus on the individual complainant.
Secondly, there are two categories of breaches of the code; there are resolved and unresolved. Typically, resolving a case involves the pub operating company compensating or in some way lessening debt; there is a financial dimension to that. So I think in practice there is a fine, but it is through the process of resolution.
Phil Dixon: The complainant wants their case resolved not their company fined, and in some of the cases I have looked at, we have recommended that some debts be waived and that is far more in their interest than their company being fined.
Q57 Paul Blomfield: Thanks for that. Can I pursue, though, Mr Robertson, the point you made about the "pseudostatutory" status of the code? Our predecessor Committee was given the view by the BBPA that the code could be legally enforceable, given that it was an agreement between landlord and lessee. Is that your view?
Neil Robertson: Not quite. This is not a statutory process. This is selfregulation, and I would argue it is maybe not at its very best, but it is a good example of selfregulation. If you think things should be statutory, that is a different process. These are codes; they are not regulations; they are not, in and of themselves, legally enforceable. We do not have any legal powers to enforce them and we do not have the resources to pursue them legally.
However, there are a number of other legal processes that can be used to resolve disputes where I think the code would have a relevance. I think if a company departed significantly from its code of practice, then in a legal situation this would cast doubt on the credibility of the company; I think it would be damaging. Secondly, under misrepresentation legislation, companies that have set out very clearly what they will and won’t do would find it hard to defend in court the fact that they had strayed significantly from what they said they would do. That sounded like a civil servant answer, but the answer is no, they are not legally enforceable in and of themselves.
Q58 Paul Blomfield: Do you think there might be a case for enabling them to be by incorporating them into the lease?
Neil Robertson: It would change things. I think there would be advantages and disadvantages to that from a tenant’s point of view. I think it would crystallise some of the areas that we think are really important. I think you would lose some things as well in that process. So I think we need to be very careful about what we were really trying to achieve there and which problems we would solve. Access to law can be an expensive process. The reason we set up the PIRRS process is that we knew that previous arbitration schemes, run very responsibly by our surveyor colleagues, with the openended nature of them and the potential costs, can be an active disincentive to often financially hardpressed tenants. So we see a role for law in resolving disputes, but I think you would have to take account of the fact that it would prevent a number of people making complaints that we think make complaints now.
Paul Blomfield: I will come back to the PIRRS process a little later.
Q59 Simon Kirby: Clearly there are disadvantages and advantages of either solution, but is the BII best placed to police the codes or should we have a completely independent body-an ombudsman, perhaps?
Neil Robertson: With respect, I think you need to decide that. My advice to you would be that, first of all, I would have more time to do some other things.
Q60 Chair: We will decide it, but we welcome your view on it.
Neil Robertson: I did not mean to be facetious. Where I was trying to go with that was it is really not for us to say, "The BII are wonderful regulators." I can offer you a view that I think this has been good selfregulation. We have covered the things we said we would cover and we are regulating in partnership with the pub companies and the tenants the things that we said we would do. Are there other things that could be included or could have been done differently? Of course. I do not think you would find anybody else that could do selfregulation within the industry any better. I am very proud of my team and what they have done. We have set up a separate legal entity to manage that, to keep it separate from the daytoday running of the BII, and we have a separate steering committee for it that does not go through our mainstream council. So I think we have done what we needed to do in terms of keeping the separation.
I would say-and I said this to your predecessor Committee-we are not independent of the industry. Let’s be clear on that. If you are looking for independence, you need a statutory regulator. We are part of the industry; we are of the industry; we reflect the concerns and worries of the people in the industry. But what I can reassure you on is: a) energy into pursuing questions; and b) impartiality about them. It is a tradition of BII that we are critical of bad practice wherever we see it. I have noticed in my time at BII that people are quite quick to be critical of poor practice on the tenant’s side, as they are on the landlord’s side. I think the impartiality is very important.
I have spoken with some officials in the Department that you are interested in and they have considered this to be a good practice in terms of selfregulation. So if the policy in the Department for Business-I know you are not the Department for Business-is selfregulation, I think that this is a good example of it. If you decide that this is a priority for regulation, then I would hang up my boots and focus on some of the other things on my desk.
Q61 Simon Kirby: Isn’t one of the problems you are clearly part of the industry-you say you are-but you receive funding from the pub companies? So the criticism perhaps that you are not impartial is a valid one, isn’t it?
Neil Robertson: Yes, I can completely understand people saying it and I would be extremely cynical about it if I was in your position. However, I think to encourage selfregulation you have to encourage people who are of the industry. You cannot go, "Selfregulation is, by its own definition, of the industry." There are going to be financial relationships. The culture is as much an important question as the business relationship. The vast majority of our income comes from training fees and from membership fees from individual members.
Our deal with the individual members as a professional body is that they do their business well. We would lose face completely in front of our most important group, our core members, if we did not do this. We have said we are going to do it; we have to do it properly or I cannot look them in the eye. That is the real cultural question and that means that we have reassured our members that we will do this properly. The fact that Mr Dixon and I, in different worlds, have had a reputation for standing up for things that need to be stood up for I think helps but is not the key thing. We could go under a bus tomorrow. The key thing for this is the culture of the organisation that is dealing with it. Many of my senior members are extremely critical of the pub companies, but they are also extremely critical of all poor practice and they would hold us to account; they would just leave if they thought we were pubco puppets.
Q62 Simon Kirby: Can you do the job properly if the approach is reactive rather than proactive? Phil spoke about umpiring; perhaps we should have more policing than umpiring.
Neil Robertson: I told him I don’t like cricket, and I don’t think the umpiring analogy was helpful. I asked him not to say it, because I am bored of him talking about cricket. But you make a very good point. The upfront regulation is at the accreditation, so that is proactive. Thereafter it is substantially a reactive process. We rely on people bringing complaints to us. I can be reasonably confident of saying that we have very many people in the industry who are extremely close to this question and regularly email us about complaints. So I am not worried that the complaints are not coming forward.
Should we do more to be proactive? I think that would undoubtedly strengthen the scheme. I welcomed the recent tenant survey; we were part of that and supported it, because I think that is a proactive way of testing it out. We will continue to look at benchmarks. The ultimate benchmark of this working is better relationships between the companies and their tenants, more successful tenants, and tenant productivity and failure rates. We keep a very close eye on turnover and failure rates, because that for us is a broad litmus test of what is happening in the industry, wider than the codes. So it is not entirely reactive but it is substantially reactive. I think it is a good point.
Chair: Can I bring Paul Blomfield back in on the Independent Rent Review Scheme?
Q63 Paul Blomfield: We have touched on this already, but I wonder how you both feel the scheme has performed since it started.
Neil Robertson: Again, I think it has done what it said it would do. It is not a spectacular scheme; I think it is a very valuable scheme. Just to give you the most up-to-date figures on that, eight cases have completed, four more cases are in the process and two are currently being determined. That is not a big number. Does that mean it is a disaster and not being used? There is significant evidence to suggest that the scheme is an active catalyst for people to resolve disputes over rent before it reaches the process. We work closely with the RICS and I spoke to them and said, "We have had x number of complaints and only a fraction of them make it through the process." They reassured me this is quite normal.
Different companies have approached the PIRRS process and had a different policy to it. Some companies, we believe, have said, "We do not want any cases going through PIRRS"; others have said, "The PIRRS service is there; let’s use it as a backstop."
Phil Dixon: It is the fairest scheme that there has ever been in the industry for a tenant to have their rent settled by a third party. I can say that with some confidence. I also informed Neil that when we had a really fair scheme before, in the 1980s, it was very seldom used to the final procedure, but the fact it was there was a catalyst for people to negotiate. The key features of this particular scheme are that there is a transparent procedure with a limitation for the pubco to submit; the pubco cannot swamp the valuer with evidence. There is a fixed price. The fear of arbitration-who knows what it will cost? You cannot really afford to go there; you could finish up paying 20 grand. It is £1,000 to £1,500 with an extra 500 quid if you are inside the M25. So they know exactly what the fee is.
But the mouldbreaker of this scheme is that the tenant picks the value. There is none of this foisted upon them by the pubco; that was recommended by the Royal Institution of Chartered Surveyors. The tenant picks the valuer from the list; we put the list together. I can assure you there are people on the list, because I have recommended them myself, who are of a certain mature age in the twilight of their career and are more jealous of their reputation and integrity than anything else. They will get a fair decision. That is what has happened so far.
The fact it is there means there is now pressure on the parties to settle. You will see in one submission from Punch that they have not rushed back to the PIRRS scheme since they got absolutely drubbed the first time they went there. They have said they came a poor second. Those cases are there. I looked at the tenant’s report. When you get satisfaction ratings 10 out of 10, you know you have got something right. That is a good scheme.
Q64 Paul Blomfield: Mr Robertson mentioned earlier that Enterprise Inns has had a heavily disproportionate number of referrals. Why are they having the problems?
Neil Robertson: First of all, that is not necessarily a problem.
Q65 Paul Blomfield: It looks like one on the surface, doesn’t it?
Neil Robertson: It does depend. The point is the scheme is there. It is part of the landscape of the industry. It is entirely appropriate for Enterprise to use that scheme as a backstop in its negotiations. If it was not for Enterprise Inns we would not have a PIRRS scheme, and you would be asking me questions saying, "Mr Robertson, you say you have got a good scheme; nobody has used it." It does need people to use it to keep it viable. I think there is a different policy there.
I would be very careful with assuming that Enterprise necessarily are more assertive at rent review just on the number of cases here. I think some people would say that Enterprise are more assertive at rent review, but that is something you will need to ask them. But I think that as the largest pub company, with some of the higher rents in the industry, you would expect there to be more. I am not defending them here at all; I just want you to draw the right things from the evidence here.
Phil Dixon: I put it down to culture. In Punch at the moment there is a culture that you need to prove that you are trying to regain the trust of your retailers. You do not demonstrate that culture if you finish up in third party. So there is almost an onus in Punch to resolve it. The rent controller of Enterprise is a bit of an intellectual gentleman. He wants to know what the market is, and the way you find out what the market is you take cases. But that is not to say he does not compromise. I know he does; he does compromise on a number of occasions.
They recently took one to PIRRS where their Chief Operating Officer said they should not have gone. They went into the pub and they apologised for it going to PIRRS. They said he had made them a very fair offer and that whatever happened they would accept that offer and they would pay all his fees, even though it would probably come out at more. It came out at £4,000 less and they paid his fees. Enterprise are very, very keen to make sure all their licensees are aware of the PIRRS process. There are one or two valuers out there who always say, "Do not go down the PIRRS process. The BII is in the pubcos’ pocket. Go for the more expensive, lucrative fees for me at arbitration." Enterprise, in fairness, are totally transparent about that. So I do not see anything wrong in the numbers of Enterprise cases.
Q66 Chair: Obviously you are not answerable for Enterprise Inns. We did ask Rob May from Enterprise to come, but for reasons that we can only speculate about, he has declined the invitation.
Phil Dixon: He does have a very big steam train to look after.
Chair: Is that what it is? It just shows his priorities.
Q67 Paul Blomfield: One final question from me on a different aspect. Leases have been replacing rent review clauses with RPI clauses, which is effectively an upward rent review. Can lessees still use PIRRS to resolve issues when they are concerned about rent levels where there is no rent review?
Phil Dixon: I can answer some of that. Firstly, I have made my views quite clear on retail prices index increases and in fact you gentlemen are not helping. Every time the duty escalator goes up, the licensee loses sales, they lose their margins, costs rise and then inflation goes up because of the price of beer. So you are actually a cause of what is causing the problem out there, if I may say so with due respect.
Where there is an RPI increase and it is a five-year agreement, there is no provision for a rent review. If it is the Punch 10-year agreement where there is RPI, then the licensee can elect for a rent review and only the licensee can elect for it. So if he thinks it has gone up too much, the licensee can and then PIRRS can be used. When we introduced PIRRS, to start with it was only for periodic rent reviews; it was not for lease renewals or tenancy agreements because they go through the courts. But nearly every company, I am pleased to say, has said if the only issue on a lease renewal is the rent then it can go to PIRRS. PIRRS will cost the licensee perhaps £1,000 or £2,000 in fees and representation, but if you have your rent set through the court, the costs were £20,000 for the last one I saw. Most of the companies are very sensible. They will make the PIRRS process available because it is the cheapest option for the tenant.
Q68 Mr Binley: We talk about rent reviews, but the business model is not only about income from rent for pubcos; it is also about size of discount. Both are equally important. Point one, can I ask when you go to PIRRS whether that whole balance is taken into account? I assume it is, but I am asking you that. Point two, can I ask you whether over recent months-maybe 12 months or so-you have seen an increase of pressure relating to less discount specifically? This impacts upon the tie. The tie is an important issue that we will be dealing with.
Neil Robertson: The rent determination that is made at PIRRS is done by a surveyor to RICS standards, who would take into account the different dimensions of the business. Discount would be part of that question, to answer your first question.
Secondly, you asked whether we have seen changes in the debate around discount. The complaint we hear most is from established tenants, who often report that new entrants to the industry who have a business relationship that is public or known are securing much bigger discounts than they themselves are getting. I suspect you will hear more about that next week. That is the complaint we hear. The people new in the trade are able to secure discounts. If you are asking, "Are more discounts available?" I suspect the answer is yes. The answer is yes. Are they evenly distributed across the industry? It would be harder to answer that question.
Phil Dixon: Just to be absolutely true on the rent, the discount the tenant is getting is included in the rent calculation in terms of the divisible balance. If you are receiving £100 a barrel discount, as you know, it will increase your profitability and therefore when the rent is set, provided the discounts are guaranteed for the period of review, then it will come in. This is the beauty of this now transparent rent calculation form, because if the pubco landlord bases the rent on voluntary discounts but they are in there, then I would presume they are there for the period of review, i.e. three or five years. The discounts that pubcos are getting from the brewers are not included in the rent review and that would be wrong.
In my little spiel on Tuesday, I said I think they should pass on 50% to their licensees and then they will rentalise it. If they passed on 25% net to their licensees, that would be equivalent, on average, of about £10,000. That is what is needed at the moment-that increase in profitability. What they are doing is each case on its merits. This is the frustration for longstanding licensees. Longstanding licensees who have honoured their agreements and always pay their bills on time are seeing the guy or the lady down the road, who is in trouble and has bounced their direct debits, getting better beer prices. There is inconsistency in the estates. They do not like to hear this, but the solution is they need to pass on more of their profitability to the tenant.
Q69 Chair: Coming back to the question that I was previously asking, our predecessor Committee said BII should consider extending the work of PIRRS to develop an independent disputes mechanism. In your evidence to us you said you are now piloting and launching an informal mediation service. Not very urgent. What was the delay?
Neil Robertson: The priority was establishing the codes, the nature of the codes and particularly the scope of the codes. They look very comprehensive documents and they are very comprehensive documents and the process resolves disputes. We were not sure until we started to implement where we would see disputes that fall outwith the scope of the codes. We are now much clearer about where those areas are, so we have been able to pilot the service. We need to understand which percentage of the business relationship the codes effectively cover and then the mediation service is needed to support the balance. So that is what we have done. It is quite a formal process, but we call it informal because it is not a legal process; it is an informal mediation process where we encourage both parties to achieve a resolution.
Phil Dixon: As one who has been tasked with this mediation, having watched my colleague give a master class, you can tell he worked for Lord Mandelson when you see him mediate. We did a Marston’s case and the tenant’s feedback the next day was, "Just a quick thank you for yesterday. Your intervention was invaluable." The Marston’s quote was, "BII mediation resolved a disagreement that has gone on for over a year in three hours." I have got other quotes, but they are of that nature. We go there impartially, look at the thing, try to bring the parties together and resolve the disagreement. I think it is something we are offering to the industry, and I think it is a very positive move.
Q70 Chair: You come away from a mediation hearing with some idea that you have got an agreement. If it is subsequently breached by one or other of the parties, what do you do about it?
Neil Robertson: Formally there is nothing that we can do. Informally, of course, we would take an ongoing interest in that relationship. There are a couple of the mediation cases where they have not resolved all of the issues in the relationship difficulty. We take an ongoing interest in the relationship and would ultimately want to see that resolved. But to be clear, it is mediation; we cannot enforce any recommendations.
Q71 Chair: What you are basically saying is, "Nothing." To say you have an ongoing interest in it is hardly any sort of censure.
Neil Robertson: With respect, Chair, I think an ongoing interest is something. It is genuine ongoing interest and that means significant dialogue at senior levels within the company to say, "What is happening with this? Why have you not resolved it? What is really going on there?" There are always two sides to every story, which is why it is a mediation case, so I would just like to disagree a little bit. We do not have the power of censure; that is not what it is about.
Q72 Chair: But do you think it would be helpful to have it in extreme cases, maybe? A reserve power?
Neil Robertson: I think that would be an area that would strengthen the codes.
Chair: That is very interesting.
Phil Dixon: I have done a Greene King one and it has been agreed in writing. They have been there since 1799; you would not question their integrity. You have got that agreement in writing; you hope the licensee will abide by his side of the undertaking. This was a case in BurnhamonSea. I called in and spent a night in BurnhamonSea on a little holiday recently to make sure everything was okay. Yes, everything was fine. I shall not be rushing to return. This industry has a proud record for integrity. There was a time when you would not confirm an agreement in writing, would you? A handshake was a handshake. There are still family brewers who, if I confirmed an agreement in writing, would see it as an insult. I tell them, "In these new days of codes of practice, we have to do it; we have to be seen to be transparent."
Q73 Chair: I am not sure if I agree that longevity is necessarily a reflection of integrity or implies integrity. This institution is 800plus years old and is continually being questioned for its integrity.
Phil Dixon: Yes, but the difference, Chair, is when you are making a statement like they do in a family brewer, you don’t have your grandfather and your greatgrandfather and your greatgreatgrandfather looking down upon you, which they have. They would be no use on that programme Who Do You Think You Are? because they know exactly who they are; all their relatives are on the walls behind them.
Q74 Chair: We all await our day of judgment. Talking along those lines, Phil, with respect, you have an absolutely unique role within the industry that seems to help relationships be smoother.
Phil Dixon: You mean I’m old.
Q75 Chair: Heaven forbid, if you walked out of here and fell under a bus, what person could fulfil that role, do you think?
Phil Dixon: You are in politics. You always get, "That person is irreplaceable." You always get it; you know they are not. There are a number of people who could do what I do. That number is probably about three, but I know who they are. I am jealous of my reputation and I try to make sure that the undertakings we give are honoured. But there are good people in our industry who could easily do what I do, Chair; I can assure you of that.
Chair: That is very reassuring. Can I thank you? That has been very helpful indeed. I will call our next panel to give evidence.
Examination of Witnesses
Witnesses: David Rusholme, Chair, Trade Valuation Group, Royal Institution of Chartered Surveyors, and Garry Mallen, member of RICS working group on pub valuations, multiple licensee and independent pub valuer, gave evidence.
Q76 Chair: Good morning, and could I welcome you both? As we did with the previous panellists, could you just introduce yourselves for voice transcription purposes?
David Rusholme: Good morning. I am David Rusholme. I run the valuation professional group at the RICS.
Garry Mallen: Good morning. I am Garry Mallen. I am a multiple pub operator with nine sites. I am a landlord, and I act for multiple tenants in rent review negotiations with their landlords.
Q77 Chair: Thank you. Can we kick off quickly? Mr Rusholme, how successful do you think the RICS working group is?
David Rusholme: I am very pleased with the outcome of that group. I recall coming to the predecessor Committee a year and a half ago now, and making a promise that we would very urgently review our guidance to chartered surveyors working in the pub sector. We formed a working group right across the industry, with representatives of all the key players from the companies, from the tenants’ organisations and from the professional organisations in the sector, which probably totalled some 15 or so people. With a lot of our guidance, it takes a little while to produce. With this particular guidance note, nattily titled The Capital and Rental Valuation of Public Houses, Bars, Restaurants and Nightclubs in England and Wales-
Chair: It sounds compulsory reading.
David Rusholme: I do note we have sent members of the Committee copies, as I am sure you are aware. The point behind that is the group met six or seven times over the space of probably seven or eight months, and robustly dealt with all the issues under the guidance. What struck me about it was how much common ground there was when you get under the surface of some of these issues, and on the areas of difficulty, with some debate and thrashing through, we got to a position where-to answer your original question of how successful this was-the measure of success is we had such a diverse bunch of people sitting around the table, but they were all able to sign off and endorse the guidance that was ultimately published.
Q78 Chair: You sound as if everything in the garden is rosy. You are happy with the new guidance. Basically what do the lessees feel about it?
David Rusholme: Our position with guidance is that it is not something that is ever set in stone. We are continually open to reviewing guidance in any area to do with property evaluation or anywhere where RICS sets standards. You ask whether the lessees are happy with it; I can only answer for members of the RICS who use the guidance, and the feedback we have had is that what is written is certainly clearer, has more depth to it and tackles the more contemporary issues, more so than what we had before.
Q79 Chair: Garry, I believe you were involved. Could you give us your view on this?
Garry Mallen: Yes, I was involved in the forum and I agree with everything David said just then. The guidance is much clearer; it is an infinitely better paper than the previous one. The tenants would be quite happy with it if it was implemented more. The problem we found is that the pub companies are not implementing it properly.
Chair: That is very interesting indeed.
Q80 Dan Jarvis: Can I ask whether there have been improvements in the way pubs are being valued as a result of the guidance? Are they all following it?
David Rusholme: I think there are two parts to that. Are there improvements? Yes, because some of the key issues are tackled a lot more headon than they have done before. Are the pub companies following that? I think that is partly outside the knowledge of RICS. RICS’s role is to provide guidance primarily for its members who are out there acting on rent review negotiations or acting for the parties when they take a lease. Our view is that we would encourage both the pub companies and prospective tenants to get professional advice from chartered surveyors who follow this guidance when they either take a lease or they face a contentious rent review situation.
The second part of it is that clearly we recognise that there are those who act in the rent review market who are not chartered surveyors. Garry, you are one of those people. We are very open to others using the principles behind our guidance, which is one of the reasons why we made this guidance a lot more widely available than we do for our normal guidance, which is more confined to the membership.
Q81 Dan Jarvis: Can I follow that up by asking you whether the principle that the tied tenants should be no worse off than freeoftie tenants is being followed by pub valuers?
Q82 David Rusholme: This is one of the issues that we have put firm guidance in place over. If you would indulge me in quoting from what it now says in the guidance, it says, "Comparability between public houses held on different lease terms and with different supply terms is problematic, particularly between the tied and non-tied sectors." We state, "There is nothing within this guidance that should result in rents in one sector being set at any advantage or disadvantage to another." That is now there and it is put into the guidance note.
Chair: Can I bring Nadhim Zahawi? I think he wants to pick up the point that was touched on by Garry.
Q83 Nadhim Zahawi: Mr Rusholme, you acknowledged to our predecessor Committee, and indeed just now as well, that people who value pubs are not necessarily RICS members and therefore do not have to follow your guidance. We have heard from Mr Mallen just now that many do not follow your guidance. Can you tell us what you can do about that noncompliance?
David Rusholme: We take a stance of trying to encourage the guidance to be followed, firstly by surveyors and secondly by the wider community that uses it. We continue to try to raise awareness of it. It was published in December, so we are now six months on. I have just chaired a series of valuation roadshows around the UK, principally for the membership and covering a wide range of valuation issues, but there have been one or two pub valuers who have attended those, and the feedback I have been getting from talking to them is that this is well known. It is being seen as a much clearer set of guidance and the knowledge is spreading out there that there is something more to hang on to when the rent reviews are being undertaken.
We can probably do more, and the next step we should do is to try to publicise and work with others in some of the trade and professional bodies out there to run a campaign that they should get professional advice in contentious situations where the stakes are high. Our view-clearly you would say we would say this-is that you should get the advice and bring in a professional. If you sign a legal agreement, you will bring in a lawyer. If you are dealing with a rent review where thousands and thousands of pounds are at stake, you should bring in a surveyor to act.
Q84 Nadhim Zahawi: The IPC has already said that there is systematic non-recognition of the guidance, and that the free maintainable trade calculations remain distorted. Is that something you recognise?
David Rusholme: It is not, but then again it is not something I would. Where I would come across noncompliance is if there are complaints to RICS, and RICS runs an arm’s-length regulatory side that deals with such matters. There is not an avalanche-there is not even a trickle-of complaints coming in about noncompliance of our members in using the guidance. That is where I see it from, and I readily see that there is probably a bigger picture out there that would not feature on the RICS’s radar.
Garry Mallen: The problems that arise are not really problems that the RICS can resolve. With the pub companies, most of the valuations-not with all pub companies but certainly with a lot of them-are being prepared by overworked BDMs, who are trying to look after upwards of 60 pubs. They are not trained in preparing rent valuations, and most of the BDMs who I have dealt with recently know nothing about the RICS guidance and they know nothing about the ALMR benchmarking for costs.
Nadhim Zahawi: That is very interesting.
Garry Mallen: I am not blaming the BDMs. They have shortcomings in other departments, I am sure, but they are not being trained properly, in my experience, in preparing rent valuations.
Chair: Surely that is the issue. It is astonishing that, given the crucial nature of this, somebody in their position is absolutely unaware.
Q85 Nadhim Zahawi: You have just raised a number of issues here. One is if the RICS is doing enough to communicate, because you said many of them do not know anything about the guidance.
Garry Mallen: Forgive me, but I do not think that is incumbent on the RICS. They have no powers to implement.
Q86 Nadhim Zahawi: It is falling between the cracks then?
Garry Mallen: It is.
Q87 Chair: Surely the pub companies should do it?
Garry Mallen: Agreed. The pub companies ought to make the people who are preparing the valuations aware of the guidance and make them follow the guidance. There is nothing wrong with the guidance; the guidance is fine.
Q88 Nadhim Zahawi: It may be fine-
Garry Mallen: It is fine at the moment.
Nadhim Zahawi: -but if people are just not implementing it or not aware of it or, for whatever reason, are too busy to be doing anything about it, something is going wrong here.
Garry Mallen: That is why I submitted the evidence.
David Rusholme: I agree. Our position would be that, if landlord organisations are trying to establish a case for an increase in rent, then there is no better or more proper way of doing it than getting professional advice to do so. I think there is a slight twist to this that I do know, and our members would say, that they are regularly employed by pub companies and indeed by the tenants to negotiate rent reviews. There is a healthy population of surveyors acting out there in the marketplace, and they are appointed; they are brought in by both landlord and tenant organisations. Perhaps the problem is that sometimes they are not brought in early enough.
Q89 Mr Binley: I am amazed that business development managers don’t really understand the machinations of rent review. I don’t understand how they can help in the development of the business if they don’t understand the relationship between that and discounts, and have no idea of the very basics of the business model of a pub.
Garry Mallen: I am not suggesting they don’t know anything about the formulas, not all of them at least, of completing a rent review. They know nothing about the guidance, the new guidance. From what I have seen, they have a prescribed formula for preparing a rent review. Without the guidance and without considering the guidance, you cannot do that properly.
Q90 Mr Binley: I repeat; I am amazed. I see that you said it is all too common than a regional manager prepares a valuation without any reference or consideration to the financial benchmark data that is available. You said that. I have a quote from you to that effect.
Garry Mallen: Again, the BDMs that I have seen of late, and certainly within the last six months, know nothing about the ALMR benchmarking survey.
Q91 Mr Binley: Perhaps one of the things we can do is to make sure that the pubcos do exactly that: they make sure their middle managers are trained properly as well, because therein lies the major contact between the tenant and the company. Is that so?
Garry Mallen: That is so, but I think it goes deeper than that.
Q92 Mr Binley: Tell me how we can do it then.
Garry Mallen: The pubcos need to appreciate the actual costs of running a pub. That is not always the case.
Chair: The Chairman, if I may say so, is equally astonished.
Garry Mallen: To give you an example, in the latest interim accounts for Enterprise Inns, they state and show operating costs of 35% in their example, yet we know from the ALMR survey that operating costs are north of 40%. Last year, Enterprise carried out their own survey, conducted by Milestone Accountants-I believe it was a survey of nearly 700 pubs-because they were not absolutely certain of the validity of the ALMR survey. Their own survey showed costs between 42% and 51%, and yet still within the interim accounts that I referred to earlier, they are showing costs of 35% in displaying how a tenant can earn £35,000 a year. They are showing costs of 35%. If a 7% swing was put on those costs-and I grant you that is at the upper end-the tenant would not be earning £35,000; he would be earning £11,000.
Chair: You have partly anticipated the line of questions that we were going to pursue. Brian, do you want to come back in?
Q93 Mr Binley: I do, because this is at the very nub of the business model presented by pubcos to tenants, on which they make their business decision to come into the pub, and where so much trouble ensues thereafter, because they have been misled. Isn’t that the case?
Garry Mallen: I would have to agree, yes.
Q94 Mr Binley: Thank you. Can we have that properly and fully noted, because it is right at the centre of this business? Tenants are being misled when they go into pubs. It is that simple. You have just given me the evidence to be able to make that remark here and also outside.
Garry Mallen: Again, that does nothing for the existing tenants.
Mr Binley: No, it does not.
Garry Mallen: It does help the ones coming in, or it could help the ones coming in, but it does not help the existing tenants.
Q95 Mr Binley: No, it does not, and I take that point too. You said or at least gave the impression that there was, across the piece, little understanding of the RICS guide, as it were. Does that impact more upon one pubco than another? Is there one you would pick out and say this particular pubco has ignored it to the detriment of the wellbeing of tenants?
Garry Mallen: I am not sure I could pick out one particular pubco.
Q96 Mr Binley: Are you sure you could not?
Garry Mallen: The evidence I have submitted refers to seven Enterprise pubs that I am currently doing rent reviews for, but I am aware that Punch is allegedly training their BDMs in the guidance. That may be the case with one or two other pub companies, but I am not aware of that, so I cannot comment.
Mr Binley: I have had evidence that Punch is training and making an effort. I have no evidence whatsoever that the very famed Enterprise Inns, led by the very famed Mr Tuppen, has embarked on that particular process. If he is listening, I would like to know whether that is the case or not. I think this Select Committee would like to know too, because it is a very serious matter that goes to the heart of this whole business. Perhaps if there is anybody here from Enterprise Inns, they could come back with an answer for us. I think we would like it from other pubcos too, just to assure us that they are taking note of your particular publication, because it is central to the issues that we are talking about. Thank you, Mr Chairman.
Chair: I was going to ask you to ask about the division of profits in the Brooker case.
Q97 Mr Binley: I am more than happy to do so, and I am grateful, because we referred to this, Mr Rusholme, and I think I am the only survivor from the previous Committee, which says a lot about my career prospects in this place, but never mind. We talked last time about the decisions of the Brooker case. Have the pub companies been recognising and taking that result into account?
David Rusholme: The way our guidance is structured and the way that chartered surveyors interpret rent reviews, court decisions and precedents stand for a lot, and they should be taken into account. Again, I have no evidence of noncompliance. Garry may be closer to the market on this, but frankly I would be amazed if anybody could successfully run an argument or get through an arbitration case, and try to argue against something that is put there in black and white. It just wouldn’t stack up in the end.
Q98 Mr Binley: I would be too. It is not in your experience because you don’t have that information, but you would think it would be remarkable if the pubcos did not take that finding into account. They would be very disadvantaged in any process thereafter, wouldn’t they, if that were the case?
David Rusholme: That would be absolutely correct, yes.
Q99 Paul Blomfield: On a specific point, following on from the issues being raised by Mr Binley, is it correct that the National Rent Controller for Enterprise Inns who, as the Chairman has explained unfortunately cannot be here today, is a member of the RICS?
David Rusholme: Yes, he is.
Q100 Paul Blomfield: Therefore, in your opinion, is he accountable for the rents that his business development manager negotiates? If he is, should he be ensuring that all of them abide by the RICS guidance?
David Rusholme: As you note, it is a shame he cannot answer that question directly. The RICS’s position is if any member in a supervisory capacity, looking at the work of others, is supervising work that de facto should be following professional standards and in all but name is the work of someone else, then yes, the guidance should be followed. I am not completely au fait with the workings of the systems within that particular company and the relationship between business development managers and the surveyors employed, but the job title of National Rent Controller rather implies that you are controlling the rents that are set nationally, so I can well see the connection there.
Paul Blomfield: I understand the care with which you answer the question, but I think that is a fairly clear answer, so thank you.
Chair: Can we go on now to the RICS national database?
Q101 Simon Kirby: We have mentioned some of this already, but can I kick off by asking what has happened or is happening to the national database?
David Rusholme: The term "national database" has been loosely used in a number of predecessor Committees and a number of inquiries over the years, but it comes back to one principle, and that is having more information available to those setting the rents, so that they can get to a better or more accurate answer. To put it into a bit of context, a national database or what we prefer to call "benchmarking"-because it is simply having data from a number of pubs available, so you can make a better comparison-is part of a picture.
We have done a number of things. For the first time, we have acknowledged in our guidance that benchmarking is something you should attach weight to, because of the nature of the pub industry and the difficulties of getting decent information and comparable information. I was very struck by the discussions earlier on about the numbers of different arrangements, discounts and types of leases. It is very difficult to look at two pubs, say in the same town or the same village, maybe across the road from each other, because of the comparability of the different agreements. We have always supported the view that good benchmarking in the industry is something that is going to get to better results in setting rents.
You are asking what has happened since the time before. We undertook that we would engage with whomever we could find out there who would try to deliver a good benchmarking service for the industry. We spent a substantial amount of time with one of the leading property consultancy businesses and data providers, and, I must say, with the full cooperation of the pub companies, to try to encourage them to launch a fairly wideranging benchmarking service. I will say very openly that that attempt has failed on the grounds of the commercial cost of putting it together and some of the difficulties around the confidentiality of information.
Q102 Simon Kirby: Can I interrupt you there? I don’t understand why it is such a costly exercise when the pub companies hold that very information themselves. It is clearly available in reams; the costs and the turnover sides are available. I don’t accept-and I should be clear on that-the argument for failure is a financial one. Can you try again, please?
David Rusholme: I concede that one. In the negotiations in trying to put this together, that was something that was very much in our minds: that this is not rocket science and it is a fairly easy thing to do. The troubles lie around the fact that, if you are asking a lot of organisations to freely give information, they want to do so in a way that preserves the commercial confidentiality. I would say that that is not something that is unique to the pub sector and that is a valid ground. When you do that, you then have to start devising fairly complicated systems so that maybe you can find information by general postcodes or locations, so you can get a flavour of an area or a different type of property without identifying particular properties. I think that is a valid concern.
Q103 Chair: In your very circumspect way, what you are saying is that basically the pub companies are not cooperating.
David Rusholme: No, the pub companies are cooperating.
Chair: Well, why can you not get the information?
Q104 Simon Kirby: The problem I have, and I shall be clear on this because we are near the end, is there are pubs up and down the country going out of business, as we speak, every day, week in, week out, and it is getting worse, not better. That is a direct result of the rents being charged and the rentalisation of any discount that is available. It is quite a clear equation. It is not complicated; "it is not rocket science" I think was an expression used. I don’t understand, when we have spoken in 2004, 2009 and 2010, why we cannot have a database. We can call it "benchmarking"; we can call it whatever you like. At the end of the day, when it comes to rent reviews, clear information that is comparable up and down the country with other operators must surely be the way forward. I have to say I am very disappointed in your failure, because you undertook to provide this a year ago, in not moving it forward. Can I ask you for a third time: why do we not have this benchmarking information?
David Rusholme: Can I take a leap forward, because we have jumped a little? There is a little bit more to the picture. There are a number of things that are now going on. Outside the RICS, the ALMR survey has come on in leaps and bounds over the last two or three years. The quality of the information there, for benchmarking purposes, in infinitely better than it was before. There was mention earlier of a Milestone survey undertaken by an accountancy company, courtesy of the pubcos, which seems to be publishing information that is not necessarily helpful to their cause. RICS’s position now is that we have undertaken some preliminary discussions, again with some of the leading pub companies direct; we have got the support of the BII; and we are also bringing on board RICS’s in-house research team. If nobody else is stepping up to the plate, we will do so and we have now put a team together to actually undertake that and bring that forward, having tried to support outside efforts, which clearly are going nowhere. We will do it ourselves and we will do it quickly.
Q105 Simon Kirby: When do you think would be a reasonable timeframe for delivering not the aspiration but the actual end product?
David Rusholme: We have only recently put everyone together on this, and I think it would be foolish to make promises. I do take seriously the need to do this urgently, and we will do so as urgently as we possibly can.
Q106 Mr Binley: May I come in with a supplementary? Mr Rusholme, you know this business pretty well. Am I right in believing that the pubcos themselves could not run their business model without this information?
David Rusholme: They have all this information.
Q107 Mr Binley: Of course they have the information. We are not talking about the difficulty of collating the information; it is already there. We are talking about pubcos not wanting to give it up. Is that the fact of the matter? I know you are a professional; I know you will be immensely careful. Can we read between your words and understand that that is the case?
David Rusholme: I do not think it is as straightforward as that.
Mr Binley: I do.
David Rusholme: I think it is a reasonable argument that any commercial organisation should not be forced to give the full trading information on one property.
Mr Binley: I understand about commercial protection.
David Rusholme: But it is not impossible.
Q108 Mr Binley: Can I then ask you whether it would be impossible for the pubcos to band those and not give individual cases? You do not need individual cases to give the guidance that the tenants want, but you could band those without impacting upon commercial sensitivity.
David Rusholme: That is exactly what we are talking about.
Q109 Mr Binley: That is the point. It exists. All it needs for them is to band it. That is not an expensive exercise, is it?
David Rusholme: No.
Mr Binley: Thank you very much.
Q110 Chair: Just before I come back to Simon, Garry, can you tell us if the BBPA is working with the ALMR on the benchmark survey?
Garry Mallen: I had better check that. No, there are certainly no meaningful discussions on it. Referring to this national database, I am not sure how much assistance the database would be in terms of the headline rents because, as Phil said earlier and as David has alluded to there, the nature of the pubcos is that there are so many leases out there, with so many different variables concerning their particular deal with that particular lease. The national database for operating costs I think would be extremely helpful, and would limit the ability for some people to manipulate those costs within the rental model. The stronger the database, the bigger the survey, the more realistic the results will be. That is where it would be most helpful.
Q111 Mr Binley: Surely it is not beyond the wit of the pubcos, without too much effort, because they already have a view of what a pub should be worth; they already have that information. The banding can be on three factors. It can be on the type of pub; it can be on the region; and it can be on the money. If you had that down to a reasonably sensible level, that would be immensely helpful to new tenants, wouldn’t it?
Garry Mallen: Yes, it would, and if it includes something like the FMT for various units, then that would also be immensely helpful.
Mr Binley: So it is possible, they could do it, and it would not be that difficult, because most of that information is in place anyway.
Q112 Simon Kirby: Following on from Brian’s point, without that information, if today I leave this room and I go to sign my lease, how can I establish whether the rent that is on offer is reasonable and whether the costs that are contained within the rent and the trade that is implied by the rent are reasonable or not?
Garry Mallen: Get professional advice. You need to get professional advice.
Q113 Simon Kirby: The professional advice will be based on what?
Garry Mallen: Presumably on a RICSqualified surveyor telling you it is an acceptable rent.
Q114 Simon Kirby: Will he try to benchmark that rent?
Garry Mallen: If he uses the guidance properly, then yes.
Q115 Simon Kirby: How will he do that? I am following the logical chain here, because I am saying, without the information available, all is lost, surely.
Garry Mallen: If he is a member of RICS or trained properly to use the RICS guidance, then he would use the guidance to come up with the correct rent.
Q116 Simon Kirby: I am going to demonstrate some ignorance here. The guidance is that benchmarking is an important element or an element-"important" is my word-in the determination of what is a fair rent. If there is no concrete data to work on, then that is an aspiration, isn’t it? It is not an exact science. I am a mathematician; I like exactitude.
Garry Mallen: People can get access to the ALMR survey, and so they can see the costs of running the premises.
David Rusholme: Can I add to that? Putting myself in the shoes of the good surveyor giving the advice, he would say he is in the marketplace. He has firsthand knowledge of transactions himself, because he has been involved in transactions. He has firsthand knowledge of rent reviews, because he has undertaken lots of rent reviews and he builds up that knowledge. I take the point that Mr Binley made earlier on about the usefulness of benchmarking to incoming tenants, but there is a distinction to be drawn there. For the surveyor, benchmarking in the survey or the collated information term is one of those small parts of the jigsaw that help build up that picture. There is a whole heap of other reasons why you should bring a surveyor in to give the advice in the first place, because of the market knowledge in a broader sense.
Simon Kirby: Final point, Chair: I did not have Brian’s pleasure of being here in the last session, but I have a worry that we hear the same thing year in, year out, and that that remains an aspiration rather than a commitment. I have listened to what you have said and I take some comfort in it.
Chair: I believe this is the fourth inquiry that the Committee has done on this. I fervently hope that, arising from our conclusions, report and the implementation, it will be the last. Thank you, gentlemen, and I do appreciate your contribution.