A common error made by campaigners and politicians is to imagine that policy changes can be made in isolation without any wider implications. Sometimes this can be achieved, but in most cases, if you change one thing, it will end up changing something else. It’s like trying to squeeze jelly into a string bag. If you increase the tax on something, people may be persuaded to buy something else; if you regulate a business sector more, companies may be more reluctant to invest in it; if you ban something outright, it’s no guarantee that people will stop doing it or even do it less. It may well be the case that, on balance, it’s still worth doing, but it is foolish to imagine that unintended consequences never occur.
A good example of this is in the field of payday loans, which have been much in the news recently. Many would argue that the likes of Wonga are heartless, grasping scum who cynically exploit the poor who have encountered financial difficulties, and therefore the interest rates they charge should be capped. However, if that was done, they wouldn’t make the more risky and marginal loans, and some of the very neediest people would be driven into the arms of illegal loan sharks. It might benefit more people than it harmed, but to claim that capping legal interest rates would not give any encouragement whatsoever to illegal lenders is fanciful.
A similar situation applies with the pub companies such as Punch and Enterprise. These have been widely criticised for both strategic and operational incompetence, and in particular for having an exploitative relationship with their lessees. In response to this, various proposals have been put forward such as implementing a statutory code of practice, allowing lessees to take a guest beer and offering all lessees a free-of-tie option.
However, seeing a potential threat to their business, the pub companies have come back with dire warnings about how such changes would affect them and what their response would be. For example, Spirit Group have claimed that it might force them to reinstate upward-only rent reviews, Greene King have said they could restructure their business to reduce their leased estate below 500 pubs, and J. W. Lees have suggested that a mandatory guest beer option could be disastrous for themselves and other similar family brewers.
Now, all this may contain a substantial element of exaggeration and scaremongering, but it would be foolish in the extreme to imagine that, if new curbs were introduced, pub companies would just roll over, wave their legs in the air and say “OK, we’ll play nicely now”. It’s hard to believe that, at least to some extent, they wouldn’t cut back on new investment, accelerate the disposal of their more marginal outlets and seek to convert as many pubs as possible to managed or franchised operations that were outside the scope of the controls. However much you detest the pub companies, they are the incumbent owners of the pub estates and you need to assess how, in the real world, they would actually respond. There is no blank sheet of paper.
In particular, given that some degree of product tie is fundamental to the pubco business concept, it’s very difficult to see why any pub company should want to lease out pubs on a completely free-of-tie basis, as it would change their position to being essentially that of any commercial landlord. As Martyn Cornell has pointed out in his provocative blogpost In Praise of Ted Tuppen:
large numbers of the best currently tenanted/leased pubs will be turned into managed houses, and those pubs not suitable for a managed operation that look as if they will not bring in an adequate return to their pubco owner as free-of-tie operations will be sold to the highest bidder – likely to be Tesco, Sainsbury’s or Morrisons...As I have said before, the critics of pub companies always seem strangely reluctant to put forward any kind of alternative business model for the industry. If you don’t like the way it’s organised at present, it is incumbent on you to outline what you think it should evolve into. I am not suggesting nothing should be done at all, but the implications of any change in regulation need to be considered very carefully. Otherwise the risk is that we end up with another Beer Orders-style disaster which could be extremely damaging to both the pub trade and the British brewing industry.