Ties That Bind II

Re-capping my last, the tie made a certain amount of sense as part of the consolidation of British pub trade, in the context of the generally anti-competitive run of business over the later 20th Century. But it didn’t really do any good for anyone except brewers. There were even advantages from the advent of keg lagers, and the occasional keg bitter: they are point and click. To be a real ale cellarman is a craft, with physical and intellectual skills that must be taught and learned, practiced and honed. You have to know the beer, you have to know the tools, and you have to use them every day. This meant that a bad landlord could really mess up your beer (I’ve heard dark tales of the drip trays going back into the top of the mild every night, for example). With keg, you’d have to take an axe to it to really mess it up.

But the over-all consolidation of the trade was, as I said, not really good for anyone except capital accumulators. It made the beer worse, it made pubs worse, it made publicans lives’ hell and it radically reduced competition within the UK market. We’ve gone some way to fixing that, partly through the work of CAMRA and others, partly by just making better beer. Where there were 60 independent brewers in Britain at the start of the 80s there are over 600 now. Brewing is beginning to be a competitive industry again. But the pub trade is getting even worse: 35 pubs a week have been closed in the last year. Think about those numbers for a moment.

Monopoly Board

Why might that be? Well, it has to do with the tie, and how it has changed. There is some excuse for a brewer to tie the lease of a pub to selling that brewer’s beer. But the big breweries no longer dominate the pub trade. The kind of company that RBS owned (specifically, Admiral Taverns) is not a brewer gone corporate, nor is it a pub chain gone national (remember the Firkin pubs?). Admiral, Enterprise Inns, Punch Taverns: these are actually property companies.

In recent years the pub trade, for many of the major players, has not been about ale or lager. The game, which has attracted speculators such as Stephen Conway of Galliard Homes, and tycoons Jack Petchey and Robert Tchenguiz, was a lucrative property play, while the boom lasted, in which rents were unaffected by normal market forces and pub tenants were forced to pay ludicrous wholesale beer prices through the system known as “the tie”. — Private Eye, 1240

The tie system is run to benefit the property speculator over the landlord in a cosy cartel of the kind one expects in a banana republic. Rents in the pub trade are not subject to market forces (we can’t have that when it might work in the favour of the employee, rather than the employer). They are set based on an assessment of potential turnover that is made by the Royal Institute of Chartered Surveyors, who have a department specifically for pubs. Until recently, this body was overseen by Rob May FRICS, who was also the national rent controller for … er … Enterprise Inns.

New Labour encouraged, some might say over-inflated, both the property and City booms of the last 15 years, because they needed the money. They needed a very fluid, very active property market, and they encouraged it with tax breaks and other regulatory modifications designed to encourage business ownership of property as an asset (buy-to-let mortgages for example) as opposed to private ownership of property for personal residence and security. Another way they encouraged it was by letting the thieves regulate the other thieves; Rob May and company at the RICS made sure that as the property speculators moved into the pub trade, employees of those property speculators set the artificial assessment of how much of their money a publican owes the freeholder. In the process, they also ensured that the delightfully anti-competitive device of the tie survived and mutated into the modern era.

The original purpose of the tie has been not so much eroded as exploded. It was, in its initial context, a reasonable business development; breweries which own pubs want those pubs to sell their beers. But the new corporate masters of the UK pub trade aren’t breweries. They’re primarily property speculators; why would they be interested in which beers their landlords sell? Well, that’s quite simple as well; privilege. This is the action of the Great Machine; the property speculators, who really aren’t in the pub trade at all, inherited a system open to abuse, and had no reason not to abuse it.

The tie now binds landlords into high-level inter-corporate wholesale deals which they cannot influence or change, and which will typically specify not only the types of beer and other alcohol to be sold but also, most importantly, the vendor. The tie is to a specific wholesaler or cartel thereof, placing the landlord in the position of a captive audience. Prices are charged, and rents are set, such that a publican can turn over £500,000 a year and see a profit of £15,000 [1]. Under such circumstances, relatively minor variations in local economics or politics can drive a pub’s business down the pan. The national assessor does not see this data as a publican does in his own bar. He sees the bottom-performing 10% of the thousands of pubs his business owns, and he sees that they are worth more as property deals than as businesses, this year. He works for a firm of property speculators, who have no actual stake in the pub trade. So he sells them.

Out with the Old

The reason so many pubs have been closing is not singular but plural. Cheap supermarket lager deals play a part; the loss of the credit boom has had an impact as well. One of the reasons, however, is that the owners of a massive majority of pubs in the country are not publicans, or even brewers; they have no stake in the pub trade beyond the land it’s built on. They are real estate agencies: they do not ask the question: who benefits? There is no question for them; either the answer is “us” or the answer is irrelevant. Who benefits from the closure of a local pub? Not the locals. Not the publican. Not the independent brewers. Not the corporate brewers, either, come to that. Only the capitalist benefits; only the money man.

Once a pub is gone it will not come back. Any property of such size in a town is worth more as flats than as a business; any big rural pub is worth more as a footballer’s country pile. It’s no accident that an old joke in the trade goes like this:

“How do you make a small fortune in the pub trade?”
“Start off with a large one”.

A pub is a place for the pursuit of happiness: the profit motive is very different, but the plutocracy would like us to believe that it is the same thing.

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[1] As a quick context check; working without a tie, you will see numbers like £25-30k off £300k turnover, and that’s in inner London with all the overhead hike implied thereby.