Business | 2009.05.17
Viewpoint: MPs right to call time on the landlords
Ted Tuppen, chief executive of pub group Enterprise Inns, accompanied yesterday\'s half-year figures with a message to his tied tenants that roughly translated as "stop grumbling". His mood is unlikely to improve today. MPs on the business and enterprise select committee will call for a competition commission inquiry into the "pubcos", arguing that "abuse" of tenants occurs.
It\'s stating the obvious to say that this is a dangerous moment for Enterprise and its rival Punch Taverns, but the numbers look worrying for shareholders. Enterprise, whose 7,700 pubs are supporting £3.8bn of debt, must next year renegotiate a £1bn bank facility expiring in 2011. The company currently pays less than a percentage point over Libor, the interbank lending rate. What price would the banks demand in the middle of a competition inquiry that could radically improve the tenants\' lot? Rather higher – perhaps substantially higher.
It\'s hard to muster any sympathy for the pubcos. Okay, the tenants freely entered into the tied arrangements but, as the MPs say, the details of these contracts are opaque and the bargaining strength rests with the landlord.
The MPs eye-catching finding is that 67% of lessees earn less than £15,000 a year, which roughly tallies with some City estimates. Admittedly, the figure doesn\'t include the "free" accommodation above the pub. Even so, it does support the general impression that many tenanted pubs have been squeezed too hard and are now so under-invested that they can\'t hope to put up a decent fight against recession, the smoking ban and cut-price booze at the supermarket.
Put another way, the pubcos have spent too much time staring at financial models and too little at the world beyond.
Not all tenanted pubs fit the caricature, of course. Some lessees will be making good money and will appreciate the support they receive from the pubcos. The MPs make an imaginative suggestion: force the pubcos to demonstrate the benefits of the tie by offering tenants the chance to run their pubs on a free-of-tie basis with a rent negotiated transparently. That, one suspects, is an offer Enterprise and Punch will decline. Their securitisation deals mean they are almost obliged to defend the current set-up. This row will go the distance.
Green shoots?
It was possible, if you were so inclined, to spot a green shoot within yesterday\'s unemployment figures. The rate at which unemployment is increasing slowed in April.
That, though, would be a perverse way to view the figures. The broader picture is that 250,000 people were added to the labour force survey measure in the first three months of this year, taking the total to 2.2m.
Nor can it really be argued that April will mark a turning point. The economy shrank by 1.9% in the first quarter and many of the people made redundant in that period will not yet have appeared in the statistics. Further additions are inevitable once school-leavers and graduates start to look for work in the summer. Given this backdrop, it seems highly unlikely that UK consumers can continue to spend as liberally as they do at the moment. Average earnings were also down.
But look at what is happening in the wider world. Commodity prices have started to rise again. The price of oil in New York briefly touched $60 a barrel yesterday.
If that run continues, we will soon be talking about petrol prices putting further pressures on household budgets. All in all, the green-shoot thesis suffered a setback yesterday.
Just rewards
"Conservatives have to think more deeply about the nature of reward." No, that\'s not David Cameron on expenses. It\'s Michael Fallon, prominent member of the Treasury select committee, writing on our Comment is Free site last September.
It was a lively piece with a powerful pay-off: "Mega-bonuses, out of all proportion to ordinary earnings, destroy the social consensus on which a free economy depends."
So it will be fascinating to hear at tomorrow\'s annual meeting how Fallon squares this statement with the policies of the remuneration committee of Tullett Prebon. Fallon is chairman of this committee, which handed Tullett chief executive, Terry Smith, a £2m cash bonus and the same again in shares.
The argument seems to be that because other inter-dealer brokers pay big bucks, so must Tullett. It\'s a point of view – but would you call it deep thinking?
For more information, please visit
http://www.guardian.co.uk/business/2009/may/12/viewpoint-mps-expenses
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