Pub leaseholders slaving away at £1 an hour are being squeezed by pubcos that are billions of pounds in the red
Besides the modern fondness for being home alone, what explains the decline of the British pub? There are two stock answers: the smoking ban, and cut-price alcohol in supermarkets. But there is another story, bound up with the frenzy of speculation that preceded the crash of 2008, and its aftermath. It involves huge, debt-laden pub companies – or "pubcos" – and scores of their leaseholders who feel they are paying the price for other people's mistakes. Here, then, is yet another modern economic morality tale, with deep echoes of what happened to the banks.
Having been alerted to the issue in Paul Moody and Robin Turner's inspired book The Search for the Perfect Pub: Looking for the Moon Under Water, this is what brought me to Millbrook, on the Rame peninsula in Cornwall's Forgotten Corner. Here I found the Devon and Cornwall Inn, run by 49-year-old Russell Ham, and leased by Punch Taverns, who own around 5,000 British pubs, putting them second only to Enterprise Inns in the pubco hierarchy.
Punch was founded in 1997. To quote from one profile, it has since "merged, demerged [and] remerged" – and crashed, horrifically. The company remains over £2bn in debt. (Enterprise Inns' figure is £3bn.) Between 2008 and 2011 its share price fell by 95%. In 2011 Punch announced the demerger of a division known as Spirit, and a plan to let go about 40% of its pubs.
Ham has had the lease on the Devon and Cornwall since 2003. He puts in a 95-hour week, and last year his profit came in at only £3,000: "I'm on a pound an hour," he says. In the midst of the credit crunch, his rent went up by 8.5%, though Punch says that it has responded to the downturn by giving their lessees "rent and discount concessions" that cost them £2m a month.
On the face of it, the Devon and Cornwall has benefited: in 2010 and 2011, Ham successfully fought to have his rent temporarily cut by around 25%. But he remains anxious: he now fears another rise, which he thinks will make life impossible. It surely needn't be: on the night I visit, the pub is full; the food has an enviable local reputation, and Ham puts his turnover at around £170,000.
In any case, arguments about his rent are offset by the most eye-watering aspect of his business. Thanks to what's called the "tie", he has to buy all his beer, cider and soft drinks direct from Punch, at rates that can be 50% higher than on the open market – and just to make sure that he does, an infamous metering system called Brulines ensures that his masters can keep tabs on every last drop.
The Devon and Cornwall's story is hardly unique. In 2009, research commissioned by the House Of Commons business select committee found that 67% of tied publicans earned less than £15,000 a year, and 64% thought that their pubco added no value to their business. Punch tells me that it has "moved a long way in the last three years", and has made the symbolic shift of renaming its lessees "partners" – but Russell Ham still wants to join the droves of publicans who have sold up and got out of the trade.
Unfortunately, there is one other cruel twist: with the pub industry as depressed as it is, the asking price for his leasehold has been cut by half. So the best that he can hope for is to walk away, having written off around £100,000 that he has personally invested in the pub.
As he and plenty of other lessees see it, they shoulder all the risk, and the debt-plagued pubcos are chiefly interested in maximising their cut of any profits. The point is underlined by another Millbrook local called Jenny Brazier, the ex-landlady of a pub called The Mark Of Friendship, who poured her own money into doing it up.
She says that Punch attempted to grab a cut of any resulting increase in takings by raising her rent. The business proved to be untenable: she left in 2009, and declared herself bankrupt. "I felt reborn – I had my life back," she tells me. She now works in the Plymouth Marks & Spencer.
When we canvassed for views on Comment is free, one DaveAboard brought news from another corner of rural England. "The pubco-owned pub in my village is closing down this Saturday, as the couple who manage it say they have simply had enough of banging their heads against a brick wall," he wrote. "The owners pay them 17.5% of the net take … Both of them also have had to take on jobs elsewhere on top of the 80 hours they work in the pub … To cap it all, the pubco just put the beer price up 15p-20p per pint… and with an inevitable further increase due in the budget, they realised they had better things they could be doing with their time."
MPs' postbags and inboxes have long brimmed with correspondence about all this. The government favours a code of practice, which it talks up as a "tough and legally binding form of self-regulation". But in January, pushed by campaigners who want to give tied publicans new rights, MPs voted in favour of a comprehensive review of the existing arrangements, which would report back in the autumn.
Not that anyone seems to have noticed, but the government has since decided to ignore parliament: the minister responsible for pubs, Norman Lamb, says the plan that was voted for isn't "appropriate". For Russell Ham, meanwhile, the pub trade grinds on: a life lived on loose change, and yet another example of what we are now getting used to calling irresponsible capitalism.
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