UK: Pub 'tie' will not be investigated - OFT

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The legal tie between pub companies and their tenants in the UK does not hurt consumers and will not be investigated by competition officials, the UK's Office of Fair Trading (OFT) has said.

Its ruling, published today (22 October), follows the OFT's 90-day assessment of the so-called "pub tie" system in the UK.

The probe was was prompted by a "super complaint" about the tie, lodged by the Campaign for Real Ale (Camra) and which claimed that the tie resulted in unfair rents for pub tenants and higher beer prices for consumers.

"Having examined the issues raised in the super-complaint, the OFT has not found evidence that supply ties are resulting in competition problems that are having an adverse impact on consumers," said the competition watchdog today.

Around 24,000 pubs operate under the "tie" contracts also known as "wet rent", whereby pub tenants are obliged to buy their beer supplies from their landlords.

"The OFT has found that there is generally effective competition between pubs and does not consider that supply ties contribute to higher prices or prevent pubs offering a wide choice to consumers," it said, adding that the body will take no further action.

On rents, the OFT indicated that it considers the issue to be on the periphery of its remit.

"Although the OFT acknowledges the concerns of lessees, the objective of the OFT's work is to ensure that effective competition delivers value and choice to consumers."

Simon Williams, senior director of the OFT's Goods group, said: "Any strategy by a pub-owning company which compromises the competitive position of its tied pubs would not be sustainable, as this would result in a loss of sales."

More than 50 pubs are closing down every week in the UK, according to the most recent industry figures.

Williams added: "We understand that our response to CAMRA comes at a difficult time for the industry, but the evidence indicates that consumers benefit from a good deal of competition and choice within this sector."

The British Beer and Pub Association welcomed the OFT's "clean bill of health for the pub sector".

Brigid Simmonds, CEO of the trade body, said: "We will now continue to press ahead with implementing our agreed reform package to improve transparency and openness between licensees and pub owning companies. We will also renew our focus on working constructively with Government, MPs and other stakeholders - particularly on the critical areas of tax and regulation, which are the true cause of the current pressures on pubs."

Camra called on the Government to overrule the OFT and order a full investigation by the Competition Commission.

Camra CEO Mike Benner said that the OFT ruling "does nothing to address the imbalance in the landlord/ lessee partnership, which is leading to higher prices, less choice and weak investment in pubs".

In a report of the UK House of Commons Business and Enterprise Committee, published in May this year, analyst and investment broker Morgan Stanley said: "Arguably, [the tie] is exacerbating the volume declines in tied pubs, who are unable to reduce price without taking a significant hit to their cash margins."

Sectors: Beer & cider

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