Giles Thorley and the Great British Pubco: a Sordid Tale of Inequality and Subjugation

Wednesday, 23 June 2010

After nine-years at the helm of Britain’s biggest pub company, Giles Thorley announced in March that he is to stand down as Chief Executive of Punch Taverns in order to pursue “time with his family”. The departure is amicable – a statement issued by Punch thanked Thorley for his “incredible commitment and drive” – but as the door closes behind him he will leave in his wake a trail of debts, bankruptcies and boarded up pubs; his steps towards life as a family man slowed only by the sheer weight of the gold lining his pockets.

Amassing for himself a personal fortune of an estimated £30m during his short tenure at Punch, Thorley’s success was built upon a mountain of debt. Clinging to his unwavering belief in the model of securitisation throughout the recession, he led the company down a path that seen them sink £4.5bn into the red, as the company estate was used as an asset in order to expand the Punch empire to encompass what at one point reached more than 8,500 properties UK-wide.

In the face of massive arrears, though, Thorley reaped rewards. He earned £11.3m for a year’s work in 2007, yet his accumulation of wealth was starkly contrasted with the struggling plight of those renting pubs from Punch Taverns. The Guardian’s annual survey of executive pay awarded Thorley the dubious honour of “boss whose salary is most out of line with his employees,” for, as the report noted, his remuneration package was equal to 1,147 times that of his workers. The TUC’s general secretary, Brendan Barber, described Thornley's pay-packet as “morally offensive."

But such a stark level of inequality is not confined only to the bank balance of Punch Taverns' outward-bound CEO – rather, it is engrained in the very fabric of the pubco and its culture. A government report in 2009, for example, found that over 50% of lessees whose pub had turnover of more than £500,000 a year earned less than £15,000. “The pubcos may share the risks with their lessees but they do not share the benefits equitably,” it concluded. According to a separate report carried out by researchers at the University of Durham – which surveyed 3,000 landlords on their income, rent and costs – 73% of publicans on a ‘tied contract’ with a pubco earn less than £10,000 a year from the business.

A tied contract is, like its name suggests, a state of bondage. It is a ball and chain around the ankles of pubco leaseholders that forces them to work twice as hard as their ‘free’ counterparts for not even a fraction of the same reward. Seduced by the prospect of affordable entry into the pub trade, prospective tenants are lured into signing up with promises of reduced rent. However, obligated to purchase some or all of the beer sold on their premises at an inflated price from the landlord (i.e. Punch), as well as share with them profits from pool tables and fruit machines on top of meeting rent payments, the reality is in fact that it is often a struggle to make ends-meet for tied-tenants.

The arrangement is almost feudal in character, with leaseholders bound to a kind of contractual serfdom. Told they are ‘partners’ but treated like slaves, they are subjugated, regulated and observed from a distance by their lord and master. Every pint they pull is monitored at all times by an electronic device to make sure they don’t dare purchase beer from anyone else but the pubco.

Horror stories told by current and ex pubco leaseholders share the same narrative, to the point that reading alternative accounts becomes like a case of déjà vu. “My niece and myself are Punch Taverns tenants and we have had a tortuous time” wrote Graham Brown in a memorandum submitted to the Business and Enterprise Committee, “Pub Companies are using their purchasing power to increase profits rather than to benefit the tenants." Another Punch leaseholder named Val Hogan echoed the same sentiment in a post made on the Times Online website: “This company has single handedly showcased to me what greed actually means,” she wrote. “They take your money, your hard work, treat you like you are an idiot… 45k may not be a lot to them, but it sure as hell meant a lot to me, it was my house, and I lost it. Thanks Punch.”

Aware of the severity of the problem, the Business and Enterprise Committee (now the Business, Innovation and Skills Committee (BISC)) began an investigation into pubco practice in 2004, with a follow up report published in 2009. Initially it was conservative in its recommendations, stating it was not clear "that removing the beer tie would make tenants better off" – but by 2009 the committee was fairly unequivocal. Quoting an FSB poll, the 2009 report noted that “94% of respondees wanted an end to the tie." It added that “the consistency of these themes suggests that something is seriously amiss." The committee finally recognised that the beer tie results in a “decrease in the lessee's income [that] is absolute”.

There is now widespread political support for pubco reform. Labour, the Conservatives and the Liberal Democrats, as part of their policy proposals announced prior to the general election, all pledged to implement statutory regulation should the industry refuse to self-regulate – providing cross party backing for the stern warning issued by the BISC in March. “If [the industry] fails to deliver on its promises by June 2011,” the BISC wrote, “it should be in no doubt what the reaction will be.”

Attempting to forestall government action, Punch Taverns has announced that it will trial a ‘free of tie’ lease in September, but scrutiny of the terms of what the company is calling the “Punch Buying Club” proves it is little more than an exercise in clever P.R – only some beer will qualify as ‘free of tie’ and any money the tenant saves in beer discounts will be quickly swallowed by a sharp increase in rent. In essence, the relationship will not change.

Statutory regulation is what is needed, for the notion that the market can and will regulate itself has again been exposed as one of the greatest fallacies in modern times. Too much damage has already been done. For too long the government has sat back apathetically whilst pubcos have swung wrecking balls repeatedly at the foundations of equity and decency in the name of profit. Giles Thorley might be sailing off into the sunset £30m richer, but thousands of pubco leaseholders are crammed onto a single ship and it’s sinking. It’s about time we sent a rescue party.