Government ignores MPs' vote on PCA job

Adjudication without credibility
is worthless

I have written several times about the pub code adjudicator, Paul Newby, including:

• how his business interests would provide a conflict of interest in his new rôle;
• how pubcos were sidestepping the pubs code;
• how the government refused to review his appointment.

The issue hasn't gone away, and the House of Commons has voted to "reopen the appointment process for the PCA (pubs code adjudicator)". While the minister from the Department for Business, Energy and Industrial Strategy admitted that pubcos were "flouting the code", the solution she suggested was for the licensees affected to use the PCA. A Tory MP added that the appointment complied fully with the code of practice for ministerial appointments to public bodies.

This is missing a significant point: that such an appointment should not only be compliant with the code, it must also appear credible to the people for whom the post has been created: in this case, pub licensees. In the debate, Lib Dem MP Greg Mulholland described Newby's position as untenable, explaining that there is a real possibility that he will undermine the intentions behind the pub code. He concluded: "All the people that the British Pub Confederation is representing in cases oppose Mr Newby, have no confidence in him and he will have to go. It will happen; it depends on if we see leadership from the Government or whether this has to drag on for another six months or a year, but this will not go away."

The longer this controversy continues, the more Newby's credibility in the job will plummet. The government's position should not be determined by a refusal to admit a mistake. I can only conclude that they don't want to lose face, but the risk of that will be greater as time passes. It would more sense to cut their losses now, accede to the MPs' vote, and reopen the appointment process.

Pub adjudicator reveals commercial interests

I've written on 10 June 2016 and 30 November 2016 before about how the pub code adjudicator (PCA), Paul Newby, has financial interests that could compromise his independence; my post in June goes into detail about his investments. Mr Newby has decided to publish full details of his financial involvement in Fleurets in order to answer charges of a conflict of interest: the details are in the Morning Advertiser.

A spokesperson for the PCA has said: "These pre-existing interests do not call into question his ability to carry out his responsibilities. This is a view that has been upheld by the commissioner for public appointments. There is no direct link between the ownership of shares and loans and the decisions Mr Newby is required to make as the adjudicator. He gains no direct benefit from future instructions to Fleurets or the outcome of any particular case involving the company and there is no incentive for him to act in any particular manner."

Does that answer all the criticisms? In my opinion, the use of the word 'direct' twice in this statement leaves questions unanswered. It could be argued that a decision he may make in a pubco's favour could benefit him indirectly. After all, he doesn't want a company in which he has a sizeable stake to lose value, thus jeopardising repayments to him. If I had money invested in a company, I'd want it to do well. Greg Mulholland MP has asked why someone with a legal background wasn't appointed, a suggestion I made in a comment to my post in June; such an appointment would not have been touched by this kind of controversy.

For all I know, Mr Newby may well be a man of integrity who is committed to doing his job fairly; I certainly hope so, and the increased openness is to be welcomed. However, the question of how he is perceived remains unanswered, so I'm inclined to doubt that all the critics will be satisfied.

Compromised pub code adjudicator to keep job

They say justice is blind.
Deaf too, in this case.

I wrote in June about the genuine questions over the suitability of Paul Newby for the post of pubs code adjudicator (PCA): "It is not hard to see why Newby lacks credibility among the people who would have to rely on him to adjudicate on disputes with their landlords, given that the latter are major customers of the company in which he has a big shareholding and which owes him a lot of money."

Iain Wright MP, chair of the Business, Energy and Industrial Strategy (BEIS) committee, has just sharply criticised the government for its refusal to reopen the appointment of the post, having expressed the committee's concerns about Newby's suitability to the Secretary of State for BEIS Greg Clark in July.

Clark belatedly replied to the BEIS committee this month, four months later: "The appointment process was run in accordance with the code of practice for ministerial appointments to public bodies. As part of the appointment process, the panel considered whether Paul Newby has conflicts of interest that might call into question his ability to do the job and concluded he did not." So that's all right then. Such a bland and uninformative reply could have been cobbled together in five minutes, so why did it take four months? My guest it's because Clark hoped the issue would have faded away by now.

If you want to judge this dispute for yourself, the facts of Newby's past active involvement and current financial stake in pubcos are in my previous post. Iain Wright emphasised that they are not doubting Paul Newby's personal integrity or suitable experience; rather they are saying that it's not enough to be be squeaky clean - it's essential to be perceived as such. Licensees approaching Newby for an impartial adjudication will not be reassured by Clark's curt dismissal of any valid concerns.

In my previous post, I asked whether this all might be a gigantic cock-up. I now think the answer is 'no' and am inclined to believe that pubcos were persuaded to go along with the creation of this post on the basis that the PCA would be a sympathetic appointee.

Sidestepping the Code

In July, the Pub Code finally came into force allowing pub tenants to ask their pubco for a market rent only (MRO) deal, which would allow them to buy beer on the open market in exchange for paying a commercial rent on the premises. All well and good, except that pubcos, most of which have accrued a mountain of debt (basically because they're rubbish capitalists), are not playing ball.

One tenant reported that when he requested a change to an MRO tenancy, as is his legal right, the rent offered was double, which would have left him much worse off as the rent would have been nearly double the national average for free-of-tie rents. Punch have consistently refused to explain the figure.

Another tactic is the insist on a new contract, although it is much simpler and cheaper to vary the existing one. Thousands of pounds are then demanded in stamp duty, legal fees, and a premises licence fee, whatever that is. Other charges added to the switch to MRO mean some licensees have been expected to find nearly £200,000 up front.

It's a good job we've got the Pubs Code Adjudicator then, except that there are serious doubts about Paul Newby's impartiality (see my earlier post about him). The first referrals have arrived on his desk, but as such referrals costs £200 each plus legal costs, which can add up to thousands, licensees are not going to go down this path lightly.

Punch say they are "open to negotiation at any rent event". If they were prepared to enter negotiations in good faith, then licensees wouldn't be turning to the adjudicator. The fact that some of them are shows that being open to negotiation is by no means the same as being prepared to negotiate.

Who will adjudicate the adjudicator?

It doesn't look as though the anger over the appointment of Paul Newby to the new post of Pubs Code Adjudicator (PCA) by the BIS secretary Sajid Javid is likely to dissipate soon. Newby has conceded that he has worked mainly for Enterprise, Punch and Marstons over the last five years, but either does not, or chooses not to, understand that his new role could bring him into conflict with his former paymasters. However, this matter goes further than that.

Newby was a director of Fleurets, which describes itself as a 'UK business property valuers and surveyors specialising in pubs, hotels, restaurants, licensed property and business properties for sale and to let.' He resigned as director a couple of months ago, but still owns an 11.52% stake in the company. The company hasn't been doing well in recent years and the directors and their spouses had to make secured loans to it of £2.5 million, with further unsecured loans of more than £600,000. We don't know the size of Newby's loan, but it is clear that he still has a major financial interest in Fleurets' survival.

Pub companies pay Fleurets more than a £1 million a year for its services, and should Newby decide to adjudicate against them, they may well take their custom elsewhere; Fleurets would then collapse, taking his investment with it. LibDem MP Greg Mulholland's assertions that Newby would not be independent as PCA have been branded a 'disgraceful set of slurs' by BIS minister Anna Soubry, but her mock-indignant huffing and puffing does not address the fact that Newby stands to lose a lot of his own money if pubcos decide to punish his company for any adverse decisions he might make in his PCA role.

It is not hard to see why Newby lacks credibility among the people who would have to rely on him to adjudicate on disputes with their landlords, given that the latter are major customers of the company in which he has a big shareholding and which owes him a lot of money. Is this a gigantic cock-up? Or were pubcos persuaded to accept the creation of the Pubs Code on the basis that the adjudicator would be someone whom Sir Humphrey Appleby would describe as 'sound'? Either way, if the government is serious about the code, it needs to back down and appoint another, more obviously independent, person to the job.

The only surprising thing about this whole affair is how the government has walked blindly into a controversy that was both foreseeable and avoidable.

Main sources: Private Eye and The Morning Advertiser.