Scottish Pubs Code and related regulations: business and regulatory impact assessment

6. Other Impact Assessments

Scottish Firms Impact Test

6.1. The Scottish Government has ensured that careful consideration is given to the impact on businesses so that the legislation is informed by a sound understanding of these impacts. Given that the main changes are introduced by the Scottish Pubs Code, our focus has been on understanding the impacts of this on businesses.

6.2. We sought to understand impact through our formal and informal consultations on the Scottish Pubs Code and informal consultation on the Arbitration and Fees and Financial Penalties SSIs.

6.3. A tailored approach to inviting views on the preparation of the BRIA, as part of the Scottish Firms Impact Test was adopted, and meetings were held with six businesses. Other businesses were invited to meet, but they did not take up this offer. The businesses who did not take up the opportunity to speak include some of the smaller pub-owning businesses who only operate in Scotland.

6.4. The questions asked depended on the business and their time available. A list of questions to one of the pub-owning businesses can be found in Annex D. In general, all businesses were asked about the size of their business and how the different proposals on MRO and guest beer would impact on them.

6.5. In addition to this, at our request, the SBPA also ran a short survey with their pub-owning business members on their pub estate, the impact of the Pubs Code (where applicable) in England and Wales and the likely impacts of the Scottish Pubs Code. This data was provided in May 2022. We asked for further data in May 2023, but they were unable to supply all of this, citing the ongoing Judicial Review. The SLTA ran a survey with tenants in June 2023, the results of this are in Annex E.

6.6. The findings from the meetings with businesses varied. Some key points are summarised below:

• For the craft brewers we spoke with, the guest beer agreements were seen as an opportunity for their beers to be considered for more taps in tied pubs. An unrestricted option would likely result in benefits for major beer brands and their producers. Options based on production levels of brands would deliver more benefits for smaller brewers. There were mixed views about where to set the production level cap.
• For the tenants we met, the MRO (MRO) option was of central importance since this could deliver savings on beer, even when this was partially offset by higher dry rent; this would allow them to fairly recoup the benefits of their pub operation. One tenant mentioned it could improve consumer choice. Another thought it would encourage tenants to seek further investment in their pubs, as they would receive a greater share of any additional profit/turnover.
• On guest beer, an unrestricted guest beer would deliver the most financial benefit to tenants. One tenant we met, however, thought the benefits would likely be offset by increases in rent over time so would be cost neutral. The benefits would also vary depending on the type of pub – some would be more focused on beer. The ability to request a rent review when material circumstances change would also be useful, with two tenants experiencing local economic changes recently.
• For the two pub-owning businesses we spoke to, they confirmed that an unrestricted guest beer approach would likely support sales of one particular beer, reducing their financial benefits. The more brands that were eligible for guest beer, the more this would likely reduce their profits and impact on their longer-term viability. In turn this could impact on investment.
• On MRO, pub-owning businesses highlighted that this created risk and uncertainty, particularly around investment. The longer the timescale that pub-owning businesses have to recoup investment through any MRO waiver provides more certainty. The benefits and costs for MRO would depend on a number of factors including the type of pub and tenant. The pub-owning businesses viewed administrative costs for dealing with MRO as a substantial impact (one pub-owning business in the Scottish Firms Impact Test said in England and Wales it cost £36,000 for a MRO notice, which is when a tenant submits a notice for an MRO lease and pub-owning businesses are required to provide an MRO proposal and considerably more to ensure compliance). For one pub-owning business, a deed of variation would create additional costs. Tenants undertaking MRO would also lose SCORFA benefits such as not having free Portable Appliance Testing. In their view, MRO could result in fewer opportunities for new entrants to enter the leased market.
• Both pub-owning businesses pointed to additional costs of rent review. As mentioned earlier, the SBPA found that amongst a survey of responding pub-owning businesses the average cost of a rent review was £1,750 in 2022.

Competition Assessment

6.7. The guest beer agreement policy may have an impact on competition amongst beer producers. The other policies would not impact on competition, although the creation of a statutory framework regulating pub-owning businesses’ relationships with tenants could change the pub market indirectly, as mentioned above. It could result in fewer pub-owning businesses leasing tied pubs, creating less competition for tied pub tenants. However, we understand that some of this is likely to result in tied pubs being converted into other pub models which could provide other opportunities for both tenants and pub-owning businesses to explore other types of pub management/ownership. The introduction of a levy for pub-owning businesses, which will be used to fund the office of the Scottish Pubs Code Adjudicator, could also act as a barrier to new potential pub-owning businesses, increasing the barriers to entry and potentially reducing competition.

6.8. Responses to the four Competition and Market Authority (CMA) assessment questions used to provide an initial assessment of competition are as follows:

1. Will the measures directly or indirectly limit the number or range of suppliers?

6.9. None of the guest beer agreement policy options will directly distinguish between suppliers. Options 2 and 3 focus on beer brands and the level of production of these brands.

6.10. Options 2 and 3 may provide greater opportunities for small-scale producers to sell beer to tied pub producers than is currently the case but large-scale producers could also benefit under these options if they were to release a brand of beer with a limited production level. Option 4 would provide scope for all producers to sell produce to tied pubs. It would probably provide more benefit for large-scale producers with well-known beers which are popular with consumers but not currently sold alongside tied beers.

2. Will the measures limit the ability of suppliers to compete?

6.11. The situation is as described above under Question 1.

3. Will the measure limit suppliers’ incentives to compete vigorously?

6.12. The situation is as described above under Question 1.

4. Will the measure limit the choices and information available to consumers?

6.13. The policy is expected to increase choice for consumers. An in-depth competition impact assessment has been considered but is not required.

Consumer Assessment

6.14. The policy will have a positive impact on consumers.

1. Does the policy affect the quality, availability or price of any goods or services in a market?

6.15. The policy would not negatively impact on consumers including those whose circumstances may be more vulnerable.

6.16. There may be a wider choice of beers available in tied pubs as a result of the policy on guest beer agreements. These may or may not be sold at a higher price than other beers offered but the choice of beer purchased will remain a decision for the individual consumer.

6.17. The opportunity to request MRO leases might impact on consumers if these arrangements led to previously tied pubs being operated more or less efficiently, potentially with a wider choice of goods.

2. Does the policy affect the essential services market, such as energy or water?

6.18. No

3. Does the policy involve storage or increased use of consumer data?

6.19. No

4. Does the policy increase opportunities for unscrupulous suppliers to target consumers?

6.20. No

5. Does the policy impact the information available to consumers on either goods or services, or their rights in relation to these?

6.21. No

6. Does the policy affect routes for consumers to seek advice or raise complaints on consumer issues?

6.22. No

Test Run of Business Forms

6.23. There is no intention at this point to introduce new forms for business or others to complete. If this were to happen then we commit to test run these forms before introduction, with those who would be using them, in order to ensure they are easy to use and fit for purpose.

Digital Impact Test

6.24. The policy will not have an impact on, or be impacted by, digital processes.

6.25. A Data Protection Impact Assessment has been completed for implementation of the Tied Pubs (Scotland) Act 2021.

Legal Aid Impact Test

6.26. The Tied Pubs (Act) 2021 already makes provision for a number of appeals and it creates a legal framework for new legal processes and arrangements to deal with disputes. This section does not seek to cover these here.

6.27. The Tied Pubs (Scottish Arbitration Rules) Amendment Order 2024 will enable parties to appeal and challenge a decision by the Adjudicator under Part 8 of the Arbitration Act 2010 to the Outer House of the Court of Session. The Order could also result in parties being liable for any Adjudicator fees and/or Court fees, in addition to their own legal expenses, which could result in request for legal aid.

6.28. In England and Wales (where a similar regime is already in existence) only four appeals against arbitration decisions have been made since 2016, and the last one was made in 2021 (however this only relates to cases which went to a full hearing in the High Court). There are much higher numbers of tied pubs covered by the scheme in England and Wales (over 8,000) compared to Scotland (just under 700). We therefore anticipate that the need for any request for legal aid will be low, given that legal aid is means tested on the basis of both income and disposable capital. In a non-representative survey of tenants, 25 out of 31 had a take home pay of less than £25,000, indicating that there could be some call for legal aid, however due to the very low number of appeals against arbitration that have been made in England and Wales it is likely that this SSI will only have a minor impact on the legal aid fund in Scotland.

Enforcement, Sanctions and Monitoring

6.29. Oversight and enforcement of the Scottish Pubs Code is the responsibility of the Scottish Pubs Code Adjudicator.

6.30. Financial penalties are set out in the Tied Pubs (Fees and Financial Penalties) (Scotland) Regulations 2024.

Implementation and Delivery Plan

6.31. The legislation required to implement and support the Scottish Pubs Code, including legislation with regard to financial penalties and fees and arbitration, is expected to come into force on 7 October 2024. It will be for pub-owning businesses to ensure that they operate in accordance with the code, in relation to their tied pub tenants. Oversight and enforcement will be a matter for the Scottish Pubs Code Adjudicator.

Post-implementation Review

6.32. Scottish Ministers are required to review the Scottish Pubs Code and the performance of the Adjudicator, once these are established, over the first two years of operation and then at three yearly intervals thereafter. The first review period would conclude on 31 March 2026 and the Scottish Government is required to prepare a report as soon as possible after that date.

6.33. The Adjudicator is also required to prepare and make public an annual report of its activities during the financial year, which will inform the review. Scottish Ministers must lay a copy of the annual report before the Scottish Parliament every year.