Inquiry urged into pub competition

The Business and Enterprise Select Committee said the practice in which pub firms compelled tenants to buy drinks from them - the "beer tie" - should be "severely limited".

The committee was "disappointed" at the Office of Fair Trading's reluctance to re-examine the beer tie's impact and called for a Competition Commission probe.

"There... are strong indications that the existence of the tie pushes up prices for consumers," the MPs said.

'Pubcos' such as Enterprise Inns and Punch Taverns fall under the spotlight in the committee's report, after claims that firms use their strong position to impose heavy rental burdens - while failing to pass on the full benefit of discounts on beer to tenants.

The report said: "The failure of the pubcos to pass on the benefit of their discounts to the lessees prevents the lessees from passing on the benefit to the consumer in terms of reduced prices."

This has led to an "ever increasing disparity" between the price of beer in pubs and off-licences, it adds - undermining the viability of many pubs, as tenants are forced to increase prices and encouraging the trend towards drinking at home.

An independent survey commissioned by the MPs also found that almost two-thirds of lessees did not think pubcos added any value, while 67% of tenants earned less than £15,000 a year.

Although the report admitted other pressures on pubs, such as changing consumer preferences and recession, an average of 39 pubs closed every week in 2008, compared with eight in 2004.

"It is to the overall detriment of the consumer if pubs are forced to close due to uncompetitive practices in the market," the report added.