Small Business, Enterprise and Employment Bill
(10 years, 1 month ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
15:59 - The House divided: - Ayes: 284 / Noes: 269 - Question accordingly agreed to.
16:18 - The House divided: - Ayes: 238 / Noes: 302 - Question accordingly negatived.
18:32 - The House divided: - Ayes: 229 / Noes: 295 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 2—Pubs code: market rent only option for large pub-owning businesses—
‘(1) The Pubs Code shall include a Market Rent Only Option to be provided by large pub-owning businesses in respect of their tenants and leaseholders.
(2) A Market Rent Only Option means the right of the tenant, or leaseholder, of a pub owned by a large pub-owning business, to be offered such tenancy or lease in exchange for an independently assessed market rent paid to the pub-owning business and, for the avoidance of doubt, not thereafter being bound by “a tie”, meaning an agreement meeting, in whole or in part, Condition D as defined in section 63(5) of this Act (obligation to buy from the landlord, or from a person nominated by the landlord, some or all of the alcohol to be sold at the premises).
(3) For the purposes of this section, the definition of Condition D in subsection (2) is to be interpreted to include an obligation to buy or contract for goods and services other than alcohol.
(4) For the purposes of this section, the definition of a “large pub-owning business” is a business which, for a period of at least six months in the previous financial year, was the landlord of—
(a) 500 or more pubs (of any description); and
(b) one or more tenanted or leased pub.
(5) The Pubs Code may include provisions to permit a brewery which qualifies as a large pub-owning business to continue to require that specified brands produced by that brewery (required products) are sold within its tenanted or leased pubs—provided that such tenants and leaseholders are free to purchase such required products from any supplier.
(6) The Pubs Code shall contain provisions requiring that the offer of a Market Rent Only Option to a tenant—
(a) at the point of lease, tenancy contract or other agreement renewal, or at rent review or five years from the date of the previous rent review;
(b) when the large pub-owning business gives notice of, or imposes, (whichever is the earlier) a significant increase in the price at which it supplies products, goods or services (falling under subsections (2) or (3)) to the tenant;
(c) when a large pub-owning business implements, or gives notice of, a transfer of title;
(d) when a large pub-owning business goes into administration; or
(e) upon an event outside of the tenant’s control, and unpredicted at the time of the previous rent review, that impacts significantly on the tenant’s ability to trade.
(7) The terms of an offer under subsection (5) shall include provision for a 21 day period of negotiation, commencing from the tenant giving notice of an intention to pursue a Market Rent Only Option, in which the large pub-owning business and the tenant may seek to negotiate a mutually agreeable Market Rent Only settlement.
(8) Following the negotiation period under subsection (7) there shall follow a 90 day period of assessment. In this period—
(a) an independent assessor shall be appointed with the agreement of both parties by joint private instruction and on the basis of an equal apportionment of costs; and
(b) under arrangements and criteria that the Adjudicator shall establish, such an assessor shall be—
(i) independent of both parties; and
(ii) competent by virtue of qualification and/or experience.
(c) if the business and tenant cannot agree on an appointee then a person shall be appointed, on the application of either party, under arrangements established by the Adjudicator;
(d) the appointed assessor shall then assess the market rent for the property operating as a pub with no “tie” as defined in subsection (2) and submit to both parties the resulting sum for such a rent; and
(e) at the time of the three month assessment period, the tenant shall have the right to pay no more than the sum determined under paragraph (d) to the pub-owning business and, if previously one party to a “tie” as defined in subsection (2), shall no longer be bound by it.
(9) The Pubs Code shall contain such measures as ensure that—
(a) the Market Rent Only Option is conducted in accordance with timing provisions and procedures, in accordance with RICS guidance, as specified in the Pubs Code; and
(b) large pub-owning businesses are prohibited from acting or discriminating against any of their tenants who choose the Market Rent Only Option.
(10) The Secretary of State shall confer on the Adjudicator functions and powers in relation to the Market Rent Only Option, that include—
(a) determining what constitutes a significant increase in price, as mentioned in subsection (6)(b) in the event of a dispute between tenant and business;
(b) adjudicating in disputes concerning the process or outcome of the market rent assessment; including the power to set the market rent if the Adjudicator deems the process or decision to have been flawed; and
(c) receiving, investigating and adjudicating in relation to complaints made under subsection (9)(b).
(11) The Secretary of State shall make provisions for the implementation of the following measures in this section by regulations amending the Pubs Code. Such regulations shall be made under negative resolution procedure. The Secretary of State may make provisions changing the types of agreement that fall under subsection (2) by regulations. Such regulations shall be made under negative resolution procedure.”
Government amendments 29 to 41.
Amendment 5, in clause 6, page 47, line 19, leave out “tied” and insert “tenanted, leased or franchised”.
Government amendments 42 to 58.
Jo Swinson
I am glad to be able to get on to the debate on part 4 of the Bill, which is about pubs. There was considerable debate in Committee on the measures to introduce a pubs code adjudicator and a pubs code, and I am sure that we will have another lively debate today. As my right hon. Friend the Minister for Business and Enterprise has already mentioned, there is considerable interest in this matter in all parts of the House, and it is important that we have good scrutiny of the Bill.
New clause 6 ensures that the definition of a tied pub does not inadvertently capture restaurant or hotel premises, which was a concern raised in Committee. We are aware of one fish and chip restaurant chain that could meet the conditions set out in clause 63, and it is possible that there are others. We all know a pub when we see one, and we all know the difference between a pub and a fish and chip restaurant, but defining that in legislation can prove difficult, particularly given increased food consumption in pubs, which is in large part the result of the hugely successful smoking ban making the experience much more enjoyable. That is a new way in which pubs have diversified, and indeed increased their income, but it makes separating them by legal definition more complex.
New clause 6 therefore provides the Secretary of State with a power to exempt a particular type of tenant or premise from the pubs code in secondary legislation, so that we can ensure that it is only pub premises that are in scope. For the avoidance of doubt, amendment 58 sets out that regulations created through the exercise of that power will not be subject to the hybrid instrument procedure.
There are two other big issues addressed by the amendments in this group. Our discussions today obviously follow many years of consideration by the Select Committee on Business, Innovation and Skills, which has, along with its predecessor Committees, looked in particular at problems in the tied pub sector—I think that there have now been four reports. I would like to pay tribute to the hon. Member for West Bromwich West (Mr Bailey), who I see is here, as well as to his Committee and its predecessors for all their work to ensure that the problems were heard, investigated, documented and addressed.
We heard concerns from Members on both sides in Committee about smaller companies and family brewers being covered by the statutory code and adjudicator. We also heard assurances, through the evidence submitted by smaller companies and family brewers, that they would continue to fund the voluntary regulation system, which I know many hon. Members feel strongly about.
Richard Fuller (Bedford) (Con)
The Minister says that there were concerns, but will she also acknowledge that the Government were defeated in Committee because of the strength of those concerns?
Jo Swinson
Absolutely. We have been considering how best to respond to those genuine concerns. This Government have no wish to overburden small business. Indeed, we have done a huge amount to reduce regulation on business, particularly small business. Of course, this is a small business Bill. We are trying carefully to strike the right balance between helping smaller pub-owning companies and helping individual tenants and small business people who are struggling with some of the difficulties documented in the Select Committee reports.
We have listened to all the concerns put to us and, on further reflection, have decided not to press amendments 29 to 33, 41, 43 and 44, which were designed to reinstate smaller pub companies within the scope of the statutory pubs code, albeit with lesser requirements. Instead, we will bring forward amendments in the other place to change the exemption to those companies that own fewer than 350 tied pubs. We think that strikes the right balance between preventing overburdening of genuinely small family brewers and ensuring adequate protection of tied tenants in a way that is proportionate.
The hon. Member for Chesterfield (Toby Perkins) made the point in Committee that a threshold of 500, which would have been set out in the Bill, would not have ended up capturing some groups that perhaps would have been expected to be captured. This change will ensure that the adjudicator’s attention, and indeed the costs of compliance with the measures, is focused on the largest companies in the sector and on the end of the market where most complaints originate.
Richard Fuller
I just want to clarify what the Minister said. I think that I might be seeing the deft hand of my right hon. Friend the Minister for Business and Enterprise, who seems to be the only one in the Department who understands small businesses. Can the Minister explain to the House what the big difference is between 500 and 350, or is she just grabbing at a number that does not look like 500, which she said in Committee was the right one?
Jo Swinson
The hon. Gentleman could recognise and welcome the fact that the Government have responded to the concerns he raised and have moved on the issue, but he has chosen not to, given his comments about colleagues in the Department, with which I wholeheartedly disagree. We must ensure that we consider those concerns, but they were raised not only by his colleagues, but by my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert), who was a member of the Committee, and by Opposition Members concerned about the issue.
Toby Perkins (Chesterfield) (Lab)
That is a fundamental part of this. The Government lost the vote in Committee, and now they say that the Bill will go right through to Third Reading as it is, but that they have some vague idea of doing something about the matter in another place. As we have been through Committee and are now on Report, that does not give this House much opportunity to debate whether we are happy with these eventual changes.
Jo Swinson
We have between now and 4 o’clock to have that discussion. What I have clearly set out is in line with what the hon. Gentleman wanted in Committee, which was for smaller companies to be excluded. As I have said, he made the very reasonable and rational point that there were some companies—this deals with the intervention from my hon. Friend the Member for Bedford (Richard Fuller)—that had in excess of 400 tied pubs, for example, and it might seem strange to people that such companies would not be covered. We listened in Committee and now propose that the threshold should be 350 tied pubs, rather than 500. I think that it is a positive thing that the Government have listened to the views of hon. Members and responded accordingly.
Toby Perkins
For the benefit of the House, can the Minister clarify how many businesses she believes will now be brought into scope that would not have been previously?
Jo Swinson
Three further businesses would fall into that category. It is obviously a fluid issue, because companies buy and sell pubs all the time, so that might change in future.
Sheryll Murray (South East Cornwall) (Con)
I am grateful to the Minister for listening to the will of the Committee. It is reassuring that the Government listen when amendments, such as the one that I tabled, receive cross-party support. Will she please clarify whether, when she talks about tied pubs, she is referring to tied pubs excluding managed pubs—in other words, short-term tenancies and leases excluding managed houses?
Jo Swinson
The definition is as set out in the Bill. Where a pub is directly managed, it does not meet the definition of a tied pub. I hope that gives the hon. Lady the reassurance she seeks.
As I have said, the Government have listened and recognised that the largest number of concerns originate at the end of the market with the largest pub companies, which is why we will focus the pubs code adjudicator on those companies. We recognise that there are concerns about other parts of the market, but clearly the House can return to those issues in future if it so wishes. We think that focusing the adjudicator’s attention in that way will resolve the vast majority of the issues that we have identified in the market.
We have listened to the concerns about smaller pub companies and family brewers. Of course, later this afternoon we will discuss another issue about which hon. Members from various parties have expressed strong views. It is clear from the number of hon. Members who have put their name to new clause 2 that there is a strong desire in the House for the statutory code to go further and to introduce the market rent only, or MRO, option.
We ran a consultation on that whole issue. As I pointed out in Committee, and as was said on Second Reading, it was one of the most popular consultations the Department has run in a very long time.
It received a huge number of responses because tenants, individuals and campaign groups take a great interest in the issue. Many representations were made on whether there should be a market rent only option and there was support from many quarters for that approach, but we recognise that there could be uncertain outcomes from such an approach. We would not want unintended consequences to harm the sector and the people we are trying to protect—
Jo Swinson
I will finish my sentence, then I will give way to my hon. Friend, who has such a strong record of campaigning in this area.
We recognise that many hon. Members worry that the pub companies need the very real threat of tenants going free of tie before they will offer their tenants a good tied deal. I can commit today that the Government will bring forward amendments in the other place to respond to this. Following the many Select Committee reports and the campaigning by my hon. Friend the Member for Leeds North West (Greg Mulholland) and others in all parties in the House, we have listened to those strong representations and we plan to add to the Bill a power to introduce a market rent only option after two years if a review concludes that the measures have not delivered sufficiently for tied tenants.
Greg Mulholland
I thank my hon. Friend for all the work she has done. I will respond to that last point when I make my speech. She commented on the popularity of the consultation; two thirds of all who responded backed the market rent only option. None supported what the Government are proposing—a parallel rent assessment—so what was the point of the consultation?
Jo Swinson
The point of a consultation is to explore the issues and, if necessary, to make changes to the Government’s proposals in response. That is exactly what we have done. The parallel rent assessment responds to some of the concerns expressed in the consultation about the initial ideas that we had outlined. It is right that the Government should be flexible enough to respond to a consultation. If the Government go into a consultation with a set of plans and come out of the consultation with exactly the same set of plans, that means either that the plans were perfect—sometimes that may be the case—or that the Government refuse to listen. That was the point of the consultation on this issue.
My hon. Friend makes the point that there was great support in the consultation for a market rent only option. He is right. The Government recognise that. Although I appreciate that he will be disappointed that that will not culminate in the Government accepting his new clause 2, it gives a great fillip to campaigners who have worked on this issue and shows that the Government are serious. We think that the parallel rent assessment approach that we have outlined will deliver the “no worse off” principle, which we should all be able to agree is what we want for tenants. We will make sure that with the further power, the market rent only option is still on the table if, for any reason, the parallel rent assessment proposal does not deliver the intended outcome.
Toby Perkins
I will not dwell on the fact that the Minister is suggesting that a consultation is a success if the Government change their view and conclude that something that no one was asking for is the right answer. The industry is desperate for certainty. If we come out of the process proposing another review in two years which might change the whole landscape yet again, does the Minister agree that we will have failed to give the industry the certainty it requires?
Jo Swinson
We recognise that a significant number of companies appreciate the beer tie. For many tenants and companies it is a model that works well, as Members on all sides would agree. Therefore, we do not want to undermine it. There is a danger that that could happen under the market rent only option. Equally, I understand that many people advocate that as a market-based solution to deal with the issue. We are trying to forge a way forward that will have the confidence of the industry and will allow the market rent only option to be introduced two years after commencement of the Bill if a review finds that the parallel rent assessment is not working. It is clear that the “no worse off” principle is paramount and needs to be delivered. We believe that the parallel rent assessment will deliver that, but if it does not, we do not want to have to introduce another piece of primary legislation. We want the Government to be able to act swiftly.
Anne Marie Morris (Newton Abbot) (Con)
I have listened with interest to the discussion of issues relating to new clause 2 and I agree that it is good to hear that the Government have moved on these matters. However, two years is a long time into the future. Another Government will be in office and a review would be toothless unless we are very clear about the criteria for judging whether the Government’s current proposals have succeeded. I would be grateful if the Minister clarified she is proposing. It needs to be concrete and specific to have any value.
Jo Swinson
We are proposing a power for the Secretary of State to introduce the market rent only option following a review that finds that tenants are not sufficiently protected by the system that we put in place. An important point that should reassure my hon. Friend is that we are creating a pubs code and putting a pubs code adjudicator on a statutory footing, so there will also be a significant individual who is independent, who is an expert and who has great experience of dealing with disputes. If cases go to arbitration, the adjudicator may be involved in investigations as well. The pubs code adjudicator will have a substantial amount of information at his or her disposal. We will not be in the situation that we have been in up to now, where it would be more difficult to assess the position. The adjudicator will enable us to make that assessment and to have an independent voice to set out what may need to happen further.
Andrew Griffiths (Burton) (Con)
Does the hon. Lady accept that, in an industry that employs thousands upon thousands of people and creates millions of pounds-worth of wealth for this country, there will be incredulity that amendments are to be made within hours of the Bill leaving this House? We have had four BIS Committee inquiries into this and years to discuss the issues, yet the Minister comes scrabbling to the Dispatch Box just a few hours before we are due to vote on the measure. How can that give the industry any confidence?
Jo Swinson
I regret the fact that my hon. Friend is disappointed, but he was often disappointed in the Public Bill Committee when we were not able to accept his amendments on a range of issues that, if taken together, would have undermined the purpose of the Bill. I know that he speaks up for his constituents and he represents one of the larger pub companies that has its base in his constituency, so I understand where he is coming from. His view of what needs to happen to address the problems and injustices in the industry is very different from that of many, and perhaps most, Members of Parliament. We want to make sure that we get the details right. We want to listen to the House. That is what a responsible Government do.
Richard Fuller
Perhaps I was unchivalrous earlier when I said that the Minister does not understand business. It is clear that the Government are on the run. This is the second issue on which they are proposing changes. What role has the Secretary of State for Business, Innovation and Skills played in these last-minute shenanigans?
Jo Swinson
Yes, the hon. Gentleman was unchivalrous and I am not sure he rescued the situation with that intervention. My right hon. Friend the Secretary of State, my right hon. Friend the Minister for Business and Enterprise, who is my fellow Bill Minister, and I discuss these issues as the hon. Gentleman would expect, as we try to make sure that we give the right response to the concerns raised in Committee.
Jo Swinson
I would like to make a little progress, then I will give way to my hon. Friend.
We have set out in the Bill the parallel rent assessment process, which gives tenants the opportunity to request a parallel rent assessment so as to be able to ascertain—
Jo Swinson
I have said that I will make some progress and then I will be happy to give way.
The parallel rent assessment process will enable tenants to get the information they need to assess the deal that they are being offered by their pub company—to look at the figures and decide whether they are being offered a good deal or would be better off under a free-of-tie option. Of course, the pub companies would hope that if, as they say, they are offering a genuinely good deal under the tied model, then very many tenants will be very happy to continue in that vein. However, if the parallel rent assessments show that they are worse off, or if there is a suggestion that the parallel rent assessments are not being properly and accurately completed, then the adjudicator has the power to ensure that the assessment is done again or, if necessary, to provide for a different rent to be set. The parallel rent assessment has the potential to revolutionise the experience of tenants, and it should reassure them that we are serious about this. If the pub companies do not reform and their behaviour continues as it has, we will be able to legislate further to introduce the market rent only option to ensure that tenants get a good deal.
I hope that my hon. Friend the Member for Leeds North West and those supporting his new clause will be reassured by this commitment. It is right that we give the new system a chance to deliver a fair deal, with an added power for Government to introduce a market rent only option should pub companies fail to do as they should. I think that that will focus minds. I am keen to listen to the debate that will take place on this issue.
Jo Swinson
I will; I said that I would once I had made some progress. Perhaps that was not clear to my hon. Friend.
Sheryll Murray
I wanted to intervene on a specific point, but I am grateful to the hon. Lady for eventually giving way. Will she please confirm what dialogue she has had with the industry, since the Committee stage just a couple of weeks ago, about the new measures of which she is informing the House today?
Jo Swinson
This is not the first intervention that my hon. Friend has made, and I am obviously happy to respond to it. The industry has made significant representations in writing and had the opportunity to contribute at the public evidence session, which is an excellent, fairly new innovation in this House from which we all benefited in Committee.
Jo Swinson
I would like to finish my answer to my hon. Friend the Member for South East Cornwall (Sheryll Murray) before I take another intervention.
In Committee, we had the opportunity to hear from and to have these discussions with the industry, as well as with campaign groups—we must recognise that both sides are important in this. Since then, written correspondence has taken place, to which I have responded to deal with some of the issues raised. Of course, as Minister, I will continue to do so.
Jo Swinson
I give way to the hon. Member for Pudsey (Stuart Andrew), who has not yet intervened.
Stuart Andrew
Our concern is that a lot of pubs could close over two years. We want assurances that there has been lots of dialogue with the industry and with pub owners who are going through these difficult times to make sure that they are happy with the proposal that the Minister is now bringing forward.
Jo Swinson
During the process of developing this legislation, there has been significant dialogue and consultation on the whole area through the formal consultation that Government held, to which we had the response earlier in the summer. I have met, through various round tables, members of companies that own pubs, family brewers, and tenants’ groups.
Jo Swinson
I am being asked to give way before I have finished responding to the previous intervention.
Mr Speaker
Order. I appreciate Members’ interest in these matters, but it is a little unseemly for them to try to intervene on a Member—in this case, the Minister—who is already responding to an intervention. Timing is of the essence in these matters. Be patient—the Minister is a most gracious and accommodating Minister.
Jo Swinson
Thank you very much, Mr Speaker.
My right hon. Friend the Business Secretary, my hon. Friend the Member for Cardiff Central (Jenny Willott)—who did her job so brilliantly during the six-month period when I was on maternity leave—and I have had various face-to-face meetings and held round table and discussion events. I have met some of the individuals who have been through the PICAS and PIRRS— pubs independent conciliation and arbitration system and pubs independent rent review scheme—processes. We have had those meetings face to face. There has been significant correspondence—reams and reams of correspondence—between me, as Minister, but even more so, in terms of the level of detail and volume, between my officials and these companies and campaign groups. I therefore do not think that the hon. Member for Pudsey can suggest that there has not been consultation. Equally, it would be impossible for me to stand here and say that everybody is entirely happy with these proposals; that was never going to be possible. I am sure that even the BIS Committee would recognise that there are very strong views on this issue, often in contradictory directions. We are trying to find the right way forward that best protects tenants while not imposing unnecessary burdens on businesses.
I now give way to the hon. Member for Burton (Andrew Griffiths).
Andrew Griffiths
I thank the Minister for giving way, because this is a very important issue. Investors will be looking at her statements today. This could affect the viability and the profitability of businesses, together with thousands of jobs. She has announced a brand-new element—the introduction of the free-of-tie option but with a two-year wait. Can she confirm whether she has spoken to a single member of the industry about the implications for their business of that two-year delay—to one person, yes or no?
Jo Swinson
I would like to correct the hon. Gentlemen’s characterisation of what is happening. He is saying that this is the market rent only option but with a two-year wait. To be absolutely accurate, it is a power for the Secretary of State to introduce the market rent only option after a period of two years if a review finds that that is necessary. That is not exactly the same thing. It is important to put that on the record.
Throughout this process, the Government have been engaging with companies and with individuals. The market rent only option was extensively covered and discussed within the consultation process. I have had very many such discussions with companies over the course of the past 18 months. As was put to us forcefully on various occasions, some large pub companies will not welcome this and are very opposed to it. At the same time, we recognise the issues that have been raised in successive BIS Committee reports about the tenants who are suffering and the need to do something about it. We think that our parallel rent assessment is a proportionate and sensible way forward that will deliver for tenants, but we are keen to make sure that if that does not happen we do not end up at this stage again; we need the ability to act swiftly to introduce a market rent only option.
Toby Perkins
Let me try to clarify this. In the last few moments we have discovered that there is to be a two-year review before fundamental change to the industry, leading to two years of uncertainty. Is the Minister saying that she has discussed a whole series of things over 18 months but has not spoken to anyone within the industry about the new development that she is presenting to us today?
Jo Swinson
I am saying that we have had plenty of negotiations and discussions about all the different options, but specific round tables have not been reconvened with the industry since the Committee stage. We know where the industry stands on this. My officials are in regular contact with the industry and with campaign groups, who have been making their cases fervently. Many Members represent tenants and also have pub companies and family brewers in their constituencies. Ministers have had many discussions with those hon. Members on behalf of their constituents who have raised these issues over the past couple of weeks since the Committee stage. Indeed, we also had such extensive debates in Committee. There has been plenty of consultation.
Grahame M. Morris (Easington) (Lab)
In relation to the Minister’s discussions with the Federation of Small Businesses, it estimates, according to the information that I have, that implementing the market rent only option would boost the economy by £78 million, and that over 90% of pubco tenants would have much more confidence to invest in their businesses, helping local economies to grow.
Jo Swinson
The hon. Gentleman makes a powerful point. As I have said, a range of different of views and issues have been raised and it is impossible to please everybody. Although some of the larger companies oppose the introduction of a market rent only option, organisations such as the FSB, as the hon. Gentleman points out, are campaigning to implement it.
Jo Swinson
I will give way once more before I move on, because the hon. Gentleman has not intervened yet.
Julian Sturdy
The Minister says that she has been in consultation with the pub industry. I will phrase the question slightly differently: has any assessment been made of the impact the two-year review will have on pub closures?
Jo Swinson
The review was always built into the process, because we wanted to look at how the measure was working. What is new is the introduction of the power to introduce a market rent only option, and when that proposal goes before the other place, supporting documentation, such as impact assessments, will also be submitted. Clearly, different quarters have opposing views on what it will mean: some say it will be excellent for business, while others say it will result in concerns for business. People will not necessarily concur and agree about what the exact impact will be, but the Government will produce the documentation to go alongside that amendment when it is tabled in the other place.
The Government’s technical amendments—amendments 34, 35 and 55—deal with the particular issue of franchises. Clause 40 already makes it clear that tied pub agreements are in the scope of the pubs code where tenants pay some sort of fee, such as a turnover fee, rather than rent. Such agreements are often called franchise agreements and it is right that they are covered. The same potential for the abuse of a tie exists, and if franchises were not in scope there would be a sizeable loophole by which companies could evade the code.
Amendments 34 and 35 therefore ensure that franchises are covered by clause 42, which refers to rent assessment and rent review arrangements, which the Secretary of State may rule as void or unenforceable. Amendment 55 provides the Secretary of State with a power to define parallel rent assessments in regulations so that we can ensure there is appropriate flexibility in the approach to cater for franchise pubs. That will allow the final design of parallel rent assessments to take account of further engagement with the industry and public consultation, and through that we will ensure that those assessments are available to all tied tenants of large pub-owning companies.
Amendments 40 and 56 ensure that agreements where the tenant is tied for some or all alcoholic drinks are still covered, even when the tenant does not purchase those drinks from the pub-owning company. We are aware of some franchise agreements where the tenant does not technically purchase drinks from the pub-owning company. The tenant is still contractually obliged to sell those drinks on behalf of the pub-owning company and cannot source them elsewhere, so the amendments are important to avoid a loophole in the legislation.
The Opposition’s amendment 5 seeks to clarify that franchise agreements are in scope of the legislation. I absolutely agree with that view and hope the hon. Member for Chesterfield will be reassured by the Government amendments, which make that crystal clear and address the point by ensuring that no loopholes are being created.
Amendments 38, 39 and 47 to 53 seek to ensure that tied agreements are covered by the protections of the pubs code, whether the tenant occupies the pub under a tenancy or under a licence to occupy. This is another measure to ensure that all tied tenants are protected. Amendments 36, 37, 42, 46 and 54 are technical clarifications to ensure that the provisions of the Bill apply to pub-owning companies and any subsidiary companies they may own.
Finally, amendment 57 provides that all regulations under part 4, other than regulations under clause 61(1)(c), are subject to the affirmative resolution procedure, which, given the sensitivity surrounding the issues and the interest in them, is absolutely appropriate. I hope the Government amendments will be supported and that hon. Members on both sides of the House will be reassured by our commitment to make further changes in the other place in order to address any concerns.
Toby Perkins
It is always a singular pleasure for this House to gather to discuss what we can do to support our great British pubs, which are crucial institutions, bedrocks of our community and vital economic and social hubs, as well as really important employers, particularly of women and young people—two groups who are underrepresented in the workplace. Pubs and brewers also make an incredibly important contribution to the economy as taxpayers and employers, and our communities take tremendous pride in these institutions. The industry is watching this debate with tremendous interest and concern, in the hope that we in this place will do justice by everyone involved in it.
The Government are creating a spectacle by changing the Bill as we speak. These are incredibly important issues, but the Government’s attempts at debating this part of the Bill are rather like attempting to mount a moving bus: the moment we think we know what we are going to discuss, the debate suddenly focuses on something completely different. It is a complete and utter shambles.
Duncan Hames (Chippenham) (LD)
I am conjuring the image of the hon. Gentleman mounting a moving bus. On the new clauses and amendments under discussion, however, is it not the case that he himself intends to move the bus? Is that not the very purpose of our having a debate in this place?
Toby Perkins
If the hon. Gentleman is talking about the amendment we tabled and that the Government voted against and that they then adopted only to drop again, his description is rather uncharitable. He is right to say that the Government should listen to consultations and follow the right process for a Bill, but on Friday the Government tabled new amendments to undo amendments that were voted on in Committee and now, without any discussion or notice, they have come to the debate and said, “Actually, we’re going to drop the amendments we tabled on Friday to the things that were voted out of the Bill a couple of weeks ago. The Lords can talk about them, but Members of Parliament will not have the opportunity to vote on them.” I do not think that is any way to run a whelk stall, much less a really important industry about which we feel so passionately.
It is to Parliament’s credit that it has debated and researched the issue of pub companies with incredible diligence. The issue and the industry are incredibly complicated and this Parliament has attempted to strike a fine balance that best meets the needs of the industry with minimum disruption. However, at a time when Parliament should be reflecting with some pride on its contribution to this debate, I think that the way in which the Government are operating leaves everyone unsatisfied. There are Government Members on both sides of the argument—some think the plans go too far while others think they do not go far enough—but I do not think that the way in which the Government are operating the process of the Bill gives anyone any confidence that they know what they are doing.
The Minister for Business and Enterprise made a fleeting visit to our debate on the programme motion a few moments ago: he popped in to tell us that everything was going swimmingly and that there was plenty of time for debate, and then he dashed out again. We are told that he raced around last night attempting to convince Conservative Members not to vote with the hon. Member for Leeds North West (Greg Mulholland) and the other 90 Members who are supporting new clause 2.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
Surely at the very kernel of any amendment is the fact that we are losing pubs every week right now. As a consequence, the Government clearly need to focus much more on that aspect of the problem, so that it does not continue to recur, as it very regularly does in all our constituencies.
Toby Perkins
I am grateful to my hon. Friend for making that point and precisely expressing the passion which so many of us feel for the pubs in our communities. It is precisely because so many of us are concerned about the changing face of the pub trade in our communities that the issue of the contribution of pub companies to pub closures has been so fiercely debated. It is because so many of us believe that the model under which pub companies operate is the cause of many of the pub closures that the Opposition have brought this matter to the House on many occasions, and many other Members have made that case. My hon. Friend is absolutely right that this debate is all about the strength of the industry, but it is also about having a sense of what exactly is being done to support it, and the question of pub companies is a key part of that debate.
I suspect that much of this debate will be about what divides Members, but there is real value in reflecting on what we are all agreed about, including the fact that this Government Bill contains provisions for a pubs code. The very fact that we are debating an issue that for so long seemed destined to elude this Parliament is a tribute to the dogged work not just of the Business, Innovation and Skills Committee, but of Parliament itself. Today still has potential to be a great day for this Parliament.
In reflecting on the contribution that Parliament has made on this question, notwithstanding my reservations about how the Government are handling this incredibly important debate, I want to pay tribute to the many hon. Members whose work has brought us to this point. In no particular order, those who deserve great credit include the hon. Member for Mid Worcestershire (Sir Peter Luff) and my hon. Friend the Member for West Bromwich West (Mr Bailey). They have both chaired the Business, Innovation and Skills Committee, which produced diligent research on this issue in 2004, 2009, 2010 and 2011.
In 2011, the Select Committee finally came to the conclusion that the industry had had enough time to get its house in order and that the time had arrived for a statutory code with an independent adjudicator, open market rent assessments and a free-of-tie option. It is disappointing that it has taken more than three years to get from the Select Committee’s conclusion to the Bill before the House. It will be an even greater disappointment if we have to move away from the Bill and are told that there will be a further review in two years’ time to debate the whole thing again and decide whether we then need the free-of-tie option. What is more important than anything else is that Members do not let the opportunity to take real action through the Bill pass us by.
I want to acknowledge other Members. My right hon. Friend the Member for Wentworth and Dearne (John Healey) was the pubs Minister who empowered the Select Committee to be the arbiter of when the time for action had arrived. The hon. Members for Leeds North West and for Northampton South (Mr Binley) and my hon. Friend the Member for Easington (Grahame M. Morris) led a cross-party campaign to ensure not only that we had a pubs code, but that it would make a real difference for tenants and create competitive pressure on pub-owning companies to ensure that they offered their tenants a fair deal.
I also want to recognise the Minister’s contribution. Notwithstanding what I said about how the Government have handled this Bill and how she has been badly let down on a Bill that appears to be changing in front of our eyes for what appear to be political considerations, the fact is that she did at least end the prevarication—at least, that is what I wrote down in my speech—that we endured under her predecessors. If this was Prime Minister’s questions, I would be told off for writing my script in advance, but that helps when we are going to be on our feet for a while.
To be charitable for a moment, at least we are here to debate the pubs code. The fact that the Minister’s predecessors constantly pushed for review after review and did not take action, while she came forward to say that there would be something in statute, is a source of tremendous credit. It is a shame that she has unfortunately been forced to come to the Dispatch Box to propose a review in two years’ time, with all the uncertainty that that will create. However, she has at least made an effort to get something on the statute book.
There are many other such hon. Members, but the strength of this campaign has been due to the fact that the push inside the House very much reflects the broad coalition in favour of the measures outside it. The case that we and other hon. Members are making today has been supported by a tremendous range of organisations, almost all of whom come under the Fair Deal for Your Local banner.
Just listen, Mr Deputy Speaker—not that you would ever not listen while in the Chair, but perhaps you will do so with particular attention—to the breadth of organisations that support this case. Such breadth makes the case more powerfully than anything else. The organisations include the Federation of Small Businesses, which does not usually demand regulations or that the business relationship between two parties should be put on a statutory footing; the all-party save the pub group, which is so ably chaired by the hon. Member for Leeds North West; the Campaign for Real Ale and the Fair Pint campaign; the trade unions Unite and the GMB; and the Guild of Master Victuallers and the Forum of Private Business.
There are also two support groups, Justice for Licensees and Licensees Supporting Licensees, which were set up to support licensees affected by what had happened in their relationship with the pub company. Such licensees have often been bankrupted or are facing bankruptcy as a result of having chosen to pursue their dream of running a pub. Who would have thought that a support group needed to be set up for people who have chosen to pursue a particular profession or work in a particular industry?
In some ways most significantly of all, the Punch Tenant Network, made up of tenants who run pubs owned by Punch Taverns, has come out in support of new clause 2. Those tenants’ business success hinges to a large degree on the strength—or weakness, depending on how they see it—of their relationship with their pub company, and they are saying that the hon. Member for Leeds North West and 90 other Members are right that the code should be put on a free-of-tie basis. If the network believed the scare stories that the industry is putting about—that the proposed changes will lead to an increase in pub closures, less choice for punters or increased unfairness in the industry—it would hardly be calling on hon. Members to support the new clause.
The House has heard in recent years from literally dozens of Members who are desperately trying to support pubs in their communities that are under threat—all victims of the great pubco scandal.
Richard Fuller
The shadow Minister has listed many people who have been involved in the debate on one side or the other. Now, at the moment when the Government are reversing the policy that they had in Committee, does he think it odd from the point of view of protocol that the Secretary of State for Business, Innovation and Skills is not here to explain that change in Government policy?
Toby Perkins
The hon. Gentleman has a valid point. We have all received a huge number of representations from members of CAMRA; from pub licensees; from many different organisations, some of which I have just listed; from the pub-owning companies themselves; and from the British Beer and Pubs Association. They have all been lobbying us in support of, or in opposition to, what they thought would be in the Bill. The Minister, whether by her own choice or because of the hand she has been dealt today, has had to say to the House, “Forget all the speeches that you have prepared and all the letters and considerations you have received on this complicated issue, because we are ripping up a lot of the amendments you thought you would be voting on. We’ll discuss some of them later; and on another one, we thought we might lose, so as a bit of a sop we’ll come back to it in two years if there’s still a problem.” It is a shambolic way to present a Bill.
I wish to be conciliatory and work constructively on the issue, but it reflects no credit on the Government or the House when people come to watch our debate, or watch it on television, and suddenly discover that the issues they have been lobbying their Member of Parliament on have been totally changed. It is an absolute shambles. I have some sympathy with the view that the Secretary of State should have been here to explain why the changes have been made. The Minister was unable to tell us whether he has been involved in the discussions—maybe she will want to clarify that now.
However, this is the point that we have arrived at, and I think we all recognise that when the Government are under pressure they will sometimes take the opportunity to discuss with Members in the run-up to a debate what form amendments will take. Let us make no mistake, though—this debate was scheduled for next week, so the Government could have had another week to consider what should be debated. For reasons best known to them, they decided to bring the debate forward and table last-minute amendments. Now, on the day of the debate, they stand up and say, “Forget all those amendments, we’re not doing any of that”. The hon. Member for Bedford (Richard Fuller) may well be right to apportion some responsibility to the Secretary of State, but either way, something that should be a source of pride to the House is now a source of embarrassment. I deeply regret that, because this is an important issue on which there is considerable agreement.
Bill Esterson (Sefton Central) (Lab)
Does my hon. Friend agree that all the ins and outs, ups and downs and unknowns of what the Government will end up bringing forward, either here or in the House of Lords, show why it is important that we support new clause 2, which 91 of us, including me, have signed?
Toby Perkins
I do. You will be glad to know, Mr Deputy Speaker, that I will come on to new clause 2 in more detail in a moment, but I basically agree with my hon. Friend’s point. His constituents in Sefton, who feel strongly about their local pub industry, will be glad to know that he took part in debates in the Public Bill Committee and has signed new clause 2.
That brings me nicely on to the contributions that a variety of Members from throughout the House have made on the subject in recent years. The hon. Member for Salisbury (John Glen) told the House about the landlords of the White Horse in Quidhampton, alleging that Enterprise Inns had
“signed them up to a lease on a false prospectus and…made their business completely uneconomic and unsustainable”.—[Official Report, 13 June 2013; Vol. 564, c. 476.]
The hon. Member for Meon Valley (George Hollingbery) has confirmed that the closure of the White Hart in South Harting was caused by
“unsustainable rent demands...from Enterprise Inns”.—[Official Report, 13 June 2013; Vol. 564, c. 476.]
The hon. Member for Romsey and Southampton North (Caroline Nokes) wrote to Enterprise Inns to inform it that the Abbotts Mitre public house in Chilbolton was
“under threat largely due to unrealistic rents and changes in terms and conditions”.
The hon. Member for Bristol North West (Charlotte Leslie) wrote to Enterprise Inns asking it not to close the Lamplighters in Shirehampton, and the hon. Member for Cheltenham (Martin Horwood) has bemoaned Enterprise’s decision not to save the Little Owl. As a Sheffield United fan I am not generally in favour of saving the Owls, but in this case it would have been important. He said that
“a big company has failed to recognise a pub’s value to the community.”
The hon. Member for Pudsey (Stuart Andrew) was also concerned with saving the Owl, this time the one in Rodley, whose threatened closure he blamed on
“the mounting costs imposed by the building owners, Enterprise Inns”.
The hon. Member for Bromley and Chislehurst (Robert Neill) said of the sale of the Porcupine in Mottingham that the public were
“incensed that their right to bid for the pub has been bypassed deliberately by Enterprise Inns and LiDL”.
Richard Graham (Gloucester) (Con)
The hon. Gentleman is giving a terrific roll-call of his party’s MPs who are apparently now standing up for pubs, but he completely forgets what happened to pubs over the 13 years of the Labour Government. Thousands of them closed all over the country under their regime. This is an extraordinary moment of amnesia, is it not?
Toby Perkins
I think the moment of amnesia is the hon. Gentleman’s, because all the Members I have listed so far are Conservative Members—in fact, many of them are sat behind him. I was not seeking to make a party political point. Sadly I do not have in my speech—as it is currently drafted, although we know these things are subject to change almost on the spur of the moment—a reference to a contribution that he has made to saving a pub, but he might well want to tell us either now or sometime in the future about what he has done to support pubs in his local area.
Richard Graham
The hon. Gentleman will be interested to know that I launched a strong campaign some months ago to save the Ridge and Furrow in Abbey. It is an ongoing process, and I am confident that we will win in due course. I am grateful to him for giving me the opportunity to make that point, so that the residents of Abbey ward in Gloucester can hear it loud and clear.
Toby Perkins
I am glad I was able to facilitate that magic moment.
I have not finished listing members yet. The right hon. Member for East Devon (Mr Swire) told a packed crowd that he would be joining the campaign to save the Red Lion in Sidbury, which Punch Taverns was planning to sell.
The list of pub-saving parliamentarians is long. My right hon. Friend the Member for Tooting (Sadiq Khan) joined the campaign that successfully saved the Wheatsheaf, and my hon. Friend the Member for Westminster North (Ms Buck) was busy trying to save The Clifton and The Star. My right hon. Friend the Member for Southampton, Itchen (Mr Denham) campaigned to save the Bittern, and my hon. Friend the Member for Wythenshawe and Sale East (Mike Kane) joined the Legh Arms campaign for community pubs—the list goes on. Eventually, however, comes the time to put up or shut up, and many people outside this House will be looking to see what we do.
Mark Pritchard (The Wrekin) (Con)
Does the hon. Gentleman agree that one way we can all support local pubs, whether in urban or rural areas, is by supporting the Government’s planning reforms, and allowing pubs—whether tied or not—to expand restaurants or develop bed and breakfasts? We should back those pubs to grow their businesses on brownfield sites wherever they can.
Toby Perkins
The hon. Gentleman mentions planning and whether pubs can expand, and it is important that pubs have that opportunity. However, the biggest planning issue currently facing pubs is the fact that big supermarkets can come in and change a pub into a supermarket without any reference to planning law. In my constituency we have a significant campaign to try to save The Crispin—I was not going to mention it, but the opportunity now arises. A pub that currently operates perfectly successfully under Enterprise Inns will be closed because the lease has been signed to Tesco. Indeed, Labour’s planning proposals would increase restrictions on pubs that are turning into supermarkets, and deal with many of the concerns that I have already raised. Hon. Members gave many examples of pubs that are being closed to become supermarkets.
Andrew Griffiths
The hon. Gentleman has treated us to a tour of the country and listed some 30 or 40 MPs who have done something to save pubs. It has all been very interesting, but we have not heard what he will do to save pubs. Rather than packing his speech with such examples and filling time, will he get on with telling us what he is going to do?
Toby Perkins
Many contributions that hon. Members have made are important to their constituents and they will consider it pretty disrespectful for the hon. Gentleman to say that I am filling time. I do not think I am—this is a significant issue. We can all get the press release out or attend packed public meetings, and we can all rail against unfairness and talk about how a pub company sold a false prospectus and failed to consider the needs of the community, but today is the day for talking to finish and for us finally to act. People will reflect on whether, when given the opportunity to act, Members of Parliament stood up in the Chamber to complain about the situation or actually took action.
Mark Pritchard
The hon. Gentleman is being generous with his time, but earlier he did not address my question. I was not asking about pubs that have not succeeded and therefore a change in use to retail has been suggested to the local authority; I was asking about successful pubs that want to expand further, to build bed and breakfasts, hotels or an extra restaurant. The question is about successful pubs and whether the hon. Gentleman and Labour Members support the Government’s planning reforms on permitted development rights and change of use, for example, to make those successful pubs flourish even more.
Toby Perkins
I take issue with the idea that the only pubs that are being closed and turned into supermarkets are unsuccessful ones. The Crispin in Chesterfield is a successful pub that makes good profits, but it does not offer Enterprise Inns the 25-year lease that Tesco is willing to offer, and that is why it is being shut down. Pubs that are turning into supermarkets should not necessarily be described as unsuccessful.
I thought that I had responded to the hon. Gentleman’s point, but I will do so again. Of course we are supportive of steps to support larger pubs, and we think that is important. The specifics of the Government’s proposal and whether it has implications on the right of a community to have its voice heard on such issues is a matter that my hon. Friends in the communities and local government team will consider at greater length. Of course we support pubs that are successful and want to expand, but we also want to defend pubs that have a future in the community but often fall victim to the vagaries of pub companies’ operations, particularly when pub companies close pubs that are successful.
In response to the hon. Member for Burton (Andrew Griffiths) let me turn to the specifics of new clause 2. When debating pub tenants we are talking about a group of people who often work as many hours as anyone, but who earn less than they could legally be paid by an employer on the minimum wage.
Bill Esterson
The hon. Member for Burton (Andrew Griffiths) asked my hon. Friend what he is doing to help, and he was just starting to explain. My hon. Friend supports the market rent only option in new clause 2, so that is exactly how he, and the 91 hon. Members who have put their name to the new clause, are supporting pubs in our communities. When mentioning those Members who have referred to pubs in their constituencies, I hope my hon. Friend also expects them to support new clause 2, as do I.
Toby Perkins
I certainly do. The hon. Member for Burton had the unrivalled pleasure of listening to a day and a half of debates to which I made a fairly significant contribution—I appreciate that he cannot get enough of my contributions on pubs, but he has had a significant opportunity to hear my thoughts on the matter.
Pub tenants are those who clean their pub and get it ready for the next day’s trade. They are working at the bar, handling supplier relationships, generally keeping a cheerful presence, wearing the mask, and closing up long after most people have finished work, and all the while they know that the unfairness of their relationship means that the whole day’s work has been for nothing financially. Latest figures show that more than half of tied licensees work for less than £10,000 a year. Indeed, during the recent mini-recess I spoke to three pub tenants in my constituency who run pubs owned by the big pub companies, and none of them was taking a wage out of the business. By voting for new clause 2 and amendment 5 we can take a significant step towards preserving pubs for the next generation, and hardwire fairness into that longstanding business relationship.
Amendment 5 is simple but important and should reassure people who have concerns about these complicated issues. The Minister attempted to say that she believes the Government have found a different way to achieve broadly the same thing, but the specific wording of our amendment leaves a lot less potential for businesses to get out of saying that they are covered. To my mind, there are two ways in which the pubs code could fail to deliver what we want—first if the code is too weak and allows pub companies to comply with it while continuing unfairly to disadvantage their tenants; and secondly if we end up with a code that strikes the right balance for our expectations about the behaviour of pub companies, but is drafted in a way that allows pub companies to exempt themselves, or creates confusion as to who is covered.
Already the big pub companies have attempted to create confusion over definitions. The Government were right to acknowledge that they dropped a clanger with the phrase “tied pubs”, which in their definition is supposed to mean those on a tenanted or leased model in England, Scotland and Wales, although the code would need to be enacted separately in Scotland. The phrase “tenanted, leased” is the type of tenure clearly defined and easily established. We remain of the view that amendment 5 will provide the greatest clarification on exactly who should be covered by the Bill.
Toby Perkins
I did not want to take many more interventions because many other Members wish to speak. However, if the hon. Gentleman feels that it would add a huge amount to the debate I will give way.
Richard Fuller
The shadow Minister is making an absolutely crucial point. I think he will have heard, as I did, the Minister say that three companies will be captured by the reduction from 500 to 350. Is the shadow Minister aware of what those three companies have done to incur the wrath of the Secretary of State to be included in the regulation?
Toby Perkins
I am not sure that I would necessarily accept that we are suggesting those companies are wrath-deserving. We are attempting to create a regulatory framework that is reliable, so that businesses know where they stand. The limit of 500 is arbitrary, as is the 350 limit. I suspect this is more about attempting to save political face than save the actual companies. Suddenly bringing smaller pub companies into the heart of the Bill is seen as an act of bad faith by the industry. Having lost the vote in Committee, and having then voted against almost exactly the amendment that they then attempted to bring back, which, for the avoidance of doubt was the one that is now not being brought forward, is a pretty shabby way to treat an important industry.
Members and the many thousands of CAMRA members who have written to us all in such impressive numbers in the very short period of time during which there has been an awareness of new clause 2 will be aware that the Opposition supported a free-of-tie option for pubco tenants. [Interruption.] Goodness me, this is a magical moment for the House! I can now say I was there when the Minister for Business and Enterprise, the right hon. Member for West Suffolk (Matthew Hancock) actually attended proceedings on his own Bill. I can tell my grandchildren, “I was there!” He is here, Mr Deputy Speaker. Goodness me.
Mr Deputy Speaker (Mr Lindsay Hoyle)
And I can tell the hon. Gentleman that he is running out of time.
Toby Perkins
I have just been waiting for the right hon. Gentleman to arrive, Mr Deputy Speaker. The debate barely seemed worth getting on with until he was here.
The people who have written to us in such numbers will be aware that we have supported the introduction of a free-of-tie option for pubco pub tenants at the date of renewal ever since the Business, Innovation and Skills Committee concluded that the industry had had its last chance and that the time was right. That was back in September 2011, and in debates in January 2012, 2013 and 2014 the Opposition sought the support of the House for that viewpoint. It will therefore come as no surprise to Members that it remains the view of Opposition Members that the time for the mandatory rent-only option is now.
I am delighted that a cross-party group of Members has tabled new clause 2. In a time of great cynicism with politics, the fact that Members of four different political parties have added their names to it shows that there are things more important than naked party political advantage. It shows that this House can work in the finest traditions of democracy in a collective voice in support of our pubs, not because there is necessarily party political gain but because it is the right thing to do. I pay tribute to all those who added their names and to everyone from any party who votes for it today.
I look forward to the contribution of the hon. Member for Leeds North West (Greg Mulholland). I hope he considers that yet another review is not the right step for the industry. It appears to be a political solution to a political problem at a time when a serious industry needs a serious response from this place, and needs to be able to conduct its matters with real certainty knowing what it will face in the future. I think that anyone bought off by the review and the suggestion that the issue will be looked at in two years’ time if today’s measures are not considered to have worked was never really serious about supporting it in the first place. The House should vote in support of new clause 2 and repeat the unanimous support it gave to the motion in the January 2012 Backbench Business debate.
In conclusion, I said on Second Reading that the Government had introduced a Bill that expected too much of family brewers and not enough of pub companies. I also said that I hoped the Bill would leave the Committee and Report stages in a stronger shape than it arrived in. Already, thanks to the hard-won amendment brought by the hon. Members for South East Cornwall (Sheryll Murray) and for Burton (Andrew Griffiths) and others, it could do that. Supporting the two other substantive amendments before us today would mean that we were finally on the way to repaying the debt the House owes to Britain’s publicans.
By supporting our amendment 5 and ensuring that large pub-owning businesses with tenanted, leased and franchised models are exempted, by continuing to reject any amendments that bring family brewers under the scope of the Bill and by backing new clause 2 to ensure a free market solution in this most important of industries, with an industry regulator, the House can unite in support of Britain’s pubs and ensure that the pub sector enters a new, better and more optimistic period free from the restrictive practices that have been allowed to dominate, with faith in the market to choose who is offering a fair deal. That will allow our pubs to offer one of the greatest of all Britain’s great inventions, the simple pint of ale, for many hundreds of years to come. I commend our amendment to the House.
Greg Mulholland
I am delighted to speak at this important stage of this important Bill. I commend my hon. Friend the Minister and her colleagues for their work in bringing measures forward not only on pubs, which is an area of particular interest, but other positive measures.
I will concentrate my comments on new clause 2, which I am delighted to introduce on behalf of myself, as the chair of the all-party save the pub group and co-ordinator of the Fair Deal for Your Local campaign, the hon. Member for West Bromwich West (Mr Bailey) who is the Chair of the Business, Innovations and Skills Committee, and my hon. Friend the Member for Northampton South (Mr Binley), the president of the save the pub group and a member of the BIS Committee. Unfortunately, he cannot be here today because he is becoming a freeman of Northampton. I am sure we all congratulate him on that. I am also speaking on new clause 2 on behalf of the 91 colleagues who put their names to it and the many others who have said they will support it.
Over the past few days, in the limited time between Committee and Report, more than 8,000 e-mails were sent by CAMRA members up and down the country and several thousand by members of the Federation of Small Businesses, licensees, organisations and trade unions, urging the Government to take the sensible, obvious, market-based action to resolve the issues that have been a problem in the leased and tenanted pub sector for too long.
So that Members are clear, new clause 2 is the cross-party solution from the Business, Innovation and Skills Committee introduced first by the hon. Member for Mid Worcestershire (Sir Peter Luff), then ably continued by the hon. Member for West Bromwich West (Mr Bailey), and supported by all colleagues on the Select Committee at all stages in this and the last Parliament. It is also backed by the FSB, the Forum of Private Business, the Pubs Advisory Service, Justice for Licensees, Licensees Supporting Licensees, CAMRA, Licensees Unite the union, the Fair Pint campaign, the Guild of Master Victuallers, the GMB and now the Punch Tenant Network, which represents Punch tenants and is giving an honest and a very different picture of the Punch model from that which Punch Taverns has been trying to communicate to MPs.
To remind the House, the problem is a simple one, despite the complexity of the sector: the large companies went on a reckless acquisition spree, buying up pubs using borrowed money, and got themselves into grotesque amounts of debt—more than £4 billion in the case of Punch Taverns and more than £3 billion in the case of Enterprise Inns—and with nothing to stop them charging unlimited prices for beer and unlimited rents, both of which have gone up and up and up. The beer tie, which was always operated responsibly, has been abused. It used to offer lower rent in exchange for higher beer prices and genuine support for small breweries, but the pub company model does not do that.
What, then, is wrong with the proposals as they stand? I commend my right hon. Friend the Secretary of State and his colleagues in both coalition parties for having the courage to bring forward the statutory code of practice that the Select Committee first recommended so powerfully and clearly in 2009. As drafted, however, the proposed statutory code will not deliver the Government’s two key principles: fairness and the principle that a tied licensee should be no worse off than a free-of-tie licensee. The problem is that there is no direct mechanism to stop the double overcharging that I have mentioned.
As I have already said, not a single respondent to BIS’s extensive consultation thought that the Government’s proposed parallel rent assessment was the right solution, whereas two thirds said that the Select Committee was right. The assessment would need considerable participation from the adjudicator—in fact, the proposal confuses the adjudicator with the rent assessor, as the adjudicator is there to adjudicate disputes, not to survey and set rents. Without the direct mechanism, the basis on which the adjudicator is set up is currently weak.
Furthermore, the Government made the fundamental mistake that the shadow Minister has pointed to already. The Fair Deal for Your Local campaign and the Select Committee are clear that this measure must not apply to smaller companies—those with fewer than 500 pubs—because that is not where the majority of the problems are. A “large pub company” must be defined as any company with 500 or more pubs of any type, with the measure applying to its leased and tenanted pubs only, not to tied pubs.
The issue of tied pubs is a legal minefield, as the Government have realised, with the absurdity that Harry Ramsden’s, a fish and chip shop restaurant, could have been categorised as a “tied pub”. There are different forms of the tie in the UK—some free houses opt to be tied to a brewer in return for soft loans and business support—and how would we categorise “part tied” and “fully tied”? It is a nonsensical way to categorise. We need to define a “large company” simply as a company with 500 or more pubs, some of which are tenanted and leased pubs, and then apply the measure to the tenanted and leased pubs only. In that way, there would be no question of the large managed companies, such as Wetherspoon’s and Mitchells and Butlers, being caught any more than there would be of a restaurant chain being caught.
At the moment, the Bill and code do not deliver what the Government have set out, courageously, to deliver. Do not take my word for it; take the word of one of the two companies lobbying particularly vociferously against the code. In its own prospectus for potential investors, dated 6 October 2014, Punch Taverns said it did not believe that the reforms proposed would materially adversely affect the Punch group. In other words, it would be business as usual, and it would continue to charge excessive beer prices—often 70% more than hon. Members could get from the brewery—and set entirely unregulated rents.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The hon. Gentleman hit the nail on the head when he called this a matter of fairness. Whether it is zero-hours contracts, the minimum wage or, as we saw on “Dispatches” last night, the fact that the 3,000 top earners in the UK earn as much as the bottom 9 million, we are talking about the abuse of economic muscle. My concern is that the contract models used in England are rolling into Scotland, meaning that publicans and licensees are being hit hard in Scotland. Will he expand on that a little?
Greg Mulholland
The hon. Gentleman is absolutely right. It was Punch Taverns’ acquisition spree that took the leased pubco model to Scotland—it bought up pubs simply as a way of artificially increasing the value of the company—although there are other tied leased pubs in Scotland as well. The only way to get justice for Scottish licensees is for Westminster to pass new clause 2 today: I had a meeting last year with Minister Fergus Ewing, and he said that if that happened, the Scottish Government would consider enabling legislation to take it forward in Scotland. So it is vital for Scottish licensees, as well as for English and Welsh ones, that we vote for new clause 2.
The new clause has been carefully drafted with the help of expert surveyors, lawyers and publicans. It is a new clause that works, and I pay tribute to all who helped to draft it and to the Clerks in the Bill Office who assisted with the process. It would make for clear primary legislation specifying how the market rent only option would work in practice and exactly what it would be, and crucially—this is why Members can give it their support—it would come in gradually over five years and be triggered only at certain key points in the cycle of a lease or tenancy. It would be triggered at five-year rent reviews, on lease renewal, on the sale of the property title, if there was a substantial change in prices—mirroring BIS’s own clauses—which would be for the adjudicator to decide, or if there were a change of circumstances, such as the opening next door of a Wetherspoon’s offering cheaper beer prices, which should lead to lower rents, but often does not under the pubco model. The new clause would give the large pubco tenant the opportunity to go to the adjudicator to plead that it was a significant change in circumstances.
The process is clearly laid out in the new clause, and there can be no confusion or suggestion it would come in straightaway: a tenant serves notice requesting an independent assessment of the market rent; there is a 21-day period of negotiation to allow the two parties to come up with a new deal; if they do, there is no need for it go further; but if they cannot agree within the 21 days, they must agree to appoint an independent surveyor to set the rent; if they cannot agree, the surveyor is appointed by the chair of the Royal Institution of Chartered Surveyors, as is standard practice, following RICS guidance, and in conformity with statutory guidance for tied pubs. At the end of the 21 days, the rent assessment is done and presented, and then there is another period of negotiation for both sides, at which point the company should come forward with attractive, fair tied agreements to keep them buying beer through them, but offering genuinely lower rents and genuine business support.
That is a reasonable, gradual process that will simply bring back market forces into a sector that has become grotesquely anti-competitive. It is closed to many smaller breweries, it is not working for publicans or those communities losing their pubs, and frankly it is not working for the large companies either.
Sheryll Murray
I am a little confused. The hon. Gentleman has not mentioned the economic impact that his free-of-tied proposal might have on small family brewers. Has he done any work on the financial impact on family brewers, such as the one owned by my constituent James Staughton, who rely on selling their beer far and wide across the UK?
Greg Mulholland
I am delighted that my hon. Friend has raised that issue. So let us all be clear; the clause, in primary legislation, cannot and will not apply to a single family brewer. All the family brewers—members of the Independent Family Brewers of Britain—have fewer than 500 pubs. The clause—in primary legislation to ensure that it cannot be changed—will not apply to them. The simple answer is that it will not and cannot affect them in any way. Surely Conservative MPs above all would like to see more competition and more ability for all brewers—regional and small microbrewers—to compete and to get their beer into pubs if it is good enough and if people want to drink it.
Richard Fuller
The Minister has just said that she wants to reduce the limit of the pub adjudicator from 500 to 350, which will start capturing some of the larger family brewers. Is he saying that he stands apart from what the Minister has said?
Greg Mulholland
That is helpful but I shall make it clear; the point of new clause 2 is that it is a stand-alone clause and has no bearing on that matter. I understand the position of those hon. Members with family brewers. They can support their family brewers if they wish by opposing new clause 6, but they can still support new clause 2, which, as I say, will apply not to a single family brewer but only to the large pub-owning companies. We have defined that very deliberately, which the Government failed to do despite our telling them that they should. A Member can vote for their family brewer by voting for new clause 2. To be clear; it is primary legislation and cannot then be changed without other primary legislation. It is not being put into the statutory code—secondary legislation—as some measures are. That is precisely why we have done it.
There has been a shameful campaign of misinformation against new clause 2 and the market rent only option from the usual suspects; the large pub companies and their mouthpiece, the so-called British Beer and Pub Association. In reality it is the big brewers and pubco association. They have been lobbying vociferously, making a whole stream of utterly baseless comments. It is simply scaremongering to suggest that somehow these companies offering a fair commercial rent to their tenants would cause collapse, chaos and closures.
Liz McInnes (Heywood and Middleton) (Lab)
Will the hon. Gentleman give way?
Greg Mulholland
I remind the House of what was said by the BIS Select Committee in its follow-up report in 2011—
Greg Mulholland
Let me finish my point and I will give way. The Select Committee said:
“The BBPA (British Beer and Pub Association) has shown itself to be impotent in enforcing its own timetable for reform and the supposed threat of removing the membership of pub companies who did not deliver was hollow.”
Just last year the chief executive of the British Beer and Pub Association misled the Select Committee and said two things that were factually untrue, as well as presenting a series of baseless evidence.
Finally, before I give way, I will read what the Select Committee said in its 2008-09 report:
“As is noted elsewhere in this Report…in evidence to us both Mr Thorley of Punch and Mr Tuppen and Mr Townsend of Enterprise Inns made assertions which, on investigation, proved to give a partial picture, or on one occasion were positively false.”
Members on all sides of the House can know exactly how to take the absurd and baseless claims from those organisations.
Liz McInnes
Like the hon. Member for South East Cornwall (Sheryll Murray), I am seeking clarification on small family brewers. I, too, am confused by the effect of the proposal on J.W. Lees brewery in my constituency, which has fewer than 500 pubs but has a strong retail arm. I am concerned—as is the brewery, which asked me to raise the issue during the debate— about the effect it will have on a family brewer with fewer than 500 pubs but which has a strong retail arm.
Greg Mulholland
I thought I had given clarity. I ask the hon. Lady and all hon. Members to read this detailed new clause, as this is precisely why all of us who have been involved in writing it have done so. Let me read new clause 2(4):
“For the purposes of this section,”
meaning the market rent only option,
“the definition of a ‘large pub-owning business’ is a business which, for a period of at least six months in the previous financial year, was the landlord of—
(a) 500 or more pubs (of any description)”.
That cannot apply to any family brewer, and because it is in primary legislation, it cannot be changed in the future.
Greg Mulholland
I will briefly, but I have covered the point. I do not think I could make it any more clearly, but I will give way to my hon. Friend, whose work I respect.
Richard Graham
The point is not so much about whether the specific paragraph excludes microbrewers and small family brewers; the question is whether they support this proposal. It is interesting that the microbrewers’ trade association does not. It is concerned that it leaves the doors open for greater domination by foreign-owned brewers such as Carlsberg and AB InBev. The issue is not the hon. Gentleman’s integrity or the value of his drafting work on the paragraph, but the unintended consequences of new legislation. I should declare that my family has a pubco. It is a very small pubco, with two pubs, but we would not be in favour of the amendment.
Greg Mulholland
I will put on record strongly that there are many small pub companies and breweries that run their pubs exceptionally well and, interestingly, are doing very well and are expanding rather than contracting, but here is the rub: I speak directly to my Conservative coalition colleagues. The question I put to them is this: “Do you believe in competition? You all say you do. If you do, you should not be afraid of allowing brewers of all sizes to compete.” The reality is that small microbrewers do not have adequate, fair and direct access. They cannot turn up at thousands of pubs and say, “We would like to sell our beer to you because we believe it is good.” They are prevented from doing that.
Let me tackle the issue directly; this will be controversial. SIBA, the Society of Independent Brewers, has a direct delivery scheme that used to be part of the solution to the pubco closed shop. It is now part of the problem; many small independent brewers have contacted the save the pub group to say that. Incidentally, there was a U-turn in SIBA’s position. SIBA was a member of the Independent Pub Confederation, which supported the market rent only option. Seemingly without consulting its members directly, SIBA suddenly decided that it was against it; that is what SIBA members have told me. It no longer represents the majority of microbrewers on this key issue.
Toby Perkins
I wish to reinforce the hon. Gentleman’s point that new clause 2 is precisely about a free market option, and that to defend the status quo is to defend a restrictive practice, which should be absolutely anathema to any Conservative MP; if they vote against the new clause, they will be voting for a closed shop and against an open market.
Greg Mulholland
I share the shadow Minister’s bafflement about that, and I am delighted that we have a strong group of Conservative colleagues who, having heard the reality of the situation from their local branch of the Campaign for Real Ale, their local pubco publicans and their local Federation of Small Businesses branches, are fully supportive.
Ian Lucas (Wrexham) (Lab)
Does the hon. Gentleman agree that it is quite extraordinary that there seems to be such a strong voice for preventing new market entrants from moving into the brewing industry? Those are important small businesses that want to make progress. The message I hear from microbreweries is that they are prevented by this archaic and extraordinary system that we have endured for far too long.
Greg Mulholland
The hon. Gentleman is absolutely right. I repeat that if we believe in competition, an open market and entrepreneurship, we cannot defend the closed shop of the leased pub sector, which is dominated by these large companies.
Richard Graham
The hon. Gentleman is generous in giving way and I appreciate that, especially as he knows that I will not necessarily speak in support of his new clause. The crucial point is that hundreds of new microbreweries have been springing up over the last few years; the microbrewery in my family’s pub sprang up last year. This will make no difference to them whatever.
Greg Mulholland
I am afraid that the hon. Gentleman is simply wrong. I can send him the e-mails I have received from microbreweries—cider as well as beer producers. They are desperate to get more direct access, so that they can knock on the door of the pub 2 miles down the road and say, “We believe our beer is great and that your customers would like to drink it. We would like to sell it to you at our brewery price, rather than you having to go through the SIBA-directed delivery scheme, which has a considerable mark-up, or get on a pubco list,” as the pubco outrageously demands an incredibly low price that many microbrewers simply cannot afford to brew at, and then marks up prices by 60% to 70% to sell the product to their own so-called business partners. Is that seriously a model that Conservative MPs can support? I remain baffled by that.
Let me remind you, Mr Deputy Speaker, of the reality of the pub company model. As I look round, I see hon. Members who have family and smaller brewers in their constituency and want to support them; I respect their position, and I am at one with them on that, which is why the Fair Deal for Your Local campaign has always said that the provision should apply only to companies with over 500 pubs.
Let us look at the reality of what the big pubcos have done to skew the traditional tied tenancy model. Punch Taverns, a pub company that does not brew a single pint of beer, made a profit over 10 years—these are its figures from its own annual report—of £2.271 billion, all from on-selling beer to its own so-called business partners. Frankly, in any other country, that would be called a protection racket. It is extraordinary and unjustified, which is why it is right for us to try to deal with it.
If Members do not believe that this is an anti-competitive model—I know that some colleagues behind me do not, for their own reasons—they should listen to former Punch licensee Alison Smith, a Conservative activist who has e-mailed all colleagues today to tell of the reality of the pubco business model, and how it stifled her and her partner, preventing them from being able to create a successful pub. Even though they were doing well and improving their business, the draconian terms of the pubco lease meant that that was simply not possible.
What do hon. Members think these large pub companies are? They are not pub companies at all; unlike the traditional brewers, these are people who do not really care about our pubs or our brewers. There was a huge rush in the City when people saw this “get rich quick” scam, a way to inflate the value of companies artificially by basing it on what they could overcharge their own tenants by—their tenants for 25 years on these outrageous, new, long-term, fully repairing and insuring leases.
Let me give the example of what happened to the excellent Sir John Barleycorn in Hitchin. The community, I am delighted to say, applied to use powers introduced by this coalition Government to apply for community value status; they applied for the pub to be an asset of community value. There were objections. The most vociferous one said:
“the current use of the premises as a public house…does not itself further the social wellbeing or social interests of the local community and therefore is not land of community value.”
Who said that? Was it someone living down the street who was anti-pub? No, that objection was from the so-called pub company Punch Taverns, which was seeking to get rid of this pub and sell it off after forcing out the licensees. That is what is going on.
If there is any doubt that this model is closing pubs, let me read out the stark evidence of the figures. These figures, collated by CGA Strategy for the British Beer & Pub Association and CAMRA, showed that there was a much greater drop in the number of leased and tenanted pubs than in the number of free houses between December 2005 and March 2013. The number of non-managed—that is, tenanted and leased, mostly tied—pubs fell by 5,117, whereas there was a fall of only 2,131 free-trade pubs. All pubs have issues—there has been a difficult recession—but the difference is clear and stark.
We could also look at the pubco trade association’s own figures—figures that it has frankly been keeping very quiet about. Its own figures show that over 10 years, the number of non-managed—in other words, tied, tenanted and leased—pubs decreased by 8,000, while the free-trade sector expanded by 1,600 pubs. I repeat: that is its own figures. Between 2008 and 2012—just four years—the two giant pubcos, Enterprise Inns and Punch Taverns, collectively disposed of over 5,000 pubs—a third of all their pubs in just four years. Can any Member seriously stand up and say that this is a business model that is working for pubs?
Toby Perkins
The hon. Gentleman is hitting on a really important point. These big pub companies are often heralded for employing so many people, but they, of course, inherited these pubs and employees, and what they are doing over a long period is laying people off and shutting pubs, not the opposite.
Greg Mulholland
Absolutely. The debt level is still in the billions, and the hon. Gentleman will be aware of the extraordinary restructuring that has left Punch shareholders owning only 15% of the company. Meanwhile, the Punch tenant network expressed its serious concern about the effects on them of the company’s instability.
Mr David Ward (Bradford East) (LD)
My hon. Friend mentions the high number of pubs that have closed, but there is also the personal tragedy: a whole succession of tenants went into business with really high ambitions, and found that they simply could not make a living out of the existing model. That is a personal tragedy for them and their families.
Greg Mulholland
My hon. Friend is absolutely right. Every pub is a story about a community, and a story about the people who are running it. There have indeed been many tragedies. I had one in my constituency; a pubco tenant died of a heart attack a week after closing his pub. There are awful stories of human misery here. It comes down to the simple problem I outlined at the beginning: the over-charging. These companies continue to take more than is fair. It can often be 70%, 80%, 90% or even 100% of the pub’s profit, meaning that licensees cannot make a living.
Most revealing of all, I have asked Punch Taverns—in writing, and to its representatives’ faces—four times why it is so afraid of the market rent only option, the simple option to give tenants the right, at certain trigger points, to be offered a fair commercial market rent, and it has failed to answer four times. That, Mr Deputy Speaker, tells you all you need to know. It tells you that this business model is precisely based on taking more than is fair and sustainable. The only solution is the market rent only option.
Let me deal finally with the Government’s suggestion of a compromise: “Perhaps we can include a reference to the market rent only option or the Business, Innovation and Skills Committee option being built into the Bill, but only after a review two years after the statutory code comes into force.” I understand why this is being said, because the will of this House is clearly in support of the market rent only option, with 90 coalition MPs signed up to the Fair Deal for Your Local campaign, which calls for that option. I understand why the Government Whips are getting so worried: they realise that they might lose this vote today.
Let me say clearly on behalf of the campaign and all the organisations that have expressed this view that the last thing we need is yet another review. We have had four exhaustive Select Committee reports. In 2011, when the Government were supposed to act, we had a Department for Business, Innovation and Skills review, and BIS decided not to act. What was supposed to be the last chance became a second-last chance for the pub companies. When people realised that nothing had changed, there was a further review. We have had four reports and two reviews. The simple reality is that we need action and need it now. I ask you, Mr Deputy Speaker, to grant a vote on new clause 2; I think that you will agree that it is the will of the House to vote on it, given the support for it.
The simple message from all the Fair Deal for Your Local campaigns, thousands of tied publicans, and all who believe in pubs, publicans, communities and fairness is “No more delays, no more reviews, no more excuses.” Please let us solve this problem at last, properly, once and for all. Please let us all vote for new clause 2 today.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
I have a sense of déjà vu as I rise to speak about this subject yet again. I shall confine my remarks to new clause 2, because that very well-researched clause is consistent with nearly 10 years of successive recommendations from the Business, Innovation and Skills Committee, and because I feel that it will address an issue that all the other proposals have failed to address: the unfair relationship between the pubco and the tenant. That unfairness, and the need to redress it, were spelt out to me in a letter that I received from a tenant, who wrote:
“The pub company wins all the time, they get a share of the Games Machines, the pool table, the Rent and they also put £30-£50 on top of each barrel so we pay a lot more for our beer than buying it off a wholesaler or warehouse.”
I realise that the Minister and the Government have moved a long way in the last two years, from insisting that a voluntary code would be sufficient to deal with the problem to recognising, following a long consultation, that it was necessary to introduce a statutory approach. However, I feel that, in its current form, that approach is lacking.
Let me begin by responding to the Minister’s reference to a possible Lords amendment postponing the implementation of the Government’s proposals until after a review and a ministerial decision. I oppose that course of action for a number of reasons, some of which were mentioned by the hon. Member for Leeds North West (Greg Mulholland). The industry has already been consulted to death. As the Minister said, the Government’s last consultation received an enormous number of responses, and it took them a long time to reach their conclusions. I therefore see no grounds for any further consultation.
The issue here is the deeply entrenched position of the British Beer and Pub Association, which represents the pub companies and which, over the years, has consistently paid lip service to the BIS Committee recommendations for the introduction of a voluntary code while dragging its feet and procrastinating at every stage of the procedure. Indeed, our last report referred to “glacial” progress. There is no reason to believe that any further consultation over the next two years will make any difference whatsoever.
Richard Graham
Does not the history of pubs and beer in this country show that the unintended consequences of legislation over the years have frequently proved almost disastrous?
Mr Bailey
I understand that argument, and I have some sympathy for it. However, the hon. Gentleman referred to unintended disastrous consequences. I think that many people would describe the closing of 27 pubs a week, which is happening at this moment, as a pretty disastrous scenario. I do not pretend that all the closures are a direct result of the beer tie or that all the pubs are owned by pub companies, but those are undoubtedly major factors in a high proportion of the closures. Given the current rate of closures, if we delay for two years the industry will have been greatly slimmed down even within that time.
Andrew Griffiths
I can reassure the House that I will not be speaking for 40 minutes, nor will I be reading off a list of pubs that have been saved or want to be saved around the country. I just want to get to the nub of the point.
I begin by telling the Minister that I want to help her today. In fact I want to help her so much that I have sent my researcher off to WHSmith to buy two packets of Benson & Hedges, not because I have taken up smoking or I think her nerves are bad, but just in case she wants to write two new policies while we are having this debate and she needs something to write them on.
We have debated this issue for many years and today the Minister comes up with an amendment that was cobbled together within the last couple of hours. This is an important industry. It employs thousands of people across the country. Livelihoods depend on the decisions we make today, and I am deeply concerned that there has been no consultation whatsoever with the industry about her proposal today to have this two-year stay so that we can assess the situation. There has been no impact assessment, and there have been no discussions.
I have the same aims as the hon. Members for West Bromwich West (Mr Bailey) and for Leeds North West (Greg Mulholland). We want to see pubs prosper. We want to see pubs thrive. We want to keep the community pub. We want publicans to do well and to be profitable. It is how we achieve that that is key. The hon. Member for West Bromwich West mentioned unintended consequences. I have heard that said a number of times over the last 24 hours or so. I would bring the House back to the fact that we find ourselves in this situation because of the beer orders. A Conservative Minister decided, with the best of intentions, that the Government should interfere in the market; the Government decided that they should split up the big brewers because they were acting in an uncompetitive way and the consumer was not getting a good deal. They broke up the big brewers. The reality is that that decision set us on this path we are on today with the pub companies. We should therefore be careful and cautious—and afraid—of unintended consequences. The hon. Gentleman said that there is no certainty. Of course there is no certainty, but as politicians—as legislators—we have to act with caution when we are interfering in business and in the marketplace and in people’s livelihoods.
Greg Mulholland
A little bit of the beer orders story is conveniently forgotten, which is that it was not the Government’s decision; it was the industry lobbying to stop there being a limit on non-brewing companies that led to the creation of the large pub companies. The lesson is to not listen to that sort of self-interested industry lobbying and instead get the legislation right.
Andrew Griffiths
Once again the hon. Gentleman talks about big business as if it is a bad thing. I like big business. I like small business. I like successful business. Just because a business is big does not mean it is acting inappropriately.
Grahame M. Morris
The hon. Gentleman is speaking for big brewers and I understand his perspective, but what about consumers? If a tenant is paying 60% or 70% more for the product, surely the consumer is getting a bad deal as well?
Andrew Griffiths
The hon. Gentleman has read up on this subject. I refer him to the Office of Fair Trading report of 2009 and its recent interventions in this debate—it has said this has had no impact on consumer costs and the price the consumer is paying for a pint. In fact it could be argued that, because of the big distribution models, beer is actually cheaper. The statistics show that beer across the country is cheaper in a tied house than in a free house. I hope I have answered the hon. Gentleman’s concern.
Andrew Griffiths
I support big and small businesses. The hon. Gentleman should note that the Society of Independent Brewers, which represents the smallest breweries across the country, is opposed to the scrapping of the measure—
Andrew Griffiths
The hon. Gentleman shakes his head, but it is true. The hon. Member for Leeds North West tries to undermine decisions made by any organisation that disagrees with him, but the Society of Independent Brewers is clear that this provision would disadvantage the country’s smallest brewers, and I will tell hon. Members why. The society believes that guest pumps would be taken over by lagers from foreign-owned breweries, which would come in and offer massive discounts, so that rather than having micro-brewers selling beer in our pubs, we would have foreign brewers selling lager.
Andrew Griffiths
Of course; this is a market and there is always going to be an inequality of bargaining power. If I am buying 10,000 items, I will have greater bargaining power than if I am buying only one. The question that we have to ask ourselves is whether the publican, the tenant, is being treated fairly.
Richard Graham
I have huge respect for the hon. Member for Wrexham (Ian Lucas) and for his colleague, the hon. Member for West Bromwich West (Mr Bailey), both of whom have made some good points. I must point out to them that when my family pub buys beer, we are just one pub doing that and we are hugely disadvantaged compared with the buying power of the big companies—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Order—[Interruption.] Mr Graham, do not pull a face. It does not help. Mr Griffiths is the person who is speaking, not Mr Lucas, so please address Mr Griffiths.
Richard Graham
I hope that I was very clear, but if you want me to repeat my point to my hon. Friend the Member for Burton (Andrew Griffiths), I would be happy to do so, Mr Deputy Speaker.
Andrew Griffiths
I thank my hon. Friend for making a good point. When we are talking about scale, it is true that there is a difference between those who are buying in bulk and those who are buying in small quantities. I want to return to the point I was making earlier, which was that we want our publicans to get a fair deal. We want to ensure that they pay a decent amount of rent and a decent price for their beer, so that their businesses can be successful.
Bob Stewart (Beckenham) (Con)
But can my hon. Friend tell me why so many tied publicans are going out of business? Why is that happening?
Andrew Griffiths
I understand my hon. Friend’s concern, and I do not defend the fact that there have been bad practices, that some people have been dealt with unfairly and that some of the pubcos have acted incorrectly. The point is that this Bill, as set out by the coalition Government, will address that by bringing in a statutory code that will provide protection for tenants. For the first time ever, tenants who feel that they are paying too much rent or paying too much for their beer or spirits will have some redress in law.
Sheryll Murray
Will my hon. Friend explain the difference between contracts that are negotiated at the outset and assignments, which can sometimes be guilty of putting the pubs we are trying to protect out of business?
Andrew Griffiths
My hon. Friend has shown great interest in this issue. She has done a great job in standing up for family brewers, and she has demonstrated that she understands the complexities of these matters. She asks about assignments. These occur when someone who has previously taken over a tenancy assigns it to someone else. Some of the most egregious cases of mistreatment that we have seen have involved such assignments. The problem is that the pubcos have no control over them; they cannot, by law, interfere in how an assignment takes place.
To return to my point, if we want to protect our tenants and ensure that they pay fair prices and fair rents, we have the power to do so in this Bill. For the first time, there will be an adjudicator to whom tenants can take their concerns. If they feel that they are paying too much rent or paying too much for their beer, they will be able to go to the adjudicator, who will be able to intervene and ask the pubco to change its pricing. The adjudicator will also be able to fine a pubco if it is acting inappropriately or unfairly. That will provide great support for those tenants, and it will go a long way towards addressing the concerns that hon. Members have expressed.
Mr Laurence Robertson (Tewkesbury) (Con)
I have a connection with a tied house that is run by a family member, and I have looked into this matter carefully. Does my hon. Friend agree that the most important thing to get right is the contract at the beginning of the arrangement? Far too many people are desperate to get a pub, and they do not look properly at what they are getting themselves into. That is the area in which a lot of guidance is needed.
Andrew Griffiths
I absolutely agree with my hon. Friend. As he says, some people are desperate to get a pub. They have a dream of being a publican, and there have been instances of pubcos waiting for the next sucker to come along and take on a tenancy. There has also been an element of rinsing—of passing people through the system. I do not support that; it is wrong and we should stamp it out.
Mr Bailey
The hon. Gentleman is being incredibly indulgent to the queue of Members trying to intervene on him. May I take him back to his point about the brewing orders? They undoubtedly had unforeseen consequences, but the proposals in new clause 2 are nothing like the proposals in those orders. The new clause proposes a graduated, incremental approach that would give the industry a chance to adapt and to see how the new arrangements were working.
Andrew Griffiths
I understand the intentions behind the hon. Gentleman’s new clause, but its fundamental aim is to break the tie. There have been many investigations of the tie, and it has been proved lawful. It has also been proved not to be anti-competitive. What we want to stamp out are the abuses, where the tied model is being abused by companies that treat their tenants badly. That is what the Bill will do, without the addition of new clause 2.
Richard Graham
My hon. Friend is absolutely right. For the record, does he agree that if someone disagrees with new clause 2, that does not make them an unabashed supporter of large pubcos? We have the right to criticise abuses in individual pubs, such as the one in my constituency.
Andrew Griffiths
Thank you, Mr Deputy Speaker. I saw that look in your eye, so I shall try to make some progress.
Andrew Griffiths
I think I have been fairly generous, but I will of course give way to the hon. Gentleman.
Greg Mulholland
The most fundamental dishonesty is the suggestion that the new clause would abolish the beer tie. It absolutely would not; it would simply give an option, at certain trigger points, for people to choose between a tied agreement and a rental-only agreement. That would make the tie work properly and ensure that we got back to what the beer tie used to be.
Andrew Griffiths
I think I found a question in the hon. Gentleman’s intervention. Given that he spoke for only 40 minutes earlier, I quite understand why he wanted to have another go.
I should like to get back to the point made by my hon. Friend the Member for Tewkesbury (Mr Robertson) that people often find they have signed up for things that they did not expect. They find that they have been hoodwinked because they were not given all the details, and that they have not got a fair deal. That is what we want to outlaw. I want briefly to consider what, under this legislation, someone wanting to take on a tenancy today would have to do. First, they would have to have a business plan, which would have to be assessed. They would have to have an accountant and a lawyer, and they would be told what they are paying for their rent, their beer, their whisky and for everything else. They would also be told how many barrels of beer and bottles of whisky the pub sold in the past year, in the previous year and in the past five years. All that information would have to go before their accountant before they could sign. I do not know what other Members think, but I think these people are grown ups and business people. If they are provided with all that information calmly and clearly so that they can make a decision, it is not for government to intervene to tell them they cannot engage in a business agreement that is perfectly legal.
Andrew Griffiths
I have given way enough, so I will move on, because I want to make the following point to allow colleagues clearly to understand what new clause 2 would do. Let us suppose I am a tenant with Marston’s in my constituency, a company that brews magnificent beer and would be affected by this legislation. Let us suppose I go to Marston’s asking to become one of its tenants and I go through all the procedure—it could take up to six months to do the due diligence on me—to take on that pub. Let us suppose I do all that and sign on the dotted line. Under new clause 2, I could then say to Marston’s, “Excuse me, Marston’s, I have changed my mind and decided I don’t want to sell Marston’s beer. I want to sell Greene King beer so I would like to go free of tie. Not only am I not going to sell your beer, but I would like the Government to tell you what rent you can charge me.” That is what is being proposed. To all those who have signed new clause 2 and are thinking of backing it, I say that that does not sound like a Conservative proposal to me. I do not know what some of my colleagues think, but it does not sound like a very Conservative approach to business. I want protection and clarity, but I do not want mummy state interfering and telling people how they can run their businesses. That is very important.
We have heard a little about people being able to buy their beer elsewhere under new clause 2, so let me just enlighten the House as to what it would do. New clause 2 states that brewers could still stipulate the sale of their brands but the tenant must be free to buy them from someone else. I could stipulate that people had to buy Marston’s, but they would be able to buy it from anywhere. In essence, Marston’s would no longer be able to sell its beer at a lower rate to large wholesalers who are buying 10,000 barrels than to the Dog and Duck which is buying 10 barrels—and this would come with full brewery technical support and reduced dry rent. This new clause is a serious market intervention; we would be interfering in a market in a way unlike anything that happens in any other industry in this country. These are the unintended consequences that colleagues need to consider when they vote for this new clause.
Let me discuss the facts. They are that the industry is desperately concerned about the implications of new clause 2 and this free-of-tie provision. We are talking not only about the pubcos, which people might hiss at and not like, but about the family brewers, who will be exempt. We are talking about the microbrewers and the Society of Independent Brewers; the people who are not even affected by this legislation are concerned about the knock-on effects and the consequences for the industry and the market. We should be desperately concerned about that. The Minister will know that the Department for Business, Innovation and Skills commissioned a report from London Economics, which estimated that if we scrapped the tie and introduced something like this new clause, 1,800 pubs would close and 8,000 jobs would go. Nobody here wants to see that happen to our pubs. We saw what happened under the previous Government, when 52 pubs a week were closing and the hated beer duty escalator increased duty by 48%. We have seen the consequences of legislation for our industry. We should hold our nerve. We should vote for the statutory code and for the adjudicator, and we should give power to our publicans, but we should not throw the baby out with the bathwater—we should not vote for new clause 2.
Paul Murphy (Torfaen) (Lab)
I rise to support new clause 2. It was interesting to listen to the hon. Member for Burton (Andrew Griffiths) and, for about two and a half seconds, I felt sorry for the pub companies. Are they really the great bastions of competition? No, of course they are not. They have lost the confidence of not only the landlords who are their tenants, but this House of Commons and the general public. That is why I congratulate the Government, particularly the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), and her boss, the Business Secretary, on coming up with the pubs code of conduct and the adjudicator. I also congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) and his predecessors, the various Chairs of the Select Committee, all of whom agreed that change was absolutely necessary. On each of the three occasions we have debated this issue in this House of Commons there has been no vote against the basis of the debate: to ensure that there was change with regard to pub companies and how they treat their tenants.
On the new clause, the market rent only option was central to all those debates and to the reports of the Select Committees, because it highlighted the fact that the pub companies take far too much profit for themselves and leave very little for the tenants who run their pubs. The pub companies charge excessive rents and their beer prices are inflated and, as a result, their landlords are often impoverished. Is that competition? It is a cartel and a monopoly; it is nothing to do with competition—it is all about greed. The key principle outlined by the Select Committee reports and others is that the tied licensee should be no worse off than the licensee who is free of tie. That is central to today’s debate and to the decision this House of Commons must take within the next hour.
There are those who argue that new clause 2 would bring doom and disaster upon the industry, with thousands of people losing their jobs and hundreds upon hundreds of pubs closing. That is all scaremongering; it is all tactics to try to ensure that Government Members and some other Members who feel strongly about these issues should vote in a certain way within the hour. The hon. Member for Leeds North West (Greg Mulholland) spoke eloquently, as always, referring to the fact that new clause 2 would mean that the market rent only option would be introduced gradually; it would not suddenly fall upon the pub companies, but would happen in a piecemeal way, bit by bit and with sense.
Secondly, the new clause would not affect small family brewers. As we have all heard, it applies only to companies owning more than 500 public houses. Yet time and again in this debate people have been bringing up the idea that somehow or other companies such as Brains from south Wales, which is active in my constituency, will suddenly disappear from the face of the earth because of new clause 2, which does not affect them.
Andrew Griffiths
I am delighted that the right hon. Gentleman has mentioned Brains, because I understand that it does not support the free-of-tie proposal. Will he understand that although family brewers may not be encompassed by it, they will be affected by it, because they supply their beer to the pubcos and through their pub chains and distribution network? So it is not true to say that family brewers will not be affected; they are deeply concerned by these proposals.
Paul Murphy
The concern is not warranted. If new clause 2 came in and tenants were able to choose what beers and ciders they had in their pubs, perhaps in addition to the pubs in south Wales that currently serve Brains beers, other pubs that do not but that are linked into the pubcos could do so. Far from hindering the progress or in some way destroying the profits of Brains, this liberating measure would mean that public houses could serve Guinness, Brains and other local beers and ciders as well.
Sheryll Murray
My constituent, the owner of the fantastic St Austell Brewery, has recently told me that if new clause 2 goes through, he will be affected financially—that comes straight from the horse’s mouth. I do not know where the right hon. Gentleman has got his information from, but I have taken the trouble to go and speak to my family brewers and find out how the measure will affect them.
Paul Murphy
No, I will not. The hon. Member for Leeds North West made it clear that the detail in new clause 2 was specifically designed to exclude small companies such as Brains and others. It is possible that those companies were frightened by the tactics of some hon. Members and others, or, worse, that they were frightened because the pubcos had told them that they wanted friends to defend their own position. I do not believe for one second that small companies in my constituency, or anywhere else, would be adversely affected if pub companies allowed their tenants and landlords to earn a living wage—what is wrong with that?—to have a variety of cheaper beers, including those of the small companies, and to ensure that the profits are shared. Nothing in that could be said to be anti-competition. On the contrary, it probably means that they would do better in their pubs if they were allowed to earn more, to share their profits properly and to sell beer and cider from the microbreweries that exist in many of our constituencies. No, this is all about scare tactics.
Richard Graham
May I ask the right hon. Gentleman a simple question? He has quoted Brains, a small brewer in his constituency. For the record, does it, or does it not, support new clause 2?
Paul Murphy
It has already been said that Brains has misgivings about it. I am saying—[Interruption.] Of course it has written to me. It has written to other Members in South Wales. I am saying that those companies are misguided—[Interruption.] Will the hon. Gentleman contain himself while I answer him? Brains and others believe— because they have been frightened into believing it—that new clause 2 will affect them adversely. That is not the case. At the end of the day, those companies will benefit from the new clause.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
I know that it is unusual for an Opposition Whip to speak in a debate, but Brains is actually based in my constituency, and I have had many conversations with it. Is my right hon. Friend aware that the major concern of Brains and many other family brewers is over the Government amendments, which reverse the gains that we made in Committee? That is the primary cause for concern.
Paul Murphy
That is a useful piece of information from my hon. Friend whose seat includes the headquarters and the brewery of Brains.
Finally, I understand the tactic that the Government are using. They think they will lose the vote today, because there are so many Members who believe in the things that we are talking about and who will join us in the Lobby. I am not sure that a review is the answer. A review will simply push the argument and debate further down the road. Oddly enough, those who oppose new clause 2 do not like the idea of a review, and those who support it do not much like it either. It reminds me of Aneurin Bevan who said, “When you are in the middle of the road, someone will knock you down.” I sincerely hope that the Government amendment will be knocked down and that Members from all parts of the House will support new clause 2, as it will have the greatest effect in every single one of our constituencies.
Richard Fuller
We have had a fractious debate today. The responsibility for that can be placed firmly at the door of the Secretary of State for Business, Innovation and Skills, who has treated the House in a very shabby way. He has brought forward last-minute amendments and asked this House to take on trust that he can singly make massive and sweeping changes to this industry and that we should just trust him that his word is sound. He is proposing to affect an industry that has long been a mainstay of economies up and down this country.
I have very little confidence that the Secretary of State understands the industry on which he singly wishes to intervene. It is rather a poor show that he has not come to this House, but has instead left a very capable, but nevertheless junior, Minister to outline why the Government are retreating on one set of amendments, and looking to make changes in another set of amendments. That is no way for the proposed changes to be put to this House.
I speak on behalf of family brewers when I say that it is incredibly important that the Government keep the promise that they gave at the start of the consultation that those brewers would not be included in respect of the pubs code adjudicator. I was very pleased that my Conservative colleagues, along with the Opposition and the Liberal Democrats, voted to oppose the Government’s attempts to impose those regulations on small family-owned breweries. Today, the Minister has offered half a loaf back. She has said, “Well, we won’t do it for those who own 500 or fewer. We will do it for those with 350 or fewer. Just trust me, we will make it happen in another House.” I am happy that she is not pressing amendments 41, 43 and 44 today, but I am still at a loss to understand why there is an in-principle difference between 500 and 350. If it is a fact that just three family brewers are impacted by that change, there is a very serious issue about whether this is ultra vires legislation that is being felt by certain family businesses but not by others. I think the Minister will find that she will also have severe problems in the other House.
Andrew Griffiths
I completely agree with my hon. Friend’s analysis about plucking the figure of 350 out of the air. Does he share my concerns that this is a recipe for disaster, as we are bound to have legal challenge after legal challenge about what is a competition matter?
Richard Fuller
My hon. Friend is absolutely right. This is one of the problems of trying to make policy on the hoof. Small businesses in this industry up and down the country will be looking aghast at the actions of the Secretary of State. Serious business people run these breweries. They have to make long-term investment decisions that affect themselves, their employees and their customers. To have a Secretary of State who makes his position clear on a Friday, but changes it by Tuesday and again when it goes to the upper House sends an incredibly poor set of signals to an industry that has to make those long-terms decision. To be quite honest, a Secretary of State for business should understand that and should have the decency to be here—[Interruption.] I am sorry, I should not say that. It would have been preferable if he had been here today so that he could explain his rather unforced flip-flop at the last minute, because these are unprecedented changes that he is putting forward.
Mark Field (Cities of London and Westminster) (Con)
My hon. Friend is making a powerful and impassioned speech. Does he not recognise that Ministers have tried at least to find some element of compromise? For those of us who had some concerns about this—I share the concerns, as they have been put to me by Fullers brewery in Chiswick—the change to 350 provides a reasonable compromise, and it will now go to the other place to be determined.
Richard Fuller
My hon. Friend, with his emollient and soothing words, makes a fair point. The Minister has done a fantastic job in presenting these compromises. However, they raise severe questions both in terms of the specificity of the number of companies that will be affected by this additional change and the fact that they were presented to this House at the last minute on a “trust us, we will change it” basis. Yes, it is a step in the right direction, but would it not have been so much better to have this sorted out before and to have included the proposals in the Bill or in the amendments so that we could debate them here today in this House?
This issue shows some of the problems with Government intervention on industry. Essentially, anyone who runs a business knows that they cannot trust the politicians. They cannot trust the politicians to keep the guidelines for the industry safe and secure if we have an interventionist as Business Secretary, and we certainly have that. They cannot trust the Government if they know that they will change the rules one week so that the next week they will affect the industry.
Grahame M. Morris
I do not know whether I can take on one of the characters from “The Lord of the Rings” and better that finish from the hon. Member for Bedford (Richard Fuller).
I want to speak in support of new clause 2, and I declare an interest as vice-chair of the all-party save the pub group. I pay tribute to my fellow officers, the hon. Member for Northampton South (Mr Binley), the hon. Member for Leeds North West (Greg Mulholland), who has done such a sterling job of researching new clause 2, and the hon. Member for Romsey and Southampton North (Caroline Nokes). Like other Members, I acknowledge the important role played by Fair Deal for Your Local, the Campaign for Real Ale, the Fair Pint campaign, my union Unite, the GMB, various support groups for tenants and the Punch Tenants Network.
New clause 2 is about stopping exploitation by large pubcos of pub landlords up and down the country. The situation has not come out of the blue. We have been discussing the issue for some years now, and it has been known about for a long time. The hon. Member for Burton (Andrew Griffiths) gave an example from his constituency, and the point I sought to make, although there was not time for me to do so during his speech, was that I can think of many cases in my constituency where a tenant of one of the large pubcos has effectively invested their life savings, and often their redundancy money, in taking over a business and turning it around. They have built it up and taken on additional responsibilities, such as opening a restaurant or providing bed-and-breakfast rooms, but when the review of the tenancy has come around, the pubco has doubled the rent, so that it is not viable for those people to continue.
Grahame M. Morris
I will give way to the hon. Gentleman, even though he would not give way to me.
Andrew Griffiths
I think that I was pretty generous in giving way. The hon. Gentleman has done a lot for beer and pubs, and I acknowledge his support in scrapping Labour’s hated duty escalator. I agree that it would be absolutely unfair of a pubco to do what he has described, but does he not accept that under the statutory code, the tenant could take the case to the adjudicator, who could rule on whether it was fair, and get the decision overturned? The tenant would have protection under the code.
Grahame M. Morris
I think that the best protection is offered by new clause 2, with the market rent only option. Time is short, but I shall try to explain why. We have heard from the respected Chair and former Chairs of the Select Committee on Business, Innovation and Skills. We have had debates, and the all-party save the pub group is certainly aware of the four reports produced by the Committee that concluded that there had been abuse of the tied system, and that recommended time and again the market rent only option.
During her opening remarks, the Minister was harangued by Government Members with prophecies of doom about the consequences for local economies and regional brewers, but in truth the Federation of Small Businesses suggests that there will be a considerable benefit to the economy of offering this option. CAMRA estimates that large pub companies force their tenants to buy beer at prices that are inflated by as much as 50% or 70%; that is on top of rent that is already excessive. Anyone who believes in fairness would support new clause 2, which would correct that.
John Healey (Wentworth and Dearne) (Lab)
My hon. Friend makes a powerful case. Does he agree that tied tenants, such as those of the Monkwood tavern in Rawmarsh, The Crusty Pipe in Goldthorpe and The Bull’s Head in Cortonwood, simply want a fair basis on which to run their pubs as a business for them and their families?
Grahame M. Morris
Absolutely. All we are arguing for is fairness—[Interruption.] The hon. Member for Burton asks from a sedentary position why this has not been done before. We have an opportunity to do something now, and I cannot be answerable for things that happened before I was a Member of this House.
As a result of excessive behaviour by the pub companies, an estimated 57% of tied landlords earn less than £10,000 a year. That is a disgrace. Anybody who, like me, frequents pubs regularly will realise what an incredible effort goes into running a public house—the hours put in bottling up after customers have gone home, the huge commitment it takes, and the toll it takes on the owners’ personal life. For them not to have the opportunity to earn a decent living is a disgrace.
Mr Jim Cunningham (Coventry South) (Lab)
Does my hon. Friend agree that the tied pub concept is old-fashioned and antiquated in the 21st century? We had the same issues with tied housing in the past. Surely big brewers inflicting on landlords a certain label of ale, for want of a better term, is one of the factors that led to the demise of the working men’s club. Those clubs ended up in a lot of debt.
Grahame M. Morris
The demise of the Club and Institute Union, and the working men’s clubs, is a huge issue, certainly for me. New clause 2 does not propose the end of the tie; rather, it seeks to make it work more effectively and fairly. If a pub landlord agrees to a tied arrangement in relation to the purchase of alcoholic drink from the pubco, they should get a lower rent, especially if they are paying as much as 70% over the top for those beverages. That is the way the tie should work. If the landlord does not want to be tied to a company in respect of beverages, they should pay the market rent, or have that option. I am not suggesting that the tied system should be done away with—just that it should work in a manner that is fair to both the pub company and the tenant. At the moment, it certainly does not.
Members have suggested that the impact is not huge, but there are lots of villages in my constituency of Easington, such as Hawthorn and High Heselden, where only a single pub is left. These communities are really feeling the effects. If landlords are compelled to pay as much as 70% more for their alcoholic beverages, despite what the hon. Member for Burton says, the tenant will be absorbing some of that cost, but when there is only a single pub in the village, it is basically passed on, and the customers pay a lot more than they need to.
It is no coincidence that thousands of pubs have closed in recent years. In some cases, profitable, popular pubs, beloved by local communities, have been sold off by big pubcos to developers and supermarkets. Pubcos have sought to cash in on the real estate or land value, with little or no thought for local people, or the effect of the loss of a community hub. As the hon. Member for Leeds North West pointed out, that is often because these pubcos have saddled themselves with huge debts. There is a suspicion that the rents they charge are deliberately high to get rid of landlords, so that it is easier for them to sell.
Those landlords who opt for the market only rent can purchase drink supplies from elsewhere, leading to better and fairer access to the pub market for smaller local brewers and cider producers. It would also increase the choice for all our constituents. I would like Members to support new clause 2 because it would help to deliver increased licensee profitability, increased investment in pubs, greater consumer choice and fewer pub closures. If avaricious pubcos are stopped from exploiting their tied landlords, hiking up rents and charging up to 70% more for a pint, the price of a pint can only fall. I am sure that I speak for all hon. Members on both sides of the House and their constituents—I certainly speak for myself and my constituents in Easington—when I say that such a move would be warmly welcomed. For that reason, for fairness and for the benefit of the economy as a whole, I commend new clause 2 to the House.
Sheryll Murray
I thank my hon. Friend the Minister for not pressing amendments 41, 43 and 44. However, I want to put on record my surprise that the amendments were tabled by the Secretary of State as recently as 14 November, and the explanation was:
“This amendment, and amendments 43 and 44, reverse amendments made at committee and bring pub-owning businesses with fewer than 500 tied pubs back into the scope of the Pubs Code.”
The Secretary of State has continually led the House to believe that it was his intention not to include small family brewers with fewer that 500 tied pubs in the statutory code. When the Bill appeared, it included those small family brewers, with top-heavy bureaucracy.
I thank my hon. Friend the Member for Newton Abbot (Anne Marie Morris), who is no longer in her place, my right hon. Friend the Member for Faversham and Mid Kent (Sir Hugh Robertson), my hon. Friends the Members for Bedford (Richard Fuller), for Burton (Andrew Griffiths) and for St Austell and Newquay (Stephen Gilbert), and the hon. Member for Chesterfield (Toby Perkins) and his colleagues on the Opposition Benches for seeing sense and supporting my amendment, which would simply have put back into the Bill what the Secretary of State has always led the House to believe he intended to have in the Bill.
Jo Swinson
We have had a lively debate on the various amendments before us. The hon. Member for Chesterfield (Toby Perkins) made the point that today has the potential to be a great day for Parliament. Given all the detailed discussions we have had—that is what we do on Report—getting into the specifics on thresholds, family brewers and new clause 2, I think it is easy to lose sight of quite how far we have come and what a real change this Bill will mean for tenants who have been arguing for such a long time for action to be taken to improve their situation.
We have heard hon. Members make contributions of various lengths—significant, in some cases—and we have heard more make interventions, on both sides of the argument, about new clause 2, and we have heard speeches from those who powerfully oppose it. I want to respond to some of the specific points made by the hon. Member for Bedford (Richard Fuller) about family brewers and the Government’s proposed threshold of 350. He was right that earlier I confirmed that three companies would be included. An important fact to put on the record is that none of those three is a family brewer. Those who have been arguing for the exclusion of family brewers can rest assured that, with the reduction in the threshold from 500 to 350, that exemption will remain, as I think was the will of the Committee, which the Government have listened to and recognised should be reflected in the Bill.
I take issue with the suggestion that those companies are all small businesses. Of the three that will be included by changing the threshold from 500 to 350, one has a turnover of £758 million a year and some 16,000 members of staff. I do not think that it is accurate to say that we are necessarily talking about small companies in that sense. The hon. Member for Heywood and Middleton (Liz McInnes), who is new to the House, asked about the brewery JW Lees in her constituency. I am happy to confirm that with fewer than 350 tied pubs, it will not be affected by the measures.
In his comments about family brewers and the changes we have introduced, my hon. Friend the Member for Bedford indicated a certain lack of confidence that the commitments made here by the Government will be implemented. We have set those out in clear words, which will appear in black and white in Hansard if he chooses to read it tomorrow. The amendments will be made in the other place but this House will have the opportunity to vote on them as well. The situation is not necessarily good versus evil, as he outlined it. I began to worry that he was being a bit uncharitable towards me at one point, until he compared my right hon. Friend the Business Secretary to Saruman, who was a pretty evil and nasty piece of work. I do not think that comparison is warranted, but perhaps I should just be pleased that my hon. Friend did not reach for Sauron instead.
New clause 2, which was introduced by my hon. Friend the Member for Leeds North West (Greg Mulholland), seeks to introduce a market rent only option requiring pub-owning companies with more than 500 pubs of any description and one or more of those being a tied pub to offer their tied tenants the right to go free of tie. It is widely accepted in the industry that tied tenants should be no worse off than free-of-tie tenants. It is one of the key principles underpinning the Government’s proposals and goes to the very heart of the measures we have set out in this Bill. There was an attempt in Committee to take that principle out—a probing attempt, apparently, but none the less an attempt—by some of the Back Bench who have spoken today. It is a vital principle that underpins the impact that we are trying to have.
Toby Perkins
The hon. Lady to some extent predicted what I am going to say. People who listened to the hon. Member for Burton (Andrew Griffiths) might want to reflect on the fact that he attempted to introduce an amendment in Committee that would have removed the principle that tied tenants should be no worse off than tenants free of tie. It may be valuable for hon. Members to consider in that light everything else they have heard from him.
Jo Swinson
Indeed. I am glad that that amendment did not ultimately form part of the Bill, as that principle, which we have set out from the beginning, is crucial. We looked at various means of achieving it. One of the things we consulted on was whether the market rent only option should be included in the pubs code. We looked carefully at whether to introduce that. It might seem a straightforward way of strengthening the negotiating position of tenants, because if they are faced with a compulsory free-of-tie option alongside market rent only, pub-owning companies will arguably work much harder to offer a tied deal which represents a fair share of risk and reward.
The freedom to choose the supplier and the likely lower costs of supply could mean that free-of-tie agreements offer greater potential profits for tenants wanting to maximise the benefit of those terms. Those would be the most experienced and entrepreneurial tenants. It would not necessarily help others, whereas the parallel rent assessment will do that. It was interesting from the consultation, and almost unique in such a polarised policy area, that concerns were expressed by people on all sides of the debate about the impact of introducing that provision and the consequences it could have on the tied model as a whole. There would be some uncertainty and unpredictability, especially in relation to pub-owning companies and how they would respond.
The parallel rent assessments that we are introducing provide a way of making sure that the prime principle that a tied tenant should not be worse off than a free-of-tie tenant can be enacted and made real. That is why we are proceeding with the arrangement.
Neil Carmichael (Stroud) (Con)
If there is a market rent review in two years, will it be sufficiently rigorous to satisfy tenants?
Jo Swinson
I can give an assurance that the review will be rigorous and that, in response to it, there will not only be this power for the Secretary of State, but, if he finds that there is insufficient protection for tenants as a result of the parallel rent assessments and the system is not working as it should, a requirement for him to bring forward the market rent only option.
Toby Perkins
The Minister is attempting to straddle a very difficult line. She claims that we should believe that the measures proposed by the Government today are likely to work, but if not there is an alternative process that is her party’s policy for which she will argue going into a general election. Why do we not just do away with all that nonsense, give the industry some certainty, and support new clause 2?
Jo Swinson
The hon. Gentleman is right to say that it would be Liberal Democrat policy. Clearly, we are in a coalition Government rather than a Liberal Democrat Government, and people will make their decisions when it comes to the general election in which we will all be campaigning and voting in a few months’ time.
We have before us a Bill that will improve the lives of tenants and makes real the principle that a tied tenant should be no worse off than a free-of-tie tenant. The hon. Member for Bedford suggested an analogy with “The Lord of the Rings”. Perhaps I can posit an alternative scenario. I think that what we have had on this issue over the past few years is a rather intrepid fellowship—a group including MPs from all parties in all parts of the House, tenants, Select Committees, business groups, and campaigners. I will leave hon. Members to make up their own minds about who among them would be deemed to be hobbits, elves, dwarves or men—[Interruption]—and, indeed, who has been Gandalf at their head. The members of this intrepid fellowship have campaigned hard. In some ways, they probably feel that they have been on an epic journey, battling against the unfairness that has been repeatedly highlighted in Select Committee reports.
We need to recognise that the result of that campaign by all those individuals has been to achieve a great success. What we have is proposed legislation with a statutory code and a pubs adjudicator who can make that code a reality and ensure that if it is not abided by there can be arbitration, investigations, and ultimately, if necessary, penalties with real teeth. We also have the parallel rent assessments to make sure that the system bites. Now, going even further, we have the power to introduce the market rent only option if all that is ultimately unable to work. That is a huge success for campaigners who have worked on this issue for many years. I think that people should welcome what has happened.
I hope that my hon. Friend the Member for Leeds North West will recognise that success, see how far he has come, and think twice about putting his new clause to the vote. In the Bill before us, we have a solution to the issue identified in the Select Committee reports and a way to make sure that if that does not work we have the ability swiftly to implement a market rent only option. I commend this part of the Bill to the House.
Question put and agreed to.
New clause 6 accordingly read a Second time, and added to the Bill.
New Clause 2
Pubs code: market rent only option for large pub-owning businesses
(1) The Pubs Code shall include a Market Rent Only Option to be provided by large pub-owning businesses in respect of their tenants and leaseholders.
(2) A Market Rent Only Option means the right of the tenant, or leaseholder, of a pub owned by a large pub-owning business, to be offered such tenancy or lease in exchange for an independently assessed market rent paid to the pub-owning business and, for the avoidance of doubt, not thereafter being bound by “a tie”, meaning an agreement meeting, in whole or in part, Condition D as defined in section 63(5) of this Act (obligation to buy from the landlord, or from a person nominated by the landlord, some or all of the alcohol to be sold at the premises).
(3) For the purposes of this section, the definition of Condition D in subsection (2) is to be interpreted to include an obligation to buy or contract for goods and services other than alcohol.
(4) For the purposes of this section, the definition of a “large pub-owning business” is a business which, for a period of at least six months in the previous financial year, was the landlord of—
(a) 500 or more pubs (of any description); and
(b) one or more tenanted or leased pub.
(5) The Pubs Code may include provisions to permit a brewery which qualifies as a large pub-owning business to continue to require that specified brands produced by that brewery (required products) are sold within its tenanted or leased pubs—provided that such tenants and leaseholders are free to purchase such required products from any supplier.
(6) The Pubs Code shall contain provisions requiring that the offer of a Market Rent Only Option to a tenant—
(a) at the point of lease, tenancy contract or other agreement renewal, or at rent review or five years from the date of the previous rent review;
(b) when the large pub-owning business gives notice of, or imposes, (whichever is the earlier) a significant increase in the price at which it supplies products, goods or services (falling under subsections (2) or (3)) to the tenant;
(c) when a large pub-owning business implements, or gives notice of, a transfer of title;
(d) when a large pub-owning business goes into administration; or
(e) upon an event outside of the tenant’s control, and unpredicted at the time of the previous rent review, that impacts significantly on the tenant’s ability to trade.
(7) The terms of an offer under subsection (5) shall include provision for a 21 day period of negotiation, commencing from the tenant giving notice of an intention to pursue a Market Rent Only Option, in which the large pub-owning business and the tenant may seek to negotiate a mutually agreeable Market Rent Only settlement.
(8) Following the negotiation period under subsection (7) there shall follow a 90 day period of assessment. In this period—
(a) an independent assessor shall be appointed with the agreement of both parties by joint private instruction and on the basis of an equal apportionment of costs; and
(b) under arrangements and criteria that the Adjudicator shall establish, such an assessor shall be—
(i) independent of both parties; and
(ii) competent by virtue of qualification and/or experience.
(c) if the business and tenant cannot agree on an appointee then a person shall be appointed, on the application of either party, under arrangements established by the Adjudicator;
(d) the appointed assessor shall then assess the market rent for the property operating as a pub with no “tie” as defined in subsection (2) and submit to both parties the resulting sum for such a rent; and
(e) at the time of the three month assessment period, the tenant shall have the right to pay no more than the sum determined under paragraph (d) to the pub-owning business and, if previously one party to a “tie” as defined in subsection (2), shall no longer be bound by it.
(9) The Pubs Code shall contain such measures as ensure that—
(a) the Market Rent Only Option is conducted in accordance with timing provisions and procedures, in accordance with RICS guidance, as specified in the Pubs Code; and
(b) large pub-owning businesses are prohibited from acting or discriminating against any of their tenants who choose the Market Rent Only Option.
(10) The Secretary of State shall confer on the Adjudicator functions and powers in relation to the Market Rent Only Option, that include—
(a) determining what constitutes a significant increase in price, as mentioned in subsection (6)(b) in the event of a dispute between tenant and business;
(b) adjudicating in disputes concerning the process or outcome of the market rent assessment; including the power to set the market rent if the Adjudicator deems the process or decision to have been flawed; and
(c) receiving, investigating and adjudicating in relation to complaints made under subsection (9)(b).
(11) The Secretary of State shall make provisions for the implementation of the following measures in this section by regulations amending the Pubs Code. Such regulations shall be made under negative resolution procedure. The Secretary of State may make provisions changing the types of agreement that fall under subsection (2) by regulations. Such regulations shall be made under negative resolution procedure.”—(Greg Mulholland.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
New clause 3—Prompt Payment Code, duties of the Secretary of State—
‘(1) The Secretary of State shall—
(a) ensure that any business with payment terms of more than 60 days cannot sign up to the Prompt Payment Code, and that any existing signatory with payment terms of more than 60 days is removed from the list;
(b) at the end of each financial year, the Secretary of State shall write to all businesses in the FTSE 350 who are not signatories of the Prompt Payment Code asking them to become so;
(c) the Secretary of State shall publish a list of those businesses written to prominently on the Government’s website.”
New clause 4—Late payment review—
‘(1) The Secretary of State shall—
(a) conduct a review into how the Government can use the payment publishing regime to ensure that small businesses who are paid late by a larger supplier are automatically paid compensation, and into how the onus of reporting late payment can be shifted away from the smallest businesses who cannot afford to lose significant customers; and
(b) report back to both Houses of Parliament on the conclusions of the review.”
Amendment 6, in clause 3, page 4, line 33, at end insert—
“(g) about the circumstances and process for amending payment terms of the company.”
This is for companies to include details of the circumstances and processes (including who will be involved) by which payment terms would be amended, preventing unilateral and ad hoc changes.
Amendment 91, in clause 11, page 12, line 19, at end insert—
“(5) The Secretary of State may by order establish a Prohibited List of certain classes of exports that cannot receive UKEF/ECGD support.
(6) An order establishing , or thereafter amending a list for the purposes mentioned in subsection (5) shall be subject to the affirmative resolution procedure.”
This amendment would grant the Secretary of State the power to prohibit specified types of exports from receiving government support, thereby enabling UK export finance provision to reflect government policies and priorities, such as preventing arms sales to certain regimes. The content of, or changes to, any such list would need to be approved by Parliament.
Government new clause 5—Independent Complaints Commissioner: reporting duty.
Amendment 92, page 20, line 5, leave out clauses 20 to 26.
This amendment removes the obligation on future governments to set a deregulation “business impact” target for each Parliament.
Government amendments 27 and 28.
Amendment 7, in clause 37, page 35, line 9, at end insert—
“() duties to establish the past payment performance of potential parties to a contract, before contracts are entered into;
() duties to ensure contracts entered into include the contractor’s requirements for prompt payment of their suppliers.”
These are to ensure that the payment performance of potential contractors are known before contracts are entered into and that contracts entered into require contractors to pay their suppliers promptly.
Amendment 1, page 35, line 16 , at end insert—
“() duties relating to the provision of apprenticeships and training opportunities as a result of procurement;
() duties to publish reports about the amount of expenditure undertaken by the relevant procurement function in relation to—
(i) amount and proportion of expenditure undertaken by small and medium-sized enterprises,
(ii) amount and proportion of expenditure undertaken in the local area.”
Amendment 2, page 35, line 22, at end add—
‘(5A) A person making regulations under this section may also specify the reasons why firms may be excluded from entering into contracts.”
Amendment 3, page 35, line 28, at end add—
‘(8A) Regulations under this section are subject to the provisions of the Freedom of Information Act 2000”
Amendment 4, page 35, line 30, leave out subsection (10).
Debbie Abrahams
This group of amendments is seeking to address the very significant issue of businesses paying their suppliers late. Recent data show that the late payment debt burden for UK businesses is more than £46 billion, with SMEs shouldering most of this. They are owed nearly £40 billion in late payments and 60% of small businesses are affected, with the average small business owed over £38,000 in late payments.
It is getting worse: £36 billion was owed in 2012, so the increase over recent weeks and months can be seen. In other debates we have heard about the implications of late payments for these small businesses, from productivity to access to finance and credit terms—all these are affected. For these businesses, there is not just the inconvenience of spending an extra 158 million hours chasing payment: vital cash flow that is stemmed often affects their very survival, their jobs and their livelihoods. In 2012 it was estimated that 124,000 small businesses were put out of business directly as a result of late payments.
For me, it has been about the personal stories. My interest in late payments started when a constituent came to me and said that their business was going under directly as a result of this issue. This opened a can of worms, not just in my constituency but across the country. The issue of late payments is endemic. When someone describes how their life’s work has been destroyed by what can only be described as corporate bullying—large companies paying their bills late just because they can, because they have the power—it is clear that it is one of the most raw forms of injustice.
From the late payment inquiry held last year, it was clear to us that it is not just a micro-economic issue. With approximately half the work force and half the UK’s income in the private sector coming from small businesses—a massive £1,558 billion—it is inconceivable that late payment is not affecting the wider economy and, of course, a sustainable recovery. I am glad that the Government are tackling the issue; it has been a long time coming. I started my Be Fair—Pay On Time campaign in 2011 and now the Government are finally getting to grips with the issue, but I am afraid that the measures in the Bill do not go far enough. It is regrettable that in Committee the Government failed to support measures that would have seen small businesses automatically compensated for late payment by their suppliers. I hope that the Minister will reconsider and have a look at new clause 1 and the amendments.
New clause 1 seeks to address the issue of retention of moneys in the construction industry. You may be aware, Madam Deputy Speaker, that at any one time over £3 billion is outstanding in the construction industry by way of cash retentions. This is an aggregate sum of moneys provided for by small businesses in the event that they fail to remedy defects. I have several examples, including that of a company that wrote to me to say that £60,000 of retention moneys was withheld—5% of the overall contract—for eight months. There was nothing in the contract about that. They had to go through adjudication and it ended up with them losing £22,000. These are small businesses, and this is their livelihood.
Gordon Banks (Ochil and South Perthshire) (Lab)
Having worked all my life in the construction industry, I am very much aware of retention issues. My hon. Friend’s final point was valid. When it comes to negotiating retentions, it always comes to a compromise: people will always lose, as they will never come out with the £60,000 that they were owed. That is effectively their money going to somebody else’s pocket.
Debbie Abrahams
My hon. Friend speaks from experience. That is certainly the experience of many contractors, and we need to address it.
There is evidence that cash retentions have been used to shore up the working capital of local authorities and tier 1 suppliers. There is a key concern that if tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing their retentions.
I recognise that the Department for Business, Innovation and Skills has said in its construction supply chain payment charter that it wishes to abolish retentions by 2025. My new clause, however, is a stepping-stone towards that by requiring the publication of companies’ policies, practices and performance on retention moneys, reviewing this and subsequently making recommendations about further action to help secure and protect retention of moneys for small businesses—in trusts, for example.
The new clause is timely, with New Zealand considering the requirement for cash retentions to be taken in trusts, and New South Wales in Australia is currently reviewing regulations to that effect. The new clause would enable the Secretary of State to review published information and then issue regulations to ensure that these owed moneys are protected for small businesses.
Moving on to amendment 6, a key issue for small businesses has been the changes made to contract payment terms without negotiation or notice. My amendment recognises that and would require companies to include details of the “circumstances and process” by which payment terms may be amended in the company’s published payment practices and policies. This will prevent ad hoc and unilateral changes from being made to the payment terms, which have again affected the financial viability of so many small businesses.
Amendment 7 looks at the issues around public procurement practices. One major issue identified in my late payments inquiry was that late payment is a cultural issue. Large companies pay small companies late because they can, as I mentioned—they have the power and the small companies do not. We need to change these attitudes, and we need to view late payment as being as unethical as tax evasion. Changing public procurement practices, as identified in amendment 7, provides an opportunity to do so, first, by requiring public bodies to determine the “past payment performance” of potential contractors before any contract is entered into; and secondly, by making the contracts of tier 1 suppliers commit them to pay their suppliers promptly. All the way down the supply chain, there should be a commitment that payments will be made on time.
Although my next topic does not relate to my amendments, it relates to public procurement practices. A report came out today from the Walk Free Foundation on the subject of modern slavery. Although the UK is supported for what it is doing to combat modern slavery, it finds that we are not doing as much as Brazil and the US, for example, in addressing Government procurement practices to stop this happening. I know this is highly irregular, Madam Deputy Speaker, but I hope the Minister is listening so that he can respond and make clear how we will deal with this problem in future Government practices.
Debbie Abrahams
I have come to the end on that really important point, but I happily give way to my hon. Friend.
Toby Perkins
My hon. Friend may be approaching the end, but if I am any judge, I know she is nowhere near the end of campaigning on this issue. She has been a robust and resilient campaigner on late payments, and I know that she was granted an award for her work yesterday by the Federation of Small Businesses. I want to take this opportunity to congratulate her, not only on that thoroughly deserved award, but on the fantastic campaigning work she has done on late payments.
Debbie Abrahams
That was very kind of my hon. Friend, and I am grateful to him. I will continue to campaign, because, as I have said, I do not think that the Government’s measures are strong enough. They have been dragged here kicking and screaming; I hope that they will now listen, and will address what are still weaknesses in the Bill.
Caroline Lucas (Brighton, Pavilion) (Green)
I hope I am right in thinking that I can speak about any of the amendments in the new clause 1 basket. That seems to be the case, and I am delighted, because it means that I can speak about my amendments 91 and 92.
The Bill contains important provisions to help United Kingdom firms to export, which is, of course, welcome news for many of them. However, UK export finance is, in the Government’s own words,
“not presently legally able to discriminate between classes or types of exports”.
Amendment 91 would alter the Export and Investment Guarantees Act 1991 to give the Secretary of State power to create a prohibitions list, thereby allowing the Government to ensure that UK export finance was not available to projects overseas that undermined other Government policies—specifically, policies on human rights and arms exports, and the 2010 coalition pledge to
“ensure that UK Trade and Investment and ECGD become champions for British companies that develop and export innovative green technologies around the world, instead of supporting investment in dirty fossil-fuel energy production.”
The amendment would not bind a Secretary of State, now or in the future, to introduce such a prohibitions list, nor would it prescribe what should be included in the list. It would merely allow the Secretary of State to create such a list if he or she chose.
Given that the amendment is so moderate, I find the Government’s arguments against a prohibitions list very unconvincing. First, they argue that it is better to consider projects on a case-by-case basis, but the case-by-case approach is not working, even when measured against the coalition’s own pledge to support “innovative green technologies”. In 2012-13, UK Export Finance gave a £147 million guarantee to support oil and gas exploration by Petrobras in Brazil, and £15 million in guarantees for a loan for a gas power project in the Philippines. In March 2014, support worth US$215 million was announced for a major petrochemical project in Vietnam. Nor is the current approach working when it comes to military exports to repressive regimes. Many of the deals that have been underwritten by UK export credit support are controversial, including sales of military aircraft to Saudi Arabia and Oman, armoured vehicles to Turkey, and intelligence equipment to Indonesia.
Secondly, the Government argue that the UK would be less likely to be effective in achieving change through multilateral routes if we acted unilaterally in this way. If that is the case, why do other countries have prohibitions lists? The Export-Import Bank of the United States, for instance, prohibits
“loans, guarantees, and insurance as to sales of defense articles or services”.
In June 2014, the German Finance Ministry announced that Germany’s official export credit agency would be prohibited from supporting nuclear contracts.
I simply do not think it credible to argue that if the UK showed some leadership and led by example, that would somehow hinder multilateral action to the same end. Indeed, the reverse is the case, as John Ashton, the UK’s top climate diplomat in former years, has pointed out. In his view,
“our influence has always depended on the credibility of our domestic policies. How can we expect to persuade others if we are not doing ourselves what we ask of them?”
Thirdly, the Government say that there is not a problem with coal, because UKEF has not funded a coal-fired power station overseas since 2002. However, there is clearly a loophole in the UK’s policy on export finance for coal projects abroad. The hon. Member for Streatham (Mr Umunna) highlighted that loophole in a speech in April this year. He said that he would take action to close the loophole; I hope that he will follow through, and vote for my amendment today.
A change in export credits could also offer a boost to UK low-carbon industries seeking to expand overseas, as the chief executive of a British solar company operating in a number of African countries has explained. It is not just about stopping export finance in one area; it is about expanding it in others, so this is a pro-business proposition. Finally, I reiterate that this amendment does not specify what goes on the prohibitions list; it simply gives the Secretary of State the power to create one, in recognition of the fact that the current approach is failing on both human rights and environmental grounds, even measured on the Government’s own terms.
Gordon Banks (Ochil and South Perthshire) (Lab)
It is a pleasure to follow the hon. Member for Brighton, Pavilion (Caroline Lucas), and I should like to speak to new clauses 3 and 4. Before I so do, I should like to draw the House’s attention to my entry in the Register of Members’ Financial Interests.
New clause 3 is designed to flush out late payers. It seeks to press, or perhaps encourage, FTSE 350 businesses that have not signed up to the prompt payment code to do so. It would also empower the Secretary of State to publish a list of such companies on the Government website, thereby highlighting those that had not committed to the code. I support those ambitions. The new clause sets out to do what the Government said they would do—name and shame large companies that did not commit to prompt payment practices. However, they have now reneged on that promise. New clause 4 proposes that the Government conduct a review into how the payment publishing regime could be adapted to ensure that late payments would be automatically accompanied by a compensation payment, and how the onus of reporting late payment could be moved away from the customer waiting to be paid.
Why are the new clauses so important? Any small business owner will know that a late payment can often mean the difference between continuing to trade and business failure. Insolvency specialists have estimated that one in five business failures are down to bills not being paid on time; they are nothing to do with a failed business model and and purely down to cash being withheld from the business by its customers. The Scottish Building Federation has highlighted the fact that four out of five building firms have reported instances of late payment in the past year. I can assure the House that the overwhelming majority of those businesses will not have considered seeking redress through interest payments.
The problem that the Bill will not solve is that it will still be up to the supplier—usually a smaller business—to pursue its customer for prompt payment. The supplier will either lose the argument, and lose the prompt payment, or win the argument and put at risk its relationship with that larger customer.
Bill Esterson
My hon. Friend is absolutely right to make the case for a level playing field when it comes to the payment of smaller suppliers by larger organisations. He has also made the point about the human and social cost of late payments to the people who run and work in small businesses. Does he agree that it is incredibly short-sighted of larger businesses to disrupt their own supply chains by delaying payments in that way? Is not that another reason to deal with this issue once and for all by adopting these important amendments?
Gordon Banks
I thank my hon. Friend for making that valid point. The bigger companies have to understand that there is a need for smaller companies in the supply chain. They should view the situation in the round and acknowledge that not every company is big enough to withstand late payments in the same way that they perhaps could. There is a moral argument running through this as well. If I supply goods and services to someone on a Tuesday and they agree to pay me a particular sum by 1 August, for example, why should they not pay me by that date? It is simple: if I keep my part of the bargain, I expect them to keep theirs.
Mr Brooks Newmark (Braintree) (Con)
I totally hear what the hon. Gentleman is saying, and I agree that small businesses are the backbone of this country. Does he agree that the banks also have a role to play in loosening up their working capital facilities to help small businesses? That, too, is a challenge that small businesses face.
Gordon Banks
I am grateful to the hon. Gentleman for making that valid point. I shall come to that matter later in my speech when I talk about the changes that have happened over recent years, and perhaps decades, and try to illustrate why prompt payment has become so important.
Let me return to what I was saying about people trying to get their payment on time, and whether they win the argument and risk losing the customer in the process. There does not seem to be much incentive for small businesses to utilise their right against late payers, because just 10% of businesses have even considered doing so. I have been in private business all my working life, having set up my own business in 1986. I can tell this House that late payments are the biggest curse small businesses face: people striving, working hard and going out to sell their wares but then struggling to get paid. As I said, that part of the bargain is not being upheld.
Andrew Gwynne (Denton and Reddish) (Lab)
My hon. Friend hits the nail on the head, because this is not a small problem for small businesses—it is a big problem. Is he aware of research by BACS showing that 60% of British small businesses have said that late payment is a problem for them?
Gordon Banks
Yes, I am aware of that research, and late payment is a major problem. It is not just a transient major problem, but a constant one, week to week. I have lain in bed at night worrying whether the cheque was going to come in so that I could pay the wages of my staff. That is not a position that any business should be put in, and certainly not because of late payments.
A small business, perhaps a new one trying to establish itself, often finds a degree of comfort in dealing with a larger, perhaps household, name in its business sphere. The saying in my sector is, “You know your money is safe with so and so.” It may be safe but it may also be in their bank all the time and not yours.
We also need to consider the credibility that comes from working with such a customer and the possible opportunities, arising from volume increases, for small business suppliers to be able to renegotiate rates from their suppliers. In my experience, those will more often than not be larger companies. So the small business can find itself sandwiched between a large business customer and a large business supplier, perhaps a multinational company, and being strung out at one end and wrung out at the other. These multinational companies, understandably, have strict credit limits and they will be very quick to stop supply if they are not being paid within 30 days. Within a limited period of time they will remove the small business’s credit facilities, so damaging its credit rating, and reducing its access to key products and, in effect, its ability to pay the bill for which the multinational is awaiting payment.
As we know, the reason for late payment in these cases is often that a large customer fails to keep its side of the deal. I wish to draw the House’s attention to an experience I have encountered a number of times, where large multinationals have been pressing for payment within 30 days for a commodity sold by them to my business and yet that commodity has been sold to another division of the same company and it has no intention of paying within 30 days. Even within the same organisation we may have the supplier pressing for payment within 30 days, the product having been sold to another division in the same company as the supplier and yet it not upholding its part of the bargain and being prepared to pay in 30 days—it just strings you out. So the company wants its money in but does not want to pay the money out. That is just not good enough. The current system of being able to charge interest, at the supplier’s instigation, or being able to apply a debt recovery cost is not adequate and we have to improve these experiences.
Toby Perkins
My hon. Friend is making an excellent speech on this important subject. He will probably be aware that in Committee we tabled a worked-through amendment that would have moved the onus from small businesses having to pressure their large business customers for repayment on to the large businesses. Does he agree that the fundamental change we need is for small businesses not always to have the onus on them to pursue their large business customers?
Gordon Banks
I absolutely agree with my hon. Friend. It is not morally or structurally fair for a small business to be trying to squeeze a few hundred or a few thousand pounds—perhaps even tens of thousands of pounds—out of a large multinational company. That onus must be shifted away from the small company. After all, the company is only endeavouring to get what it is owed. If the larger customer is made to pay its bills on time, it will take the onus away from the small supplier.
Bill Esterson
One reason why a fair system for recovering payment is needed is that small businesses do not have the people, time or money to chase late payment. Large businesses do, and they can defend themselves against smaller businesses. This is really about making it fair and equitable, and ensuring that small businesses can compete on equal terms with large ones.
Gordon Banks
My hon. Friend makes a valid point. I have seen larger businesses behave in a way that smaller businesses would never ever dream of doing. They might say, “We only take purchase ledger calls on Tuesdays and Friday mornings.” If a firm cannot get through on a Tuesday to ask about a cheque or an invoice, no one will take its call until Friday. The other issue about resources is valid too. I have worked in business since 1986, and have found that cash monitoring and cash control can almost become the things that the company was set up to do. As a by-product, it happens to sell stuff, but the real purpose of its existence is to get in the money for the goods that it has sold. That should not be the case. The real benefit should be the freedom to sell materials, and the expectation that one can get payment for the goods and services in a negotiated and agreed contractual period. Small businesses are not asking for anything more than that, but they should not be prepared to accept anything less than that.
The issue of resources, which enables small businesses to manage purchase and sales ledgers, is a really important point to make, as the bigger companies are always able to work things more to their favour. That goes back to the point that I made earlier, which is just how hard will I, as a company, push for that cash within 30 or 35 days if it means that that is the last cheque that I will get from that business, and I might lose 10%, 20% or even 40% of my turnover? A company will understand when a certain thing is in a vice, and how far they can go. That is another example of what is not fair.
Anyone in business will understand the experience of agreeing credit accounts, which are often paid in excess of the terms—but not by enough to kick up a fuss. So, we could have a 30-day account being paid in 35, 36 or 37 days, or a 60-day account being paid in 66 or 70 days. For that four or five days, that week, or that 10 days, when the small business is out of pocket, they are not just a supplier to that customer, but a banker.
What about delayed payments? I am talking about when invoices issued perhaps a month or six weeks earlier are queried, or when the cheque comes in and the payment for those invoices is missing. Some of these queries might be accurate, and in those cases the supplier has the responsibility and the right to rectify the error and, of course, get things right for the future. However, these are often simple ploys that are timed to delay payments and that result in even more work and cost for the supplier. If someone has issued their invoice and a statement to the company concerned, it is unacceptable for them to be told 30, 40 or 50 days later that there is a query about that invoice, or a problem with it, and that it cannot be paid.
Those actions are deplorable, but they go on every single day. Every small business in Britain will have encountered them. I want the Government—I would like the Minister to listen to this point, if he would—to consider setting a legal limit on the length of time that it can take to query an invoice. Although I appreciate that there might be some challenges to that, will the Minister consider the question before he makes his closing remarks and comment on it? It cannot be right for a small business to chase money for 30 or 60 days only to be told, “We need proof of delivery—proof that we received the materials,” when the proof of delivery has already been supplied but has become separated from the paperwork. I want the Minister to consider setting a legal limit on the period in which the content of an invoice can be queried.
Sir Greg Knight (East Yorkshire) (Con)
Is there not a problem with the hon. Gentleman’s idea? As I understand it, it is unlawful for any agreement to seek to exclude the jurisdiction of the British courts, and if, as he suggests, a provision was introduced to ensure that one could not query an invoice after a certain date, could that not be construed as not allowing the matter to be adjudicated on by the courts at a later stage?
Gordon Banks
I take the right hon. Gentleman’s point. I have asked the Minister to give the issue some thought before he sums up, and I have also said that I do not necessarily think that there will be a simple solution, but I am convinced that there is a way in which this can be developed so that small businesses—in fact, all businesses—can rest assured that 30, 35 or 40 days after they have submitted their invoice, that invoice will not be challenged. Is not 40 days long enough?
Toby Perkins
In Committee, we proposed an amendment similar to my hon. Friend’s new clauses. We suggested that there be a period of up to 30 days for someone to register a complaint; after that point, they would be deemed to have accepted the invoice, so that there could not be this constant adding to the payment period.
Gordon Banks
I am grateful to my hon. Friend for clarifying that point. I am prompted by a sedentary comment to say that my argument is not so much about an invoice being queried as about a customer saying that they have not received the invoice, or that it is lost, 30 days after they have had a statement listing all the invoices they should have received. Basic accounting practices are either not being carried out within the business, or they are being carried out but no regard is being paid to them, and the process is being used as a payment delaying mechanism.
I understand that some might see new clause 4 as another piece of red tape, but it is a piece of red tape that can be easily discarded and thrown in the bin if companies do not make late payments, so it does not have to be onerous at all. That brings me back to the point that my hon. Friend made: the new clause takes the onus off the small business. It is up to the larger paying business—the debtor—to ensure that the bill is paid on time, and if it is not, an automatic compensation payment is made on behalf of the company making a payment to the company receiving it. New clause 4 need not be particularly onerous in action at all. It will cause no problem to a good, organised, thoughtful company.
Banks are much less willing to provide business support than they were in 1986, and that is often a nightmare for small and medium-sized businesses, especially in the construction industry. The banks will say that they do not particularly want to be involved in the construction sector, which I find depressing and extremely strange. Every business that needs to expand requires the construction sector. Every Government project for infra- structure, housing, schools, roads, telecommunications or railways—anything of that nature—needs the construction sector. That sector is the most likely to lift us out of our current economic position and deliver an improvement to our infrastructure that is long overdue and long needed. It is a particular challenge to have a good business in the construction industry that is adequately financed and resourced in this day and age, and that is short-sighted and a crying shame. It is not helped by the failure of Project Merlin and the funding for lending scheme. General financing is relevant to new clauses 3 and 4, as it is because working capital is tighter these days that prompt payment has become a real issue.
Debbie Abrahams
Is it not also the case that late payment and issues around cash flow affect a business’s ability to access finance and the terms on which finance is made available?
Gordon Banks
Of course they do. Every £1,000 not received has an impact on whether a business can prove to a possible financial investor, whether that is a bank or anything else, that it is a responsible company with the processes and the people in place to take the business forward. It may well have the people and processes in place, but it may be being stymied by the Tuesday and Friday phone calls to try to get the money that is long overdue.
New clauses 3 and 4 are a step along the way to moving the responsibility to where it should lie, ensuring greater financial impact on those who make late payments, and naming and shaming those who are not signed up to prompt payment practices. I was looking at the prompt payment code website last night. I represent a Scottish constituency, so I did a search on Scotland and I found that 43 businesses there have signed up to the prompt payment code. That level of commitment is extremely questionable. There are hundreds of thousands of businesses in Scotland.
Toby Perkins
I agree with my hon. Friend entirely on that. Does he agree that if a prompt payment code allows a business to pay on 90-day terms and if, so long as it meets those terms and conditions, it is deemed compliant with the code, that calls into question the use of the word “prompt”?
Gordon Banks
It most definitely does. Prompt payment in my business experience is 30 days. That is fair and prompt payment. In my book, 90 days is not and should not be considered prompt payment. It is a massively overdue payment allowing one business to make its way in the world at another’s expense.
I fear that we have a long way to go, unless the Government listen tonight. I do not think that the Bill really gets us to where we need to be. It does not, in its current form, lift the onerous responsibility from the shoulders of small businesses; it actually empowers the larger businesses in their relationships with small businesses. However, it could be improved if the Government listen and support new clauses 3 and 4.
Ben Gummer (Ipswich) (Con)
I am delighted to be called to speak in this debate and apologise to the shadow Minister and to those on the Treasury Bench for not being here at the beginning. It is a very important Bill that the Minister has brought before the House, and it is one that I feel strongly about, because my first job was running a very small business, and then I ran one that was only slightly larger. When one has lived and breathed cash flow, and dreamt about lack of payment for invoices that have been outstanding for 60, 70, 80 or 90 days, one knows why the provisions in the Bill are so important.
I know that the Minister understands small business; he was brought up in it. I also know that the shadow Minister is one of the very few people on the Opposition Benches who has business experience. It is good that we are having a discussion about some of the things that are incredibly important and pertinent to small businesses —pre-packs, zero-hours contracts, payment terms and director disqualification, all of which I plan to talk about —but it is also good that we are having this discussion, full stop, because they were not discussions that were had in any detail under the previous Government.
I would like to start on that note, because one of the things that I, as a small business owner and manager, turned to time and again was the Late Payment of Commercial Debts (Interest) Act 1998, a piece of legislation that was well meant by the previous Administration, brought in early as a result of a manifesto pledge, but that was almost completely useless. No one was really able to go to their customers and enforce the 8% above base stipulation set out in the Act, because they were afraid of upsetting them. I had recourse to it on only two occasions when dealing with customers. The frustrating thing was that although Parliament had willed the means, following a long campaign at the end of the Major Administration and the beginning of the Blair Administration, it was unable to will the ends. That is why I am so pleased with what the Minister has created in the Bill, because we are getting much closer to a system that will work.
The first thing we must recognise is that it has taken this amount of time, and the innovation of the coalition Government, to be able to do something of this magnitude. That is why I think that criticising the Bill and trying to claim that it is deficient in some way or other is a pretty mealy-mouthed approach to what is a big step forward in helping small businesses control the terms of trade that they have with their customers.
Having run a business that, at the start, was turning over only a few hundred thousands pounds, I know the pain that was caused to my business when every week the results showed, almost invariably, that we were trading at a profit, yet that was not reflected in the bank account because of poor payment terms by large companies and, frankly, large parts of the public sector, and that is a pain I will never forget. I remember getting towards the end of the month and being genuinely terrified that I might not be able to pay the people working for me because I had not been paid by big customers. It is a very unnerving, frightening and frustrating experience. The amount of energy it takes out of small business people, who should be deploying that passion and energy in building a business, employing people and increasing wealth and prosperity, means that it is very destructive to business growth.
Debbie Abrahams
The hon. Gentleman is very gracious in giving way and is making a moving speech about his experience. Constituents and many small businesses from across the country who have come to talk to me have shared that experience. Does this mean that he will support new clause 4, which is about undertaking a review so that small businesses which have problems with late payers are automatically compensated so that they do not have to risk using measures that have previously been unsuccessful?
Ben Gummer
I understand why the hon. Lady wishes to push new clause 4. I have read the Minister’s response in Committee to the points raised by the shadow Minister, and I think it was compelling. We are making a very big change which will have a revolutionary impact on the payment terms of small businesses, but if the regime and the legislation are too rigid, we could end up with perverse consequences, which is precisely the problem with the previous legislation and why it was reformed and then repealed in the course of one Administration.
To those who claim, for whatever reason—probably connected with the proximity of the coming election—that the Government could do something else, I would say that the measure is a magnificent change and one that we have waited for since 1998. The previous Government could have done all these things but did not. We now have a Government who are willing to do so, and we should give them our full support without moderation.
Gordon Birtwistle (Burnley) (LD)
Does the hon. Gentleman agree that many of the late payment problems, particularly in manufacturing, when a lot of product has to be bought before it can be turned into something, arise because small companies have been sent down invoice financing routes to finance their cash flow? The charges for invoice financing, and sometimes the prohibitive interest charged by invoice financing companies, heaps extra cost on those companies, which does not help the bottom line of a small company struggling to work and provide jobs and prosperity for the industry in which it is working.
Ben Gummer
I could not agree more. When I tot up in my head the amount of interest that I have paid on a business account for overdrafts incurred because of non-payment by large customers over the years, and when I think of the amount of money that could have been spent on product development, employing new people and growing my business, it is immensely frustrating even now to think of all that wasted money. My hon. Friend is entirely right that in any business in which the process involves the purchase of large capital goods, whether that is in manufacturing or in construction, and the business is dependent on paying its suppliers in order to create an end product, the middle guy is stuffed if he is not paid on time.
The hon. Member for Ochil and South Perthshire (Gordon Banks) referred to the construction industry. That is where my first business was. I was running a small business, largely working for very large multinationals or for the Government, and my suppliers were often small businesses. Sometimes they were larger ones. When a business relies on the good terms of its suppliers in order to satisfy the punitive terms of its customers, that is a wrong place to be. It is, in effect, pushing credit all the way down the line. That is what I find most objectionable about large companies and Government agencies that behave in that way. They are using their supply chain as a bank. The businesses serving as that bank are not large banks; they are, in many cases, small businesses which cannot bear the cost.
A second important aspect of the Bill relates to the disqualification of directors and pre-packs. Too often, in running a small business, I ended up with bad debts because of suppliers who went bust, cleared out their overdue creditors, reinvented themselves the next day with precisely the same shareholders, directors and a whole load of other people who were connected with the previous company, and then suddenly emerged, phoenix-like—in fact, pre-packs are called phoenixes in the business—and ready to trade again. That is an absolute outrage. It goes against all the principles of a decent, liberal market economy. It is fraud.
The two key provisions that will go some way towards helping that situation are those on director disqualification, for which there is a five-year horizon—I hope that the Government will be able to use the provisions within that period—and on pre-packs, also within that period.
Bob Stewart
I am reminded of the time when I was running a small business. I thought that what my hon. Friend has just described was utterly illegal and people could not do it. I never believed that it was possible to close down one day and then start up as a new entity the next. I thought it was highly illegal even then, and that was 15 years ago.
Ben Gummer
I remember thinking it was illegal the first time it happened to me. It involved a business based on a trading estate in the east midlands, not far from where I was based. I went there one day to try to get some money out of someone who had bought something from me, and was refused the cash. When I went back two days later, everything was exactly the same apart from the name plate over the trader’s shop window and the fact that the filing cabinets had been thrown away because they contained all the creditors’ records. There was a brand-new sign but it was an old business.
The provision on the late payment of commercial debts is part of a package of measures that will transform the ability of small businesses to carry out their business.
Gordon Banks
The hon. Gentleman says that this Bill will transform the experience of small businesses. Surely he has to admit, coming from a small business background, as I have, that the only way the late payments situation can be transformed is by forcing people to make payments on time, and that can happen only with financial detriment to the payer.
Ben Gummer
I disagree with the hon. Gentleman, although I understand his point. In the end, having thought about this at considerable length, because it is something that has taxed me, I came down on the side of the Minister, because transparency is the best way of ensuring exactly what he intends to achieve. If we start mandating people on payment terms, we end up with perverse consequences as regards the payment terms themselves, and a race to the bottom as regards their length. One supermarket famously gave terms of a minimum of 90 days. We cannot change that by legislation, because, in the nature of things, payment terms must sometimes be short and sometimes be long. Mandating would force, or encourage, companies to extend their payment terms. That is the first problem.
The second problem, as the hon. Gentleman knows perfectly well, having been in business, is that there are many times when someone’s invoice is disputed. The problems in the construction industry caused by the winding-up orders and appeals to the commercial courts—the county courts—that are often used as an excuse to try to avoid payment would be compounded all the more by the mandating of payments. We would end up in an unholy mess that would not be good for small businesses, for honest large businesses, or for customers who did not want to pay a bill but felt forced to do so because of terms such as he proposes.
Gordon Banks
I think the hon. Gentleman misunderstands the objective, which is not to get the extra forced payment, but to make sure that the original payment is made on time so that the debtor does not have to pay that forced payment.
Ben Gummer
I understand what the hon. Gentleman is driving at, but much as I would love there to be a mandatory payment term in a theoretical world, I just do not think that it would work in practice. As I have tried to indicate, I think it would result in perverse consequences that would be worse for small business than if we go down the Minister’s route of transparency and openness with regard to the terms offered by businesses.
Toby Perkins
The hon. Gentleman may well think that the proposal would make things worse, but his opinion is not shared by the Federation of Small Businesses or the Forum of Private Business, both of which support our approach. Why does he presume to think that he knows better than those well-respected bodies, whose members tell them that they support our approach?
Ben Gummer
I can only speak from personal experience, which is what I have tried to do, to explain why I think it makes sense to go down the Minister’s route and why we would end up with perverse consequences were we to go down the route of mandation. Many small businesses are not members of the Federation of Small Businesses, and the Federation of Small Businesses is not absolutely right in everything it suggests. All I would say is that, in this instance, my own experience is that mandation would have a perverse consequence that would be inimical to the well-being of all small businesses. As a good first step, transparency, as the Government suggest, will create a new environment for businesses, which will change things for the better for people trying to build wealth and prosperity in our nation today.
The shadow Minister intervened on me to suggest that something better could be done. All I will say to him is that, when in government, his party did absolutely zero. They were, if I may coin a phrase, a zero-zero Administration when it came to small businesses. In 13 years, they did nothing apart from put up taxes on small businesses. They did nothing to cut red tape. Labour Members oppose the Minister’s efforts to tackle bureaucracy and claim that they can do better, but that sits a little ill in their mouths. I know that most business people—this is true of almost everyone I speak to in my constituency—think that it sounds a little false, and there is a reason for that: it comes neither from the heart nor from a real desire to do anything right. The difference is that the Minister understands what needs to be done and he is doing it.
Bill Esterson
Like the hon. Member for Ipswich (Ben Gummer), I have run a small business—for 15 years, in my case. The reason new clause 4 is so important is that the status quo just is not working: small businesses are not in a position to chase late payments. In Committee —the Minister will probably repeat what he said then —members on both sides came up with examples of why action is needed, but I am afraid that what is being suggested just is not adequate. That is why we need measures such as new clause 4, which goes so much further.
As my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) has said, small businesses account for half of our economy. They are a crucial part of the economy and of prosperity and future prosperity. Very many small businesses are struggling at the moment and late payment is one of the main reasons for that. They are used by suppliers for working capital—in fact, they are used as a bank. We have heard about how accounts departments are available only on Tuesday at 5 o’clock or Friday at 3 o’clock, and if people cannot get hold of them at those times, they have had it. When I was in business, there was only one payment run a month, and if people missed that, they had had it for a month. The following month’s invoice would then be queried and sent back to them, so they would miss two payment runs and two months’ worth of pay. I am afraid that that sort of practice goes on all the time, which is why action is needed to go further than the Government’s proposal.
A total of £39.4 billion is overdue in payments to small businesses. On average, small businesses are owed £38,000 in overdue payments. One in four companies spends 10 hours or more a week chasing late payments.
Gordon Banks
Given the time in the calendar that we are now approaching—November, December, January, February—does my hon. Friend share my experiences of and concerns about what happens to cash flow and cash collection over these months, when for a number of reasons, or rather excuses, cash collection during the winter months, when in some ways it is needed more, is greatly reduced?
Bill Esterson
That is absolutely true. It is certainly my experience that the delays at this time of year are an additional burden on small businesses. They of course have a knock-on effect not just on the businesses themselves, but on the staff, who potentially lose out in the run-up to Christmas, when families need support more than at almost any other time of the year.
The proposal is about unlocking the potential of small business to do so much more for our economy and our future prosperity. As I said at the start, the status quo is not working, and we need something to change.
As we have heard from other Members, 10% of small businesses have considered using late payment legislation, but they have not actually done so. At the same time, 22% of them have ended a relationship because of late payment. That is a demonstration not that the system is working, but that it is not working.
Small businesses cannot and will not challenge their larger customers for fear of losing them. As I said in an intervention, there are moral reasons, community reasons and other good reasons for ensuring that payments are made on time, including to support the supply chain and the bigger business, as well as to benefit the wider economy and individuals in our country.
The issue is crucial, and we must make sure that the right solutions are brought forward to support small businesses and everybody who owns them or works in them. The system is not working at the moment, which is why the concept of automatically having to pay an 8% penalty on late payments is so important. Such behaviour will not change on its own. My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) made that point very well by saying just how few businesses in Scotland have signed up to the prompt payment code. It is a derisory number: is it 43?
Bill Esterson
I do not know how many businesses there are in Scotland, but there are 5 million in the UK as a whole, and it is not too hard, by scaling that up, to calculate that the number signing up to the prompt payment code overall is not very big.
There is support for new clause 4 from across the business community. Phil Orford from the Forum of Private Business has said that it would be
“a welcome addition to the proposals outlined in the Small Business, Enterprise and Employment Bill and would go a long way to reducing the time and cost small firms spend on chasing late payments and allow them to concentrate on growing their businesses and creating jobs.”
Government Members must accept that it is supported across the business community. As my hon. Friends have said, the only way to support small businesses is to make the proposal mandatory to ensure that big businesses pay on time. New clause 4 does just that, and I hope that the House will support it.
Toby Perkins
I am in the rather unusual position of speaking to my new clauses and in effect winding up the debate at the same time, but it is a challenge I relish.
There have been some very valuable contributions to the debate. I reiterate my admiration of the campaign on late payments led my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams). She has been a really doughty fighter on the issue, and there is no doubt that late payment is a key factor in holding back small business growth. Suppliers frequently report that it is one of the key hurdles that they face, alongside access to finance, because small businesses do not have the cash flow buffers of their large competitors.
The hon. Member for Ipswich (Ben Gummer) has been forced to leave his place—he arrived in rather a rush and left in rather a rush. Let us hope he is properly dressed when he returns. He said, rather ungenerously, that I was in a lonely position as a Labour Member in having run a small business. However, we all know that my hon. Friend the Member for Edinburgh South (Ian Murray) was a small business owner, as were my hon. Friends the Members for Ochil and South Perthshire (Gordon Banks) and for Sefton Central (Bill Esterson) and many of my other colleagues. And so are several of Labour’s parliamentary candidates, who we hope will be joining us here in just a few months. Conservative Members often try to create the impression that they are the only ones who have ever been in business and that all Labour Members were previously engaged in social work, school teaching or whatever they think is not worthy.
The Minister of State, Ministry of Defence (Anna Soubry)
Nothing wrong with that.
Toby Perkins
Absolutely right, there is nothing wrong with that. However, the suggestion that none of my colleagues has been involved in the business world does not stand up to scrutiny
The hon. Member for Ipswich described the Bill as a thing of “magnitude”, which was an incredibly generous description. It contains a number of measures, none of which has anything particularly wrong with it, but it is not in any sense a thing of magnitude. It contains small steps in the right direction on transparency, with some positive commitments from the Government— [Interruption.] Oh, he’s back. I’ve just been talking about you. For the benefit of anyone watching on television, the hon. Member for Ipswich has returned. There are positive steps in the Bill on the role that central Government will play by paying people on time, but it is certainly not a thing of magnitude. The steps are relatively minor, and the steps that the Opposition proposed in Committee and have alluded to today on Report would have been far more significant, which was why they enjoyed such broad support.
The hon. Gentleman attempted to say, “The Federation of Small Businesses—what do they know? They might be wrong.” I believe that having more transparency would be a significant step, so he was wrong to say that. Many owners of the 2,500 businesses a year that go bust as a result of not being paid on time will think so, too. It is important to get on record the full scale of the problem that we are highlighting, and to reiterate some of the statistics that my hon. Friend the Member for Oldham East and Saddleworth gave. Figures published by Bacs reveal that Britain’s small businesses now carry a burden of £39.4 billion in overdue payment.
Ben Gummer
I apologise for missing the first part of the hon. Gentleman’s speech. He has just characterised what I said in terms that were completely different from what I actually said. He quoted me as saying with reference to the FSB, “What do they know?” That was not actually what I said. Maybe if he reflects on precisely what I said, which was that I thought the proposal could have perverse consequences, he might give a different response.
Toby Perkins
Members will be able to check Hansard for the exact phraseology, but I was attempting to paraphrase the hon. Gentleman rather than to quote him. He said, if I remember rightly and can quote him more directly, that the FSB was not always right, or that it was wrong on this issue. He said that he believed he was right and the FSB was wrong on the issue—is that close enough? Anyway, anyone who wants the word-by-word definition can check it in Hansard.
Gordon Banks
Does my hon. Friend share my ambition that new clause 4 does not have to be onerous or deliver any financial problem to the debtor? All the debtor has to do is pay on time, and there is no penalty. It is simple; it puts money back into the economy and oils its wheels. It ensures that small businesses do not totter on a knife edge of survival at the behest of a larger company. There need be no financial detriment to the large company in the new clause.
Toby Perkins
My hon. Friend is right. The proposals brought forward in Committee were detailed, and new clause 4 is investigating those ideas. Small businesses have the right to expect to be paid on time, and we should be taking serious steps to support that.
Current provisions in the law are not adequate to deal with the extent of the problem, and the Late Payment of Commercial Debts (Interest) Act 1998 was an important step. The EU late payment directive that the Government introduced in 2012 was broadly built on the same principles. They are valuable as far as they go—the prompt payment code is valuable as far as it goes—but they are clearly not adequate. The idea that more transparency, welcome though it may be, will be a silver bullet or even a significant step towards a resolution, is entirely wrong.
The Bill includes some provisions on interest charging. For reasons that other Members have highlighted, many small businesses feel that they are not able to charge interest because of the impact it would have on their relationship. This was a real opportunity for the Government to take hold of the issue and tackle the problem once and for all. Our amendments in Committee should have won the support of the Committee and the Government, because they had potential and I look forward to promoting them as part of a Labour party business manifesto in 2015. Small businesses will recognise that the measures we proposed were a step forward and that the measures in the Bill are a much smaller step.
The Government have dragged their feet on this issue over the past four years: the EU late payment directive was introduced at the last possible moment and the steps proposed at this juncture are small. We were disappointed after the very successful Back-Bench debate on late payments secured by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) and the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe). In the run-up to that debate the previous Minister, the right hon. Member for Sevenoaks (Michael Fallon)—he was great; he used to attend debates and everything—said that he would write to the FTSE 350 and warn businesses that they would be named and shamed if they did not sign up to the prompt payment code. Unfortunately, because that had not happened by May 2014—almost two years on—I tabled a series of written parliamentary questions to find out if companies were due to be named and shamed. We were told that it was no longer Government policy. It ceased to be the policy of the Government before it had ever actually become the policy of the Government. The Government’s record on this is not strong and to describe it in the terms that the Minister did was generous in the extreme.
New clause 3 would take this issue out of any Minister’s hands by ensuring that the very biggest businesses would know that they would all be named and shamed publicly if they did not comply. It would also provide an opportunity for Ministers to name and praise businesses that paid on time and complied. That carrot-and-stick approach is valuable as it would ensure that businesses that played by the rules and ensured that their customers were paid on time would not be tarnished with the same brush as those that gamed the system. It would ensure that the Government had a focus on signing up businesses to the prompt payment code. There was some talk previously about the number of people signed up to the prompt payment code. In the last two years of the Labour Government 978 businesses signed up to the code, whereas in the first two years of this Government just 204 did—a real difference in the number signing up. Our proposed changes will ensure that companies comply with the spirit of prompt payment, not just the letter of the code. I hope Members will give the new clause the support it deserves.
New clause 4 was tabled because the Government’s draft legislation fails to grasp the central problem behind the late payment crisis. Ultimately, despite the extent of the crisis, small businesses are often reluctant to report late payment as they rely on the custom of businesses for their very existence. Just 10% of businesses have considered using late payment legislation, despite 22% of businesses ending a relationship with a customer because they could not be paid on time.
Previous policy initiatives have focused on increasing prompt payment from public sector bodies to contractors. In the March 2010 Budget, the last Government took significant steps to tighten the rules on late payment by the public sector, and this Government are looking to take further steps in that direction, which we welcome. However, the FSB is clear that late payment by private sector businesses is the major problem, and although it is right that government should put their own house in order first, the challenge for policy makers is to shift the burden away from small businesses going out on a limb to ask for interest payments to their being paid as a matter of routine. Ministers are wrong to say that transparency, welcome as it is, will solve the problem. Yes, businesses might know they are dealing with a company that often pays late, but none the less, because of how their businesses are constituted, they might be utterly dependent on that relationship and be unable to do anything about it.
We are clear about the changes we think should be made to alter the balance of power in the late-payment relationship, and our proposed review would be an opportunity to investigate the matter in more detail, away from the cut and thrust of a Committee stage, where Governments, for whatever reason, are often reluctant to take forward ideas simply because they come from the Opposition. Our review would be an opportunity to explore an idea that we think has real merit. Our proposed quarterly statement would list all payments made late to suppliers without a formal query having to be made. It would also confirm whether interest has been paid to compensate the supplier and set out a payment plan to ensure it is paid promptly where it has not. As a package, those measures would be a significant step forward, with greater potential than any other to change the relationship between small businesses and their suppliers in the context of late payments.
My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) spoke to her new clause and amendment. Amendment 6 would require companies to include details of the circumstances and process by which payment times can be amended and details of whose permission is required, which would prevent individual directors from making rash, unilateral or ad hoc changes to companies’ payment policies. Her new clause 1 addresses the issue of retention money in the construction industry, where it is common for firms to withhold payments to protect against problems with work and/or materials. We think that these proposals are worthy of consideration, and we look forward to hearing what the Government have to say. Many jurisdictions abroad have legislation in place for protecting retention money. It has worked well elsewhere and certainly deserves significant scrutiny.
The hon. Member for Brighton, Pavilion (Caroline Lucas) proposed a couple of amendments, including one on exports. Like the rest of us, she will know that the Government have failed spectacularly to secure the export-led growth they promised us back in 2010. We have the largest 2014 trade gap of any major industrial country, which is a significant issue, particularly in relation to goods, and we believe that the Government should pull their weight in supporting our exporters and that a case can be made for examining the overall role of UK Export Finance.
Damian Collins (Folkestone and Hythe) (Con)
I have been following the hon. Gentleman’s remarks very carefully. To touch on what my hon. Friend the Member for Ipswich (Ben Gummer) said, the charging of an 8% levy for late payment might not be a catch-all, because there might be people not paying because they have a legitimate complaint about the quality of the work done who might fear being charged the 8% levy for late payment if they raise a legitimate concern but are not successful. That would be unfair and might discourage people from making reasonable complaints.
Toby Perkins
The hon. Gentleman makes a valid point. The Bill, as originally drafted, would have meant that a business that had raised a legitimate concern within 30 days would have been exempt from punishment for late payment. That is a valid concern.
Damian Collins
But that would depend very much on the type of work. If it was a construction contract that was running over a long period of time, and if the 30 days were taken from the moment of the invoice, the actual consideration of the quality of the work might come some time afterwards. Again there would need to be much more flexibility built into the system because different jobs may take different periods of time. Assessing the quality of the work might take longer because of the length of the contract.
Toby Perkins
I almost wish the hon. Gentleman had been on the Committee. We debated many of these issues and he raises thoughtful questions on it. His would have been a valuable contribution to the Committee. We are referring to something that we are not debating today but, in terms of his question, the invoice would usually become due for payment at the moment the work is completed. If we were talking about a six-week construction project, the moment at which the invoice would start would be once the work was completed. There would then be a period from that point. A late payment penalty would be due 30 days after the invoice was due. In practical terms, on a traditional contract of 30 days’ net monthly, the business would provide the work and present the invoice. There would be 30 days when the payment was due. There would then be another 30 days before any late payment interest was due. There are a number of safeguards in place to try to deal with that.
Toby Perkins
I will give way because the hon. Gentleman made a speech. But if we are going to get into a great deal of detail about something that is not actually in the new clause, I would caution whether that is the best use of our time.
Ben Gummer
I understand that, but the hon. Gentleman has just made a point that reveals his misunderstanding of how an industry works. Herein lies the problem; his answer suggests that he fails to understand the way in which payment terms work in the construction industry. Often, invoices are not issued when work is complete. They are done on a staged basis when applications are made and certified by an architect or a quantity surveyor. Often the work is not complete; it is part of a process. It might well be that the work may not have been completed to the satisfaction of the customer, but they will be afraid of raising a complaint because it is not worth the 8% premium, or whatever it might be under the proposal. Herein lies the issue; he proposes legislation the impact of which he does not quite understand. It would have perverse consequences, and he has come back with another clause just to satisfy a particular interest group rather than actually trying to support what the Government are doing.
Toby Perkins
That was a bizarre contribution in a number of ways. First, we have said we are going to support what the Government are doing so he was factually wrong in that regard. But saying that by giving a single example of how it might work I was suggesting that that example would always work in every single case is a complete straw man. That contribution did not take us anywhere, so let us move on.
In Committee we tabled amendments that would have required the Secretary of State to initiate an independent assessment of the functions on export finance and how to improve awareness of the body. Unfortunately the Government did not accept our amendments. But the next Labour Government will make it a central mission to boost exports. Within that, there is a role for examining the overall way in which UK Export Finance works, but I would be hesitant at this stage about saying that, on that basis, the amendment of the hon. Member for Brighton, Pavilion should be supported. She may be minded to explore the issue today and consider whether to push it to a future stage.
On amendment 92, we strongly agree with the principle that Ministers should be accountable to Parliament for their performance in supporting businesses, and I accept what the hon. Member for Brighton, Pavilion said about not wanting a series of meaningless measures with things being deregulated just for the sake of deregulation. I also think, however, that having a deregulatory target has some value in ensuring that Governments and their civil servants are constantly conscious of the impact of any proposed new regulations. We thus think the deregulatory target has some value, as I say, although I share some of the hon. Lady’s reservations about how it will work.
Public procurement is a hugely important function of government. Central Government spend about £45 billion a year on the purchase of goods and services, and ensuring that more of that money delivers for the UK economy is one of the most valuable things that any Government can do. We are absolutely behind ensuring that the power of UK Government procurement delivers for the real economy. That is the principle behind our amendment 1, which outlines three areas in which such value can be found for our constituents, constituencies and communities, ensuring that proper reports are made and kept in each of those areas.
There is much good practice around the country coming from various public authorities. The TUC has championed the “one in a million” campaign, which aims to ensure that as far as possible, every £1 million of public spend results in at least one apprenticeship opportunity provided to a young person. A Labour Government would deliver on such principles. We would, for example, require the HS2 project to create 33,000 apprenticeships for young people at no extra cost to the taxpayer. Likewise, Labour’s new immigration Bill would compel multinationals to create an apprenticeship place each time a skilled worker was hired from outside the EU. We should leave no stone unturned in fighting for apprenticeships.
We should ensure, too, that we fight for quality apprenticeships. They should be at or above NVQ level 3, so that every business that takes on someone who has had an apprenticeship will know that they have taken on someone who has had a really significant quality of training. We think there is a lot more to be done to support apprenticeships, and our amendment 1 would take significant steps forward in supporting those apprenticeships and the type of economy that we are looking to create.
On both apprenticeships and late payments, we think that the Government are taking small steps in the right direction, but they could have been far more ambitious and delivered far more for small businesses, apprenticeships and a skilled economy. We hope that the Government will support our amendments, which would enable us to do precisely that. If they do not, they can be sure that a future Labour Government will pursue these themes and make sure that we have the kind of economy in which we can have confidence and faith in the future.
The Minister for Business and Enterprise (Matthew Hancock)
We have had a good-natured and largely well-informed debate on these new clauses and amendments.
I shall deal first with late payments. We have heard passionate speeches from Members on both sides of the House on the importance of tackling late payment. I will start by addressing a comment made by the hon. Member for Sefton Central (Bill Esterson), who performed admirably on the Public Bill Committee and made many important interventions. He argued that the current situation in the country on late payment is not acceptable and is not working, and I think he is right. The question is what to do about it.
We consulted broadly on all the potential options surrounding late payments, including many of the options covered by the amendments, and we listened carefully to the responses to the consultations. There was a range of responses, including from those who would firmly regulate all private contracts and from those who did not want any change at all. It is important for us to take steps that will have a positive impact, and to think about the unintended consequences. If we introduce into English law a requirement for a contract to take a specific form, we will remove a freedom of contract that has served the country extremely well for a long time.
We have today heard passionate arguments about the importance of dealing with late payment, as we did on Second Reading and in Committee. We have heard them from my hon. Friend the Member for Ipswich (Ben Gummer) and from Opposition Members. I bow to none in my passion for sorting out the problem of late payment, because the family business in which I grew up nearly went under thanks to it, but let me point to the big picture. The hon. Member for Ochil and South Perthshire (Gordon Banks) argued that there was a moral case, and I agree with that. He also observed that the problem arose when there was a cascade of companies paying late—when, because some paid late, others had to do so, and then others had to as well. I have been at the receiving end of that, as I am sure he has. He is nodding now. The best way to tackle the problem of companies going bust and others paying late is first to establish a stable economy, and then to establish a culture of payment that is stronger and better.
Matthew Hancock
I will in a moment. Many Members have ignored the fact that the Bill already contains measures to improve transparency and increase prompt payment in the public sector. My Department pays within five days of receipt of 95% of undisputed invoices, and within 30 days of receipt of 99%. That excellent performance—which is what I would call it—must be rolled out much more widely in the public sector if the culture is to be changed, but we also need transparency.
Bill Esterson
I am glad that the Minister did not give way to me earlier, because he has made my point quite well. By improving its payment terms, the public sector is helping the economy. Rather than concentrating on putting the economy right in order to boost prompt payment, we should bear in mind that boosting prompt payment will help us to grow the economy, and if that is right in the public sector, it will be right in the private sector. We merely want to start the ball rolling. We in the Chamber do not have the perfect answers; it is for others to go away and design a system that works. If we assumed that all amendments must be perfect, we would never agree on anything here.
Matthew Hancock
All Government amendments are, of course, perfect, at least when I am at the Dispatch Box. However, I strongly agree with the thrust of what the hon. Gentleman has said. We must take the situation as we find it and then improve it, which is what I think the Bill does. However, I do not think we should go as far as the hon. Gentleman suggests. Let me begin by tackling the transparency provision, and explaining why I think it will make such a difference.
We propose that not only the average payment terms but the percentage of invoices met beyond agreed payment terms should be published. That is a different sort of late payment, but it is still a problem. However, we also propose that the proportion of payments made within 30, 60 and 120 days of receipt be published. The hon. Member for Chesterfield (Toby Perkins) has made a great deal of the fact that he received a parliamentary answer from my predecessor about naming and shaming. My predecessor was true to his word—he did publish a list of non-signatories to the prompt payment code in the FTSE 350, as he had committed himself to doing—but we have gone further. The fact that the Bill requires transparency means that all payment practices of all large companies will be published. It is not a question of having to ask a Minister to name and shame, or even the good idea of naming and shaming on the one side and celebrating on the other. The argument about naming and shaming will be driven by the measures taken in the Bill.
Ian Swales (Redcar) (LD)
The Minister is right to talk about unintended consequences. Getting companies to sign up to the prompt payment code made many of them extend their standard payment terms. What does he see happening to a company such as Procter & Gamble, which has now extended its payment term to 180 days? I regard naming it in this place as naming and shaming it. It is such a powerful organisation that it can be as transparent as it likes and simply ignore any consequences.
Matthew Hancock
First, the fact that everybody will now know, because they will read the Hansard, that that company pays in 180 days will have an impact, but the transparency measures in this Bill will take that information in Hansard and make it much more widely public. We have also made a change to the prompt payment code. Big companies could stay within that even if they made their payment practices worse, and we have seen a couple of examples of that recently, so we have convened a new prompt payment advisory board to strengthen the code. That code will only work if it has teeth, so people in the code who have poor prompt payment practices, or who make their prompt payment practices worse, need to be removed from the code, and that must be made to happen in a very public way to demonstrate that the code has teeth; otherwise, it does not have any teeth at all.
Gordon Banks
The Minister will recall that I mentioned that in Scotland there are 43 businesses on the prompt payment code register. What will he do to increase that number? If there are 43 businesses on the register, the system is not working.
Matthew Hancock
There are 1,700 businesses on the register from across the country as a whole. Of course, this is targeted at the biggest companies because they are typically the ones at the top of the supply chains, but I would be very happy to work with the hon. Gentleman to increase the number in Scotland.
Matthew Hancock
I want to turn to the campaign that the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) has run over many years, but first I will take an intervention from the shadow Minister.
Toby Perkins
Although many people will of course race off to Hansard to catch up on this debate, some, unbelievably, may not. Is it not entirely wrong that a business could have a term of 180 days, pay “on time”—that is, within those 180 days—and be seen as a signatory to the prompt payment code? All we are proposing in new clause 3 is that if they do not pay within 60 days, they should not be considered part of the prompt payment code.
Matthew Hancock
There is a lot in what the hon. Gentleman says, and that is why we are strengthening the code and will in future kick out companies that say that they have signed up to the code but then have unreasonably long payment terms, so I think we are basically in the same place on that point.
I wanted to address a couple of points made by the hon. Member for Oldham East and Saddleworth about modern slavery. She has run an admirable campaign on prompt payment over many years, and we have had exchanges across the Chamber before. She has brought a huge amount of pressure to bear on this issue, and has pushed this agenda. I strongly agree with the direction of the agenda, and I agree with her on modern slavery, too. We are determined to work with businesses to ensure that supply chains are not infiltrated by the abhorrent crime of modern slavery. There is a new disclosure requirement in the Modern Slavery Bill, requiring all large businesses to disclose what they have done to ensure that their supply chains are slavery-free. That is an important step forward and takes into account the point she made.
New clause 1 would introduce a power allowing a new reporting requirement on the retention of money, require a review, and provide a further power to act on that review, but we already have a new obligation to report on these practices in this Bill. The transparency measures are at the core of the prompt payment changes proposed in the Bill.
We will seek the views of business bodies during the consultation. We are also aware that retentions are particularly prevalent in the construction industry, as the hon. Member from Scotland said—[Laughter.] The hon. Member for Ochil and South Perthshire (Gordon Banks), as I should have said. We are working with industry to move to a position where retentions are no longer necessary, and I would be happy to work with Opposition Members to push that further.
New clause 3 deals with prompt payment. It would introduce a maximum payment term of 60 days, and also place an obligation on the Secretary of State to write annually to all non-signatory FTSE 350 companies asking them to sign up to the code. I am delighted to say that I commit wholeheartedly to writing to all non-signatory FTSE 350 companies asking them to join the strengthened prompt payment code, and we should continue the cross-party push aimed at getting more large companies to sign up. The new reporting requirement will provide sufficient transparency, which will lead to competitive pressure on companies to improve their payment practices.
Ian Swales
The Minister will be well aware that many large businesses in this country are not in the FTSE 350. For example, the company that I named earlier is American-owned. Is he going to do anything in addition to writing to FTSE 350 companies to try to address this issue?
Matthew Hancock
Absolutely, and I would be happy to work with my hon. Friend on that. There are large private companies that are not in the FTSE. Larger companies, however they are formulated, need to be considered.
New clause 4 also deals with prompt payment. It proposes a review of how the new reporting requirement can be used to ensure the automatic payment of compensation by large companies. This is the nub of the proposal, which we discussed in Committee, that interest be automatically allowed to accrue after 60 days. We consulted on something similar during the consultation, and some bodies were in favour and others were against. Some of the bodies representing small businesses, such as the Institute of Directors, were against the proposal because of the way in which it would change contract law. I therefore do not think that the new clause is necessary, but, like Opposition Members, I want to work to strengthen payment practices. We will resist this proposal today, because we do not think the case for it has been made and we do not believe that the unintended consequences have been thought through. However, we will report back publicly on the findings of further work before the end of this Parliament.
Toby Perkins
I am pleased to hear what the Minister has said about new clause 3 and the prompt payment code. Given those assurances, we will not press new clauses 3 and 4 to a vote. I hope that we can continue to work together constructively on late payments, because that is a key issue for small businesses.
Matthew Hancock
That is terrific. After our voting performance today, I am delighted to hear that.
Amendment 6 proposes that companies disclose details of the circumstances in which, and processes by which, payment terms are amended. I have already said that the Government believe that it is poor practice to subject suppliers to unilateral and ad hoc changes to payment terms. We talked about that in Committee. I agree that greater transparency could increase accountability for this practice, and we are launching a consultation on how that transparency could be achieved. I hope that that deals with the substance of amendment 6.
Amendment 7 seeks to ensure that contracting authorities know about the historical payment performance of potential suppliers before they enter into public contracts with them. It also seeks to ensure that the companies entering into those contracts pay their own suppliers promptly. The new procurement regulations that will be made early next year will place a duty on contracting authorities to pass 30-day payment terms all the way down the public sector supply chain, from the contracting authority to the tier 1 supplier. This has been discussed here today and in Committee. I hope that Members will therefore agree that this amendment is not required in addition to the regulations.
On amendment 1, having prompt payment in procurement is dealt with in the new procurement regulations. The requirement for training in procurement is something I agree with where it is cost-effective. We have delivered that in Crossrail and I very much hope that HS2, which has been mentioned, will also deliver it. That is exactly the sort of training, alongside contracting, that is common in the private sector, but of course we have to drive value for money in the public sector, too. The Government agree that transparency and reporting in public sector procurement is vital, and Departments are already required to report on procurement expenditure with smaller businesses. As hon. Members know, that expenditure has been rising rapidly as a proportion and we are on target to hit the goals we set.
Amendment 2, also on procurement, is designed to ensure that the Minister making regulations under clause 37 is able to specify the reasons why firms may be excluded from entering into contracts. Under the existing procurement regulations a contracting authority can already take account of certain types of past behaviour by an economic operator, such as grave professional misconduct, when deciding whether it is eligible to take part in a procurement process. So that is already allowed for.
Amendment 3 states that any regulations made under clause 37 are subject to the provisions of the Freedom of Information Act, and I reassure hon. Members that contracting authorities, as public authorities, are already required to respond to FOI requests. Amendment 4 is designed to increase the level of parliamentary scrutiny by removing the reference to the negative resolution procedure. I agreed to consider, following the debate in Committee, whether it would be appropriate to change the level of parliamentary scrutiny for these regulations. The Government think that the negative resolution procedure provides the right level, but I did go away and consider the matter. We think that an affirmative process would slow down potential changes when the Government want to remain nimble in responding to the needs of small businesses.
I thank the hon. Member for Brighton, Pavilion (Caroline Lucas) for tabling amendment 91 on UK Export Finance. In our response to the consultation on these issues, the Government rejected such a proposal and set out the rationale: a prohibited list, by its very nature, would not allow the Secretary of State to take an open-minded approach in coming to a decision on whether to support an export falling within an included class. The measures already enhance the support that UK Export Finance can offer, and creating an ability to prohibit support for certain exports which are otherwise perfectly legal goes directly against that goal.
Amendment 92, again tabled by the hon. Lady, relates to the business impact target. I am delighted to debate that with her, because I believe the need for the target proposals set out in the Bill is clear. Too many businesses, particularly smaller ones, find that complying with Government regulation is the single biggest challenge to running their business. We had strong support in Committee for the target. It is only by having a competitive business environment that we can have prosperity, growth and indeed the environmental protections that she is so passionate about. I strongly support, and urge her to support, the deregulation target.
Caroline Lucas
Why does the Minister present regulation as always being anti-business, given that so many businesses are saying that smart regulation is good for a competitive environment?
Matthew Hancock
Of course, if we can achieve the regulatory objectives with a lower burden on business, we can get the best of both worlds. Almost all the examples the hon. Lady gave were about the crash and the banks, but systemically important financial institutions are excluded from the one-in, two-out approach, precisely because we need to ensure that we have regulations so that we do not repeat the messes of the previous Administration.
Very briefly, let me speak to Government new clause 5, on the independent complaints commissioner duty, which I commend to the House, and Government amendments 27 and 28, on the business impact target. I made a commitment to look at what more parliamentary scrutiny of that target there should be. We are proposing that the report should be to the House. I look forward to building on the cross-party support for these measures and to explore whether a Select Committee can take a formal role in scrutinising the target. I therefore support those provisions.
Debbie Abrahams
I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Mr Speaker
Before we come to the next matters relating to the Bill, I have received a report from the tellers in the No Lobby for the Division earlier today at 3.59 pm. They have informed me that the number of those voting no was erroneously reported as 269 instead of 259. The Ayes were 284 and the Noes were 259.
New Clause 5
Independent Complaints Commissioner: reporting duty
‘(1) Section 87 of the Financial Services Act 2012 (investigation of complaints against regulators) is amended as follows.
(2) After subsection (9) insert—
“(9A) The complaints scheme must provide—
(a) for the investigator to prepare an annual report on its investigations under the scheme, to publish it and send a copy of it to each regulator and to the Treasury;
(b) for each regulator to respond to any recommendations or criticisms relating to it in the report, to publish the response and send a copy of it to the investigator and the Treasury;
(c) for the Treasury to lay the annual report and any response before Parliament.
(9B) The complaints scheme may make provision about the period to which each annual report must relate (“the reporting period”) and the contents of the report and must in particular provide for it to include—
(a) information concerning any general trends emerging from the investigations undertaken during the reporting period;
(b) any recommendations which the investigator considers appropriate as to the steps a regulator should take in response to such trends;
(c) a review of the effectiveness during the reporting period of the procedures (both formal and informal) of each regulator for handling and resolving complaints which have been investigated by the investigator during the reporting period;
(d) an assessment of the extent to which those procedures were accessible and fair, including where appropriate an assessment in relation to different categories of complainant;
(e) any recommendations about how those procedures, or the way in which they are operated, could be improved.”—(Matthew Hancock.)
This amendment requires the scheme established by the financial services regulators for the investigation of complaints to provide for the investigator to produce an annual report on its investigations. The report must describe any general trends emerging from such investigations, and assess the accessibility and fairness of the regulators’ handling of the complaints investigated.
Brought up, read the First and Second time, and added to the Bill.
Clause 20
Duty on Secretary of State to publish business impact target etc
Amendment made: 27, page 20, line 19, at end insert—
‘( ) The Secretary of State must lay each thing published under subsection (1) or (3) before Parliament.”—(Matthew Hancock.)
This amendment requires the business impact target, the interim target, the determination of qualifying regulatory provisions and the methodology for assessing the target to be laid before Parliament (in addition to the requirement for these things to be published which is currently required by the clauses.
Clause 25
Amending the business impact target etc
Amendment made: 28, page 25, line 10, after “lay” insert
“the thing as amended and”.—(Matthew Hancock.)
This amendment requires any changes made by the Secretary of State to the business impact target, the interim target, the determination of qualifying regulatory provisions and the methodology for assessing the target, to be laid before Parliament.
Clause 37
Regulations about procurement
Amendment proposed: 1, page 35, line 16, at end insert—
“() duties relating to the provision of apprenticeships and training opportunities as a result of procurement;
() duties to publish reports about the amount of expenditure undertaken by the relevant procurement function in relation to—
(i) amount and proportion of expenditure undertaken by small and medium-sized enterprises,
(ii) amount and proportion of expenditure undertaken in the local area.”—(Toby Perkins.)
Question put, That the amendment be made.