Small Business, Enterprise and Employment Bill
Lord Foulkes of Cumnock (Lab)
Before we begin the main business of the day, anyone wishing to participate in my QSD on Thursday about the ridiculous practices and procedures in this House will have found a great deal of evidence in our proceedings so far.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I start by saying that I am delighted to see my noble friend Lady Harding of Winscombe and am much looking forward to her maiden speech.
Over 200 years ago, Napoleon said that the British were a nation of shopkeepers. He was nearly right. If he had expanded his vision slightly and said that Britain was a land of small businesses he would have been spot on. Small businesses have always been the lifeblood of our economy—and recently there has been some good news. At the start of 2014, there were a record 5.2 million small businesses in the UK, 7% more than at the start of 2013, representing the largest annual increase in the business population since the business population estimates began in 2000.
The coalition Government have led the way in their support for small business. Among the measures taken are the cut in corporation tax from 28% to 20% by 2015, the doubling of business rate relief for small firms and the doubling of the annual investment allowance. But we recognise that it is not sufficient just to offer help. People also need to be able to discover easily what help is available. We have therefore streamlined the support though the GREAT business website, giving a single point of access for advice. Similarly, we will bring together schemes for small firms into a single service, so they can access a wide range of support in one place, tailored to their needs.
The Bill before the House builds on the Government’s commitment and is designed to make the UK the best place in the world to start and grow a business. I will briefly tackle the content of this long Bill using five broad themes: making life easier for small business; improving the climate for business; improving company transparency to deliver on our 2013 G7 commitments; encouraging better employment practices; and—to pubs—helping beer drinkers and the publicans who serve them.
On my first theme, helping small businesses, one of the most daunting things for a small business is to start trading as a company. The Government propose to make the whole process easier by streamlining the company registration process, and the Bill requires this to be in place by May 2017. Especially since the economic downturn, another key challenge for businesses starting up or trying to grow is securing the finance that they need. The Bill promotes greater competition in the banking sector by opening up the market to alternative finance providers. Some 71% of small businesses approach only one finance provider when seeking finance. The Bill will require the big banks to share information on small businesses that they reject for finance with online platforms, when the small business would like them to do so. This will help them gain access to alternative finance providers.
Nine out of 10 small businesses still use paper cheques. The Bill will provide for electronic imaging via smartphones and other mobile devices, allowing cheques to be deposited remotely, thereby speeding up the process in the banks, in addition to—not, of course, separate from—more traditional methods. This will dramatically reduce clearing times, from up to six days at present to less than two, increasing convenience and providing net benefits of nearly £94 million a year.
Cash flow is particularly crucial for small businesses and is often the difference between success and failure. It is not right that small and medium-sized businesses are, according to figures published by the Experian payment performance index in July, owed nearly £40 billion in late payments. This affects 60% of UK small businesses, with the average small business waiting for over £38,000 in overdue payments. The Bill introduces measures that will give small businesses more information on what payment practices to expect from their customers. These changes will incentivise larger companies to improve their payment policies and practices. Business representative bodies, including the Federation of Small Businesses and the Confederation of British Industry, have welcomed this work.
We should not forget the public procurement market. It is worth £230 billion and is important to small business. Alongside other measures being brought forward through secondary legislation in the new year that will transpose the new European Union procurement directive into UK law, the Bill will further help small businesses to access public procurement opportunities. The measures will extend across the public sector, including local authorities and the NHS, and make an important change for small business.
My second theme is the business climate. This Government’s regulatory reform agenda has been at the heart of making the UK one of the best places in the world to do business. The World Bank’s Doing Business 2015 report ranked us eighth out of 189 economies—an improvement in our performance of two places on the previous year. Within the European Union we are behind only Denmark. We have reduced the annual cost of domestic regulation by over £1.5 billion since January 2011. For new regulations, our “one in, two out” policy seems at last to have led to something of a culture change in Whitehall. I have known and worked in Whitehall for nearly 40 years, in one form or another. The Bill will strengthen small businesses’ confidence in government by introducing a business impact target to be set at the beginning of each Parliament, which the Government will report transparently on. It will be used for the independent scrutiny of economic impact assessments related to this target.
Where regulation is essential, we know the regulators implementing it do not always enforce it properly; 63% of businesses have, at some point, disagreed with a regulator’s decision, but have never appealed. The Bill provides for small business appeals champions to be established in the non-economic regulators—ranging from the Environment Agency and the Health and Safety Executive to bodies such as the DVLA—to improve the handling of complaints and appeals and, most importantly, to ensure that the process works, particularly for small business. For the financial services sector, the existing independent Complaints Commissioner will be required to report annually on the regulator’s complaint-handling procedures.
There are 2.9 million home businesses in the UK and they are of growing importance to the economy, with an increase of 500,000 in their number since 2010. The Bill will amend the Landlord and Tenant Act 1954 to ensure that starting a business from home will not create a business tenancy, thereby encouraging further growth in this thriving sector.
The business community, along with all parents in employment, needs access to good-quality and flexible childcare. The Bill will make it easier for schools and other providers to offer more early education and childcare. The measures will promote a prosperous and growing market to meet the needs of working families.
The UK labour market is also dependent on having a properly skilled workforce to meet its demands. Until now, Governments have not done enough to track a person’s progress through their school life and into the labour market. The Bill will enable the effectiveness of education providers in preparing pupils for employment to be assessed. The additional data we will secure will be invaluable to young people and their parents, and will focus educators on employment outcomes, as well as performance tables.
My third theme is company law. As I have said, the UK is an outstanding place to start and grow a business. However, there is a clear link between illicit financial flows and company structures. Measures in the Bill will therefore help ensure that UK companies are not used to facilitate criminal activity, such as money laundering and tax evasion. The Bill will establish a register of “people with significant control” over each company, increasing transparency around who ultimately owns and controls UK companies. The Bill will abolish bearer shares, directly removing an easy means of facilitating illegal activity. This meets an important G7 commitment. At the same time, we are simplifying the current filing requirements for companies, removing duplication and improving the accuracy and integrity of our public companies register.
Unfortunately, a natural consequence of a competitive market is that sometimes some businesses become insolvent. The Bill makes a number of changes that strengthen and modernise our insolvency regime.
My fourth theme is encouraging better employment practices. Part 11 of the Bill deals with these matters. We should not forget that this Government have secured great achievements in job creation. There are now more than 30 million people in employment, which is a record high. Since 2010, an additional 2.1 million private sector jobs have been created. Within these totals, small businesses employ an estimated 12.1 million people. Therefore, for small businesses to succeed we must ensure that those employed are treated fairly and that businesses playing by the rules are not disadvantaged by those which do not.
The Bill will provide assurances to people who step forward and whistleblow that action will be taken. Last year, a report by the University of Greenwich and Public Concern at Work found that 75% of whistleblowers believe that nothing was done about the wrongdoing they reported. The Bill will require regulators or professional bodies dealing with whistleblowing to publish an annual public report.
The Bill will also improve confidence in the ability of the employment tribunal system to deliver justice by incentivising payment of awards and addressing the current position that there are no significant consequences for non-payment. The Bill will also reduce the delays in the tribunals process caused by frequent postponements, addressing the costs to business that often arise from these delays.
The Government are committed to ensuring that employers are penalised if they fail to pay the national minimum wage to their workers. On 7 March this year we increased the penalty percentage from 50% of total underpayments owed to workers to 100% and the maximum penalty from £5,000 to £20,000. The Bill goes further: it sets the maximum penalty to apply on a per-worker rather than per-notice basis.
Finally on employment, I know that there are strong views in this House on zero-hours contracts. Used correctly, I believe that such contracts support business flexibility and they are often welcomed by those employed on them. Recent research carried out by the Chartered Institute of Personnel and Development suggests workers on zero-hours contracts are more content than their counterparts in permanent employment. However, we want to make sure that these contracts are not abused and we recognise that exclusivity clauses sometimes included in zero-hours contracts are wrong, as they prevent people seeking work elsewhere. This is not in line with free-market or any other type of economics. I am pleased that the Bill addresses the problem by making such clauses invalid.
Finally, I turn to the subject of pubs. In my immediate family there are five adult males and me. That fact has many important consequences, one of which is that the majority view of the family is very much in favour of pubs. The pub industry makes a significant contribution to the UK economy. It is made up of many small businesses run by hard-working people and employs hundreds of thousands of people. While it is an industry which has suffered due to societal change, it contributes substantially to community spirit and cohesion, and it is one that we want to see grow and flourish.
The Bill will address the imbalance in bargaining power between pub-owning companies and their tied tenants to ensure that the latter are treated fairly and are no worse off than they would be if they were free of tie. For the first time, tied tenants will have a statutory code that they can rely on, based on the industry’s own voluntary code. It will be enforced by an independent adjudicator, who will have real sanctions at his or her disposal.
Noble Lords will be aware that this issue has a long history. Over the course of a decade there have been four Select Committee investigations into unfairness in the relationship between pub-owning businesses and their tenants. The Government have received, and continue to receive, a huge amount of correspondence from tenants about problems in their relationship with their pub-owning business. Research by the Campaign for Real Ale appears to show that 57% of tenants tied to large pub companies earn less than £10,000 per year, compared with just 25% of tenants who are free of tie.
Industry self-regulation has brought a number of improvements, and there is evidence that there is much responsible practice in this industry, yet some tied tenants continue to face unfair treatment and hardship. The Government gave self-regulation ample opportunity to succeed but the truth is that it has not delivered.
Noble Lords will know that there was much lively debate on this subject in the other place. Members there voted against the Government to include in the Bill a market rent only option. This provision requires large pub-owning companies to offer their tied tenants the right to go free of tie in certain circumstances. The Government resisted this proposal partly on the basis that it could have unintended consequences for the sector. However, we recognise that a majority of Members in the other place believe strongly that pub-owning companies need the threat of tenants going free of tie before they will offer their tenants a fair tied deal. The elected Chamber has spoken by voting this into the Bill and the Government have listened.
On that basis, I can confirm today that the Government intend to accept in principle the introduction of a market rent only option. Our focus now will be on making this option workable to ensure that tied tenants are no worse off than free-of-tie tenants and to minimise the risks of unintended consequences, such as job losses.
Lord Snape (Lab)
I wonder whether the Minister will allow me to intervene. I am sure that the House will recognise how far the Government have moved on this and will welcome that movement. However, can she assure us that any future discussions will involve representatives of the tenants and will not be dominated by the pubcos?
Baroness Neville-Rolfe
My Lords, I can assure the noble Lord that we are always discussing these issues and changes with tenants—that is extremely important when you are making changes of any kind—and, indeed, they have helped us to get to the position that we are now in. I thank the noble Lord for raising the point.
As I bring my opening remarks to their conclusion, I would like to take this opportunity to put on the record my thanks to the right honourable Member for West Suffolk and the Member for East Dunbartonshire, both of whom steered this Bill so successfully through the sometimes choppy waters in the other place, ensuring its safe and timely arrival in this House. I know that they will be continuing their keen interest as we move through the stages in this House. This Bill is important because it provides a number of significant benefits for small businesses, and they constitute a vital part of the economic framework of our nation. I commend it to the House and I beg to move.
Lord Stevenson of Balmacara (Lab)
My Lords, I thank the Minister for introducing the Bill this afternoon, and for going through the main issues with which we will be dealing. I am also very grateful to her for facilitating a meeting this week with the Bill team and the Minister who took the Bill through the other place. Collaboration at this level makes for a much better process, as we have found in other Bills and, indeed, with her three immediate predecessors, all of whom have been highly collegiate. Long may this last.
We are all looking forward to the maiden speech of the noble Baroness, Lady Harding of Winscombe, whose career and interests bear so powerfully on this Bill. I am sure that what she says will be of considerable interest to your Lordships’ House. I note from her CV—one researches these matters—that in February 2013 she was named by “Woman’s Hour” as one of the 100 most powerful women in the United Kingdom. It gets better: last year she was named seventh most influential woman in the same list, which was headed by my noble friend Lady Lawrence. Given that we will probably be ploughing through the Committee stages of this Bill in February 2015, one dares wonder what position she will occupy by then.
As I understand it, the Small Business, Enterprise and Employment Bill has two fundamental purposes: one is to help small businesses grow and succeed; and the other is to ensure that the UK continues to be regarded as a trusted and fair place in which to do business. These are aims that we hold in common with the Government. As the Minister said, this is an extensive Bill. She did not quote it, but it is worth noting that it is in 12 parts, has 157 clauses and 11 schedules. According to the Explanatory Notes the Bill contains provisions on a range of policies spanning the responsibilities of BIS as well as HMT, HMRC, UKEF, the Cabinet Office, DCLG, DfE and the Insolvency Service. BIS speaks for the whole of the Government when it chooses to exercise its legislative powers and we must all quake in the face of such incredible forces. That also means that we have to bring forward reserves ourselves, so I am very pleased to be joined on the Front Bench by my noble friends Lord Young of Norwood, Lord Mitchell, Lady Hayter, Lady Jones and Lord Mendelsohn, who will be joining me in dealing with the detailed scrutiny of the Bill.
I was slightly puzzled that in opening the debate the Minister developed a short riff on the ways in which the Government are helping small businesses, including several issues that are not in the Bill, such as creating a single point of contact for small businesses which seek assistance. We on this side have been calling for that for some time and indeed, if we were to be elected next year, we have plans to bring forward a small business administration. Given that this may already have been set up, I am sure that the noble Lord, Lord Leigh of Hurley, who is in his place, will be immediately inquiring whether it has the capacity to deal with the sort of inquiries with which he has been pestering BGF and other firms which purport to help small businesses. I look forward to hearing the results of his latest work in this area.
When this Bill was introduced in the other place, I noted that the Secretary of State said that there were five main topics, but they were not quite the same as the ones the Minister quoted when introducing her take on the Bill. Just for the record, the five main topics that came through in the other place were:
“to make changes to the legislation in a way that benefits both employees and employers to ensure that employees are not disadvantaged by unacceptable practices, be they exclusivity clauses in zero-hours contracts or underpayment of the national minimum wage … to ensure that our companies are trusted and transparent … to help our small businesses get access to the finance they need … to support the Government’s regulatory reform agenda … to introduce measures that strengthen the provisions on corporate transparency”.—[Official Report, Commons, 16/7/14; cols. 906-10.]
These are all sensible objectives, and we will be using the limited time we are being allocated in Committee primarily to scrutinise the draft legislation and, if possible, to improve it.
Our wealth creators—our entrepreneurs and particularly our small businesses—are fundamental to growth in this country and create almost two-thirds of private sector jobs. They are crucial to the success of large firms, but this is, of course, a symbiotic relationship. We on this side of the House are committed to building an environment in which business can flourish, which is why we can support the general purposes and principles of the Bill. But we also think that it can be improved. We believe that the Bill and the Government’s policies more broadly will not resolve the underlying problems which hold back businesses and employment in our economy. Surely, what we really need is a different model of capitalism—one that is more inclusive, more productive, more responsible and much more long term in outlook.
The fact is that our economy is grossly unbalanced by sector and by region. Short-termism is still endemic in business and in government. We still have a dysfunctional finance system and we have a stubborn and increasing trade deficit. The recession continues in many parts of the world, not least with our main trading parties in Europe. China and India may be slowing down, so the outlook is certainly not good. Meanwhile, the use of food banks has soared and many people still struggle. Wages have fallen in real terms and many people cannot get full employment. As a result, training and opportunities are being squeezed. The recovery, although welcome, is slow and patchy. Few people are seeing the benefits that some at the top appear to be harvesting.
Things are not what we would want them to be; nor can they be, as this is a business-as-usual recovery based on a rising housing market, increased personal debt and consumer spending. It is not the export and business investment-led recovery we need, and indeed it is not the recovery that this Government promised. So we look in vain for measures in the Bill that would intensify the pace of reform of the economy to build a better-balanced, sustainable recovery with a wider range of flourishing businesses that pay wages which increase earnings in real terms and that provide jobs of quality and opportunity. As I have indicated, there are many areas of the Bill that we can and will support, but I will not go through them line by line. Instead, I want to pick out three areas where we will be pushing hard for change, and one gap that we would like to see filled.
The first area of concern is the Government’s proposals on late payment of invoices, particularly those of small businesses. According to the Federation of Small Businesses, 51% of the invoices of its members are persistently paid late by large companies. The Bill as currently drafted simply gives the Secretary of State powers to direct companies to publish certain information on their payment practices. Despite the wide extent of this problem, small businesses are often reluctant to report issues of late payment as they rely on the custom of the large businesses they supply for their very existence. We will be seeking to amend the Bill so as to shift the burden away from small businesses going out on a limb to ask for interest payments so that they are paid as a matter of routine.
Secondly, in the employment sections of the Bill, we will try to introduce proper protection for workers on zero-hours contracts and ban the exploitative use of those contracts. Under our plans, workers would receive a fixed-hours contract automatically when they have worked regular hours over a period of time, unless they choose to opt out. We also think that workers should be protected from employers forcing them to be available to work at all hours or cancelling shifts at short notice without compensation. People sometimes go to great expense to turn up at work. They arrange childcare and pay train or bus fares. These things take time to organise and cost serious amounts of money. Therefore, those on zero-hours contracts should be able to seek compensation if, for example, their shift is cancelled at short notice. By ensuring that workers can seek redress, unscrupulous employers would be dissuaded from cancelling work at short notice, which is often the case.
Thirdly, the Minister mentioned pubs. In the Commons, the Government suffered their first defeat on a piece of legislation when a number of Tory and Lib Dem MPs joined the Opposition and voted through a new clause which gives pub tenant licensees the option of going free of tie so that they can buy their beers on the open market whenever they negotiate a new contract. In our view, this is the best way to ensure that large pub companies offer fair terms to their licensees and finally to address the scandal of so many valued community pubs shutting. Our objective in the Lords will be to retain this new clause and to work with the Government to ensure that it does what it is required to do. I am grateful to the Minister for making clear what the Government’s intentions are on this matter and we will work with her to make sure that they come through correctly.
Missing from the Bill at the moment is anything about takeovers—an issue that was trailed by the Secretary of State at Second Reading of the Bill in the Commons but which has yet to appear. We agree with Mr Cable that our economy will benefit if we continue to welcome inward investment and that we should welcome merger and takeover activity as a normal part of market processes. But, unlike him, we think that recent cases like AstraZeneca/Pfizer and Kraft/Cadbury reveal a problem about the enforcement of assurances on jobs and site closures which are often given during merger and takeover negotiations. We think that primary legislation is required here to make these and similar assurances stick, and we will be proposing amendments on this issue, as well as on the question of whether the Secretary of State needs additional powers in regard to the national interest in takeovers and mergers, although there is an argument to say that these are powers that are already available.
This is not a bad Bill and it is certainly better drafted and presented than many others we have seen in your Lordships’ House in recent years. It is a pity that it was not given pre-legislative scrutiny, as that could and would have improved it further. However, it makes some very sensible proposals on late payments, zero-hours contracts, the minimum wage, insolvency and how we can provide more support to parents who use childcare. But this Bill is not going to deliver a more balanced economy, a sustainable economy or even a skills-based economy in which people go to work knowing that they will be able to pay their bills at the end of the working week. It misses out on a whole score of opportunities, and we will hope to improve it considerably before it leaves this House.
Lord Stoneham of Droxford (LD)
My Lords, I join the Minister and the opposition Benches in welcoming the noble Baroness, Lady Harding, with all her industrial and business experience. I am looking forward to her speech. I welcome the Bill with its fourfold objectives: to protect employees from poor employment practice; to ensure that companies are trusted and transparent; to help small businesses gain access to finance, so vital to their growth; and to identify and eliminate ineffective regulation which holds up business growth.
I will look at the employment aspects first. The House should recall that over the past year 693,000 more people are in employment; 244,000 fewer young people are unemployed; and there has been a huge growth in small businesses—330,000 in 2013, with 66,000 employing additional people. This is a phenomenal record and wherever I go in business they talk about how remarkable it is: the fastest growing economy in western Europe, with the highest employment growth rates.
The Opposition have told us, and will tell us in this debate, that it is the wrong type of growth: we are promoting a low-wage economy and not sharing the benefits of recovery. But we know it is the vulnerable who suffer most from unemployment in a recession so the absolute priority has had to be to get employment going again. Although we are in the early stages of recovering from the massive heart attack that hit our economy, we are seeing a huge improvement in outlook, prospects and financial security for people in our communities—much greater than they experienced in the final two years of the Labour Government, and indeed the first two years of the coalition. Recovery takes time to come through and job flexibility has been fundamentally important to that.
We welcome moves to ensure that employers abide by minimum wage regulations, by increasing fines and by naming and shaming companies that fail to do so. We also support the removal of the exclusivity clauses in zero-hours contracts. The Opposition will tell us that we should do more but we should also ask them why they did not do more when the economic prospects were better. They also have to tell us what they would do that would not now stifle employment growth. The Government have given a commitment to raise the minimum wage further but they will do this—rightly so—using the cross-party agreement that we should use the Low Pay Commission so as not to threaten jobs with higher costs, so that the increases that come through from the low pay recommendations are sustainable.
We are right to question zero-hours contracts and their fairness but let us be absolutely clear that, as the economy recovers, zero-hours contracts are not all bad, as some may try to suggest. I know there are some bad examples in the care sector but I raise the example of a British company—which employs my son—easyJet, the UK’s biggest airline, which has grown to 9,000 employees since 1995. I pass over the immigration issue that it was founded by a Greek Cypriot entrepreneur educated at our universities, and I pass over what would happen to that company if we left the EU.
Instead, I go back to 2011, when pilots were coming out of aviation schools with no prospects of jobs and with £75,000 worth of debt round their necks to pay for their training. I was sceptical when my son was offered a zero-hours contract with easyJet, due to the economic uncertainty that he was facing. But easyJet took on several hundred of those pilot trainees to give them enough work to live on. It promised that it would take them on, provide them with a living, give them enough hours, help with their training and, after two years, provided the economic improvement continued, give them a permanent job. It has honoured that promise completely, and, in 2013, young pilots were granted permanent contracts.
A lot of young people are being put on the first step of their careers through zero-hours contracts at a time of great economic uncertainty. We should respect that and recognise that it has great value. Such an opportunity has been a huge relief to the young trainees whom I was talking about in terms of being able to repay their debts and it has given them valuable training. easyJet is going from strength to strength and long may it. There are examples of overly exploitative zero-hours contracts. Those must be exposed, but flexibility is important to recovery and we must not overlook the competitive advantage that we have in our flexible labour markets.
I particularly welcome in the Bill the help given to small businesses. There are a number of major improvements: rooting out late payment, which is a scandal, and encouraging the involvement of small businesses in the procurement of government contracts, which is long overdue.
There is also a commitment in the Bill to greater corporate transparency and openness, so that we know who is controlling companies and where the power lies. If we are to deal with tax evasion, accountability for high salaries, payment schemes and general poor practice, we have to know who owns these companies. The Liberal Democrats have long had a commitment to this and we are very glad to support this initiative in the legislation.
I suspect that we will spend a lot of time on pubcos, so I turn to this issue in my closing remarks. It is a parable of our time. My grandfather was employed in brewing in Dorset and Kent. When he was working there, it was probably a paternalistic industry—there is nothing necessarily wrong with that. There were close relationships between tenants, publicans and the local and regional breweries. There was mutual benefit in providing a market for beer, helping with the improvement of pubs and providing a livelihood for the landlords and the brewers. But in the 1980s, as breweries consolidated, pressure grew to break the link between large brewers and their pubs. Parliament introduced a limit whereby brewers could not own more than 2,000 pubs. The trouble was that it did not prevent other companies doing that, and the loophole was spotted and exploited, not by brewers or by people who really knew about pubs, but by financial engineers, speculators and bankers. They sought to increase shareholder value and they had a great business model. They acquired the pubs; they increased the length of the tenancies; they increased the rents; they raised the price of beer; and they made the tenants responsible for repairs and maintenance. As they did so, they increased the value of the property, sometimes overvaluing it, so that they could then borrow more money to buy more pubs. The companies were making forecasts of practically perpetually growing income from this model, but they became ever more leveraged in the boom that followed and it has become a classic pump and dump operation—some would say that this is almost a type of Ponzi scheme—and eventually it collapsed.
The winners, of course, were the insiders who got out in time; the losers were the publicans, their communities and the pension funds that lost their money, and we are left to pick up the pieces. The tenants are tied into 25-year leases; they cannot buy their supplies from anybody but the owner of the pub; and there is not much chance of investment by these overleveraged companies. Do not believe the rumours that are being put about that the provisions in the Bill relating to pubs will stop investment and create unemployment in this sector; it is already suffering job losses and not getting the investment that it should.
In 1969, the Monopolies Commission recommended the market rent option. That is what the Bill seeks to do. It will enable tenants to have a fair living, increase investment and employment, open up supply markets and lower prices for consumers, particularly helping the small, organic brewers. Just as the industry needs to consolidate and improve its prospects, we have this mechanism, working with the industry to help to achieve that change.
This is a parable of our time. Just as the coalition has been trying to share the burden of austerity, so it must make sure that it remains vigilant as the economy picks up. We must learn the lessons of the last boom and bust, exemplified by the pub industry. Small businesses lie at the heart of our economic recovery and will drive it forward. We must encourage and support them to do so.
Lord Bilimoria (CB)
My Lords, last month, I accompanied my university contemporary, Greg Clark, the Universities Minister, on a delegation to India. I spoke at an Indian higher education conference. Sitting next to me, sharing the platform, was the first ever permanent secretary-equivalent of a department newly created in India by Prime Minister Narendra Modi: the department for skills and entrepreneurship.
I declare my various interests to do with this debate and the Bill. Last Monday, I spoke at the opening of Global Entrepreneurship Week alongside Vince Cable, where it was revealed that London is one of the top two cities for entrepreneurship in Europe. Last week, I became a founding member of the Guild of Entrepreneurs, which will soon become a livery company in the City of London. We are currently on the 687th Lord Mayor of London, so it has taken us a long time to establish a Guild of Entrepreneurs.
Yesterday, I was at my old university, Cambridge, speaking at the 10th anniversary of the Centre for Entrepreneurial Learning at the Judge Business School. I have been proud to have been appointed one of the first two visiting entrepreneurs at Cambridge, and have been involved with the CfEL since its inception, spreading the spirit of entrepreneurship throughout the university—not just the business school but the whole Cambridge University community. More than 300 students from around the university attend projects such as Enterprise Tuesday. Look at the culture shift that has taken place. When I was at Cambridge in the 1980s, there was no business school. Today, there is not only a flourishing business school but a centre for entrepreneurial learning.
However, there is not one mention of the word “entrepreneurship” in the entire text of the Bill. Can the Minister explain that omission? I am of course delighted, as the Federation of Small Businesses noted, that the Bill even exists in the first place. There is a lot that is music to my ears. There is so much of what the Minister said that is fantastic, such as helping businesses start from home, and childcare help for businesses. She herself noted that small businesses make a huge contribution to the UK economy. Between them, SMEs comprise 96% of all UK businesses, accounting for about half of UK jobs and one-third of private sector turnover—the engine of our economy.
Speaking as someone who started a business with just two people that has grown over the years, I have seen first-hand entrepreneurial businesses. My business has dealt a lot with the curry restaurant industry. More than 10,000 of them are represented by the Bangladesh Caterers Association: pioneering entrepreneurs who have made curry the favourite cuisine of this country. I know the sacrifices that those individuals have made; I know how difficult it is to start, to grow and to survive in business. One of the first cases I ever sold of my product was to a local corner shop. Of course, those corner shops have survived and grown thanks to the Asian community. So I have been a micro-business, an “s”, an “m” and now I have a joint venture with a global giant.
There is a problem with the terminology used in the Bill. Grant Thornton—I declare an interest as I have dealt with the firm for many years as a client—has noticed that there is an unnecessarily restrictive definition of SMEs in the Bill. The current definition of SMEs used by the Government largely excludes mid-sized businesses from many of the provisions of the legislation, such as on access to finance, late payment and credit information. However, these same businesses will still have to abide by a number of additional burdens, such as the duty to publish a report on payment practices.
Grant Thornton estimates that approximately 34,000 mid-sized businesses will be left behind by the Bill, as they lack the resources of the large corporates that are needed to cope with additional regulatory reporting but are not granted the same exemptions granted to SMES within the Bill. Will the Minister acknowledge and, I hope, deal with this omission by widening the positive provisions to a larger section of the business population and altering the definition of an SME used in the Bill, which is based on the Companies Act and restricts an SME to a turnover of just £25 million.
On access to finance, the United Kingdom lags way behind our major competitors. Just look at Germany, where SMEs can draw upon close personal and financial links with a multitude of local lenders, many of which are state owned or operated as mutual firms. Germany’s small and medium-sized businesses, the Mittelstand, are exemplary and have been the centre of the economic success of that economy. The United States has always been brilliant in the way that it has helped to fund its small businesses, but I believe that we could go even further. In fact, the Institute of Chartered Accountants in England and Wales, of which I am proud to be a fellow, recommends that in order to help businesses with the wider issue of finance and cash flow the Government should foster new business growth by introducing critical growth loans, where a percentage of the loan is guaranteed for SMEs trading for between two and five years.
I have benefited personally from the Government’s small firms loan guarantee scheme, which is brilliant at enabling businesses that do not have the collateral to get the Government to back the security with the bank that lends to the business. We could and should increase that lending far more than we are. Does the Minister agree that we should be doing this? Business is going global. The Bill talks about export finance and there is so much good work going on. UK Trade & Investment has sponsored a programme called Sirius, where we attract the brightest young graduates from around the world to come and open their businesses here in the UK. This is the sort of initiative that we should be encouraging and growing.
With regard to the moral aspects of the Bill, the fact that we are addressing the minimum wage is excellent. If the Bill is clamping down on those rogue businesses which exploit their workforce, that is great news. I cannot think of any ethical business that would pay less than the minimum wage, let alone the living wage. However, the Guardian reported last week that despite the Business Secretary’s rhetoric last year that the coalition Government would crack down on firms that underpay their employees, there have been no successful prosecutions of such illegality since February 2013. Can the Minister confirm that? The annual survey of hours and earnings for the Office for National Statistics recently reported that around 287,000 workers were paid at less than the minimum wage in 2012. Are the Government aware of that and why are they not doing more about it? I hope that the Bill will be able to address this. Can the Government assure us about it?
With regard to the pub industry, I said that I declared my interest and I cannot spend the whole of my time declaring my interest in this area. The sad thing is that more than 10,000 pubs have closed down in the United Kingdom in just the last decade. We need to do everything we can to save the British pub, which is at the heart of British communities. The beer tie itself is somewhat of a double-edged sword. Of course, it allows big brewing or pub groups to invest in the pubs. To actually start a pub, you have to put down perhaps £250,000. However, if you are with a big pubco you do not have to do that and can actually run a pub. That is the advantage of being part of a big pub group.
However, if by doing that you also have to pay 70% to 80% above the market price for your beer, and pay higher rents, that does not feel fair at all. Given the recent defeat on this issue in the other place, I am delighted to hear the Minister say that the Government have listened and are going to try to achieve what I hope will be a middle way, where we can have the benefits that the big pub groups bring while enabling our pubs to be competitive and flexible, and to flourish, thrive and grow.
With regard to insolvency, Britain’s insolvency environment ranks pretty highly. In fact, we rank seventh in the world. The Bill talks about reforming insolvency in this country. I do not believe it is doing it in bold enough terms. For example, we are not going as far as having the famous American Chapter 11 or the Canadian Division 1 principles—and, surprise, surprise, countries number 1 and 2 in the insolvency environment are Canada and the United States of America. Those two measures, Chapter 11 in particular, provide a company trying to restructure with protection from creditors to give it time to do so. I have gone through this. I tried to institute a company voluntary arrangement. We got 90% of our creditors to agree, but we could not go through because there was no protection and one of the creditors scuppered the whole arrangement.
The Bill talks about pre-pack administrations. This is meant to be the least worst alternative. I have had to go through this procedure. It is awfully painful, but it is there to save brands and businesses if companies go through the procedure above board, as we did. I am proud to say that today we have a brand and a company that are flourishing. The worst thing about it is that when I went through that procedure I realised how badly misused it is in this country. It is misused to the extent that shareholders, creditors and, worst of all, employees suffer. That is not on. I do not think that the measures in the Bill go anywhere near far enough to improve the pre-pack administration regime. Bringing in Chapter 11 would be the best way of taking things forward. Do the Government agree?
Mostly importantly, this Bill is not just about businesses remaining as they are. As the Minister said, around one-fifth of small businesses say that they want to grow significantly and are determined to do so. The overall thrust of this legislation is aimed at making it easier for SMEs to operate and grow within the economy, which is something we should celebrate. Why are the Government not going further? One of the things that SMEs need is education. I attended the business growth programme at Cranfield. Cambridge has the diploma in entrepreneurship. These are fantastic courses, but they cost up to £10,000 a year. The Government should have a competition for 100 businesses a year to attend these courses to improve their competitiveness and help them to grow. Will the Government accept this suggestion?
I do not want to look a gift horse in the mouth. The fact that the Bill exists in the first place is wonderful, but I despair that it does not emphasise entrepreneurship. I worry that Britain today is number 2 in the world in inward investment. That is something we should be proud of because we are an open economy. However, I hear stories of Indian businesses having huge problems opening bank accounts and setting up companies over here. We are trying to address money laundering, but we are hampering our competitiveness and inward investment capabilities. We are one of the top 10 economies in the world. We have to encourage entrepreneurship, growth and employment.
Lord Wakeham (Con)
My Lords, one of the great pleasures I have had in this House before today is to follow a speech by the noble Lord, Lord Bilimoria. He always makes an interesting speech. In the first part, he tells us how he has been around the world advising people in different places how they should run their affairs, and he talks a great deal of sense thereafter. He is an old friend and he will not mind me saying that. He made one of his typically very good speeches and I enjoyed it.
I congratulate the Government on this Bill. I started my small business on 1 June 1960. If you work it out, it was very nearly 55 years ago that I started my first small business, and I think that this is the first Bill before the House that is entirely devoted to small businesses. That is some credit to the Government. While the noble Lord who spoke from the Opposition Front Bench made some interesting points, I did not detect from them that the subjects he raised, which were out of the Bill, were directed to small businesses in this country, important as they might be.
This is a very good Bill and it is designed for small businesses. It is interesting to look back to my early days in business 55 years ago; what was important then was persuading any bank manager to lend you any money to get going. That was the really important thing. Fifty-five years on, we still seem to have problems raising the money, but we also have problems dealing with the regulations that have arisen. There were not too many regulations 55 years ago when I got started. The question was: how was I going to get it going? So I welcome a great deal in this Bill. It is going to help cash flow and assist exports, and also start something to help small businesses to get paid quickly by big businesses. I suspect, however, that that will be more difficult than what is indicated in the Bill.
I remember when I was a major subcontractor for British Steel. Could I get paid on time? I could not. It was absolutely hopeless. In the end, they invited me in to see their accounting systems and how they did it. They said, “If you think we ought to be able to pay you quicker, tell us how we should do it”. In the end the compromise was that I added something to the bill to get my money, but I still could not get them to pay on time. So I congratulate the Government on trying to have a go in getting big business to pay on time; it should pay on time, but it is very difficult.
I was interested in reading the Second Reading debate in the Commons, which the Minister referred to. Of course, a lot of the debates were all about employment. They agreed an amendment to do with pubs and what is really important is whether that question can be resolved without creating unemployment. I have no great technical knowledge about it, but there are some interesting questions that the Government have to take on board.
There is one part of this Bill that I particularly welcome. It creates a duty on the Minister to set up the small business appeals champion. The aim, as I understand it, is that we should have clear and effective procedures in place so that small businesses are not hampered by decisions of various regulators that are cumbersome or unfair. If I wanted one word to say what that man should be asking, the word is “materiality”. That is the word that needs to be considered by these people.
There are quite a lot of areas where people have tried to improve things but have actually still made things quite significantly difficult. I will give a few examples. The Inland Revenue now has a very good system where, as a small businessman, you can ring up and speak to some quite well informed people. You can find out what is the position with this, that or the other thing that you are concerned about. But if it is going to take you an hour to get through on the phone, the thing needs to be speeded up. It is the same with planning decisions. I am not criticising necessarily the planning decisions, but when I was running a small business, I wanted to know quickly whether I was going to be able to do this or not. The delays in the bureaucracy need to be sorted out, because that is very unfair.
I have given two examples from the public sector; the third is from the private sector. I think that the present money-laundering arrangements are a disgrace. The banks and financial institutions have turned all the work around to the customers—of whom 99.9% are perfectly innocent—and they expect them to do all the work in order that they can employ cheap labour to do the job. If they employed better people who were able to make some sort of judgment on the situation, it would be more effective for money laundering and it would be better for the customers. One gets the impression that some of these institutions are more concerned with not being held responsible for money laundering than with trying to detect it. If the small business champion gets moved into some of these areas where people have tried to lessen regulations that do not help, that will be a very worthwhile effort.
I am going to sit down, but I want to say how much I am looking forward to the maiden speech of my noble friend. I made my maiden speech on small businesses in the House of Commons 40 years ago, and I guess that she will make a much better speech than I made then.
Lord Kestenbaum (Lab)
My Lords, this is such vital legislation and its core intention must be broadly welcomed by those noble Lords who remain desperately concerned by the uneven growth in large parts of the UK, so it would be churlish of noble Lords in all parts of the House to seem reluctant to praise good intentions when they see them. Yet so many of the interventions proposed in the Bill seem just that—modest, timid and good intentions. We do not need to go further than the Government’s own yardstick for the Bill:
“The … Bill has two fundamental purposes, one of which is to help small businesses grow … and the other is to ensure that the UK continues to be regarded as a … fair place in which to do business”.—[Official Report, Commons, 16/7/14; col. 906.]
I trust that my noble friends on this side of the House may well question whether the Bill meets that latter objective, the fairness agenda, but I fear not. However, I am convinced that it does not go remotely far enough in respect of the former objective—helping small businesses to grow.
We know what we are up against when it comes to driving small business growth. We know that the most imaginative global economies, the trend-setters of entrepreneurial zeal—the United States, Finland, Korea, Israel—all have substantial measures of supportive, and indeed aggressive, public policy and effective financing to drive their small business agenda. They have active, assertive, long-term and growth-oriented Governments who go much further than piecemeal and disconnected interventions that often lack in ambition and do little for an economy that, as someone recently put it, has become,
“drugged up on cheap money, subsidised credit and rock-bottom interest rates”.
So what might we reasonably expect at this fragile time from those with their hands on the policy levers? The first thing is an acknowledgment of what the Bill has definitely side-stepped: how to create the conditions for businesses that have the ambition and the potential to grow fast. As the horror of worklessness increases in so many parts of the UK, we know exactly where the next generation of jobs will come from. All the evidence shows, again and again, that small, innovative and high-growth firms will be producing the jobs of the future. These firms have a disproportionate impact on our national fortune and, crucially, they are creating jobs: just 7% of businesses in the UK classified as small, innovative and with high-growth potential are responsible for creating over half the new jobs in the past decade. These firms will produce tomorrow’s jobs and will be the productivity drivers of our economy.
What are those firms currently telling us? That the very businesses that are at the core of any attempt to rebalance and grow our economy are the very businesses to which banks right now are doing one of four things: not lending fast enough; not lending in sufficient amounts; not lending on reasonable terms; or just not lending at all. The lack of long-term patient capital, the lending infrastructure on which all small business growth depends, needs nothing less than a complete overhaul. To be serious with this legislation is to call for a financing revolution that targets the high-growth, high-productivity, ambitious small businesses that create our jobs. We need the type of legislation that propels innovative, enlightened and, yes, progressive new entrants into the world of financing—everything, from peer-to-peer structures that compete with banks to big institutions supported by government that target this sector. Surely we can go further than what we have heard today in this House about banks sharing information regarding loans declined with online platforms.
We just do not have the necessary degree of scale and ambition in the Bill in front of us. Instead, at a time of retrenchment in the banking sector and nervousness among investors, we see modest steps from government, and that makes it harder and harder for small businesses to grow. Can the Minister give the House some reassurance that we can go substantially further in helping small businesses access finance? As banks tighten lending criteria to strengthen their balance sheets and as risk capital from the private sector becomes more scarce, what are the consequences? The very businesses I referred to earlier—those with ambition and the potential to grow fast—are most at risk unless the Bill becomes less timid and more assertive.
Consider this: the most recent research conducted by Stian Westlake and his colleagues at Nesta shows, starkly, that simply encouraging lots of people to found businesses and then doing very little of consequence to support their growth in a meaningful way will do nothing for the economy. Further, the loss to our national prosperity by not making the UK a better place—not just for founding businesses but for scaling them—is staggering. Nesta’s research, The Other Productivity Puzzle, shows that over a 10-year period the loss to the economy due to the stagnation of the most productive small businesses was 7.4 percentage points of productivity, which totalled £96 billion of lost GDP per annum.
That evidence tells us what we have long sensed: that the most dynamic, most productive firms, which in turn create the largest number of new jobs, struggle to grow because the infrastructure of financing is just not there for them meaningfully to scale up. The impact of that on Britain’s productivity has been eyewatering. If we are talking about stakes as high as £96 billion per annum of lost GDP, why are we considering such a modest Bill, with such modest interventions? They are of course helpful, but at best, perhaps, they will keep fragile and small businesses just that—fragile and small.
Too many aspects of the Bill are reflective of much business policy in the last four years. Too many timid programmes, often disconnected, have been launched with fanfare and quietly closed 18 months later. We hope instead for an assertive, ambitious national programme which runs right through government, which will allow us to compete with the world’s most dynamic economies and which in turn sustains the fair society we must nurture here in Britain.
Lord Cope of Berkeley (Con)
My Lords, I am delighted to support this big Bill for small businesses. Throughout my political life, I have worked to try to improve a lot of small businesses. I share a considerable amount of the analysis expressed by the noble Lord who just spoke, but I am not quite sure exactly what measures he was proposing. Perhaps they will come in Committee in the form of amendments. Personally, I like the title of the Bill, with its emphasis on the link between small business, enterprise and employment. After all, as has been said, enterprise creates employment. Perhaps the noble Lord, Lord Bilimoria, would prefer to say that “entrepreneurship creates employment”, but it comes to much the same thing.
Many small businesses will always remain small. They are craftsmen or professional businesses that provide services or goods and depend on the skills of the individuals who run them. They will always remain small, but they deserve our support and help in these increasingly complex times, and I am glad to say that in some respects they get that through the Bill. Other small businesses, of course, can and do grow and become large businesses, and that is when enterprise creates employment.
One cannot this afternoon refer to every aspect of the very disparate set of measures in the Bill, but I want to comment, first, on late payment, which is in Clause 3. This is a potentially important move in the struggle against large companies which are slow payers. It enables the Secretary of State to require large companies to set out their practices and policies with regard to payment. I hope that the word “practices” includes a report on performance, because that, after all, is what matters. Late payment has been a consistent complaint of small businesses for many decades. When I was a lad, learning on the job to be an accountant in Leicester, it was general business practice to offer a discount for prompt payment, and it happened a great deal. I remember one of our clients, an old boy who had a good business in decorating supplies, whose boast was, “Thirty years in business and never missed a discount”. The result of that was that he was trusted—for that and for other reasons—and had a flourishing business.
Another problem today is large businesses—and, indeed, sometimes government departments and agencies—that use their enormous buying power to pay their small suppliers late. There is also, of course, a knock-on effect. If you are paid late by the people to whom you are selling, you cannot easily pay your own suppliers promptly. There is a knock-on effect right through the whole of business. Governments have tried different tactics in the past to improve this situation but it remains a big problem. Basically it is, I think, a problem of culture. The idea in the Bill is that disclosure will help to shame large businesses into doing better. However, the disclosure will work only if the press—prompted, I am sure, by the small business organisations—shines a light on big businesses that do not pay. I cannot imagine that their shareholders will take much notice. Indeed, they may welcome the fact that the directors of the large companies are relieving the strain on their finances at the expense of other people. But they should not, and I hope that this measure will be successful.
Like others, I welcome the provisions in Part 1 which are designed to make it easier for SMEs to get the necessary finance. As has been said, a high proportion of small business finance comes from the large clearing banks, but other sources are being used more and they certainly should be. Your Lordships’ Select Committee on Small and Medium Sized Enterprises, of which I had the honour to be the chairman, reported on exports in March last year. We recommended that businesses shop around for finance. We felt that too few businesses looked in more than one place for where their finance might come from. Well established sources such as invoice financing and that sort of thing have been around for a long time, and now there are newer sources, such as crowdfunding and the challenger banks. There are, in fact, far more banks available to help, particularly with export finance, than just the well known clearers. As we know, the Government themselves have an involvement, although not quite as vigorous as we would wish, but that is being improved. We urge the Government to help to stimulate the use of these new sources of finance. I therefore welcome Clauses 4 and 5, which open up information for such other sources of finance and will encourage people to use them.
Of course, privacy and transparency often conflict. We all want our banks to keep our secrets. The Bill ensures that information will be given to credit reference agencies or finance platforms only when the customer agrees.
Pubs are another aspect that has been mentioned. The problem of tied pubs and beer orders is another long saga, as the noble Lord on the Liberal Democrat Benches just made clear. When you look back, it is astonishing how the beer market has changed since I first started going to pubs. After all, there were fewer and larger businesses all the time at that stage, and Red Barrel was everywhere; there was practically nothing else, in places. But the credit for changing all this is due to one of the most effective campaigning organisations of recent decades, the Campaign for Real Ale, which my noble friend the Minister mentioned. Now, of course, there are microbreweries everywhere. The provisions in this Bill, particularly as amended in the Commons, are another tribute to that campaigning organisation. The Government were wise to accept the decisions taken in another place and inserted as amendments into the Bill. Titivate the drafting by all means, but I am glad that the policy of a market rent-only option will remain in the Bill.
I was somewhat startled by Clause 13, which relates to cheques. I did not realise that they could be presented for clearance only physically, not by electronic means. It is astonishingly Victorian, is it not? I do not wish to cast aspersions on Victorian methods; in many cases, they were very efficient. When there were four deliveries of mail a day and people’s businesses did not extend over such widespread parts of the country, they worked extremely well. However, things have changed, and the number of days it takes to clear a cheque has increased immensely over time. But cheques still have their uses, and it is very good that we are making this change to the law.
Clearly, we will discuss insolvency in Committee, as we already have a little. It is a very complex, specialist area, with the interests of creditors, employees and others all having to be balanced in seeing what is to be done with a business. As the noble Lord, Lord Bilimoria, remarked, we have no real equivalent of Chapter 11 in the United States to try to freeze the position and save a business, so I foresee Committee debates in that regard.
The last matter that I want to mention briefly is company registration. The clauses and the schedule dealing with that matter in the Bill are highly complicated, but they are designed to simplify the procedure, which is a very good idea. This contradiction is not a new phenomenon; we are used to complicated things being proposed in an attempt at simplification. I welcome the clauses, provided they will actually simplify the procedures, which are unnecessarily elaborate and, I suppose, Victorian in their origins.
Overall, it is a welcome Bill, which takes opportunities to help small and medium-sized enterprises. It is a Christmas tree of a Bill, but that is appropriate for the time of year.
Lord Sugar (Lab)
My Lords, I welcome the noble Baroness, Lady Harding, into the Chamber, and I look forward to hearing her maiden speech. We have worked together in the past on some rather large projects, and I assure noble Lords that she is a very capable business person who will bring a good contribution to the House. She will be about the only person here to recognise the genius in what I am about to say now.
I welcome the opportunity to discuss the Bill with your Lordships today. I start by stating that there are indeed a few positive parts in it. As your Lordships will recall, I was once appointed by the previous Prime Minister as an adviser specialising in SMEs. In that role, I travelled the country visiting many small companies and spoke to thousands of business people at specially organised seminars where the delegates were invited to ask me questions about their businesses or issues of government policy. I used these seminars to try to understand people’s concerns. Unsurprisingly, one of the most frequently asked questions of me was, “What can the Government do to help my business?”.
In principle, we all agree that support for small business and employment is a good thing, but this Bill does not go far enough in offering practical, common-sense solutions for small businesses. That is the test that should be applied to the Bill before us today. What can it do to help small business and enterprise in the UK? The simple answer is: as drafted, not enough. It goes some way to addressing the problems that small businesses face, for example around access to finance, but there are some seriously weak points in the Bill.
One of the biggest issues that came up in my seminars was late payment and how that was crippling the cash flow of some of these companies. Who were the culprits? They were the large organisations which in many cases were executing lucrative government contracts. Here we are, five years later, and the same issues exist. In the matter of late payments, we have an example of this Bill, as drafted, being great on paper but having no real impact where it matters—in people’s factories, offices and, most importantly, in small businesses’ accounts. One of the most crippling things for small businesses is to cope with late payments or, in some cases, no payments at all. It is, sadly, becoming an increasingly common issue, with 60% of UK small businesses reporting that late payments are a real problem for them.
In my early days of business I knew that one needed to build up trust with suppliers. I treated them as I would have treated a tax or electricity bill: they simply had to be paid on time. People who specialise in insolvency have estimated that one in five business failures is simply down to bills being paid late rather than a failed business model. It takes only a few late payments to bring a small business close to the edge. This government Bill will do very little to help solve this problem. It offers no incentive for companies to make payments on time and, more importantly, no deterrent for paying late. The Bill as written only gives powers to the Secretary of State to direct companies to publish certain information on their payment practices. This will have virtually no impact on whether they adhere to these self-published policies. In my opinion, it changes nothing. The onus will still be on the small businesses that are being short-changed to chase the payment.
I often wonder what experience those who draft these Bills have. It is clear in this case that they have no idea whatever of what it is like in the real world—at the coal face, so to speak. Small businesses are hesitant to alienate their suppliers for fear that they will have business taken away from them if they complain too much. We should be using this Bill to remove an environment in which businesses can be paid late. As has been suggested and discussed in the other place, we need the Government to be tougher in showing companies that late payments are not an acceptable part of our business culture. It is totally unacceptable for companies to accrue to their own interest and improve their own cash flow while other smaller businesses suffer. Harsh but fair penalties should have been included in the Bill. Instead of small businesses fighting for payments, causing further financial and reputational cost, late payers should automatically pay interest owed to their suppliers at, I suggest, 8% above the Bank of England interest rate. It is only then that we will see businesses suddenly waking up and starting to pay on time, where failure to do so will hit their bottom line. When you have a Business Secretary and, with respect, a Government who do not really get it—by that I mean what life is really like for the average small business—there is no point in creating legislation if some clever lawyer can find a loophole or where the policies have no impact on businesses or people’s lives.
I would like to draw your Lordships’ attention to the clauses that seek to deal with enforcement of the national minimum wage. We are in agreement on all sides of the House that we want to see more people in work and off benefits, but a staggering number of people currently do the right thing and do not even receive the minimum wage. They have gone out and got themselves a job, only to find that their work does not even amount to the minimum of £6.50 an hour. There are now reports that at least 300,000 people in the UK earn less than the minimum wage, which leaves the door open for unscrupulous companies to exploit inexperienced, desperate and, in some cases, migrant workers, all so that they can undercut firms that are playing by the rules.
The solution that the Bill offers is simply to increase the penalties for companies failing to pay the national minimum wage to their workers, which, on the face of it, sounds very good. It seems a sensible way to tackle the problem, but when one hears that the Government have identified only 25 firms breaking minimum wage law, it is clear that investigation and enforcement are the real problems, not the size of the penalty. The Bill fails to protect those people expected to work for less than the minimum wage and businesses that pay their staff a fair wage from being undercut. As I said before, it would appear that the current BIS Secretary aims to pass a Bill on small businesses without knowing what the real challenges of running a small business are, let alone how to deal with them effectively. The Bill contains some good intentions, but when we legislate to help small businesses, good intentions are not enough if they do not translate to real changes on the shop floor, in the backs of the vans or in the bank balances of our small businesses.
The Lord Bishop of Peterborough
My Lords, like others I welcome the noble Baroness, Lady Harding, and look forward to hearing her maiden speech when I sit down.
I warmly welcome the Bill. Small businesses and local enterprise are part of the life-blood of communities and play a major part in enhancing the life opportunities of many people. Granted, there are areas where the Bill could go further, but every initiative to support small businesses is to be welcomed.
I draw your Lordships’ attention to the role that churches and church-linked groups play in local enterprise. For example, the Cathedral Innovation Centre in Portsmouth has recently been involved in a number of very good initiatives, including working with the South East local enterprise partnership and Provide to develop a major social enterprise strategy, which is being launched today in Thurrock. Alongside my right reverend friend the Bishop of Derby, the centre has supported the St Peter’s Innovation Centre in central Derby. In partnership with the YMCA, this has created micro-businesses led by young people who have been unemployed. The centre has also opened a Southampton office, from which the Southern Policy Centre has been launched, with support from five parties in the southern counties. The noble Lord, Lord Adonis, and Greg Clark, the Minister for Universities, Science and Cities, spoke at the launch. Numerous small businesses and enterprises are up and running, often employing young people from disturbed backgrounds—all this using virtually no public cash.
I am also delighted to draw to your Lordships’ attention the good work being done by local authorities, not least the City of Peterborough. For example, through its involvement with the supply chain network, the city council is supporting larger organisations to work with and mentor smaller businesses to improve their resource efficiency and reduce their business costs. Local support for small businesses is vital and should be encouraged.
I very much welcome the introduction of a register of persons with significant control. This is an essential requisite for transparency and trust. I congratulate the Government on being, I think, the first in the world to set up such a PSC register. It is surprising—perhaps shocking—that we need to legislate to force businesses to reveal who runs them and who benefits from them, but, as we do, let us do it thoroughly but without too much delay.
I have some concern that the proposals in this area may not be strong enough, so I ask the Minister whether the Government are working to persuade the EU, G7 and G20 countries and our own overseas territories and Crown dependencies to introduce similar public registers. How will the Government ensure that the register is kept up to date and that there is an adequate verification regime? Will the Government publish a list of possible sanctions for those who do not fulfil their duties in regard to the register? I believe that these are important questions but I stress that I ask them in a spirit of support for the Bill.
Baroness Harding of Winscombe (Con) (Maiden Speech)
My Lords, I first visited this House when I was eight years old with my grandfather, the then noble and gallant Lord, Lord Harding of Petherton. I sat in the Gallery with my grandmother and my brothers looking down at my father sitting on the steps of the Throne, as he is today. Then, I was struck with awe at the wisdom and history that is this place. As the eldest daughter of a hereditary Peer, I knew with certainty of course that I would never sit on these Benches myself, so it is with deep respect, considerable trepidation and a deep sense that this is an honour that I do not deserve that I address your Lordships today.
One of my grandfather’s sayings when I was a child was, “You can’t be brave unless you are afraid. It’s not the fear that matters; it’s what you choose to do with it that counts”. I used to whisper this to myself every time I circled at the start of a steeplechase. I could almost hear him murmuring his sage advice to me as I walked up the stairs from the Peers’ Cloakroom this afternoon and passed his coat of arms. As an aside, a maiden speech takes about the same amount of time as a three-mile steeplechase, and—for me, at least—it is quite debatable which is the more terrifying.
Of course, my first few weeks here have been made so much easier by the tremendous help and support that I have received from all the staff and from your Lordships on all sides of this House. I thank everyone who has made such kind comments in this debate, and I particularly thank my two supporters, my noble friends Lord King of Bridgwater and Lady Lane-Fox. I also thank my noble friend Lord Henley—my mentor—whose advice in the procedures of this House has been completely invaluable, although please forgive me when I trip, as I undoubtedly will do, on a procedural hurdle.
My life to date has been made up of three things: my career in business; my love of steeplechasing and horseracing, itself an industry with many small businesses, employing some 85,000 people; and my still young family. I find all three represented in the Bill today.
I must declare an interest in that I am the chief executive of a publicly quoted company, TalkTalk Telecom Group. By most standards TalkTalk is a large company, but when compared with our large competitors, such as BT and Sky, we are in fact quite small and clearly affected by many of the provisions in the Bill. The business that I run went from no customers in 2006 to serving more than 4 million households today across the UK. As a result, I have great empathy with the many thousands of small businesses across the UK that are looking to grow.
I myself am proof that sometimes the little guy—or, in my case, the small blonde girl—wins big. I learnt this when I was 30, when my horse, Cool Dawn, won the Cheltenham Gold Cup as a long-odds outsider. I learnt then that sometimes dreams do come true. If a one-horse amateur can win the Cheltenham Gold Cup against the odds, entrepreneurs with big dreams can surely succeed as well, provided that we give them the space and encouragement to try.
I commend this Government for all the great work done over the last four years to make it easier for entrepreneurs to start and grow businesses. I would encourage the Minister, my noble friend Lady Neville-Rolfe, to stay true to the principles of this Bill to reduce unnecessary bureaucracy and burdens on businesses. It is so much easier to add regulation than it is to take it away, and the more complicated and complex the regulation, the harder it is for small businesses to compete. Whether it is greater transparency, easier access to finance, modernised and simplified insolvency procedures, or simpler procedures for childcare providers—all these measures will make it easier for all British businesses to thrive, but they will have a disproportionately positive effect on much smaller businesses. If we aspire to create the conditions to give birth to a British Google, Alibaba, or maybe the next generation Dyson or Rolls-Royce, by definition today they are at best very small businesses—maybe not even yet a business plan. This Bill will make it easier for them to join the FTSE 100 over the next 10 years.
I would also like to speak very briefly about one specific element of the Bill—zero-hours contracts. I suspect that I am alone in this House in having previously run a supermarket—not a chain of supermarkets, just one—Tesco Extra in Yeovil in Somerset. I spent one year out of my 10 in the supermarket sector as a trainee store manager for Tesco. I appreciate that many Members of this House are concerned about the impact of zero-hours contracts, especially when combined with exclusivity clauses. I totally agree with the Bill’s proposals to prevent such abuses. But I can tell you that, with Christmas fast approaching, with stores heaving with people filling their trolleys ready for the festivities and huge queues at the checkouts, zero-hours contracts are not all bad—for employers, for employees and for another critical constituency: customers.
I have been that store manager, walking down the bank of checkouts, staring at a sea of customers all impatient to get on with their Christmas celebrations and I have racked my brains on where to find extra people to man the tills. The ability to call on employees on zero-hours contracts to work at very short notice is something that not only every store manager in Britain would want to be able to do at this time of year, it is something that their customers would thank them for. Zero-hours contracts, when well managed, can be good for employees, too. These contracts work well for people juggling busy lives—from students to working mums to the recently retired—and I have found that they all get great value from them.
I completely support the provisions in this Bill to ban the use of exclusivity clauses in zero-hours contracts, but I would also ask my noble friend the Minister to ensure we remember that maintaining flexibility in our working practices is an essential ingredient to the success of British businesses, and it is an increasingly essential ingredient to many modern lifestyles. Flexible working practices help businesses, big and small, to deliver better customer service, which makes customers happy, and which in turn makes for happier and better rewarded employees. It is something that this Bill will help more businesses to deliver.
Lord Mitchell (Lab)
My Lords, last week I had the pleasure of having a drink with the noble Baroness, Lady Harding. We barely knew each other, but since we are both in the digital sector it seemed to me a good idea to get to know her. To me it was immediately evident that the noble Baroness was going to make a major contribution to your Lordships’ House and I knew instinctively that her maiden speech would be a tour de force. On both counts, I have not been disappointed. What she said today has given us all the hints we need to know that we are all the better for her having joined us.
The noble Baroness has an MBA from Harvard Business School. As a graduate from Columbia Business School myself, it takes some effort for me to admit that Harvard is as good as it gets. She has had a meteoric rise in the UK corporate sector, from McKinsey to Thomas Cook to Woolworths to Tesco. Today, as she said, she is CEO of TalkTalk, and as one of her customers I can attest to the quality of her company’s products.
This afternoon I will be addressing four policy issues: first, late payments; secondly, pre-pack administration; thirdly, the scaling-up of small and medium-sized businesses; and finally, the abuse of employing unpaid interns. I am nothing if I am not a serial entrepreneur, and nothing if I cannot speak about the joys, pains, thrills and disappointments of founding one’s own business. In my time, I have started three companies from scratch, all in the IT services area. On each occasion, it began by sitting around a table and asking the inevitable question, “Wouldn’t it be a good idea if?”. Three times I have been successful and the companies I started grew from nothing to become national and, in some cases, international market leaders. But I have also had my fair share of spectacular failures: the hugely costly Soho restaurant, the coolest place in town which attracted the young and the famous, but it haemorrhaged money and died an inglorious death. I founded a sophisticated asset finance company designed to lease intellectual property and brands. It also hit the buffers. There was the venture in Oxford to sell high quality souvenirs with “Oxford University” engraved on the items. It, too, bombed. And then there was the iPad app that was going to revolutionise mobile computing. Sadly, it did not. I know about the sleepless nights when you worry whether you will meet the monthly payroll. I have been to the meeting with the bank where a negative answer to a request for funds would be catastrophic. I have had an investment bank pull out of an initial public offering a week before impact day, only to recover and put the flotation to bed with another bank some three months later. Luckily for me, I have had more winners than losers.
I must make one declaration of interest. I am an investor in and director of a new company called Instant Impact. This company is involved in graduate recruitment and the placement of paid interns. My declaration is particularly pertinent because in this speech I will be addressing the issue of the mistreatment of unpaid interns. We on these Benches welcome this Bill but I think the Minister will get the message that we think it is timid where it should have been hard-hitting and much more encouraging.
The Labour Party is in no doubt that small business holds the key to our country’s economic success. We understand that the public sector has seen its employee base collapse under this Government and, to be honest, we see no reversal of that position for many years to come. It is similarly true that large companies are seeing little growth in their employee base. The real growth in employment, as many noble Lords have said, is coming from the small and medium-sized sector and that is why Labour is committed to providing a framework to ensure that this growth continues.
In my time, I have asked Ministers questions about the financing of the SME sector. I have pleaded with the Government to stop fooling themselves that Funding for Lending is working. I have said that it is a flop, that the money the Government have provided to banks has found most of its way into domestic mortgages and helped to fuel a boom in real estate that has been of little use to business. Nothing would improve the lot of small companies more than a commitment to eliminate late payment. It is endemic that big companies put the squeeze on small companies for no other reason than that they can. It is wrong and I am pleased to see that the Bill partially addresses the issue. Shaming late payers will be a start. Many of them are public sector organisations which pay late often because they have no motivation to do otherwise. They need to know that we simply will not tolerate any behaviour like this. I speak from experience. I have been involved in small companies which have diced with death simply because moneys due were delayed for spurious reasons. In these days of electronic payments, living off your creditors is simply unacceptable.
Pre-pack administration has always struck me as an odious concept. In effect, it occurs when a company is in severe trouble and is faced with administration or worse. It is abused where the directors, owners and the administrator conspire to put the company into administration and then—surprise, surprise—for there to be sitting on the sidelines a new company which quickly buys the assets and leaves the liabilities behind. On Friday, the company is Smith and Jones, and on Monday, the new company is Jones and Smith. It is true that jobs may be preserved and a business will continue, but to me it is all wrongly focused. I come from a background that says that the shareholders of a business are the ones who prosper if it does well and suffer when it fails. To see shenanigans where the creditors are dumped, legal cases are abandoned and other liabilities are tossed into the delete bucket cannot be right. I know that the Graham review into pre-pack administration argues in favour of pre-pack deals, but in my view the basic proposition that shareholders lose all when a business fails is not addressed strongly enough. I agree with the noble Lord, Lord Bilimoria, that we should replicate the US Chapter 11 option.
One report that has made a great impression on me recently was published in October by the serial entrepreneur and angel investor, Sherry Coutu. The Scale-Up Report on UK Economic Growth makes a very clear proposition: the game is not about creating companies, laudable though that may be; the real game is about scaling up our successes. As Reid Hoffman, the co-founder of LinkedIn, put it:
“First mover advantage doesn’t go to the first company that launches, it goes to the first company that scales”.
A “scale-up” is an enterprise with average annualised growth in employees or turnover greater than 20% per annum over a three-year period and with more than 10 employees at the beginning of the observation period. Why do we lag behind the US in companies being able to scale up? There are five reasons: the skills gap; leadership capability; accessing customers in other markets; accessing the right combination of finance; and navigating infrastructure. There is no reason why the UK has not produced its own Google or Amazon, but we must make it easy for our successful companies to scale up quickly.
Finally, I wish to address the issue of unpaid interns. I am prepared to bet that even in these Houses of Parliament there are many young people working for nothing. It is outrageous. Certainly, up and down the country many young hopefuls are forced into taking unpaid internships just so that they can enhance their CVs or in the hope that someone might notice them and offer them a full-time job. There is a word in English that defines forcing people to work for nothing—“slavery”. Indeed, the Modern Slavery Bill is currently going through your Lordships’ House. Unpaid internships are another form of slavery. For the rich kids, for those whose mummies and daddies can open doors, unpaid internships are a sure-fire way to get a good job. But what about the poor kids whose families cannot afford for them to work for nothing and whose parents have no such contacts? I hope the Government will back me in this. They should do if they are in favour of equal opportunity. But if they do not, I am determined and confident that Labour will support me. Certainly, I will be introducing amendments at later stages of the Bill to right this wrong. Quite simply, unpaid should become paid.
I have taken a smorgasbord of issues that I aim to address as the Bill goes through your Lordships’ House, and I look forward to our debates in Committee.
Lord Curry of Kirkharle (CB)
My Lords, I, too, congratulate the noble Baroness, Lady Harding, on her excellent maiden speech. Like other Peers present, I have no doubt that over the coming years her contribution to the debates in this House will be enormous, and we very much welcome that.
I am rather sorry that the noble Lord, Lord Bilimoria, has just left his place because I was going to comment on the fact that he had supported the establishment of a lot of curry businesses. I get lots of comment on my surname—I have started a number of Curry businesses. Like him, I employed two people when I formed my first business, although I must confess it has not been anything like as successful as his.
However, I speak not just as someone involved in small business but as the non-executive chair of the Better Regulation Executive. I will repeat what I said during the Deregulation Bill. I was appointed by the previous Government and it is an independent position. I was—very correctly—reprimanded by the Front Bench for using the word “we” when I referred to the Better Regulation Executive because it sounded as if I was part of the Government. I am not. I am an independent chair but we have contributed significantly to elements of the Bill.
I want specifically to refer to Part 2 of this important Bill and, first, to the proposal for small business appeals champions. Clauses 17 to 19 set out a new duty to appoint appeals champions to the national non-economic regulators. It is important to growth and the economy that poor regulatory decisions do not hamper businesses, so businesses must know how to appeal or complain when they feel that they have been unfairly treated by their regulator and believe that that process will be fair, value for money and accessible. Regulators’ appeals and complaints procedures must work for businesses—in particular, small businesses, which we know suffer disproportionately from burdensome regulation.
However, when we looked at this question, we found that most businesses did not feel that the procedures were working. Common issues included: that there was no informal way to resolve issues without a formal appeal; that there was often no alternative to court action; and that it could be extremely difficult to get a second opinion. Of the businesses we spoke to, many simply had not bothered to appeal a decision that they did not agree with, citing as reasons that there was no point, that it was too expensive or that they simply did not have enough time. Some felt that they might be targeted by the regulator if they appealed against the decision.
However, issues varied both between sectors and between regulators, and there were some examples of extremely good practice, so a one-size-fits-all approach will not work. That is why I welcome the duty to appoint small business appeals champions as part of a wider programme of work on better enforcement across national non-economic regulators, which also includes the regulators’ code and the growth duty. The latter was recently debated by the House as part of the Deregulation Bill.
Secondly, and in a similar vein, I want to speak on the business impact target, set out in Clauses 21 to 27. Regulation is important. We need it for essential protections and to allow the market to function efficiently. Many people have asked me as chair of the Better Regulation Executive whether I am against regulation. Of course, I am not; regulation is essential. But it needs to be efficient and smart. We need to ensure that regulations deliver the maximum protection for the minimum cost on small businesses. That way, we get the best of both worlds, with protections that do not create an undue drag on the rest of the economy.
The UK can take great pride in having been a leader in regulatory reform. Other nations, grappling with the same issue of balancing protections and burdens, look to the UK’s advanced regulatory management structure. A growing number of other countries are now following our lead in setting some form of regulatory management target. Italy, France, Spain, Portugal, Austria, Canada and South Korea, for example, are now all implementing forms of one in, one out.
When I visited Brussels after taking up my position and suggested that the approach be taken there that we were considering in the United Kingdom, I was scoffed at and told that this would be an impossible task and certainly would never be accepted in Brussels. Increasingly, member states within the European Union are following our lead in adopting this principle.
The savings to business that have been delivered under the current one-in, one-out and one-in, two-out systems are impressive: over £1.5 billion per year so far. But behind this figure lie real-world examples of how life has been made easier for all UK businesses, while retaining necessary protections. I could give a number of examples, but, for brevity’s sake, I will not. However, it is worth highlighting that much of the progress described in the business impact target clauses—the setting of the target, reporting against the target and independent verification—build on already established ways of working.
For example, Clause 25 creates a duty to appoint an independent body to verify the economic impact of new regulation in scope of the target. Currently, this function is performed successfully by the Regulatory Policy Committee, which verifies the impact of all measures in scope of one in, two out. The RPC also has a wider role beyond the proposals in the Bill. For example, it currently scrutinises the impact assessment for new regulation on the smallest businesses as part of the small and micro-business assessment process. It is the success of that approach that convinces me of the value of a long-term structure for regulatory management, which is why I support the introduction of a business impact target.
My third point concerns the provisions on statutory reviews of regulation. For too long, Governments of all types have focused on new regulation, rather than effectively managing their accumulated stock of existing regulation. Too often, I have heard from business groups that Governments have tried to remove regulatory burdens while at the same time new regulations kept piling over the horizon. When the Better Regulation Executive and the Cabinet Office began the Red Tape Challenge exercise, for example, we found that some departments did not even have a solid grasp of the regulations that they owned. They did not know what stock they had. Regular review of existing regulation to ensure that it remains fit for purpose in an ever-changing world is an essential part of good governance and, indeed, good policy-making.
Finally, I shall speak about the statutory definitions of small and micro-businesses in Clauses 33 and 34. I have no doubt that there will be further comments on this. We should be doing all we can to manage the often disproportionate effect of regulation on our smallest businesses. The clauses enable either exemptions or special treatment for small and micro-businesses in future secondary legislation. That will provide an important tool for future Administrations to design new regulations that are not just a one-size-fits-all imposition but are smarter regulations that recognise the significant differences between large and small businesses in the United Kingdom.
The regulatory reform measures in the Bill are an important evolution of the UK’s regulatory management structure. We lead the field in Europe. The Minister mentioned that we were second to Denmark in the “best place to do business” league in Europe. The truth is that we were top of the league and lost out to Denmark two years ago. We need to retain that position, and these measures will help us to achieve that.
Viscount Eccles (Con)
My Lords, as many of those who have spoken this afternoon have pointed out, there are things in the Bill that should happen anyway. I ask myself: when we legislate for things that should happen anyway, will it work? As the noble Baroness, Lady Harding, said, space—a very important word—is needed if things are to happen which should happen. The question then sophisticates into: will legislation reduce or increase space? I suggest that normally it reduces space; it does not increase it.
The Bill is 279 pages long and, as is said in the memo to the Delegated Powers Committee,
“contains 75 individual provisions concerning delegated powers, 14 of which are Henry VIII powers”.
The noble Lord just mentioned the one-in, two-out policy. Someone has to get rid of 150 regulations once the Bill is enacted. Apart from its length and the complexity, it is a package of very different subjects and is largely enabling. Intentions have been mentioned several times this afternoon, and I will not go down the path to hell. Nevertheless, the question arises: what will actually be achieved? For anything much to be achieved under the Bill, it is dependent on secondary legislation, not on what is in the Bill.
Five months from a general election, which of the 12 parts of the Bill will attract public attention? Perhaps three, including late payments and the lending, borrowing and credit discussion. That raises the question: where and why is there market failure, if indeed there is? Why have people departed from 30 or 60 days? Prompt payment is in everybody’s interests. I think the noble Lord, Lord Mitchell, mentioned cash flow but if you want to wreck your balance sheet, you just let your creditors go crazy. That may not affect the public sector but, in my business life, it certainly would have been a very serious matter if my balance sheet had looked all adrift on current liabilities. I am sure that we will discuss this question more. It seems very strange that people do not believe in prompt payment. When we come to the lending and borrowing issues and the market failure, my question is: will this legislation help? I rather think, as the noble Lord, Lord Sugar, said, that it is not likely to be of much assistance. Indeed, market failure needs more careful thought than it has been given in recent times, since 2008.
Part 4, on the pubs, will certainly arouse public attention and much discussion will be had in your Lordships’ House; we have already had some. Within the Bill, there is a Pubs Code Adjudicator, which I think is modelled on the Groceries Code Adjudicator— not, if I may suggest, as yet a very successful model. The Groceries Code Adjudicator is struggling to find the role that was envisaged in the 2013 Act, and I dare say that a pubs adjudicator would have some of the same problems.
Then there is Part 11, headed “Employment”. To me, this illustrates a division in our society. When problems occur, there is a big following for saying, “Somebody else should do something about it”, and another following which says, “We would rather get on with this ourselves”. That is not the end of the division because there are those in authority who think that something should be done because people cannot be expected to do it for themselves. That lack of confidence in people is certainly not good for business, for entrepreneurship or for all the virtues that we have been discussing this afternoon. Nevertheless, many people think like that.
I come back to the public reaction to the Bill and to our discussion of it. In general, the public will conclude that it does not have much to do with them. They will have flashes of recognition: in the pub, they will hear horror stories about late payment and credit, and the lack of a willingness to give them credit. Indeed, ever since Mr and Mrs Stainton kept the Strong and Co Cross Keys pub, 65 years ago, tied pubs have been debated. There is nothing new in that. In a slightly imaginary world, a white van would arrive with a delivery and the following exchange might take place. The van driver might be asked, “How are you doing?”, and the driver might say, “I’m doing okay. I’m getting £1 an hour more because I only work for Fred”. The reply might be, “Something should be done about that”. So will go the flashes of recognition but there will not be much public debate. I look forward to subsequent stages and, since all three main parties will in general be agreed, your Lordships can be sure that there are several things in the Bill that will not work well.
The Earl of Lindsay (Con)
My Lords, I welcome the Bill in its many parts. I particularly welcome Part 2, having had a long-held and active interest in better regulation. In that context, I should declare an interest as a former member of the Better Regulation Commission and the Risk and Regulation Advisory Council. I am at present a member of the better regulation strategy group, which advises the body chaired by the noble Lord, Lord Curry—the Better Regulation Executive. With this background, I shall talk about the four measures to which he also referred, which are set out between Clauses 17 and 34. The first is the proposed duty on Ministers to appoint an independent small business appeals champion to each national non-economic regulator. Driving greater efficiency, accountability and transparency into the interaction between regulators and those they regulate has to make sense, as does having a simpler, more effective, more transparent, less costly and better understood series of processes by which small businesses are able to challenge regulators’ decisions and behaviour.
For both the small business community and government to be confident that regulators are delivering against the goals relating to appeals and complaints set out in the new statutory regulators’ code is a positive step. Equally, ensuring that regulators have appeals and complaints processes that work well, are fit for purpose, rectify wrongs with minimal delay and are sensitive to businesses, in particular small businesses, will help to address any inefficiencies and unintended outcomes arising from the implementation of regulations.
The second measure I welcome is of very much greater significance in terms of the breadth of the benefit it will bring to the business community and civil society. This is the proposed duty on the Secretary of State to publish a business impact target, similar to one-in, two-out, for the duration of a Parliament. I believe that the one-in, one-out, and now one-in, two-out, approach has been and is working well. It is providing a powerful incentive on departments to measure, reduce and offset new burdens on business. It is important that future Governments maintain this progress and ensure that the regulatory system is as streamlined as it can sensibly be and delivers desired regulatory outcomes as efficiently as possible. I therefore wholly endorse a statutory requirement that the Government should publish an overall target for the economic impact of new legislation for each parliamentary term as well as a mid-point milestone target. I endorse that there should be transparent reporting of the burdens on business arising from new regulations and that the reporting should be underpinned by robust independent verification. The current Regulatory Policy Committee has proven itself to be very effective in providing robust independent verification, and this Bill rightly ensures that the Regulatory Policy Committee or a similarly capable body will continue to do so in future. I equally endorse departments being subject to annual and final-year reports that include assessments of: actions taken to mitigate the impact of new regulations on small businesses as part of the annual and final reports; and instances of gold-plating as part of the same reports.
The third measure that I welcome is the proposed duty on Ministers to ensure that, where appropriate, all new regulations affecting business will contain a statutory review provision on a five-year cycle to ensure that regulations remain effective and necessary and that businesses are not subject to unnecessary burdens. I recall that it was a continuing concern of the Better Regulation Commission that too little legislation and too few regulations were subject to post-implementation scrutiny and the benefits that can arise from such a process. The causes of better regulation and good government are both well served through regular reviews that assess the extent to which the original objectives of regulations have been achieved, and if not, why not; and whether those objectives remain appropriate, and, if so, whether they could be achieved in a less burdensome way.
This proposal is especially welcome in the context of the Deregulation Bill, which is currently before the House. Two important lessons arise from the Deregulation Bill. The first is that seeking to retrofit better regulation and deregulatory principles to the stock of existing legislation where there are no built-in reviews is a much more difficult and time-consuming proposition than seeking to improve the flow of new legislation where one can embed such principles at the start. The second lesson is illustrated by the sprawling nature of the Deregulation Bill, which shows just how widespread and inherent the need is to be able to revisit regulations and revise them as and when necessary. All legislation and all regulations, however well intended, intelligently designed and shrewdly enacted at the outset, have the propensity over time to become the cause of inefficiencies, anomalies and other consequences that were never originally intended or anticipated.
Relying on the occasional so-called portmanteau Bill to address regulations that are no longer fit for purpose, as is the case with the current Deregulation Bill, is an inefficient way in which to tackle an inevitable problem. However, embedding a rolling statutory review provision on a five-year cycle, as is proposed in this Bill for new regulations, is altogether a smarter, more intelligent and more efficient approach to updating and correcting regulatory inadequacies.
For a similar reason, the final measure I shall briefly touch on is the intention to create statutory definitions of small and micro-businesses so that, where appropriate, those two crucial sectors can be exempted from regulations that are judged to be disproportionately burdensome. Ensuring that all new regulations affecting business are not only reviewed regularly, but that small and micro-businesses in appropriate circumstances can also be exempted, has to make sense. I look forward to seeing this Bill have a successful passage through this House.
Lord Snape
My Lords, this is indeed a long and complicated Bill, in many ways, that has been welcomed from both sides of your Lordships’ House. As has also been said from both sides, it is rather timid in some areas, a couple of which I intend to touch on in my contribution.
I was struck by the comment earlier from the noble Viscount, Lord Eccles, who, if I may summarise what he said, suggested that when all parties agree, invariably there are problems as far as legislation is concerned. The view was often expressed during my time in the Whips’ Office—that somewhat cynical apparatus of state, if that is the right term, in the other place—that gloom would descend if it was visibly apparent that all sides of the House were united on a particular issue. That was largely on the grounds, we felt, that if everyone agrees, as the noble Viscount said, it probably will not work.
However, there are matters within the Bill that people do agree on and that I hope do work. The late payment proposals are welcome and overdue. The fact is that small businesses in particular have great difficulty in getting their money out of larger companies, which often behave in a way that they would not tolerate from their own debtors. The attempt within the Small Business, Enterprise and Employment Bill to bring them to heel is more than welcome. Similarly, on zero-hours contracts my noble friend Lord Mitchell, who is not in his place at the moment, spoke vehemently about the need to abolish such contracts, particularly the exclusivity parts of those contracts, which indeed should have no place in the modern workplace.
I want to concentrate the bulk of my—hopefully brief—remarks on Part 4 of the Bill, on the future of pubcos and, in particular, the relationship between some of the pubcos and their tenants. All of us who take an interest in these matters will be aware of the pathos of the sad cases involving many tenants of pubcos. Many of them have written, I know, to noble Lords on both sides of the House about the problems that they have had. However, at this stage I should perhaps issue a disclaimer about my current physical appearance. I would like the House to bear in mind that the bruises and black eye that I suffer at the moment came as a result of medical intervention rather than occurring on licensed premises. So that is not the reason why I shall express the view that I do.
I would sum up the problems that many tenants of pubcos have by quoting an e-mail that I received in the last few days from a couple, Dawn and Michael Shanahan, who run the Bulls Head in Old Whittington near Chesterfield—not a part of the world I know particularly well. I received their assurances that they did not object to their names and address being heard during the course of our debate. They talk about their relationship with the pubco Enterprise Inns:
“Lord Snape,
Our story is short but not very sweet”—
it was Mrs Shanahan who sent the e-mail.
“I have lived in the village all my life. I am now 60 years young. When the Bulls head came up for lease 6 years ago we decided that we could bring it back to life as a thriving village community pub. I left a job with the ambulance service and my husband retired from 40 years joinery. We didnt count on any person in this world being as conniving and devious as enterprise are. Our plan was to run the pub for 8 years and then sell the lease on, what a joke that turned out to be!!. We have put all our money, time and energy into trying to run a business that had no chance of success from the beginning. The whole model is designed on people sinking their money into a pub, failing and reeling the next unsuspecting victim in. We have survived for the whole of our time here by robbing Peter to pay Paul. We work all the hours ourselves, we dont take a wage and are now totally wiped out and skint, we have no option but to walk away with nothing but leaving enterprise with a cleaner, better maintained pub for the next person to add to, or to undo all the work we have done, enterprise dont really care as long as the money keeps coming their way.”
“Because we went to our bdm”—
their regional manager—
“asking for help and making it clear we have no more money to offer they came up with a proposal. They would loan us the money to … refurbish the pub and put us on ‘the beacon Scheme’. This would have made us managers and if we didnt hit a certain amount of barrelage a week would have given them the right to give us 8 weeks notice to quit. So they were willing to loan us thousands of pounds knowing full well we would not be able to pay it back. That would have left us homeless but still paying for a newly refurbished pub!. When we refused their answer to us was to cut our credit off. So even though we didnt owe them any money we now have to pay for our beer before they will deliver it. They deliberately put you in a position where you have to buy out of tie and then fine you and remind you that you have broke your terms and conditions of your lease. We are desperately trying to hold on until after christmas. Whatever happens within the law now, will be too late to help us but our stories must make a difference and stop these unscrupulous business practices that ruin peoples lives. I am crying as i write this because we have been so naive and trusting and have put our heart and soul into this Pub that has been our home. We have nothing left but debt to look forward to and will be coming out feeling like the worse failures. Please stop these people”.
I think that summarises what is happening as far as relationships between tenants and pubcos like Enterprise Inns and Punch are concerned.
I have a personal story before I sit down. My own daughter and son-in-law ran a pub, an Enterprise Inns pub called the Red Lion in Longdon Green in Staffordshire. They invested all their life savings into the pub—an almost six-figure sum. Like Mr and Mrs Shanahan, when occasionally they had problems paying their bills, the pubco stopped delivering beer, leaving them with no choice—they cannot get beer from anywhere else—but to buy out of tie. They were then fined £500 a time by the pubco. My son-in-law was badly beaten in the pub by a couple he had befriended previously one New Year about seven years ago, and he has never worked since. In the three months that he was in intensive care, Enterprise Inns expressed a view to my daughter that they “had no duty of care to any publican”. My daughter and son-in-law eventually left the pub, literally with nothing, and my son-in-law will never work again. Of course, someone else then took over the tenancy of the Red Lion in Longdon Green, left after about six months and the building was then sold to another company. It has since been refurbished and is a going concern as a restaurant and pub. That is how tenants of the pubcos are being treated.
Although I am grateful that the Minister opened this debate saying that the Government were prepared to accept the amendment from the other place, I would like more clarification from her about any future consultation before these particular clauses— Clause 40 and the succeeding clauses—are redrafted to ensure, as I indicated in a question to her earlier, that the pubcos will not be allowed to turn back the clock and behave in the way that Jeremy Paxman in the current issue of The Spectator this week describes:
“Publican after publican has been telling the same story for years, of spivs from rapacious ‘pubcos’ driving them to penury through a beer-buying arrangement more suited to the truck shop on a slave plantation”.
It is some years since your Lordships’ House passed the Truck Acts, and it is about time that we passed another Act outlawing some of the practices of the pubcos. I welcome the clauses from Clause 40 onwards, although they go only so far, and I hope that the Minister can assure us that there will be no attempt to turn back the clock and allow these nefarious practices to continue.
Baroness Byford (Con)
My Lords, I would like to make a short contribution to this important Second Reading. Rather than repeat many of the items that have been raised by other noble Lords, the areas that I shall concentrate on are late payments; broadband; pubs and work experience; encouragement and enterprise; farm businesses; and regulation.
The Bill is to be welcomed. Among other things, it outlaws a number of practices that are difficult to prosecute because, while clearly wrong, they are not statutorily illegal. I believe that some of them contain unintended consequences of legislation passed by previous Parliaments that were formed of and staffed by people who were basically straightforward. We shall need to be aware of our own unintended consequences as our scrutiny of the Bill progresses. At the same time, we should not create laws that are too easy to amend without proper debate and the ability to alter the official proposals. The use of the affirmative procedure is welcome in many cases, but I have doubts about applying it to amend at some time in the future the purposes of a piece of legislation, as reflected in Clause 8, which will be passed today when we finally have the Bill.
Bearing in mind my farming interests in a small farm business, I am particularly pleased with the clauses that should have a positive impact in rural areas. I am pleased to see the proposals on streamlining company registration that move to make it easier for the residential landlord to allow a tenant to run a business from home. As the cuts bite, as they have done over recent years, the plight of rural dwellers dependent on public transport worsens in many rural areas. I believe that these moves will make it easier for numbers of people to work in their own village instead of having to travel into town.
Farming directly employs some 464,000 people as a small part of the very important food industry as a whole. Some 56% of farms surveyed in 2012-13 have diversification on them. However, I should like to raise a general query about the timetable for the introduction of a streamlined system. Is the deadline of 2017 sufficient for the computer system specification, the tender process and then the development, testing and final approval prior to installation and rollout with regard to new systems? Perhaps the Minister will comment further on this aspect when she comes to wind up.
The change of definition for small and micro businesses makes sense, but I have questions about the effect on the numbers involved. Businesses will be reclassified to their disadvantage or advantage, so is there any danger that some at the margin will fall in and out of a particular classification as their turnover fluctuates? This last point may particularly affect the farming community, where employee numbers may tend to stay the same but the prices obtained for their output can vary widely. The annual statistics on farm incomes reflect this aspect.
Many noble Lords have spoken in great detail about the Pubs Code. I will therefore not go into it but I take up the comments about flexibility from the noble Baroness, Lady Harding, who at the moment is not in her place. Having had two grandchildren who worked in pubs to earn money while they were at university, I know that the experience of getting work in them is hugely beneficial. I realise that there are other aspects to employment, but the point should not be lost that giving someone that opportunity to work in the first instance is very valuable.
I turn to late payments. In many cases, sadly, small businesses are totally dependent on large businesses paying their dues at the right time. My late father-in-law ran Byford’s, which sold socks and sweaters. It started as a very small company at the turn of the 1920s, when he employed three people, and ended up as a company employing 2,000 people. He used to say of his competitors or the people that he was supplying, “Could you at least put my invoice into the hat so that I might have a chance of getting paid at some stage?”. I suspect that that is something I shall always remember. I suggest to the Minister that that message should be passed along to other government departments, because public procurement is clearly one of the big offenders. That is something that we should not lose sight of.
Another big problem for those living in rural areas is the whole question of having rural broadband. I am sure that some noble Lords who are based in urban areas cannot believe that there are still areas in the countryside where broadband is just not available, let alone at the speed of two megabits per second. I believe that the last 10% of areas that do not have broadband still need to be connected. I wonder if the Minister is in a position to tell us any more about that, because any small business has a better chance of succeeding if it is attached to broadband. You can operate anywhere in the country if you have access, but if you do not then it is very difficult.
I turn to regulation. I follow the noble Lord, Lord Curry, and my noble friend Lord Lindsay in support of the necessity for regulation, but it should be risk-assessed, proportionate and relevant. Where it is not, and where it has been surpassed, it should be done away with. I congratulate them on the work that they have been doing but there is much more to do. If I kept within my farming context, there are still some items covered by the Macdonald task force that have not been fully concluded. Again, I hope that they will not get lost because this new Bill is coming into being.
I want to pick up the theme of the right reverend Prelate, who spoke about the input of churches. I would like to give two examples of ways in which we can stimulate and help people to get started on the first rung of the ladder. I give them very humbly; they are fairly small but both relate to agriculture and the countryside. I cannot see anywhere in the Bill—I am not asking for this, but I think we should recognise it—a provision to urge individuals, charities, trusts and businesses to encourage apprenticeships or give start-up loans. I am not calling for this to be included in the Bill, but we should at least recognise it. I shall give two examples. The first is the Prince’s Countryside Fund, which gives grants to projects that support people who care for the countryside. Grants of up to £50,000 have been given and since 2010 they have aided 87 projects, helping some 64,000 people. In the overall global context of our debate today that might seem quite small, but one success then goes on to help someone else.
The second, more recent example that I share with noble Lords is the newly formed Henry Plumb Foundation, which in the past 18 months has helped 18 young people who have come up with ideas about what they could do by giving them small grants. More important than that, though, was the fact that they were allocated a mentor as well. So they started with a small grant but they did not get the rest of their grant until their mentor was happy that their business would succeed. I commend these examples to the House because they are but one small way in which we could do more.
I commend the Government on bringing the Bill forward. There are many good measures within it and I look forward to taking part in the debates that follow.
Lord Hunt of Chesterton (Lab)
My Lords, I welcome this opportunity for Parliament to revise its legislation on small businesses and enterprises and to examine the important implications for employment. It is a pleasure to follow the noble Baroness, Lady Byford, and, in particular, her remarks on rural small businesses—some of which I visited recently in Wales—and on the issue of green energy and its difficulties and opportunities for businesses. Although the Bill is important, it is, as comments made on this side of the House have revealed, quite timid in addressing the need to greatly expand UK business and exports and use small companies to advance technology everywhere.
I have experience of setting up a small high-tech company, in Cambridge. The company has grown slowly—which is not a bad thing—over the past 29 years. A notable feature of the UK since the 1970s is that many professionals, including academics, have found that setting up small companies enables them to apply their knowledge and experience more effectively than would work as a consultant or in a large company. I saw a similar situation back in the 1960s at MIT in the United States. Many people learnt from and were stimulated by what happened there. The Cambridge phenomenon was, of course, supported by the universities, and eventually by all sorts of other people, even colleagues in the Labour Party. There was a rather amusing joke. People in the Labour Party said, “If you bring high-tech into Cambridge, it will turn Cambridge into an inland Bournemouth”—if you can imagine such a thing. In fact, this whole journey has been considerably more exciting than an inland Bournemouth.
Many of those companies were set up by members of the Labour Party, and the Labour Party broadly supports the principle of the Bill. As was said earlier, however, much more could be done. One remarkable example of doing more is—without referring to people who are still alive—the late Bob Edwards FRS, who was the initiator of test-tube babies and the founder of the Bourn Hall Clinic. He did many other things at the same time: he was chairman of Cambridge City Council’s finance committee, for example. The previous Labour Government introduced financial measures that considerably helped small companies, especially tax relief on research as well as improved maternity and paternity allowances, which are extremely important for small companies. They also improved redundancy payments to employees of dissolved companies.
I would also point out—I think that this view is shared by noble Lords on all sides of the House—that British red tape is as nothing compared with Italian red tape or red tape in some other European countries. I was recently in Rome and heard horror stories about the difficulty of setting up a company in Italy. In this country you have only to put down a couple of quid and off you go. As the process is much easier here, I do not always completely follow all the moaning and groaning about it. Compared with other countries, it is relatively speedy here.
Another aspect of small enterprises which I have not heard mentioned this afternoon is that many small companies are charitable or not-for-profit organisations—which are, of course, also limited liability companies. Those organisations are often very effective in working with Governments, legislators and the public, and the Government frequently use them to promote their policies, often abroad. However, as I and some of my colleagues know, life in such companies is quite precarious. Some of them become insolvent, so the rules of insolvency are relevant to them as well.
Many small companies are based on innovative ideas, services and products, which they provide to government, government agencies and large businesses. That is why it is important that we should consider the question of payments. There are many situations where smaller companies compete with larger companies and even with government agencies. In such situations the large companies sometimes want to get a government contract and will use their powers to do so. Another aspect is that they do not always want to pay promptly. It is important that government departments ensure a level playing field when large and small companies bid for important contracts because small companies do not have the financial resources of some of the larger ones. Sometimes there is also unfair competition between small companies because of differences in the subsidies provided to them. Some small companies are based in public sector organisations or universities while others pay rent in commercial premises. There should be more openness about such information as it is important when government provides contracts.
In Clause 3, the Secretary of State is required to ensure that payments from large to small companies are prompt so as not to stress or even bankrupt smaller companies. Clearly, that should be supported, and it is welcome—but it could go further. The Secretary of State should also ensure that payments made by government departments and agencies—including European and international government departments, such as the European Commission—should be prompt. My experience is that UK departments are rather better than some of those international bodies. However, there are examples of payments on European Commission contracts being delayed by 12 or even 24 months, which has been absolutely devastating for some of the small companies involved. The Government should look into that just as much as they should look into UK practice. The reason that the European Commission has given for those delays is that it deals with many small companies from many different countries and it does not pay out until every company has filled in every dot on every form. That is not necessary. It is equally important that there should be greater clarity from such international bodies about when and how decisions on contracts are communicated to potential contractors, who may be waiting, and have their resources waiting, to participate in projects. Delays and uncertainty can also bankrupt small companies, including non-profit companies.
If the Government want UK small businesses to compete internationally, it is also important to insist on good practice internationally. Clause 10 refers to the growth of UK exports and the fact that the provision of better information can contribute to it. The clause could also be amended to ensure that the Secretary of State and all relevant government departments are more open to foreign customers about services provided by UK companies to the UK Government and their agencies. Foreign customers currently have great difficulty in obtaining objective technical information about the services provided by UK businesses. For large companies, that is not necessary; but small companies want to be able to say to prospective customers that the information can be provided by BIS or the relevant departments or agencies. Currently, that is not available. Some information from previous contracts is now on the web but the technical information which clients need is often very difficult to obtain. Indeed, some government agencies are prevented from providing such information. By contrast, the European Commission trade commissions in foreign countries will provide that information when it relates to EC contractors.
My last point concerns the issue of insolvency, an issue which is dealt with at the end of the Bill and is important for high-tech companies. Many high-tech companies are formed and many become insolvent—it is a chronic situation. The need to have Chapter 11-type arrangements here to enable our small companies to avoid insolvency and continue trading has been raised both by the Financial Times and by the noble Baroness, Lady Wheatcroft, in our discussions yesterday. I recently saw how such arrangements worked in France, where a high-tech company which provided high-level environmental services to most cities in France became overextended. Such a situation in Britain would have resulted in the collapse of the company. In France, however, the Government stepped in; arrangements for creditors were arranged for several years; the service continued, and the technology is developing. In the UK I recently visited the law courts, and seeing 70 companies going down every 30 minutes is a pretty sombre sight. With some assistance or investigation some of the value in those companies could be saved. BIS could provide that kind of information.
Finally, Part 10 addresses an important aspect of insolvency, when the employees become redundant. Current legislation makes the compensation dependent on the payment rates of the staff. In some cases where the company descends into bankruptcy, the payments to the staff may well be less than the minimum wage. Surely the redundancy payment by the Government’s Redundancy Payments Service should be based on minimum wages. That is not allowed for in the Bill but I strongly recommend it.
The Earl of Lytton (CB)
My Lords, I very much welcome this Bill. As needs must, I declare my interest in local government, particularly in the parish and town council movement. I am also a small business person; my professional practice as a chartered surveyor is a micro-business. The only other interest I ought to declare is that I have one recently graduated, job-seeking son, who is still at home; in that sense I share the comments of the noble Baroness, Lady Byford.
There are many things that I will address in my comments here, albeit briefly; but it is quite probable that I will not return to all of them later in the progress of the Bill. The first one is access to finance. It is my experience that businesses with assets but few ideas get ready access to finance, while those with ideas and no assets do not. Therein lies a disconnect. That is why we have lots of property development and residential investment interest with fewer high-tech start-ups. Development finance for small businesses is therefore still difficult where it ought to be better.
On electronic cheque cashing, my interest derives from what I have discovered in recent months about fraudulent digital evidence used in the courts, about which I have spoken in the past. I simply want confirmation from the Minister that there will be safeguards against the digital alteration of scanned cheques, the paper copies of which often contain many security devices such as UV printing, holograms, chemical reagents and microtext, none of which readily replicated on a scan.
On procurement, the All-Party Parliamentary Group for Excellence in the Built Environment, of which I was privileged to be a vice-chairman, produced a paper on the subject in 2012. The first thing to note is that lowest cost is not necessarily best value for money, even though it may be seen in some circles as best value. In that report we made a lot of recommendations about procurers being better equipped, identifying what they needed and the best way of procuring it, determining whether they were getting what they needed, and allocating sufficient resources to quantify and reduce the risks. Bear in mind that often these were municipalities, trustees or school governors, who did not have the relevant expertise in procuring large-ish—for them—projects.
We made a whole series of recommendations about standards, relating primarily to construction. There was an item about selecting teams and getting the best performance from an integrated performance arrangement, recommending that the teams should be based on a balanced scorecard so that you could look at the bids against specified criteria, of which sustainability would be one. I am glad to see that the Bill refers to prequalification criteria. The object, of course, is not to squeeze out the little man but to produce increased efficiency and better, more durable, reusable, longer whole-life spans for our projects. There are other impediments, such as high insurance standards imposed on potential small business bidders, or perhaps—more appropriate in my case—very high levels of minimum professional indemnity insurance cover. These need to be looked at to make sure that they are reasonable and proportionate.
All I will say about the Pubs Code is that over the years I have seen a number of leases relating to these lettings. Almost without exception they are absolutely appalling. It is not just an issue that might be disposed of as being between a pub-owning company and a tenant, both of whom might be assumed to be consenting and adult parties. It is a mismatch of relative strengths. There is a community interest here as well in a thriving facility, not the shackling of a hapless tenant to somewhere not far short of eternity.
I have a comment to make on company registration. I welcome the proposals for greater transparency in this area, but I draw the Minister’s attention to those mutual and co-operative companies which are registered via the FCA in Canary Wharf. It appears that they can still hide behind the fact that it is prohibitively expensive and awkward to search for and get access to their information, as compared with the relatively free and low-cost access to information from Companies House data held in its various offices in Belfast, Cardiff, Edinburgh and London. I am sure that many of these mutual and co-operative companies are entirely worthy, but the suggestion has been made that some of them may not be or that they may be used for shielding criminal or terrorist activities. In a debate on Ukraine about a year ago, I asked whether the Government could be sure that ill gotten gains from that country were not being invested in UK government bonds. I was told that the information was not available, and I accept that. Perhaps I could also suggest that a lack of political will and the potential for political embarrassment might have been an impediment.
I welcome the removal of exclusivity clauses in zero-hours contracts but I continue to feel that the regulatory impediments to employment require further work, and I will return to that later.
The provisions relating to whistleblowers are welcome. The present proposals, however, are embodied within employment law and I am satisfied that that is really not where they should be. They ought to be independent of the employment environment, of line managers and of first-stage scrutiny within the company. Indeed, the matter complained of may not be an employment issue as such. The organisation Public Concern at Work has sent me a briefing at my request. The noble Lord, Lord Willis, who is a great champion of this cause, is not in his place today, but I know that he takes a great interest in this issue and I am sure that he will come back to it in Committee. The Bill does not deal with gagging clauses, disclosure by legal professionals or protecting a whistleblower from sanction, blacklisting, career destruction and so on. There ought to be some non-discrimination provision, perhaps along the lines of sex or race anti-discrimination laws. There needs to be a per-sector series of industry ombudsmen to protect organisations from false accusations or malicious complaints. It is important that those responsible for bad practices will not for ever continue, safe in the knowledge that few will ever dare snitch on their organisation.
Some things are missing from the Bill. I would like to see a proper dispute resolution service so that businesses—small businesses in particular—can bypass or in some way overcome the far too expensive recourse to normal legal processes though the courts. Even mediation, I fear, is being hijacked, in its commercial sense. We need something locally based, acceptably priced, reasonably quick and conclusive, delivered by people who know what they are talking about and cannot be manipulated through the rules and procedures by a powerful and well funded party against an honest but impecunious one. A nation that allows access to justice to be prejudiced in the way in which I see it fails to hold the candle up to a belief in fair justice and the rule of law. It is also a matter of great economic inefficiency.
I refer again to empty rates. At the moment, this is having seriously negative effects on business premises. HMRC does not appear to be cognisant of the fact that it is producing a significant skew, haemorrhaging people’s incomes and making properties difficult to let or sell, while all the while high empty rates have to be paid. Most billing authorities are unable to remit the charge for financial reasons. That is something that ought to be dealt with here. Then there are planning and development and the upfront compliance costs before you can expect a planning application to be put through—the environmental stuff, the access and design criteria and everything else that goes with it. This is putting the cart before the horse. Of course, fewer and fewer people can do this, although everybody is in the hands of developers.
There are many other things that I would like to mention, but it would be better if I wrote to the Minister. I commend her for introducing a very useful Bill, and I hope that between us we can improve it as it goes through the House.
Lord Flight (Con)
My Lords, I add my congratulations to the noble Baroness, Lady Harding, on her excellent and, if I may say, charming maiden speech. Seeing the noble Lord, Lord Wakeham, in his seat, perhaps I may just mention—I declare an interest as a director—that Metro Bank has solved the issue to which he referred. You just present your driving licence and that plugs into a system that tells the bank more about you than you know; then you can open an account in 10 minutes—so the ridiculous procedures that other banks have are entirely unnecessary.
I support what the Minister said about entrepreneurship in this country. I have never known more active entrepreneurship, but it is not just happening in London and the south-east—it is all around the country. Young people are being brave and courageous enough to start their own businesses when in my generation we were told we had to go and work for the Civil Service or a large company. The universities are becoming, as they have been in the United States for many years, a cradle of new business, including new technology businesses. The numbers are immensely impressive. Over the past two years some 1 million new companies have been formed. Not all of them are necessarily actively trading, but something immensely exhilarating is happening in this country now.
I declare my interests as in the register. There are a lot of good things and good intent in this Bill, and things that could be added, as the noble Lord, Lord Hunt, and others have said. I very much hope that they will achieve their objectives as they become law.
However, I want to speak about something that is unsatisfactory in the Bill and could be quite damaging. It is covered in Parts 7 and 8 and in Schedule 3, on public company registers. The requirement, as noble Lords will be aware, is that for shareholders holding 25% or more or having some form of control over the company, ownership has to be kept in a register and that register must be made public, recording what are called the PSCs. This is really a Treasury anti-money-laundering issue, and it sits ill in this Bill, which is about positive things, particularly for SMEs. Everyone is in agreement about what is needed in this area. Beneficial ownership should be available to the tax authorities, the police and the security authorities on any sort of investigation to do with crime, terrorism or tax evasion, and companies should also know who their shareholders are. My main objection to what is in the Bill is to the public aspect. It adds nothing to the objectives and, among other things, it casually breaches 200 years of company law in terms of this embodying and including private companies, which are thrown out of the window with no evidence that a public register will achieve anything. The Government have offered very little and perhaps no justification or consultation in thus destroying the right to privacy.
The requirements of the G8 and the G20 are that companies should know who owns them, not competitors, spammers or media folk looking for a good story, or others looking to misuse such information. In arriving at where we are, I criticise in particular the impact assessment project. It is unclear whether other options were proposed or considered other than that in the Bill, and I think that it amounted to a stitch-up. It does not properly assess the potential cost to individuals. One of my colleagues in the other place said that it was the worst impact assessment that he has ever read.
As for considering other possible options, the Crown territories have for a long time had a system where all beneficial ownership is recorded and made available to the authorities. That has worked extremely satisfactorily. The United States similarly has its own system. No case has been made as to why the register needs to be public or what is added by being public. Indeed, the impact assessment itself found that the public register’s addition of value would be precisely zero and that only 10% of respondents indicated that the proposed reforms would ensure that they knew with whom they were dealing.
The big hole in the proposals is that they cover only UK companies—non-UK companies are exempt. That aspect means that it is completely avoidable. We will see a migration of the ownership of investment in the UK from UK companies to UK branches of foreign companies. It is also potentially damaging to our interests in discouraging investment. Sovereign wealth funds, investors from the Gulf, Islamic and Chinese investors like to be discreet, and for them a public declaration of their ownership is often anathema from a business and cultural perspective. It is also costly to individuals and small businesses. Some 2.4 million companies will be affected and the estimated costs so far are £1.1 billion, but that is without any potential allowance for a proper verification system.
Interestingly, public registers are also not required by the FATF guidelines, although the FATF guidelines do require proper verification procedures. So rather ironically, given that the reason for these proposals is that they are to comply with the FATF, which will add a lot of regulatory hassle for people, the Bill will not comply with the FATF unless there is proper verification.
The Minister rightly applauded growing UK entrepreneurship and the growing number of small businesses in the UK. I believe that she mentioned a total of 5 million. Part of that growth is due to the UK’s policy of making it extremely easy to use UK companies—much easier than it is to use companies in most other western economies. I think the Minister said that she wanted to see incorporation made even easier. However, the proposals in the Bill add hassle, regulation and costs when using UK companies. I am particularly concerned about the position of entrepreneurs. They typically own at least 25% of their companies. Most of their businesses are small. They will probably not know that they are supposed to keep a public register and to make information on their ownership available, partly because it will often be recorded at Companies House anyway, but they will commit a criminal breach by not so doing. If they do follow this procedure, it will add another regulatory cost. It is a further hassle for the innocent law-abiding while the guilty can very easily avoid the requirements. I think that it is substantially the NGOs which have called for public registers. It is somewhat ironic that there are no comparable requirements for public registers detailing who controls NGOs and what other organisations have an interest in them. Indeed, in one or two cases, NGOs have been shown to have had exposure to terrorist funding.
I do not believe that what is proposed in the Bill is what the Prime Minister intended in his G8 pledge. The City division of the Law Society has objected to public registers and the British Venture Capital Association has objected to their impact on the small venture companies it represents. Surely what is needed in this territory—here the right reverend Prelate the Bishop of Peterborough and I agree—is international legislation. I urge the Government to consider delaying this legislation in order to promote a common model across the western world. As I have said, if this goes ahead, we will have something which is not effective in achieving its objectives. The sensible approach that has been followed in other jurisdictions is to require beneficial ownership registers to be kept and for these to be instantly accessible to the police, the tax authorities and the security authorities but for the registers not to be public. I am disappointed to be critical but I think that we have a dog’s dinner in this part which will not achieve its objective and will simply add regulatory cost and hassle for many innocent people.
Lord Young of Norwood Green (Lab)
My Lords, I thank the Minister for her contribution, to which I listened with interest. I also congratulate the noble Baroness, Lady Harding, who, unfortunately, is not in her place, on her maiden speech. I think it is an odds-on racing certainty that she will make a successful contribution to this House.
Lord Young of Norwood Green
It took a long time for noble Lords to appreciate that masterly piece of wit.
As I said, I listened to the Minister’s contribution but I want to redress the balance and mention what is missing from the Bill. We have heard a lot today about the flexible workforce and the need to ensure that we have minimum regulation. However, one of the most disturbing statistics I have come across is that only one in five managers of small businesses has any training at all. That ought to be addressed. It is no wonder that they have difficulty in recognising regulation. We tend to forget that, properly applied, regulation saves lives and stops unfair exploitation.
I cannot help recalling that when the Labour Government came to office in 1997 there was real exploitation. Before we introduced the minimum wage, you could go to work and earn about £1 an hour, or even less in some circumstances. Would anybody say nowadays that that was unnecessary regulation? If my memory serves me right, it was vigorously opposed by Members on the Benches opposite, who told us that it would cause massive unemployment. Therefore, we need to adopt a balanced view of regulation and set it in context. My noble friend Lord Mitchell reminded us that exploitation still exists in the form of unpaid internships quite apart from the other instances of exploitation—I do not mean to say this in a dismissive manner—that I hope will be addressed in the Modern Slavery Bill.
I also want to address what I describe as the Panglossian analysis of the noble Lord, Lord Stoneham, whereby everything is for the best in this best of all possible Governments, given that the deficit is shrinking and there is hardly any unemployment at all. I do not want to negate the significant gains that have been made in employment. However, we need to remind ourselves that some people in this still unfortunately low-wage economy have to have one, two or three jobs to survive, so everything is not as wonderful as it was painted by the noble Lord. We should also remind ourselves that in some parts of the country there are still very high levels of unemployment and disturbingly high levels of youth unemployment. I make those points because it is necessary to set this important piece of legislation in the right context.
Unfortunately, the noble Lord who described this Bill as a Christmas tree Bill has gone but that description amused me. If we get our way, it will be not just a few flashing lights and baubles but will have a bit more substance than that. If it is a dog’s dinner, I hope that it will be a nourishing one with all the right vitamins. No doubt, by the time the Bill has been through Committee, we will get it right.
I want to focus on the employment aspects of the Bill, covering employment tribunals, the national minimum wage and zero-hours contracts. In my view, if anything demonstrates that this Government have run their course and are running out of steam, it is the employment provisions in Part 11. The Government have done the minimum in this part that they thought they could get away with or that they could reach agreement on. I will deal with the points of agreement first. There are measures in the Bill seeking to limit the number of postponements that parties can be granted in a case, which we welcome, with judges being given the power to make cost orders where late applications for postponements are made. Based on my experience as a former practising trade union officer, I think those measures are sensible, as do others, such as the TUC, which points to the difficulties that witnesses face in getting time off work to attend hearings.
However, improving the process once people get to a tribunal will be no more than an academic exercise for those claimants who, frankly, cannot afford to pay the tribunal fees instituted by this Government. We should remember that you cannot even claim for unfair dismissal until you have worked for two years. What the Government have done with those fees is erect a barrier to justice for some of the lowest-paid people in the country. They have simply priced them out of the system. That is the reason for the 79% drop in employment tribunal claims that was referred to earlier. Women and low-paid workers in particular seem to be the principal losers, so parts of the Bill certainly need to be changed in that regard.
I also wish to address the education evaluation section of the Bill in Clauses 75 to 77. The Explanatory Notes state:
“Clauses 75 to 77 are intended to make the sharing of information between Government Departments and schools, colleges and other assessment centres easier. This is expected to have the following benefits: enable parents and students to make more informed choices concerning education and employment destinations; help providers of education and training to evaluate their effectiveness in delivering qualifications”.
As I have said on a number of occasions to this House, when I go to secondary schools to talk to 15 and 16 year-olds about their destinations in careers, my experience is that most are being pushed towards universities. I am not knocking that but we know how important it is for young people to understand that universities are not for everyone and that there are really good prospects in a vocational career. What the Government are proposing does not do enough to ensure that schools live up to their legal requirements to ensure that when they give career guidance it covers the full range of career and educational opportunities for young people.
As someone who enjoys the odd pint or so, I cannot resist having a little ramble around the tied pub and tenancy provisions in the Bill. The noble Lord, Lord Cope of Berkeley, who is unfortunately not here, mentioned the dreaded two words: Red Barrel. I was going to my local about 30 or 40 years ago—I dread to think of that now; it shows that I am now over 21. The pub, which is now long gone, was the Alma in Harrow Weald, where I used to enjoy a pint of Manns IPA. I protested at the bar and asked where Manns IPA pump had gone; in its place was the dreaded Red Barrel. We have CAMRA to thank, as the noble Lord, Lord Cope, acknowledged, for a fantastic campaign.
We undersell the glories of British real ale, served at the right temperature by a landlord who understands the importance of settling the beer and keeping the pipes clean. We should see it as our equivalent to “appellation controlée”; I mean that seriously because it is important. Not a lot of people know this but we now have more breweries than Belgium, which is an interesting but important statistic. This is an important area. At my current local, the Plough in Norwood Green, I discussed this issue with the landlord at a recent visit. He is a tied tenant who pays a significant amount for his beer, and he will be pleased that there is progress in this area. I am glad that the Government have seen sense because, if they had not done so, we know what would have happened.
I am conscious of the time but will end my contribution by drawing attention to the fact that this Saturday is an institution—I hope it is an institution; it has happened for the second year running—introduced by my honourable friend Chuka Umunna MP after a visit to America, where he observed Small Business Saturday as a means of drawing attention to the importance of small businesses. This Saturday is Small Business Saturday; so it is the duty of every Member of this noble House to make sure that they patronise one of their small businesses. I say that seriously. It makes a significant economic contribution and reminds people of the importance of small businesses.
I thank noble Lords for their sufferance of my contribution and look forward to participating in the proceedings on the Bill.
Lord Hodgson of Astley Abbotts (Con)
My Lords, it is always a pleasure to follow the noble Lord, Lord Young of Norwood Green. He is always engaging. I shall come back to the pub in a minute but hope that he will not take offence if I gently remind him that one of the reasons for the high levels of employment is the flexible labour markets introduced by this Government. Some of the removal of flexibility that he was recommending, proposing or thinking about would reduce employment, which we all agree it is essential to preserve.
If one is 23rd in the speakers list, much of what one wants to say has been said already—sometimes more than once; sometimes several times over. However, like other noble Lords, I agree with and support the Government for what they are proposing. I have some questions that we shall wish to examine in Committee but applaud the general direction of travel. I want to make just three points.
First, I congratulate the Government on taking up the challenges of pre-pack administrations in Part 10. Pre-packs have been promoted as a way of saving jobs in the firm in question—and they may well do so. However, in my experience, the ability to write off debts often appears close to a fraud on the creditors. When the firm that has been pre-packed arises like a phoenix from the ashes, no one considers the position of the creditors in the firms that have lost everything. Job losses may have been avoided in the pre-packed firm but may well have been replaced by job losses in the creditor firms. Nowhere is this more important than in pre-packs involving connected parties. I am therefore very glad that the Government are going to tackle this aspect, and I look forward to discussing the details of this in Committee.
My second point concerns the procurement provisions in Part 3. I wrote a report for the Government entitled Unshackling Good Neighbours, which, inter alia, looked at the problems and regulatory burdens that inhibited the growth of small companies, charities and voluntary groups. It is not yet clear to me that the well meaning provisions in Clauses 38 and 39 will enable the Government to tackle the fundamental issues that too often put smaller companies at a competitive disadvantage. The noble Earl, Lord Lytton, referred to these. In particular, it is the innate conservatism of commissioners, for whom risk aversion is the default option. Of course, one has to applaud the objective, as explained in the memorandum that my noble friend on the Front Bench so kindly circulated, which is,
“to create a simple and consistent approach to procurement across all public sector authorities”.
However, we have been here before. Four years ago, the Merlin commissioning approach, designed to provide a common governmental template—originally devised by the Department for Work and Pensions—was then being rolled out across government generally. What has happened to Merlin; where has it gone to? Perhaps my noble friend could let us know, either by letter or when she responds.
My final point is about the pub tie, on which, as others have mentioned, the Government suffered a defeat in the House of Commons. I am afraid that I am going to have to upset the noble Lords, Lord Snape and Lord Young, because I was disappointed to hear that the Government do not propose to reflect further on this decision. The arguments are not as simple and straightforward as our colleagues down the corridor believe.
In making these comments, I have to recognise two things. First, in any dispute that can be broadly characterised as David versus Goliath, the British people will instinctively side with David. It is one of our most endearing national characteristics to want to stick up for the little man. Secondly, in any arrangement involving more than 20,000 people—and there are between 20,000 and 25,000 tied pubs—there will always be problems, difficulties or misbehaviours. While we need to deal with and remedy these, they must be set in context and proportion to the whole.
Lord Snape
I apologise for interrupting the noble Lord, but before he leaves that point will he at the next stage of the Bill bring forward some evidence from satisfied pubco tenants about how wonderful their relationship is with Enterprise Inns or Punch Taverns?
Lord Hodgson of Astley Abbotts
I shall be glad to bring forward some evidence. I have some here but, given the hour, I should not be talking about the Black Bull, Mansfield, which is one of the pubs on which I have some evidence for the noble Lord. We will discuss this at a later stage.
There are two types of integrated pub. The first, called integrated operators, are companies that brew beer and sell it through their own estate, whether managed by employees or tenants in tied pubs. They sell their beers also through supermarkets, free houses and off-licences, but their estate is an important route to market. The second group consist of what are known as pubcos. They do not brew any beer but buy it in, often from the breweries of the integrated operators. Their focus—which the noble Lord, Lord Snape, is driving at—is on rental levels. They are, to some extent, very specialist property companies.
Noble Lords may wonder how on earth this rather counterintuitive second group came into existence. As my noble friend Lord Stoneham of Droxford said earlier, it is the result of a decision of Parliament. The beer orders were designed to strip the breweries of too much market power, and the pubcos were the result. If our predecessors all those years ago had seen where we were going to end up, they might have considered it better to think of an alternative business model. If we do not revisit the decision to end the tie, our successors in 20 years from now may find that, far from this decision slowing pub closures, it may well accelerate them.
Before I get into the rest of my remarks, I need to remind the House that I was, until a year ago, a director of an integrated brewery. We had five breweries, two big and three small, stretching from Cumbria to the New Forest, and more than 2,000 pubs—500 managed and the balance tied in various forms.
Why is it that pubs arouse such strong emotions? In some large measure it is the result of the image that we have of a community—a point made by the noble Lord, Lord Bilimoria, earlier this afternoon. That community has three aspects: a church, a post office with a shop and a pub. We may not wish to use them much: we may go to the church on high days and holidays and for hatches, matches and dispatches; to the shop or the post office only to buy the milk when we have forgotten to buy it at the supermarket; and to the pub only for the occasional drink. However, we like them to be there. We also like them for the ambiance we believe they project. We all have our image of the ideal pub: the welcoming atmosphere, the cheery landlord dispensing pints and homespun philosophy over the bar. However, for reasons quite unconnected with the brewers, the pubcos or the tenants, the pub sector is under severe strain.
I identify three fundamental features behind this. The first is the rapid rate of socioeconomic change in Britain. Twenty-five years ago, the company of which I was a director would have operated probably a dozen pubs in Kidderminster, the home of the carpet trade. The carpet trade has gone and there are three pubs left. In areas of Nottingham, Leicester, Manchester, Leeds and Birmingham the increase in the Muslim population, who do not drink, leads to many pub closures. It is exceptionally hard for a publican who has put 10 years of his life into trying to build up a business to accept the inevitabilities of these tides of history.
Secondly, there is the inexorable rise of regulation and of cost generally. Noble Lords may not be aware that, for many pubs, business rates and council tax are more important items than rent.
Thirdly, there is the availability of low-priced alcohol in supermarkets. The average price of a pint in a UK supermarket last year was £1.13. It would be substantially less in the weeks leading up to Christmas and in the few days before a bank holiday. If any noble Lord can find a pub, tied or untied, that is selling lager at less than £2.50 a pint—more than double the price in a supermarket—let me know and we will go along to sample the wares.
These are trends that defy King Canute, so pubs are likely to continue to close. The reasons for closure may be portrayed as rapacious owners increasing rent, wishing to profit by turning pubs into houses or corner stores, but the tide is turning against the ordinary pub. To offset this trend, the pub has to offer an experience and value for money for its target market: maybe with food, with fine dining or pub grub; maybe for families, with play areas for kids; maybe for younger men, with Sky Sports and pub games; maybe for younger women, with more of a wine bar feel to the place; or maybe for pensioners, with cheap food, particularly at lunch. However, this all requires operational experience and capital resources. It is this that pub owners can provide. It is exceptionally difficult to find capital for all the sorts of things that are required to refurbish a pub—kitchen fittings, signage, fixtures and fittings of one sort or another—and it is the pub owners who can do this.
The balancing item is the tie. The brewery is assured an outlet for its beer and other drinks, though it should always be remembered that every bit of profit from the foods goes to the tenants alone. Remove the tie and you risk removing this ladder, by which many people have become very satisfactorily self-employed. No pub owner is going to invest many thousands of pounds—hundreds of thousands of pounds in some cases—in refurbishing a pub if the tenant can then walk away from supply agreements.
In an effort to lance this boil of suspicion about rents and treatment, some breweries have introduced a franchise agreement, which has been approved by the British Franchise Association. This means that the tenant is in exactly the same position as a franchisee selling hamburgers, pizzas or ice-cream. The Bill apparently proposes to ban even these arrangements. To do so only where they involve a pub and not, for example, a McDonald’s outlet, seems to me to be illogical, perverse and unfair.
My final word must go beyond your Lordships’ House to the wider world: the most important thing to do if you wish to save your local pub is to use it. If you do not, you will lose it whether it is tied or not. I look forward to some vigorous debates in Committee.
Lord McKenzie of Luton (Lab)
My Lords, I start by congratulating the noble Baroness, Lady Harding, on a sparkling maiden speech. We look forward to hearing many more. I had not originally planned to speak in this debate but was tempted by Christian Aid and its briefing on the Bill’s transparency provisions. I am grateful for its briefing and the follow-up information.
Before I address that subject, perhaps I can revert briefly to the contribution made by the noble Lord, Lord Stoneham, at the start of our deliberations. He waxed lyrical about easyJet. He was right to do so, but he might have mentioned that it has flourished in part by its partnership with London Luton Airport, an innovative public/private partnership developed by a Labour council.
As noble friends have already made clear, we think the Bill has generally been a missed opportunity and to be deficient in a number of key respects. However, we should be supportive of the thrust of these transparency provisions, although, as the right reverend Prelate the Bishop of Peterborough said, we wish to probe whether they go far enough. I am bound to say that I do not share some of the concerns expressed by the noble Lord, Lord Flight. The problem under consideration has been clearly set out in the impact assessment: the lack of corporate transparency over who owns and controls companies is facilitating illicit activity and undermining good corporate behaviour, eroding trust and damaging the business environment.
The scale of the problems and illicit money flows involved are truly staggering. In 2013 the EU considered the scale of criminal proceeds associated with money laundering and terrorist financing to amount to 3.6% of GDP—around $2.1 trillion. This includes billions of dollars lost to Africa. The human misery and lost economic opportunities resulting from all this beggar belief. Reducing the potential for these flows through the misuse of company structures will not solve the problem but offers one means of helping to counter it, particularly if there is international co-operation, a point on which I agree with the noble Lord, Lord Flight. The Government are right to pursue this.
This lack of transparency also facilitates tax avoidance and evasion. This continues to be one of the scourges of our time. We know that a global response is the only way effectively to tackle the challenges it presents. In this regard we acknowledge and support efforts considered by the G20 in September this year to complete progress on the base erosion and profit shifting project, to provide support for developing countries in preserving and growing their revenue base, and to progress the automatic exchange of tax information on a reciprocal basis. Some of the EU initiatives to rebuild trust in the international tax system have yet to bear fruit: the common consolidated corporate tax base is stuck in ECOFIN, but work goes on. We may hear more tomorrow about further measures on the domestic scene, but the EU is negotiating the anti-money-laundering directive at the moment. Can the Minister say what efforts are being made to include public registers in the final outcome?
Corporate transparency was, as we have heard, a particular focus of the G8 meeting held in June 2013 under the UK’s presidency. In determining to act, the G8 agreed that the lack of knowledge about who ultimately controls, owns and profits from companies assists not only those who evade tax but those who seek to launder the proceeds of crime. Each of the countries has published its action plan. In the UK’s case, we have the resultant legislation before us, which introduces the obligation to implement a central register and for this to be made public. Such arrangements will only be most effective if other countries follow suit. Perhaps the Minister might say a word about progress across the EU, and other G7 and G20 countries.
The Minister will also be aware that in 2013 the UK’s overseas territories with financial services centres committed to conducting consultations on creating registers of beneficial owners of companies and on whether to make them public. This commitment was matched by the Crown dependencies. The BVI, the Cayman Islands, Montserrat, Gibraltar, Anguilla, the Turks and Caicos Islands, Jersey and the Isle of Man have each held consultations, but none, according to the briefing that we have received, has published the submissions received, responded or set out a policy position. Bermuda seemed to have abandoned its commitment to consultation, and Guernsey has yet to hold a consultation. It is suggested that these territories account for some one-third of the world’s shell companies, which might explain their reluctance to proceed but the importance of encouraging them to do so.
At the end of April this year, the Prime Minister wrote to the overseas territories stating:
“I have welcomed your … commitments to work with the UK to promote the application of high international, including EU and OECD, standards and your action plan on beneficial ownership setting out the concrete steps you will take to strengthen your laws on financial transparency ... I believe that beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion”.
We very much agree, but can the Minister say what continued engagement there has been with these territories and what, if any, progress is in sight in ensuring that the overseas territories and Crown dependencies meet their commitments? Unless they do so, the very legislation that we are considering in this Bill will be substantially undermined.
As for some of the detail, we note that the existing definition of “beneficial ownership” used in the anti-money-laundering provisions is to be adopted, setting a 25% test as the threshold. Some of the responses to the consultation expressed concern that this was too high a threshold and that it would be capable of manipulation so that a few could collude to obfuscate ownership of a company. The justification for the 25% is that it will be familiar from the money-laundering rules and is, anyway, the shareholding level at which a minority can block resolutions. We see the merit in that approach but want to test it further in Committee.
We also wish to examine how it might all work where there are tiers of overseas companies in a structure where those overseas territories have not signed up to any form of register. We support the concept that there is a responsibility on the beneficial owners, as well as on the companies themselves, to identify beneficial ownership arrangements, and that companies to be brought within the scheme properly include at least companies limited by guarantee, as well as limited liability partnerships. Keeping the register current, as the right reverend Prelate said, will also be an important task.
We note that there was some opposition to exempting companies required to comply with the disclosure and transparency rules, and we will need to understand the extent to which such rules effectively cover what the register will require. The Government are wise to keep under review the definitions of control, given the proven ingenuity of companies and their advisers to construct arrangements to circumvent the intent of legislation. We note that the Government say that they cannot extend these requirements to overseas companies because of EU company law directives, but can the Minister say whether this applies to overseas companies which operate in the UK as well as to those that do not?
The prohibition of corporate directors, which we support, is qualified to be subject to exceptions which will be introduced by regulations under the negative procedure. Such regulations can make different provisions for different parts of the UK. Again, this is something that we will need to probe in Committee to understand its extent.
The prohibition on the creation of new bearer shares and arrangements to eliminate existing bearer shares should receive our support. They are currently an instrument which makes it all too easy to disguise ownership.
These provisions are a small part of the Bill but, nevertheless, a very important part. They will help in the fight against crime, money laundering and tax evasion. We should recognise that they will not solve these problems and will be faced with huge efforts to negate and ameliorate their effect. It behoves us to scrutinise them as rigorously as we can to send them on their way as watertight as possible.
Lord Leigh of Hurley (Con)
My Lords, I add a very warm welcome to my noble friend Lady Harding. A friend who is a bit of a wag suggested to me that she has been elevated to this Chamber as a person who runs a business called TalkTalk, but through her maiden speech she has shown herself to be a great asset to this House.
I very much welcome this Bill, focusing as it does on small businesses, which, as has been said, amount to some 5 million enterprises employing some 24 million people and with a turnover in excess of £3 billion. In so doing, I draw your Lordships’ attention to the register of interests. Additionally, I am advising a pre-revenue start-up in the crowd-funding space, which will be relevant later on. Having said that, so far it is without any financial reward, but I live in hope and expectation.
I am concerned that progress is made with this Bill. It would be a great shame if it fell away because Parliament ran out of time before the election. The Bill has been welcomed by a large number of business bodies—in particular, the Institute of Directors, which specialises in this space, the BVCA, of which I am an associate member, and the Federation of Small Businesses.
It is pleasing to note, by way of background to the Bill, that in the last four years the number of small businesses has grown substantially and that, since the election, generally employment is up by 1.7 million. This means that since the election the employment rate has risen by 2.8%, while unemployment has dropped by over half a million. That is a great result for the coalition Government.
That has not happened by chance and it is no coincidence that this country has shown a dramatic increase in employment—greater than the whole of the rest of Europe combined. This has been brought about not just by economic success but also, as my noble friend Lord Hodgson of Astley Abbotts said, by changes in legislation to facilitate that growth in employment, such as this Bill and others.
I note that this is the first Bill ever brought forward which focuses on small business, and, as a partner in a small business, I am delighted to see it. My business and professional life has given me an insight into most parts of this Bill, so I apologise in advance if I stretch my remarks over most of it other than the part relating to the pubs adjudicator and the Pubs Code, in which, sadly, I have had no professional involvement.
The noble Lord, Lord Stevenson, whose excellent memory I must commend, will be pleased to hear that I have new areas to highlight and on which to bang a new drum in addition to those that I mentioned last time, but they do not include takeovers, which I believe are satisfactorily regulated by the Takeover Panel.
Looking at the finance side of the Bill, it is clear that, while high-street banks have provided the majority of finance to our businesses in the past, high-growth SMEs need alternative finance—as the noble Lord, Lord Kestenbaum, said—and London has become a world leader in providing it to the whole of the UK. We must make it as easy as possible for SMEs to operate and allow them to get the information that they need to access finance. We must strike the right balance between showing world leadership on transparency and regulation—on which I will say more—while encouraging external investors. I believe that this Bill strikes a sensible balance.
I particularly welcome the proposal for banks to be required to pass information to finance platforms in respect of customers who have been rejected. The Government have been extremely successful in encouraging challenger banks and alternative sources of finance for both debt and equity, and this has helped British businesses to grow. I am, however, concerned that the proposal is simply and only to allow banks to refer customers to software-based finance platforms. Typically, these platforms have a small number of lenders—roughly three or four—who interact with each separate platform, and that obviously restricts the potential borrower. In my opinion, borrowers need advice to access the full range of alternative lenders, which currently number around 130 or more in London alone. More importantly, they need face-to-face advice which clearly would not happen by simply transferring details on to a software platform.
The Bill seeks to give much more freedom to SMEs by forcing incumbent banks to share information fully, if requested by the customer. This would allow other banks, including the new challenger banks, to offer finance more competitively as they have a different view of risk. The more information available to them, the less risk they feel they would be undertaking, and therefore, the better terms they are likely to offer. High-street banks currently have a monopoly on that information. There is a lot of confusion in the marketplace on whether the banks are lending to SMEs. Major banks, such as Lloyds, for example, representing 25% of SME lending in the area of invoice financing, claim that they are lending to 80% of requests. On the other hand, it is very clear from talking to SMEs that in many cases they do not feel they are receiving the finance for which they applied.
This section of the Bill motivates the banks to list all their rejected applications where the applicant consents. That then means, first, that banks will take much more care before rejecting an application, as not only will it have a significant impact on their published success statistics, but by rejecting it they are opening the door to their own competitors. Secondly, the SMEs will now be exposed to many potential sources of finance, which should help them to not only achieve their goal but do so at a competitive rate. The marketplace for lending, combined with a much needed requirement to share bank-held information, could dramatically transform lending to SMEs within the UK. Access to finance is an issue that has been debated in this House many times before. The coalition’s excellent initiative to start the Business Growth Fund, start-up loan schemes, the British Business Bank and other organisations complement the direction of travel of this Bill.
Like my noble friend Lord Flight, one area of interest to me relates specifically to the transparency of companies. Clearly, generally speaking, greater transparency is welcome and the Prime Minister’s commitment to G8 in this respect has to be honoured—in particular, as has been said, in support of crime-fighting initiatives. My concern is that the cost to business of implementing these reforms could be substantial. For a regular business owned by one or two people, it would be easy, but there are many private companies that have been established for years which have ended up being owned by descendants of the original founders, and many of such companies’ shares are held in trust. The costs of establishing exactly who is the ultimate shareholder could run into tens of thousands of pounds per company.
There are wonderful examples in the UK of businesses currently run by the grandsons, great-grandsons and indeed, great-great-grandsons of the founders, and it would be a great shame if these businesses faced unnecessary administrative burdens simply because they have been around a long time and the shareholding has become diffuse.
It also seems to me that this is another example of the UK leading the way, possibly to our cost. I note that the disclosure regime is not extended to foreign companies operating in the UK, as has been noted by my noble friend Lord Flight and the right reverend Prelate the Bishop of Peterborough. As a result, the rest of the world can choose to preserve privacy while doing business in the UK, which is, of course, a significant loophole in trying to ensure transparency.
I would like to say a few things about persons of significant control and the PSC register. In particular, my concern is that all investors should be treated equally when it comes to being required to disclose. For example, in the case of private equity, it is clearly the GP—the fund itself—that exercises control over the businesses it invests in and, as such, stakeholders have a right to demand information from them. However, the investor base, possibly numbering in the hundreds or even thousands does not, and mandating disclosure there would be unnecessary, misleading and unhelpful for those stakeholders interested in finding out more about those who control the business. Thankfully the Government understood this position and have amended the Bill in the other place so that those investing in English limited partnerships do not have to make that sort of disclosure. However, I believe that it is crucial to extend this amendment to include other limited partnerships, in particular those established under the Channel Islands law, which is the conduit for most overseas investments into the UK.
Ensuring the continued attractiveness of investing through such partnerships for international investors will continue to encourage more capital to flow into the UK. While I can see that this information might be needed to fight criminality, I am not clear why it has to be available to a company’s competitors, customers and all sorts. Concerns have been expressed, with which I agree, that shareholder lists could be open to abuse if they are in the public domain in an unintended manner. I ask my noble friend the Minister to consider that any such register should not be made public initially, with information restricted to law enforcement bodies and then possibly to open the register fully to the public at a later time, once matters have settled down.
I have to say that I do not have quite the same experience as the noble Lord, Lord Bilimoria, in respect of insolvency. I am pleased to say that I have had limited involvement with the insolvency profession, but from time to time I have seen it in my professional career and I welcome the Government’s approach to bring a spotlight to this area. Generally, the direction of travel to provide greater competence to unsecured creditors is very welcome. I am not sure that abolishing the creditors’ meeting carries us in that same direction and I note that some amendments in the other place have led to the beginnings of a rethink. I certainly welcome mechanisms that compensate creditors for director misconduct, and I am pleased to see that administrators have been given the same powers as liquidators in certain circumstances.
It is, of course, appropriate to consider regulation of the insolvency business. I believe that the current system works quite well, but having the reserve power to establish a sole regulator if there are instances of abuse seems to be the right approach. Christmas, which will shortly be upon us, is traditionally a great time for retailers but also a time when many go to the wall. The experience of a well known electrical retailer two years ago has raised some valid questions about some professional practice in this area.
Similarly, the Government’s approach in respect of pre-packs is very welcome. To put it into perspective, every year some quarter of a million businesses disappear from the register of Companies House. Of those, 20,000 go into insolvency procedure, and of those, only about 600 to 700 are through a pre-pack. So the numbers are relatively small, but the public are right to be concerned when very quick deals take place and the subsequent owners of the business turn out to have been the same people who ran it into the ground only a few days before. I believe that the direction of travel of the BVCA’s turnaround code of conduct and, in particular, the Graham report, is the right direction. There are some specifics in the report which are, of course, not mentioned in the Bill, such as the requirement for a pre-pack pool. I have reservations about how that would work in practice. Other ideas, such as the requirement for the proper marketing of a business within a pre-pack process, must be right.
I appreciate that the Government want to see the impact of the Graham report before putting new legislation in place. Indeed, as the author of the report herself says, nobody wants unnecessary legislation, so again the creation of a reserve power to make regulations if things do not work out seems to me to be the right approach. A major concern to me is that the pre-pack proposals, while seeking to protect against abuse, fail to give employees, customers and creditors any comfort about the ongoing viability of the business itself. One idea for my noble friend would be, as part of a pre-pack, and possibly other insolvency situations, for a turnaround professional to be charged with the role of reviewing the business before administration and that professional ensuring that the management of the business is undertaken as intended after the pre-pack for the greater good and not just for themselves. To date the focus has been on Old Co., and I would like to look at New Co.
There is an extremely welcome section on employment. As I mentioned earlier, employment has grown dramatically in the UK and employers, in particular small businesses, must be given every assistance in feeling encouraged to take on more people. They will do so only if they are confident they can let employees go without huge penalties. No one likes letting people go, particularly in a small business, but it is sometimes essential for the health of the rest of the business. The employment tribunal system in the UK has dramatically improved through the changes made by the coalition Government, but a tightening up is needed to cut the costs and, in particular, reduce the delays, as envisaged in the Bill.
Similarly, the only way in which employers will seek to take on more people is if they are given the flexibility to employ people in a manner which suits their business, rather than the old-fashioned nine-to-five, 35-hours-a-week approach, which is simply inappropriate in the current workplace for most employers. I strongly encourage the Government to give employers and individuals the opportunity to take advantage of the flexibility of zero-hours contracts, while, of course, stopping any obvious abuses. It also seems fair to allow employees to work flexibly for a number of organisations—not just one—and I welcome the proposed changes.
Finally, it is interesting to compare the coalition Government’s approach to small business in the UK, which has been so successful, with the approach taken by the left-wing Government in France, which actually led to a demonstration by some 8,000 business owners on the streets of France yesterday in protest against their policies. That is unimaginable here but a stark warning to us all. I congratulate and pay tribute to the Ministers who have produced a Bill with so much that could help our economy grow. I wish it a speedy outcome.
Lord Watson of Invergowrie (Lab)
My Lords, I wish to speak in particular to Parts 7 and 8 and Schedule 3 to the Bill, an area that has already been covered by noble Lords. I hope that I can find something different to say. I want to start with a quote:
“Companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily, for example—through central registries—so people can’t avoid taxes by using complicated and fake structures”.
Those were the words of the Prime Minister who, as host, made corporate ownership transparency central to his theme when he spoke at the 2013 G8 summit in County Fermanagh. I have to say that he has been as good as his word, and it is very much to be welcomed that this Bill includes provision for a,
“register of people with significant control”,
representing as it does a major step forward in preventing people hiding criminal activities behind shell companies. This is something that is strongly supported by the general public, according to a recent ComRes poll for Christian Aid, which revealed that only 9% of the British public believe that company ownership should be allowed to be kept secret. I suggest that it would not be too demanding a task to work out what sort of people might be included in that 9%. Legislating for a PSC register in this way would deliver Commitment 7 of the UK’s Open Government Partnership National Action Plan 2013-2015. Although it is not something I do very often, I want to congratulate the Government on making the UK the first country to introduce a public register of the beneficial owners of companies.
Businesses play an important role in developing thriving societies across the world, but some companies abuse global corporate structures for their own gain. Secret ownership structures allow wealth to be hidden away, preventing useful investment and driving inequality. The way companies are structured is more often than not at the heart of how such illicit flows are facilitated, either through evading tax, money laundering or outright corruption. The cost to developing countries of this behaviour is quite staggering. It has been estimated that such countries may lose as much as $120 billion to $160 billion annually in tax revenue, a figure greater than the entire global aid budget.
Many companies and individuals dodge taxes by keeping their money in a complex network of trusts and so-called shell firms, whereby companies are hidden inside each other without revealing their true owners. These are often based in secretive tax havens, and it is secretive company ownership that makes most cases of large-scale corruption, criminal money laundering and terrorist financing possible. A World Bank review of 213 big corruption cases from 1980 to 2010 found that more than 70% relied on anonymous shell entities. Company service providers registered in the UK and its Crown dependencies and overseas territories were, to our shame, second on the list in providing these shell entities. I shall give just one example. An anonymous UK company owned the Ukrainian presidential palace of the vilified and ultimately overthrown Viktor Yanukovych.
Unlike the noble Lords, Lord Flight and Lord Leigh, I urge the Government to tighten the actions they have taken in this regard rather than loosen them. I want to see the Government build on the commitments in the Bill and I believe that there are various actions they could take. As has been stated by other noble Lords, the EU, other G8 and G20 countries are yet to introduce public registers, although progress is being made. I would call on the Government, using their own example, to do all they can to persuade others to introduce public registers. Surely it is deplorable, as my noble friend Lord McKenzie said, that despite the pressure exerted on the UK’s Crown dependencies and overseas territories at the 2013 G8 summit and since to introduce such public registers, not one has yet done so. Ministers should do all they can personally to persuade the dependencies to introduce public registers so as to shine some light on to what are often pretty murky waters.
In terms of actions specifically relating to this Bill, it provides that the public register will be updated annually. The Government need to monitor the accuracy of the public register closely and to consider what measures they might employ to ensure that it is updated more often. The Bill does not propose a verification regime for the information in the register and assumes a 100% compliance rate. I believe that the Government should work with Companies House to ensure an adequate verification regime for information that will go into the public register. In another place, the Government said that exemptions to publishing information in the register would be given only in exceptional circumstances. It is essential that they should abide by that commitment, and the broad categories under which exemptions may be granted should be published. There should also be adequate sanctions for those who fail to update the registers properly and, pour encourager les autres, the Government should publish a list of the sanctions available.
Finally in relation to this part of the Bill, businesses must keep their own registers up to date. It is important that members of the public can view them as they will be updated more often than the public register could be. For that reason, new Section 790O(4)(d) on page 162 should be removed because it seeks personal information that may well discourage organisations from publishing information that they have obtained about businesses’ registers. I would ask the Minister to give an assurance that that new section will not be used to prevent reports or investigations being undertaken and published.
I would like to make some brief comments on two other aspects of the Bill. Prior to being a Member of another place and the Scottish Parliament, I was a full-time trade union official and, at a different time, a director of a small company. I know what it is like to wait anxiously for debts to be paid as staff salaries become due. Indeed, when I eventually left the company I was owed thousands of pounds because, like the other directors, we had forgone part of our salary simply to ensure that the staff could be paid. That was not because we were unable to find business, but because we were unable to force those businesses to which we had provided our services to pay what was due. My noble friend Lord Sugar drew attention to the fact that one in five insolvencies is the result of a business being unable to secure payment for goods and services that have been provided. That is surely a scandal, and yet the figure is unlikely to improve through the implementation of this Bill.
Clause 3 requires merely that certain companies—I have to say that it is notable that the financial services sector is exempted—must publish information about their payment practices and policies relating to business-to-business contracts. I have to ask the Minister why the Bill does not contain measures that would force late payers to play fair. Perhaps I may make a suggestion, although it is not particularly scientific. Debts of up to £10,000 should be paid within 30 days and debts above that figure within 90 days. If this was enshrined in legislation and the debts were not paid in that time, a 1% increase to the debt could be applied. I suggest that that would make most companies pay within what by any standards are reasonable timeframes. I cannot see what the legal arguments against this suggestion would be, although I am sure that there would indeed be some.
Several speakers have mentioned the fear of small companies not wanting to make a fuss about unpaid debts for fear of losing future business with the larger company. If there were a legal requirement for debts to be paid within a certain period, every business from the smallest to the largest would be in the same position and would suffer no detriment. Without some sanction being applied, I believe that small businesses will continue to go under through non-payment of debt and through no fault of their own. That is not a situation that should be tolerated.
On the other side of the coin, as a trade union official I represented people who wanted security in the form of a regular job with good conditions such as sick pay, maternity pay, holiday pay and pensions. I will concede to the noble Lord, Lord Leigh, that we are no longer in the position of nine to five jobs and 35-hour weeks. I did not know many people who worked a 35-hour week then and I certainly do not know any now, and I accept that. However, that is not to say that the conditions to which I have referred should simply be swept aside. None of the above—sick pay, maternity pay, pensions and so on—is payable to people on zero-hours contracts, and to hear such contracts being defended by so many speakers in this debate, including the Minister, is dispiriting, to put it mildly.
Often we hear Ministers speak, as several noble Lords have done today, about the need to reduce burdens on business. I accept that in many cases that is legitimate. But what thought is given to reducing the burdens on the individuals who work for those businesses—the burden of not knowing when or perhaps even where they will next be working; the burden of receiving no sick pay when they are too ill to present themselves for work; the burden of arranging childcare to enable them to get to work, only to find when they get there that the employer says, “No work today”, and there is no compensation for the costs that they have incurred; the burden of being unable to get a mortgage because they do not have a regular wage or salary; and the burden of being unable to make financial plans with any certainty? Other than removing the exclusivity clause from zero-hours contracts, those with no alternative than to work under them get no solace or support from the Bill.
Please, let us not justify zero-hours contracts by suggesting that the arrangement suits some people. Yes, I am sure it does but it is a small minority of those subject to what is no more than modern-day serfdom. Surely in an advanced, high-tech economy, we can do better than this for our people in the workplace.
Lord Mendelsohn (Lab)
My Lords, I draw attention to my entry in the register of interests, which includes my current involvement in small businesses.
We have had an extensive and interesting debate, which has covered most of the aspects of a quite wide-ranging Bill. Our debate was punctuated by a simply outstanding maiden speech by the noble Baroness, Lady Harding of Winscombe. The noble Baroness, Lady Harding, has an outstanding academic pedigree, has had a great career in consulting and has been a tremendous success in business. It is very strange to welcome her to the House given her comments about her strong association with and connection to this House. I have a confession to make: the noble Baroness, Lady Harding, has been part of my life for quite a few years. It dates back to 19 March 1998, when, watching the Gold Cup—I am occasionally attracted to a flutter—I was convinced to back a rank outsider very heavily. Unfortunately, that horse, which was a 14-1 bet, came second to a 25-1 outsider, which led from start to finish—Cool Dawn. Strong Promise turned out to be anything but. However, “strong promise” is what we saw today and I am sure that the noble Baroness, Lady Harding of Winscombe, will make a great contribution to this House.
It is encouraging that there is such strong support across the House for a Bill that covers small businesses, and for a number of employment and other measures to encourage and foster enterprise. As my noble friend Lord Stevenson made clear at the beginning of the debate, we are broadly supportive of the objectives and measures contained in the Bill. We of course have issues with many of the provisions; indeed, in the course of this debate we have seen that there is a strong desire for the Bill to have been far more ambitious. There are also some provisions that will require some careful scrutiny in Committee to ensure that they not only achieve the objectives intended but are sufficiently clear and appropriate to ensure that they do not create merely temporary fixes which can be evaded.
We are strongly supportive of the overall intentions of the Bill. Small businesses are a great engine of economic activity and wealth creation, as well as providing huge levels of employment and essential goods and services to all parts of our country. They also represent a key area of life that ensures quality of life for many; provides motivation, aspiration and ambition; creates fulfilment and a social context for co-operation between people and in families; and is an important springboard for social mobility. It is therefore true that, despite the many important provisions in the Bill that will tackle many of the problems and ills experienced by small businesses and those involved in them—ranging from late payment issues to zero-hours contracts—our country needs a much stronger small business support strategy.
The definition of micro-businesses is welcome. Enterprises with fewer than 10 employees—and most of these entities have far fewer even than five—are frequently placed at a great disadvantage in the market next to other sorts of companies. They get limited opportunities to receive discounts and benefits available to firms with scale. Indeed, on many occasions micro-businesses are at a disadvantage to individual consumers, who have access to better discounts. We support being able to treat micro-enterprises as consumers in certain circumstances and think that this sort of measure would provide great benefit to those that frequently are paying in relative terms considerably more for services in circumstances where cash flow can be very acute.
In addition, echoing the comments of the noble Lord, Lord Kestenbaum, there are imbalances across the country that are not being adequately addressed by the Bill. With approximately 850,000 private sector small businesses, London has more firms than any other region in the UK. The south-east has the second largest number, with around 800,000. Together, these regions account for almost a third of all small businesses. I hope that we will be able to take a closer look in Committee at how we can open up public sector procurement across the country to help expand the opportunity to start and grow new small businesses in every region of the UK.
On the provisions covering transparency relating to ownership, control and direction, we are strongly supportive of the thrust of the Bill. We are also very keen on the provisions on company filing requirements. These are important measures to fulfil our G8 commitments. While these measures address illicit activities, the size of which was outlined by the noble Lord, Lord McKenzie of Luton, and in a powerful speech by the noble Lord, Lord Watson of Invergowrie, we support the thrust of these measures because we believe that employment, wealth and effective markets will be strengthened if they are built on transparency, information and fairness.
In Committee, we will naturally want to scrutinise and ensure that the balance between any particular requirements for privacy—and there are legitimate concerns—can be covered appropriately. In addition, we will want to ensure that overseas companies and those that were established in, or that have moved to, favourable tax regimes or places with limited disclosure requirements are not provided with unfair advantages. But we hope that the Minister will confirm that all these measures cover the complexities of ensuring maximum disclosure, including, for example, from the finance industry and fund structures.
We are also pleased that these measures assist in strengthening the provisions looking to ensure that director disqualifications have more teeth in order to protect the integrity of the operation of the market and the interests of consumers and to ensure better corporate behaviour. We are all too often made aware of the terrible experiences inflicted on some consumers by rogue traders. Of special concern are those who target the vulnerable. Many will have experienced the terrible circumstances caused to suppliers who suffer loss, and in many instances small businesses are disproportionately negatively affected by such losses. We will be looking to Ministers to ensure that people are not just unable to act as directors but unable to continue to act with little consequence in circumstances where the public have a full opportunity to feel reassured that they have access not only to information but to a regulatory regime that can act to protect them.
In relation to the provisions on insolvency, we heard a strong consensus across the House regarding measures looking at pre-packs. We believe that there is a case for pre-packs but we must ensure that we deal with the abuses and the potential negative consequences of introducing them. The speeches of the noble Lords, Lord Bilimoria, Lord Mitchell, Lord Hodgson of Astley Abbotts and Lord Leigh of Hurley, all identified the balances that have to be struck when we are dealing with this issue. I am sure that the comments of the noble Lord, Lord Bilimoria, about Chapter 11, which were warmly received in parts of this House, will come up in Committee, and I look forward to that.
When addressing some of the provisions on finance, the House seemed to have a clear consensus, which we share, that there are wider concerns about failures in the credit markets and that there are many broad problems of lending that we have to deal with. In relation to access to finance, we share the concerns raised by the noble Lords, Lord Bilimoria and Lord Leigh, and the noble Earl, Lord Lytton. The noble Lord, Lord Kestenbaum, made a very powerful speech which evoked some very strong phrases, which we strongly support, such as “long-term patient capital” and looking at measures to create progressive public policy that can support small businesses rather like some of the things we have seen in other countries, such as Israel and Korea, which have really encouraged small businesses to scale.
We are concerned by late payments and share the concerns raised by the noble Lords, Lord Sugar and Lord Mitchell, and by the noble Baroness, Lady Byford. On zero-hours contracts, we agree with the powerful comments made by the noble Lord, Lord Young.
Many noble Lords have used this opportunity to raise a variety of other issues that are slightly outside the Bill. The noble Lord, Lord Wakeham, made some important observations on the impact of the money laundering regulations. The noble Lord, Lord Mitchell, referred to interns. The noble Lord, Lord Hunt of Chesterton, spoke on a range of issues not contained in the Bill. The noble Baroness, Lady Byford, also raised issues around rural communities and agriculture, where there is a high concentration of small businesses. The noble Earl, Lord Lytton, raised the possibility of introducing different forms of dispute resolution to assist SMEs.
The noble Earl, Lord Lindsay, addressed provisions that are in the Bill on regulation and expressed strong support for the appointment of small business champions in non-economic regulators—something which we, too, support and look forward to scrutinising in Committee.
It is useful to outline our approach to the measures set out in Part 4 of the Bill relating to the Pubs Code and the Government’s announcement today. We remain concerned by the unintended consequences mentioned by the Minister in her opening remarks and are concerned that this is a partial view of the state of the current market and of the impact of the changes on it. We would encourage a broader view to be taken of the consequences to take account of what is happening. The noble Lord, Lord Stoneham of Droxford, gave an astute analysis of the market and argued powerfully that the fears being expressed to us are designed to prop up strategic errors that ultimately and disproportionately disadvantage publicans.
The noble Lords, Lord Cope of Berkeley, Lord Bilimoria and Lord Snape, spoke of the consensus on continuing to push with great force for the market rent only option in Committee. It is our view that the industry is in a process of change and that tenants need more flexibility to operate in the changed environment. We are very pleased by the Minister’s confirmation that the Government will now adopt the will of the other place and develop an effective market rent only option. We will work constructively with the Government on this measure in Committee. We accept that there is work to do to make Part 4 consistent and coherent, and we will be happy to co-operate to ensure that the Government shape a Bill consistent with their new undertaking. In addition, our deliberations will be an opportunity for us all to look collaboratively at how we can add a strong dynamic to the pub sector. There will now be an opportunity for us to look at additional measures to boost the position of publicans.
This Bill could have benefited from pre-legislative scrutiny. However, the debate today has demonstrated how strong the support is for its core principles and how productive the Committee stage is likely to be. That is, of course, after we all do our bit when we face our first challenge—how we perform on Saturday, which is Small Business Saturday.
Baroness Neville-Rolfe
My Lords, I thank all speakers for their contributions, which have helped highlight and distil some of the main issues that we look forward to discussing further as the Bill moves through the parliamentary process. I am grateful to the noble Lord, Lord Mendelsohn, for so elegantly summarising the views of noble Lords, which I shall try not to repeat too closely.
Perhaps I may start by joining all noble Lords in congratulating my noble friend Lady Harding on her maiden speech. I was looking forward to it, and it was certainly a tour de force. We used to work together, and I always told her that she would end up in politics. She brings an extraordinary mix of experience, judgment, intelligence and charm to our House and her presence will lead to some great racing jokes. The noble Lord, Lord Young of Norwood Green, was the first to give us a great joke, so I thank him for that. I welcome the support expressed by my noble friend for the measures on zero-hours contracts. Her point was very well made that these can be helpful, especially in dealing with peak business in the run-up to Christmas.
Noble Lords have emphasised the critical role of small businesses in the UK economy, which the Government fully endorse. The purpose of this legislation is to adopt specific measures that recognise that reality. There are different views as to how best to take this forward, but that should not obscure the fact that there is great common ground across the House, not least on the importance of tackling late payment. Small businesses are the bedrock of our economy, so it is essential that they are supported and promoted to give them every chance of success. I am glad that the noble Lord, Lord Mendelsohn, mentioned Small Business Saturday, which takes place this very Saturday. This yearly event has been established to support, inspire and promote small businesses and encourage consumers to shop locally, which I hope we will all do.
In that regard, I was glad to hear my noble friend Lady Byford comment on the benefits of the Bill in rural areas. As she knows, I was brought up on a farm and so have business in my blood, even though, like many small businesses, it faltered and my father had to sell up—a useful experience in the context of this Bill. That was probably at about the time that my noble friend Lord Wakeham was starting out on his more successful career in small business. I was also glad to hear my noble friend Lady Byford asking about broadband coverage, a matter on which I, too, used to campaign. Progress has been made. I shall not delay the House this evening, but I will update her and anyone else who is interested by letter on the latest position on broadband.
I reassure noble Lords that the Bill will open up new opportunities for small businesses to innovate, compete and secure the necessary finance to create jobs and to grow. It builds on previous initiatives that we have implemented to support small business. More of them are getting access to the finance that they need; they are paying the lowest corporation tax in the G20; and have better access to support and advice. Evidence that these initiatives are working can be seen in figures from the Global Entrepreneurship Monitor, stating that in 2013 7.3% of adults were involved in starting or running a business in the UK. That compared to only 6.3% in Korea and 5.3% in Finland, which the noble Lord, Lord Kestenbaum, cited as best practice. We should be proud of our track record in this country. When I travel overseas, people are fascinated by the success that we have had over the years in creating small businesses and, latterly, of cutting unemployment. This Bill will further enhance what we have done and provide more support to small businesses. To suggest that it is timid is to do it a disservice. It will ensure that the UK continues to be recognised globally as a trusted place to start and grow and do business.
We have heard from a number of noble Lords on pubs and I was glad to hear of the widespread support for the goal of ensuring that tied tenants are treated fairly and are no worse off than free-of-tie tenants. My noble friend Lord Stoneham spoke in favour of the market rent only option, while the noble Lord, Lord Bilimoria, and my noble friend Lord Cope of Berkeley supported the Government’s decision to accept the strong will of the other place to include this option in the Bill. I also noted the arguments advanced by the noble Lord, Lord Hodgson of Astley Abbotts, and look forward to debating with him in Committee. I agree with him on one point: that to save our pubs, we should all use them and not stay at home watching the TV—in fact, we could start tonight.
The noble Lord, Lord Snape, gave us some real examples of the difficulties that tenants can face, and I was very sorry to hear of the problems which his daughter and son-in-law seem to have experienced. These are exactly the sorts of issues that we are committed to address in these measures to ensure that tenants are treated fairly.
I reassure my noble friend Lord Wakeham that we will be looking at the market rent only option in detail to ensure that it is workable and that we minimise any potential unintended consequences. I also assure the noble Lord, Lord Snape, that officials and Ministers have been meeting and will continue to meet tenants’ organisations, pub-owning companies and their representatives to discuss those issues.
The noble Lord, Lord Young of Norwood Green, brought us down to earth. I agree with him on the importance of British real ale, and I am glad that we are doing better than the Belgians. I am grateful to the noble Lords, Lord Stevenson and Lord Mendelsohn, for their commitment to work with us to ensure that the measures deliver and that the thousands of tied tenants across England and Wales are treated fairly.
Turning to finance, I welcome the support of my noble friends Lord Wakeham and Lord Cope for the access-to-finance measures. I assure the noble Lord, Lord Kestenbaum, that the Government are very ambitious in that regard. I look forward to his scrutiny on this point in Committee.
It was good to hear from the noble Lord, Lord Sugar, and I pay tribute to his work to raise public awareness of entrepreneurship. I hear that he wants the Government to go further, but at least he did not tell me that “I am fired”—so far. The noble Lords, Lord Sugar, Lord Watson of Invergowrie, and others, talked about late payment, to which we will certainly come back. I fully agree that we need to do more on late payment; that is why we have made it a central feature of the Bill.
Our legislative proposals will help a lot, but of course legislation is not the only answer. Existing remedies are not being used, largely because smaller suppliers do not want to risk relationships with bigger companies, as the noble Lord said so eloquently. We therefore need to effect a culture change by making it unacceptable to pay late. I look forward to discussing how to do that—probably mainly outside the legislative process.
The noble Lord, Lord Bilimoria, talked about the burden of the failure of prompt payment on medium-sized businesses. We are currently consulting on which companies should be subject to the prompt payment reporting requirements. I have heard concerns that its scope covers too many medium-sized companies, and we will consider his comments during the consultation.
The noble Lord, Lord Mitchell, was, I think, a little unfair about what we have done to help small businesses. Take Funding for Lending, for example. Funding for Lending has played a part in improving the willingness of large banks to lend, but we need to increase the sources of funding available to SMEs. Therefore, we welcome the rapid growth of challenger banks for business lending, such as Aldermore and Handelsbanken, and the growth of peer-to-peer lending and crowdfunding, which we have brought into the regulatory framework for the first time. By providing the data that those lenders need, the Bill will help to transform the lending landscape.
The noble Earl, Lord Lytton, asked about electronic cheque imaging. I am glad to say that the industry will be able to put in place a number of measures to mitigate any fraud and security risks. In a number of respects, cheque imaging provides an opportunity to address security risks that currently affect cheque users. The industry will be adopting proven technology that has been in operation in the USA for 10 years. The US banking industry has told us that it has no significant concern about fraud risk associated with cheque imaging. I hope that that will reassure the noble Earl.
My noble friend Lord Leigh gave a comprehensive contribution. I am very grateful for his support on the Bill. I echo his point about comparisons with Europe: when compared to France, our employment rate is more than 6% higher. On his concern about finance platforms, in which I think that the noble Lord, Lord Stevenson, was also interested, I am pleased to be able to reassure him. The platforms designated by the Government will be required to give fair access to financiers that request it. That requirement will be enforced by the Financial Conduct Authority. When designating a platform, the Government will certainly consider and take into account the ability of that platform to open up opportunities across financing markets for small and medium-sized businesses.
Turning to regulatory reform, I welcome the support of the noble Lord, Lord Curry of Kirkharle, for the measures in Part 2. I know that his comments draw on very long experience of better regulation. I completely agree that the measures in Part 2 will make life easier for millions of businesses, many of them small businesses. The measures build on the UK’s continued success in delivering regulatory reform and will help to embed our leadership internationally. I also thank the noble Earl, Lord Lindsay, for supporting the regulatory reform measures and for the work he has done.
I also listened with great interest to my noble friend Lord Eccles, because of his long experience. I know that there are a significant number of delegated powers in the Bill, but we are trying hard to issue consultations on the SIs concerned in parallel to our discussions. The key such consultation on prompt payment was issued last week.
I can assure my noble friend Lady Byford that the Government consider the timetable for delivering the target in Clause 15 of streamlining company registration to be achievable. We recognise that it will be a complex IT project, and the timetable allows for thorough engagement with businesses to ensure that they are an integral part of the solution. That is very important.
On public procurement, the noble Lord, Lord Hunt of Chesterton, talked about paying suppliers promptly in the private sector. We agree that it is important for all suppliers to be paid promptly, and that the public sector should lead by example. That is why the Bill supports a simple and consistent approach, and we will be requiring contracting authorities to mandate prompt payment terms of 30 days across the entire public sector supply chain early in the new year.
The right reverend Prelate the Bishop of Peterborough moved me a lot by what he said about local entrepreneurship—a word that the noble Lord, Lord Bilimoria, rightly asked us to use more—and about micro-businesses helping the young unemployed and people from very distressed backgrounds. I so much agree with him about the value of local support for small businesses. I loved his examples. More importantly, he supported our trailblazing measures on a register of persons of significant control. We recognise the clear advantages of collective global action. That is why we continue to lobby other jurisdictions, notably in the context of the G7, the G20, the EU and through the Financial Action Task Force to take equally ambitious action on transparency of company beneficial ownership—a concern also expressed by the noble Lord, Lord McKenzie. We are also working with the Crown dependencies and overseas territories in this space.
The noble Lord, Lord McKenzie, also asked about anti-money-laundering. The UK is lobbying hard to encourage EU member states to take equally ambitious steps in the sphere of company transparency. It is encouraging that the European Parliament voted in favour of public central registers and that negotiations are ongoing. We hope that that work will conclude soon.
This part of the Bill was also a concern of my noble friend Lord Flight—albeit from a different perspective. He questioned whether the registers should be made public. The UK’s G7 action plan committed to consult on the question of whether the register should be publicly accessible. When we consulted in July 2013, there was strong support for our proposals. That was evident during the public sessions on the Bill in the other place. The FSB, for example, said:
“Trust and transparency are absolutely critical. That is why we fully support other bits of the Bill that deal with some of these areas”—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 14/10/14; col. 19]
Allowing public access is consistent with the UK’s commitments to openness and transparency, and builds on the established practice of making information on UK companies and shareholders available on the public record. The public register will enhance corporate transparency, promoting good corporate behaviour and building trust in UK companies. It will also help to ensure accuracy.
Furthermore, making this information public could assist international co-operation on law enforcement, reducing the time and cost associated with mutual legal assistance requests. I am sure that we will discuss the detail further in Committee, and I encourage my noble friend to read our consultation document on the implementing rules. This is a key plank of the Bill and I am grateful, too, to all noble Lords who supported these transparency provisions.
I assure the noble Lord, Lord Watson, that the Government do not intend to use Section 790O(4) to prevent legitimate access to company registers.
The noble Earl, Lord Lytton, asked about mutuals and co-operatives. As he knows, our reforms apply only to companies and to limited liability partnerships through secondary legislation. However, EU proposals in the fourth money-laundering directive may have a wider application and require mutuals and co-operatives to obtain and hold more information in this area.
The noble Lord, Lord Stevenson, asked what we are doing on takeovers. Following the AstraZeneca-Pfizer discussions, the Government said that they might need legislation to ensure that companies always honour big commitments. The Takeover Panel has now consulted on amendments to the takeover code that would significantly strengthen its ability to ensure that such commitments are honoured. We have therefore accepted its assurance that no further legislative change is needed in the Bill.
The noble Lord, Lord Bilimoria, started the discussion on Chapter 11. We shall talk about this in Committee, as there was quite a lot of interest expressed on it today, but it might be worth mentioning in advance of Committee that World Bank data indicate that the UK regime pays more to creditors, quicker and at lower cost, than the US, France and Germany. Chapter 11 is often criticised for its high cost; hence it is potentially sometimes less successful for small business.
On insolvency, the noble Lord, Lord Mitchell, expressed concern about pre-packs, although my noble friend Lord Hodgson took a different view. The independent Graham review found that pre-packs fulfil a positive and unique role in the insolvency landscape but identified a number of issues with current practice in how pre-packs are carried out. The review recommended a voluntary package of six reforms, which are being taken forward by the profession and the industry. They are making good practice on the recommendations and we hope to see these in place early in 2015. On the point made by my noble friend Lord Leigh about the future viability of pre-pack businesses, I am sure he would agree that swamping business with increased regulation would be counterproductive. I was glad that he agrees that a reserve power is the right approach.
Finally, I come to the employment measures. There are several new measures, which I will not run through except to emphasise the increased penalties for breach of the national minimum wage legislation and the fact that exclusivity clauses in zero-hour contracts will become invalid and unenforceable, so that no one is tied into a contract without any guarantee of paid work. The noble Lord, Lord Stevenson, asked about the possibility of compensation. Late-notice cancellations are clearly an issue for some individuals. However, a single solution would not be appropriate and could prove very costly to business. It could also lead to employers offering work only at short notice to reduce the risk of cancelling, which could be a step backwards for the individuals. We feel that the issue should be addressed in sector-specific codes of practice on the responsible use of zero-hour contracts.
A number of noble Lords raised the issue of enforcement. The noble Lord, Lord Sugar, seemed to welcome the tougher penalties on the minimum wage but felt that the scale of investigation and enforcement was an issue. HMRC has actually increased the numbers in its team of inspectors who are responsible for investigations on the minimum wage. However, enforcement is an incredibly important area and I am sure that we shall discuss it in Committee.
On interns, which were raised by the noble Lord, Lord Mitchell, we have to achieve the right balance. Under current law, it is legitimate for employers to provide paid internships where an individual is not a worker for the purposes of minimum wage legislation. If the individual is acting as a worker, they must be paid the national minimum wage. This depends not on the job title but on the working arrangements. However, given the dependency on employment status, the Secretary of State has launched an internal review of employment status in this area. We will be getting a report early in the new year.
Small businesses in the UK can feel hampered by barriers that restrict their ability to innovate, grow and compete. The Bill will address these challenges and pave the way for the Government to be more supportive of, and less burdensome to, small businesses in the UK. I again thank noble Lords and noble Baronesses for their contributions today and I ask the House to give the Bill a Second Reading.