Small Business, Enterprise and Employment Bill
(9 years, 1 month ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Madam Deputy Speaker (Mrs Eleanor Laing)
I must draw the House’s attention to the fact that financial privilege is involved in Lords amendments 85, 123 and 133. If the House agrees to any of these amendments, Mr Speaker will cause an appropriate entry to be made in the Journal.
Clause 41
The Pubs Code
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)
I beg to move, That this House agrees with Lords amendment 34.
Madam Deputy Speaker
With this it will be convenient to discuss Lords amendments 35 to 62, 86, 132 and 136 to 141.
Jo Swinson
Part 4 of the Bill will introduce a statutory code and an independent adjudicator to regulate the relationship between large pub companies and their tied tenants. It will address problems about which many hon. Members and the Select Committee on Business, Innovation and Skills have been concerned for a number of years.
The House will remember that, on Report in this House in November, a market rent only option for tied pub tenants was added by way of a vote. In the other place, my noble Friend Baroness Neville-Rolfe confirmed the Government’s acceptance of the will of this House, so we have before us a Bill that honours that commitment and remains true to the spirit and intention of the amendment introduced by this House on Report. For example, MRO must be provided for by the code, it must set out reasonable time scales for the process, and it must include certain MRO triggers. Government amendments 39, 40 and 41 amend the original clause 42, which was introduced by my hon. Friend the Member for Leeds North West (Greg Mulholland). I take this opportunity to pay tribute to his dedication to this cause, his relentless campaigning for the rights of tied tenants, and his willingness to move forward. The way he has worked and championed the measure with MPs from both sides of the House, with the all-party group and with campaigners up and down the country is a real testament to what can be achieved by someone with vision and determination.
The amendments ensure that MRO is workable within the approach taken in part 4, is legally robust, and avoids unintended consequences. They are split into three clauses for clarity, one setting out a clear framework for the MRO option, one making provision for the procedures needed to deliver it, and one providing for the adjudicator to resolve disputes.
Amendment 39 provides tied tenants with the right to a market rent only agreement at a number of trigger points: at a rent review, at lease renewal, when there is a significant and unexpected price increase, or if an event occurs that is outside the tenant’s control and has a significant impact on the tenant’s trade. Although prospective tenants will not have the right to the market rent only option, they will have the protection of the parallel rent assessment, so that they can judge if the tied deal they are being offered is fair. PRA will also be available to existing tenants and, through secondary legislation, will be streamlined with the MRO process.
Amendment 40 sets out the procedure for the market rent only option and provides that the pubs code must specify a reasonable period for the two stages of the process. The first stage is where a tenant and their pub company try to agree a rent, and the second involves the determination of a market rent by an independent assessor. Amendment 41 provides the powers to enable the adjudicator to resolve disputes over matters such as the proposed MRO agreement, the independent assessor’s determination of the market rent, and whether the MRO procedures have been followed.
The original MRO clause included triggers for MRO upon the sale of a pub or the administration of a pub-owning company. In discussions with stakeholders, it became clear that it was not the fact of sale or administration itself that was a concern; rather, it was the potential for a pub sale, whether as part of an administration or in the normal course of business, to result in adverse consequences for the tenant. After extensive consultation and discussion with stakeholders and debate in the other place, amendment 47 extends the protections of the code—apart from the market rent only option—to tenants whose pub is sold by a code company to a company outside the statutory code.
To deter avoidance and ensure fairness we are also continuing code protections—excluding the market rent only option—until the next rent review for the tied tenants of pubs owned by a code company which, by selling a number of their other pubs, falls below the threshold of 500 tied pubs. Those tenants too would have continuing rights and expectations regarding their existing lease and the protections they should have under the statutory code, and they should not lose their protections because of events beyond their control.
We believe that this is a proportionate and targeted protection. It will last until the next rent assessment or the end of the tenancy, whichever comes first. MRO will not be extended, and nor will the investigation powers of the adjudicator. Investigation powers are not continued because they are designed to uncover systemic breaches of the code. It would not be right to include in that power companies that are obliged to follow the code only because some of the pubs they own used to belong to a code company, and that are covered by the code only in respect of those pubs. However, the arbitration powers of the adjudicator do remain, so those tenants will be able to refer any allegations of a code breach during the extension period to the adjudicator.
Mr Jim Cunningham (Coventry South) (Lab)
What would the penalty be for any breaches?
Jo Swinson
The adjudicator will be able to make recommendations so that problems can be put right, and ultimately it will have the power to levy fines. The specific details will be set out in secondary legislation, but we have a model in the Groceries Code Adjudicator. That adjudicator is already working, and we are learning from it how such a system can work smoothly in terms of staffing, for example.
Amendments 43, 44, 45, 55, 132 and 139 are consequential technical amendments to the MRO amendments. They relate to the enforcement of the code, the adjudicator’s annual report, the list of defined terms in clause 69 and to commencement.
The original market rent only clause allowed brewers that own tied pubs to require their MRO tenants to continue to sell the brewery’s products, as long as the tenant may buy them from any source. Amendment 46 implements that intention by amending clause 65 so that such a stocking requirement in a tenancy agreement would not of itself make the pub a tied pub. In stakeholder discussions, brewers requested greater clarity on what they were permitted to do under a stocking requirement; others were concerned that the stocking requirement might lead to undue restrictions on tenants who have chosen MRO.
Amendment 46 clarifies that brewers may also protect their route to market by allowing some restrictions on the sales of competitors’ products in their MRO pubs. However they will not be able to require that these pubs sell only their products and they will need to satisfy themselves that the requirements they are imposing are compliant with competition law. The restrictions may be placed only on beer and cider products and, crucially, tenants must be able to buy the brewer’s products from any source.
Toby Perkins (Chesterfield) (Lab)
In the event of marketing arrangements which meant that the only place that beers could be purchased was direct from the brewer, do the provisions take account of the fact that the tenant’s right to do so might be difficult to put into practice?
Jo Swinson
The adjudicator could look into whether practices were all fair and whether the code had been properly complied with. Depending on the circumstances, competition law may also be relevant. The companies would have to assure themselves that any restrictions that they were placing were compliant with competition law. Through the new code and the adjudicator we will make sure that there is somebody who can look into the circumstances and arbitrate on whether what is being offered is fair and compliant with the statutory code.
For completeness, I shall touch on three other important areas of debate both here and in the other place where the Government have made important commitments to use existing powers in the Bill. On Report in this House, I committed to consider calls to exempt genuinely short-term agreements from the pubs code. My noble Friend Baroness Neville-Rolfe confirmed that the Government would use the power in clause 68 to exclude from the code tied pubs that are operated on short-term tenancy at will and temporary agreements that do not extend beyond a certain limited period. We intend to consult on the length of the period for exemption.
Hon. Members will remember that pub franchise agreements are in scope of our measures. They are, after all, tied pub agreements and share many of the characteristics of traditional tied pubs. Nevertheless, consistent calls have been made in both Houses to exempt certain franchise agreements from the code, or at least from MRO, if they do not charge rent and the price of products does not affect the tenant’s share of income. After much consideration, my noble Friend the Minister announced in the other place that the Government will use the power in clause 68 to exempt genuine franchises from the MRO provisions. The remaining code protections—for example, in respect of transparency—will still apply.
Given the differences between traditional tied pubs and genuine franchise agreements, we consider this a reasonable exemption. We will consult on the precise definition of “genuine franchise”, but we expect it to include criteria such as where a turnover fee rather than a rent is paid by the tenant and the share of the profit is unaffected by the price paid for tied products. This is important as these criteria can mean that the tenant’s interests are arguably more aligned with those of the pub company because both rely on a fixed proportion of turnover. The tenant in such circumstances does not face the combination of the wet and dry rent, as tenants do in traditional agreements.
There are other agreements in the industry which may be marketed as a pub franchise that display elements common to franchises in other sectors, such as common branding. But if they charge tenants a tied rent in the traditional way, they are not inherently fairer than a tied pub agreement. The consultation will allow us to set out the criteria for a genuine franchise.
In addition, I should clarify that where a franchise pub falls within the definition of a tied pub in clause 65, it will count towards the number of tied pubs that a company owns for the purposes of the 500 tied pub threshold. This will ensure that we do not create a loophole in the legislation. Furthermore, the Government would be able to amend the regulations should there be attempts to use this exemption as a means of avoiding the legislation.
Next, I come to the matter of investment. Hon. Members will recall that Government committed to avoiding unintended consequences in introducing this legislation. In the other place, and in discussions with stakeholders, concerns were raised as to whether investment in tied pubs could be discouraged because of uncertainty as to whether a tied tenant might trigger MRO. Views vary as to the extent of this risk to investment, but the Government consider that we should act to minimise any risk. We want to ensure that investment in pubs can take place and that pubs thrive. I am sure that sentiment is shared across the House.
The Bill as drafted does not prevent pub companies from issuing a tenant with a new lease alongside an offer of investment, and no amendment to the Bill is necessary to enable companies to do so. This would, in effect, provide a waiver from the rent review and renewal MRO triggers for five years. However, the Government recognise that significant investments may warrant a longer period of return on investment. My noble Friend the Minister therefore announced in the other place that the Government will use existing powers in clause 41 to set out in the code different rent assessment periods for different amounts of substantial capital investment offered. This will have the effect of deferring the rent assessment trigger for MRO for a longer period. It is important to note, though, that the other MRO triggers—that of a significant price increase and an economic event that impacts on a tenant’s trade—will remain throughout the deferral period.
Alongside setting out the deferral periods for different levels of investment, the secondary legislation will set out important safeguards for tenants—for example, to ensure that they accept an investment offer only after taking proper advice and that they cannot be pressurised. This is an area where both sides of the debate recognise that the need to enable investment and the need to protect tenants must go hand in hand. It is important that we can consult fully on the details so that we get it right.
These commitments regarding exemptions for certain tenancy at will, temporary and franchise agreements, and for a deferral of MRO in return for substantial investment, are not on the face of the Bill. They will be set out in secondary legislation after full public consultation.
I shall touch briefly on a number of technical amendments in this group before turning to the second issue in the group. Amendments 34 to 37 are technical clarifications to the “no worse off” and “fair and lawful dealing” principles. The key change is to make it clear that tied pub tenants should not be worse off than they would be if they were not subject to any product or service tie. Amendments 35, 36, 38, 42 and 48 to 54 are consequential on the changes made to clause 66 in this House to exclude family brewers from the provisions. This change means the legislation will apply only to a pub-owning business with 500 or more tied pubs. There are further minor technical amendments, on which I refer honourable Members to the explanatory notes for a fuller explanation.
Finally, amendments 136, 137, 138, 140 and 141 relate to adjudicator staffing and the point that I made earlier in response to the hon. Gentleman. They amend schedule 1 to enable the adjudicator to second staff from any source, in addition to the existing power in the Bill for the adjudicator to second from the public sector. The aim is to provide the necessary flexibility for the adjudicator to find suitable staff from a wider pool.
I am sure the House will agree that throughout our debates in both Houses all the pubs measures have been thoroughly scrutinised. Incorporating the market rent only option into the Bill in the limited time available to us and ensuring that it will work in practice has not been easy, but I believe that we have produced legislation that promises to be effective as well as targeted and proportionate. Crucially, these measures mark an historic moment for tied tenants of pub-owning companies. They will have the protections of a statutory code with a powerful and independent adjudicator to enforce that code. That the measures have the support of my hon. Friend the Member for Leeds North West, CAMRA, Fair Pint and others is testament to that, so I hope the House will agree to the amendments.
Sir Greg Knight (East Yorkshire) (Con)
I understand that the provisions on staff secondment require the Secretary of State’s approval. Can my hon. Friend give the House an example of the circumstances in which a Secretary of State might refuse such approval?
Jo Swinson
Clearly, the intention is to make sure that the adjudicator is able to recruit staff with the requisite expertise and experience, not only from the public sector pool. That is an important change and we have learned from the legislation that we have in place for the Groceries Code Adjudicator. Understandable concerns were raised in Committee about whether staff would come with vested interests. It is important that protections are in place to ensure that everybody can have confidence in the staff who are seconded, and to ensure that up-to-date experience of industry does not entail a conflict of interest.
On amendment 86 and the important matter of pay transparency, I am delighted to reiterate the Government’s support for this amendment to the employment part of the Bill that was introduced in the other place. We have already legislated in this Parliament to ensure that companies which directly discriminate against women in pay matters can be required by a tribunal to complete a gender pay audit, as well as to pay compensation. The new provision requires the next Government to make regulations under section 78 of the Equality Act 2010 within 12 months of the Bill receiving Royal Assent. Section 78 requires mandatory reporting of gender pay information by larger companies.
It is 45 years since the Equal Pay Act, and although the gender pay gap is at its lowest ever level and has been virtually eliminated for full-time workers under the age of 40, it is simply not acceptable that in 2015 we still have a gender pay gap at all. We are determined to eliminate it entirely.
Toby Perkins
I endorse what the Minister says about the need to deal with this matter urgently. Given that urgency, will she explain why the provision she is now bringing forward under the Equality Act 2010 has been sitting on the statute book for five years? Why is it that only at the fag end of this Parliament are we seeing some action, which the Opposition have been calling for throughout those years?
Jo Swinson
The hon. Gentleman says that the Opposition have been calling for this throughout this Parliament, but unfortunately that was not the case when they were in government. I refer him to the Hansard report of proceedings on the Equality Bill on 24 June 2009, when the then Labour Minister said that
“having mandatory arrangements in force by 2011 would run the risk of riding roughshod over the legitimate voice of both sides of the business community. Progress can better be made by bringing employers with us—by including, encouraging and cajoling, rather than compelling.”
My right hon. Friend the Member for Hornsey and Wood Green (Lynne Featherstone) responded:
“We cannot wait another four years…It is clear that we must take action now”.––[Official Report, Equality Bill Public Bill Committee, 23 June 2009; c. 410-432.]
We have got agreement in the Government to take that forward, but I have to say that the context of the commitments made from this Dispatch Box by the previous Labour Government during the passage of the Equality Act—they committed to a voluntary approach before implementing the legislation—certainly did not make that easier. None the less, I am delighted that we are now where we are.
Toby Perkins
It is a great pleasure to speak on the amendments proposed by the noble Lords.
On 16 July, we debated the Second Reading of this Bill. It was interesting, in preparing for this debate, to re-read the contributions that were made then and those that have been made by Labour Members in both Houses during its subsequent stages. Though modesty would usually prevent me from quoting extensively from the contribution that I made, it would be strange not to reflect on how widely our critique of the Bill has been adopted by the Government. We said that it had the potential to make a real difference to small businesses but that the steps that it originally proposed were a collection of faint nods in the right direction of key issues that had emerged under this Government. We said that far more robust action would be needed if this Bill was to deliver on the steps small businesses required and to take action on things like abuses of the labour market and their impact on workers in every constituency in the land. On the subject of pubs, we said that a successful small business Bill—a Labour small business Bill—would have introduced a code with a market rent only option, which the Bill now indeed contains. It would be churlish not to recognise that the Government have ultimately acted in good faith on pub company legislation.
I should place it on the record that this is the last piece of legislation that the Minister will be bringing through in this Parliament. As we fast approach the general election, who knows when will be the next time a Liberal Democrat Minister will have the opportunity to bring through a piece of legislation? She has done a good job in reflecting the wishes of the House and has acted in good faith on pub company regulation.
Their lordships’ amendments broadly achieve the objective of striking the devilishly difficult balance between proper protection for pub tenants while not imposing an overly rigid straitjacket on the industry with the potential to discourage future investment. They are positive steps forward that have faithfully built on the spirit of the historic clause 42 proposed by the hon. Member for Leeds North West (Greg Mulholland). We recognise that some aspects of the proposals will sensibly need to be included in the pubs code through secondary legislation.
There remains the thorny issue of the right of the tenant to offer a substantial investment in their public house in exchange for giving up the right to use the next rent review period as a trigger to request an MRO assessment. The letter dated 16 March from the Minister, Baroness Neville-Rolfe, to the noble Lords Mendelsohn and Stevenson details the Government’s intentions with regard to new clause 43 and specifies that it must not be used to abuse the waiver. However, this will still leave those who fought this cause for many years with considerable unease that this creates the potential for too broad an exemption for too small an investment.
We entirely agree with the Government that encouraging future investment in the stock of public houses is a crucial element in the future success of the industry, but, over four months since the original victory for clause 42, that still leaves a huge unanswered question about the scale of investment that constitutes “substantial”. I think that my party’s record on this issue means that campaigners will have confidence that the statutory code that addresses it under a future Labour Government will be consistent with the approach—
Andrew Griffiths (Burton) (Con)
The hon. Gentleman mentioned his party’s position on investment. What scale of investment does he believe would constitute “substantial”?
Toby Perkins
That is an excellent question. The whole reason this issue is being placed in secondary legislation is that we recognise that there is a very difficult balance to strike. The formula needs to be dependent on the relationship of the investment to the value of the pub. For some pubs, a £30,000 investment might be substantial. For a town centre or city centre pub, a £200,000 investment might not be so substantial. There needs to be some sort of relationship between the rateable value of a pub, the amount that it turns over, and the amount of investment.
The hon. Gentleman is echoing my point, which is that this has been left very open. A great deal of work would need to be done. I assure the House that under a future Labour Government the principles laid out by Baroness Neville-Rolfe are exactly how we would see this. I anticipate that the same would be true of a Liberal Democrat-influenced Administration, although it would be good to hear the Minister clarify that. It would also be good to hear from the Conservative party whether its manifesto will follow the Bill’s principles, or whether it will take a different approach. The industry and campaigners have the right to expect that.
The Minister for Business and Enterprise (Matthew Hancock)
For the record, the Conservative party’s position on this issue is exactly the same as that of the Government.
Toby Perkins
Excellent. I am glad that that has been placed on the record. That will give people considerable confidence in the Bill, and many campaigners will be grateful to hear what the Minister has just said. In the unlikely event of a Conservative victory, we will hold him to it.
Toby Perkins
We understand that Lynton Crosby has been telling the Conservatives to get ready for the past four or five months, but they never seem to reach the point he promises. We will no doubt debate that over the next six weeks.
The Government’s Lords amendment 39 replaces clause 42. We were proud to support the new clause tabled by the hon. Member for Leeds North West. We did not think that Report stage was the time to get into a detailed discussion of all the nuances of each individual line, and we know that a tremendous amount of work went into drafting a clause that would offer all the necessary protections. We felt, however, that ultimately it was too prescriptive and could have unintended consequences, and we are pleased to have worked with the Government on the drafting of the new provision.
Lords amendment 39 retains the triggers of renewal of tenancy, rent assessments and significant and unexpected price increases or other events beyond the tenant’s control that have a significant impact on their level of trade. The amendment omits the transfer of title and administration triggers that were in the original clause.
On balance, we support that omission, albeit not without reservation. We believe that the impact on the natural order of a competitive market that would have resulted from pub tenants having the right to opt out at the point of transfer of title would have caused a real disincentive to invest. Ironically, it would have meant that when a pub was sold from a major pub chain to a microbrewer, fledgling pub operator or family brewer, the MRO could have been triggered, acting as a disincentive to the sort of business transaction we want to support and encourage as part of the diversification of the pub market.
That means that campaigners and the next Government will need to be vigilant to prevent any attempts to use the amendment to game the legislation and exempt from the rights companies with any association with companies that we would expect the legislation to cover. The Minister in the other place has made specific the Government’s intentions and we have heard that there is consistency across the coalition.
On the subject of tenants of pub-owning companies that go into administration, we fear that, at a time when the whole future of a large number of pubs would be very uncertain, the original provision would have made the task of the administrator a great deal more difficult. When they would be attempting to bring order to a complicated situation, some of the stock they were trying to sell off to new providers would disappear and move into the free trade sector. We concluded that that would make it much more difficult for pubs to survive in the event of a major pub-owning company failure. For those reasons, we support those omissions from Lords amendment 39.
On Lords amendments 47 to 53, we are pleased that the Government have not sought to reintroduce to the code pub-owning companies with fewer than 500 pubs. The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson) and I have enjoyed many a to and fro on the subject during the Bill’s various stages, but I remain of the view that, in voting the way we did, some egregious practices may not be covered by the protections. However, without that concession, we would have been less likely to win the support of the House for the MRO option. In the final analysis, that prize was worth the sacrifice. As a gesture of good will to the industry and as a matter of honour, this House should stick to what we have given it to believe we were legislating on, namely a code containing provisions for businesses owning more than 500 pubs. We are therefore pleased to support the Government’s commitment.
The Government have probably got the balance right in Lords amendment 47, which accepts our suggestion of extending code protections—apart from the MRO option—to tenants whose pubs are sold from a pub-owning company covered by the Bill’s provisions to a company outside the Bill’s scope.
Lords amendment 46 also performs a delicate balancing act by retaining the protection for pub-owning brewers to offer free of tie while also retaining their right to insist that their product is marketed. The question I asked the Minister is important, because some pub-owning brewers might think that retaining their stock and the right to market it is more important than their wholesale business. In that eventuality, if a brewer stops selling through their wholesale business, which they are perfectly entitled to do, a tenant who is in principle free of tie will still be forced, under the provision, to buy from that brewer as the only option available. We will need to look at that again.
Andrew Griffiths
I draw the House’s attention to my chairmanship of the all-party group on beer, and to my entry in the Register of Members’ Financial Interests.
This has been a contentious and on some occasions ill-tempered debate. That is a great shame, because ultimately we all want the same thing—to achieve a thriving industry. We want British pubs to succeed, to reduce the number of pub closures that have gone on over decades in this country and to stop such closures taking place. We need legislation that will allow the industry to do that.
The Government have obviously listened to the will of the House. I put forward a particular view—I had concerns about the unintended consequence of the Bill—but the House took a different view. The Government have listened to that view, and they have been honourable in how they have proposed changes to the legislation. Nobody who voted on Second Reading can have any concerns about the Government not having done the honourable thing in listening to the will of the House, so I commend them.
We are all looking for the outcome that more pubs thrive, survive and are successful, but I just draw the attention of hon. Members to my concerns about unintended consequences. We have heard the phrase “the beer orders” on many occasions, and we have looked at what Lord Young and the then Government did in relation to legislation on brewers and pubs. The unintended consequence of that legislation was to put the industry in a worse position: it actually led to the creation of the pubcos that so many people now argue against vehemently, and it had a terribly detrimental impact on the industry and on the sustainability and profitability of pubs. I urge the Government, in continuing to develop their legislation, to be aware of the unintended consequences of their actions.
One particular point to which I draw the House’s attention is the issue of investment. This is an industry. Yes, we love our community pubs, which are an important part of our society, and we all appreciate the work they do in our constituencies. However, such pubs have to be viable—profitable and successful—businesses for the people who invest in them. We all recognise that in the modern world, where there is the constant redevelopment and repackaging of the offering in the service industry, be it from Starbucks, Costa Coffee or the local pub, there is a dramatic need for investment. If a pub does not have investment, looks shabby and down-at-heel, does not feel modern and is not well-kept, the public will vote with their feet. They have so many other places to go to. They can enjoy their time at home or go to one of the many coffee shops, restaurants and other premises on the high street.
Investment is essential if we are to develop our pub estate, improve the offering and the customer experience, and encourage more people to use the pub. That is what we have to do. The reality is that people are drinking less and going to pubs less. We have to allow the industry to provide a product that encourages people to leave their homes and visit our pubs. Investment is essential if we are to achieve that.
I therefore urge the Government to look carefully at the secondary legislation that they bring forward. We need the companies that are investing in our pubs to have certainty. Investing in a pub can cost more than £50,000 and in some cases as much as £150,000 or £200,000. If companies are to make that investment, it is essential that they have some certainty about the return on their investment. If we cut off the supply of investment, it will be to the detriment of our pubs and we will see them go backwards. I therefore urge the Government, when they come forward with secondary legislation, to listen to the industry. It needs certainty.
Greg Mulholland (Leeds North West) (LD)
It is a pleasure to speak at the final stage of this important Bill. I shall of course speak about the pubs code. I am delighted that there is a string of amendments from the other place which I and my colleagues on the all-party parliamentary save the pub group and the Fair Deal for Your Local campaign can support and welcome.
I thank all Members from all parts of the House who voted for the market rent only option on 18 November 2014, which will go down as a historic day for the British pub. I thank the hon. Member for Chesterfield (Toby Perkins) for bringing his side firmly behind that proposal. I especially thank the Government Members who had the courage to defy their Whip in what was the only defeat of the Government Whip in this Parliament.
I warmly welcomed it when the Government said that they would accept the will of the House. However, as most right hon. and hon. Members know, it appeared that that would not to be the case a few weeks ago. I and others expressed concern when, at the Grand Committee stage in the House of Lords, we no longer had a workable market rent only option that would definitely be introduced at a certain trigger point. We had to get that back into the Bill and we did.
I thank my right hon. Friend the Secretary of State for Business, Innovation and Skills, the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire (Jo Swinson), and all the other Ministers, including the Minister for Business and Enterprise. I thank the whole team who have worked on this issue. It has been a challenge for all of them to balance the different views. In the end, they have achieved that. They have achieved something remarkable: a proposal that people accept will be the future of the tied pub sector.
I must express a few notes of concern because this is not the end of the matter. I was not sure whether to raise a pint this evening or next week when the Bill has gained Royal Assent, so I have decided to do both. This is not the end of the matter, because we still have the passage of the statutory instruments and the consultation over the pubs code, which will take a year. I and others will certainly be engaged in that. We understand and support the principle, but we must get it right.
Let me say firmly that there must not be any watering down of the fundamental principle in the Bill—[Interruption.] As the hon. Member for Hartlepool (Mr Wright) said, that would be as disgraceful as watering down the beer, and just as illegal. We must ensure that that principle is honoured, whoever is in government after the election—a question that none of us can answer at the moment.
I wish to say quite forcefully that we must not be fooled by the idea that somehow the beer orders were the problem; it was the watering down of the beer orders as a result of industry lobbying that led to the tragedy and disaster of the beer orders. That watering down happened in the House of Lords, and I am delighted that this time we have collectively managed to stop it. It was precisely that watering down, with large companies saying, “Okay, well you’re going to legislate the beer orders, but give us that loophole and allow us to have that freedom if we don’t brew beer”, which led to the problem, although I believe we have avoided it this time.
A number of changes have been made to the clause, but it does not apply to all tenants of large companies as we intended it to. If someone exercises their right to take the market rent only option, they suddenly exclude themselves from any protection under the code, which seems strange and perverse. Despite all the sound and fury, the market rent option is only the right to an independent rent assessment on a free-of-tie basis, and the right to pay that. There is no logic in saying that it should apply only to tied or part-tied tenants, and not to any tenant who believes that they may be being exploited at their rent review.
The loopholes in the beer orders are the problem, and an obvious loophole—a new vehicle for some of the large, less scrupulous companies to exploit—allows companies to have excessive rental only agreements and excessive costs for insurance. There is an insurance scam in parts of the industry whereby people are forced to pay considerably more for insurance to their pub-owning company, even on a free-of-tie basis, than they would if they got insurance on the open market. The Government must be aware of that.
Clearly we would have liked the sale of a pub to be a trigger, but I welcome the fact that the Government have sought to deal with the issue. We shall look further at the detail of the measure because there is a problem with companies, including developers, buying pubs and using the terms of tied agreements to force people out of those pubs so that they can get vacant possession and develop a site. There is a danger that large companies will seek to use the loophole to put themselves deliberately into administration, restructure and form smaller companies that would come under the limit, and then carry on business as usual.
Investment is clearly a big issue, and I have had helpful and sensible discussions with Heineken, Greene King and Marston’s—all sustainable companies that will continue to survive and thrive. As I have made clear, it was never our intention to stop or discourage investment in pubs, and one of the biggest problems of the tied pubco model was the grotesque lack of investment—those scruffy pubs with the threadbare carpets that people could tell were Punch Taverns or Enterprise Inns pubs. Investment was left to the tenants, but they were not able to invest anything in their pub. James Baer of Amber Taverns said that the large companies were walking around with as much debt as Lance Armstrong had dope in his arm, and that that was one of the biggest problems in the pub sector—stopping investment in pubs.
The intention behind our clause was always that if two partners agreed an investment, there would be a new rent and therefore no need for a rent review for another five years. We must avoid any sense that the market rent only option can or will be waived for investment that happens before a tenant signs an agreement, or signs up to one during a tenancy at will. Often the previous tenant asked for that investment but it was refused, even if it should have been made anyway to keep the pub in a fit state to let in the first place. That is not the kind of investment we should be talking about.
Neil Carmichael (Stroud) (Con)
I shall not linger long on this matter, although it has been very complicated and at times the debate has been robust. This is a victory for Parliament. The Bill has been properly contested and thoroughly debated, and the outcome is impressive. I want to signal my support for the amendments today and for the overall direction of the debate.
During the passage of the Bill there were times when we disagreed, but those disagreements were based on a deep belief that we had to get it right. Overall, that is what has happened. I take on board the points relating to the code and to delegated legislation. It is absolutely right that more thinking will need to be done. Fundamentally, however, the direction of travel is now correct. Some of my concerns have been responded to properly by the House of Lords, which is absolutely fabulous. I think that anyone watching this debate will have been impressed by the way in which the two Houses have worked together to deal with this complicated Bill. They have produced an outcome that is good for the pub industry, good for the brewing industry and good for our communities and our pubs.
Ultimately, we want successful pubs and successful breweries. I want pubs in my constituency to continue to thrive and for brewers to feel confident about opportunities in the marketplace in the years ahead. Small brewers need to be supported and promoted. The changes made to the Bill in the past few months will do exactly that. I therefore have great pleasure in signalling my support for the Bill today.
Jo Swinson
With the leave of the House, I wish to respond briefly to the debate and thank hon. Members for their contributions. The hon. Member for Chesterfield (Toby Perkins) was kind. As others have said, this is an example of where the Government have listened, Parliament has spoken and we have worked genuinely with stakeholders and people from all parties to come to the right outcome.
Some outstanding concerns have been raised. The hon. Gentleman asked whether the investment waiver would end up being too broad for too little investment, and obviously it is important that we consult to get those details right. He also sought clarity as to whether the principles laid out would be upheld. The Minister for Business and Enterprise made the Conservative position clear in an intervention, and I am happy to confirm that the Liberal Democrats stand behind these principles. I hope that the consensus across the three main parties on those principles will give the industry and tenants some welcome confidence, certainty and reassurance.
My hon. Friend the Member for Burton (Andrew Griffiths) was concerned about potential unintended consequences, and my hon. Friend the Member for Leeds North West (Greg Mulholland) about some of the issues still to be discussed when we come to the secondary legislation. It is right that these matters be discussed properly during the secondary legislation phase and that we get them right. The long string of amendments to which my hon. Friend the Member for Leeds North West referred is testimony to the challenge of the detail we had to go into to get the issues right, and in that connection I would like to put on record my thanks to the officials who have worked tirelessly on this—not one of the more straightforward policy areas in the Department—over the last few months. I owe them a great deal of thanks for the wonderful job they have done.
There are issues still to be wrangled over come the secondary legislation stage, but I do not know whether I will be the Minister or if somebody else will have the great joy of steering that through the House. These are debates for another day. Today we should just be pleased with the proposed primary legislation before us.
Lords amendment 34 agreed to.
Lords amendments 35 to 62, 86, 132 and 136 to 141 agreed to.
Clause 3
Companies: duty to publish report on payment practices
Matthew Hancock
I beg to move, That this House agrees with Lords amendment 1.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to take Lords amendments 2 to 33, 63 to 85, 87 to 131, 133 to 135 and 142 to 193.
Matthew Hancock
With only a few days remaining in this Parliament, the Government continue to work tirelessly to make the UK the best place in the world to start and grow a business. We are proud of our record over this Parliament, including the 760,000 extra businesses, the 2.2 million extra jobs that business has created and the rising pay that has benefited millions. This has been possible only because of our unstinting and unambiguous support for businesses. Last week’s Budget built on this record with a fundamental review of business rates, and last week we set out our intentions for using the new prompt payment transparency powers. The Bill takes this commitment to support small business further. It is the first ever small business Bill and I hope will shortly become the first ever small business Act.
In the other place, the Bill was, as we would expect, subjected to careful and robust scrutiny, and I am grateful to Baroness Neville-Rolfe for ably steering it through the other place, where it was enhanced and improved. As part of that, several amendments were made, both substantive and technical. The Government supported all the successful amendments, and I hope that the House will agree them today. I shall go through each in turn, beginning with late payment. The Bill takes unprecedented steps to tackle late payment, so understandably the matter was debated in detail in this House and the other place. Late payment is a major issue for businesses large and small, and we are taking steps in the Bill and elsewhere to bring an end to the UK’s late payment culture once and for all.
Transparency has a pivotal role to play. Clause 3 introduces a tough new prompt payment reporting requirement for the UK’s largest companies. In the other place, this clause was further strengthened by amendments 1 to 3, which insert a reference to performance on the face of the Bill and make express reference to late payment interest as an example of the type of information that will be included in the report. Beyond the Bill, we have strengthened the prompt payment code with our announcement last month that 30-day payment terms will be the norm of acceptable behaviour, with 60 days as the maximum in all but exceptional circumstances. The public sector will play its part, as 30-day terms are now legally required right down the public sector supply chain.
The transparency measures in the Bill will shine a light on poor payment practices and make a company’s payment terms a reputational boardroom issue. We will drive a culture change to redress the current economic imbalance of power between large companies and their suppliers. The amendments under consideration today will help to ensure suppliers are fairly compensated. We are determined to make 30-day terms the norm and 60 days the maximum acceptable payment terms. With this Bill, we will make unacceptable late payment a thing of the past.
John Howell (Henley) (Con)
I very much welcome what the Minister said and I welcome the clause. When I was running a small business of my own, late payments bedevilled the business, and it was always the larger companies that were responsible for it. I am very glad that this amendment is being made.
Matthew Hancock
I am grateful for that intervention. I, too, have personal experience of poor payment performance having a massive impact on the businesses I worked in. Frankly, the late payment culture is a problem with our contract law. Good contract law means good payment against a contract. I think these transparency measures will have a significant impact, changing prompt payment from being an issue for finance directors to being an issue for the board. Through these transparency measures, we will not allow it to be deemed reasonable to pay late. I think that 60 days as a maximum and 30 days as a norm is a perfectly reasonable place to settle.
Toby Perkins
I fear that the Minister is rather over-selling the measures he proposes, welcome though they are. When he says that 30 days will be the norm and 60 days the exception and nothing beyond it, will he make clear what happens when businesses do not pay within that time frame? What sanctions will they face under this new regime?
Matthew Hancock
There are already sanctions under EU law relating to interest payments, but the transparency measures will crucially mean that we can have league tables of payment performance. The transparency in this area, alongside the public sector payment practices, will change the culture. We considered and debated in detail going further in changing contract law, but a contract is signed up to by both sides, and no practical amendment was put down to make it more binding than the existing law, which already says that 60 days should be the maximum unless both sides agree to it. Any contract, of course, has to be agreed to by both sides. It is a matter of finding a way to make this practical in law.
Part 2 deals with regulatory reform, and the Bill brings forward significant measures to reduce the burden of regulation. The small business appeals champion will ensure that small businesses’ concerns about regulators are heard. There was extensive debate in the other place on whether the Equality and Human Rights Commission should be excluded from these measures.
We have always maintained that the EHRC should not be subject to the duty to appoint a champion and had originally considered that an exemption in secondary legislation would be sufficient. Concerns were expressed, however, that this might put at risk the EHRC’s “A” status as a national human rights institution. In the light of those concerns, we agreed to eliminate this potential risk by excluding the EHRC from scope of the duty on the face of the Bill.
On the business impact target, the other place questioned the definition of voluntary and community bodies in clause 27. The Government listened to this concern and amendment 28 simplifies the definition by removing the minimum membership threshold for certain smaller unincorporated associations. It also ensures that such bodies are not excluded from the proposed definitions of small and micro businesses later in the Bill by virtue of the size of their membership. Those are relatively technical changes. The principle of a business impact target to ensure that in future Governments are transparent—as this Government have been—about the impact of their overall regulatory approach on the burdens of business was well supported, and is made clear in the Bill.
Toby Perkins
The Minister questioned whether the amendments will have the support of the Opposition. They will do, of course; we proposed a good deal of them, so it would be rather foolish for us not to be supporting them at this stage. He is right to say the Bill arrives back in this House in stronger order than it left it. It looks far more like the kind of small business Bill I was talking about back in July 2014 when I said the Government ought to be taking far greater steps, and I agree with the Minister that the Bill is improved.
We said steps needed to be taken to strengthen enforcement of the compensatory award in employment tribunal cases. We are pleased that the Government have today announced a naming and shaming programme that will ensure exposure of businesses that do not pay compensatory awards identified by a tribunal. We said that insolvency creditors meetings were an important part of our world-class regime and we are glad the Government accepted our amendment on that. We are glad, too, that the Government decided to exempt the Equality and Human Rights Commission from the work of the small business appeals champion—although not from the growth duty section of the Deregulation Bill, as we called for at the time. On late payment as well, we have been saying for a long time that stronger action was needed. I am therefore bound to say that the fact that these are issues Her Majesty’s Opposition have been raising, from abuse of zero-hours contracts to late payments to small firms, and from non-payment of the national minimum wage to supplier pay and stay deals—an area of pub company legislation we have already discussed—shows that it is the Opposition who have been leading the way, and the Government have been following us reluctantly.
It rather undermines the charge that Labour is anti-business when the Government keep taking action in so many of the ways we have called for. I know the Government have form in this regard; they used to suggest UKIP was mad before they adopted its No. 1 policy. However, we support the principle that the Government should be willing to listen and take action where they have got things wrong, and we think the Bill before us today is a good deal stronger as a result of that.
I want to take up the Minister’s challenge on late payments. As I said in my intervention, he is overplaying his hand when he suggests that the measures brought forward, welcome though they are, signal the end of egregious late payment practices. The steps the Minister has taken on the public sector are welcome. Particularly at the time of the bank-induced global economic crisis, the previous Labour Government took significant steps to ensure that the public sector paid on time and this is putting that on to a more permanent footing, which is a positive step. However, the Minister suggested that the transparency he is introducing will create a reputational risk that means businesses and boardrooms around the country will think carefully before paying late. While the way this is going to be marketed will be different, many of the transparency measures proposed here are currently available if people choose to look. There has been no reputational risk for many of the companies that have operated in that way.
In response to what the Minister said a few minutes ago, the truth is that no new sanctions have been proposed. He said that businesses could avail themselves of the sanctions in the EU late payment directive, but they have been able to do that for several years. If a major business chooses to say, “We’ll supply you, but our terms are 90 days”, a small business will have the choice of whether to deal with it on those terms or not at all. That means that nothing has changed, and we are still in exactly the same position.
The steps that the Government are proposing on late payment are fine, as far as they go, but this is a missed opportunity. I am willing to predict that, in the next Parliament, we will not consider this issue to have been dealt with and that, at some point in the next four or five years, we will all be back here discussing late payment again and saying that something must be done, that we must change the culture, that we need to get across to businesses that late payments are unacceptable, and that we need greater transparency so that small businesses know what they are letting themselves in for. My right hon. Friend the Member for Doncaster North (Edward Miliband) stated powerfully at the Federation of Small Businesses conference last week that late payments are one of the great scandals in our economy. Small businesses are disadvantaged by the practice, and more should have been done.
Clause 3 initially created a duty for companies to publish only their payment policies. We have consistently argued that publishing policies is not enough and that small businesses also need concrete information on the performance in practice, and not just what is written in a policy book. We tabled amendments in Committee in the Commons and on Report in the Lords that would have created a compulsory reporting regime to ensure that large companies’ reporting records would be open to quarterly scrutiny with automatic interest paid for late payment. The Government voted down our proposals on both occasions. The Minister said a few minutes ago that no practicable proposals had been tabled in this regard, but that is not true. We tabled specific proposals that would have put the late payment directive on a statutory footing. He might have decided that he did not want to support our proposals, but it is not true to say that they did not exist.
However, we are pleased that the Government have made some concessions and accepted our fundamental argument that information on performance, as well as policies, must be published. This will allow large companies to be judged by their deeds, not just by their words. However, we believe that there should be a financial backstop, such as an automatic interest payment or a fines regime, as outlined in our proposals. So it remains to be seen how effective the Bill will be. It is stronger as a result of the interventions by the Labour Opposition but more could have been done and, regrettably, we will have to return to this issue in the next Parliament.
The Bill establishes small business appeals champions, whose role will be to watch non-economic Government regulators and encourage them to improve the impact on business of their policies, their processes and their approach on appeals and complaints. In broad terms we welcome this idea, but many bodies have questioned how the champions will work in practice and what relationship they will have with the general growth duty in the Deregulation Bill. We welcome the fact that the Government have taken up our argument that the guidance to the small business appeals champions in relation to the exercise of their functions should be laid before Parliament for full scrutiny and debate.
On Lords amendment 25, we are pleased that the Government have acceded to our demand that the Equality and Human Rights Commission be excluded from any of the regulatory provisions in the Bill. This will relate specifically to the work of the small business appeals champions.
On the subject of creditor meetings, I should like to draw to the attention of the House the donation made to my office of employment support from R3, the insolvency regulator. The intention of the original Bill was to end once and for all the practice of insolvency practitioners holding physical creditor meetings in all types of insolvency procedures. We felt that that was a mistake and that it could disengage creditors and weaken the strength of the world-leading insolvency regime that we have here in the UK. We very much welcome the fact that the Government have listened to some of the specific proposals we made on ensuring that the threshold for a creditors meeting should be changed to
“(a) 10% in value of the creditors;
(b) 10% in number of the creditors;
(c) 10 creditors.”
We think that is a much stronger amendment, providing the support that that industry needs to ensure that it continues to provide a service that gets record amounts of money back to creditors and is also successful in saving jobs and businesses.