The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)
My Lords, why have we introduced this Enterprise Bill? A dynamic, open, enterprising economy is a priority for this Government. We want this Bill to help create a better business culture, in which the harmful effect of late payment on small businesses is recognised. It is a major concern to us all that the level of late payment debt owed to small and medium-sized businesses stands at £27 billion.
Despite the progress we have made, businesses still suffer from red tape, especially red tape from regulators, which hitherto has not been routinely monitored. This Bill will change that and help us to continue our battle against red tape. We are also determined to make apprenticeships a success. We want to make sure that everyone can have confidence that an apprenticeship offers a high-quality career route, consisting of employment with training.
There are three key elements to this Bill: the Small Business Commissioner, who will have a vital role to play in changing the culture around late payment; deregulation; and apprenticeships. There are also some other provisions. Small businesses make up 99.3% of all UK businesses. They account for around half of UK jobs in the private sector and a third of turnover. They are vitally important to our economy. Timely receipt of money is crucial for small businesses. It is wrong that, as research in January 2015 showed, the average UK small business waits for £31,900 in overdue payments. Late payment has a damaging knock-on effect on their ability to manage cash flow and plan for growth; and in the worst case, it threatens their very survival.
We have already legislated, of course, through the Small Business, Enterprise and Employment Act, to introduce a tough and transparent new requirement for the UK’s largest companies to report their payment practices and performance on a six-monthly basis. I believe that publishing these reports online will ensure transparency and help to bring about a major shift in culture. We have also strengthened the Prompt Payment Code to introduce a 60-day maximum payment term for all signatories. And now, this Bill will make it easier, quicker and cheaper for small businesses to settle payment issues with larger businesses by setting up a Small Business Commissioner. His or her role will be focused on helping small firms resolve disputes with large businesses they supply, and in particular tackling payment issues. This could be through providing advice and information, pointing them towards mediation or handling complaints and, of course, acting as a real disincentive to unfair behaviours.
This measure complements our other work to date to support small businesses, such as extending small business rate relief for a further year from April 2015—saving millions for small businesses—cutting £2,000 from the national insurance bills of small firms through the new employment allowance, and much else.
Under current law, there is no obligation for insurers to pay valid insurance claims to businesses within a reasonable time. These payments are vital for a business struggling to survive after an unexpected tragedy, such as a fire, break-in or flood. In the most serious cases, a business waiting for a late insurance payment can collapse. The Bill will make sure that insurers are under a legal obligation to pay up within a reasonable timeframe. Where this does not happen, they will be liable to pay damages. This provision is based on careful and detailed recommendations from the Law Commission, which worked closely with stakeholders to develop the criteria in the Bill and our proposed approach.
Another theme of the Bill is deregulation. The Government are absolutely determined to reduce costly, unnecessary bureaucracy for businesses. In the last Parliament, we reduced that burden by £10 billion through a wide range of savings, large and small. The business impact target created in the Small Business, Enterprise and Employment Act 2015 requires government to measure and report on the economic impact to business of any regulatory changes. However, business consistently tells government that the actions of regulators are at least as important as the content of legislation. In a recent survey, nearly half of businesses said that preparing for regulatory inspections and dealing with inspectors is burdensome, and nearly three-quarters of scale-ups said that they would be able to grow faster if dealing with regulators was easier—a frightening figure. The Bill will extend the business impact target to cover the regulatory functions of not just Ministers but regulators. This means that regulators will be required to assess the economic impact of new or amended regulatory activity in the scope of the target, and to obtain independent verification of the economic impact of those measures.
We will also be introducing new annual reporting requirements for regulators which are subject to the growth duty and the Regulators’ Code, thus increasing transparency and accountability for their actions in respect of these measures. We introduced the Regulators’ Code in 2014 to support regulators to design their policies and procedures in a way that suits business needs. The growth duty, which is due to be implemented in 2016, will require regulators to have regard to economic growth. By introducing these reporting requirements, we will be able to build a body of evidence on how the code and duty are operating, and make amendments to them as necessary. The new reporting requirements will apply to regulators subject to the Regulators’ Code, the growth duty, or both. Currently some 70 national regulators are subject to the code. We are planning to consult on the scope of the growth duty in the new year.
Primary Authority allows businesses to form partnerships with a local authority, giving them access to robust, reliable advice on a whole array of regulation to help them run their day-to-day businesses. Other authorities must then take this into account when carrying out inspections or addressing non-compliance, even if the firm trades across several local authority areas. Since its introduction, Primary Authority has doubled in size every year. There are now close to 8,000 Primary Authority partnerships, 85% of which are with small and medium-sized enterprises. In effect, the Bill amends and consolidates the existing legislation that underpins the scheme for ease of comprehension by enforcers and businesses, as can be seen in the Bill as published. It will give businesses the opportunity to receive tailored, assured advice from a primary authority in relation to key regulations affecting them. Pre-start-up enterprises, those regulated by only one local authority, and more groups of businesses—such as members of franchises or trade associations—will now be able to benefit from the scheme.
The Bill will also improve the business rates appeals system in England to make life easier for business. I am afraid that the current system is simply not working and appeals are taking too long to resolve, with speculative claims clogging up the system. This creates costs and uncertainty for businesses and is unfair to those who are owed a reduction in their rates bills. By introducing a more structured and rigorous system which is easier to navigate, cases can be resolved at an earlier stage and refunds paid out more quickly.
The Bill will also allow sharing of some Valuation Office Agency information with local government, saving businesses time and money as they will not be required to provide the same data twice over. These changes complement the Chancellor’s recent announcement on business rates, but the provisions, which are about improvement to the system, will still be needed.
I am glad to say that the Government have committed to delivering 3 million new apprenticeships during this Parliament. Investing in skills is a vital part of the Government’s plans to boost productivity in the UK but as the apprenticeship brand grows, we recognise that there is a risk that the term “apprenticeship” could be misused and applied to lower-quality courses. That is exactly the opposite of what we want to achieve. In our recent consultation exercise, we received evidence of people who thought they were doing an apprenticeship when in fact they were doing low-level qualifications and were not employed in a real job. We want to give employers, parents and apprentices confidence that apprenticeships are genuine and high-quality opportunities. The term “degree” is protected in legislation and by applying a similar protection for “apprenticeship” we will help safeguard the apprenticeships brand from misuse. When I was in retail, we used to have a special ceremony for graduating apprenticeships. I would like to see that sort of celebration and recognition everywhere.
We want to make sure that the public sector leads by example in the important area of apprenticeships. Across Whitehall there are already hundreds of apprentices learning the skills they need to be effective in the Civil Service, including one in the Permanent Secretary’s office at BIS and one in my own Enterprise Bill team. To pave the way to meeting our target of 3 million, the Bill will introduce apprenticeship targets for public sector bodies in England.
As we announced in our manifesto, we will also be putting a stop to six-figure, taxpayer-funded exit payments in the public sector. Only very recently, there was a payoff to a senior NHS manager worth more than £400,000. We simply do not believe that such huge exit payments, which are far in excess of those available to most workers in the private sector and wider economy, are fair or offer value for money to the taxpayer who funds them.
Finally, we are amending the Industrial Development Act 1982 to bring it up to date. First, the Bill will introduce an additional power to fund broadband projects across the country—a topic close to my own heart. This is on top of wider efforts to achieve 95% broadband coverage by 2017, which includes £1.7 billion of public investment to make superfast broadband available in areas where it would otherwise not be if left to the commercial sector. Secondly, we will increase the per-project threshold for providing financial assistance to businesses to reflect inflation since the 1982 Act was passed. This means that outside assisted areas, where different rules apply, it will be possible to provide a project with up to £30 million before a resolution from the House of Commons is required.
This Bill will contribute to the Government’s vital objective of making life easier for small businesses. We are progressing the Government’s commitment to backing businesses and not drowning them in red tape. It supports apprenticeships so that we invest in the skills we need now and achieve the objective, which I believe we all share, of 3 million quality apprenticeships. We have achieved a great deal already, mainly thanks to the enterprise, drive and hard work of businesses large and small, but it is now important to keep up the momentum. I commend the Bill to the House and I beg to move.
Lord Mendelsohn (Lab)
My Lords, I draw attention to my business interests as contained in the register. I start by thanking the noble Baroness for her courtesy in sending material on the Bill; it has been very helpful indeed.
I must confess that, during the course of the Queen’s Speech, my pulse was quite sent racing. I was very keen on the initial stated intentions of the Enterprise Bill, which were to,
“cement the UK’s position as the best place in Europe to start and grow a business, by cutting red tape and making it easier for small business to resolve disputes quickly and easily; and … reward entrepreneurship, generate jobs and higher wages for all, and offer people opportunity at every stage of their lives”.
I became slightly less enthusiastic when, on 17 September, the Government’s announcement of a series of publications rendered the latter intention as to,
“cut red tape for business, encourage investment in skills, and make it easier for firms to resolve payment disputes by setting up a Small Business Commissioner”.
That seemed to downplay somewhat the initial ambition of the Bill. It will therefore be no surprise to noble Lords to learn that the Bill as published has somewhat dampened my flame of excitement. The Bill states that it will,
“Make provision relating to the promotion of enterprise and economic growth; and provision restricting exit payments in relation to public sector employment”.
There are of course some measures that we will support. In fact, a number of the measures now being brought forward by the Government are ones that they resisted during the passage of the Deregulation Bill, Consumer Rights Bill and Enterprise and Regulatory Reform Bills in the previous Parliament. The Bill contains the product of a number of reviews, together with a curious mix of measures relating to the public sector and some well-intentioned but somewhat limited initiatives.
In this context, although we will always try to be as constructive as possible and seek to find ways in Grand Committee to convince the Government to improve some measures—and we will express our support for others—I cannot fail to say that our strongest disappointment concerns the Bill’s provisions relating to the Small Business Commissioner and late payments. No one is in any doubt of our support for the measures relating to those matters, but what has been proposed is, in our view and on the basis of available evidence, not just insufficient but highly likely to be negative.
The consultation on the Small Business Commissioner was limited. It reminded me of the quote attributed to Henry Ford, who said that if he had asked consumers what they wanted at the time, he would have invented a faster horse rather than the mass-produced motor car. The Government, resisting the arguments for a small business administration, have landed on the Australian model. This we warmly and enthusiastically welcome, but we do not believe that they have used the considerable experience and evidence base available to good effect. I know that the Minister recently met the Australian Small Business Commissioner, Mark Brennan, whose 15-year work in Victoria, Australia, has provided world-leading expertise in how to apply and develop that model. He has encouraged a massive evidence base to emerge with industry groups, academics and other institutions.
The Small Business Commissioner could be a great boon for our country, but its flaws as proposed are many. The first is its proposed scale. The Government anticipate that it will deal with only 500 cases a year. In fact, its staffing and resources compared to those in Australia, where there are small business commissioners in every state as well as at the federal level for a market and population considerably smaller than ours, will make it relatively smaller than the Australian federal and state commissioners.
Secondly, the Small Business Commissioner’s role and purpose is too limited. The origin of the Victorian Small Business Commissioner—the first one—was as a measure to improve the quality of the business environment. It was established with broad powers and functions in Victoria and developed from a review of the retail tenancy laws. When the original Bill fell due to the timetable, the next set of state Ministers considered that the advantages present in the Bill were likely to be highly beneficial to small businesses in general, rather than just the retail sector. The office of the Victorian Small Business Commissioner was established,
“to enhance a competitive and fair operating environment for small business in Victoria”.
That model has caught on. The specific provisions constituting the Victorian Act are not dissimilar to those found in the legislation of other states, which are essentially based on that model.
It is clear from the operation of all these models that there is a consensus and evidence base that a properly functioning small business commissioner covers: access to information and education; advocacy to government; investigation of small business complaints and business behaviour; facilitating the resolution of disputes, including and especially through mediation; and influencing a small business-conscious government and other key stakeholders including regulators, media, academia and the business community and trade organisations.
Fourthly, the decision not to provide the commissioner with a mediation role will inhibit it in establishing its place in the business community and takes little account of the evolution required to make the role truly effective. Universally, every small business commissioner in Australia will tell you that it is this role that led to the widespread support across the business community in large as well as small businesses for its work and established its credibility. The fact that it is underpinned by an important legislative power, namely that any company’s refusal to accept mediation must be taken into consideration over the question of who is responsible for costs of court action whatever the result, is fundamental to its effective operation.
I noted during the consultation that the Federation of Small Businesses did not support this role. On this, it is just plain wrong and I urge it to speak to its counterparts in Australia, who can brief it on the importance of this. The Government’s argument that there is no market failure is quite bizarre. Having listened to Ministers and read their documents in relation to the then Small Business, Enterprise and Employment Bill, their own conclusions on the asymmetries of power, information and resources are pretty clear that there is an entrenched market failure. The absence of mediation as a central function of the Small Business Commissioner is an error that requires correction.
Fifthly, the commissioner lacks the independence and long-term support to make it effective. Other similar agencies have been established, and beyond Australia, with greater independence so that they become the champions of small business rather than the potentially politicised tool of Ministers. Additionally, they have wide roles defined to make sure that they can evolve and design effective ways of working. It can hardly be credible that the Government have a serious, long-term commitment to these issues if they provide for the Secretary of State to be able to abolish it at the stroke of an administrative pen if they find it inconvenient.
Finally, and most extraordinarily, the Australian Small Business Commissioner model has very little to do with late payments at all. It has no specific powers or role there. It has little success and not one of the commissioners considers that an essential function. It has more to do with unacceptable payment terms, but there, too, it is limited. In fact, Australia’s record on late payments is probably worse than ours. On payment days, it has a significantly worse record than the UK. It is fiction to believe that it is either useful or effective in dealing with late payments. Given the 15 years or so of experience, it is sobering to observe that in Australia they are introducing a variety of legislative measures that we would do well to examine for how we deal with late payments. In fact, Australia’s recent introduction to deal with late payments in the public sector is to force the public sector to not just report any late payments but automatically pay interest on the costs to those it has not paid. We believe that that measure helps to materially and significantly address the problem of people not paying up by making them face consequences for late payments. We tried to introduce similar measures in the small business Bill, and we hope to re-examine this in Grand Committee.
I genuinely believe that the Government want to do something on this, and that they, too, are unconvinced that culture or a body that handles 500 cases a year can realistically address the ever increasing volume of late payments. We will lay amendments that we hope the Government will be inclined to work with. In the mean time, have the Government any plans to introduce, by amendment to this Bill or through administrative means, given the disproportionate disadvantage that small businesses have in funding cash flow, a requirement on all government departments and public agencies to pay additional compensation on small business invoices that are not paid within 30 days? Can we have an update on the Government’s experience on requiring contractors used by the public sector to pay their subcontractors within the same period as the main contractor is paid? Would they consider imposing a requirement for the main contractor to report on payment to the public sector body, including the payment of the interest on the late payment? Will they provide that all suppliers and bidders to the public sector and for public contracts must sign up to the Prompt Payment Code, and for suppliers to be able to make complaints about late-paying suppliers anonymously through their representative business organisations, as required under current EU legislation?
It feels a little early to be amending the small business Bill, but we are delighted to be doing so, as we made the point that the Government’s logic on regulation is that they should have introduced it then with regard to business impact targets. In addition, in Part 2, who could oppose anything to reduce the burden of regulation? That is, the burden, not the fact of regulation. I tried to find a single post-war Government that did not make this pledge. I believe the first to do so was when Harold Wilson, as the President of the Board of Trade, announced the “bonfire of controls” in 1948. The previous Government even suggested that they saved £2.2 billion through their “one in, two out” rule. I am pretty sceptical about that figure—a feeling that has grown stronger ever since I was given extremely unhelpful replies to my Written Questions on this matter. As an investor in and operator of small businesses, I have also been looking out for the couple of thousands of pounds by which I should feel better off as a result of this policy. However, a report issued by the independent Regulatory Policy Committee in March perhaps gives the reason why I am still waiting. It identifies that, during the last Parliament, the Government introduced regulatory costs of almost £2.7 billion. Overall, the cost of regulation increased by at least £460 million. To be fair, the last Government tried to be more thorough than most of their predecessors in trying to reduce the burden of regulation, but they have not done so. Regulation from the EU—or that which it defines as EU—is excluded, and the remarkably unscientific so-called “equivalent annual net cost to business” conveniently ignored the Government’s own accounting rules.
On the business impact targets, we believe that the Government are right to place a duty on regulators to see how they operate and to ensure that their impacts are properly measured, and we will support those sorts of notions. However, as I say, we are sceptical about the numbers, and we hope that the Government will be interested in supporting a more independent examination of the regulatory savings and how that can be strengthened. I must say that the last Government stated that they had saved £2.5 billion a year—£10 billion over four years, the Business Minister said at the time—and that this Government are looking to save £10 billion in five years. Perhaps they could be slightly more ambitious.
We have previously raised concerns about the growth duty and how it may affect particular regulators. While the intent is clear, the legislation and the impact assessment provide no comfort as to whether the operation of this duty is consistent with the effective operation of other regulatory functions. We are keen to support that, but we would be grateful for more clarity on it. We will of course also support the concerns of the Equality and Human Rights Commission that it should be exempt as a result of its particular circumstances. Perhaps the Minister could tell us whether these measures would apply to the EHRC.
We are strongly supportive of extending apprenticeships and of ensuring that they provide the right quality of opportunities and outcomes that we desire. I have also previously praised some of the initiatives the Government have undertaken on this. The wider concerns are how Ministers who are adding responsibilities and duties whilst cutting budgets to local authorities and requiring them to create new ways of working can realistically add centrally set targets and reduce the local capacity to design and develop training and reskilling of existing staff during restructurings. Does the Minister recognise that this might be a problem, and what measures or flexibilities have the Government examined to take this into account? In addition, will the Minister tell us whether the Government will now consider that if it is good enough for the public sector to have such targets, it might be under the Minister’s consideration for the private sector to have similar targets imposed in due course?
In relation to protecting the name “apprentice”, we are inclined to be positive. There are of course some major concerns about the operation of apprentices and a number of cases of abuse and of poor quality, which I am sure will be addressed by part of the debate on Thursday. However, I am also starting to worry about some of the noble Members of this House. Under this measure, would it be lawful to describe a 12-week training scheme, where an individual wins an investment in a business, as an apprenticeship? I suspect that we will see a start this Wednesday. However, I also suspect that those who might be threatened by this will appreciate that their salvation may be that the Government, which have presided over a 40% reduction in the budgets and size of trading standards, expect trading standards to be able to police this effectively; we are unconvinced that they have the resources to do so. I would be interested to see whether the Minister is providing some more resources, and if she will speak to that. Also, why has a consumer-facing body been charged with this duty, and what else did the Government consider before arriving at that conclusion?
This Bill has good intentions, carrying the conclusions of some impressive reviews but with some serious policy flaws and some measures whose vagueness raises questions over their efficacy. There are some things that we were expecting. In July, the Treasury briefed the media that the Bill would include provisions for the Government’s suggested changes to Sunday trading. Can the Minister confirm that that will be introduced in Grand Committee? There has been some speculation that the department has lost responsibility for this aspect of business policy and it has moved to the Department for Communities and Local Government. Which department holds primary responsibility for this measure, and is there an agreement that this should be introduced in a BIS-sponsored legislative measure?
I do not fault the Minister, who I recognise does a great job in dealing with some tricky government legislation, and we are always very keen to work with her. We on this side look forward to a long and detailed examination of these measures in Grand Committee, and have great expectations that the Government will be more forthcoming with details, data and evidence to support their positions. We will bring forward amendments that are consistent with the Government’s stated intentions and with the objectives of the Bill, covering areas that merit urgent consideration. But we will be resolute in trying to ensure that, for key measures in the Bill, this House provides a better piece of legislation to the Commons than that which came to this House, and we will be prepared to support others in this House, from whichever Bench, who share the same view.
Lord Stoneham of Droxford (LD)
My Lords, this is a deeply disappointing Bill, given the all-embracing nature of its title, and I am not sure that the Minister really answered her initial question as to why it was necessary to have this Bill now rather than doing more work on it. Only £25 million of net annual savings will come from these measures for business. That is what the impact assessment says. Many of us thought that the Government would reveal the principal items of their further push on red tape to cut the £10 billion of cost to business that they are projecting. I am never quite sure whether that is an annual target or whether it is £10 billion over the life of the Government. Perhaps the Minister could reassure us on that point. But it seems that this Bill is taking us back to new Labour targets; it will be used to extend the target for cutting red tape through the activities of the regulators, although it is unclear what impact that will actually have. I hope that the Minister can reassure us in her summing up that this is more than just a finger in the air by telling us how much detailed work has been done to reach these targets.
We welcome the promotion of an enterprise economy. We think that it has had a major role in job creation as we have moved out of recession, and it will have an even more critical role in job creation going forward. Frankly, with the great problems that Britain still faces in its balance of payments, financial deficit and low productivity, the small business sector is needed to make a massive contribution in all those areas. We need better managers; help with cash-flow problems for people setting up new businesses, with alternative sources of funding; more work and development by the British Business Bank; and we need to see small businesses directly encouraged to take on more apprenticeships and develop more skills. But the agenda of this Bill is very limited. Indeed, its appearance on the day we left for the conference recess suggested that the Government had spent the summer scratching around for things to put into it. Free of the shackles of the coalition, we were expecting the red meat of pro-business and pro-enterprise strategy pioneered by the free-market new Secretary of State to really get our teeth into—but we have been disappointed. Our worry is that it will provide a veneer of action before the public expenditure cuts nearer Christmas cut into the partnership activities of the industrial strategy, catapult centres, training budgets, adult education and research and development that are so vital to the country’s business renaissance.
We welcome in principle the concept of the Small Business Commissioner, but there are a number of issues. We are told that the running costs will be £1.3 million, with capacity to handle only 500 complaints a year. Voluntary mediation is apparently the way forward. There are no back-up powers and no ability to shame big business operators using bad practice or to enforce codes of practice—unless something is going to follow, and it is not clear that it will. As we know, complainants will be reluctant, as now, to come forward if they fear that business will be cut from them in future. That is the key problem. We know that small businesses do not complain for fear of losing future orders, so how will the commissioner be able to reassure people and encourage them to complain?
Apprenticeships were one of the great successes of the coalition. They built on the foundations of work started by the previous Labour Government. We are happy to see protection for the branding and quality of apprenticeships, but should the emphasis now be on the power to set targets in the public sector when the issue there should be largely one of the resources and will in that sector to do apprenticeships? The real problem is not there; it is getting the small business sector to take on new apprentices without weighing it down with the bureaucracy of government incentive schemes and costs. We would do better to oversee government resources going into this and, in particular, into adult education which can play such a big role in supporting local businesses in their area. There is a huge need.
With the Government desire for more homes, the big need is in the construction industry and sector, where the role of public sector infrastructure contracts could be so important in getting more apprenticeships. The Government should be addressing the annual shortage of 30,000 new engineers going into training. There are regional disparities and there is no mention of the fact that there are areas, such as the north-east, where the achievement in apprentices is much more disappointing than in other areas of the country. As providing resources is the key, can the Minister confirm that, in line with the devolution of local government, local authorities are not going to be included in the public sector targets at this stage?
On industrial development grants, the improvement of financial assistance in line with inflation has our support. There is a recognition that partnerships are helpful and that government funding can be essential, as we have seen in the motor industry in the past 15 years. Widening support to the electronic communications sector is welcome. This supports the view of the Minister before she was a Minister. In 2014, she said:
“Broadband and mobile coverage have become essential utilities, like water or power. Without coverage it is like living in the old world without a post box or hot water”.—[Official Report, 13/5/14; col. 1749.]
Over the past few months, I have been trying to get a specific figure from the Government on the number of households with super broadband. The skill of the Treasury in avoiding the question is remarkable, so I shall try again with BIS. What percentage of households currently have access to super broadband compared with the target of achieving 95% in 2017? Until I get that figure, I will be very suspicious that the Government are worried that they are not going to achieve their target. That may be one of the reasons they are putting this clause in the Bill: to put a bit more resource towards it, or at least to protect their backs. I would like to know what our progress is.
The importance of broadband for the small business operator needs emphasis. People can start businesses from home, which we encouraged in the previous Enterprise Bill, but it is no good if super broadband is pathetic or BT comes forward with completely unrealistic charges for putting in private lease lines, which I suspect it does as a way of getting more money, thereby holding up what it should be doing as part of public service.
On the day that it has been announced that Redcar is being not mothballed but closed down, will the Minister say whether there has been any consideration of industrial development grants in a situation which is devastating not only for the second-biggest steelworks in Europe but for all the small businesses in the north-east which have been dependent on it?
I find it strange that we have a public sector employment clause restricting exit payments in a Bill on a matter of enterprise. I am not sure why it is here. We on this side of the House accept that it is appropriate and reasonable that leaving payments should be limited, appropriate and not excessive. There are of course examples where they have been excessive but I fear that the Government are responding to Daily Mail headlines, and it is populism that results in poor government. “Give me 100 good managers rather than £1 billion in extra government spending”—I think that somebody said that recently. As somebody who has spent a lifetime in management, I could not agree with that more. We should be encouraging enterprise, good candidates, change and more appropriate commercial expertise in the public sector.
It is a hugely difficult job. I left the public sector in my 30s because I could not face dealing with some of the problems of a career in public sector management. Maybe the Minister did as well; she knows what it was like. I always admire the people who stuck it out, because I did not. Yet here we are, always looking to restrain salaries and cut back on perks and benefits. Sometimes, although there are instances where payments are excessive, you need to oil the wheels to get change and progress in the public sector, just as you do in the private sector. This legislation suggests that contractual terms are about to be broken, and it is extremely dangerous in terms of our objective of trying to get more change in the public sector that one of the mechanisms that is often needed is going to put a huge restraint on encouraging good people to come to work in this area.
I have one more point to make, which others have mentioned. I hope that we are not going to have some late amendments to the Bill on the Sunday opening issue, following the consultation. I hope that the Minister can confirm that to us in her summing-up.
This is a deeply disappointing Bill. There is little direct impact on the cost of regulation or direct help to small businesses. The Government’s agenda at this time needs to be to support small businesses. We should be giving ongoing attention to helping their cash flows and speeding payments, not least in the public sector and in the construction sector. We should be easing access to government schemes that support small businesses. We should be encouraging small businesses to take on new staff and apprentices, particularly with the use of grants. We should be looking particularly to local chambers of commerce to provide more help to the expert potential of small businesses. The Government need to be more convincing towards the enterprise economy if they really wish to address the nation’s need to compete globally.
The Lord Bishop of London
My Lords, as has been said, the Bill is modest in ambition but still very useful, especially the proposals in Part 4 setting targets for apprenticeships and containing measures for protecting the brand. I was fascinated by the Minister’s throwaway suggestion that there ought to be some ceremonies to symbolise the successful conclusion of apprenticeships. Speaking as a representative of “Rituals ‘R’ Us”, I could certainly offer a consultancy. We might even have apprenticeships in the Diaghilev industry that I can see growing today.
I was recently at the topping-out ceremony for the new Bloomberg building in the City of London. It covers three acres and will contain the largest quantity of stone of any building in the City since the construction of St Paul’s, so I dread to think what has happened to Derbyshire as a consequence. Five million hours of labour had already been put in before the ceremony, and there will be another 9 million before the centre is finished. The talk was all about a point that has already been made by other noble Lords: getting Britain building and, in that context, the vital importance of apprenticeships in securing the supply of properly qualified engineers and tradesmen. There was a special emphasis on the restoration of the dignity of making. That is obviously a very considerable cultural challenge and the direction has gone somewhat in another way, but presumably the measures to enhance the credibility and status of apprenticeships are partly aimed at addressing that. “The dignity of making” was one of Lord Foster’s phrases on the occasion of this extraordinary launch.
In the City of London, of course, regulations governing apprenticeships, to which the Bill contributes a 21st-century coda, go back to the 13th century. Then, the minimum was seven years and sometimes longer, and I hope that the Minister is aware of, and looks to, the 109 livery companies as allies. They are small businesses in themselves and, as part of their extensive involvement in education, they have also increased their involvement in craft-based apprenticeships. Companies such as the spectacle-makers are participating in advanced three-year apprenticeships and they have certainly acknowledged the support of BIS in getting their scheme off the ground. They are part of the Livery Companies Skills Council, which was set up in 2013 to support all manner of craft-related apprenticeships.
I declare an interest in representing 16,000 small businesses—parishes, church buildings and cathedrals—with a responsibility, among others, for maintaining 45% of all the grade 1 listed buildings in England, which are a vital part of our cultural inheritance. So we are also vitally interested and involved in the high-level training of stonemasons and other apprentices. The Cathedrals’ Workshop Fellowship is part of the effort. It was created in 2006 and nine cathedrals, including Canterbury and York, are currently involved in work-based programmes validated by the University of Gloucester. We very much welcome the emphasis on protecting the status of the brand. Measures to increase the supply and enhance the status of apprenticeships are very welcome. In life generally, apprenticeships are the way to success and mastery. The alternative is overnight stardom, but there is no legislating for that.
Lord Baker of Dorking (Con)
My Lords, this is something of a patchwork Bill, in which the Government have produced a variety of proposals which, they hope, collectively will make our society more enterprising. The dubiety of that has already been expressed by the Labour and Liberal spokesmen.
I should like to follow the right reverend Prelate the Bishop of London and talk about Clauses 18 and 19 on apprenticeships. The Government have set great store by transforming the whole apprenticeship movement and developing what has happened before, and they have set a target of 3 million by 2020. I think that that will be very challenging if we are to have high-quality apprenticeships, because the apprenticeship movement has been much abused in the past. I remember that about two years ago I went round an FE college and met two youngsters in the corridor. One was carrying a brush and the other a mop and bucket. I said, “Hello, what are you doing?”. They said, “We are apprentices”. I would not have thought that mastering a brush and a mop and bucket required a one-year or a two-year apprenticeship, and I doubt very much that they were doing the subjects which should be done when studying building maintenance via electronic engineering, making quite sure that computer systems and ventilation systems work. I do not think that they touched on those things at all; it was a racket. Some company—I do not know whether it was in the public or the private sector—was paying them a salary to do this. Maybe the FE college itself was paying them a salary because it would benefit from doing the training. However, I hope that the Minister will take this home to BIS and make sure that we do not have apprentices like that in the future.
There are four important levels of apprenticeships. Level 2 is taken at the age of 16, but industry and commerce look upon those as semi-skilled—they are not demanding enough. The next level is A-level or level 3, which is much more important and is a demanding level of achievement. For this, a two or three-year apprenticeship is needed. Then there is level 4, which is the old HNC and diploma level; and then the foundation degree level or level 5. We are now beginning to see, very slowly, some foundation degree apprenticeships—the noble Baroness is nodding, but I can assure her that it is only a tiny handful.
Last week, a report from the Sutton Trust on apprenticeships and their comparison with positions across the world shared a very interesting statistic. Someone who does a high-level apprenticeship—at levels 4 or 5, such as I have been talking about—will, over their working life, be likely to earn £50,000 more than a university undergraduate, apart from, of course, those attending the very best universities. We have to get it across to many young people that an apprenticeship is not a second-class pathway to success. It can, in fact, be infinitely better than a university degree, because the English education system is now cursed by only one target: three A-levels and a university. That has resulted in a very large increase in graduate unemployment at the moment.
We have to create new pathways to success. But how are we going to go about doing that? Take someone leaving an ordinary comprehensive school at the age of 16. Today, that student will have been doing mainly academic subjects—the famous three A-levels and a university. Technical subjects are being squeezed out in schools for those below the age of 16. Design and technology is a very good technical subject that I introduced into the curriculum in 1988. Already, in the last five years, the numbers taking it at GCSE and A-level have declined quite regularly because it does not appear in the league tables or get students to the magic three A-levels and a university. Someone aged 16 who has done only academic subjects and wants to be an apprentice will, quite frankly, be very hard pushed to find any company to employ him. Take those between the ages of 16 and 18. Again, fewer technical subjects are being taken at A-level. We then come to foundation degrees—the pinnacle of this pathway to success—and they also fell last year.
This is a really rather depressing position. We have a very substantial skills gap in our country. The Royal Academy of Engineering estimates that the skills gap in graduates in STEM subjects is 45,000 a year for each of the next five years. At the moment, it will be very difficult to get anywhere near filling that gap in the choice of students going into universities. When it comes to technicians, the figures are very much larger. At degree level, the gap is 830,000; at technician levels 3 and 4, we will need 450,000 over the next four or five years. I do not believe that the present education system in schools, FE colleges or universities will get anywhere near matching that gap.
The other thing I would say is that we should really have a look at how Germany has done it. In Germany, by the age of 18, almost 75% or 80% of students will have experienced a form of technical education. We are at 30%. Last year, over 500,000 apprentices in Germany finished their course, while we had about 200,000. This is a huge gap indeed.
I am now quite convinced that, if we are going to try to fill the skills gap, starting technical subjects at the age of 16 is too late and starting at the age of 11 is too early. I believe that students in our schools should start technical education at the age of 14. That is why, over the last six years, I have been promoting university technical colleges, because they take students from the ages of 14 to 18. The noble Lord, Lord Bhattacharyya, is in the House. He knows about this, because he supported a very successful one that opened in Coventry, supported by Jaguar—he is nodding. It is very popular and doing very well. It means that a student starts at the age of 14 and by 16 has a level 2 qualification. They are then just employable, and so it is much better for them to stay on and get a level 3 qualification and go on to a level 4 and level 5. That is why we need in our education system a clear and definite pathway for technical subjects for students between the ages of 14 and 18. The CBI has now called for the Government to establish this, as have the chambers of commerce. I hope that we will move towards it.
Certainly, the university technical colleges that are operating at the moment—we have 39 open and another 20 preparing to open—all very much subscribe to the phrase that the right reverend Prelate used: they all involve the dignity of making. For 40% of the curriculum below 16—that is, for two days of the week—the youngsters are making and designing things with their hands, in various types of metal, wood and other materials, and doing advanced computing. They are therefore very suited to providing apprentices. The JCB UTC in Uttoxeter in Staffordshire has 50 apprentices this term. They will be there for two years; they will be employed by companies in the area; and they will go to the college for two days a week to improve their basic education. That is very rare. An ordinary comprehensive could not possibly do that because no company would employ its students unless they had some technical skills.
Another UTC, at Reading, which was rated as outstanding by Ofsted this year—it is remarkable for a new school which has been open for only two years and is pioneering a new type of education to get such a rating—specialises in advanced computing. When I went to see Charlie Mayfield, the chief executive of John Lewis, I wanted to talk to him about food processing, because one of the UTCs wanted to do it and there is a shortage of hundreds of thousands of technicians in that industry, but he said, “No, I want to talk to you about the lack of computer scientists. I cannot get enough computer scientists of a sufficient quality to run what is a very difficult logistical operation of a large retail group”. So he has to employ from abroad. I then put him in touch with the Reading UTC, and I am glad to say that it is providing apprenticeships for Waitrose next year.
This is an entirely appropriate cause for the Government to be committed to. Huge sums of money are involved—the spending on apprentices this year will be £1.5 billion, or slightly more than that—but they must get it right. They must focus on the high quality of apprenticeships, because that is where we need it most. If you are going to have a really enterprising economy, you will have to have many more technicians in it, inventing and designing things. That should be our target in our apprenticeship policy.
Baroness Donaghy (Lab)
My Lords, with so many topics covered by the Bill, I will concentrate on public sector exit payments and then add brief references to cash retention and apprenticeships. I am concerned about the proposal to cap public sector exit payments. I have a fair amount of experience in this area and know that the measure will have unintended consequences which make reorganisation more difficult. It will mean less flexibility for redundancies and less certainty for staff—particularly those over 50—and, in the end, might cost the taxpayer more money not less.
In the Civil Service, the proposal cuts across a negotiated agreement. The then Minister for the Cabinet Office, now the noble Lord, Lord Maude of Horsham, described the agreement reached in 2010 as one which would be “lasting”; he said that it would,
“provide a fair balance between the interests of taxpayers and the interests of civil servants and protect those approaching retirement and the lowest paid”.—[Official Report, Commons, 14/12/10; col. 849.]
So what has changed?
The impact of the proposed cap will be on those with long service rather than on the highest paid. The Cabinet Office has confirmed that some civil servants earning less than £25,000 a year could be affected by the cap because they have worked for so long for the Civil Service. Conversely, some high earners with less service will not be affected, because the Civil Service Compensation Scheme is service-related and there is already a maximum pay limit. This maximum pay limit has meant that a number of employers have not been able to restructure their organisations or make the staff changes that they had planned. If the Civil Service had a viable redeployment process, it would provide better value for the taxpayer than an exit cap. It would also meet the ACAS guidelines for employers on redundancy handling.
In the health service, there is already an exit cap of £160,000. National Health Service trade unions have recently been in negotiations with employers and the Department of Health on further changes to the NHS redundancy scheme. The Department of Health has been keen to use this latest round of talks to introduce a staggered clawback of redundancy payments where staff were re-employed within 12 months, and a taper of redundancy calculations for staff approaching retirement age. The National Health Service trade unions have been keen to use the talks to limit the need for payments through establishing better scope for redeploying staff at risk of redundancy. While there are still issues to iron out, these talks have been productive. However, the announcement of the Government’s £95,000 cap has set this timetable back significantly and has the potential permanently to derail these talks—another unintended consequence, I am sure. If there has to be a cap, the figure must be increased and there must be a commitment to index-linking that amount.
The Local Government Association has indicated that the proposed cap may threaten essential future staffing restructuring in councils. The Bill also fails to provide certainty over when the cap will apply, which is unhelpful for staff and employers. A start date should be made clear. UNISON has also referred to necessary restructuring as a result of the dramatic cuts in local government budgets. UNISON described these reorganisations as,
“a staggered process over several years to maintain service delivery and to enable smooth transitions from old to new delivery models”.
The union made the point that,
“employers and employees may therefore have made dramatically different decisions in [the] initial stages of restructuring if they had been aware of the constraints proposed for future stages by this proposal”.
Under recently negotiated public sector pension changes, guaranteed not to be meddled with for 25 years, when a member of the local government pension scheme is made redundant over the age of 55 they are instantly entitled to draw their pension without the usual penalty for drawing it early. The employer makes a one-off lump sum payment known as a strain payment. The proposals in the Bill explicitly include payments made to a pension scheme. It would impact on those earning £35,000 a year and as pension age protections wither on the vine the pension strain payment will begin to affect staff on much lower incomes.
As UNISON pointed out,
“under these proposals, an individual staff member’s length of service and age could become the determining factors in employers seeking to avoid the complication of this arbitrary cap”.
That may be discriminatory. I hope that the Government will withdraw this clause altogether. If they are not minded to do that, I hope that there will be a protected period of two to five years where an employer can demonstrate that they are in the middle of an ongoing restructuring programme. The cap should be increased so as not to derail NHS joint negotiations. There must be a mechanism for index-linking, and pension strain payments should be excluded from the exit payment calculations. There should also be an exemption for low to moderate earners. My final point on this particular part of the Bill, particularly with the Trade Union Bill coming down the track, is that reneging on agreements reached after much agonising on both sides is a sure-fire method of creating havoc in employment relations and stoking up a lot of trouble for the future.
The Enterprise Bill provides an opportunity to return to the subject of cash retention, particularly in the construction sector. Some of us participated in a debate on the small business Bill but the previous Government were not minded to introduce some safeguards on this. The same Minister is presiding over this Bill and I hope that she will change her stance. I also hope that there will be support from across the House for a provision in the Bill that requires cash retentions to be placed in trust or that alternative security such as bank guarantees are provided. I am sure that the noble Lords, Lord Aberdare and Lord O’Neill of Clackmannan, are majoring on this important subject, so I will keep my contribution as brief as possible.
The Specialist Engineering Contractors’ Group has been calling for this provision for some time, and it is depressing to read about the companies that have gone under simply because of companies which owed money and did not pay up. As the SEC has stated, cash retentions are withheld from progress payments ostensibly as security against failure to remedy defects. In practice, they are deducted to support the cash flow of the paying party. Cash retention in the construction industry is a scourge which causes bankruptcies, loses jobs and reduces training. When I was preparing my report on construction fatalities six years ago it became clear to me that cash retention was part of the downside of the construction industry. Flexibility will always be a necessary ingredient for that industry’s success. While I was not able to prove a conclusive link between cash retention and safety in the industry, I feel sure that the uncertainty it causes, the cutting of corners, the massive strains put on subcontractors and those further down the supply chain make a negative contribution to safety. Cash retention is like an underground poker game. I urge the Minister to at least force these games into the fresh air.
I shall make a brief and final reference to Clauses 18 and 19 on apprenticeships. The commitment on paper is welcome, and I notice that the much-despised targets are back again. Unless the Minister has the powers of Prospero and can conjure up 3 million apprenticeships without any visible means of support for the public sector, I am very much afraid that this plan will be a Caliban. The levy could turn out to be a tax on training and could displace training budgets for existing workers. So I ask what plans there are for proper negotiation with employers and unions in its implementation. If the National Health Service is forced to take on more apprentices, where there is insufficient staffing capacity to provide supervision and mentoring, it could be very risky. The types of roles for which apprenticeships exist do not necessarily match up with the job vacancies. A healthcare assistant in the NHS wishing to become a nurse cannot currently do so through an apprenticeship and would require funding to support their progression. This could be a really important development if the Government were so minded and would provide real jobs at the end of the process.
Is it the Minister’s intention that the Skills Funding Agency continues to run and fund the National Apprenticeship Service, which co-supports the public sector? What information will be gathered on gender, age, ethnicity and disability in each region to ensure fairness? Will all apprenticeships receive the minimum wage and not just six out of seven as a recent BIS survey revealed? How will standards be streamlined? For instance, the level 2 healthcare support worker trailblazer apprenticeship does not require participants to achieve a level 2 qualification.
Finally, will the UK Commission for Employment and Skills report on the quality of apprenticeships being provided and produce a review of what social dialogue has taken place to help to ensure the success of these schemes? I look forward to exploring these issues further in Committee.
Baroness Brady (Con)
My Lords, as always it is an honour to speak in the House—especially on enterprise, a subject dear to my heart.
I will begin by describing the backdrop in front of which this Bill sits, and thereby illustrate just how important it is that we debate the issues it raises. With the party opposite having appointed a shadow Chancellor who does not believe in market capitalism, this Bill is a good opportunity for those of us who do and who believe that business is a force for good, to recognise the contribution that all businesses make to the life of our country and to begin to restore trust in business by creating new opportunities for small businesses to grow and for large businesses to help them do so.
As my party’s small business ambassador, I make no apology for championing the efforts of our nation’s start-ups, entrepreneurs, sole traders and growth companies. However, the Bill presents an opportunity to bring the whole of the business community together, large and small, as one economic and social ecosystem. Large businesses were once small and they can help our SMEs flourish as they have done.
I will begin with a few key benefits of the Bill to small companies. In a recent survey, 73% of scale-ups said that they would be able to grow faster if dealing with regulators were easier. The Bill will make that interaction easier. The Small Business, Enterprise and Employment Act already mandates that the Government publish the economic impact on business of legislative changes, but it currently covers only national legislation. It is to be welcomed that the Bill will bring any and all regulators in scope so that they, too, will need to be mindful of the economic impact of their output. It will also mandate that regulators report on how they are accounting for the impact on economic growth of the regulations that they are responsible for. This will help identify measures that are hampering growth and investment and therefore should be consigned to the legislative dustbin.
Further, amending the Industrial Development Act 1982 so that the Secretary of State can increase the number of grants or loans made in the name of spreading communications networks is a timely adjustment that should better enable the spread of broadband right across our country. Good, reliable connectivity is essential for businesses of all types, but its absence has a much bigger impact on small businesses. I also welcome the increase in the per project threshold in Clause 24 from £10 million to £30 million to reflect the effect of inflation since 1982.
I mentioned that the Bill presents an opportunity to bring all sections of the business community, large and small, into one ecosystem, because, of course, in reality they interact all the time. The creation of a Small Business Commissioner is symptomatic of this ecosystem and is an exciting attempt to improve it.
In January 2015, BACS reported that 59% of the UK’s small and medium-sized businesses were impacted negatively by late payments, with a total debt burden of £32.4 billion. In July, a BIS survey found that 75% of businesses agreed that the relative size and market power of small and larger businesses is the primary cause of unfair practices between businesses. The Small Business Commissioner will be there to level the playing field. The Bill will enable the commissioner to handle complaints, facilitate access to support when disputes arise and help small businesses take action while avoiding going to court.
I also mention that the inception of this new office is an opportunity for larger businesses, too. That is because of the last objective of the commissioner: promoting a change in culture on late payments. Larger companies should not wait to be told to pay up by the commissioner. Instead, on day one they should seek to demonstrate their responsible practices by paying promptly and engaging with the work of the commissioner to encourage others to do the same. In this way, larger companies can show that they are helping their smaller cousins flourish and grow as they have done, and not using their incumbency to protect their status.
The Bill is about being pro-market and pro-competition, not pro-vested interests and incumbency. If big businesses are seen only as entities looking to protect their status, doing the bare minimum to comply with the law while keeping smaller businesses down, we will not build trust in our system and our economy will grow more slowly and be less dynamic as a result. But if the Bill enables small businesses to grow and large businesses to play a part in that, then we can. Business is all about ideas, innovation, and investing in people and technology. This is business at its best and this is what this Bill is about, too.