Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Pitkeathley) (Lab)
My Lords, as your Lordships will know, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells ring and resume after 10 minutes.
Enterprise Bill [HL]
Lord Mendelsohn
“( ) Her Majesty may by Letters Patent from time to time appoint a person to be the Commissioner.
( ) A person appointed to be the Commissioner shall hold office until the end of the period for which he or she is appointed.
( ) A person appointed to be the Commissioner may be—
(a) relieved of office by Her Majesty at his or her own request, or(b) removed from office by Her Majesty, on the ground of gross misconduct.( ) Her Majesty may declare the office of Commissioner to have been vacated if satisfied that the person appointed to be the Commissioner is incapable for medical reasons—
(a) of performing the duties of his or her office, and(b) of requesting to be relieved of it.( ) A person appointed to be the Commissioner is not eligible for re-appointment.”
Lord Mendelsohn (Lab)
My Lords, in moving Amendment 1, I wish to speak also to the other amendments in this group in my name and those of the noble Lords, Lord Stevenson and Lord Stoneham.
Today is a very important day. I was in the Chamber earlier and felt that many other noble Lords considered it significant—as is this first day in Grand Committee on this Bill. Indeed, I felt a sense of trepidation throughout the House. Perhaps I was slightly wrong with regard to noble Lords’ interest in the subject matter, but I still think that we can muster great interest in the subject we are discussing. For me this is a very important day because I will seek to be at my absolute charming best in trying to convince the Minister to take on board the issues that we are raising. We have much common cause with the Government on these issues—for example, trying to do more for small businesses and addressing late payment. Over the next few years, we hope to continue on that path. We were unsuccessful with many of the measures that we proposed to the small business Bill and I do not wish to rehash all of those but there are some common themes here.
We have done quite a bit more work since then and been exceptionally constructive. I hope that the Government will be open to charm and persuasion and the sheer power of the argument presented by noble Lords on this side of the Committee—and, indeed, by noble Lords on all sides of the Committee. There will be no threats. On this auspicious occasion we see the familiar faces of many noble friends, noble Lords and officials and others who take a keen interest in these matters.
Today is also an important day as I will agree with the noble Lord, Lord Hodgson, on many more issues than I thought possible. So I think that we have a fair degree of consensus in this Room, all of it motivated by our strong desire to make progress. We attach importance to a number of measures proposed in these amendments and believe that they are worthy. Some later amendments on retentions in the construction industry and contingent liabilities are very thoughtful and well considered and we hope that the Minister will address them in detail.
I wish to make two important preliminary points. First, I do not wish to sound churlish in my comments, as I recognise that the Government deserve huge credit for starting the process of focusing on small businesses and doing a range of things to support the dilemmas and circumstances facing small businesses as they conduct their activities. Secondly, the Minister has been very helpful and has personally played an important role. She and her officials are trying to do a great deal.
This is a difficult Bill with an eclectic array of items, many of which bear the imprints of a strong press release and some of which, it has been suggested, bear the imprint of policies that could have been negotiated away had there been a coalition. Given these potential situations, the Government have done something to bring this all forward. However, there are many ways in which the proposals for a Small Business Commissioner can be improved. The Government have proposed a Small Business Commissioner with a general advice mission, a mission to signpost and a form of complaints procedure. These early initiatives are useful but limited. There is nothing like a good Small Business Commissioner, but this is nothing like a good Small Business Commissioner. There is a lot more it can do to develop the role. The UK variant of the model is subscale and unlikely to achieve its task. Even as a first step, we suspect that there are other mini-steps which the Minister may be willing to consider that will give this a lot more capability in the future.
Our contention on late payments is that, although there is a great deal of desire to do something on it, the inexorable economic logic allows an incentive for late payments to fester and poor payment practices to continue until there are concrete disincentives. Reputational disincentives are not the same as being able to ensure that businesses have a culture of enforcing their own rules about this. As a consequence of time, I can only note the connection of some companies with the Prompt Payment Code and who is really responsible for it in the business. Many times it is dealt with as external presentation, rather than being a finance department priority. We can deal with many of these issues and it is probably more important to make sure that it becomes a core part of their practice. We understand that the commissioner has been established to deal with late payment issues but we are concerned that it falls between being a late payment ombudsman and—especially with its direct connection to the Minister—becoming the small business baseball bat, trying to berate companies which might generate some media coverage at the time.
Small business commissioners work at their best when they show the skilled capacity to move the business environment and are able to work for all sections of business—not just small business—to make that work, and they are able to address some of the issues that affect relationships between small businesses. Some of those relate to the inability of small businesses to get access to credit and, somewhere along the line, there are larger businesses which are a problem in and of themselves.
Amendment 1 seeks to increase and enhance the level of independence of the Small Business Commissioner. We have adapted this from the Information Commissioner’s Office and the Parliamentary Commissioner for Administration—who is appointed by the Crown on the advice of both Houses of Parliament. Amendment 3 amends the schedule, removing the paragraph stating that the commissioner is to be appointed by the Secretary of State. Amendment 4 removes the power of the Secretary of State to appoint staff for the office of the commissioner, which is clear in both the Explanatory Notes and the impact assessment. Amendment 5 specifies that:
“The Small Business Commissioner has the authority to appoint and recruit his or her own team”.
Amendment 37 removes the provision which states that the Small Business Commissioner must lay an annual report before the Secretary of State and instead requires that:
“The Commissioner must lay a copy of the Report before both Houses of Parliament”.
Amendment 38 removes the clause which empowers the Secretary of State to abolish the office of the Small Business Commissioner at the stroke of an administrative pen, meaning that instead, anything should be brought before Parliament. There are very good reasons for this. If the role of Small Business Commissioner is to work, it needs to maintain the confidence of all stakeholders and all the people in the process, not just be an instrument of government but be able to work collaboratively and collectively with government, small businesses, the media, academics and other stakeholders in the economic cycle. Moreover, it is very important that the Small Business Commissioner, to maintain confidence, is able to be a learning institution.
The changes that take place in the business environment as well as the pressures that exist require it to take a sensible, sound and broad view. Our desire is that the Small Business Commissioner learns how best to apply the levers that it has and to call in other allies and bodies that are receptive to its views. If you look at the origins of the best parts of the Small Business Administration in America and how they have worked, you see that they have involved a learning experience as regards how you apply, generate and change powers.
To look at the example from Australia of the 2003 establishment of the Victoria Small Business Commissioner, over the entire period in which all the other states have adopted a small business commissioner, as well as a federal one, you can see that there is a process by which an effective commissioner has been able to marshal the arguments and evidence and capacity of a body established by government to be able to be most effective and build the confidence of business. We want to see that model and we are concerned that the structure as defined in the Bill and the Explanatory Notes suggest that this is no more than a rebadged office of the department itself. If this is to work and to be of valuable long-term strength to the small business environment, it needs to be fully independent. We need an effective Small Business Commissioner, and one of the most important things that will make that person effective is their ability to appoint their staff. If we wish to be serious about late payments, we need someone who can work, not on the basis of the press release or the exhortations of Members of whichever of these Houses, but constructively, to be able to work with businesses, learn the right lessons and create the right solutions to do that.
Our amendments do not support only the obvious organisations that work in this area. It is important to note that the Institute of Directors has been very forthright in its support for Amendments 1 and 5. I will quote what it said at length, because it is relevant. Of course, one must remember that the IoD is probably the organisation that represents the largest number of directors, owners and operators of small businesses. It is important to understand that it has a great deal of expertise in this and is a very effective team and leadership. However, on Amendment 1 and the removal of Clause 11, it said:
“Together, these amendments would give the Small Business Commissioner a stronger footing from which to be a champion for small business. We fear that the possibility of abolition by the Secretary of State could potentially negatively impact the ability of the Small Business Commissioner to challenge that same Secretary of State. We hope for and anticipate a positive working relationship between the Commissioner and the Secretary of State”.
On Amendment 5, it says:
“This amendment would allow the Commissioner to appoint and recruit their own team which, again, would increase the independence of the Commissioner. We do not want to see the SBC run as an insurgency within the Business Department, but it is important that the Commissioner has access to expertise outside the existing civil service when appointing his team”.
All I can say is: I am more than happy to read out those lines and I concur with the motivation behind them. That is an important message about what we have been trying to do and how effective the Small Business Commissioner could become if it was given the right relative independence and the right environment in which it could flourish itself. I beg to move.
Lord Cope of Berkeley (Con)
My Lords, I was interested to see this amendment, and I understand what the noble Lord is proposing and have some sympathy with what he says. There was one interesting aspect which caught my eye when I read it. I was not sure whether it was deliberate, but the noble Lord has left in place that although the commissioner will be appointed by Letters Patent, the Secretary of State will appoint one or more deputies to act for him, even though the commissioner appoints the rest of the staff. Is it the intention to leave a deputy commissioner—of one or more deputy commissioners within the commissioner’s office—as the representative of the Secretary of State, which is what one would assume from their appointment if all the rest of the staff are appointed by the commissioner? If the amendment were carried, would the noble Lord seek to refine those proposals?
Lord O'Neill of Clackmannan (Lab)
My Lords, the Minister has had a distinguished record in public service and in the private sector. I imagine that in both of those areas she has had responsibility for the appointment of people to significant positions. As my noble friend Lord Mendelsohn was going through the amendments, I thought about what kind of person we will have as the Small Business Commissioner. The commissioner will be someone whose terms of reference are quite clear. He will be the creature—the satrap—of the Secretary of State. He will be appointed by that Secretary of State with little security of employment. He will be capable of being thrown out at the whim of the Minister. He will have little or no say over the appointment of the staff who will be working under him or her. I am sorry if I slipped into sexist language and assumed that the individual would be a man. I should have thought that a woman would be too sensible to do the job.
The truth of the matter is that this is a bit of a non-job. For it to masquerade as the defender of business, without an iota of independence of the Minister, means that the commission is, in effect, a state-run citizens advice bureau for businesspeople. Unless the salary is fabulous and the hours and conditions are not very onerous, there is not much incentive to take this job. Frankly, one would immediately ask questions of anybody who took the job in the first place.
It is for all of those reasons that the amendments tabled by my noble friend would make this appointment worth while. It would afford the business community a sense of confidence. A small business that has problems with payment and other concerns about administration will find that this place-person is in a job that affords the small business little or no protection and little or no opportunities for redress of an independent character. At the end of the day the operation of this office will be subject to the most minimal scrutiny and the reports will be given not to Parliament but to the Secretary of State alone, which leaves one with grave concerns.
I return to my original point. If the Minister were working for Tesco and it was going to appoint a customer ombudsperson on the basis that he would be hired or fired at the whim of the Tesco management and that reports would not be subject to public scrutiny—not necessarily by all the account holders of that company, but perhaps by the people who work in trading standards offices in local government, for example, who make it their job to protect the customers’ interests—would the public have any confidence in a person of that kind? I doubt it. I doubt whether any business establishing a position of this kind would have the nerve to present it in this way. Frankly, it is not worth a light. One can have no confidence in the appointment of this nature under the terms of reference that the Government envisage. They are missing out a tremendous opportunity and bringing the appointment into disrepute by the manner in which it is being presented and the terms of reference under which the individual to be appointed would have to operate.
At this early stage in the Bill, and given the significance of this appointment, we are missing an opportunity which would be filled by the amendments which my noble friend has just introduced, with which I am happy to be associated.
Lord Stoneham of Droxford (LD)
I support what the speakers so far have said, particularly the noble Lord, Lord O’Neill. This is an issue of confidence. Either the Government have confidence in this appointment and are prepared to give it powers and independence or we must ask whether it is really worth having it.
We will be raising this later, but if the powers of intervention are to be limited simply to other businesses rather than to look also at the role of public authorities, it is understandable why the Government are trying to circumscribe the position. Under other amendments, we will look at whether the commissioner should have a wider role. Nobody will say that other public authorities are not just as bad at times in dealing with their suppliers as some parts of the private sector. We must ask why they should not be included. If that is the case, the position clearly needs greater independence, rather than being responsible simply to the Secretary of State. For all those reasons, I very much support the amendments.
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, I thank the noble Lord, Lord Mendelsohn, for opening the debate with his amendments. He is always a great charmer, but the power of argument matters too. I particularly thank him for his kind words to my officials—it is a bit like being photographed alongside the Minister in the media: they have to buy a round of cakes for the office—but I thank him in any event because, as he said, they are giving us a lot of support right across the board.
I thank the noble Lord, Lord Stoneham, with whom I spent hours on the small business Bill looking at some of the issues that I think we will probably visit over our next four sittings. I will come back to the public sector on later amendments, in the interests of time.
The Small Business Commissioner will be a valuable source of advice, information and support for small business, and, if I may say so, I think that we are all agreed that it is vital to find a person of talent and good judgment to carry out this very important role. We are very serious about tackling late payment, as noble Lords know. We are doing that not only in the provisions of the Bill but with a number of other provisions which we ran through on Second Reading.
As I said then, my view is that the commissioner does not need to be able to address any and every problem in order to be effective. Indeed, I believe that focus is an important ingredient in success. A commissioner who has a focused remit and great personal authority and credibility will have a significant impact on culture and practice—as we have seen in Australia, where the Small Business Commissioner’s role has been focused on priority issues in the Australian circumstances. This first group of amendments addresses the independence of the commissioner from the Government. Obviously, I understand noble Lords’ concern that the commissioner should be able to act independently. That is our intention, just as it is important that the commissioner must act independently of business.
Under the Bill as drafted, the commissioner will be required to act impartially in deciding complaints and when providing general advice and information, and the very fact of being set up by Parliament lends the office permanence and authority. Amendments 1 and 3 seek to remove the power of the Secretary of State to appoint and dismiss the commissioner and to give this power instead to Her Majesty. The fact that the Secretary of State will appoint the commissioner will not compromise the independence of the office. This will be a public appointment subject to all the usual public appointment rules and procedures.
As noble Lords will be aware, a great many appointments in public life are made in this way. The Commissioner for Public Appointments is the guardian of the process and ensures that the best people get appointed to public bodies free of personal and political patronage. The OCPA code of practice requires those making public appointments to comply with three principles: merit, fairness and openness. It is designed to provide Ministers with a choice of high-quality candidates, drawn from a strong and diverse field.
It is normal practice for public appointments to be capable of termination by the Secretary of State if he is satisfied that the person is unable, unwilling or unfit to perform his or her functions. The wording is carefully chosen and he or she cannot dismiss the commissioner at will. These grounds for dismissal reflect the approach that Parliament has been content to approve for the Groceries Code Adjudicator and the Pubs Code Adjudicator.
I agree with the noble Lord, Lord O’Neill, that we need to find someone excellent for the job but the power in Clause 11 for the Secretary of State to abolish the office of Small Business Commissioner is not one that could be used as lightly as the noble Lord suggests. The Secretary of State could abolish the commissioner only following a review, and only if he is satisfied that either there is no longer a need for a commissioner or that the commissioner’s role has not been fully effective. Any regulations to abolish the office of commissioner would be subject to affirmative resolution.
If the role of commissioner is no longer required—either because sufficient improvements have been made in the issues the office is being set up to address or because it has proven ineffective in tackling them—it is right that there should be a clear and efficient process in place to abolish it, as my noble friend Lord Eccles said at Second Reading. To respond to the noble Lord’s challenge, I think it is a very attractive public job, which, if circumstances were very different, I might even be thinking about myself.
I am aware that the Delegated Powers and Regulatory Reform Committee has published recommendations in relation to this clause, and I confirm that we are considering those recommendations closely and will bring forward amendments where necessary.
Amendments 4 and 5 would remove the ability of the Secretary of State to provide staff to the commissioner and would enable the commissioner to recruit his or her own staff.
Lord Stevenson of Balmacara (Lab)
My Lords, will the Minister clarify what she said about the Delegated Powers Committee report? She said that the Government were considering it and would be bringing forward amendments. That is still not yet decided, is that right? The Government are still considering that position so we will not necessarily see the amendments as recommended.
Baroness Neville-Rolfe
The noble Lord will be aware that the committee produced its report at the end of last week. When I found out about it, I felt it would be right to refer to it. Of course, we always take very seriously the excellent work of the Delegated Powers Committee. I am not in a position today to say where we are on that but I wanted to make sure that noble Lords were aware of it because it seems relevant to our discussions.
As I said, Amendments 4 and 5 would remove the ability of the Secretary of State to provide staff to the commissioner and would enable the commissioner to recruit his or her own staff. Again, I can see that it may appear attractive to do this but it is not necessary. The commissioner will be staffed by civil servants. They owe no political loyalty to the Secretary of State and are obliged to do their work impartially and objectively. Such staff will work to the commissioner and under his or her direction.
Lord O'Neill of Clackmannan
We are talking here about what could be quite sensitive business arrangements, where the skill set of civil servants might not be appropriate. You might need people with direct entrepreneurial skills and experience. With no disrespect to the Civil Service, by restricting appointments to its ranks there is the possibility that the pool of talent would be rather more limited than it needs to be.
Baroness Neville-Rolfe
My Lords, departments could bring in outside experts to work for or with the Small Business Commissioner if they need something more specialist than civil servants can provide. Of course, there has been a lot of entry into the Civil Service from places such as business and the legal professions that perhaps gives us a bigger pool than classically we had. Indeed, the commissioner is expected to be recruited from outside the Civil Service. Obviously, the leadership of such organisations is critical—as I think we agree.
There is an important further point: staffing the commissioner’s office in this manner provides a quick and easy way to provide the commissioner with the support he or she needs. It ensures the office can be responsive and flexible to demands, for example in the event of a surge in work. It avoids the costs and administrative burdens of setting up a whole new organisation that is able to recruit and employ its own staff outside the Civil Service.
Concerns have been expressed about the number of staff that the commissioner will have. I assure noble Lords that the commissioner will have the support that he or she needs. The estimates in the impact assessment take account of complaint levels to other bodies and reflect the fact that the commissioner will signpost to other dispute resolution services. However, if experience shows that we have got this wrong then the Secretary of State can review the commissioner’s resources accordingly. I think that that is an advantage. I agree with the noble Lord, Lord Mendelsohn, that learning from experience—as other commissioners around the world have done—is very important.
It is right and proportionate that the Secretary of State should provide the commissioner’s resources. Unlike the Groceries Code Adjudicator and Pubs Code Adjudicator, the commissioner will be funded from the public purse and not from a levy on the industry it regulates, so this is different in character. It is appropriate that the Secretary of State approves the budget and staffing of the commissioner as obviously that will have a direct impact on public expenditure.
Finally, Amendment 37 requires the commissioner to lay his or her annual report in Parliament, rather than the Secretary of State doing so. That would be an unusual move and unnecessary. The Bill provides that the commissioner must publish an annual report and that the Secretary of State must lay that report before Parliament. He does not have any discretion in this and has no power to alter the report. The critical thing is that we have a Small Business Commissioner who commands authority and respect, and who acts effectively and with credibility and impartiality. As my noble friend Lord Cope said, there is also scope for a deputy commissioner. I hope that with this extra information, noble Lords will feel more confident and able to withdraw their amendments.
Lord Mendelsohn
I thank the Minister for that reply. She cut to the heart of the problem when she talked about our arguments on the circumstances and way in which such a post could be abolished. She said that if it was felt to be ineffective and unable to carry out its task then there would be some easy means to abolish it. The problem is that if you do not give it the means to do the job, if you restrict its ability to learn and develop, then it will not be able to do that job particularly well.
When it comes to staff, the Explanatory Notes say:
“The Secretary of State may provide staff, premises, facilities or other assistance to the Commissioner. The Commissioner will not directly employ staff or lease premises, but will be allocated appropriate staff, premises and other facilities and assistance by the Secretary of State. The staff will be civil servants”.
It is insufficient to say, as the Minister has, “We shouldn’t worry about that because of course they will not be working with the Secretary of State—they will be working independently”. By no means do I wish to cast aspersions on those individuals. However, if you want someone to do the job, it just does not work if they are given all the staff but no means of recruitment and development. It is not the largest organisation in the world: it consists of a dozen or so people; it is not huge. That is not the greatest degree of complexity. Recruiting for and scaling such an organisation is not the most difficult challenge. As for efficiency and effectiveness, what most small business people learn in running a small business is how to manage and work with their team. That is directly relevant to whether this body will be able to carry out its function. It seems somewhat ridiculous to say that it might not be able to perform its task when you give it the people who might be able to do the job but not the ability, powers, capabilities and the role actually to do it.
In that regard, I thought that the contribution from my noble friend Lord O’Neill was quite outstanding. There is a real problem in recruiting the right sort of person if you cannot see the pathway to making that sort of impact. I am encouraged that someone of the quality of the Minister has suggested that she herself might be interested in that role, although she has not confirmed that she will submit an application. That is a question that we might probe a little later. However, it is important to understand that we need people of quality and to allow those people of quality to flourish—to be in a role where they can make the best of what they have, as opposed to being within the vice of the Secretary of State. My noble friend Lord Stevenson made that point to probe the Government’s view of the Delegated Powers and Regulatory Reform Committee’s assessment. I think that it is worth reading out that assessment just so that we are absolutely clear about it. On a day when many people are talking about constitutional crises and historical precedents, I thought that the committee’s language was very relevant. It said:
“We therefore consider that it is inappropriate for the Bill to confer on the Secretary of State a Henry VIII power to abolish the Small Business Commissioner without any of the procedural restrictions (beyond the need for an affirmative resolution in each House) of the nature set out in the Public Bodies Act 2011, particularly that requiring consultation”.
That seems to suggest that this provision was written with a particular purpose in mind. I do not believe that that is the motive of those presenting it here today, but I worry because it has the feel of something that is more like that than a real way of developing something with a lasting impact for business in this country.
I am concerned that the general perception of how this provision was planned and developed underappreciated the role that the body should play. The estimate is that it will deal with 500 complaints. When a similar body was first established in the state of Victoria, it dealt with 430 complaints of a comparative nature. Victoria is the second most densely populated part of Australia; I believe it has 5.8 million people—something of that nature. Its GDP is perhaps 1/10th the size of the UK’s. It has perhaps 1/15th the number of small businesses that we do. It had 430 cases and we estimate that we will have 500. That is not a very ambitious view of the role of the Small Business Commissioner.
I say to the Minister that I hope that I am more than just charming.
Baroness Neville-Rolfe
I am grateful to the noble Lord for giving way. Obviously, we both enjoyed meeting the Australian Small Business Commissioner and comparing his role with the one that we have in sight. The role of that Small Business Commissioner is actually rather different from the one that ours will focus on. We have decided that he should focus particularly on late payment and the payment issues, which, as we all know, are a real problem. Many of the cases the noble Lord described involve matters such as property leases. I talked to the commissioner about what he was doing and it was a bit different from what we have in mind. We also have other provisions and ombudsmen, such as the Groceries Code Adjudicator, who deals with supermarkets, which means that the experience and the numbers are not comparable. I think that I have made it clear that we were making an assumption, I think rightly, based on experience of similar bodies in our own sphere. Obviously, one would need to keep that under review. I made it quite clear that the main thing is to have a commitment to resourcing this important commissioner. Happily, farm debt disputes are not a huge issue in this country, so we would not expect the commissioner to be hugely involved in such cases, as happens in Victoria.
Lord Mendelsohn
I thank the Minister for that intervention. That was about to be my next point. I have spent a large amount of time with Mark Brennan, both here and in other places. He identified the 500 tasks and challenges that he had to deal with. Of course, the origins of the Small Business Commissioner in Australia, as I outlined at Second Reading, came from very different circumstances and functions. In fact, late payment was never really part of the role. It still does not do that much. As I said at Second Reading, its performance on late payments is not one that I would wish to import. It does not deal with it effectively. In fact, one of our issues is whether or not the Small Business Commissioner can do it.
The number of complaints that the Australian Small Business Commissioner had was limited. If you divided by any means the number of complaints you had about late payments with the potential number that is meant to focus purely on late payments, you would end up in a situation where the comparable Australian figures suggest that their commissioner was trying to address 3% of the complaints and conflicts between businesses that we will if we take late payments. The assumed figure of 500 may well come from what we do currently but if you are establishing something that is meant to amplify it, what will 500 late payments do? Is one particular business responsible? If you were able to address 500 complaints, how much late payment debt would there be overall? It would not be that significant. In comparable terms, although the Australian commissioner has a different duty, 500 is still far too small.
Baroness Neville-Rolfe
It is important to remember the other work that is going on on late payment. We are bringing in the Small Business Commissioner. The noble Lord is right that it has not seemed to have worked in respect of late payment in Australia. That is why in parallel we are bringing in a statutory instrument, following the Bill that we passed last year, to bring in new rules on prompt payment, including some transparency provisions, which I suspect we will talk about later. These two have to come together and that is how you get the change of culture that you need.
The other point I want to make is that in my experience as a businesswoman, totemic decisions can be very important. You can end up with a lot of cases but you can find that if you make some correct judgments early on, they change the tone and the performance of the sector. None of us can know the numbers for certain but that would obviously be my hope.
Lord O'Neill of Clackmannan
I am sure that a court would back me up on this point. As elected Members of Parliament, we were required—and often enjoyed—to have surgeries in which we took the complaints of our constituents. One thing that always happened was the more successful you were in dealing with them, the more people you got. In fact, I used to get repeat complainers. I would say, “If I had not helped you the last time, you would not be back”. The truth of the matter is that if this commissioner is going to be successful, the chances are that the figure of 500 will be a gross underestimation of the likely volume of business that he or she has to deal with.
Anyone who has been elected or who is in a significant position where queries and complaints can be registered knows that if the commissioner is successful, they will get more and more business and it will not necessarily be a class issue, in the sense of a legal class issue. All kinds of waifs and strays will come in off the street with questions and complaints, some of which might not be valid, but in order for them to be invalidated, they will need the attention and scrutiny of what could very quickly become an overworked staff.
Lord Mendelsohn
I thank my noble friend Lord O’Neill for that useful intervention. There are academic studies on the culture of late payments which demonstrate that massive, punitive fines work best; regulation and legislation are better; and it is impossible to calculate the cultural impact of general provisions to inform and educate without a sense of what the consequence is, and in the absence of a public information campaign. In the same way, if you wish to encourage people not to do something, such as taking risks with fireworks, the case for a public information campaign is clear. I get the point about culture. We are saying that the greater the number of effective measures to manage behaviour, the better the cultural change will be. We can argue about where we are on the spectrum, but that argument will play a significant part later on.
We understand what the Government are trying to do with the UK model, but that model will have inevitable flaws and there will be constant questioning about what it does. As the Minister rightly said, there were other measures and this is the safe harbour so that information can also be provided. There was not an adequate vehicle to send reports to and now there is. I suspect that, over time, it might be convenient for reports on other things to be sent to it too. I get that, but we are actually hoping that you will extend the role. It is very nice to be described as charming, but I hope that the power of our arguments, and those from other distinguished noble Lords present, will have an impact and help the Minister understand that our idea is to do more. There are concrete measures which can do this. The Government’s proposal underplays it and does not provide the right sort of challenge and opportunity.
The noble Lord, Lord Cope of Berkeley, made a comment about allowing the deputy commissioner to be appointed by the Secretary of State. I suggest that our drafting was exceptionally wise and provided for a bit of give and take. If we were to remove everything from the Secretary of State we should at least give him something to feel comfortable with. We have continued to exercise a sense of to and fro and compromise with the Government on this. I suspect it was more an oversight and an error, but I would be happier for it to be seen in the first light than the second. These are significant issues which we will probably wish to return to on Report. I beg leave to withdraw the amendment.
Lord Stoneham of Droxford
“(b) to consider complaints from small businesses relating to matters in connection with the supply of goods and services to—and make recommendations.”(i) larger businesses, and(ii) public authorities;and make recommendations.”
Lord Stoneham of Droxford
My Lords, this is a simple probing amendment. If we have confidence in the Small Business Commissioner to deal with payment issues, and we are determined to build it up so that it has real authority and expertise, then it is the natural body for small businesses to go to for all late payment issues. So why do we not include public authorities as well? We know that it is better to have information and services all in one place. It simplifies and makes it easy for complainants to know where to go, as a last resort, to get matters resolved. Obviously, if there are other facilities available, they can be referred back. However, if there are genuine problems, why can the Small Business Commissioner not deal with them? Are we saying that there are no problems involving the public sector? Just the same issues emerge: small businesses find themselves dealing with big, anonymous organisations. There is a fear of falling foul of them, so they do not complain and the issues are not resolved.
The issues are the same whether we are dealing with small, medium or large businesses or public bodies. Why do we not have the Small Business Commissioner as a simple one-stop shop where these payment issues can be resolved as a matter of last resort? I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is an interesting amendment and worthy of further debate. Before I go any further, I ought to apologise to the Committee and the House for not having been present for Second Reading. Unfortunately, I was abroad, but I have obviously read the debate with care. I need to declare various interests, all of which are on the register of your Lordships’ House. I am a director or chairman of various companies both public and private; I am a regulated person under the Financial Services and Markets Act; I have undertaken various reports for the Government looking at difficulties involving the growth of small business, particularly in the charity and voluntary sector; and I am currently undertaking a review of Part 2 of the transparency in lobbying Act for the Government. All of those cross over various parts of the Bill, so it is important that I get that on the record at the beginning.
I am concerned about the situation with regard to what the Minister writes in her response:
“I want the Commissioner to act as a disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them assert themselves in contractual disputes and negotiate more effectively”.
What the Government propose to do is splendid, but I would like it to go a bit further—in fact, I would like it to go rather further than the noble Lord, Lord Stoneham, suggested in his opening remarks—to make it possible for public authorities, in particular, to be brought within the purview of the Small Business Commissioner. I know that this is an issue with which the Federation of Small Businesses is concerned, and I suspect that Members of the Committee will have received briefings from it.
When I prepared for the Government the report called Unshackling Good Neighbours, which looked at the inhibitions that were affecting small businesses, particularly in the charity and voluntary sector—whether they were voluntary groups, community enterprises or, indeed, limited companies—it was clear that such organisations are playing an increasingly important role in the delivery of services to some of the most challenging and challenged parts of our society. The Government can provide the vanilla flavour solutions, but local organisations can provide answers to what are often very deep-seated and difficult challenges because they are more flexible and responsive to local conditions.
In all those cases, a public authority will directly or indirectly be the employer. The difficulty that those organisations have with public authorities can be widely demonstrated and evidenced, and it is a pity that the Government, who want a vibrant voluntary third sector, are not prepared to allow this to be part of the remit of the Small Business Commissioner. There are three particular aspects of the relationship of those groups with public authorities: the issues of commissioning, operating and payment. I could make a long speech about all of those, but I will not, I will just pick out a couple of points on each.
For commissioners, it is always easy to make a safe award: to award the contract to a big business, not a small one. The sunk costs of competitive tendering are not always understood. If you have a contract for £250,000 or £400,000, of course you need to get value for money for the public, the taxpayer, and you need to have some competitive tendering, but you must remember that if you ask 10 different voluntary groups to tender, nine of them will lose money because there is only one winner and the costs of their submissions are lost. There is not always clear enough consideration of the costs of making each and every tender in relation to the costs of the tender itself. This puts small companies, charities and voluntary groups under a very great disadvantage. The Minister might like to ask her officials to give her a copy of the report, published about 10 days ago. It states:
“Commissioning is failing charities and failing those they support … Commissioning is a significant challenge for small and medium sized charities for many reasons but not least their difficulty in competing against large, national and/or commercial providers who typically win larger contracts. These are often priced to work with those with less complex problems and those who are easiest to help—when small and medium sized charities are typically working with those with more complex needs who require more help. The commissioning process promotes competition over collaboration, making it harder for smaller organisations to participate and work together to benefit those they reach. Too often if they are involved they end up as ‘bid candy’”.
That is the position that the small business community should be able to consider. The same is true of operations. The monitoring costs of these contracts can be out of all proportion to the value of the contract. Not only that, but half way through the contract the basis for monitoring is changed, so that the small business is put under considerable administrative costs or has to change the way in which the contract is being looked at. They also come up against the operational requirements of other government departments. One of the examples I came across was from the Medway towns, in which a small voluntary group wanted two or three volunteers to assist the expansion of its operation. It asked the local jobcentre for help and 40 CVs were sent. They had to be considered and when requests for interviews were sent out, only about 15 turned up, and in the end it made only one of the three expected appointments.
When we inquired why that was the case and why 40 had been sent, the jobcentre said that it was interested in fulfilling its requirements for jobs offered and could put 40 ticks in the box if it sent along 40 CVs. If it had sent only 10, it would get only 10 ticks in the box. These are the sorts of practices and burdens imposed on small businesses, particularly in the voluntary sector, which the Small Business Commissioner should be able to tackle. The commissioner can do so by publicising difficulties, intervening to prevent repetition and facilitating co-ordination between government departments, but to do that, the commissioner needs to have the power when necessary to stand up and get involved with public authorities.
I hope that my noble friend will be able to reflect on this as we work our way through the Bill and we come to the later stages. It is in line with the Government’s thinking, and it would help greatly in the development of a vibrant civil society.
Baroness Byford (Con)
My Lords, I apologise to the Committee that I was unable to speak in the Second Reading debate. I had a funeral to attend elsewhere.
My contribution is very small but I want to enforce what my noble friend has just said. Having worked in the voluntary sector for many years, I can say that it was always one of the problems we had. It has become increasingly more difficult over recent years with the economic climate in which local authorities have to work. We can understand in some ways why this has been geared up. It is a very real issue. Perhaps I should declare an interest. I do not have many to declare but one of them would be affected by this. I am president of the Leicestershire group for young people. It used to be called Clubs for Young People, but it is now called Young Leicestershire. It is a good example of an organisation that looks to get some financial support from local authorities. Again and again, it is a matter of how much information has to be given, how much possibility of acquiring it, and how much time is given to it. I hope the Minister can reflect on this because if we do not include the public authorities, it would be an opportunity missed. Unless the Minister can tell us that it is already covered by something else, it is an issue to which we will return later. I encourage her to reflect on it.
Lord Cope of Berkeley
My Lords, at Second Reading I referred to this question of public authorities. I repeat my view that it would be helpful if public authorities were included as well as larger businesses. I understand some of the reluctance from my noble friend and the Government to include public authorities in this, because there are other arrangements to which people or businesses can go to complain and get mediation in disputes with local authorities. However, the powers of the Small Business Commissioner as set out in the Bill are, for example, to give “general advice and information” on these questions. In doing that, why should not the Small Business Commissioner also be able to provide general advice and information to small businesses about how to go about dealing with a local authority that is not paying them promptly? That is what this is about.
Of course, there is another angle to Amendment 2. The noble Lord, Lord Stoneham, would not only include public authorities here but also omit the words,
“relating to payment matters in connection with the supply of goods”.
The noble Lord’s amendment would widen very considerably the amount of complaints that the Small Business Commissioner might get and I am less sympathetic to that element of it. I accept the argument that my noble friend made about focusing the efforts of the Small Business Commissioner. In time, once the commissioner’s office is established and working well, it might be right to suggest increasing the elements of business relationships that the Small Business Commissioner was able to look into, but let them start off with what has been one of the most perennial problems I can recall for at least 40 years, where there have been political complaints about late payment, the problems of small businesses and so on.
We all know why there is this problem; it is because of the cash-flow pressures on larger and smaller businesses. It has been such a difficult problem that, to my knowledge, all successive Governments over the past 40 years have looked at and tried to deal with it, including me when I was a small firms Minister in Margaret Thatcher’s Government. Frankly, none of the solutions proposed has really been very successful. That is why I am happy for the Small Business Commissioner to concentrate, at least in the first instance, on this particular issue. I do not support that element of the noble Lord’s amendment.
While I am on my feet, I apologise to the Committee but I will have to leave before long because I am a member of the House Committee and we are having our first ever joint meeting with the House of Commons Commission at five o’clock, which I should attend in spite of attractions in other parts of the building. I wanted to make that point to reinforce what I said at Second Reading.
Lord Mendelsohn
I congratulate the noble Lord, Lord Stoneham, on his presentation of this amendment and the basket of amendments that it covers. It had strong support from the noble Lord, Lord Hodgson, and the noble Baroness, Lady Byford, and for exactly the right reasons. That is very powerful.
To try and encapsulate this, these amendments are about a couple of very obvious things. First, the brief is too selective because there are organisations outside the terms currently drawn in the Bill but for which the flow of late payments or other matters become an issue. Secondly, the issue of the public sector is an incredibly obvious one.
Two angles to this issue are hugely relevant: the issue around payments and the business environment. They are connected and relate also to the Small Business Commissioner as late payments are rarely about just the egregious actions of a particular company. As the noble Lord, Lord Cope of Berkeley, said, in many cases very difficult issues arise with cash flow. These will rarely be solved by treating this matter as just a singular dispute between two parties. You have to consider the wider impacts on the business environment and the fact that late payment can be remedied only by taking a wider view and taking into account the capacity of the Small Business Commissioner to act in relation to the business environment in general.
If there is a problem with cash flow, you can shout at the businesses for as long as you like, but it means that one and possibly both are struggling. All of a sudden, if you tilt the balance too much one way, it may lead to one of the businesses closing down. The Small Business Commissioner is meant to be an agent who can create the right solutions. The Australian model has evolved great skill in creating what is called in Australia “commercially realistic solutions” rather than just determining right and wrong. Its great attribute is its credibility and authority and the scope of who it can deal with, not just its focus. If you deal with late payments just in terms of the circumstances of the two parties, you miss the point about the ongoing cash flow. Whether it is a case of large company contracts or small company contracts, a dispute between two parties is part of the problem.
Amendments 13 and 18 address the fact that 70% of small business trade is with other small businesses. Satago is a fantastic company with terrifically rich data. However, it highlighted the fact that under the Bill it is very hard for small businesses to come forward with some of the complaints we are discussing. Our amendments would help to ensure that whether it is a case of small businesses, large businesses or the public sector, the Small Business Commissioner cannot just deal with payment problems but can also take a wider view of the business environment. As I say, this is not just about disputes between two parties but about making sure that the overarching view is the right one.
Government regulation of small businesses should focus on addressing information balance and creating fair competition. While small business legislation should protect small and medium-sized businesses, the net outcome should be an enhanced competitive and fair operating environment for all business. Government involvement in small business matters should aim at ensuring that both prospective and ongoing small businesses have sufficient knowledge to make informed business decisions. While any business has a fundamental right of control over positioning and maximising its business opportunities, this right does not extend to engaging in unfair business practices. Small business should be able to access a low-cost informal dispute resolution forum prior to any grievances proceeding to formal litigation. These things are crucially important.
The business environment covers everything from where you get credit, which terms you establish, to how the logistics support the delivery of goods. All those things are relevant to late payment. If you want to deliver with a practical solution, sometimes you can mediate between two parties. However, sometimes the Small Business Commissioner needs to draw on the experience of others. These amendments are not just about the disputes mentioned by other noble Lords and dealing directly with certain problems; they deal with payment matters in general rather than just specific payment disputes. These things are important even as regards how you design a procurement process and the flow of money that comes from it, as this can sometimes be part of the problem. We should allow the Small Business Commissioner to draw on wider experience to promote an environment where late payments are less likely to occur.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Stoneham, for his contribution on the scope of the complaints handling and the point that he made about late payments to public authorities, which I will come to in a minute. I am also delighted that my noble friends Lord Hodgson and Lady Byford have joined us for the debates on the Bill. I know that they will bring a great deal to our discussion. Before he leaves for his constitutional engagement, I thank my noble friend Lord Cope for bringing us his long experience of the extremely difficult issue of people not paying their bills on time, which we as a Government are now seeking to address.
For completeness, perhaps I should mention Amendments 13 and 18, which I do not think anyone has focused on, which would allow the commissioner to handle a complaint made by a small business against another small business or a medium-sized business. The Bill provides that the commissioner’s complaints scheme will handle complaints by small business suppliers about payment-related issues with larger businesses—that is, a medium-sized or large business. The intention here is to help small firms where they suffer because of an imbalance in bargaining power when dealing with larger businesses. I think that that responds to one of the points made.
Lord Mendelsohn
I am disappointed that the noble Baroness missed the fact that during my speech I made specific reference to Amendments 13 and 18. I said that the justification for them was that 70% of all transactions for small businesses are between them, and of those, a significant number are triggered by the impact of large businesses.
Baroness Neville-Rolfe
I thank the noble Lord for that clarification. I was just saying that I think that that responds to the point that he was making on them, but those amendments are before us today.
I must say that there will be circumstances where an imbalance of power exists between two small firms, but we did not have the weight of evidence before us when preparing the legislation to suggest that it is necessary for the commissioner’s remit to extend to those cases. There is a lot of agreement today on a lot of aspects of our proposal, but perhaps not on that particular area: the focus that we propose on payment. We are targeting the commissioner’s services at the businesses that are most in need of support. I understand what noble Lords are trying to achieve with the amendments. We know that medium-sized businesses may struggle, but they are likely to be better equipped to able deal with their problems than their smaller counterparts.
I turn to Amendments 2 and 36.
Lord Mendelsohn
I thank the noble Baroness for giving way. I have just a very quick question to help us to understand how she arrived at this policy architecture. Of whichever number that she identifies as money owing to small businesses, what proportion is to large businesses and what proportion to small businesses? If she has specific numbers, that would be helpful.
Baroness Neville-Rolfe
I will come back on that point soon, if I can; otherwise I will write to the noble Lord with the figures, if we have them.
I turn to the public sector side of this afternoon’s debate. The proposals in Amendments 2 and 36 would widen the complaints-handing function to cover all matters relating to supply of goods and services to public authorities as well as larger businesses, and would require the annual report to summarise such complaints.
Where a small business has a payment issue with a public authority—I do not suggest that that does not happen; small businesses do have problems with public authorities—we consider that it is better addressed by existing frameworks. If I may, I shall talk the Committee through some of the existing frameworks. The first that I would mention would be the mystery shopper—slightly oddly named, I would say. It provides small businesses with an easy route to raise concerns about public sector procurement practices. It can investigate complaints about the procurement practices of the public sector and issue instructions and recommendations to remedy the situation. It publishes the outcome of its cases on its website and through its social media, naming the public authority involved.
Lord Stoneham of Droxford
I thank everybody who participated in the debate. It was very interesting and I am very grateful for the support that I seem to be getting from the noble Lords, Lord Hodgson and Lord Cope—I accept only in part—the noble Baroness, Lady Byford, and the noble Lord, Lord Mendelsohn.
The points made by the noble Lord, Lord Hodgson, were very apposite. I agree entirely with his three stages of commissioning, operations and payment. I accept that that is widening things considerably. I could welcome that but I also have some sympathy for the Minister, who is trying to get some focus. I am prepared to accept what the noble Lord, Lord Cope, is saying—that the main area is payment—but inevitably, as whoever is dealing with this is trying to focus on these issues, that person will be drawn into issues of commissioning and operations as well as payment. If there was an argument saying, “We want focus”, I could accept that the first stage would be to look at payment and then, if we are not resolving things as we like, we can look at commissioning, the monitoring process in the public sector and so on, if those are the subsidiary issues. So I can accept the argument for focus.
The noble Lord, Lord Mendelsohn, was saying how important it is that the whole culture here is all-embracing. This is why I find the Minister’s response quite disappointing. On the one hand she is saying, “We’re making a lot of improvements, the Government are committed to this. We’re having mystery shoppers, and that’s improving things”. If that is the case, what are we frightened of? If we are saying that the Government are making improvements, why do we not monitor it? Why do we not allow the Small Business Commissioner to say, “It’s amazing—I had a number of complaints in the private sector but because of all the work the Government are doing, I have to say that I am mightily impressed by the progress there, and as a result we have very few cases”. Therefore, if the work that is being done is successful, there will be less of a burden on the Small Business Commissioner, which will be welcomed.
The Minister made a very telling point. She was saying that obviously, if we are legislating on the private sector, the public sector will have to behave as well. Anybody in the private sector looking at this will say, “You’re putting all the burden on us and you’re not prepared to have the guts, the courage and the confidence to say, ‘We’ll allow the public sector to be measured as well’”. Call it clearly. If we have the confidence and are determined, we should include that.
Baroness Neville-Rolfe
I was trying to make the point, with rather a long list of what we tried to do in the public sector to put our house in order—alongside the noble Lord, Lord Stoneham, for a number of years—that we brought in the Public Contracts Regulations 2015 and a number of changes, and we are trying to measure and look at that. It seemed that what we are doing there and how we are monitoring is relevant to the issue of what the priority should be for the Small Business Commissioner that we are setting up. We believe that the prime focus of the commissioner should be on late payment, particularly when there is an imbalance of power between big business and small business, which has been a recurring issue that noble Lords on both sides of this House have been worrying about.
Baroness Byford
My Lords, before the noble Lord comes back again, I thank the Minister for that clarification. In particular, in the first instance, I think we are all concerned about late payments. As for public authorities, the instance I gave is about looking at local authorities as well. I am not sure whether the amendment, as it stands, would include both local and national authorities. On the charity side, negotiations invariably take place with local government, which is key. At the moment, with the economic pressures that local authorities are under, clearly it is putting extra pressure on those who are bidding for commissioning and everything else that goes with it. Therefore I was not quite clear whether the noble Lord’s amendment would include local authorities as well as national ones.
Baroness Neville-Rolfe
The mystery shopper and the arrangements I have described obviously cover local authorities as well as other public authorities, and I suspect that the amendment does the same for the same reason.
Lord Mendelsohn
The Minister made the point that the prime focus should be on where small businesses need to address disputes with large businesses, where there is an asymmetry of power. That is where the prime focus is, and currently the law is drafted to make that exclusively its focus. Does that mean that the Minister is not averse to an extension of the role so long as it was able to carry on with these functions, which is the prime and current focus?
Baroness Neville-Rolfe
My Lords, the proposal before the House is set out in the Bill. I think we have all agreed that this is quite a challenging office to set up. We want to get off on the right footing, and for today’s purposes the focus is on where this imbalance of power is.
Lord Hodgson of Astley Abbotts
Before the noble Lord, Lord Stoneham, finally withdraws this amendment, I hope that, if he is to persist in this at a later stage of the Bill, he will reflect on how one distinguishes payment from monitoring and contract. If you accept a payment-by-results contract, you are committed to it long before you get to the payment stage. If you change the monitoring methods in the middle of the contract, the payment flows from that because it is then paid a different way. The yardsticks, the key performance indicators, will be different. While it is very neat for the Government to say this is about payment, it washes back up the chain to what was done before. I understand what my noble friend Lord Cope and the Minister said, but these are not discrete silos. They are all interlinked.
Lord Mendelsohn
I have one final question. The Minister said that this of course addresses the issue about the imbalances of power. What is the size of a particular business and the circumstance of a transfer of goods which defines whether that imbalance of power exists? Is that defined by size, turnover or number of staff? What is the definition of power that allows this to take place?
Baroness Neville-Rolfe
My Lords, small businesses caught by this Bill are those with fewer than 50 employees —so 49 or fewer. To further refine that, we can add extra provisions by regulation, provided those are in accordance with EU law. I do not think we have tried to lay down what constitutes a big supplier but I will certainly look again and come back to the noble Lord if I have anything to add. I do not have anything further on that.
Lord Stoneham of Droxford
I am grateful for those various interventions. There were so many, I am not sure I can respond to them all but I will try.
First, I intended that this general reference to public authorities would include local authorities, for the very precise reason given—that it is more likely that it will be a small business which deals with a local authority. I intended that and if I have not got it right I hope that as we go forward we can look at that further. I am grateful to the noble Lord, Lord Hodgson, for developing his argument with me. I will return to and look at this further because I think it is right.
However, the critical issue here is the words “imbalance of power”. The imbalance of power argument seems to refer as much to the big businesses in the private sector as to a small business dealing either with a local authority or the public sector. Although I accept that the Government are doing a lot here, they should have the confidence to look at this as a way of doing more to show that, just as they make requirements of the public sector, they ensure that their own house is in order and, indeed, setting an example. Together, that would be a much more forceful way forward in what we are trying to do here, which is to deal with the whole issue of late payment.
I see—I am not sure the Government do—the Small Business Commissioner as a one-stop shop. If we start saying to local businesses, “Well, you cannot take issues you have with local authorities to the Small Business Commissioner”, then, although the Small Business Commissioner will be told that he can instruct them to go somewhere else for advice, local businesses will just get frustrated. They will want resolution of their issues. If they are referred around the houses, it will just disillusion them and undermine confidence in the system that we are trying to set up.
I accept the arguments that have been made in the debate. I welcome the support that the amendment has generally received—it was much wider than I expected. Obviously, although I am happy to withdraw the amendment now, I will come back to this matter at a later stage.
“Advisory PanelThe Commissioner may establish an Advisory Panel with membership drawn from different regions and industrial and commercial sectors to assist in the efficacy of the Commissioner’s work.”
Lord Hodgson of Astley Abbotts
My Lords, Amendments 6, 7 and 35 are probing amendments, designed to explore the Government’s thinking about how the Small Business Commissioner will actually work in practice. This goes back to some of the ground covered by the noble Lord, Lord O’Neill of Clackmannan, in an earlier debate. I hope that my noble friend can enlighten the Committee about the sort of experience the Government expect the Small Business Commissioner to have. I am sure it will be tempting to say, “It depends, it depends”. At one end of the spectrum they could be the doughty Whitehall—or ex-Whitehall—warrior, practised in the ways of government. At the other end is the practitioner with a successful small business record behind them. Those two would lead to very different approaches in the way that the commissioner carries out its functions.
Amendment 6 suggests the appointment of an advisory panel, with membership drawn from different sectors and geographical regions. This is because it will be exceptionally difficult for a commissioner to grasp the full range of the commercial and industrial challenges that small businesses face with payments and other things. Those challenges will be different depending on whether you are operating in Stockton-on-Tees or deepest Devon. The first question, therefore, is whether he or she can have an advisory panel to provide routes into information about and detailed knowledge of how different industries and different parts of the country operate.
Amendment 35 is intended to make sure that the commissioner does not become M25-centric, which is always a danger if one gets bound into Whitehall. It requires the annual report, specified in the Bill, to contain information about visits made around the country. We can therefore be reassured that real-life knowledge is being gained. This is part and parcel of the philosophy which I hope the Government can reassure us will be espoused. Amendment 7 is slightly focused and deals with the issue of relationships with regulators. We will deal with regulators in more detail when we come to Part 2, but this amendment—if the Government were minded to consider it—would give the Small Business Commissioner a particular duty or locus in highlighting specific areas of concern relating to regulators. Small businesses, individually, simply cannot take on regulators because of the time involved and the fear of what might happen. There is a role here for the Small Business Commissioner to assist in the Government’s deregulatory agenda. The Government are very keen on deregulation and an amendment on these lines would assist in that process.
It is always worth while remembering how one gets regulatory creep and how the tentacles of bureaucracy push on outwards. Noble Lords may be familiar with the PAT: the portable appliance test. They will recall that one used to push the flex into the back of the kettle then switch it on. This meant that the flex was used a lot and frayed; water and electricity do not mix well together. After some staggering and terrible accidents, the PAT was introduced and these appliances had to be inspected. That quickly morphed into an inspection of all portable appliances, because they all had flexes and were all equally dangerous. By the time this happened, the electric kettle was no longer a problem because, as noble Lords will know, one now buys a kettle with a stand it goes straight on to; the flex does not move at all. So the whole rationale for the portable appliance test had been morphed around.
Now we have a situation where, although the regulations require an inspection only every three years, small businesses are often encouraged to have inspections every year. It costs about £1 a shot to have your portable appliances tested. An enormous amount of time, money and effort is being wasted to no great avail. These are the sorts of things about which the Small Business Commissioner, in dealing with a regulator, could say, “Actually, there is an issue here that you could tackle and help with”. I know it is outside the scope and it is widening the Bill, but it is an area in which small businesses could be greatly helped.
I take part in the Lord Speaker’s outreach programme, talking to schools. It is a wonderful thing to do and I learn an awful lot every time I go to a school. I often finish by having a cup of tea with the headmaster. At a school I went to last year, the headmaster asked me whether I knew about the portable appliance test. I said I knew a bit about it. He said the school had just had an inspection. The inspector went round the classrooms and found an overhead projector on the ceiling. He said, “I need to check that because it is portable”. The school said, “You can only get at it if you get on a ladder and get up there. Therefore, it is not portable and nobody can get at it anyway”. The inspector said, “Well, I think it is”. The school, quite bravely, said, “We are going to ring the Health and Safety Executive in London”. The Health and Safety Executive found in favour of the school. I asked the headmaster, “Was that very good?”. He said, “Not exactly, because they then went through the whole of the rest of the school—absolutely everything—inch by inch, and they managed to find in the bursar’s desk drawer an electric pencil sharpener which had not been inspected for three years and they therefore failed the school”.
Those are the sorts of costs that are being applied to businesses, and if we had a Small Business Commissioner he could draw attention to those sorts of things and do something about relieving the burden. These are probing amendments at this stage. They are designed to try to find out what sort of person is going to do this job and then to try to find a way in which they can do things to assist the Government’s deregulatory agenda and the operational efficiency of small businesses. I beg to move.
Lord Stoneham of Droxford
I cannot resist the temptation to support the noble Lord, Lord Hodgson, as he was so positive about my amendments. We will see what the Government say on these amendments but I sense that there is a general watering-down of the proposals and they will be slightly reticent about the advisory panel. If there is not a board or whatever supporting the commissioner, clearly a panel is a very good idea because it will widen support. It is related to the regional issue because if this body has only 50 staff, it is difficult to see how it is going to have regional purveyance and credibility around the country. All these points, plus the duty on the commissioner to refer good advice and to deal with regulatory issues, mean that this becomes much more of a one-stop shop where local businesses can come, initially with problems related to payment, but its remit will widen as other issues are seen to be pertinent.
Lord Mendelsohn
My Lords, I congratulate the noble Lord, Lord Hodgson, on his excellent presentation of these issues. We are very supportive, although I suspect that we would be less sympathetic to Amendment 6 on the advisory panel and it would not be something that we were wholly in favour of. This is not a formal ombudsman where there is usually an advisory panel to make sure there is some connection with it all. We also believe that the Small Business Commissioner needs a certain amount of discretion. We would not feel entirely comfortable with an advisory panel. However, the noble Lord might be infinitely more successful in persuading the Minister to adopt an advisory panel, and in those circumstances the measure would certainly help rather than hinder the potential progress of unlocking that broader role.
We strongly support the measures that the noble Lord talked about to address the questions of being very London-centric and making sure that the Small Business Commissioner understands the need to operate across the country, and also the noble Lord’s very apposite concerns about where regulation fails. Very briefly, our view is of course that the Small Business Commissioner has a role to work from the bottom up. Some of the problems we address in regulation could be dealt with quite comfortably by focusing on the role of the Small Business Commissioner.
On our Amendment 38, we are very concerned that on occasion the Small Business Commissioner would be able to inform government regulators and other public agencies of where the impact of regulation is far too onerous. In many instances, the easy option for regulators and administrators of all different types is to concentrate effort on enforcement, crackdowns and looking for disciplinary measures to deal with non-compliance. However, that is quite a lazy way to deal with the lee-ways available. Simply issuing infringement notices is not the best mechanism available to regulators to improve the business environment. Businesses want to comply with laws and regulation. Non-compliance, especially in the case of small businesses, is frequently associated with unawareness or even the very simple management challenge of having too little time and, frankly, expertise in the areas dealt with. There are only a small number of people in a small business, ranging from one to a few. It is far too much to believe that someone would be able to spend their time finding—or then understanding—all the regulatory and legislative ins and outs.
It is a responsibility of government, agencies and regulators to inform and educate small businesses about the rules and regulations that they need to comply with. Our proposed measures, together with those of the noble Lord, Lord Hodgson, sensibly address this and look for opportunities where compliance can be streamlined and business interaction reduced. The example that the noble Lord raised is one we can avoid. We need to make sure that the Small Business Commissioner plays his part in ensuring that government agencies and others can be facilitative and educative, can deal with the problems of information and are able to ensure justice, rather than just be crackdown enforcers who impose on the management of businesses the sort of difficulties which we would rather redress. Here are proposals to ensure that in circumstances where the Minister may consider it, the Small Business Commissioner might, apart from the prime and overwhelming focus, at some point on the horizon be able to exercise their immense judgment in being able to develop that sort of role. We strongly support these measures.
Baroness Neville-Rolfe
My Lords, as always I am grateful to my noble friend Lord Hodgson for this probing amendment, which led to a very good debate. I will try to answer the questions raised, starting with the million-dollar question of what sort of person should be commissioner. I am not writing a job description this evening but I think we will look for someone with practical experience, perhaps in law or business, and with important skills including judgment, personal authority, the ability to influence effectively and to understand the intricacies of business relations and disputes, energy, and probably the charm—going back to the opening remarks—to get things done.
I will say a few things to my noble friend on Amendment 6 and the issue of an advisory panel to assist the commissioner. I agree that the commissioner will need to understand how supply chains work in different sectors and whether or not there are particular payment issues in certain regions—I will come on to that again later. In order to carry out the role we would also expect the commissioner to have regular contact with senior figures across industrial and business sectors and elsewhere. I have heard from the Australian Small Business Commissioner how important that has been to the success of his role.
However, having said that, the Government do not consider that providing for the establishment of an advisory panel in primary legislation is necessary or advisable. We would rather permit the commissioner to determine what advice he or she may need and what that means for his or her engagement with industry and the regions. As we have said several times this afternoon, the commissioner must be, and be seen to be, independent and should be mindful of this in engaging with industry. This would inevitably bring with it considerations and criticisms regarding the balance of membership of the body.
Lord Hodgson of Astley Abbotts
Amendment 35 just says,
“including details of any visits to the different regions of the United Kingdom”.
It does not say that the commissioner has to make them. If they do not say anything, we will assume that they have not gone. Without constricting or constraining the Small Business Commissioner’s judgment of the best way of executing the task, there is, nevertheless, an inherent idea that a certain number of visits should take place.
Baroness Neville-Rolfe
I thank my noble friend for that clarification. This is an eminently sensible approach: we need to make sure that the interests of regions are taken into account. Although we try not to be, some of us tend to be a bit M25-focused. I think my noble friend is saying that there is a wider wealth of opportunity on payment issues right across our great nation.
I have tried to respond to the various questions which have been raised and I hope that, in the circumstances, my noble friend and the noble Lords will feel able to withdraw their amendments.
Lord Mendelsohn
I have a brief question before the noble Lord, Lord Hodgson, rises. We are different from the Australian example in that we define small business and who this operates for and they do not, and in relation to complaints information, signposting and other things. There is a question about how the Australian system evolved—in Victoria it happened by accident and in all the rest by design. It allowed larger businesses that dealt with small businesses to make complaints, raise questions or seek information. Famously—and this will interest the noble Lord, Lord Hodgson—one large company used the Australian Small Business Commissioner to help renegotiate franchises to the betterment of small business. Would that be excluded with this legislative architecture?
Baroness Neville-Rolfe
My Lords, that would be excluded in the approach we have adopted in the Bill.
Lord Hodgson of Astley Abbotts
I am grateful to the noble Lords, Lord Mendelsohn and Lord Stoneham, for their supportive remarks. I am also grateful to my noble friend for giving a degree of assurance that we are not expecting the individual to be stuck within the M25 but to get out and about. I will, obviously, read carefully what she has said. I am interested in how we are going to have equality of arms with regulators. My noble friend made some interesting comments on that which I will reflect on. In the mean time, I beg leave to withdraw the amendment.
“( ) tax rates, allowances and thresholds of relevance to small business owners.”
Lord Mitchell (Lab)
My Lords, I speak in support of Amendment 9 in this group. Yet again I return to the subject of payday lending. Over the past three years, noble Lords have secured some pretty impressive legislative reforms. As a result of amendments to previous Bills, the FCA is now in power to regulate the terms and conditions under which payday loans are made. The rate of interest is now regulated but the most significant change is that, under all circumstances, the total repayment of any loan is restricted to double the value of the loan itself. This is a real result, since those charming people in the payday lending industry had been adept in slipping in all sorts of unexpected and sneaky charges.
It is interesting that the perils that the payday lending companies themselves and their lobbyists forecast failed to materialise. It really was a change for good. I pay tribute to the FCA for getting on top of this abuse and I read on today’s BBC website that Dollar Financial UK has admitted malpractice and will refund £15.5 million to 147,000 customers. So it really is working. This morning I checked on Wonga’s website and saw that the APR on its loans is 1,500%—scandalous, it is true, but dramatically less than the mere 6,000% it had previously been charging.
Today’s amendment in my name is designed to give the commissioner the powers to advise small businesses in respect of payday loans and, by implication, all the short-term, high-interest category of loans. Clearly, many small businesses are often desperate for cash to meet unexpected costs. Many of them are sole traders or employ no more than a handful of people. Banks, as we know, tend to be unhelpful and for many businesses payday lending is a short-term option. We simply want the commissioner to advise the small business sector of the potential pitfalls of this type of borrowing.
I also want to address the area of EIS—the enterprise investment scheme. I state my interest that I am chairman of a small company, Instant Impact Ltd, which started four years ago with two young men based in Starbucks drinking coffee and it has now expanded to £1 million turnover. It is involved in graduate recruitment. We, too, have just introduced an enterprise investment scheme. There is also the seed enterprise investment scheme, introduced by this Government. Both schemes work pretty well. The Labour Government introduced the EIS but SEIS was introduced by the last Government and it works really well. In the area in which I am very involved—the tech sector—SEIS is absolutely crucial.
I have noticed that surprisingly few young businesspeople, older businesspeople, advisers, accountants and lawyers are aware of some of these schemes. That surprises me and I advise that the commissioner should have the power to influence the knowledge of these schemes and others that might come throughout the business community. I beg to move.
Lord Hodgson of Astley Abbotts
My Lords, I certainly recognise and applaud the work that the noble Lord, Lord Mitchell, has done in exposing and correcting some of the more egregious aspects of the short-term loan lending industry. I add a word of caution on the proposals.
The short-term loan sector is like an iceberg and the noble Lord fairly and properly sought to regulate the visible part of the iceberg. He referred to the FCA, the work going on, and the effect this work has had. I applaud that. However, it is the invisible part of the industry that is really nasty. That continues to exist. The danger is that if we make it too difficult for firms in this visible part of the iceberg to operate with full disclosure it is to the invisible part that people will turn because there will always be a demand for short-term cash for one reason or another.
Given what he said about the FCA and financial regulation, I am not convinced that it is part of the Small Business Commissioner’s role to give guidance on payday loan rates and their appropriateness as that is a very difficult and problematic concept. That is something for the financial regulator. All I ask is that we avoid the risk of demonising these firms. However unattractive the noble Lord may find the interest rates charged and everything else, we should ensure that everything is above board and is done clearly and in the open. We should avoid demonising these firms while allowing the hidden part of the iceberg to continue to exist. My goodness me, that really is baseball-bat territory and not the sort of thing that any of us wish to see increase. We wish to see it eliminated. I am concerned that putting this sort of further pressure on firms that operate in compliance with the law will encourage the growth of those who operate outside the law.
Lord Cope of Berkeley
My Lords, incidentally, the other meeting I was due to attend did not raise a quorum.
Nobody has so far spoken in support of Amendment 8 so it is perhaps unnecessary for me to speak against it. However, it has been formally moved. I think that inserting a duty or giving a duty to the commissioner that she or he should publish information about,
“tax rates, allowances and thresholds of relevance to small business”
would introduce a major distraction into the commissioner’s role. It is the duty of Her Majesty’s Revenue & Customs to publish the allowances, rates and everything else, and it does so with considerable vigour on its websites. There are large numbers of people, including people in the profession in which I qualified, although I have not practised for many years—namely, chartered accountancy—who do this kind of thing. If the commissioner finds himself or herself with a legal duty written into the Bill to publish this kind of information, I fear that it will be a major distraction from what we all want to see as the commissioner’s initial role, at any rate; that is, to deal with the late payment issues.
Lord Mendelsohn
My Lords, I support these amendments and will say a few words about Amendment 8, to address the comments made on it by the noble Lord, Lord Cope of Berkeley. Fortunately, the noble Lord is able to be present as the other meeting he was due to attend did not gain a quorum.
I pay tribute to the fantastic work of my noble friend Lord Mitchell on payday lenders. I disagree with the noble Lord, Lord Hodgson: this is not about the visible and invisible parts of an iceberg but about the devil and the deep blue sea. The problem is that the choice we are making is between two things that are broadly unacceptable. It was only through the great efforts of my noble friend Lord Mitchell that we understood that Wonga, which has completely changed its business model, operated in a market based on pushing people into failure to pay, rapidly increasing their debt burden over time and charging effectively a permanent rate of interest. That was its business model—to force people into continued and prolonged debt. To my noble friend’s great credit, Wonga has changed that model as it could not continue to function with it. This is relevant to the Small Business Commissioner as we should not accept the principle of choosing between one thing which is bad and another thing which is really bad. His job is to find an alternative. We all know that there are problems with people accessing finance and with debt and with our banking sector. The answer is not to say that it could get a whole lot worse but to enable someone to act as an agent or agency and make a difference. That is why I think this is a very sensible amendment.
Some years ago when I operated a small business, we had a tax issue and a little tête-à-tête with Her Majesty’s Revenue & Customs. There was a particular issue that we contested. Rather than pay—forgive me for saying this—the fees our accountants would charge to deal with this, we thought we would do it on our own. We had a particularly effective financial controller and he spent a considerable amount of time trying to research this. In fact, we funded him to go on a day’s seminar given by HMRC to look at the particular issue. He attended the seminar and came back with a series of materials that gave very clear advice on the problem. Subsequently, we wrote to HMRC saying that this was our case, completely consistent with its advice. It wrote back saying that it did not accept our arguments. We wrote to it saying that we could not claim the letter we had written was entirely our authorship but was based on advice we now enclosed, which came from HMRC. We got a letter back saying, “We are not bound by our own advice”.
That was a few years ago but I raise the point because it is relevant. Our experience in talking to small businesses in particular but also to some of the representative organisations is that their complaint is not that they must pay tax. There are some who do not like to pay tax—many of those live in Monaco and other sorts of places, but they are not the ones I am so concerned about here. For those who are concerned about paying tax, it is about paying the right tax and understanding the taxes that they must pay. In the same way, it is about not regulation per se but the burdens of regulation. These amendments address this question. They say that the Small Business Commissioner should be able to deal with those issues.
I accept that we have a particularly narrow focus for the commissioner, and it is what the prime focus should be. However, in that wonderful nirvana where the commissioner can extend its role, it would not be a bad thing to be able to assist small businesses to have a better understanding of and some degree of certainty about the issues that they must face and the taxes they must pay, as well as being able to make observations to others to be clearer so that there is better compliance and understanding of what these things are. I fear this constant sense that there is a huge amount of non-payment and total avoidance, and all sorts of scandals and terrible practices by business. Invariably, especially with small businesses, they are not fully aware of what they must do. These amendments allow a Small Business Commissioner to play a very effective role in that area.
Finally, on Amendment 47, I declare an interest as an investor using the EIS benefit. I hope that that does not become a tax problem and the Revenue starts to chase me on it. I am fairly confident at this stage that I am on the right side. I agree that the EIS is exceptionally useful and many small businesses know about it. We have somewhat cheekily tried to extend the EIS relief beyond individual investors to institutional investors. We put that as a role for the Small Business Commissioner in order to probe the Government about whether the commissioner could also play a useful role in how we grow small businesses, being able to make observations about how some of the government schemes that currently exist could be used further.
Baroness Neville-Rolfe
My Lords, Amendments 8 and 9 would widen the scope of the general information and advice function to allow the commissioner to cover tax rates, allowances and thresholds of relevance to small business owners, and payday loan rates and their appropriateness. I join the tributes paid to the noble Lord, Lord Mitchell, for his contribution to the work done on payday loans. I am also glad to hear the discussions about EIS, which I agree is a good scheme. I hope it will prove useful in the long term to the noble Lord, Lord Mendelsohn.
The commissioner will be able to provide small businesses with general advice or information in connection with any issues arising from their supply relationships with larger businesses. Small businesses will have access to useful information for these relationships, whether as a supplier or customer.
I have already given some examples of the varied matters that this can cover and I will not repeat them, but the commissioner will also have an important role in signposting to relevant bodies and sources of assistance with these supply relationships; for example, regulators in particular sectors, such as utilities. I am sure noble Lords will agree that this will be a sizeable area for the commissioner to cover. The commissioner will not cover specific issues such as taxation and payday loans because this information and advice is already available and it is reasonable to assume that small businesses will know where to get access to it. The commissioner will plug information gaps where they exist or signpost small businesses to other bodies which are more likely to be able to assist them in their query, including where it relates to a dispute. Consultation feedback has indicated that there are various existing sources of relevant advice, information and support but, as has been said, small businesses are not always aware of them. We have designed the commissioner in order to address these specific issues and to become a single point of contact for small businesses when they find themselves in commercial disputes. It is important for the commissioner’s remit to be focused to achieve real impact on the ground.
I am grateful to the noble Lord, Lord Mitchell, for raising the issue of payday lenders and EIS, but I agree with my noble friend Lord Cope that we should resist this amendment because the matter could be a major distraction. Having said that, a web link to HMRC and the FCA could be considered and counting the use of that link might provide some interesting information. I am also glad that the noble Lord, Lord Mitchell, feels that we have acted decisively to reform regulation of the payday loan market. We transferred the responsibility from the OFT to the FCA. As he said, the FCA has far stronger powers to protect consumers, and its more robust regulatory system is already tackling sources of consumer detriment in this market. We also legislated to require the FCA to introduce a cap on the cost of payday loans, to protect consumers from unfair costs. This cap has been in place since 2 January 2015. The last time we debated this in this Room, that provision had not really come in. The more stringent regulatory regime is obviously having a beneficial effect in the payday market. The FCA has found that the volume of payday loans fell by 35% in the first six months of FCA regulation, before the introduction of the cost cap.
Amendment 47 provides that the Secretary of State may publish information or provide advice on the enterprise investment scheme. BIS already works to support small business, including promoting the venture capital schemes. However it would not be appropriate for BIS to provide detailed advice on the schemes. HMRC administers the venture capital schemes and provides advice to small companies, investors and advisers through a specialist unit. That service is highly regarded by the venture capital industry and it would be confusing to try to match it. However, I agree that EIS schemes are a good thing. They were expanded and developed in the last few years and higher thresholds were set for investment.
We want to try to focus the effort of the Small Business Commissioner. He will be doing an annual report and I am sure this will reflect on where queries are coming from. However, it is better to stick with the arrangements that already exist for the various tax and financial schemes we are discussing, rather than trying to bring this into the purview of the new commissioner.
Lord Mendelsohn
The Minister described a unit which provides advice on these schemes. Would she give some colour to that and give some idea of the scope of the advice it gives directly to small businesses? On how many occasions did it give advice during the last year?
Baroness Neville-Rolfe
My Lords, I would be happy to write to the noble Lord on that matter before the Bill reaches its next stage.
Lord Mitchell
My Lords, I thank the Minister and all those who have taken part in this short debate. On the subject of payday lending, although I have worked very hard on this, never have the words passed my lips that I wanted to abolish or abandon it; it just needed to be regulated. Indeed, were it to disappear, somebody else would step into its place—people we really do not want to know about. It was never our objective to do that.
On the EIS and similar schemes, we also received confirmation that the Institute of Directors was supportive of the points we have been making that these need a lot more publicity. We have not really addressed that but the IoD is very keen that more people know about them. When we are here discussing these issues, we automatically assume that the world knows. It does not. It tends to be a long way behind the curve. We feel that the commissioner should have the responsibility for publicising the EIS. With that, I beg leave to withdraw Amendment 8.
“( ) The Commissioner may publish details of cases in which, in his view, there have been delays in legal process which have acted to the detriment of small business.”
Lord Hodgson of Astley Abbotts
My Lords, as the noble Lord, Lord Mitchell, sat down, I realised that I have some EIS investments. Since I spoke in that group, although not on the EIS, I probably ought to declare that for the record before we go any further.
Amendment 10 is concerned with the law. Here I am trying to steer between Scylla and Charybdis. Scylla, as evidenced by the Minister, is about advice to be given on supplier relationships, and Charybdis is the statement in paragraph 6 of the Explanatory Notes that:
“The Small Business Commissioner will not provide advice on legal issues relating to a specific case”.
Obviously, I understand the challenge surrounding the use of the word “specific” but there is an issue here about the way large businesses can use legal means to delay payment. I am aware that Amendment 39 in the name of the noble Lord, Lord Aberdare, focuses on the construction industry. I do not wish to run before his horse to block it. Therefore, I do not want to get involved in that industry.
My focus is on two areas. The first is the practice of finding a minor fault, or perhaps claiming a minor fault, in some goods supplied and withholding a disproportionately large proportion of the sum owed—and, when challenged, the purchaser inviting the supplier to use the law in the certain knowledge that the legal wheels can be made to grind slowly, which is one way that this can happen. The second is the use of a similar approach in matters involving intellectual property—an area where small businesses give a huge degree of help to our economy because small businesses worry away at the coalface, finding new and better ways of doing things—where a small business has made a breakthrough and developed a new product, patented it and then is sat on by a large company.
What do I mean by “sat on”? The example I have in mind is a company I knew of which developed a new freezer cabinet for supermarkets. It had various devices that made it particularly efficient and operationally effective. A large supermarket chain bought six of these—to the delight, obviously, of the small business, which thought that this was a breakthrough—only to find that the supermarket had reverse-engineered the freezer chests and was now manufacturing them itself. The small company claimed infringement of a patent—the intellectual property. The supermarket denied it and invited the small company, if it believed that it had a case at law, to take it to court. The sting in the tail in the meeting was when the person from the supermarket said, “By the way, just before you make up your mind, our lawyers say that we can prevent this from coming to court for two or three years”. The small company had no way to sustain the cash flow and the capacity to maintain the costs of a legal action for two or three years.
There will always be a degree of inequality of arms between large and small companies in legal matters, but there is a chance here, where we have supplier relationships being abused in this way, for the Small Business Commissioner to be of real help to small businesses and help redress that balance. That would be of advantage to our country and of particular advantage to the small business community. It is not about specificity or about getting involved in individual cases but, rather, about making sure that where these sorts of cases happen they are published and efforts are made to make sure that their use and abuse is minimised. I beg to move.
Lord Mendelsohn
Briefly, I support this amendment, which dovetails quite nicely with an issue that we will raise later on the powers of the Small Business Commissioner. There are many difficult cases, on which many people receive letters, where the ability to use legal processes works massively to the detriment of small businesses, and it is exceptionally difficult to be able to extend those procedures. I think that the noble Lord, Lord Hodgson, made the point that it is not about getting involved in the legal case in and of itself but about using the convening power and sense of the Small Business Commissioner to help to get these processes streamlined to make sure that small businesses are not affected by that asymmetry. This is a very sensible and proportionate amendment and we support it.
Baroness Neville-Rolfe
I thank my noble friend Lord Hodgson for his amendment and for his examples, including the IP examples—an area that he knows is close to my heart. I like the Scylla and Charybdis parallel, which one could use more broadly in public policy. I did Latin A-level, being in an era when they did not teach women science.
Clause 3 provides for publication of general advice and information relevant to small businesses and their supply relations, and to resolving disputes. Under existing drafting, obviously this could include information about the timings of and risks of delays within legal proceedings. However, I think that the intention of my noble friend is much broader than the provision of advice and information to small business. As I see it, he intends that the commissioner should shine a light on where delays in legal processes and litigation tactics are used in a manner that is detrimental to small business as they frustrate efforts to resolve a dispute, as he said in examples that he raised.
Clause 9 requires the commissioner to publish an annual report on its activities. This must include a summary of the matters raised with the commissioner by small businesses that the commissioner considers are the most significant. It can of course include any recommendations that the commissioner may have in relation to such matters. Therefore, if issues related to delays in legal processes are brought to the commissioner’s attention and she or he considers them significant, he or she may include them in the annual report.
It is difficult to develop this further without impeding the right of business to have access to the courts. However, obviously, as the noble Lord, Lord Mendelsohn, says, the commissioner has a certain convening power. I do not think that my noble friend Lord Hodgson was trying to get him involved in individual cases, and that convening power will be able to be used to survey what is happening in these areas—as I said, to shine a light on them. I therefore agree with the spirit of the amendment, which is to shine a light on delays, on aspects of the courts system or on the exchange of legal letters that are preventing or deterring small businesses from resolving disputes. However, the Small Business Commissioner has sufficient powers in this respect and I am not persuaded that we should go any further in this area.
Lord Hodgson of Astley Abbotts
My Lords, I am again grateful to the noble Lord, Lord Mendelsohn, for his support on this set of amendments.
I am slightly disappointed by my noble friend’s response. The reason is this. Lawyers are extremely jealous of their territory. When the Small Business Commissioner decides to say something critical of the law without having specific powers built into the Act, he will come under considerable criticism. There will be a danger that he will flunk the issue. These are tricky, difficult issues; they are not easy. There are always two sides to the argument, but we need someone who has the responsibility to speak out on specific issues, and the legal issue is one where a specific duty is important. Otherwise, I can see it being shuffled to the side and put into the pile of complaints that are too difficult to deal with. The commissioner will say, “Let us leave that, because we shall only have trouble. We will only have the lawyers getting after us for interfering with due process”—my noble friend even referred to the question of due process in her response.
I shall reflect a bit further on this but of course, in the mean time, for this afternoon, I beg leave to withdraw the amendment.
Lord Mendelsohn
“( ) Where a recommendation is made under subsection (8), the Commissioner may take the relevant action in response to the recommendations where he or she sees fit.”
Lord Mendelsohn
My Lords, this is a pretty crucial element. We are turning over some territory which we first discussed during Second Reading. I really hope that we may be able to make some inroads on this—obviously, recognising that the Small Business Commissioner has an immediate and urgent task, very narrowly defined, and that its role is very narrowly defined on whom it is serving.
The amendments in this group, Amendments 11, 12 and 34, address some significant issues about the role and scope of the Small Business Commissioner. We are looking at two areas in particular. The first is that the Small Business Commissioner has a mediating role. That is a crucial opportunity for the commissioner. Experience of such roles suggests that that is a very useful mechanism. The other powers provide much wider platforms for the Small Business Commissioner to be able to act in concert with others, encouraging others to be able to take certain actions.
Subsection (8) states:
“The Commissioner may make recommendations to the Secretary of State about the publication, or provision to small businesses”,
and Amendment 11 allows the Small Business Commissioner to act on the recommendations where it sees fit. Amendment 34 provides:
“The Small Business Commissioner may facilitate … representative action taken by a number of small business claimants in a case where a number of small businesses have complaints against the same company which share common characteristics”.
That does not mean that it would become the principal litigant, but it is a way in which problems can be addressed. Where each individual may have problems that they cannot discuss within the context of the company for a variety of anti-competitive reasons, the Small Business Commissioner, where it sees a pattern, can help to trigger some significant action.
That works not just in relation to the commissioner’s general duties. Ultimately, with late payments, where people facing the same characteristics are unlikely to share information about their current circumstance, the Small Business Commissioner in and of itself becomes the agency by which others may be aware and help to facilitate action by the individuals or by third parties on their behalf, which helps to ensure that a company that is in particular default of its obligations can be challenged to meet them.
Again, this works very nicely in tandem with the alternative dispute resolution mechanisms, which we have been debating for some time and which are subject to some changes, and with the signposting role of the Small Business Commissioner to other forms of mediation, but in and of itself having a mediating role. It is also a means by which the Small Business Commissioner can build confidence with other segments in business.
If we make it seem that it is the champion advocate only in a very narrow sense and there is no sense in which it is trying to build a co-operative and collaborative environment, I have no doubt that we will see the shutters go down in many quarters. That is not a constructive place to be, so for us it is very important that such measures help to sustain successful business relationships. That is where the Small Business Commissioner can act in and of itself to take the heat that sometimes exists out of the relationships between companies where their problems, concerns and legitimate interests are not addressed because of the potential consequences, impairing the relationship between two business entities.
I hope that this package of measures is fairly consistent with the Small Business Commissioner’s current roles. If it were to be passed—I hope to persuade the Government to adopt some modicum of its provisions—the powers that it does not use in pursuit of its current narrow, focused and extremely specific role could be available in future. One would hope that the Government would see it in that light. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord and will now respond to Amendments 11, 12 and 34, which, between them, would amend and extend the commissioner’s functions. As I have already set out, the Government consider their proposals for the commissioner’s functions proportionate in addressing the payment issues facing small businesses, especially when combined with the new reporting requirements. They balance the disincentives to encourage larger businesses to behave reasonably towards smaller suppliers with support for smaller businesses so that they become more savvy contractors—taking the heat out of difficult issues, as the noble Lord, Lord Mendelsohn, said.
The proposals have been arrived at following consultation over the summer which—partly to my surprise—showed a need for better navigation of dispute resolution services rather than direct provision. Responses to the consultation and subsequent stakeholder engagement showed broad support for the Government’s approach to meeting these needs.
Amendment 11 would amend Clause 3, which relates to the provision of general advice and information. The Government intend the Small Business Commissioner to help build the confidence and capabilities of small businesses in managing their commercial dealings—for example, enabling them to assert themselves in contractual disputes and negotiate more effectively.
Under Clause 3, the commissioner may publish, or give to small businesses, general advice or information that would be helpful for them in dealings as a supplier or customer, and in encouraging them to resolve or avoid disputes—for example, information about agreeing contracts, supply chain dealings and options for resolving disputes. It also allows that general advice and information to be provided in different ways. It might be provided by the commissioner or his or her staff, or via others—for example, via a government department or a representative or professional body—but in all instances the commissioner has a key role in determining what advice or information is delivered, including approving content, which we intend will be delivered primarily via a web portal.
Clause 3(8) enables the commissioner to make recommendations to the Secretary of State about the provision of general advice and information to small businesses by the Secretary of State, and subsection (9) requires the Secretary of State to inform the commissioner of what, if anything, is to be done in response to the recommendation. I am not sure that we have discussed that before.
I do not believe that Amendment 11 is needed. The power in subsection (8) to which the noble Lord’s amendment applies is additional to the commissioner’s own powers to make that information available to small businesses, which are set out separately in Clause 3(1).
Turning to Amendment 12, I know that the noble Lord is concerned about the inability of the commissioner to directly provide dispute resolution services, such as mediation, and is calling on us to extend his role. This was one of the questions on which we consulted. Indeed, as noble Lords will be aware, initially we were thinking of creating a small business conciliation service. But our consultation and our engagement with stakeholders over the summer showed that there was little appetite for government to step into the dispute resolution market. There was broad and clear agreement among business stakeholders that the problem is not a lack of dispute resolution services. There are plenty of avenues for business to mediate or resolve a dispute outside of court action. There are various regulators and ombudsmen, including for example, those that cover utilities. There are numerous adjudicator schemes, including public sector schemes that I talked about earlier, and there is a large private sector, complete with relevant professional bodies, such as the Civil Mediation Council and the Chartered Institute of Arbitrators doing good work.
Instead stakeholders, including the Federation of Small Businesses, the CBI and IPSE, which importantly represent freelancers and the self-employed, have told us that there are gaps in the information available and that small businesses need support to navigate it more easily. The Small Business Commissioner will fill this gap.
Amendment 34 would provide the commissioner with the power to facilitate group litigation or representative action by small businesses with similar complaints. The commissioner will work to raise awareness among small businesses of alternative dispute procedures and where they can seek support when they have issues or disputes with other businesses—spreading the word. The aim is to encourage a change in how businesses deal with each other—a long-lasting culture change to promote fair treatment for all, especially in relation to payment practices. The commissioner will advise small businesses about their rights and options which in some circumstances could include litigation. However, it is essential that the commissioner is impartial. The impartiality of the commissioner is where we came in today, and it has to apply when he or she is dealing with complaints. He or she must be perceived by business to act impartially in any dispute that he or she deals with. It would therefore be inappropriate for him or her to take a more direct role in facilitating group litigation or representative action.
Lord Stevenson of Balmacara
I am slightly anticipating what the Minister may go on to say, but it is an interesting point. I do not think that in considering this issue we were trying to argue that in any sense the Small Business Commissioner would have to take sides if, in the process of their activity, they noticed that similar cases were appearing in many parts of the country. One of the problems we hear from small businesses is that they feel isolated and unaware of what is happening elsewhere. It would be simply acting as an information exchange point and gatherer of similar cases and a playback to those industries that they are not alone and that this company or group is in fact acting either irresponsibly or aggressively towards a small or even large number of companies across the country. It does not imply one side or the other; it implies working for small businesses against the difficulties they have. Does the Minister accept that?
Baroness Neville-Rolfe
I certainly agree that the convening power is one of the key strengths of setting up a new Small Business Commissioner, joining the dots and noticing perhaps that there are a number of cases in an area and putting that into the annual report, or drawing attention to it. It may be that we are not as far apart as I had thought. We are reluctant to make amendments or change the role of the Small Business Commissioner in this area. In the light of the discussion that we have had, I hope that the noble Lord will feel able to withdraw the amendment.
Lord Hodgson of Astley Abbotts
We have heard a lot about navigation and the website, and how that will work. Will the Small Business Commissioner have his or her website, or will it be part of the government website? In that connection there has been a lot of criticism about navigation through the government website. The Charity Commission has now had to move into the government website and accessibility has dropped dramatically. There have been many complaints. If we were going to put the Small Business Commissioner website into the government website we would want to make sure that accessibility is better than that currently experienced. I am not asking for an answer to that question now. Perhaps the Minister can write to me about it in due course.
Baroness Neville-Rolfe
Of course, I am very happy to write to my noble friend. I have to say that I was a GOV.UK sceptic to start with, which is perhaps the point that he is making. I have found that there have been transitional problems, particularly with those organisations that have been unfortunate enough to have to, as it were, migrate from their website to the new website, but actually it has a lot of strengths. I think we are talking here about a new website—the Small Business Commissioner’s website. I think it would be rather odd not to have it on GOV.UK because that is where small businesses go. Obviously, it has to be a special website and suitably promoted. However, if I have any further thoughts I will certainly write or we can talk about it because we need to get this right. It is very similar to the Consumer Rights Act, where we spent a lot of time discussing how the new rules would be described to business and passed on to consumers.
Lord Mendelsohn
I thank the Minister for her response and her comments after the very thoughtful intervention of my noble friend Lord Stevenson. To be clear, does her reply mean that she will reflect on that point and come back to us prior to Report?
Baroness Neville-Rolfe
My Lords, I will certainly reflect on it. I do not think that I made any commitment to accept an amendment. What I was doing was to agree that we could have a further think about how this was going to work. A fair point has been raised which we think is adequately dealt with but obviously I am happy to discuss that further.
Lord Mendelsohn
I thank the noble Baroness for that clarification. I hope that she may be slightly more enthusiastic once she has a chance to reflect on the measure. In keeping with a number of the points that we made, we are looking at areas where we wish to extend the narrow terms of how they work. Even given the context of what the noble Baroness believes should be the focus of the Small Business Commissioner, and an extended role for him in providing information or signposting, there are other things that he can do to join the dots. We are clear that those are not currently provided for within the legislation or outside it and we are very keen for the noble Baroness to consider that point. On the basis that we have at least made some positive progress on this issue compared with other measures, I beg leave to withdraw the amendment.
“( ) relates to allegations of unfair treatment or unfair contracts,”
Baroness Hayter of Kentish Town (Lab)
I rise to move Amendment 14, standing in the names of my noble friends Lord Mendelsohn and Lord Stevenson, and speak to the others in this group.
When we debated the issue of micro-businesses as consumers within the then Consumer Rights Bill, we argued—and I think the Minister sort of agreed in principle—that micro-businesses should be treated as consumers where they are purchasing goods or services which are not their core business. I think the example we cited was that we would expect a hairdresser to be knowledgeable enough in their purchase of shampoo, hairdryers and scissors, and so not to expect the same level of protection as when we as individuals buy a hairdryer from Boots. However, when a hairdresser bought some coffee for the staff, or a kettle to make it, their right to return that kettle, should it be faulty, should be the same as for any of the rest of us. So, essentially, business-to-business purchases which a small trader would have with its main suppliers should not attract the same consumer protection, but its one-off, non-essential purchases, should be covered.
I believe that the Minister’s main argument at that point against our amendment was that the Consumer Rights Bill was not the right place for it—but a Bill encompassing a Small Business Commissioner surely is. We have a number of asks for these amendments, each of which seek to put a small or micro-business in a similar position to an ordinary consumer when purchasing goods or services not core to the business.
Baroness Neville-Rolfe
My Lords, I welcome the noble Baroness, Lady Hayter, to our discussions. I am glad to return to her examples, especially hairdressers, where, as noble Lords can imagine, I spend a great deal of time. I will take the amendments in turn. I am conscious that this is a new area in the debate and quite complex, so I hope that noble Lords will bear with me. We may even be interrupted by a Division.
Amendment 14 would apply the Small Business Commissioner’s complaints-handling function to allegations of unfair treatment or unfair contracts. Tackling unfairness is at the heart of our proposals for the commissioner. The complaints-handling function is designed to cover questions of fairness, specifically over payment issues, because we have found these issues to be most pertinent. Over half of respondents to my department’s discussion paper cited some evidence of unfavourable treatment by larger businesses. The majority of these responses provided evidence of late payment, and many also provided evidence on wider payment issues.
We may be moving tentatively towards agreement that the commissioner must be effective and efficient. It is right to focus the complaints-handling function on payment, which is the issue of unfairness that our stakeholders tell us causes the greatest detriment to small businesses. However, the commissioner will provide general advice and information to small businesses on how to negotiate effectively and avoid problems. This is a more proportionate way of addressing any problems that small businesses have with contract terms that they think are unfair.
Amendment 24 would enable the courts to declare an unfair contract term to be void, on the commissioner’s advice. The commissioner is not intended to alter or undermine the fundamental rights of two businesses to agree commercial transactions on such terms as they see fit. In tackling unfair payment practices, the commissioner will consider a complaint on the basis of what is fair and reasonable in the circumstances of each case. This reflects the fact that there are complex issues at play in businesses’ payment arrangements, and that each business will know best what works for them. The commissioner will hear from the parties to a payment issue and can give recommendations to encourage their resolution. The commissioner will have powers to publish a report and name the respondent to a case where appropriate. Our approach here is to encourage culture change through persuasion and building confidence and capability in small businesses. We want the Small Business Commissioner to be an effective alternative to the court. It is worth stressing that the commissioner is intended to fit within the existing landscape of dispute resolution services and not to undermine the independence of the courts, a critical British principle which we have discussed already.
On the subject of unfair terms, it is worth remembering that, through the annual reporting duty, the commissioner has another important function: to gather evidence on the issues facing small business, and on whether payment practices are improving as a result of our reforms. The commissioner may make recommendations to government where he or she considers that there are changes that could be made.
One area in which we have been seeking evidence is in relation to whether there is a gap in protection, such that certain consumer rights, including those in relation to challenging unfair contract terms, should apply to small or micro-businesses when they buy goods or services. This was the main thrust of the presentation given by the noble Baroness, Lady Hayter. I thank the noble Baroness for returning to the charge and for her amendments proposing that micro-businesses be considered consumers for the purposes of the Consumer Rights Act 2015 and the 2015 alternative dispute resolution regulations when they are purchasing goods or services for use within their commercial activities.
In relation to the Consumer Rights Act, I can reassure the noble Baroness that we have been giving it considerable thought over the last few months. Our call for evidence ran from 24 March to 30 June and the Government hosted two stakeholder sessions in May and June. We have not yet published a government response to this. We are still considering the evidence, which poses some interesting questions, such as whether there is a distinction between micro-businesses and other small businesses when they purchase goods and services; whether there are specific problems faced by small businesses when they contract with the regulated sectors; and whether some aspects of consumer protection could actually be less helpful to small businesses than their current rights. We currently expect to publish a response later in the autumn. It is clear from the evidence that there is no consensus on this issue but we are still actively considering the case for change and, if so, how that might be achieved. I hope noble Lords will understand that I cannot pre-empt the government response at this stage. However, I am sensitive to the frustration that this might cause the noble Baroness and I hope she will be reassured that we are taking this issue very seriously and not putting it on the back burner.
The second part of the amendment seeks to extend the requirements in the alternative dispute resolution regulations to micro-businesses. The regulations that implemented the ADR directive introduced a range of new measures to facilitate consumer to business dispute resolution. These included the introduction of certain standards for ADR providers and the establishment of competent authorities responsible for approving ADR bodies as being compliant with these standards. Under the regulations, when a consumer and a business are unable to settle a dispute, the consumer has the right to be given details of an approved ADR provider and be told by the business whether it is willing to use ADR in an effort to settle the dispute. This is the only mandatory requirement on businesses in the ADR regulations and it is this requirement that the amendment would extend to business to business disputes.
The important issue here is that ADR providers have been assessed and approved by the competent authorities as having reached the standards in regulations to enable them to deal with consumer-to-business disputes. They have not been approved to deal with business-to-business disputes, which can be far more complicated than the faulty kettle or leaking washing machine that we have discussed in the past. I do, however, have a list, which I can make available to the noble Baroness. The risk of this part of the amendment is that businesses could be given details of an approved ADR provider which is wholly unsuitable or even unable to deal with their particular dispute. There is a real risk that the amendment could lead to confusion and increased costs for business.
The noble Baroness asked about coverage. Around 25 ADR providers have been approved to deal with consumer-to-business disputes. In the UK there are already several large and well-established ADR schemes in regulated sectors such as financial services, energy and telecoms. In other sectors, growing numbers of businesses voluntarily participate in ADR schemes as part of their commitment to customer care, and some trade associations offer ADR services as part of their membership benefits. This was the vision. This is what we hoped would happen. You now see approved ADRs in everything from travel and retail to home improvement, energy, the ombudsman services and the more general providers.
Baroness Hayter of Kentish Town
I thank the Minister for that and look forward to the letter—which may already be drafted, indeed.
I will deal with the issues in reverse order. The ADR issue is really interesting. There is the business-to-business one, which obviously is not free to the complainant. The interesting thing about the EU directive, of course, is that it is free to the consumer, and it is those areas where the business is acting like a normal consumer—the kettle, if you like—that we were very keen that the ADR directive should cover. I will come on to whether the Consumer Rights Act should cover small businesses. I have to thank the department very much for the work it is doing on this—the consultation and the meetings. If the consultation closed in June, I am slightly surprised that we have not had it yet. The word “autumn” was used. The clocks changed yesterday. I consider that it is now autumn.
The Minister knows better than I do the difficulty of getting any legislative time for changes. Should the consultation lead to the department thinking that it would be right to make some change, this is the right Bill to do that. I hope that that opportunity will not be lost, and if the response could be in a timetable that fitted with this, that would be really important.
Going back to the ADR providers, I was sorry to hear the reference to trade associations. The ADR directive is very clear that these bodies should be independent in this regard and I think that trade associations probably do not have that independence. However, that is by the by. I also regret the suggestion that having more ADR providers gives choice. As we have discussed, it gives choice only to the provider. The consumer can still go only to the one that the retailer or whatever says they use. There is always a danger of a rush to the bottom, with an ADR provider saying that it will look after complaints for 20p a complaint and another one doing it for 10p a complaint. That is not an area where competition operates well. I think that I have probably lost that argument but I leave that thought with the Minister.
I have only one other point to make in response to the Minister’s helpful comments and that is about getting better advice on whether a term should be void. I think she said that each business knows what is best for them. I think that the issue is a different one. It comes back to the lack of bargaining power, as the Minister said in relation to an earlier amendment. Somebody being offered three-month payment terms on an invoice may know jolly well that that is an unfair term and is silly and wrong, but they have no bargaining power. We were trying to strengthen their hand not as regards the business-to-business relationship but as regards very small businesses which are small fish in a very big tank, if you like.
We may want to come back to this measure. I will not push the Consumer Rights Act point until we have the response to the consultation but I hope that we can have it in time for it to be meaningful. If the idea is that we should move forward, it seems to me this is the right Bill in which to do it. In the mean time, I beg leave to withdraw the amendment.
Lord Mendelsohn
Lord Mendelsohn
In moving Amendment 15, I wish to speak also to Amendments 17, 42, 43 and 45.
This is a fabulous measure on which I hope we will reach agreement. We have discussed these interesting issues before. I hope the Minister will note that we have designed these amendments specifically with the Small Business Commissioner in mind and seek to give him a very strong role. This series of amendments deals with late payment and addresses some of the issues involved. Currently, we have a very narrowly defined role in dealing with this as a priority.
We are looking for a way to address what we believe is a major deficiency in the Bill by continuing with our attempt to increase the capacity of the Small Business Commissioner through introducing compulsion in that regard, and to address the velocity of cash in the economy by persuading the Government to take up a fabulous, transformational aspiration. I am extremely positive and hopeful about all these amendments. I only hope that my great positivity and the enormous support and adulation for these measures that I and many other noble Lords have talked about will enjoy the full weight of the Minister’s attention and that we will not be disturbed by any Divisions that may take place. But who knows? My hopes in that regard may well be dashed.
There is a fear that the way in which late payments are described means that the Small Business Commissioner’s role will be like that of Alice in Wonderland—namely, that it will shrink enormously and get smaller and smaller to go through a very small door. The reason for that is because there is a variety of payment mechanisms that fall outside the definition of late payments. The sorts of practices that can be conducted between large businesses especially, but not exclusively, are very problematic. They cause massive cash flow problems, which are an abuse of contract terms. Their net effect are forms of late payment but they are about late payment terms, meaning that one company massively disadvantages another, particularly when it comes to whose cash flow is being exploited.
In relation to this we went through a number of particular cases during the course of the Small Business, Enterprise and Employment Act, and were encouraged by some of the Minister’s responses. Some work has been done on this and I hope that we have started a process that addresses it. It is very important to understand that if a company says the payment terms are 90 days, take it or leave it, then late payments sometimes do not apply until 91 days. That is an unacceptable form of a payment term that abuses another company.
A variety of mechanisms are established in which they say, “We’ll pay you X and then there will be charges which we could vary, so we’ll pay you X minus marketing costs, warehousing costs, or other sorts of costs”. Invariably, that goes to forms of discounting which reduce the payment terms, but many of them will have a retrospective impact. There is no necessary correlation between those payment terms and any form of marketing activity, warehousing costs or proportionality to them. These are massively extensive business practices, but many have terms allowing people to vary the overall payment on the basis of saying that their marketing costs were higher, or their building, warehousing or other sorts of costs were significantly higher. We have seen some of the most appalling abuses, and cases arise from time to time illustrating that. These terms are becoming ever more present and they are unacceptable.
There are also issues in which the dispute resolution process is defined by contract not on the basis of timing but on the basis of process. A late payment cannot be defined until the process has been gone through. Let us say there is a random company that deals only by email and it does not respond, and there is no human being to contact. The company will drag it out for as long as is humanly possible, but that still cannot be defined as a late payment. We could even have disputes when the goods are received. There can be significant disputes but the timescale by which these things are resolved means that, in effect, it is a late payment with people using other people’s cash.
Our amendments would work in tandem with the unfair terms in the earlier Amendment 14. Ours would take out exclusions from the scheme because these are areas when the sorts of issues that have been excluded from the role of the Small Business Commissioner can be used to ensure that they do not fall within it. Some Members of the Committee will know that I like the occasional flutter and I would be happy to wager a considerable bet—it is not a particularly hard prediction—that if you give businesses the opportunity and an out clause by which they can avoid having to deal with late payments through the Small Business Commissioner, they will take it. It is inevitable. It is important to capture the right things.
Amendment 41 also addresses the issue of retrospective discounting. Company A supplies Company B, and Company B then insists on a retrospective discounting clause. It decides that it is not making enough profit at the end of the year and causes a retrospective discount to try to make up its numbers to the massive detriment of Company A. Those sorts of practices are just wrong and we should get rid of them, because they are inappropriate.
Amendments 42 and 43 are very similar in nature. Rather than relying on people’s good intentions, there is nothing like a duty to pay to increase people’s adoption of a culture. Here we are looking at duties to pay for the private sector and, indeed, the public sector. That is just an extension and a tidying up of some of the Bill’s provisions to give it more force by giving people a duty to pay and a duty to report on whether they have paid, what they owe and when they paid it. That should be reported to the Small Business Commissioner who, happily, has a lovely address for them to report it to. There, we have used the Government’s proposal to good effect to provide a duty to pay. It is not discretionary; there is a duty to pay; you do not have a choice.
Lord Stoneham of Droxford
I will speak to Amendment 41. Our concern throughout has been that the powers of the commissioner are somewhat ineffective. There is a danger that, as a result—this is our fear—he or she may well be side-lined because there are ineffective follow-up powers to deliver on his work. If we are to deal with some of the abuse of late payments, there must be some clout coming down the line.
I accept that the noble Baroness may tell us that it is best to wait and see before we come forward with legislation in future, but here, we provide that, subject to the commissioner’s advice, the Secretary of State may consider regulations which would give power, as necessary, to fine late payers who are not complying with the advice they receive from the Small Business Commissioner to resolve complaints. This amendment, which again includes the public sector, could set definitions of good practice and follow them up with some penalty if they are not complied with. The Minister should consider that in the Bill, so that people see that the commissioner will not be ineffective and side-lined in future.
Lord O’Neill of Clackmannan
My Lords, I am very pleased to come in on this point. The problems of small businesses can very often be summed up as that they spend a lot of time financing bigger businesses. They do so because they are not getting paid and the bigger businesses have the money which they should have been paying further down the supply chain. We all recognise that this is an issue and, in some respects, the establishment of the Small Business Commissioner is evidence of that. However, it is equally significant that we have got to give the commissioner a chance from the very start. He has powers and teeth and he has support. Big businesses will not be allowed to set aside their responsibilities in respect of payment. This group of amendments covers both public and private sectors. In many instances, we have supply chains where the initial payment for work done comes from the public sector but there are many casualties going down the chain. The 30-day rule may be applied by some, but not by all. We do not need to wait on the commissioner asking for powers. We need to be able to say that this is the arena in which you will be operating and these are the powers and weapons you will have with which to take on the recalcitrants.
The amendments are a bit imperfect at the moment, but the principle is there. It is up to the Minister to come to us and say that the Government think, like noble Lords on this side of the Room, that something needs to be done. If this is not adequate, then by all means let us look at it again at subsequent stages, and in the other House, if necessary. Without this kind of clear backdrop, the Small Business Commissioner will be disadvantaged and will not be able to make the significant take-off, in respect of payments, that everyone would like to see right from the word go.
Baroness Byford
My Lords, I have a couple of questions for the noble Lord who moved these amendments. The theme of our discussions in the Room today has been that the powers in the Bill are felt to be ineffective. That made me think back to the discussions we had when we set up the Groceries Code Adjudicator not so many years ago, when the powers and effectiveness of that role were discussed fully. My first question, which is also for the Minister, is whether we learnt anything from that adjudicator that might have a bearing on the issues raised in our discussions. Secondly, in light of that, might a transitionary scheme be an advantage in the long term? It seems a shame not to learn from things we talked about in great detail in the past. One of these was the question of whether the powers were sufficient and would bring reward.
I know there is a slight difference between the Groceries Code Adjudicator and the commissioner we are setting up here. A lot of the adjudicator’s role was trying to solve the problems between suppliers and the people they were supplying. Fines and enforcement were nearly a last resort, but it was very important that they were there. My question, to both the Minister and the noble Lord, is about whether lessons have been learned, or whether there are other schemes out there which would give us more guidance on what the Bill proposes.
Baroness Neville-Rolfe
My Lords, we have had a very interesting debate on these amendments. I like the positivity of the noble Lord, Lord Mendelsohn, and will look carefully at his examples before we speak again. However, we believe it is vital to exclude certain matters from the scope of the complaints scheme in order to ensure, as I have said many times, that the commissioner’s work is targeted, does not duplicate and makes the best use of resources.
For example, a complaint will be excluded if it relates to the appropriateness of the price or proposed price for goods and services. The commissioner’s function is not to consider whether either party is getting a good deal financially but whether the approach to payment matters is fair and reasonable. I also agree very strongly with what the noble Lord said about the importance of what I would call working capital. By reducing late payments, you increase working capital. The noble Lord, Lord O’Neill, made essentially the same point. That is the background to this, where I think we have a lot of common ground. We think it is good practice for such a scheme to set out certain parameters, as we are doing here.
Amendment 45 is about imposing a maximum payment term. Obviously, I understand the intention behind this amendment. It seeks to address, as we are trying to do, the misuse of payment terms by larger companies when contracting with smaller firms. It seems quite wrong for larger companies to use unduly long payment terms when dealing with smaller suppliers. Indeed, frankly, you would expect them to do the opposite, because small suppliers have less capital behind them and are forces for innovation.
In the UK, legislation mandates a 60-day payment term for private sector bodies, unless companies expressly agree to a longer payment term that is not grossly unfair. It is true that some EU member states have gone beyond this to impose a maximum payment length. However, at the end of 2013, when we consulted on whether to introduce a maximum payment term, responses showed very little support for this. The most common argument was that companies value freedom of contract, and they need the flexibility to allow for different circumstances, notably the different practices of different sectors. Instead of more draconian measures, our stakeholders wanted to see increased transparency on payment terms and practices.
The Small Business, Enterprise and Employment Act does just that: it enables us to introduce a new reporting requirement for the UK’s largest companies. When implemented, this reporting requirement will see the UK’s largest companies reporting six-monthly against a comprehensive set of metrics, including the proportion of invoices paid beyond agreed terms, and the proportion of invoices paid within 30 days, between 31 and 60 days and beyond 60 days. We can legislate so that the Small Business Commissioner, once the office exists, will monitor and enforce this requirement—I think somebody asked about that. The commissioner will also make inquiries about payment terms, where a small business makes a complaint.
Amendments 42 and 43 concern the duty to pay. I have outlined our powers to implement a new reporting requirement for the private sector. The Act sets out how we can use the reporting power in relation to payment performance and interest owed and paid in respect of late payment. As we discussed earlier, the Public Contracts Regulations 2015 have recently introduced a requirement for all public sector buyers to have 30-day payment terms in their contracts and through their supply chains. They must publish annually on their payment performance, including interest paid to suppliers due to late payments and, from 2017, debt interest payments.
None of this is easy but we are striking a balance between ensuring transparency in this area and placing burdensome requirements on private sector companies and public sector buyers that we fear could have perverse effects on the UK’s largest companies and their supply chains.
The noble Baroness, Lady Byford, asked about the Groceries Code Adjudicator, who of course administers the Groceries Code, which was a remedy for a competition problem. The Groceries Code Adjudicator has adopted a similar approach to that which we intend for the commissioner. She has used informal approaches as a means of influencing behaviour and has had some success; for example, in retrospective forensic accounting.
The GCA, the pubs adjudicator and the new commissioner are each addressing particular issues identified after evidence-based research and full consultation. The Government have taken a proportionate response to these problems in each case. The first review of the GCA will take place in March—unfortunately, a little late for the Bill but in good time for the emerging work of the commissioner—and will give us the opportunity to consider the lessons further. I am sure that there is some other learning, but those were some first thoughts.
In Amendment 41, there is an important issue about further payment legislation; I am grateful to the noble Lord, Lord Stoneham, for his explanation of the way he sees this working. It permits the introduction of further legislation to tackle payment practice, so it would allow for a maximum term to quibble an invoice, for example. It would prohibit unilateral changes to payment terms and payment to join supplier lists.
Lord Mendelsohn
My Lords, that was not entirely the response I had hoped for, but one I could have expected. There are a couple of elements here. First, we were asked about whether we had much to learn from the Groceries Code Adjudicator that is relevant to this. Indeed, we have learned a huge amount from that adjudicator that is entirely relevant to the Small Business Commissioner.
In the past couple of weeks, five years into its existence and two years into the current person responsible for it, the adjudicator has been shocked by suppliers’ ignorance of the code and all aspects of it compared and contrasted to the knowledge that larger businesses have of what they can do and how they can get round it. We are dealing with a very small number of companies who are the target of the code, but still, suppliers in any survey, in massive numbers, talk about these problems. The largest and most recent survey may well have been on Tesco. Somewhere in the region of 30% to 40% of suppliers said that Tesco was failing more often than not to live up to its obligations under the code, when, by dint of what the Groceries Code Adjudicator said, it had had extensive department education on what it should be doing, but it still failed to comply. Indeed, we have the issue we will come to later about the fears of retribution. We continually have extensive surveys by the Groceries Code Adjudicator about the number of suppliers feeling mistreated. I think that that has reduced, in the entirety of its existence, by only 9%.
We took some of that into account and that is why the Small Business Commissioner should have a much more extensive role and this should be much clearer. If we hope for everyone to be happy, resourceful and feel comfortable, we need something with some teeth.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
My Lords, there is a Division in the House.