Draft Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024
(3 days, 10 hours ago)
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The Parliamentary Under-Secretary of State for Business and Trade (Gareth Thomas)
I beg to move,
That the Committee has considered the draft Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.
It is a pleasure to serve under your chairmanship, Ms McVey.
The regulations were laid in draft before the House on 7 October 2024. By way of introduction, let me explain that the regulations seek to amend the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017. Let me give a bit of context to the issue. Prompt and fair payment has long been an issue in the construction sector and particularly affects small businesses in the supply chain. Holding what is known as retention money is a long established construction contractual practice intended to provide security against defective work or the insolvency of the subcontractor supplier. However, it can operate unfairly against smaller suppliers who can feel unable to question or to challenge how the practice is applied.
A retention clause allows the employer to deduct and retain a proportion of the value of the contract otherwise owed to the supplier until particular contractual conditions are met. Typically, 3% to 5% is held over the duration of the project and for a period post completion. The use of retention clauses in construction contracts can be particularly problematic to the supply chain due to late, partial or non-payment of retentions, or these being permanently lost through upstream insolvencies.
There has been an attempt to deal with this issue. Not everything the previous Government did was entirely wrong. This is one of those rare exceptions where the Government recognised that there was a problem in this space and were intending to introduce this regulation until the general election was called. Recognising the good intent behind this particular proposal, we have sought to lay it before the House again, and this is the result. What is not in the existing regulations, as they stand at the moment, is the requirement for specific reporting relating to retentions that are held under construction contracts, and this SI seeks to put that right. It will bring greater transparency in relation to the retention policies, practices, and performance of larger businesses that have construction contracts.
In the first instance, reporting will require a statement on whether the company's payment practices and policies include or do not include retention clause. Where a company makes a statement that retention clauses are included in its construction contracts, further information must be submitted. Details will be required on whether retention clauses are included in all its construction contracts, whether the company’s standard payment terms include retention clauses, or whether retention clauses are used only in specific circumstances, which it would need to describe. Details would also be required on whether there is a contract value under which no retention clause is included, and that value, whether there is a standard rate of retention applied and that rate, whether there is a practice of using retention clauses that is no more onerous than those that businesses upstream are subject to, and whether there is a description on the process for the release of the retentions that are held.
Two specific metrics will also be required: the percentage ratio of the amount of retention that is withheld from the company by its clients, which the company holds back from its suppliers, and the percentage ratio of the amount of retention that the company withheld from the total value of payments made to suppliers as a proportion of the amount paid to suppliers during the reporting period. Those metrics will help to provide smaller firms with better information about a large business’s retention payment practices, and by doing so, incentivise large businesses to improve those practices.
In conclusion, this is a measure that will provide small firms in the construction supply chain with information that will enable them to take decisions about entering into contracts and to understand how to ensure that retentions owed to them are paid. It will also create a clear incentive for firms to improve their payment performance in relation in relation to retentions. The Government are looking at the whole practice of late payment in in general terms. We have announced our intention to consult more broadly on what further measures we can bring in to tackle the problems around late payment, but this SI stands alone as a useful measure, and I commend it to the Committee.
Dame Harriett Baldwin (West Worcestershire) (Con)
It is a very great pleasure to serve under your chairmanship this morning, Ms McVey. I just note that the Minister highlighted the fact that, in fact, this initiative had been started under the previous Government, and so you would not expect me to be objecting to its passage today. But I do have, in the interest of scrutiny, a few questions for the Minister.
The explanatory memorandum accompanying the statutory instrument highlights the improvements that have occurred in the time that it takes to pay invoices since these measures were brought in in 2018. There was strong support in the consultation for extending the reporting requirements to these retention payments. Could the Minister summarise for the record what the objections were in the consultation and from whom they came—the people who did not support moving forward with these measures?
The Department will generally, it says in the explanatory memorandum, seek to encourage businesses to comply with the regulation by encouraging them, getting in touch with them rather than prosecuting them for non-compliance. Could the Minister highlight if there have actually been any prosecutions at all under the previous payment regulations, and, if so, who the holdouts or the big contractors that have resisted these measures have been?
Most companies say that this regulation will be an ongoing cost to their business. It is estimated to be a small amount of £10 million per year. Can the Minister outline for the committee any measures that he is planning that will reduce costs for businesses? Businesses are telling me that the extra cost of national insurance and the Employment Rights Bill are adding costs to their businesses that can be seen from space. The last Government introduced new requirements for firms bidding for large Government contracts to make sure that they pay small businesses on time, and those bidding for Government contracts over £5 million will have to demonstrate that they pay their own invoices within an average of 55 days, tightening to 45 days and then to 30 days in the coming years. Can the Minister confirm that he is planning to continue with that approach?
The last Government overhauled the voluntary prompt payment code, halving the time signatories have to pay small businesses to 30 days. Is the Minister planning to update us on the progress he has made on this matter in the last six months, and has the number of signatories gone up or down—it was 2,800 voluntary signatories. I look forward to the Minister’s answers and we support the measures today.
Daisy Cooper (St Albans) (LD)
In so many sectors, we have this enormous power imbalance between large companies and the smaller companies that they often contract through their supply chains, and construction is no exception. The Liberal Democrats have no objection to this and broadly welcome it. Anything that increases transparency is a good thing. Anything that tries to redress the power imbalance in those supply chains is also incredibly welcome.
I have just two questions for the Minister. As a liberal, I strongly believe in the power of incentives, and we always hope that incentives work. In many cases they do. My first question to the Minister is that if these incentives show that they do not work, will the Government have some system for monitoring that process? Is there some point at which, in the future, the Government intend to review the effectiveness of this legislation? Secondly, the Minister mentioned that more broadly the Government are looking at the issue of late payments: is he at liberty to mention, either now or at a later stage, the scope of that particular review and which sectors that might apply to?
Gareth Thomas
I am grateful to the hon. Members for West Worcestershire and for St Albans for their questions. On the question of the prosecution of firms, as I think I alluded to in my opening remarks, regulations on reporting did come into force back in 2017. To be blunt and to be candid in this forum, there has not been much enforcement of those regulations. We are seeking to put that right, and have written to over 500 firms who have not been complying with those regulations. There has not been a prosecution as yet, because we are still within the period that we want to give firms the chance to comply. If there is a refusal to comply, prosecution can take place, with potentially unlimited fines for non-compliance. Obviously, I very much hope we do not get to that to that stage, and that firms do respond appropriately to the correspondence from my officials to those firms who have not currently complied.
I cannot give the hon. Member for West Worcestershire a specific breakdown of which sector of the construction industry were opposed to this regulation. All I would say is that there was a very strong balance in the consultation responses that were presented to the last Government, as I understand it, in favour of the approach that we are taking now. On that basis, and as a result of conversations we have had since we got into government, we believe the measures are appropriate. That comes on perhaps to one of the issues that the hon. Member for St Albans raised about what happens if this does not lead to the to the outcomes that we want. Our sense is that it will work, that creating incentives has been shown to work to date. Build UK, which is a fairly representative organisation for the construction industry, has benchmarked construction businesses on their payment performance since 2018. Its work shows a significant improvement in terms of payment, and we hope a similar level of improvement will be achieved by the requirements in this SI. Under the regulations, we have the opportunity to come back if loopholes are spotted, and we will obviously keep that in mind and see how things develop.
More broadly speaking, the second question from the hon. Member for St Albans alluded to what else we are doing in the late payment space—a question that was touched on also by the hon. Member for West Worcestershire. We are getting ready to consult on a package of further legislative measures around payment practices. We are not quite ready to do it now, so I cannot tell the House that, but we will bring forward proposals shortly, and obviously the House will be informed at the appropriate time. We recognise this is a huge issue for small businesses. It has led, in many cases, to small businesses going bust and is a huge waste of time in terms of the productivity of small businesses having to chase late payments. I commend the SI to the Committee.
Question put and agreed to.
Draft Free-Range Egg Marketing Standards (Amendment) (England) Regulations 2024
(3 days, 10 hours ago)
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The Minister for Food Security and Rural Affairs (Daniel Zeichner)
I beg to move,
That the Committee has considered the draft Free-Range Egg Marketing Standards (Amendment) (England) Regulations 2024.
It is Wednesday morning, so we must be here again, Mrs Harris. It is a pleasure to serve with you in the Chair. The draft regulations were laid before the House on 21 November 2024, and will amend the existing legislation governing egg marketing standards to enable free-range eggs to be marketed as such for the duration of mandatory housing measures that restrict laying hens’ access to open-air runs.
Currently, when free-range hens are placed under mandatory housing measures due to disease outbreaks such as avian influenza, the existing egg marketing regulations allow their eggs to continue to be labelled as free-range for only 16 weeks. This is known as the 16-week derogation period. If the mandatory housing measure lasts for longer than 16 weeks, eggs from those hens have to be labelled and sold as barn eggs.
The requirement for egg producers and packers to re-label free-range eggs as barn eggs once the 16-week derogation period is exceeded is difficult to implement in modern automated pack houses, adding significant logistical and packing cost to the industry, so the statutory instrument will remove the 16-week derogation period so that free-range egg producers and packers can label and market the eggs as free-range for the duration of a mandatory housing measure, however long that might last.
Under mandatory housing measures, egg producers still have the higher operating costs of maintaining their free-range egg system, with the additional cost of having to ensure that hens are also temporarily housed indoors. The normal laying period of a productive free-range laying hen in the UK is around 90 weeks. The SI will remove the derogation that will affect only a small part of a laying hen’s productive life, with all the other free-range criteria, except access to open-air runs, still needing to be met.
In 2024, the Department for Environment, Food and Rural Affairs and the Scottish Government held a joint consultation on the proposed changes, and 70% of respondents supported the removal of the 16-week derogation. The removal of the derogation has already come into force in Scotland. Following their own consultation exercise, the Welsh Government have announced that they will also introduce legislation to remove the derogation.
In 2023, the European Union amended its egg marketing standards regulations to remove the 16-week derogation period. Through the Windsor framework, this also applies to free-range eggs produced in Northern Ireland. Without the SI, the introduction of any mandatory housing measures that last longer than 16 weeks—for example, during an avian influenza outbreak—would be detrimental for English free-range egg producers and result in an increase in the importing of free-range eggs from the EU and Northern Ireland. This could have a significant negative long-term impact on the English free-range egg industry. The SI will restore alignment with the EU and Northern Ireland, and will also ensure that free-range egg producers and packers do not incur additional costs for adhering to Government-imposed housing requirements.
Unfortunately, outbreaks of avian influenza usually occur during the winter months, as was the case in 2021-22 and 2022-23, resulting in the introduction of housing measures for poultry that, in both those cases, lasted longer than the 16-week labelling derogation period. They lasted for an additional six weeks in 2021-22 and seven weeks in 2022-23. It is, then, imperative that the SI is in place for the rest of the winter period and beyond.
We continue to uphold the high standards expected by UK consumers and businesses. The change in the statutory instrument will safeguard our important British egg industry. I commend the draft regulations to the Committee.
Dr Neil Hudson (Epping Forest) (Con)
It is a pleasure to serve under your chairship, Mrs Harris. I thank the Minister for bringing the draft regulations to the Committee. I am pleased to say that we, His Majesty’s most loyal Opposition, are supportive of the statutory instrument and offer no objections. The initial consultation conducted by the previous Conservative Government in January 2024 demonstrated strong support for the proposals, leading to this statutory instrument.
Current marketing standards allow hens to be housed for 16 weeks before their eggs are required to be re-labelled as barn eggs. Recent avian influenza outbreaks have once again necessitated the introduction of mandatory housing measures for free-range poultry in certain areas, which can sometimes exceed the 16-week limit. Consequently, producers adhering to these essential measures have been penalised through the loss of their free-range status.
In the previous Parliament I served on the Environment, Food and Rural Affairs Committee, and we looked into this issue extremely closely and fed our work in to the Government. I am pleased that the previous Government responded positively, and that the new Government have picked up the baton. The changes in the statutory instrument will remove the 16-week derogation period, thereby protecting producers who are doing the right thing by responsibly housing their birds under the chief veterinary officer’s instructions during the imposition of avian influenza controls. I should declare an interest: I am a veterinary surgeon so I have a strong personal and professional interest in this subject.
The changes are made in the knowledge that once the restrictions are lifted, the birds will be back out and free-range. Furthermore, they will ensure that English free-range producers maintain parity with the EU, where the 16-week time limit was removed from egg marketing standards legislation in 2023, as the Minister articulated. This will create a level playing field for our producers and reduce the likelihood of English free-range eggs being substituted with imported eggs.
Although we support the statutory instrument, I do have some questions for the Minister. Before I ask them, I put on the record my thoughts and sympathy for farmers and bird keepers who have been affected by avian influenza outbreaks. The virus is still with us and there are still outbreaks. I also pay tribute to everyone at the Animal and Plant Health Agency. Vets, officials and scientists are working hard on the situation, as they are working on many different disease situations. Avian influenza is with us, bluetongue is still bubbling away, and we now have the real concern of foot and mouth disease having been confirmed in our near neighbour Germany.
As a veterinary surgeon, I am all too aware of the devastating impacts that animal disease outbreaks can have. Avian influenza outbreaks obviously affect not only reared domestic birds but wild birds, but there are also significant human impacts, not least on the mental health of those in the frontline. Given the ongoing avian influenza situation, will the Minister outline the additional measures the Government are taking on avian influenza to preserve our nation’s biosecurity? What is the current policy and status in terms of vaccine development and deployment?
In addition, will the Minister clarify what steps are being taken to co-ordinate the changes with Welsh authorities? We know they are introducing changes, but we must make sure that we have a consistent approach across the UK. We strongly support these crucial measures and I am grateful that the regulations have been brought to the Committee today.
Daniel Zeichner
I am grateful to the hon. Gentleman for his support. We are very much carrying forward the work of the previous Government.
The hon. Gentleman asked about the additional measures to preserve biosecurity and raised the important issues in respect of bluetongue and of foot and mouth disease in Germany. I assure him that all the measures he would expect to be in place are in place. I spoke to the German Minister about foot and mouth last night, and we will update the hon. Gentleman and his colleagues if there are any further developments. We obviously hope that outbreak can be contained. On bluetongue, we held a roundtable yesterday on our approach for the future. I assure the hon. Gentleman that we are very aware of these threats. Anyone who holds the relevant offices is aware that they are of huge concern not just to the farming community but to the wider community.
The vaccination against avian influenza of poultry and captive birds, excluding those in licensed zoos, is not currently permitted, as I think the hon. Gentleman knows. Although authorised vaccines are available, they are unlikely to provide full protection for the strains of highly pathogenic avian influenza that are currently circulating in the UK and Europe. At present, while vaccination can help to reduce mortality, it is likely that some vaccinated birds would still be capable of transmitting avian influenza if they became infected. Vaccination is not, then, part of our current approach.
The hon. Gentleman asked about the situation in respect of Wales. As I said in my opening statement, the Welsh Government are pursuing similar lines on this matter.
With that, I hope we can move to a conclusion. I should add that I understand that there will be concerns that somehow consumers will not get quite what they what they seem to be getting. We are we mindful of that, so to reduce the risk of consumers feeling misled, we will encourage retailers to place signage near where eggs are displayed, to inform consumers of the imposition of mandatory housing measures and their impact on the marketing of free-range eggs—notably that, except for access to open-air runs, the rest of the free-range egg criteria continue to be met.
This statutory instrument is an important measure to support the British egg industry by making sure it has a level playing field with trading partners such as the European Union that have already adopted similar provisions. On that basis, I commend the draft regulations to the Committee.
The Chair