United Kingdom: Productivity

Baroness Harding of Winscombe Excerpts

Tuesday 8th September 2015 Lords Chamber

[Baroness Harding of Winscombe (Con)]

My Lords, it is a great pleasure and honour to speak in this debate. I must declare an interest not in either football or cricket but as the chief executive of TalkTalk, the ISP, and as a non-executive director on the Court of the Bank of England.

I welcome not only this debate but the renewed focus across the Government on productivity. I take a moment to remind ourselves why raising productivity is such a good thing. History is littered with examples of nations that have sought to resist it. Many of the technologies and innovations that have spread the greatest prosperity were initially resisted by those who thought defending the status quo was the best way of guaranteeing living standards and protecting their political power.

For example, I should like to take noble Lords back to 1445, when the first printing press was invented in Germany. In 1473, the next one appeared in Budapest. In 1476, a printing press arrived in London. In 1485, the Ottoman Sultan issued an edict banning printing in Arabic. It took 300 years before the first printing press began work in Ottoman lands. As a consequence, the adult literacy rate in the Ottoman Empire in 1800 was 3%. The adult literacy rate of males in the UK at the same time was 60%, and 40% among females. With that came the associated difference in skills, productivity and wealth. There are thousands of other examples, including Elizabeth I, who refused a patent for a knitting machine for fear of the political unrest that the loss of jobs from hand knitting would create, and boatmen in Germany who sank the first rudimentary steam engine as early as 1705 for fear of what it would do to their industry. The lesson from history is clear: the societies and economies most open to innovation are the ones that benefit most from the growth it brings, while closed societies lose out.

Britain led the Industrial Revolution, not by chance but because we as a nation embraced the technology of the age with more vigour and skill than our rivals and our politicians refused to kow-tow to the elites of the day who had most to lose from the emergence of those new technologies. As many noble Lords have said in this fascinating debate, today’s challenge is to replicate that with the technology that will define the next century. That means, as the noble Lord, Lord Stoneham, said, fulfilling Britain’s potential to be the world’s most advanced digital nation. Much like the invention of printing, steam power or factory automation that underpinned the Industrial Revolution, the digital revolution is a classic example of the sort of change that might be resisted because of a fear that it threatens the jobs that we have today. In doing so, we risk turning our back on the high-skilled, high-paid jobs of tomorrow. We might succeed in resisting change for a couple of years—probably not for as long as the Ottoman Empire did—but the only long-term beneficiaries of that will be our rivals, who will grow more prosperous at our expense.

We need to be much more confident in embracing and explaining the benefits of technology-based innovation. Contrary to the notion that somehow it will threaten jobs, European Commission research shows that 75% of the value created by the internet is in traditional industries. It helps small businesses trade with new markets, allows them to source cheaper suppliers and reduces running costs, which can be reinvested in traditional growth. To put that into context, according to the Copenhagen Business School, if the UK automated to the extent that Germany has, productivity would rise by 22%. That is growth we can ill afford to lose.

Britain can be rightly proud of London’s status as one of the world’s leading technology hubs. Since 2010, London’s digital sector has grown by 46%, now employing 200,000 people. Research by EY shows that London is now the most attractive place in Europe for international technology companies to invest. That is a success story truly to be proud of, but the challenge is to ensure that it is a national success story, not just a London success story. I do not believe that there are any magic bullets to achieve that, but I would like to highlight two small but essential components.

First, there must be a relentless focus on the digital skills that will define tomorrow’s economy. The noble Lord, Lord Bilimoria, spoke very eloquently and passionately about the importance of further education. I would like to talk about skills and education at a much more fundamental level. Across the UK today, 10 million adults lack basic digital skills, by which I mean the ability to send an email, do a web search or fill in an online job application. Contrary to popular perception, they are not all beyond retirement age—50%, some 5 million people, are adults of working age. That is a huge drain on our national productivity.

I am proud to serve on the board of Go ON, the national digital skills charity, which is doing a lot of work across the country with different businesses, local government and charities. But charities alone will not close the gap. There is a very significant political focus on all sides of this House on digital infrastructure, and with significant public funding going into it, but almost none and no discussion about the skills that people across the country will need to use that infrastructure. Just as basic literacy was needed several hundred years ago, driving basic digital skills across the country requires leadership from government. As my noble friend the Minister pulls together the detailed action plan behind the Government’s productivity plan, I urge him to consider how building universal basic digital skills into that agenda can happen.

Secondly, we have to address the physical and cultural barriers that contribute to the productivity gaps that we see in different regions across the country. ONS data show that London has higher levels of productivity than any nation or region in the UK—almost 29% higher than the UK average in 2013. Left unchecked, that gap will undoubtedly entrench economic inequality and poorer living standards in the worst-affected regions.

I feel that very personally, as the chief executive of a business that has quite a large number of people based in London but more people based in the north-west. TalkTalk has two sites in London, one in Farringdon and one in Shepherd’s Bush, and two sites in the north-west, one in Warrington and one in Irlam. Coincidentally, both are seven miles apart from each other, in the north and in London. It is considerably easier for my people to travel between Farringdon and Shepherd’s Bush than between Warrington and Irlam. It is also culturally easier to do that. We find fantastic talents in the north-west as well as in London, but persuading people to move from a job in Warrington to a job in Irlam is considerably harder than it is to persuade people to move to take a job in Farringdon versus a job in Shepherd’s Bush. So as a CEO of a business whose heart and soul is there, I am delighted to see the focus on building a northern powerhouse. It is clear that it is intrinsically linked to better infrastructure, but the political and social leadership to create a broader cultural entity is just as important. That does not mean turning the northern powerhouse into one amorphous entity—Greater London is not that at all. It is totally different whether you live in Bexleyheath, Clerkenwell or Highgate—just to mention three—but everyone in the Greater London catchment is part of that world-class talent base. There is just as brilliant talent in the north. We need to invest in it and create the political and social infrastructure that will drive it. It is fantastic to see this Government bringing that to bear.

As a chief executive who passionately believes that Britain can be a real leader in the digital economy, I welcome the focus on growing productivity. It has been hugely heartening to hear the number of contributions this evening focused on the digital economy, because it is undoubtedly our future.

Small Business, Enterprise and Employment Bill

Baroness Harding of Winscombe Excerpts

Wednesday 11th March 2015 Lords Chamber

[Lord Lloyd of Berwick (CB)]

My Lords, I, too, support the amendment and I do not share the difficulties which it is obvious are felt by the noble Lords, Lord Stoneham and Lord Deben. If those difficulties have any force, they were surely answered by my noble friend Lord Butler.

I support the amendment on the simple grounds of fairness. It is not confined to zero-hours contracts, but one imagines that those will be the most frequently affected. The facts in relation to them have been clearly set out by the two noble Baronesses who introduced the amendment. If an employee on a zero-hours contract is given notice by his employer that there will be work for him the following morning, and if he turns up having incurred expense and finds that his shift has been cancelled, it seems only as a simple matter of fairness—I think that that was how it was put—or of justice that some compensation should be payable.

I suggest to your Lordships that that is how we would all behave in our private lives. If I had a gardener, which I do not, and they turned up hoping for work and found then that the weather was against them or that the ground was too hard, of course I would offer them any expenses that they might have incurred in coming for work which in the event was not available. If that is the way in which we would behave in our private lives, is it not sensible that that is how we should require employers generally to treat their employees? I can see none of the difficulty seen by the noble Lord, Lord Deben, in terms of employment drying up as a result. This is a simple matter of fairness to avoid exploitation—a word which was also used. That reason seems to me to be enough to persuade the Government to accept the amendment.

[Baroness Harding of Winscombe (Con)]

My Lords, I oppose the amendment, which I appreciate might make me rather unpopular in this House today. First, I declare an interest: I run a large public company, TalkTalk. We do not in TalkTalk use any zero-hours contracts today, but I have worked for a number of organisations which do, one of which is very much in my thoughts today—Cheltenham racecourse, where I imagine some noble Lords are today. Many people in the entertainment industry will work on zero-hours contracts.

The noble Baroness, Lady Hollis, spoke powerfully and emotively about the evils of zero-hours contracts, and I am sure that there are individual instances that would deeply shock us all in all forms of employment across this country, but I want to put some facts into the debate. The CIPD did a study in 2013, asking people on zero-hours contracts whether they enjoyed their job and whether they felt they were being well treated. The results were quite interesting, compared to the comments we have heard in the debate so far. Those on zero-hours contracts were just as satisfied as people in more standard contracts—60% said they were satisfied, versus 59% in more standard contracts. They said that they had a better quality of work-life balance—65% versus 58%. They believed that they were less likely to be unfairly treated by their employer—27% playing 29%. So we have to be careful not to make assumptions about people who are making choices to lead flexible working lives in a way that we might not. Those are the facts, as opposed to my personal opinions.

Small Business, Enterprise and Employment Bill

Baroness Harding of Winscombe Excerpts

Tuesday 3rd March 2015 Lords Chamber

[Lord Lea of Crondall (Lab)]

My Lords, I support this amendment and will take the illustration of the insurance industry. There are special features connected with the insurance industry. Hence, it has its own legislation. However, the Minister dealing with what was then the Insurance Bill, the noble Lord, Lord Newby, indicated that other steps and avenues would be pursued to see that the insurance industry could be brought within the scope of some statutory obligations on late payment.

The history of this, briefly, in the insurance industry is as follows. Lloyds of London has unilaterally been able to veto a strong recommendation from the Law Commission which was accepted by everybody else in the industry, including all the main insurance companies, that there be such a statutory duty in that sector so it could be brought into line.

Evidence from other sectors, including overseas parts of the industry, shows that the present arrangement, whereby London has no such guarantees against late payment, is doing serious reputational damage to that major industry. However, the rubric has it that one actor in that industry, namely Lloyds of London, which represents maybe 25% of the industry, which we all agree is not insignificant, can cast such a veto in its own interests against public policy, government legislation, simply by stating—this is the astonishing point—that it finds such a clause, recommended strongly and unanimously by the Law Commission, “controversial”. In other words, to deem a clause such as that to be controversial means that the Bill would fall.

Therefore, in Committee, some noble Lords who supported the amendment generally did not want to take that risk. However, the Minister in that context, in seeking the withdrawal of the amendment, undertook to pursue the issue on the basis that it was not going to be left there and that other means—other legislation—would be explored and pursued. This amendment is a good exemplar of how that commitment should be honoured.

[Baroness Harding of Winscombe (Con)]

My Lords, I rise to speak against these amendments. I must first declare an interest because I run a large public company, TalkTalk, which would clearly be subject to this legislation.

I agree with the Government’s prompt payment proposals, and it is worth us pausing to recognise how robust they are and how tough a reporting requirement this will be. To report quarterly in detail on your payment performance and policies is more detailed than the report I have to make on the financial performance of my company. I have an obligation to report in full on a half-yearly basis. I would not underestimate the power of transparency—of having to report this publicly and clearly. We see this in a whole range of compliance areas in business. Having to explain publicly to your customers as much as to your suppliers what you are doing acts as a strong brake on bad behaviour and is the beginning of the culture change in payment policy that I am sure that all sides of the House want to see.

I am not persuaded, however, by the Opposition’s amendments. There is a real danger that we try to overcomplicate and second-guess how businesses will wish to negotiate with each other. There are also a lot of unintended consequences—I am sure that they are genuinely unintended—in the Opposition’s amendments that will simply lead businesses to avoid the provisions and will create the very problem that they are seeking to avoid, which is the negotiation of much longer payment terms that meet all the requirements of a much more tightly defined code but actually do not enable small businesses to be paid faster.

It is therefore important that we support the Bill and the improvement in publicising and shining a light on poor payment policies and performance. But we in this House must not think that we can create culture change by specifying in ever more precise detail what businesses can and cannot do. That would have the opposite effect on the culture that we are trying to change.

[Lord Mitchell (Lab)]

My Lords, I start by coming back at what the noble Baroness, Lady Harding, has just mentioned. I know that she runs an exceptionally good company; I do not know what TalkTalk’s payment terms are, but I bet that they are good and that it pays on time.

However, there are many people out there, including many large companies, whose behaviour is quite disgusting. We have seen in the past few months egregious examples of big customers stuffing their suppliers. I will give a few examples. Diageo, the owner of Guinness and Johnny Walker, recently informed its suppliers that it would extend its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms—I wanted to say from Heinz 57 but it is not quite that—from 45 to 97 days, and the list goes on to include Monsoon, GlaxoSmithKline and Debenhams, to name just a few more. It is a common theme. These companies put the squeeze on their suppliers for two reasons. First, they want to accumulate as much cash as they can. That is understandable as they want to boost their balance sheets. More perniciously, they do it simply because they can. It is bullying.

Many of us have run small businesses and we know all too well the perils of cash flow management. We know what it is like to sweat while waiting for our big customer to make the payment. That is what keeps us up at night and what this amendment aims to rectify. According to the Institute of Directors, two-thirds of its members with fewer than 250 employees suffer from late payments. It is estimated that payments delayed over and above the contractual terms total—well, in my notes I have £40 billion but my noble friend Lord Mendelsohn says £60 billion. Whatever it is, it is a very large number. It is not just the supplier who suffers; it goes to the supplier’s own suppliers and to all the families who work with these companies that are now at risk. It permeates everything.

In this amendment we seek to introduce a radical change. Where a late payment occurs, an automatic interest rate penalty will kick in at the Bank of England base rate plus 8%. I can promise that if there is an outstanding payment with interest rates clicking up at 10% or 11%, it will gain everybody’s attention and will be paid.

I should like to make one more comment. Later this afternoon we are going to be addressing the issue of government schemes to improve finance for small business. I have no doubt that the best way to improve SME finances quickly and effectively would be to improve cash flows.

Small Business, Enterprise and Employment Bill

Baroness Harding of Winscombe Excerpts

Wednesday 7th January 2015 Grand Committee

[Lord Mitchell]

My Lords, I think that the whole issue of late payments is to do with the business culture that exists. As the years have gone by, it has become easier and easier for large companies effectively to bully small companies so that they can maximise their cash flow. In these days of low interest, it is not a question of paying less interest but of being able to conserve cash flow at the expense of somebody else. It is a really bad situation. I am glad that the Government have taken the initiative on it, and we have come up with amendments that we think will help them.

I do not know whether this is true but I am prepared to bet that more than any government support for funding that we have discussed or any new initiative to help small businesses, the one thing that would change the situation and help companies would be an improvement in the culture of late payments. I suspect that in this Room today there are many noble Lords and others who have themselves come from small business backgrounds—perhaps family businesses—or have worked in small businesses. We all know what it is like to sweat while waiting for a payment from a big company, knowing that if it does not come you may be forced into a state of bankruptcy. Therefore, I think that anything that can be done to encourage payments and to reverse this culture of companies taking more credit would be great.

At the extreme, I do not understand why there is any credit on payments. After all, if you or I go into a shop to buy a new computer, we do not say, “Well, you know, it’s going to cost £1,000 and I’d like 60 days’ credit before I pay”. We would be laughed out of the shop. So why it is any different with a business? Why cannot payments be absolutely instantaneous? I know that I am portraying a very rosy situation here but I feel that there should be a move towards a greater reduction in the number of days’ credit that companies take. With the ease of making payments today, it should become lower and lower.

I want to make one plug if I may. I have mentioned before that I am the chairman of a small company. We had two particular debtors who were each not paying us £7,000. The young men who ran the company tried everything they could but the money was not forthcoming. In my role as Jack of all trades chairman, I decided to take on the job of chief debt collector as well and got on to these two companies to get in the funding. It was partially successful but they were very elusive. They said that one company had gone out of business—the usual sort of stuff you get. However, I discovered something amazing. To be honest, I never thought that I would be standing here saying how good Her Majesty’s county courts are. If you look up the county courts online, there is a facility there to issue a county court judgment online and quickly. I have to tell your Lordships that in both cases I did it and got the money plus interest within 14 days.

[Baroness Harding of Winscombe (Con)]

My Lords, I agree with an important element of what the noble Lord, Lord Mitchell, has just said but I disagree quite fundamentally with the conclusion that he draws as a result. I believe that basically we are talking about how you effect a culture change and, in that, the noble Lord is absolutely right—it relates to big companies, medium-sized companies and small companies. I must declare an interest as I run quite a large company. However, you do not effect a culture change in business by prescribing in detail in legislation what you should report for ever more. In that sense, “may” is a much more important word to include in this legislation than “shall”.