Small Business Commissioner

Baroness Maddock Excerpts

Monday 22nd January 2018 Lords Chamber

[Baroness Maddock (LD)]

The noble Lord, Lord Mendelsohn, has introduced a timely debate, not only with the appointment of the Small Business Commissioner but in the week after Carillion went down. Also, I have read in the past few days a number of pieces in newspapers about how the Royal Bank of Scotland has treated small businesses in the past. In my remarks I will dwell on the plight of small builders in particular, and reflect a little more widely on the importance of small businesses in our communities and our country.

Access to finance and late payment of bills are major factors in the failure of many of our small businesses. Last week, in a debate in the Commons, we heard yet again about the Royal Bank of Scotland’s treatment of small businesses. There it was claimed that, since 2008, 16,000 small businesses had been put into GRG—the bank’s global restructuring group—and the vast majority ended up being liquidated.

My right honourable friend Sir Vince Cable referred to allegations over the restructuring group to the City watchdog four and a half years ago and has questioned why the regulator is still withholding its full report into what many people recognise as a scandal. Does the Minister have any information on that?

As we have heard, access to finance is a particular problem for small and medium-sized builders and I am grateful to the Federation of Master Builders for its briefing. In 2017 its survey of housebuilders showed that 54% of its members cited access to finance as a barrier to enabling them to build more homes; 14% reported a deterioration in lending conditions in the past year; and 45% said they were involved with sites that had stalled for financial reasons.

In addition, the late payment practice of larger firms affects the small builders who work in the supply chain. We have seen this particularly in the case of Carillion recently. Again I am grateful to the Federation of Master Builders for its briefing, which states:

“The case of Carillion is a significant one, as this highlights structural issues associated with contracts and payment practices within the supply chain”.


It continues by stating that one member of the Federation of Master Builders,

“who is involved in a number of Carillion contracts explains that when firms like his contract to work for Carillion, they are essentially investing in Carillion’s business and projects because they invest significant amounts of resources upfront in these projects. However, due to payment practices”—

as we have heard today—

“and in particular retentions, most of their profit is not realised until sometime afterwards. Yet if these smaller specialised businesses want to undertake specialist work on larger projects, they often have no choice but to work for, and invest in, major contractors, while having no say as to who those contracts are awarded to”.

It is clear that late payments and the withholding of payments are a matter of course for major contractors. However, the greatest barrier for small firms is that it is difficult for them to take part in public and private sector supply chains. As we have heard, small firms operate on much smaller margins and this state of affairs makes it difficult for them to survive, let alone grow and prosper. This has resulted in the major housebuilders cornering the market. I took part in a debate in this House a couple of weeks ago about the role of the major housebuilders, who have cornered the market and yet are still not providing more homes. We are grateful to small builders, who we know can sometimes produce better results, particularly on small sites.

The Federation of Master Builders believes that Carillion’s liquidation should act as a wake-up call for the Government. Again I quote from the federation, which suggests:

“Government should now begin to look harder at new approaches which seek to spread its risks better by opening up public sector construction contracts more to small firms by breaking larger contracts down into smaller lots, and exploring where it might be more efficient to work directly with Tier 2 contractors on some contracts. Applying this logic to the Sector Deals would also improve a strategy which appears to be overlooking small firms for the most part”.


The issues we are debating are not new. In my view, the Government have contributed to the state of affairs we find ourselves in. Government spending departments continue to use the “cheapest is best” approach to main contractors. Some seven years ago, Ian Taylor, the former chief executive of Balfour Beatty, told a government-sponsored conference that contractors were winning public sector business by offering the lowest tenders and finding ways to make them profitable. At the time the Government put forward an alternative strategy and urged departments to run pilots as part of it. Apparently only one pilot came forward and I gather that there has been little further change since.

Small businesses are an important part of any national industrial strategy. They are the seed corn for larger businesses and important for international players. I know of one firm that grew from being a small ironmonger’s in the ward I represented when I was first a councillor on Southampton City Council. The business was owned by two gentlemen, one called Mr Block and the other called Mr Quayle. That was the start of B&Q, which ended up with Kingfisher, which I think now belongs to something even larger. Many small businesses will not develop in this way but they will be major players in local economies. They help to shape our local communities. They provide jobs and, as employers and owners, they play an important part in the civic life of many of our towns and cities. We see businesses sponsoring all sorts of things such as Christmas lights and flowers. Those who run businesses are often involved in local chambers of commerce, which are important to the vitality of our towns. Moreover, although not so much these days, I recall when I was first in local government many businesspeople were elected on to local councils. The climate today means that many people find that very difficult to do.

Small hotels, bed and breakfasts, cafes and restaurants are run by small businesses, all of which are very important for attracting tourists. The tourist economy is an important contributor to the economy of our country. I understand that small and medium-sized enterprises train two thirds of all apprentices, so the Government intervening and investing to protect small and medium-sized businesses must be a good way of spreading economic growth more evenly throughout the United Kingdom.

I welcome the fact that we now have a Small Business Commissioner, but it is obvious from my comments that if we really want to support small businesses, there are many more things that the Government could put in place to create the right environment. I look forward to hearing from the noble Lord, Lord Henley. I have been in this House for 20 years now and I have heard the noble Lord reply to many debates. He is always optimistic about what the Government are doing and tries to convince us that all is well, but it is quite obvious that all is not well for many small businesses. I look forward to some reassurances from him when he winds up the debate.