Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)Enterprise Bill [HL]
Baroness Neville-Rolfe Excerpts
Lord O'Neill of Clackmannan (Lab)
Will the Minister also take account of the fact that one of the big problem areas in relation to payment is the construction industry, which has a dreadful record of blacklisting the people who work in it? We are talking about something not dissimilar here—people simply being erased from future contract applications if they have a record of causing difficulty and asking questions.
I realise that it is not the same issue, but I am talking about an industry—the construction industry—in which there are a lot of problems relating to payment. That people could be discriminated against on the basis of having made complaints is not that different from the case of shop stewards who have energetically defended their members’ health and safety rights on building sites in the recent past.
Thankfully, we are moving away from the blacklisting of workers in the construction industry. However, the people who did the blacklisting are the same people who could well take advantage of those whose anonymity was not quite as dark and complete as we would like it to be. When these complaints come up, you do not need two eyes to work out who has been making them. It is an issue of some sensitivity, and the Government need to be sure that people will not suffer as a result of trying to get a legitimate settlement for a grievance. In some industries there is a record of discriminatory handling of people with justified complaints, which puts their businesses in jeopardy. I therefore hope that the Minister will take account of that in her response.
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 noble Lords for their amendments and welcome my noble friend Lord Eccles to our debate. I also thank the noble Lord, Lord O’Neill, for the points he has made about the construction industry. I think we will come on to talk about the construction industry more fully, because at the moment it is not really covered.
Some small businesses which raise complaints may indeed fear that this could affect their commercial negotiations negatively. That is the underlying point. Noble Lords therefore rightly raised points about anonymity, confidentiality and fear of reprisal and shared with the Committee the experience of the Groceries Code Adjudicator. Indeed, I remember when I was regulated—by a regulator that no longer exists, so I can probably mention it—getting the confidential figures for another supermarket by mistake, and the pleasure with which I rang them back and said, “By the way, these aren’t ours—you’ve obviously got the schedules muddled up”. I am sure that these things do not happen nowadays, but that underlines the difficulties.
Small and larger businesses must have faith in the commissioner and their processes. For the commissioner to make sound recommendations, both parties also have to have meaningful input into the inquiry, which, in a sense, is the rub. We agree with Christine Tacon that it is crucial that the commissioner builds trust. I would like to develop our thinking on the Groceries Code Adjudicator a little more fully and perhaps will write to my noble friend Lord Eccles.
Amendment 16 provides for totally anonymous complaints. However, to consider a complaint properly the commissioner may need further information from the complainant. Without knowing who the complainant is and being able to contact them, the commissioner may be unable to address the complaint—that is the difficulty we are in. As regards the advice and information function, we expect, for example, to be able to afford some anonymity where an inquirer has a general query; that is relatively straightforward. We will ensure that our user-testing of the web portal, which I promised on Monday, informs the extent of anonymity that is possible within that context.
On Amendments 19 and 33, I agree with noble Lords that there must be safeguards against the commissioner identifying a complainant to third parties. That is why Clause 8, on confidentiality, restricts the commissioner’s scope to disclose information. However, for the reasons I have already explained, we believe it will generally be appropriate to identify the complainant to the respondent. It is right that a respondent should know who has complained so that they can respond fully. Amendment 33 would go further and require consent for the sharing of all information pertaining to a complaint, including to the respondent. This would be disproportionate.
I should add that in comparing notes with the Australian small business commissioner, we found that he had taken an approach to anonymity similar to the one we are proposing. I hope that I have been able to reassure the noble Lord, and that he is willing to withdraw his amendment.
Viscount Eccles
My Lords, briefly, Amendment 31 seems to introduce a new dimension to the responsibilities of the commissioner, quite apart from the matter of fines, which I would not be in favour of. In the small business sector, lots of businesses are being formed, but lots, I regret to say, are going out of business. That also applies to their customers—the larger businesses. Plenty of them get into trouble from time to time. Repeated failure to pay an invoice may be simply a signal that the invoices are never going to be paid. If one is not careful, the idea that the commissioner should become responsible for credit checks and for a whole host of commercial interventions completely changes the situation.
As I understand it, the commissioner is there to look in particular at the question of late payment as a cultural issue, and to change the culture in a business which appears to have worsened in recent years. I can understand that, but the minute that we start to get into the detailed financial circumstances of individual businesses, the commissioner is in real trouble.
Baroness Neville-Rolfe
I thank noble Lords for their comments. I emphasise that the Government consider that a punitive approach involving compulsion or financial penalties in the round is not the right one to take if the commissioner is to contribute to culture change in payment practices. We want the commissioner to develop trust and have credibility with small and large businesses alike. The commissioner therefore couples an approach of building the confidence and capability of small businesses to assert themselves with proportionate powers to disincentivise unfavourable practices. Notably, this will be through the power to publish individual reports which can name respondents and draw attention to themes and issues in the annual report.
Turning to Amendment 20, the commissioner has the power in our clauses as drafted to ask the commissioner or respondent to provide voluntary information or documents relevant to a complaint. The amendment seeks to force a respondent to comply with such a request where it concerns contract terms and gives the commissioner a power of investigation. Diligent businesses will want to engage constructively with the commissioner and will not need to be forced. They will be keen to make sure that their small suppliers are being treated in a fair and reasonable way. That makes good business sense. They are being investigated by the Small Businesses Commissioner. Secondly, they will want to protect their reputation and avoid being named and shamed. Anything more heavy-handed would introduce an adversarial and legalistic element to the process. I was interested to hear from my noble friend Viscount Eccles that he felt that that was the right way to go.
Turning to Amendment 21, the handling of a complaint is primarily a matter for the complainant, the respondent and the commissioner. However, if third parties including Government have material relevant to a complaint, there is nothing in the legislation that prevents them approaching the commissioner with such information.
Turning to Amendment 22, which the noble Lord, Lord Mendelsohn, referred to as his favourite, the commissioner has broad scope to recommend steps which he or she considers could remedy, resolve or mitigate issues in complaints. We intend that the commissioner will support small businesses’ use of alternative dispute resolution. The commissioner could, for example, recommend mediation, which, as the noble Lord said, is generally much more expensive, and hopefully quicker, than a long drawn-out legal case. But it is not considered appropriate for the commissioner to require parties to engage in mediation, directly or indirectly. This includes giving the commissioner power to influence costs in litigation where mediation has been refused. Rather, the Government consider that it is the role of the court to determine costs in legal cases. Legal cases are already expected to be conducted at a proportionate cost, and there are of course mechanisms to keep costs reasonable in the courts.
My Lords, we do not believe it right to make the commissioner’s recommendations legally binding—an issue addressed in Amendments 23 and 31. Requiring a party to provide an outline of costs for litigation would require the party to engage with the process and strategy of litigating—for example, looking into instructing lawyers—whereas our aim, as I have said, is to encourage alternative approaches to litigation. Of course, courts may consider a party’s refusal to mediate to be unreasonable, and can address this when considering court costs.
We also agree that it is important to encourage the two sides to come together. We believe, however, as I said at the start, that a punitive approach to costs is not the right way. Stakeholders told us in our consultation that the gaps in knowledge about alternative dispute resolution was the key issue, and we have obviously respected that feedback. The primary intention is that the commissioner will make recommendations that enable the parties to resolve the dispute, rather than being an arbitrator. In certain cases, the commissioner may be considering lawful, if unfair, acts. To accept these amendments would effectively allow the commissioner to create rules on what is and is not good payment practice—quasi-legislating—and this is not the role of the office as we see it. Rather, the Government believe that it is vital that the commissioner build up a position of trust and influence with all parts of the business community.
As is obvious, I do not really agree with the move to broaden the role of the Small Business Commissioner. As I said on Monday, I believe that focus is what we should go for, but I will of course read carefully our various discussions. However, I am not persuaded that, despite the eloquence of the noble Lords who have spoken—including the noble Lord, Lord Hodgson, who made some points about incentives—we would be right to change these provisions.
Lord O'Neill of Clackmannan
Before the Minister sits down, could she perhaps explain something to me? I understand that the commissioner’s approach is broadly similar to that of an ombudsman, but it goes a little further in trying to resolve the disagreement. However, we have already suggested that, if this process is successful, a lot more people than the anticipated figure of 500 may well come forward with complaints. Within that, there may well be recalcitrants who will not honour their obligations.
Does the Minister envisage a situation in which, if this softly-softly approach does not work as well as she would like, it would be appropriate for the annual report—which we might not see but she certainly will—to require legislation? Regulation and legislation are the last resort, we all accept that. But we would not want to have the door closed and locked, so that it takes a considerable number of years for us to return to this issue.
It has taken a long time for us to get this far on questions of payment. I suspect that the legislative programme of successive Governments may well be such that it will take them an equally long time to return to it. Therefore, we need to have from the Minister at least some kind of veiled threat of legislation if the conciliatory approach does not work. There are some very nasty people who are not paying their bills or meeting their requirements. I am not sure if ear-stroking in itself will be the ultimate answer to this problem.
Baroness Neville-Rolfe
I am grateful to the noble Lord for his intervention and the opportunity to say that the commissioner can raise issues about his powers in the annual report, which, as I said on another occasion, will be available to Parliament, and which we have to table in Parliament unamended. He also has the power to name and shame, so he can publish the report and comment. The Australian commissioner is getting a lot of airtime, but he has found that that power has been useful in the conversations he has had in Australia on difficult cases. That will therefore help a lot and will help to change the culture, as I was saying on the Floor of the House this afternoon. There is also a review of the success of the commissioner, which I think some noble Lords questioned on Monday, two years after the coming into force of the Bill—assuming that noble Lords agree it—and then every three years. Therefore, that also gives us another opportunity.
This is a novel area, and we are moving forward in uncharted territory. We are bringing in a number of changes. I remember that when I dealt with planning in the 1980s as a civil servant, we made what seemed like quite small changes to the regime of planning, which obviously was in guidance, and that had a huge effect. My own view and hope is that these changes that we are making on transparency, payment terms—following the EU directive that I was talking about this afternoon—and of course on this vital Small Business Commissioner, will make a big change to the landscape.
Lord Mendelsohn
I was disappointed by some of the Minister’s comments at the very end, because arguments were set up which we clearly have not made or would make, and nothing we have said during the entire course of these proceedings would suggest that we would make such points. We think a weakness is that we have not learned the lessons—from Victoria to Queensland to New South Wales, to the Australian commissioner. Mediating one case does not establish a rule; it will not do in Victoria, Queensland—no one has ever suggested such a thing and it was wrong to suggest that we would. Similarly, the court determines costs and the Small Business Commissioner can make a particular point. The Minister presented a whole series of arguments which are wrong.
I will focus on reputation and naming and shaming. I accept that the Government think there is some huge benefit to this, saying that we can deal with naming and shaming and reputations, and that it is some kind of Aladdin’s lamp. However, frankly, people need a little more, and the noble Lord, Lord Hodgson, made exactly that point. You can string out an awful lot of the process by not being able to do it. Someone needs a lever so that they can say, “If you choose to frustrate a process and to refuse to do these things, there are other ways you can deal with this. Or, if you feel that you are being strung out, it will not work totally and wholly to your detriment”. That is quite important.
The noble Viscount, Lord Eccles, made the point that we should not make a detailed examination of particular businesses. Certainly, it would be extremely concerning if, when every business qualified, a series of checks about its health were made. However, these matters are relevant to how a conclusion is reached. There may well be restrictions when there is a payment dispute, the contract term is a problem and the larger business is willing to change it, but a broader change is required. You sometimes have to get into those issues where you are resolving a case. When a company is going to be named and shamed, its willingness to address that in the circumstances is the sort of issue that will certainly weigh on the Small Business Commissioner. If it found that there was a problem, it would reflect on whether the magic lever of naming and shaming should be applied if the company showed some sort of good faith and good will.
Baroness Neville-Rolfe
I will certainly look at the point that the noble Lord makes about avoidance contracts, as it were. I was trying to explain the amendments that have been put down, partly in an exploratory way, and what effect they seem to have. Obviously, what we are doing is debating these issues and trying to find the right way forward. I am informed that a small business can raise a complaint if the larger company seeks to exclude the commissioner from answering. That is a sort of interim answer to the point that he has made about magic circle law firms seeking to get around what we see as a new conversation between big and small companies, initiated by the Small Business Commissioner so that we can improve the culture and, as he said, deal with the more egregious cases, so that that will change how people behave and we will not have large numbers of cases ending up with the Small Business Commissioner.
Lord Mendelsohn
The point that you can include things is the point that comes before, and the point that where you exclude it is the point where I picked up. For the purposes of brevity, I thought I would leave out the first part but I am happy for the first part to be mentioned in reverse order to where it appears, even in the Government’s own documents. Before we come to some very clever amendments that I hope the Minister will be very sympathetic to, all I am trying to say is, at least give the Small Business Commissioner some latitude. Allow it to apply its discretion and encourage people of good standing and with good experience to come forward and use that discretion to good effect, to be able to help small businesses. I beg leave to withdraw the amendment.
Lord Hodgson of Astley Abbotts
My Lords, I just want to say a word about Amendment 30, to which the noble Lord, Lord Mendelsohn, has just spoken. On Monday, at our first meeting in Committee, I said that I thought that the SBC role had been drawn in a way that is a bit too focused, but I say to the noble Lord that Amendment 30 would take that role well beyond the bounds of what the Small Business Commissioner should be doing. The comments that I made on Monday about payday loans apply equally here. This is not part of his competence. Hundreds of bodies and people make recommendations about how to improve finances for small and medium-sized companies. That is a serious issue, but it is not part of what he should be doing. He is focused on a different part of the field. I am sure that my noble friend will not accept the amendment, as plenty of bodies are looking into the provision of finance to small business and this would be a distraction from the commissioner’s central task, albeit that I still think that the central task is a little too narrowly drawn.
Baroness Neville-Rolfe
My Lords, I thank all noble Lords for their comments and the noble Lord, Lord O’Neill, for his humour and for his lessons in how to amend Bills, which will be useful when I return to the Back Benches.
We believe that the commissioner will be able to achieve maximum impact by publishing reports on complaints only if he or she has the discretion when to use this power in a targeted way. Amendment 25 would require the commissioner to publish a report on every complaint that he or she considers. We believe that that is unnecessary. The commissioner may, for example, consider a series of very similar complaints and may find that there is little value in compiling a report for each separate complaint when the activity could be captured instead in the aggregate annual report. In other cases, the complaint might have arisen from very particular circumstances, meaning that the determination had no wider application and was of little public interest. We believe that the commissioner should have the freedom to decide. This is a matter of his independence.
I turn to Amendments 26 and 27. A blanket approach of publishing the names of respondents, as set out in Amendment 26, has the potential to be unfair—for example, when a complaint is not upheld. It could indeed encourage mischievous complaints. Under this proposal, anyone who was complained about would be the subject of publicity. Giving the commissioner the discretion to choose whether to name the respondent will be a real incentive for businesses to work constructively with the commissioner, to pick up on the last discussion. We will see a real change in behaviour being encouraged.
Lord Stevenson of Balmacara (Lab)
My Lords, I should declare an interest as my wife is a partner in a firm of solicitors and her expertise is in construction contracts. She does not talk to me about it so I do not know anything at all, but I still thought I should declare it.
This is the third time around the track on this particular topic. The quality of debate has not dipped; indeed, the interesting thing is that more people are now joining in. An emerging theme is now being drawn out, and I think it is a good one. For me, there are two points which have not been picked up, and I would like to reinforce them. First, as the noble Lord, Lord Stoneham, was saying, construction is an interesting sector and a very important one for the economy, so we must be very careful about it. The ONS produces figures on the progress of our recovery which always feature an element of construction. It is important at a local level and an everyday level but also in a macroeconomic way, and we should give regard to that.
The second thing is that there is a way that this could be sorted out by the sector itself, and it has not been. The contractual arrangements could be reformed, and the JCT, which has been mentioned, has indeed begun to think through some of these things. There are available options for people who want to make contracts that take advantage of them. But the interesting thing is that that has not happened. Something is going on here and that simple point has been made in some of the briefing we have received. There is “grand theft auto” of the working capital. The unfairness is that while this is a resource that should be of benefit to the contractors who are owed it at the end of whatever contractual period they have signed up for, it is withheld from them. The consequence of course is that it does not feature in their ability to raise finance for ongoing projects later on.
That is an important issue, which makes this practice very pernicious in the way it is applied. The original idea was that you held back the cash in case the constructor did not come back to do any remedial works that might be required. But as my noble friend Lord O’Neill said, this is a story from the past because contracting has got its act together now and is much better. Also, the contractual arrangements are better, so I do not think that it is as much of a danger as it was. My last project, which was a small one, was interesting. When you analysed the retentions money, it explained why senior members of the company kept popping up on our doorstep. The retention represented the directors’ bonus for completing a good project. They were aware of what was going on and they were very keen that we did not retain any money, and we did not. It is a fact that it is woven into the way in which these people operate, and it will be difficult to get out of.
Our amendments suggest that we already know enough about this for the Government to act. The consensus in the Room is that we should think about a review and then act promptly, but certainly set a more ambitious timetable of 2020 rather than 2025. In proposing our amendment, we simply add to the pressure that must now be felt by the department and I hope very much that when we come to hear the Minister, she will be able to respond to that.
Baroness Neville-Rolfe
My Lords, I am extremely grateful to the noble Lord, Lord Aberdare, for his Amendment 39 and for Amendment 46. The common ground is that they both call for a review of this practice. I am grateful to the noble Lord, Lord O’Neill, for his comments both in the Chamber and in the private conversation we had one evening on our way home together.
Baroness Neville-Rolfe
I was delighted that the noble Earl, Lord Kinnoull, could bring his own practical experience of the market to the debate, including his experience during the financial crisis. That was picked up well by the noble Lord, Lord Stoneham, who rightly emphasised the cyclical nature of this vital UK industry.
Retentions themselves are not always a bad thing. One knows that from having domestic household repairs where frankly it is essential practice to keep back a small sum in case remedial work needs to be done. However, I have been persuaded by discussion at Second Reading and this afternoon that a review of the practice of retentions would be a good idea. The existing timeframes for change are extraordinary. I did not dare say that last time we discussed this before the election, but I am glad to be able to say it today and to hear the same comment from the noble Lord, Lord Stevenson.
I would be keen to make sure that the review was likely to develop recommendations capable of providing an enduring solution to what is a pretty deep-seated and rather complex issue—we are all agreed that it is not the simplest thing in the world. There is some work to do to ensure that the review is well grounded. Of course, it needs to cover a number of issues such as cash flow, and look at the period of time before retention must be released. It also needs to look at the small business angle, which is obviously relevant to today’s debate, including bricklaying.
I propose that the Government consider the best way to take the review forward. I will write to noble Lords in due course setting out precisely how we will do that; the terms of reference and a detailed timetable outside the Bill. If it helps, I am happy to commit to the review being completed within nine months of the Bill being passed, as suggested in Amendment 39 by the noble Lord, Lord Aberdare. This will give a little incentive to speed, because we have been here before and it would be nice to feel that progress could be made. I hope that the noble Lord, Lord O’Neill of Clackmannan, will not be disappointed by my helpfulness in that respect.
There is not a lot more to say. I hope that noble Lords will welcome the review and will feel able to close down the issue today. On the basis that I have described, I hope that they will happily withdraw their amendments.
Lord Aberdare
My Lords, I am extremely grateful to all noble Lords who have spoken in this debate. I have been very encouraged by the general tone of the debate. A number of noble Lords raised important practical questions which the review will address. I am particularly encouraged and pleased by the Minister’s response, for which I thank her. I very much look forward to receiving details of the review and the basis on which it will be conducted. I declare myself ready to do whatever I can to ensure that she secures her place in history as the Minister who ended retentions. I am happy to withdraw my amendment.
Lord Deben (Con)
My Lords, I hope that my noble friend the Minister will take this point seriously. First, the figure which has been produced by the noble Lord is remarkable. Even if you were to halve it, it would still be remarkable, so I am very interested in that. I want to tell the Committee about my own experience of the construction industry, in which I had a company for some time, but no longer. The comment made by the noble Lord, who is now no longer in his place, that it is not a litigious industry seems to be totally contrary to the truth. It is probably the most litigious of industries. Indeed in many cases, certainly in the past, that is how decisions were made: you made contracts where you knew you were going to go to court at the end of it. That is how you made your decisions. I am afraid that it is a very unhappy history. Anyone who has read the Egan report or indeed the one before his would see just how this business has not changed to the degree that we all hoped it would.
The point I want to draw to the attention of my noble friend is that many companies in other areas manage to have very few bad debts and few bills. Every month, the board of the company of which I am the chairman gets a report on bad debts. I am happy to say that it is a very short report and they do not carry on through to the next month. That is because the company is well run and chases these things up. I do not think that there is a company of any kind in the construction industry which could possibly say that, because it is not the nature of the industry. Once people get into the habit of thinking that this is the way they can behave, that is the way they behave. It becomes a kind of chain: because you do not get your money, you do not pay the money to the other person. They do not get their money and it goes on in that way.
We have to break into that chain. I had not come across this idea until I read the amendment. It seems to me quite an original idea. However, I hope my noble friend will recognise that this is at the heart of the problem. We are talking here about an amount of money that is sufficiently large to make a huge difference if it were redistributed rather quickly. If this situation occurred in any other major industry, there would be cries of outrage, although it does not apply anywhere else that I can think of. My business interests are spread over quite a lot of different companies and I do not think I have ever known the kind of reaction that one has in the construction industry. Therefore, I hope very much that my noble friend will take this seriously. It may not be the answer but it may give her a clue how to provide another answer.
Baroness Neville-Rolfe
I thank noble Lords for this amendment and, indeed, for the whole series of amendments on the Small Business Commissioner, which have enabled us to have a very good debate. I am glad that my noble friend Lord Deben joined the debate and note his comments on construction, which we can consider in the context of the review that we have just agreed to. However, as he says, more generally, in other sectors some companies are much better payers. What we want to do is to change the culture so that this is the norm rather than the exception, if it is the exception. I do not know the exact facts but the overall numbers are a cause of concern, as we have said on a number of occasions.
The amendment before us, which is not really concerned with construction, would require companies to report outstanding liabilities relating to overdue payment, including interest payments on the unpaid invoices. It would require any failure to disclose this information to be reported to the commissioner.
During Report of the small business Bill in the Lords, I brought forward amendments, as noble Lords may recall, to specify in the Bill how the reporting power could be used in relation to payment performance and interest owed and paid in respect of late payment. Over the summer, my officials have been working with stakeholders on the regulations. We have established a working group to draft non-statutory guidance to ensure that companies are clear on their reporting obligations, and that the information reported is robust and comparable.
From next year we will require companies to report online every six months against a comprehensive set of metrics. That includes 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. That is a lot of information for the top 14,000 companies. It will not be in the annual accounts as we want the information to be provided quickly. The information will, however, be rigorously monitored and will be timely and accessible—more so than putting something into the annual accounts.
The new prompt payment reporting requirement will enable us to bring increased transparency on payment practices and performance. We can legislate by regulation for the Small Business Commissioner to monitor that information, which I think is one of the things that the noble Lord emphasised in his presentation of the amendment. The commissioner may also highlight good and poor performers as part of his or her efforts to drive a fundamental change in behaviour. This will help exert the necessary pressure—a point we keep returning to—on companies to make sure that their suppliers are paid on time and fairly compensated when that is not done.
I am confident that the measures imposed on the Small Business Commissioner will lead to significant change in the UK’s payment culture. I note that the noble Lord said he would want to return to issues to stiffen powers on Report. I would only say in conclusion that I would very much regret seeing an adversarial element developing in this proposal. We do not want more costs, more lawyers and more delay. I think that we have a shared objective of trying to make the Small Business Commissioner a success, but in the mean time I ask the noble Lord to withdraw the amendment.
Lord Mendelsohn
Before the Minister sits down, can I clarify that the amendment addresses none of the points that she made? It is really about identifying the liabilities you have for the interest payments where you did not make a payment. As such, that addresses the ability of large businesses to be able to say that if you do not believe that someone will chase you—a small business will chase you for a payment you are due—you can write it off as a liability very quickly on the basis that you do not believe that it will be chased. It addresses that sort of liability.
Baroness Neville-Rolfe
I thank the noble Lord. Indeed, you are looking at the overall millions owing rather than the individual invoices, as I understand it—therefore, the debtor’s figures.
Lord Mendelsohn
Yes, certainly. For late payments, fines can be attendant to it. They tend not to be incurred, largely because companies do not pursue them. This simply establishes that a company has to establish it as a long-term liability in its account that could be claimed. In pursuing the Minister’s argument about culture, it helps to establish whether the company is fulfilling all its duties, including under the Prompt Payment Code.
Baroness Neville-Rolfe
My Lords, there might be merit in further discussion on the finer points of this. The point I wanted to make is that it is important to also look at what we are planning in terms of payment transparency; perhaps we could discuss that outside the Room before Report.
Lord Stevenson of Balmacara
I thank the noble Lord, Lord Deben, for intervening in this debate. For his information, the figures I quoted, which were large, were in fact for the whole economy, not just construction: although construction is big, it is not that big. They came from a company called Satago, which provides a service for automated chasing of customers for payment and aims to reduce outstanding invoices. Therefore those figures are reputable and based on trade practice, so not necessarily far out.
I thank the Minister for her helpful intervention. It is true that there is a lot of similarity between what we are saying in this amendment and the proposals under the Prompt Payment Code. Am I right in saying that the code will remain a voluntary obligation on companies, not a statutory one?
Baroness Neville-Rolfe
Just to clarify, the payment regulations we are bringing in are statutory requirements to share information on payments. The noble Lord is right that the Prompt Payment Code is voluntary. There are various different points, but the key thing is to look at them in the round, which we can do when we discuss them to make sure that we are capturing things that we feel are necessary.
Lord Stevenson of Balmacara
I was not trying to be antagonistic at all on this—I was simply trying to clarify this point. The Prompt Payment Code has a slightly bad smell about it. The regulations that the Government are bringing forward will presumably be consulted upon, and then in the House we will reach out to a lot of the points that I was making in my submission. I absolutely agree with that, and it is good. However, the noble Baroness can see where we are heading. In a sense it is only a proportion of the companies, albeit the big ones; and it is an additional regulation, when we were suggesting that you can do it within an existing provision. However, the Minister is also right to point out that relying on statutory audit with the delays that come with that and the registration difficulties means that is all a bit late. I accept that.
The Minister’s suggestion of a chat about this is a good idea—let us see if we can work something out. We are not trying to push this particularly hard: it was an idea that came to us, which is already very close to where the Minister is, and I think we can probably leave it. With that in mind, I beg leave to withdraw the amendment.
The Earl of Kinnoull
My Lords, I rise to speak to Amendment 49CA. I declare my interests as set out in the register, especially in insurance. The amendment is about old gold plate, which I talked about at Second Reading. I will first pick up on something that the noble Lord, Lord Stevenson, said in his thought-provoking introduction, which was that businesses do not care where things come from. I am not sure that I agree with that. One thing they certainly do care about is the level playing field. If a business has a European Union regulation and it is over-implemented in its home nation and not in its competitor nations, it is at a disadvantage and cares a lot.
The old gold plate—it should be called lead plate because it is a great drain on business resource—problem can be briefly summarised by saying that there have been three eras of transposition of EU regulations. In reverse order, there is the era from coalition times—2011—until today, where there are very good transposition arrangements: a good solid anti-gold plate look at any legislation and sunset and review clauses to ensure that things are self-righting if they are not quite right.
Then there is the period from 2006 and the Davidson review—of which more in a second—when the issue had been recognised and there were good anti-gold plate arrangements, but the use of sunset and review clauses was limited. Then there is the period prior to that, which I call old gold plate, where there was no self-righting mechanism for the shedding of the gold plate and the bringing into line of the UK with the other competitor nations of our regulatory environment.
I had a quick look at Lord Davidson’s review in preparation for this debate. I noticed that chapter 2 is called “Cases of Gold Plating”. The first three words of chapter 2 are “insurance mediation directive”. I was reminded last night by senior insurance industry colleagues that the 12 pages of that directive were turned by the FSA into more than 1,000 pages of stuff, which has been a source of great pain for my beloved home industry.
The reason behind the amendment is to try to provide a mechanism for getting the old gold plate reviewed. It is a mechanism which is compliant with the coalition, in that it is a one-shot mechanism—an individual, as a regulator, is in charge of reviewing themselves once and writing a report. That is all they have to do. It is a sort of reverse name and shame mechanism.
It was the best that I could do in terms of thinking up how one could attack the problem. It could be the case, but I hope it is not, that the Minister does not consider this a suitable Bill in which to begin attacking the problem. Sooner or later, for sound commercial reasons, we are going to have to tackle the old gold plate. I note that Lord Davidson’s report was in 2006, and nothing substantial has happened on his recommendations about the insurance mediation directive.
Baroness Neville-Rolfe
I thank noble Lords for their amendments in this group. I am grateful for the noble Lord, Lord Stevenson’s introduction. In the interests of time, I suggest I respond constructively over a drink to some of his more philosophical points. Yesterday, the World Bank published its Doing Business 2016 report and ranked the UK as sixth-best country in the world for ease of doing business—something to celebrate. This is partly due to the work on the regulation stock and the regulation flow that we are all trying to make a success. This Government want to make the UK the best place in the world to start and grow a business, and the Bill is a step towards achieving that. So there is more to do, and I believe that adding regulators to the purview of debate on regulation will help to reduce burdens on business. I commend the RPC for its independence and honesty, which is well illustrated by the comments that have been made.
Baroness Neville-Rolfe
There is an excellent report by the Regulatory Policy Committee with which the noble Lord may be familiar. That report gives all the information on the EU figures as well. In the last report EU financial systemic risk measures were a very large element, £1.6 billion in that particular time period. I think we were saying that the target that we have chosen to set and have put in legislation should reflect what we can control. The noble Lord is right that we should be transparent, and we have sought to be transparent through the work of the RPC, which can hold us to account.
Lord Stevenson of Balmacara
My Lords, that is the point: £1.6 billion is excluded from the Government’s target because it relates to an area that they choose not to report on. It is up to the RPC to give us the full picture, and it is good that it does. I am saying as gently as possible that I think transparency might be the buzzword of the day, but it is not going to get us there if the Government do not accept that it would be better in the long run if the full burdens of regulation were calculated in a certain way. We will come on later to amendments about how we might do that. If they set out their targets in terms of that full load and then reported on them, I think we would be better off. That is for another day, though, so I beg leave to withdraw the amendment.
Lord Low of Dalston (CB)
My Lords, I will speak very briefly to support the exclusion of the Equality and Human Rights Commission. The noble Lord, Lord Stevenson, has gone through the argument and laid out the case for this exclusion very fully so I will not go over that again, but I want to add one point. Far from imposing extra burdens on business, the Equality and Human Rights Commission does quite a lot to relieve business of burdens by producing things such as guidance and codes of practice that explain the position and help to guide business through the legal maze of discrimination law, making it a good deal easier for business to deal with these issues when they come up. It does not seem appropriate, when that is the function of the Equality and Human Rights Commission and the way that it works, to tie the commission up in the sort of red tape that its work—its codes of practice and guidance and so on—goes quite a long way to ridding business of.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their amendments and their constructive contribution to the Bill. I am delighted that the noble Baroness, Lady Hayter, and the noble Lord, Lord Low, have joined the debate.
As has been said, the amendments would ensure that the EHRC could not be subject to, or required to report on, three key regulatory policies: the business impact target, the growth duty and the Regulators’ Code. Extending the business impact target to statutory regulators is a key part of Government’s aim to ensure that regulators across the board continue to achieve high standards of regulation in order to drive growth and ensure a strong economy. I think we have agreement on that broad principle.
However, although we are asking regulators to be transparent in reporting the impact of their decisions on business, the Bill will give us no powers to interfere in the decisions they take. There is a clear distinction to be drawn. The fact that a regulator may not be aimed at business does not mean that the regulator does not affect business or the voluntary sector. To my mind, there is nothing wrong with having an incentive to look at the impact of the way you design measures to ensure that, for example, they are constructed in a sensible way for small businesses. Regulatory independence of course underpins business confidence, and is vital to all regulators—it is not only true, as has been said, for the EHRC.
We have seen the EHRC’s briefing note on these issues, which says that it produces approximately 30 pieces of guidance a year and operates across the whole economy. So the range of business making use of the guidance is very substantial. For all those businesses to keep track of that guidance is a cost to business. Sometimes it can outweigh the cost to the commission of assessing the impact as and when it issues new guidance.
I know from experience that the EHRC issues very valuable guidance—for example, the religion or belief guidance for employers issued in 2013. I remember when I worked in the retail sector talking to the EHRC about what it might do to address concerns it had among big employers. So there is an interaction. It is important work, but obviously there is a need to ensure that the guidance is appropriately prepared for business and minimises the burden of any such directions. I hope that the EHRC will look carefully at its relationship with business and ensure that it reflects on the cost which it is imposing. This is what inclusion in the business impact target would achieve and why we have proposed it.
The EHRC—I am not sure people are aware of this—is already within the scope of the Regulator’s Code and is also covered by its predecessor, which was introduced in 2008, by the then Labour Administration. I understand that the EHRC already complies with the code and is transparent about its activities reporting annually. That transparency is just what Clause 14 is aiming to achieve. In practical terms, it will make little difference to what the EHRC currently does, which is why I am not convinced of Amendment 48F.
Amendment 49C prevents the reporting requirements for those in scope of the growth duty from applying to the EHRC. We had the debate less than a year ago when considering the growth duty. The Government’s initial view was that the duty should apply. However, in the light of debate and representations from your Lordships, we undertook that the EHRC would be excluded. I am happy to repeat that the Government will not seek to apply the growth duty to the EHRC. I want to be completely clear about that. The assurances were sufficient for your Lordships in the last Parliament and I hope they will be sufficient again.
The key reason given for excluding EHRC from these three policies, as far as I can see, is that it might prejudice their international A status as a human rights body, which is obviously incredibly important. However, there is not a risk with the growth duty, as it does not apply to the EHRC nor does the EHRC have a small business champion for the reasons that we discussed last time and on which the noble Lord quoted me. We know it is not the case with the code, because it has applied successfully to the EHRC for years, and it has been accredited internationally while it has been in place.
The business impact target is a transparency measure. It does not fetter the independence of the regulator to make its own decisions in relation to the changes it introduces. Inclusion in the target would require EHRC to measure and report its impact on business, and have the figures validated by the RPC. The RPC is not government, as we discussed, it is a body of independent experts and looks only at the evidence and analysis.
The noble Baroness, Lady Hayter, talked about the Charities Commission. The point has been made that it does not affect business. However, the business impact target covers the impact on both the private sector and the Third Sector. The Charity Commission certainly affects the third sector. We will consult in the new year on the list of regulators and welcome the views of Peers and regulators. We are trying to reduce red tape in life; reduce red tape for small business. I believe that a lot of charities—the noble Baroness may play this back at me on another occasion—have quite a lot in common with small businesses.
How does the inclusion of the Charity Commission help those who donate? In her inimitable way, the noble Baroness, Lady Hayter, talked about the consumer. Including the Charity Commission would encourage it to minimise burdens on charities ensuring, I would say, that more of donors’ money benefits good causes rather than being tied up in meeting the commission’s requirements.
There was also a point in Amendments 56 and 57 on retrospectivity. The focus of concern is the potential to change the legal effect of actions already taken.
Lord Hodgson of Astley Abbotts
The Minister might like to look at the statutory objectives laid down in the Charities Act on the Charity Commission and its effective operation. We may get into duplication here. Five statutory requirements have to be complied with, one of which certainly overlaps. Unfortunately, I do not have the Act with me and I cannot remember the precise wording, but it might be worthwhile looking at it, otherwise, we may get a degree of duplication. Perhaps the Committee can come back to that.
Baroness Neville-Rolfe
My noble friend, as always, makes a good point. We will certainly look at what is already happening. I suppose the idea is that if you can, ex-post, gather the information together and see what progress you are making in terms of reducing burdens, that could be helpful in itself. If in fact the figure already exists, which may be the implication of what my noble friend was saying, the task is not that difficult. I am grateful for that intervention.
Briefly, the actual retrospective effect of the provisions of the Bill does not have the consequences that noble Lords are concerned about. The provisions can have no impact on the status or effect of the regulatory policy changes made by regulators prior to the Bill being passed. The limit element of retrospection is appropriate and justified because it is about measuring delivery against the Government’s targets. The targets are set for the life of a Parliament, so if there were no limited retrospection, one would not be able to count any reductions in red tape that took place between the beginning of the Parliament and the writing of the report by the regulators concerned. We were trying in the drafting to tackle that gap.
I have also arranged a meeting with the noble Baroness, Lady O’Neill, who is chair of the EHRC, in early November and I will report back to the House on the outcome of that meeting on Report. I hope that what I have said on this important issue helps to reassure noble Lords that the proposed amendments are not required. In any event, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for that full and comprehensive response, but I am afraid the answer to her question is that, no, it does not reassure us. I accept the assurances that she has given that the growth duty and the small business champion role do not apply to the EHRC. They are welcome and we would want that.
I hope that the Minister bears in mind that while on the one hand we would love to see her go down in history as the Minister who abolished retentions, we do not want to see her go down as the one who scuppered the country’s grade A-listed champion of human rights. I am sure she will realise that if it gets to that point, we will have to have a serious conversation. I take the points about retrospection. The intention was—if one might call it this—gold-plating on the part of the EHRC to make sure that it could not be caught at some future date, so her reassurance is helpful on that. But the fact still remains that if the EHRC feels that its international status is jeopardised by this, I do not think that the Government have much wiggle room on this matter. I hope that we return to that point on Report. However, let us continue to talk about that until then. I am sure that the contribution from the chair of the commission will be helpful. In the mean time, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, this group of amendments focuses on strengthening the work and role of the Regulatory Policy Committee. As the Minister has already said, it is good to find an independent body able to look widely across the regulatory field and make recommendations without fear or favour, and we value its work. However, it is a little hampered by the fact that it is not currently able to report except in terms of where the Government set their objectives. I have already criticised that and we should put that aside for the moment and say, well, those are the objectives. But we should also reflect, if we can, on where we might go on that.
The point has been made, better than I could possibly make it, in a quotation that I would like to read:
“if you have the privilege of being in government, you should try and think about the long term and not just today. And in the long term, I think the country would be better off if we thought about wellbeing and quality of life as well as economic growth”.
That was the Prime Minister. That sentiment is picked up by work that has been done in a number of think tanks, notably the Legatum Institute. The noble Lord, Lord O’Donnell, has picked up the idea of thinking more widely about where Governments should be aiming in what they do about the impact of their legislative and regulatory programmes.
There are two minor points in this group that I also want to pick up. First, as I understand it, the Treasury has now changed its view about how impact assessments are owned and operated through Whitehall by asking for a business-critical model to be introduced for many impact statements, where there is a senior responsible owner quoted as a named individual of sufficient seniority to take responsibility for the model throughout its lifecycle and to sign it off as fit for purpose prior to use. Is that now common practice across Whitehall or is this a work in progress? If the latter, will the out-turn be something that we can look forward to in terms of improving the quality of impact statements? I think the reason for this is the west coast main line franchise fracas. I need not say much more about that, since it was quite clear that there was not sufficient seniority in the department to take responsibility for what went wrong there.
My point here is that if we are seeing changes in some of the infrastructure activity in preparing for legislation and regulation, this would be an opportunity to have that on the table so that we could make judgments about it. I beg to move.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their amendments. I am grateful to the noble Lord, Lord Stevenson, for quoting the Prime Minister—perhaps a signal of the constructive and harmonious nature of our debates in this Committee in the Moses Room. Amendment 48D would remove the responsibility for choosing and publishing the methodology for assessing economic impact under the business impact target from the Secretary of State, as I understand it, to the independent verification body.
We see the target, scope and methodology as a single package. They need to work together and be set together. It is unrealistic to expect that the Government should set a target having no idea about how the impacts will be measured against it—that sort of delegates responsibility. So there is a fundamental problem there. The purpose behind setting targets of this nature is to deliver the right incentive, change behaviour within government and improve the way we regulate to achieve the better regulation vision that has been expostulated today.
To my mind, it is right that this remains a matter for Ministers. We have to be accountable to Parliament and to the people at elections. Amending the role of the verification body would place an unusual amount of power in one unelected body and remove the flexibility for future Administrations to determine the methodology appropriate for assessing business impact in their particular circumstances. Of course we are consulting the Regulatory Policy Committee about the methodology for this Parliament, and we will continue to work with it to resolve questions of interpretation that inevitably arise.
Amendment 48EA seeks to stipulate that the target must comprise both a number of regulations and the monetary value. It is right for the Government of the day to decide methodology, and of course we have indicated our broad direction with our manifesto commitment of £10 billion of deregulatory savings. The change would limit options for future Administrations. I myself think that the number of regulations is less important than their economic value, but we could debate that. The point is that we would like to leave this broad and have discretion for the Government of the day.
Amendment 48E relates to the annual report on the Government’s performance against the target and would require the Secretary of State to publish additional information in respect of regulatory provisions which do not fall within scope. Transparency about such measures is important, and I can give some reassurances. Measures which do not score for the business impact target still receive proportionate appraisal and independent scrutiny under administrative requirements which will continue in this Parliament. That means that significant measures are required to have an impact assessment, even where they are excluded, as I think we discussed in respect of the EU financial measures.
Other than for regulatory measures with very small impacts, the relevant impact assessment is subject to independent scrutiny by the RPC. Impact assessments must be published at the final stage alongside the legislation to which they relate. This transparency is incredibly important. I have already said that I think the RPC is the biggest reform of administrative procedure in Whitehall since I last worked in government, and I am very pleased to see the teeth that it has. It seems to me to be proportionate and to avoid duplication. This approach does not detract from established principles. I am glad to see the noble Lord, Lord Curry, here, because he has been very involved in making sure that this regulatory system works correctly and that it is independent.
There are some technical issues with the drafting of Amendment 48EB. The RPC does not have a separate legal existence, but I can address the intent behind the amendment. The RPC is an enduring cornerstone of the regulatory framework, and the Government focused the verification functions on those that it was absolutely necessary to set out in statute. If there are further comments on the detail of this, I will be very happy to discuss them, but I will just respond to the question asked by the noble Lord, Lord Stevenson, about the senior responsible owner of impact assessments. As he says, he has great intelligence networks. The Treasury is looking to strengthen government project management, including business cases. We are not sure that this will affect impact assessments as such, but I am certainly happy to update him on what is involved here. As he implies, it is potentially another important administrative innovation.
These amendments are to some extent probing but are also about trying to constrain the operation of the system. As I have said, some degree of operational flexibility is needed for the Government of the day. When we put proposals forward in the last Parliament, we put them forward with that in mind, and I would be reluctant to go down a different road.
Lord Stevenson of Balmacara
I thank the noble Baroness for that very full response. These were of course probing amendments, but she might like to note for future reference that we struggled hard with the clerks to expand the range of things that we wanted to talk about. It was a fight of great intensity, which we lost on two areas that I thought we would be able to include. We could not put into Amendment 48EA a third point which would require the evaluation of the impact of all regulatory measures on well-being, because they said that that was not about enterprise, for some reason, and did not fall into the long title of the Bill. We also wanted to probe the question of whether or not the RPC would be able to follow up its idea that impact assessments should not just be generated sui generis within a department but should be exposed to external review as well, which would have given another cornerstone to the way in which impacts are measured and assessed and would help the law-making process. But these are much bigger and broader issues and cover more of a constitutional than a legislative area. They are matters to be discussed when we have that drink. With that, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
I thank noble Lords for these amendments and agree with the noble Earl, Lord Kinnoull, about the importance of, as it were, rewarding the good as well as shaming the evil because I think that is very important in almost all aspects of life, including childcare.
It strikes me that at the heart of this amendment is a desire to ensure that regulators take the specific needs of small business seriously and are transparent about the action they have taken in this regard. This is a desire we all share. The Regulators’ Code, to which regulators must have regard, is clear that regulators should design regulatory approaches that are proportionate and based on factors such as business size and capacity. The new reporting requirement set out in Clause 14 will ensure that regulators are transparent about the effect that these considerations have had on the way they exercise their regulatory functions and the impact they have had on those they regulate, including small businesses.
I am very grateful to the noble Lord for raising the issue of productivity in the UK because when I was on the Back Benches I was always researching productivity in the Library and trying to raise it. It was not the fashion but now it has been recognised as an extremely important driver for the long-term growth and success of our nation. It is one of the key economic challenges for this Parliament because, obviously, it has not grown as strongly as we would have liked in recent years. Business has a critical role in taking the agenda forward, which is why we published Fixing the Foundations in July—a 15-point plan that I think sets out a very ambitious vision for where we want to be in 2020.
The growth duty reporting requirement in the Bill ensures transparency over the actions a regulator has taken as a result of the growth duty, including where the duty has enabled a regulator to contribute to productivity. We intend to issue guidance on the preparation of these performance reports. I will certainly reflect on the productivity point in that guidance, which is perhaps where it could sit, as it is important because it contributes to growth.
Turning to Amendment 49ZA, I understand the concerns around the perception that business, especially small businesses, may attract greater scrutiny from a regulator if they were to make a complaint about it. I also very much agree about the value of feedback—the point made by the noble Earl, Lord Kinnoull. If you are in business, as I was for many years, complaints are jewels to be treasured because they tell you how your business is interacting with your customers, whichever sector you are in. Good practice exists in some regulators. For example, I understand that the Pensions Regulator—not the most fashionable of regulators—runs straightforward anonymous feedback surveys on its website as a routine. In developing the guidance I have mentioned on how the reporting duty will work, we will want to tap into good practice elsewhere. If noble Lords have examples of that, it would be extremely good to have them.
On Amendment 49A, the commissioner will have a focused remit and great personal authority and credibility, which will change culture and practice on payment issues. This approach received broad support during consultation. As I have said many times, I do not believe that we should widen the scope of the Small Business Commissioner. However, where issues in relation to regulatory activity are relevant to the commissioner’s scope, this can be addressed in the commissioner’s annual report. I hope that my response will help noble Lords to feel a little happier about the way this part of the Bill is developing, and that the noble Lord will feel able to withdraw the amendment.
Lord Curry of Kirkharle (CB)
My Lords, I just add one comment on this, prompted by the comments of the noble Earl, Lord Kinnoull. The prevailing culture with the regulator is very important. I value the Minister’s comments on that. Part of my role has been to try to encourage a better relationship between the regulator and the business community—namely for it to regard the businesses as clients it needs to work with to deliver an outcome. I believe that we made some progress in that respect. As noble Lords know, in the small business Bill we had the small business champion. I hope that businesses will feel they have a recourse to approach the small business champion if they are dissatisfied with the regulator.
Baroness Neville-Rolfe
I thank my noble friend for tabling this amendment, which seeks to include in the Bill a specific reporting requirement for regulators subject to the code to provide details of the activities, including costs, of any organisation employed to undertake work on their behalf. At the heart of the amendment lies a concern about the hidden costs to business. The example that he gave was that financial service regulators may seek to discharge their regulatory functions by using their powers to commission reviews by “skilled persons” and charging the businesses concerned for the cost of that work. As I understand it, that is at the heart of the problem that my noble friend has identified.
My noble friend is right to seek transparency and accountability about how these powers are used and I think that we have made some progress in this area. Both the FSA and the PRA now routinely publish information on their Section 166 Financial Services and Markets Act 2000 activity. This includes quarterly reporting on the number of skilled persons reports that they have commissioned and annual reporting on the aggregate costs of these reports. As my noble friend probably knows, this information is available online. It seems to me that the disclosure that he seeks is being addressed and I am not sure that there is harm elsewhere that justifies creating new regulation in this area. In the interests of brevity, I do not see a case to amend the Bill and ask him to withdraw the amendment.
Lord Hodgson of Astley Abbotts
I am grateful to my noble friend for that full response. One of the questions is, of course, that I just happen to know about the financial services area, where there are lots of regulators that we are considering as part of this section of the Bill. It would be helpful if we could try to ascertain whether other regulators are engaged in the same process because it enables them to add to the regulatory burden very considerably. I am grateful for the comments and the further research that the Bill team have done on this matter and I beg leave to withdraw the amendment.
Lord Hodgson of Astley Abbotts
I cannot resist, although I know that the Committee is like a horse heading for the stable, therefore I shall be very brief indeed. On the comments made by the noble Lord, Lord Mendelsohn, on money laundering, this area has a life of its own, and the impact on smaller businesses is stupendous and without any real evidence of any efficacy whatever. This area is still growing, and the tentacles of bureaucracy are widening all the time, therefore the burden will be greater. I therefore very much support the idea that we take any steps to make sure that it is effective—not that we should not do it, but that it is effective. That is the thrust of the noble Lord’s Amendment 49B and trying to make sure that we try to prevent the further spread of this. I have today received a request about money laundering from my clearing bank. When I left university in 1964 I went to work in America. The bank has written to me saying, “We see you worked in America in the 1960s; tell us what you were paid as part of our money laundering investigation”. What that can possibly add to its knowledge of me 50 years ago I cannot possibly imagine. If you use the term “money laundering” everyone says it must be a good idea. It will require a big effort to make sure that we are effective. The question is: are we stopping people doing these terrible things, not just spraying information around and ticking boxes? Therefore, all power to the Minister.
Baroness Neville-Rolfe
My Lords, I share the sentiment behind Amendment 49B to ensure that regulators have regard to the needs of business when dealing with money laundering requirements. As I used to say when I was on the Back Benches, the regime was excessively burdensome and some businesses feel confused by overlapping or restrictive guidance. However, these concerns cannot be addressed by simply looking at how regulators deal with small business. There may be examples of requirements that are particularly difficult for certain entities, but it is the interactions between different types of business and with the banks that is at the heart of the problem. So small companies with innovative business models or ways of complying with requirements, to know their customers, may find it difficult to maintain business relationships with large banks which do not understand how a particular model works. The bank may simply decide not to do business, rather than expose itself to the risk that the small company is being used for money laundering.
Difficulties can be caused by the guidance that is produced by the various regulators and supervisors. That is why we are looking at the regime in the round. We are now running a Cutting Red Tape review of money laundering controls. It is important that companies that are genuinely confused about what they need to do have this confusion addressed. Our call for evidence is open until 6 November—my husband is planning to send sacks of stuff—and we are keen to speak to all NGOs, businesses and trade associations with an interest, particularly SMEs.
We want to examine more seriously the potential to improve compliance and efficiency, by identifying aspects of the good supervisory regime that appears to businesses in the regulated sector to be unclear, cumbersome, conflicting or confusing. We are already speaking to a broad range of sectors and we would be very pleased to have examples from your Lordships. The Government understand that the regime can be improved. We published the first national risk assessment for money laundering and terrorist finance risks on 15 October and one of the findings was that the supervisory regime was inconsistent. We accept that this needs to be addressed.
The evidence being gathered by the BRE will help to inform work under the Government’s action plan to reform the regime and to ensure that it is consistent; treats large and small businesses sensibly and proportionately; and follows a truly risk-based approach allowing resources to be targeted at the areas that are at greatest risk of money laundering and terrorist financing. These are also important policy objectives which must not be forgotten in today’s discussions.
I hope that gives some reassurance. I have a good deal of excellent detail on Amendment 49D in relation to investment fraud, but given the lateness of the hour, I wonder if the Committee would like me to write about that. I think it means that we do not need to amend the Bill, but a lot of good work is being done by the FCA which I would like to share with noble Lords and give more publicity to in order to get after the scammers. I hope that the noble Lord will feel able to withdraw his amendment.
Lord Mendelsohn
I did not quote the noble Baroness on this one; I am saving that for later, and some significant quotes that she made on other amendments. The argument was not about what small business’s compliance is able to do in transactions with the bank. I understand the Minister’s point, but the issue is really about small businesses being able to establish that they have fulfilled their regulatory duties, which would not have that consequential action.
Baroness Neville-Rolfe
The review is obviously very open. I was trying to explain that if you do a review that engages only small business, you will not necessarily be able to get the same savings as you would otherwise. I have come across this for example with estate agents: if you buy a property, and are a perfectly respectable person, you have to go through all the detail that the noble Lord was describing. If you are a company director, you are constantly having to produce ID again and again. If you take the 5.4 million businesses and find a saving, that is a lot of burden reduction. Obviously, equally, if you impose new burdens, and multiply that by 5.4 million, there is a problem. That sort of technique needs to be applied, which is what the BRE is doing with this study. We will certainly make sure that the noble Lord’s point is properly considered.