Queen’s Speech
Baroness Neville-Rolfe Excerpts(9 years, 5 months ago)
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The Parliamentary Under-Secretary of State, Departments for Business, Innovation and Skills and for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)
I thank noble Lords for their interesting and informed contributions to our discussion today about the key areas of business, economic affairs and, of course, transport.
I was also glad to hear the contribution of the noble Lord, Lord King, in his excellent maiden speech. The noble Lord, Lord King, and I share a deep love of the game of cricket and, as the new man at the crease, I wish him a distinguished future to match his distinguished past.
This is an important day for the noble Lords, Lord King and Lord O’Neill. These contributions are the first, I hope, of many in this House but are preceded by the many and varied contributions they have made outside these four walls. My noble friend Lord O’Neill—the new Dr Johnson—is not only to be congratulated on his compelling speech but on his contribution of the terms BRIC and MINT to the world’s vocabulary and, as we will hear shortly, a new term, “PROD”. Like my noble friend Lord Caithness, I look forward to his continuing contributions because he knows about everything—from the secrets of emerging market success to antimicrobial resistance.
It has been an extraordinarily constructive and erudite debate on a rich and diverse range of issues, well beyond the essay question. In responding, if I fail to answer any noble Lords’ questions, I will write to them. I thank the noble Lord, Lord Davies of Oldham, for his provocative summing-up and I welcome the noble Lord, Lord Stoneham, to the Lib Dem Front Bench. I am very glad to see that he will be helping the House on these issues. I also thank the noble Lord, Lord Mendelsohn, for his kind words and I look forward to debating with him as the House scrutinises the legislation that we will be bringing forward.
Our long-term economic plan is turning around Britain’s economy, as my noble friend Lady Noakes was right to emphasise. In 2008, the UK was hit by the most damaging financial crisis in generations. In 2014, we were the fastest growing of all the major advanced economies. In May 2010, the coalition Government inherited a budget deficit that was more than 10% of GDP. Today, the deficit is half that level and debt as a share of national income is expected to start falling this financial year.
As the noble Lords, Lord Birt and Lord Turnbull, said, debt is too high and we need to reverse the rise as a share of GDP, lowering debt interest and building resilience to tackle future challenges effectively. We are not out of the woods yet, as the noble Lord, Lord Newby, said. There are still concerns on the international horizon, especially in the eurozone, and we have some huge challenges at home. Despite cutting the deficit over the past five years, it remains too high and productivity remains too low, whatever reservations we may have about how the figures are calculated. This Government are tackling this through our productivity plan, which will be published before the Budget, and our plans for a northern powerhouse. As the noble Lord, Lord Bilimoria, said, we are lucky to have my noble friend Lord O’Neill, who is our own northern powerhouse, here to tackle the issue.
Our trade with emerging markets has improved markedly but we are still too reliant on slow-growing markets in Europe. Business investment, which is so critical to improving productivity, has picked up but not by enough. While we have achieved remarkable success in creating jobs and growth, this is still uneven across the country and is reliant on too few sectors. I agree with the noble Lord, Lord Bilimoria, that enterprise, education, R&D and the engine of SMEs are critical to growth, although I do not agree with his view of the patent box, which I think has been a very important innovation.
The biggest theme of our debate has been the challenge and the opportunity of productivity. My noble friend Lady Wheatcroft talked about PIES but PROD is the abbreviation of productivity and should be the message to all parts of government and Whitehall: to be prodded to work with collective focus on productivity; for all parts of business to be more ambitious; and for our citizens and employees to prod themselves to achieve their potential. As my noble friend Lord O’Neill set out, our productivity is 17% below the G7 average. This Government will tackle this through our productivity plan, which will be published before the Budget.
To improve our productivity, we need to improve our infrastructure, as the noble Lord, Lord Teverson, said; we need to rebalance the economy and build the northern powerhouse, as the noble Lords, Lord Clement-Jones and Lord Shutt of Greetland, said; and we need to ensure better housing supply policy, as the noble Lord, Lord Newby, the noble Earl, Lord Arran, and my noble friend Lord Horam said, and good progress is being made, with starts at their highest level since 2007.
We need to expand apprenticeships, as the noble Lord, Lord Aberdare, said, and will be delivering 3 million more over the next five years. We need to reduce the burden of regulation on business, as my noble friend Lady Wheatcroft noted, and we have a new Business Secretary who is very well placed to do just that. We also need to get more women into the workforce, as the noble Baroness, Lady Wall, said, and provide better incentives for long-term investment. I listened to the noble Lords, Lord Reid, Lord Haskel and Lord Desai, on the measurement of productivity. As my noble friend Lord O’Neill said, there are measurement issues that need to be looked at.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Skidelsky, raised concerns about fairness. Inequality, as measured by the Gini coefficient, is lower than in 2010-11 and lower than the pre-recession level of 2007-08.
The noble Baroness, Lady Kramer, also asked about migration and full employment. The Government value the contribution of highly skilled migrants. However, we will also take action to cut down on migrants who undercut local workers, by denying them access to in-work benefits. We will also ensure that our strategy does not close off UK business to the skilled experts that it requires.
I thank the noble Baroness, Lady Liddell, for championing the tourism sector. I agree with her, and with the noble Lords, Lord German and Lord Clement-Jones, that this is a hugely important service industry which brings jobs to the whole of the UK. DCMS has done a good job of ensuring that this importance is recognised across government. We work closely with BIS to promote key sectors including tourism, the digital economy, the creative industries—another global success story, and now 5% of the UK economy—and, of course, sport. We now have joint Ministers across both departments, of which I am honoured to be one.
The Government are committed to seeing more women on the boards of top UK companies. We have made excellent progress but there is more to do. FTSE companies are on track to reach the 25% target set by the noble Lord, Lord Davies of Abersoch, by 2015—but, like the noble Baroness, Lady Wall, I believe passionately that a pipeline of talented women is crucial to success. As the new Minister in BIS for governance, and therefore for women on boards, I will have a chance to help to tackle this. We are also committed to ensuring that there are more women in STEM and I thank the noble Baroness for her contribution. BIS initiated a programme of work to understand these issues and take action. This is being jointly led by the Royal Society and the Royal Academy of Engineering.
I thank my noble friend Lord Leigh for raising points about “covenant-light”, entrepreneurs’ relief and debt subsidy. I have met him separately and will ensure that these points are closely considered within BIS and the Treasury.
Several noble Lords raised points relating to EU renegotiation. There will be a debate in the other place next Tuesday and I am sure that Members will raise similar issues. I will ensure that the points made today are brought to the attention of the Ministers concerned. Of course, the results of renegotiation will be in the public domain and will be discussed and debated very widely.
Turning to the trade union Bill, I fear that there are those here who believe that our desire for such a Bill is born out of some dark intent. The noble Lords, Lord Mendelsohn and Lord Monks, hinted at this. This is quite wrong. Rather, it is our ambition to become the most prosperous economy in the world. That means we must ensure that people are not adversely affected by little-supported strikes which disrupt important public services. I was glad to have my noble friend Lord Leigh’s support on this matter. We will require that in the key health, education, fire and transport sectors, 40% of those entitled to vote must support strike action for it to be legitimate. We will also tackle the intimidation of non-striking workers during a strike, introduce time limits on a mandate for a strike following a ballot, and make changes to the role of the certification officer. Strikes can put lives at risk, prevent people getting to work and earning a living and prevent businesses managing their workforces effectively. As noble Lords will know, I say that as someone who comes from a business which had excellent relations with the trade unions—USDAW in that particular case. I also pay tribute to the work of the noble Baroness, Lady Donaghy, with ACAS and reiterate the important role that ACAS plays.
Another theme has been the importance of skills, digital skills in particular, which was rightly emphasised by the noble Lord, Lord Davies of Oldham. Ensuring that business has access to a highly skilled workforce is also critical for generating growth and enhancing productivity. Over the next five years, we will deliver 3 million new apprenticeships and ensure that they deliver the skills that employers need for growth. We propose to introduce a new duty on government to report annually on progress against the 3 million commitment, which I believe the noble Lord, Lord Macdonald, will support from the Benches opposite. I assure him that the Government are working hard with large and small companies, through our reforms, to grow the all-age apprenticeship programmes.
Our apprenticeship reforms are focused on employer-designed standards and robust assessment processes, and will ensure that apprenticeships become increasingly attractive to all sizes of employer, which is vital. Apprenticeships are no longer confined to the manufacturing sector. You can now become qualified in the accountancy and legal professions through them, and we will promote the development of apprenticeships in all sectors and for all ages. We will also increase apprenticeships across Whitehall and its agencies so that the public sector is leading the way, and we will work with schools to ensure that apprenticeship options are more fully incorporated into careers advice.
Several noble Lords underlined the importance of the Select Committee report, Make or Break: The UK’s Digital Future. I very much look forward to debating that report and taking some of your Lordships’ ideas further, but I can say today that nine standards have been developed for digital since 2014 and that we have digital degree apprenticeships and, of course, the National College for Digital Skills, so progress is being made.
Latest figures for apprenticeships in the construction sector, which was a concern of the noble Lord, Lord Macdonald, have shown an increase of 16% from 2012-13 to 2013-14. There were more than 60,000 apprenticeship starts in engineering, which, again, is encouraging. He will be glad to know that, in 2013-14, 52% of total apprentices were women.
I turn now to enterprise and the enterprise Bill. This Government have an ambition for our small and medium-sized enterprises: to make Britain the best place in the world to start and grow a business. The enterprise Bill seeks to address the critical issues facing business growth. The first is late payment, an issue that affects small and medium-sized businesses in particular, which were owed £32.4 billion in January this year, compared to the £39 billion mentioned by the noble Lord, Lord Cotter—that perhaps reflects some response to the letters that we have sent, although I cannot be sure. On average, small businesses are still owed nearly £32,000.
We have already legislated through the Small Business, Enterprise and Employment Act 2015. Using those powers, we will now introduce a new requirement for the UK’s largest companies to report on their payment practices and policies. The enterprise Bill will establish new measures, including a new small business conciliation service to mediate in disputes between small and large businesses, especially over late payment, thereby avoiding the need for expensive litigation. I was glad to hear of the support that the noble Lord, Lord Mendelsohn, hopes to be able to give on this important matter.
My noble friend Lady Noakes asked why we needed legislation at all. Clearly, the Small Business, Enterprise and Employment Act was a landmark piece of legislation to help small business, but the measures in the new Bill will build on that by making sure that we remove another £10 billion of red tape. I hope that our work on enforcement will also be welcome to the noble Earl, Lord Kinnoull.
On the tax lock, which several noble Lords mentioned, these are important promises to working families, which we believe that it is right to put on the statute book. The noble Lord, Lord Northbrook, rightly highlighted the importance of lower, simpler taxes. To pick up the point made by the noble Lord, Lord Watson, we have a £5 billion target for reducing tax evasion in this Parliament, which I hope will be welcome.
Another area that can stifle small business growth is excessive regulation. We have an ambitious agenda, and the cost of regulation fell by £10 billion over the last Parliament. We intend to deliver a further £10 billion of savings over the coming five years. The job is not done; many businesses believe that how regulation is enforced and the paperwork that goes with it can cause more unnecessary difficulties than the law itself. The Government believe that we should now expand the framework set out in the small business Act to ensure that the actions of regulators are also covered.
With an unprecedented £70 billion of capital investment over the next five years, transport will account for nearly three-quarters of our infrastructure budget, and 22 out of the Government’s top projects. The Queen’s Speech reiterated the Government’s commitment to legislate for and start building high-speed rail links. My noble friend Lord O’Neill referred to our plans to deliver the full network of HS2 and how that will connect eight of Britain’s 10 largest cities. The Chancellor has already committed alongside this to ramp up investments in roads, give Britain the fastest broadband and the most competitive telecoms and take the decision on increasing airport capacity in the south-east once the Airports Commission’s final recommendations are published, which will be shortly. The noble Lord, Lord Harrison, will also be glad to know of the £1 billion airport redevelopment in Manchester.
The noble Lord, Lord Teverson, asked about the cycling and walking strategy. The Infrastructure Act contains a section giving the Secretary of State power to set such a strategy. Once it is commenced, the Secretary of State will be under a duty to set one up as soon as is reasonably practical. My noble friend Lord Attlee rightly raised concerns about cycle safety, and we are trying to address that.
I empathise with the noble Earl, Lord Arran, on the subject of the A303. I have been waiting for improvements to it all my life, and it is great to see them in the plan. We expect to start public consultation on the scheme in 2017.
The Government want to make Britain the technology centre of Europe, establishing more catapult centres, mentioned by several noble Lords. We are providing £800 million in 2015-16 for innovation activities through Innovate UK and other world-renowned institutions. They will keep a beady eye on how that is administered.
To make sure that the UK retains its position as the world’s best IP regime, we will also focus on a number of measures including: improving our rights-granting services; reforming the law to improve protection for businesses; striving to improve international patent systems; and educating businesses and consumers about IP. The consultation on Section 73 is continuing. The noble Lord, Lord Clement-Jones, is right to say that enforcement is incredibly important. It is great that we have managed to extend the life of PIPCU, and we are looking at future options for funding. He will also be very glad to know that we have used Section 97A to block access to websites alleged to host 10 million infringing e-books.
Building on the successes of the last Parliament, the Government have set out key measures, which will ensure that we continue to promote jobs and balanced growth in the UK. We have put the country back on a stronger financial foundation, although we have still more to do. We are putting the interests of business first and dismantling bureaucracy to make this the best place in the world to start up and run a business.
I end by thanking the House for a stimulating debate and for demonstrating economy and business nous by finishing business well ahead of schedule.
Motion agreed nemine dissentiente, and the Lord Chamberlain was ordered to present the Address to Her Majesty.
House adjourned at 6.10 pm.
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 8 months ago)
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(b) the company’s performance by reference to those practices and policies”
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe)
My Lords, I thank the noble Lord, Lord Mendelsohn, for his diligent scrutiny of the late payment provisions in the Bill. We covered a wide range of areas during the debates. I hope noble Lords are now certain of the Government’s unwavering commitment to tackle late payment and are satisfied with the way that I have tried to address the concerns raised. We are all united in the belief that suppliers should be fairly compensated when they suffer from late payment. I was persuaded by the noble Lord’s arguments and made a commitment to bring forward amendments to specify in the Bill how we intend to use the reporting power in relation to payment performance and interest owed and paid. These amendments deliver on that commitment.
Amendment 1 inserts a reference to “performance” in the Bill. This amendment makes clear that payment performance is a vital component of the new mandatory reporting requirement and that we are committed to include it in regulations. Greater transparency will bring to the fore poor payment performance. Amendments 2 and 3 make express reference to late payment interest as an example of the type of information that may be included in the new reporting requirement. We are committed to using this power in the Bill to require companies to report on the amount of interest owed or paid because of late payment. This new reporting requirement will bring increased transparency to payment performance.
Together with the wider package of measures we are driving forward—to improve public sector prompt payment and strengthen the Prompt Payment Code—this will encourage a change in corporate behaviour. For far too long, large companies in the UK have used their economic power to make gains at supplier expense. The commitment I have made today will help to ensure that suppliers are fairly compensated. I hope noble Lords will feel able to support these amendments. I beg to move.
Lord Mendelsohn (Lab)
My Lords, I thank the Minister for introducing these amendments and for her unfailing courtesy throughout the passage of the Bill. We share a deep concern that the scope of late payments and poor payment practices is not only unfair, unjust and damaging to small businesses but is a brake on the entire economic potential of our country. With the sum outstanding approaching £60 billion, the Bill is an important step in trying not just to stop it rising any further but to create the ability to reverse that number as strongly and rapidly as we can.
While we favour additional measures—some of which could be considered in secondary legislation—we are grateful to the Government for recognising the need to add strength to their approach by ensuring that the payment report goes beyond intentions and reports on actual performance. In addition, the interest figure in payments highlights existing late payment legislation. These measures have our strong support and we are grateful to the Minister and the Government for listening and for their positive response and detailed scrutiny of our suggestions.
It may be for the convenience of the House for me to thank the Minister for the letter she sent to my noble friend Lord Stevenson and myself helping to tidy up some of the points of contention raised on Report relating to the co-protections when a pub is sold, the role of the adjudicator in these matters, investment by pub companies and the market rent only option, and the consultation on the code itself and on secondary legislation. We are very grateful for what the Minister has written and believe that it resolves almost all of the outstanding issues at this stage. Again, we offer our strong support for that.
We have good reason to be very proud and supportive of small businesses. One has only to look at the annual reports on European SMEs, published by the European Commission, to know how strong we could be with more focused public policy support. Let us hope that this Bill is a strong step in the way forward in dealing with late payments and prompt payments and ensuring that our small businesses take full advantage of the position that they are in. They are, of course, the backbone of our economy.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Mendelsohn, for his very kind remarks and for giving me the opportunity to return briefly to the matter of pubs. As he said, I sent a letter to the noble Lord, Lord Stevenson, yesterday and I have, for the convenience of the House, placed a copy in the Library.
Noble Lords expressed concern on Report about protections that would be available to a tied tenant whose pub is sold. Let me clarify the position: when a tied pub, owned by a company covered by the statutory code, is sold to another code company, the rights of the tenant under the code will be unaltered and will continue seamlessly. A tenant in this situation will retain the right to exercise the market rent only option after sale if any of the MRO triggers are activated. Where a tied pub is sold by a code company to a company outside the scope of the statutory code—for example, to a family brewer—the tenant will retain all the protections of the code except for MRO until the end of the lease or until completion of the next rent review, whichever comes first. In this scenario, if the purchasing company offers the tenant an agreement on different terms from their existing agreement, the tenant will have the right to a rent review.
If the tenant considers that the rent review breaches the code then he or she will be able to refer the matter to the adjudicator for arbitration. The adjudicator will not have powers to investigate non-code companies because the investigation powers are designed to address suspected systemic abuses of the code across many tenants. It would not be right to include in scope companies which are covered by the code only by virtue of the historic ownership of some of their pubs and in respect only of those particular pubs.
I turn briefly to the matter of investment. I have been clear that the Government want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. Pubs are at the heart of our communities and our heritage. They are important to the old and the young. We want pubs to thrive. I therefore announced on Report that the Government would set out in secondary legislation how tenants and pub companies can agree a waiver of two MRO triggers in exchange for significant future investment in a pub. I would like to make it clear that the waiver will apply only to the renewal and scheduled rent review triggers for MRO. All other code protections will remain in place during the waiver period. This means that the two exceptional triggers for MRO will remain; namely, a significant price increase and an economic event which impacts on the tenant’s ability to trade. The Government will set out safeguards in the code to ensure the tenant is protected from attempts to abuse a waiver. Any attempt to avoid these safeguards could be referred to the adjudicator for arbitration and redress.
Lord Hodgson of Astley Abbotts (Con)
I am grateful to my noble friend. I hoped to get through this afternoon without having to discuss pubs yet again. When a pub is sold by one of the companies covered by the code to a company that is not covered by it—a family brewer was the example she used—who enforces the rights of the tenant against the pub company that is outside the code? At that point, as my noble friend said, it is not part of the code so how does the adjudicator make that work?
Baroness Neville-Rolfe
I thank my noble friend for that question. The answer is that this is part of the role of the adjudicator. I am very happy to talk further on the detail of how that might work. Of course, that will be the subject of full consultation.
Finally, I reiterate that the Government are committed to that full consultation on the pubs code and the other secondary legislation that is required to deliver Part 4 of the Bill. We will be keen to continue engaging with stakeholders as the secondary legislation is developed. The regulations are of course subject to the affirmative procedure and we intend to ensure that there is a chance to scrutinise this secondary legislation because of the depth of interest in it and its importance. We send the Bill back to the other place confident that we have remained true to the spirit and intention of the measures introduced there, but having made improvements that will ensure that the measures are workable and minimise unintended consequences.
Baroness Neville-Rolfe
My Lords, the amendments in this group make a number of consequential and technical changes to the Bill. I turn first to Amendments 4, 6, 12 and 13. In Committee, the Government moved a number of technical amendments about the penalties in the Bill. The majority of those related to the penalties in Parts 7 and 8. At the time, it was unclear whether changes to the fines available to magistrates in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 would be implemented during this Parliament. This was because the regulations needed to accompany commencement were yet to be debated in both Houses of Parliament and a number of the amendments were designed to ensure that the penalties worked in either event. As noble Lords may be aware, Section 85 of LASPO came into force on 12 March. As a result, there is no longer an upper limit on fines in the magistrates’ courts. My amendments therefore remove the changes we made in relation to these fines, as they are no longer necessary.
I now turn to Amendments 14 to 16. Noble Lords will be aware that the Deregulation Bill has recently been read in this House for a third time, and yesterday this House considered and agreed amendments made to it in the other place. These technical amendments are therefore required so that the Schedule 9 amendments are based on the text of the Insolvency Act after amendment by the Deregulation Bill.
Finally, I turn to Amendments 7 to 9. Our penalty measure in Clause 150 provides for full and prompt payment of employment tribunal awards. This will reassure claimants that, should they be successful at a tribunal, they will receive the money that they are owed. Clause 150(5) already amends the Employment Tribunals Act 1996 to provide that the affirmative procedure applies to regulations made under the new provisions. However, it does not also remove them from the category of instruments that are subject to negative procedure. Amendments 7 to 9 correct this.
I hope noble Lords will welcome these various amendments and give them the House’s support.
Lord Stevenson of Balmacara (Lab)
My Lords, it says in the Companion very clearly that Third Readings are mainly used for tidying up complicated parts of Bills that perhaps have eluded the draftsman or indeed are subject to a change in other places. The descriptions as made by the Minister clearly fulfil all aspects of that and we have no wish to enter into them.
I must say that I was slightly confused by the insertion and then removal and then the reinsertion but in a different way of the Legal Aid, Sentencing and Punishment of Offenders Act provision. However, the Minister has explained the reason for that in a private meeting and we are very happy with the provisions now.
“( ) Regulations under this section must not specify a regulatory function of the Commission for Equality and Human Rights.”
Baroness Neville-Rolfe
My Lords, we debated on Report whether the Equality and Human Rights Commission should be excluded from the small business appeals champion in the Bill. I committed to consider the question. Amendment 5 now delivers an exclusion. The Government have always maintained that the EHRC is a very special case and should not be subject to the duty to appoint a champion. We considered that an exemption in secondary legislation would be sufficient, but noble Lords were concerned about this and the potential implication for the EHRC’s “A” status as a national human rights institution. The Government believe that there is only a very small risk here, but we have listened to noble Lords and agreed to eliminate the risk altogether with this amendment, which I know from the debate will be welcomed across the House. I beg to move.
Lord Deben (Con)
My Lords, I thank my noble friend very much for this concession. I entirely agree with her that nobody in this House thought that the Government were not going to do this. We understood that there was no malice aforethought in any sense at all, but it is surprising how people can make malice if they can find a way of doing it, and many people were suggesting that, in some way, the Government were taking control over this independent body, which would be unacceptable internationally. That is why we made the point, and I, for one, am very pleased that the Government have accepted it. I thank my noble friend for the courteous way in which she has dealt with this and, indeed, the detailed answer that she has given us.
Lord Deben
My Lords, as a representative of the rebellious tendency on this Bill, I thank my noble friend for the considerable improvements to the Bill as a result. It has been an example of the House of Lords at its very best. We now have something that will make a difference in a lot of areas and which has removed some of the things that might have made a difference in the wrong way. We owe a great deal to the Minister responsible because, as the noble Lord, Lord Stevenson, said, she has achieved things that many others have not.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their warm and gracious words and put on record my thanks to everyone who has played a role in supporting the rapid passage of this sizeable Bill through our House. I start by thanking the Lord Speaker and all Deputy Speakers who have facilitated our proceedings, as well as the clerks, the doorkeepers and our skilful reporters in Hansard. As other noble Lords have done, I thank the excellent, hard-working, never-complaining members of the Bill team and officials from the 12 departments who have supported our debates.
This is a wide-ranging Bill. We have considered it from A to Z: right from access to finance through to zero-hours contracts and beyond. We even mentioned Gibraltar and fish and chip shops. I thank all noble Lords for their contributions to our debates and for the detailed scrutiny they have given the Bill. Having benefited from the expertise for which this House is renowned, the Bill now returns to the other place much improved.
We have heard a range of expert voices from the opposition Benches, helped by their excellent apprentice. I am grateful to noble Lords, particularly the noble Lords, Lord Stevenson and Lord Mendelsohn, and the noble Baroness, Lady Hayter, who are in their places, and the noble Lords, Lord Young of Norwood Green, Lord Mitchell, Lord Grantchester and Lord Watson, and the noble Baronesses, Lady Jones. I thank them for their constructive, but challenging, approach and for working with me and my officials outside the Chamber.
We have added new provisions on equal pay and on whistleblowing. I thank the noble Lord, Lord Wills, for mentioning that and for the stand he has taken in that area. We have reached agreement on the vital pubs measures in a form that is workable to deliver the protections that tied tenants need. I also thank my noble friend Lord Hodgson for providing the perspective of the pub investor so eloquently. Although there has been a lot of passion on either side of the debate, I am glad for the drinkers among us that it was mild-mannered and that nobody has been left feeling too bitter.
Finally, I thank my noble friends Lord Popat, Lord Newby, Lord Nash and Lady Verma, who have so expertly assisted me at the Dispatch Box, as well as my many noble friends who have supported the Bill from the government Benches, especially my noble friend Lord Stoneham, who has attended every day and made the most excellent contributions. I also thank my noble friends Lord Borwick, Lady Harding and Lady Mobarik, who gave us the strength of their business experience on this, their maiden Bill, and my noble friends Lord Lee, Lord Flight, Lord Ridley, Lord Phillips, Lord Freeman, Lord Deben—and his rebellious tendency—and Lord Young of Graffham, who was the inspiration for our public procurement measures.
It is now vital that this Bill proceeds to Royal Assent swiftly so that we can start to reap the benefits for small businesses. It will open up new opportunities for small businesses to innovate, compete and secure finance—to create jobs, to grow and to export. As we call last orders on the Bill, I am sure that is something all noble Lords will want to toast.
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 8 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, these amendments relate to Clauses 122 and 123 which remove the requirement for face-to-face meetings in insolvency proceedings.
I am grateful to the noble Lord, Lord Stevenson, and my noble friends Lord Flight and Lord Leigh for their questions about when face-to-face meetings should be held and the position of small creditors. I have also met R3, the trade body representing insolvency practitioners, as I promised to do in Committee, and am grateful to it for the valuable insight that it provided.
After further consideration, the Government intend to expand the thresholds so that a face-to-face meeting may be requested by 10% of the total number of creditors or contributories, as well as 10% by the value of their claims, which was, of course, the Government’s original proposal. This would mean that on average three or four creditors could trigger a meeting in a liquidation case. Moreover, to account for the larger insolvency cases with lots of small creditors, a further threshold of an absolute number of 10 or more creditors or contributories—a third 10—has also been introduced.
I thank the Delegated Powers and Regulatory Reform Committee for its recommendations on this part of the Bill. We have listened to its concerns and moved the various thresholds to the face of the Bill so that they will appear in the Insolvency Act as amended. Any changes to these thresholds will also now be subject to the affirmative resolution procedure.
Before I sit down, I should like to comment on another insolvency issue raised in Committee by my noble friend Lord Flight. This was the temporary exemption from the scope of the no-win no-fee reforms in Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 for insolvency officeholders to bring civil proceedings. The Government have listened to the concerns raised in this House and elsewhere. As a result, we announced on 26 February that we would defer commencing the no-win no-fee reforms for proceedings brought by insolvency officeholders beyond April 2015.
I am most grateful for the input of noble Lords on all sides of the House and I hope they will agree that we have found a sensible solution on all these issues. I beg to move.
Lord Flight (Con)
My Lords, I thank the Minister for listening to the various concerns in this territory and for the government amendments. I am aware that the insolvency industry is comfortable with the legislation as it now stands. It understandably has the view that it hopes creditor meetings will not disappear as they can be extremely useful. However, a most satisfactory compromise has been achieved, for which I thank the Minister.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady Thornton, for her amendment and all her supporters, including Grazia magazine. I pay tribute to her tireless campaigning on gender equality. This is a very timely debate, following International Women’s Day on Sunday. I am pleased to confirm that it is the Government’s intention to accept the noble Baroness’s amendment, subject to changes that I am proposing by way of government Amendments 58ZZA and 58ZZB.
Before turning to the amendments, I remind the House of some key facts about the pay gap and the work that the Government have already been doing to close the gap and improve transparency. First, it is important not to lose sight of the fact that, according to ONS figures, the gender pay gap has fallen to its lowest level ever. It has been virtually eliminated among full-time workers under the age of 40, which is a more positive way of looking at the statistics. We are broadening the career aspirations of girls and young women by encouraging them to get into STEM-related careers through the Your Life campaign. Opening up these highly skilled areas ensures that women are less concentrated in sectors that offer narrower scope for reward and career progression.
We have also championed the voluntary, business-led drive by the noble Lord, Lord Davies, to get more women on boards. Women now account for around 23% of FTSE 100 directors, up from 12.5% in February 2011, and there are now no all-male boards in the FTSE 100. It is a huge step forward. Last night I attended the fantastic dinner for women on boards, hosted by the Secretary of State for Business, Innovation and Skills and sponsored by Lloyds Banking Group, encouraging this key group of women to drive forward further progress, which I believe is very important.
We are modernising the workplace to give women a fair chance to get to the top. Last June, the right to request flexible working was extended to all employees, and from April we will introduce a new system of shared parental leave. Further, almost 2 million families could benefit from our new tax childcare scheme from autumn 2015, which is worth up to £2,000 per child.
In January we published new guidance for employees on the gender pay gap. Research has shown that organisations perform better when they have a good balance of women across teams and in senior roles. Our guidance helps women to check if they are being paid fairly and encourages good practice of the kind the noble Baroness mentioned. Furthermore, new EU software to help UK employers analyse their pay data can now be downloaded for free. We are already encouraging greater transparency about pay. We have banned pay secrecy clauses, changed company reporting on boardroom diversity and introduced mandatory equal pay audits for companies that lose equal pay claims. We have also been working in partnership with business to tackle the root causes of the gender pay gap and promote culture change and greater transparency through the Think, Act, Report initiative, which the noble Baroness mentioned.
Because of Think, Act, Report we now we have a powerful business community of best practice with more than 275 leading companies—the figure is right—employing more than 2.5 million people, leading the way on gender equality. Of course, Think, Act, Report was never intended as a substitute for Section 78; it is so much broader and has achieved a lot. We said that we would keep Section 78 under review and that is exactly what we have done. We now want to build on the progress we have made. We need to take into account that one size will not fit all and that is why the Government feel strongly that we must consult on how Section 78 is taken forward. I welcome the amendment from the noble Baroness, Lady Thornton. I am proposing two amendments to it—Amendment 58ZZA to ensure it fits properly with the Equality Act provision, and Amendment 58ZZB to require consultation before implementation—which the noble Baroness has graciously indicated that she will accept.
We know that business is particularly concerned about being required to report more information, so we also want to ensure that the Government actively engage business during a proper consultation. This will ensure that we find the best way of implementing Section 78 in a business-friendly way, making use of information employers already have available and without being bureaucratic. In order to bring forward tailored, workable regulations, it will be essential for the Government to consult business properly, as well as others with interests and expertise in the area. We want to ensure that the requirements on business can be fulfilled and that the data published are of real use. I am therefore grateful to the noble Baroness for agreeing to these important adjustments to her amendment.
Lord Low of Dalston (CB)
My Lords, I was glad to put my name to the amendment in the name of the noble Baroness, Lady Thornton, and I am equally delighted to support the government amendment that essentially accepts the noble Baroness’s amendment but makes some minor modifications to the text. In view of the welcome degree of consensus that is breaking out, I will endeavour to speak quite briefly.
The Equal Pay Act was passed in 1970—all those years ago—but 45 years on there is still a significant gender pay gap. In 2014, women in full-time employment earned 9.4% less than men in full-time employment. The gap was wider for part-time work. Female part-time employees earned 37.9% less than male full-time employees. For all employees, the gender pay gap was 19.1%.
Lord Watson of Invergowrie (Lab)
I welcome the Government’s acceptance of the amendment in the name of my noble friend Lady Thornton and their decision to take it slightly further by changing “may” to “must”. That is an improvement and it is to be welcomed as well. I am not quite sure that I would go as far as my noble friend Lady King who was rather effusive—perhaps she was indulging in irony—in saying that the Conservatives and Liberal Democrats were now all over this like a rash. Having been involved with various aspects of this Bill through its passage, I suspect that the driving force in this is in fact the Minister herself and that some of her colleagues may not be entirely signed up to it. I suspect that the word “burdens”, which we have already heard today, will be one that will appear more than once this afternoon in terms of zero-hours contracts, fixed-term contracts, internships and so on—and yet the burdens will always be the burdens on industry and never the burdens on the individual workers who have to work those hours.
This particular amendment is about women. I hope that we can hear a bit more about the burdens that people have to suffer. Earning only 81p in the pound is a burden that no woman should have to suffer. If the amendment opens things up and exposes companies that for whatever reason are paying at different levels, that is a real step forward. I welcome the amendment—and the amendment to the amendment
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, the noble Lords, Lord Low and Lord Watson, and the noble Baroness, Lady King of Bow, for their contributions to the debate. I am pleased that there is widespread support for the approach. It builds on the Equality Act 2010 and the progress that I believe has been made since 2010. I also pay tribute to the noble Lord, Lord Stoneham, and thank him for what he said about culture, since culture and transparency are very important in promoting gender equality. I ask noble Lords to support these amendments.
Lord Young of Norwood Green (Lab)
My Lords, I intend to be brief. My noble friends Lady Hollis and Lady Drake have given a forensic examination, based on factual analysis, and I do not feel I need to go through it again. I want to address some of the comments made by the noble Lords, Lord Stoneham and Lord Deben, and the noble Baroness, Lady Harding.
On the UK labour market, the first thing we need to understand is that it is probably the most flexible labour market in Europe. Nobody could say that we are like France, Italy or Spain or that we have something that makes it almost impossible for employers to hire people flexibly. I will leave noble Lords with the following thought. On grounds of fairness, are we going to say that a zero-hours contract means zero rights? Just to remind us, under zero-hours contracts there is no sick pay, no holiday, no national insurance contributions and nothing towards a pension—that is a pretty demanding contract as it is, and it is hardly weighted against the employer.
Nobody on this side who has supported these amendments has suggested that we want to do away with zero-hours contracts in their entirety. We accept that, for some people, they are a valid and necessary means of employment, both for the employee and the employer. However, there ought to be some reasonable ground rules. If you are running a business, yes, there will be changes in circumstances; that is undoubtedly right. However, this amendment aims to lay down a principle which it says will be interpreted in regulation and which will not just be dealt with by the spectre of solitary civil servants, who apparently between them have never experienced an hour of work in industry at all. From my brief ministerial career, I know that that does not necessarily apply to all civil servants, so I do not accept the idea that they will work in a total vacuum—that is an unnecessary fear.
Are we really putting forward the basic argument that, if I am being contacted and told by the employer, “I want you to turn up for work”, and I turn up, honouring my side of it, the employer has no responsibility whatever? I listened carefully to the noble Baronesses, Lady Perry and Lady Harding, and there might be other circumstances, but that is a question of taking into account how we phrase the regulations, so we can take those into account. That is not an argument for saying that there should be no control over this situation at all.
The noble and learned Baroness, Lady Butler-Sloss, reinforced the point, which my noble friend Lady Hollis had made, that it is curious that the CBI supports this. That is hardly an organisation that would support something it thought totally inflexible. Surely this is about basic fairness, is it not? If we are enjoying the services of somebody who is working under those conditions, surely it is right that they should have some fairness applied in the way they are summoned to their employment.
Surely we are seeking to encourage reasonable standards of management. I will give another statistic from the Chartered Institute of Personnel and Development: only one in five British managers has any training at all. I point that out to the noble Baroness, Lady Harding, because it is as important as some of the other statistics she quoted. Of course, people will declare that they are satisfied—they need the money and are glad to get into work. However, when we are being served by those people, do we not feel that there should be certain basic rights? This is one of them.
We commend the Government for getting rid of the exclusivity provisions in such contracts, which was clearly unfair. However, because of the way this amendment has been made it ought to attract cross-party support. We are not taking a political stance here, but a stance on responsible and effective management—that is what it is all about—and on giving a reasonable right to the employee. It can be dealt with very effectively in regulations, and I hope that the House will overwhelmingly support it.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Young, for his intervention. I am very grateful to the noble Baronesses, Lady Hollis and Lady Drake, for their amendment and for allowing us the opportunity to return to the important provisions on zero-hours contracts in the Bill, and specifically to the matter of compensation for late-notice shift cancellations.
We had a debate in Committee, but I see that the noble Baronesses’ amendment now seeks to apply their proposal much more widely across the workforce. I also listened to the noble and learned Baroness, Lady Butler-Sloss, and the noble Baroness, Lady Perry, both of whom brought the benefit of their own experience of this matter. I have some myself, as I have four children —although the noble Baronesses are right to say that that is not necessarily relevant to the debate. I thank the noble Lords, Lord Butler and Lord Cunningham, and the noble and learned Lord, Lord Lloyd. I was also pleased to hear my noble friend Lord Deben comment on the dilemma of replacing less good employment with no employment.
The noble Lord, Lord Stoneham, rightly reminded us of the need to be careful not to throw the baby out with the bathwater. We in this country have done a lot with our flexible labour market, which has helped us to create 2 million jobs in this Parliament. I was also glad to hear from my noble friend Lady Harding, who came at the matter as a practical business person and thought about customers and the detailed definitional issues that we always get into on these matters.
Perhaps I should remind those who were not in Committee of what we are already doing about zero-hours contracts. Our consultation identified exclusivity clauses as the biggest issue. We have acted, and as a result of Clause 151, no zero-hours worker will be forced to be exclusive to an employer that does not guarantee them any work. There is also new information. The Government have published today our response to the consultation on zero-hours contracts, Banning Exclusivity Clauses: Tackling Avoidance. We have also published draft regulations that illustrate how the Government intend to use this power in the Bill.
The draft regulations propose that those employed on a zero-hours contract will have protection against suffering detriment on the grounds of working for another employer, and will be able to make a complaint to an employment tribunal. If a complaint is upheld, they may receive compensation. I know from our Committee debates that this is something that noble Lords opposite were keen to see, and I hope it will be welcomed.
In addition, the draft regulations propose to widen the ban on exclusivity clauses to all contracts of employment or workers’ contracts where the individual is not guaranteed a certain level of income. I hope that this, too, will be welcomed by the noble Baronesses, and will improve the situation. The regulations will extend the protection and ban exclusivity terms for other vulnerable groups in the labour market, beyond zero-hours contracts alone. People will be able to work more hours and boost their income if they so wish. This is in line with the responses we received.
What is more, the Government are updating the guidance on zero-hours contracts, and we intend to publish this on GOV.UK before the end of the Parliament. This is in addition to any sectors producing their own codes of practice on the responsible use of these contracts, as some noble Lords suggested.
We consider that a business-led approach is the best way to ensure a lasting culture change in the treatment of zero-hours workers, which the whole House wants. I hope that that demonstrates that we are listening to the concerns raised in this House and are acting to protect vulnerable workers—because I take the point that it is the vulnerable workers whom we are concerned about.
Amendment 58ZZC seeks to provide compensation for short-notice shift cancellations—but it proposes that the rights should apply to all workers, not just zero-hours workers. So it is not, as the noble Baroness suggested, a modest amendment, and I am not sure that the CBI supports the proposal. In March 2014 it said that a simple system of compensation might work for some zero-hours contracts. That was before we introduced the changes in this Bill—and the CBI’s comment did not apply to all workers. More recently, it has, I think, come round to the idea of regulating zero-hours contracts, and has said that the Bill’s,
“ban on exclusivity clauses in zero hours contracts … is a proportionate response to tackling examples of poor practice, and strikes the right balance between flexibility for both employers and workers”.
All those in work in the UK will have an employment status, which determines the protections to which they are entitled. Most commonly, individuals are “employees”, “workers” or “self-employed”. As the “worker” category includes all “employees”, this means that this amendment would potentially extend to the vast majority of the labour market. It requires the Secretary of State to make regulations—the wording is “shall”—and requires employers to pay compensation to workers whose shifts are cancelled without notice.
Baroness Hollis of Heigham
My Lords, I am grateful to all my noble friends who took part in the debate—my noble friends Lady Drake, Lord Young and Lord Cunningham. Indeed, I am grateful for all the contributions from around the House. However, what has puzzled me a little about the contributions from around the House is the fact that most of the argument seems to have been about the need for, and virtues of, zero-hours contracts as such, and the need for a flexible labour market. I had hoped that we had been at pains to establish that of course customers, consumers, passengers and patients now live in a 24/7 economy. The issue is not about ZHCs; it is not even about codes of practice, because good employers such as Marks & Spencer do not abuse ZHCs, whereas Boots does. Pret a Manger does not abuse them, although McDonald’s does. Good employers can already decide how best to employ their staff. Whether a company does or does not have ZHCs is not the issue.
The issue is that there are some people with ZHCs, as the noble and learned Baroness, Lady Butler-Sloss, and the noble and learned Lord, Lord Lloyd of Berwick, rightly said, who are exploited and suffer because although they are summoned to work by text, often overnight, they turn up and are then sent home again without a penny. What is more, they may have spent £5 or £8 in travel costs to get there and back. They may have spent £15 or £20 in childcare to get there and back and they get not a penny of recompense for the expenditure they made to uphold their side of the ZHC contract.
All that I am asking for is fairness, as the noble and learned Lord, Lord Lloyd, said—fairness between the employer who can dispense with the services of somebody and the employee. He may need to do that—I can see the point—but it should not be the worker who exclusively and solely bears the cost of the cancellation. That is what is unfair; not ZHCs, not flexible labour contracts, but the fact that only one party, the most vulnerable, the poorest, the weakest, should bear the cost of a zero-hours contract when they turn up to work and the work is taken away from them, even though they are doing exactly what the employer requests.
The noble Lord, Lord Deben, was worried. I thought that the speech by the noble Lord, Lord Butler, was admirable in putting the simple point that the amendment would require the Secretary of State to make regulations, but keeps the content entirely open. However, we expect them to reflect the spirit of the discussion in this House tonight that zero-hours contract workers—the people we are concerned about—should be able to be protected in this way.
In Committee, the Minister said that the Secretary of State already had powers to do that. This was followed up by a letter saying that that was not the case. The order-making power does not extend to other issues around ZHCs such as compensation for late-notice cancellations. I repeat that the Secretary of State has no power presently to regulate this anomaly at best—this exploitation, bluntly, at worst—that we all agree is unfair. He has no such power. The amendment would give him that power. After consultation with the sector—it may take months, I fully accept that—he can then introduce appropriate requirements for codes of practice or whatever may be proper to defend the people of whom the noble and learned Baroness, Lady Butler-Sloss, so eloquently reminded us: the lone parent who may be £20 or £30 out of pocket because at five minutes’ notice her shift is cancelled. At the moment, the Secretary of State does not have the power to do that.
This is not about ZHCs or the flexible labour market, I am asking your Lordships to do what this House is always at its best in doing: say to the Secretary of State, “We are willing to give you the power, we expect you to handle it sensibly, in consultation with industry, but it is not fair, as the noble and learned Lord, Lord Lloyd, said, that the most vulnerable should pay the cost of the employer’s requirements”.
Baroness Neville-Rolfe
The noble Baroness’s amendment goes beyond zero-hours contracts. She is emphasising the zero-hours aspects, but this is compensation to all workers, as I sought to explain—and I sought to explain the perversities.
Baroness Hollis of Heigham
If the noble Baroness is worried that the technical quality of the amendment is insufficient, it can be overturned in the other place and replaced with an amendment that embodies what she and the Secretary of State would wish to see. There is no problem about that. When I was a Minister, I accepted amendments all the time that were technically defective but which reflected the spirit and will of this House, because it was the right thing to do. If they needed tidying up, that could be done perfectly easily in the other House. That is not a reason not to accept the amendment today.
We are talking about ZHCs; all of us have been talking about ZHCs. As the noble and learned Lord, Lord Lloyd, said, this is fair and the right thing to do. Workers who keep their side of the contract should not then find themselves out of pocket, because the employer does not. The CBI agrees. I hope that your Lordships will also agree tonight. I beg leave to test the opinion of the House.
Lord Hunt of Kings Heath (Lab)
My Lords, this is a very important group of amendments. The government amendment, which the Opposition are supporting, clearly comes on the back of the Francis report on Mid Staffordshire. I also point noble Lords to the very recent report by Dr Bill Kirkup and an expert panel of members, who looked into maternal care at the University Hospitals of Morecambe Bay NHS Foundation Trust.
That report, as the Statement which we had last week in this House said,
“found 20 instances of significant or major failings of care at Furness General Hospital, associated with three maternal deaths and the deaths of 16 babies at or shortly after birth. It concludes that different clinical care would have been expected to prevent the death of one mother and 11 babies”.
It described,
“major failures at almost every level … mistakes by midwives and doctors, a failure to investigate and learn from those mistakes, and repeated failures to be honest with patients and families, including the possible destruction of medical notes. The report says that the dysfunctional nature of the maternity unit should have become obvious in early 2009, but regulated bodies”,
including the north-west strategic health authority, primary care trusts, the CQC, Monitor and the PHSO—that is, the ombudsman,
“failed to work together and missed numerous opportunities to address the issue”.—[Official Report, 3/3/15; cols. 158-59.].
For the purpose of our debate, the report also showed that the drive for a transparent and open culture in the NHS has some way to go. Notes were destroyed and mistakes were covered up. Dr Kirkup’s assessment is that it was,
“possibly because of a defensive culture where the individuals involved thought they would lose their jobs if they were discovered to have been responsible for a death”.—[Official Report, 3/3/15; col. 160.].
It seems from Francis, the Morecambe Bay report and our general experience of the NHS that there is a pressing need for a transparent and open culture, in which the protection of whistleblowers is an important element.
Ministers in this Government and the previous Government have from time to time issued various edicts about the importance of the protection of whistleblowers. There has been guidance on this, but it is clear that a whole swathe of staff in the NHS still do not feel confident about raising concerns on patient care. That is why the Opposition very much support government Amendment 58A but I, like other noble Lords, do not think that we can stop at the NHS. That is why I also support the amendments tabled by my noble friend Lord Wills and the noble Lords, Lord Low and Lord Phillips.
As my noble friend Lord Wills said, there are “significant gaps” and loopholes,
“in the current protections for those making disclosures in the public interest”.—[Official Report, 26/1/15; col. GC1.]
While we have at least had a lot of debates about failures in the NHS, one has only to think of the issues following the Hillsborough football disaster, as my noble friend said in Committee, more recently in Rotherham with child abuse and then recently in Oxfordshire, again with child abuse. I am not sure whether this has been corroborated by an independent inquiry, but the point has certainly been put that a junior member of staff in Oxford City Council was subject to discouragement for raising concerns because of approaches made by Oxfordshire County Council, which was responsible for childcare, to senior officials in Oxford City Council to try to stop this person raising what seemed to be eminently sensible concerns about the way that these cases were being dealt with—or not being dealt with—in Oxfordshire.
The noble Lord, Lord Phillips, mentioned the banking world and my noble friend Lord Wills mentioned the construction industry, which is a great example. If a construction worker raises health and safety concerns, there are very good companies in the construction world where they are taken seriously. Overall, my noble friend knows that there has been considerable improvement but there are companies where, if employees raise those concerns, they are blacklisted and cannot get work in the industry. Again, where is the protection for those people?
What about education, a notorious sector where if teachers raise concerns they can look for very little protection? In education, the principal or head often has a dominant role in the governing body. In schools and colleges, there are often no procedures whatever for whistleblowing. At least in the health service there are procedures and very strong corporate governance, with a tradition of company secretaries who should be able to make sure that the procedures work. In the education sector, there are no such guarantees at all. It seems to me that my noble friend and his colleagues are absolutely persuasive. We need protections which go far beyond the National Health Service. I very much hope that the Minister will listen to these arguments and agree either to support these amendments or come back with amendments on Third Reading which would meet the point raised by my noble friend.
Baroness Neville-Rolfe
My Lords, I thank the noble Lords, Lord Wills and Lord Low, and my noble friend Lord Phillips for these amendments. I pay tribute to the tireless campaigning of the noble Lord, Lord Wills, on whistleblowing. I am not sure that we would be where we are, if not for him. I also thank others who have been involved. The noble Lords, Lord Young and Lord Stoneham, and the noble Baroness, Lady Mobarik, were involved in Committee. It is good and right to hear also from the noble Lord, Lord Hunt, given the health aspect of this problem.
I make it absolutely clear that the Government share the widespread support in this House for whistleblowers and will continue to make strides in strengthening the whistleblowing framework, obviously not least because of the scandals at Mid Staffordshire and Morecambe Bay, which have been so eloquently referred to. That is why we are taking action through this Bill and elsewhere. I was glad that my noble friend Lord Phillips and the noble Lord, Lord Hunt, acknowledged that. First, we are protecting whistleblowers from being discriminated against when applying to work in the NHS. The noble Lord described some graphic examples. Secondly, we are taking action to improve transparency in the way that regulators handle whistleblowing concerns.
On the first point, the Government have tabled an amendment in response to the recent Francis review. This recommended that the Government,
“review the protection afforded to those who make protected disclosures, with a view to including discrimination in recruitment by employers”.
Based on Sir Robert’s findings, we are convinced that blacklisting applicants for NHS jobs because they are whistleblowers causes a very serious injustice. They are effectively excluded from the ability to work again in their chosen field. When NHS staff raise concerns, they can save lives and prevent harm. That is why we are taking the opportunity, very much at the last stage of the Bill, to protect whistleblowers seeking employment in the NHS.
Amendment 58ZA, tabled by the noble Lord, Lord Wills, seeks to protect all job applicants who have blown the whistle. I have listened to his arguments around other sectors; I think that this evening people have mentioned policing, social care, construction, banking and education. I sympathise. No job applicant in whatever sector should be disadvantaged by being a whistleblower but—I have to use the word of the noble Lord, Lord Wills—when we debated this in Committee, I expressed my concern about the lack of evidence that there was a widespread problem right across the board. We do not have the level of evidence for other sectors on the nature of the gap or the scale of the problem.
Lord Hunt of Kings Heath
Is the point not that for all the NHS’s failings, it probably has a more open culture than many other sectors? That is why we know more about the problems of whistleblowing there. In education, it is much more difficult to have central government intervention in cases where staff have clearly been intimidated. In a sense, some of these other sectors need much more attention. The noble Lord, Lord Phillips, talked about the banking industry. Does anyone have any confidence at all that if someone working in the City raised concerns, even after the failures, they would be taken seriously? I rather doubt it.
Baroness Neville-Rolfe
We have very good evidence from the Francis review. We do not have evidence for all other sectors and, of course, the amendment would apply to the private sector and the coverage would be very wide-ranging. Several noble Lords asked why it is a two-tier system and the noble Lord, Lord Hunt, asked why we are not doing it universally. Sir Robert’s findings were health-specific. He reported that he had seen evidence of individuals suffering serious detriment in seeking re-employment in the NHS after making a protected disclosure. That is what we are talking about. The health sector has one of the highest instances of whistleblowing reporting, perhaps for the reasons that the noble Lord, Lord Hunt, suggested, and, consequently, has the greatest potential for discrimination against whistleblowers, who therefore cannot get another job. The NHS is one of the largest employers in the world, I am glad to say, and should operate to the very highest standards of integrity in its recruitment practice.
Lord Low of Dalston
I thank the Minister for giving way. She makes the case that we have particular evidence in relation to the health service and so she wants to act on the health service. With regard to all the other sectors that we have asked the Government to take into consideration as well, would it not be better to put a system in place to stop the scandal before it happens rather than wait and close the stable door after the horse has bolted?
Baroness Neville-Rolfe
I thank the noble Lord, Lord Low, for his intervention. We have to legislate in an informed and evidence-based way. We have brought forward the provisions on the NHS and it is very good that noble Lords opposite support that at this late stage. We are not in the same situation in relation to other sectors. There are various arrangements and we are making general improvements on whistleblowing.
Lord Stevenson of Balmacara
I am sorry to interrupt. I just want the Minister to clarify something. She said that our support for her amendment was at a late stage. I point out that that is not the case. We saw the amendment at noon one day and I signed up to it as soon as it appeared. It was certainly not at a late stage. We are very supportive of what she is doing. Our problem is that she is not doing it in nearly enough other cases. Her case that more evidence is required really does not stack up.
Baroness Neville-Rolfe
I am sorry if I caused confusion. What I was saying is that this is a relatively late stage in this Bill and that what we have done is taken steps to bring forward some of the actions that follow from the Francis review. Noble Lords opposite have been extremely helpful about supporting that and supporting it instantly. I am very glad to have been able to end that confusion.
Lord Wills
I am very sorry; the Minister is gracious in giving way yet again. Before she leaves this amendment, will she clarify the points that she is making about process? Just to be clear—she can indicate with a nod, if she wishes, rather than getting to her feet yet again—does she accept that whistleblowing can be essential in protecting the public interest and the public in other sectors apart from the NHS, such as the financial sector, the police, and adult and child social care? That is my first question to the Minister.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Wills. Of course whistleblowing can play a vital part in all areas. I said that right at the beginning. As far as this Bill is concerned, we are taking specific steps in relation to the NHS. Perhaps if I could make a little bit more progress, I could explain some of the other things that we are also doing.
Lord Wills
I wonder whether I could just push the Minister a little bit further on this process. She says that the Government do not have the evidence to take the measures for other sectors that they are currently taking in relation to the NHS. She said that the Francis report has produced the evidence that the Government feel they need to proceed. I accept that. It is a perfectly reasonable approach. However, if she accepts that whistleblowing is so important in all these other vital sectors and that there is a loophole in protections that the Government are seeking to plug—clearly they accept that there are loopholes because they are seeking to plug them in relation to the NHS—why will the Minister not commit now to launching an inquiry to see whether such evidence exists? The Government did it with Mid Staffs; they have done it with other scandals; they know that there is a problem here; they know that it is important to tackle this problem. Why do the Government not commit now to collecting the evidence to see how best they can move to plug these loopholes?
Baroness Neville-Rolfe
My Lords, I am not sure that we are going to agree this evening on extending to other areas the provisions that we are very happy to include for the NHS. I have made clear that we need an evidence base and that we are doing things in other areas. The things that we are doing in other areas, to which I hope to move on, will also help to show what is happening on the ground. The debates that we have had in the House, which the noble Lord, Lord Wills, has encouraged us to have, will also change the culture in relation to whistleblowers. The very fact of the disastrous circumstances in the NHS has shown how important whistleblowers are, which is why we are making the changes that we are in relation to recruitment in the NHS.
If I may make progress, I will turn to the noble Lord’s Amendment 59, which seeks to introduce a rolling statutory review of the whistleblowing legislation. I can reassure the noble Lord, Lord Wills, that it was only last June that the Government reported the findings from their call for evidence that reviewed that legislation. The Government have also carried out an extensive employment law review during this Parliament. Looking to future review processes, we see that post-legislative scrutiny is applied to all changes to legislation five years after the measures have come into force. We have an impressive rolling programme. The changes that we introduced to the whistleblowing framework in the Enterprise and Regulatory Reform Act 2013, and the changes in this Bill, will be included in the rolling process. Considering the steps that we have taken to review employment legislation, and specifically whistleblowing legislation, I do not believe that it is necessary to introduce another review next year.
I turn now to Amendments 59A to 59F, which seek to create a national whistleblowing review officer. The Government fully understand the intention behind the proposed new clauses, which is to ensure that concerns raised by whistleblowers are acted upon. We know from research carried out by the University of Greenwich and Public Concern at Work that 75% of whistleblowers believe not enough is done about the concerns that they report. We want employers or the relevant authority to take action. That is why we are introducing the important measures in this Bill to require prescribed persons to report on how they handle whistleblowing concerns. That will increase transparency and reveal any circumstances where whistleblowing concerns are not addressed. The Government will want to allow time for this measure to take effect before they consider yet further measures. Introducing a body that has oversight of all investigatory action in response to whistleblowing concerns would be one way of going further, depending on what the need for further action was. But of course there could be other options for the Government to consider, based, as I have said, on evidence. Before introducing legislation, the Government will want to carry out a proper assessment of all available options to ensure that they are not introducing a body that was duplicating the existing functions of the regulators. This is a complex area.
Evaluation work will begin by the Department of Health publishing a consultation, which will explore the case for creating an independent whistleblowing guardian for the NHS. The Government will be able to use the evidence gathered from that consultation to look at the situation in other sectors. I cannot emphasise enough the importance of having a proper evidence base and the fact that we have been able to fast-track the Francis recommendations because of the very powerful work that he has done.
The Government are committed to addressing the barriers that whistleblowers face. In addition to the measures in this Bill, we have made significant progress. Perhaps I could mention some other measures that we have taken forward. We are updating a set of comprehensive guidance for whistleblowers and employers as well as introducing a non-statutory code of practice for employers. The Government intend to publish this shortly. We have carried out work to update the list of prescribed persons. This is a list of more than 60 individuals and bodies, which includes all MPs, that a whistleblower can approach to raise their concerns. The Government have recently introduced separate legislation, which comes into force in April this year, to extend the scope of the whistleblowing framework to student nurses and student midwives.
The whistleblowing framework is improving and robust processes are in place for future work and the continuous review of the legislation that we have introduced. I hope that the noble Lord will agree that much further exploratory work would be required before proper consideration could be given to his proposal for a national whistleblowing review officer and for extending legislation to cover all job applicants, whether in the public or the private sector.
We have made a major change in relation to the NHS. Perhaps that has eclipsed the other important changes in this Bill and other progress that we have made on whistleblowing. I commend the Government’s amendment and invite the noble Lord to withdraw his amendment.
Lord Phillips of Sudbury
My noble friend the Minister said a number of times that there is insufficient evidence for extending what the Government are doing in this Bill vis-à-vis health to other sectors. Let us think again of the financial centre of this country. The collapse that we had in 2008 was perhaps the greatest financial collapse in our entire island history. It involved extensive and universally accepted huge breaches in the criminal law: the LIBOR fixing, the forex fixing, PFI—the list goes on and on. How can my noble friend say that there is insufficient evidence to warrant extending to this sector, if none other, some of the requirements that we are now extending to the health service?
Baroness Neville-Rolfe
My Lords, we are bringing in the new process provided for in the Bill which will allow greater review and engagement in those other sectors.
Lord Wills
My Lords, this has been a short but worthwhile debate on some important issues about improving protections for the public through whistleblowing. I am grateful to all noble Lords who have taken part. I am particularly grateful to the noble Lords, Lord Low and Lord Phillips, for adding their names to the amendments and for their compelling arguments in support of them. I also thank my noble friend Lord Hunt for his powerful support. I am grateful also to the Minister, who throughout our discussions, both in Committee and again today, has engaged thoroughly and thoughtfully with all these complex issues and has been helpful and constructive.
In view of everything that the Minister has done so far, it is all the more disappointing that she has so summarily dismissed all the amendments. I accept the case that she made about review; I accept that there is a review process in place. Personally, I would like to see rather more frequent review, which may be a matter we can return to—although I reassure her that it will not be at Third Reading. I also accept the arguments that she made about the national review officer. This is a big and complex issue. There is a case to be made for seeing how the Francis recommendation beds down to learn the lessons from that, but I hope that it will remain on the Government’s agenda because it would be well worth pursuing.
However, I can see no good reason for the Government not to accept Amendment 58ZA. There is no good argument for confining protection for job applicants to those working in the NHS. The Minister made great play of the need to acquire more evidence. There are two problems with that approach. The first was identified by my noble friend Lord Hunt, which is that, by definition, it is extremely hard to find evidence of the harm that is done in advance of a scandal happening. When people working in professions such as the NHS, the financial sector and the police look at the examples, perhaps the rare examples, of their colleagues who have blown the whistle, they see the acute detriment that they have suffered as a result. Who is going to come forward and suffer in that way—which is actually the evidence that the Minister appears to be asking for? We know that there is a problem; we should be tackling it.
If we persist with the desire for more evidence and if that is what the Minister needs to make progress in tackling the loopholes that the Government have conceded exist, why has she just rejected my plea for her to commit to seeking out such evidence? The only reason that we are discussing the government amendment today is that a scandal happened with Mid Staffordshire, and Sir Robert Francis conducted his exhaustive and excellent inquiry and came up with the evidence. Do we have to wait for another such scandal in the financial sector finally to get to the bottom of all the skulduggery that lay behind the crash of 2008 and subsequently, or another scandal in the police such as Hillsborough, before the Minister acquires the evidence that we need to plug the loopholes?
I want to encourage the Government to think again. They have already shown themselves to be extremely flexible between Committee and Report. To encourage them to be similarly flexible between today and Third Reading, and in the hope that they will move forward in some of the ways that I have suggested today, I would like to test the opinion of the House on Amendment 58ZA. If I am successful, may I assume that the Government will accept my Amendment 59A as consequential, as it so closely mirrors the Government’s Amendment 58A on the creation of a national review officer?
“Protection for applicants for employment etc in the health service
(1) The Employment Rights Act 1996 is amended as follows.
(2) After section 49A insert—
“Part 5Aprotection for applicants for employment etc in the health service49B Regulations prohibiting discrimination because of protected disclosure
(1) The Secretary of State may make regulations prohibiting an NHS employer from discriminating against an applicant because it appears to the NHS employer that the applicant has made a protected disclosure.
(2) An “applicant”, in relation to an NHS employer, means an individual who applies to the NHS employer for—
(a) a contract of employment,(b) a contract to do work personally, or(c) appointment to an office or post.(3) For the purposes of subsection (1), an NHS employer discriminates against an applicant if the NHS employer refuses the applicant’s application or in some other way treats the applicant less favourably than it treats or would treat other applicants in relation to the same contract, office or post.
(4) Regulations under this section may, in particular—
(a) make provision as to circumstances in which discrimination by a worker or agent of an NHS employer is to be treated, for the purposes of the regulations, as discrimination by the NHS employer;(b) confer jurisdiction (including exclusive jurisdiction) on employment tribunals or the Employment Appeal Tribunal;(c) make provision for or about the grant or enforcement of specified remedies by a court or tribunal;(d) make provision for the making of awards of compensation calculated in accordance with the regulations;(e) make different provision for different cases or circumstances;(f) make incidental or consequential provision, including incidental or consequential provision amending— (i) an Act of Parliament (including this Act),(ii) an Act of the Scottish Parliament,(iii) a Measure or Act of the National Assembly for Wales, or(iv) an instrument made under an Act or Measure within any of sub-paragraphs (i) to (iii).(5) Subsection (4)(f) does not affect the application of section 236(5) to the power conferred by this section.
(6) “NHS employer” means an NHS public body prescribed by regulations under this section.
(7) “NHS public body” means—
(a) the National Health Service Commissioning Board;(b) a clinical commissioning group;(c) a Special Health Authority;(d) an NHS trust;(e) an NHS foundation trust;(f) the Care Quality Commission;(g) Health Education England;(h) the Health Research Authority;(i) the Health and Social Care Information Centre;(j) the National Institute for Health and Care Excellence;(k) Monitor;(l) a Local Health Board established under section 11 of the National Health Service (Wales) Act 2006;(m) the Common Services Agency for the Scottish Health Service;(n) Healthcare Improvement Scotland;(o) a Health Board constituted under section 2 of the National Health Service (Scotland) Act 1978;(p) a Special Health Board constituted under that section.(8) The Secretary of State must consult the Welsh Ministers before making regulations prescribing any of the following NHS public bodies for the purposes of the definition of “NHS employer”—
(a) a Special Health Authority established under section 22 of the National Health Service (Wales) Act 2006; (b) an NHS trust established under section 18 of that Act;(c) a Local Health Board established under section 11 of that Act.(9) The Secretary of State must consult the Scottish Ministers before making regulations prescribing an NHS public body within any of paragraphs (m) to (p) of subsection (7) for the purposes of the definition of “NHS employer”.
(10) For the purposes of subsection (4)(a)—
(a) “worker” has the extended meaning given by section 43K, and(b) a person is a worker of an NHS employer if the NHS employer is an employer in relation to the person within the extended meaning given by that section.”(3) In section 230(6) (interpretation of references to employees, workers etc) for “and 47B(3)” substitute “, 47B(3) and 49B(10)”.
(4) In section 236(3) (orders and regulations subject to affirmative procedure) after “47C,” insert “49B,”.”
“(2) “Financial award”—
(a) means a sum of money (or, if more than one, the sums of money) ordered by an employment tribunal on a claim involving an employer and a worker, or on a relevant appeal, to be paid by the employer to the worker, and(b) includes—(i) any sum (a “costs sum”) required to be paid in accordance with an order in respect of costs or expenses which relate to proceedings on, or preparation time relating to, the claim or a relevant appeal, and(ii) in a case to which section 16 applies, a sum ordered to be paid to the Secretary of State under that section.(2A) Subsection (2)(b)(i) applies irrespective of when the order was made or the amount of the costs sum was determined.”
Baroness Neville-Rolfe
My Lords, our penalty measure provides incentives for full and prompt payment of employment tribunal awards and creates sanctions for non-payment. This is supported by our non-legislative work to improve guidance to help individuals understand how to enforce their rights.
In Committee I agreed to consider an amendment to include costs in the relevant amount on which the financial penalty is to be calculated. We have been persuaded by the principle that the penalty should incentivise workers receiving all that they are owed by their employer, and that where a tribunal has decided that costs are to be paid, an employee is entitled to receive them. Our amendments do exactly that.
The amendments also allow the Government to make changes by regulation if, in practice, waiting for costs to be finalised before financial penalties can be issued causes too much delay. These amendments also deal with some other minor and technical issues. For example, they make it clear that penalties which are payable to the Secretary of State are not included, and clarify technical points such as when an award is considered paid in full.
I hope that noble Lords will be reassured that the Government have listened to the concerns raised in Committee and that we are creating the right environment for a worker to be able to receive their full employment tribunal award promptly. I thank noble Lords for the debates we have had on this subject, and I beg to move.
Lord Young of Norwood Green
My Lords, I thank the Minister for her contribution. If I may paraphrase, “Never look a gift horse or a gift concession in the mouth”. However, in this case I will make a slight exception. We had a useful meeting with the noble Baroness—who has disappeared out of sight now, but not, I hope, out of hearing—and her civil servants. I was asked by the noble Lord, Lord Low, to make his apologies. As the noble Baroness knows, he has been a frequent participant in this debate, and he regrets that he cannot be here tonight, so I said that I would apologise on his behalf.
In the meeting that we had with the Minister I raised the disparity between two cases. If an award is made for a failure to pay the national minimum wage and the employer does not respond after having been contacted by HMRC, and does not pay the outstanding national minimum wage, an enforcement officer takes action against the employer. In the case of somebody who has struggled, probably for a significant period of time, gone through enforced mediation, and who has been successful at an employment tribunal, if the employer still fails to pay, it is true that they now incur penalties—and the Minister has told us about the improvements made in that area. However, we suggested that the successful claimant ought to have first recourse to those payments—but the Minister rejected that, saying that for a variety of reasons it could not be done.
I then suggested in the discussions we had that if that were the case, why at that point in time—which could be anything between a year and two years —should the cost of enforcement fall on the claimant, who will have been through mediation and an employment tribunal, been successful, and won an award? I suggested that the Government should examine the possibility of enforcement, as they are doing with the national minimum wage. That was what I hoped the Minister would take away.
That has not been the case. I am not expecting a detailed response this evening, but I make a plea that she might take that away, and between now and Third Reading perhaps we can meet to see whether any further progress can be made. However, with those few comments, we are happy to support the amendments.
Lord Young of Norwood Green
My Lords, we have again had a long debate this afternoon about the flexibility of zero-hours contracts and what constitutes fairness in such contracts. The last Division was on an amendment which looked at the question of cancellation; unfortunately, we were not successful on that. Again, in this area there is an unfairness to zero-hours contracts. The House will note that we have not specified the period; we just wished to draw attention to a serious problem.
A number of contributions this evening talked about the need for flexibility in those contracts. As my noble friend Lady Hollis—who I see is in her seat—made clear, we are not opposing the principle of zero-hours contracts, but trying to lay the foundation for what we believe to be fairness in the arrangements. In a situation where regular hours are being worked for a continuous period or even a series of continuous periods of employment, surely that does not constitute the kind of flexible zero-hours contract that workers ought to expect. In those circumstances, we believe that the employer should be bound to offer the employee a fixed-hours contract.
If we look at the statistics behind the number of workers employed on contracts that last for a year or even two years, we find that they are not the kind of thing that we envisaged, or what was described today by noble Lords who talked of the need for a very flexible contract. That is, we believe, the justification for injecting fairness into a contract that in previous circumstances would probably have been a standard contract of employment. I look forward to the Minister’s contribution, and to hearing about the Government’s attitude to the amendment. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Young, for tabling the amendment and giving us the opportunity to return to the matter of zero-hours contracts. I know that he genuinely wants the new regime to work, and I am grateful for that.
The amendment relates to a right to request fixed hours. However, it goes beyond zero-hours contracts and would introduce a right for all workers to demand a fixed-hours contract. This means that it would extend the right to the vast majority of the labour market. I have some sympathy with the noble Lord’s intention, but I am afraid there is a clear risk of negative consequences for the individuals affected, with some unscrupulous employers finding relatively simple ways to circumvent the legislation. For example, some employers could be incentivised simply to let people go before the qualifying period. That would impact negatively on the very people the amendment seeks to help.
None the less, I hope that I can reassure the noble Lord that the spirit of his amendment has already been addressed. The amended flexible working regulations, brought in on 30 June last year, give all “employees” the right to make a request to change their pattern of working after 26 weeks’ continuous service. The amendment would go further, by extending this right to all workers, but it is possible that individuals on zero-hours contracts who can prove a requisite qualifying period of 26 weeks may well be considered to be “employees”, and therefore be entitled to this right.
The Government’s approach has been proportionate in ensuring that employees have the right to request a change to their working pattern, while ensuring that businesses retain the flexibility they need to help drive economic growth. This flexibility will sometimes include a legitimate need to hire someone on a casual contract.
By extending the provision to all “workers”, the amendment could end up capturing many contractors and freelancers who may not want or need this right. What is more, many businesses rely on these individuals and other casual labour to provide specific tasks, and do not expect to hire them on a permanent contract at the end of their contract. A right to fixed hours after a certain period would obviously restrict this ability. I believe that the amendment could open a loophole, and might encourage employers simply to let individuals go before the end of the qualifying period. That is clearly not the outcome that any of us wants. I hope that on that basis, the noble Lord will feel able to withdraw his amendment.
Lord Young of Norwood Green
My Lords, I listened carefully to the Minister. If the wording of the amendment is not perfect, that does not stop her accepting the principle contained therein: and proposed new subsection (4A) does end with the words,
“to be determined by the Secretary of State”.
Yes, there will be a need for regulations, and I accept the noble Baroness’s point about freelancers and so on; there will be some exclusions. However, I return to the basic principle of fairness. We are talking about people who are not necessarily in a traditional freelance role but who, in a significant number of cases, are employed on a zero-hours contract for a year or even two years. We therefore feel that this is an important enough issue to test the opinion of the House.
Lord Storey (LD)
My Lords, that is the important issue. Let us be quite honest about this: a number of MPs, for example, have unpaid interns with parents who can afford to bankroll them. But if a young person is living on a council estate in Newcastle or Liverpool, how on earth would they be able to come to Westminster and have that experience? If we talk about social mobility, opportunities for all, the raison d’être of internships should be about providing those opportunities for every single person. It does not happen, which is very sad indeed.
I am pleased to say that some internships are paid and one applauds the businesses and individuals who pay interns at the minimum or living wage. Many internships are unpaid and there are businesses—advertising, for example—where the whole ethos is to take on unpaid interns who fight their way to the top. That is true of other businesses as well. It is interesting to look at America, where legal action is being taken against those companies that do not pay internships. In many cases, those businesses are putting their hands up and saying, “Right, we are going to pay our interns”. The same should happen in this country. We have work experience, which is about helping not the employer but the person gaining that short work experience. We have volunteering which, as the name says on the tin, is about volunteering because you want to do something good for a particular cause. Maybe for the first few weeks, an internship should be at your expense, but if it is any longer, you should be paid at a living wage.
I know the Government are sympathetic to this. I think right across this House we are sympathetic about it. There are issues to do with taxation and salaries that we need to understand. I realise it is very late in the day and the Minister cannot give any commitments. I guess nothing can change now, unless we push this to a vote, and I perhaps hope we do not. However, perhaps the Minister can meet us to go over in our own minds about how we might take this forward. I have talked to Ministers and I know that there is a degree of wanting to support this move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Mitchell, for giving us the opportunity to come back to the important subject of interns, to my noble friend Lady O’Cathain for her helpful and insightful comments, and to my noble friend Lord Storey for reminding us that this is a complex subject. I will begin by answering his first question. Obviously, I would be entirely happy to meet him to talk through this issue. I do not think it is possible—as I will come to explain—to do anything in this Bill, but that does not mean that we should not be exchanging comments, knowledge and evidence on this very important area, which I am also passionate about.
I think we all agreed in Committee that we wanted to encourage internships and that they should be fair, open and transparent in order to encourage candidates from a wide variety of backgrounds. The flexibility of our labour market is a great source of pride, as we discussed earlier. Of the growth of 2 million jobs in this Parliament, nine out of 10 were employees and nearly eight out of 10 were full-time jobs, so there are a lot of opportunities for young people, the unskilled and the long-term unemployed. Youth unemployment fell in the past year by 188,000, so that is good news.
Obviously in any part of the labour market, not just internships, we have to take action where there is any exploitation of individual workers. The use of internships is relatively new in the UK labour market. There is a lot more practice elsewhere, especially in the United States, and there is no definition of internship in our legislation. Individuals undertaking an internship will be workers, employees, or volunteers, depending on the reality of their employment relationship, and not their job title or what an employer decides should be set out in a contract.
Where the intern is an employee or a worker, they are entitled to at least the national minimum wage from day one and all other rights attached to their employment status. The Government are very clear that employing unpaid interns as workers to avoid paying the national minimum wage is illegal. Through tougher enforcement measures, such as increasing the maximum penalty fourfold, and naming and shaming employers, we have shown that we will crack down on employers who break that law. The Bill will also ensure that the maximum penalty is calculated on a per-worker, rather than per-notice, basis, as we discussed in Committee. We have also increased HMRC’s enforcement budget from £8 million to £9.2 million and we will increase the enforcement budget by a further £3 million in 2015-16.
Baroness Morgan of Huyton (Lab)
While I recognise that it cannot be done now in the Bill, it would be helpful to investigate the difference between work experience and internships. All of us are absolutely committed to work experience; the noble Baroness, Lady O’Cathain, and I have discussed this on several committees recently. Work experience cannot go on for ever; it cannot go on for week after week or month after month. There is a real difference. We need to encourage work experience, but that is, in essence, very different from the sorts of internships one comes across. One talks to people who are on their third unpaid internship and are clearly working. They can reach the age of 25 or 26 before they get paid employment. That is in particular sectors of the economy. Collectively, around the House, I think we are anxious to make sure, in encouraging social mobility, that we differentiate properly between work experience and internships.
Baroness Neville-Rolfe
I thank the noble Baroness for her intervention. She is absolutely right: we need to think about work experience and internships. I will come on to mention the work we are doing. We should certainly look at both aspects.
Before I finish on enforcement—this is an important point and I was asked about it in Committee—in this financial year alone HMRC has identified more than £41,000-worth of arrears for 21 interns who were underpaid the national minimum wage, so enforcement is taking place in this area.
One of the issues that we believe may make some interns uncertain is determining their employment status, which is obviously an essential precursor to understanding what their rights are and whether they are entitled to the national minimum wage. Determining an individual’s employment status can be difficult, as the noble Baroness showed so clearly. There is no one single test to determine whether a contract of employment exists and therefore whether an individual is an employee. We understand that, at times, this is very confusing. It affects various employers, but it also affects interns. Therefore, my right honourable friend in the other place the Secretary of State announced a review in October of employment status to consider these issues. The review will conclude soon.
I understand the concerns raised about pay and social mobility. Some young people probably do not know about opportunities or have access to internships that already exist. That is why the Government fund the Graduate Talent Pool to ensure that all young people have access to internships. That service is on GOV.UK. It is free to employers and graduates, and provides information on all aspects of internships. I am sure that we can do more, but I think it is good that we have done that. We want to encourage social mobility in particular and the Government’s Social Mobility Business Compact, which was launched in 2011, gets employers to commit to fair and open work experience and paid internship opportunities. I know from personal experience that many employers provide such internships and not just for the privileged few. We need to encourage that and keep it going.
My noble friend Lady O’Cathain mentioned career advice. We have recently committed new resources to career advice. That is an interesting addition to the debate.
I turn to the amendment. Internships are not formally defined and therefore the Government do not collect reliable information on a consistent basis that would allow the robust provision of data sought in the amendment. The Government have undertaken research on wider issues that may relate to internships, such as social mobility. We need to be properly informed of the issues around internships to ensure that policy is set appropriately to maximise flexibility and prevent exploitation.
As part of our employment status review, the Government are gathering information through consultation with stakeholders to understand both the current position of groups in the labour market and whether future changes are appropriate. This includes internships and will no doubt provide useful information and data for future discussions.
In summary, I understand and share some of the concerns raised in this debate. We take exploitation of interns very seriously and we already try to act through national minimum wage enforcement to prevent exploitation. Other employment measures in the Bill, such as changing the penalty regime, will of course be helpful. There must be more that the Government can do—that is why we have undertaken a review of employment status—but I hope that the noble Lord will support what the Government are doing and will be content to withdraw his amendment.
“(1) For the purposes of section 152(1) circumstances are qualifying circumstances if—
(a) an exit payee becomes—(i) an employee or a contractor of a prescribed public sector authority, or(ii) a holder of a prescribed public sector office,(b) less than one year has elapsed between the exit payee leaving the employment or office in respect of which a qualifying exit payment is payable and the event mentioned in paragraph (a), and(c) any other prescribed conditions are met.”
(a) the Scottish Parliamentary Corporate Body, or“(b) any”
“(j) in Part 11, section (Concessionary coal) (concessionary coal).”
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 8 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I thank the noble Lord, Lord Mendelsohn, for his amendments on the important matter of late payment and for the general support that he has given to the Bill’s provisions. I also thank him for his diligence and interest. I am grateful, too, to the noble Lord, Lord Lea, to my noble friend Lady Harding, and the noble Lord, Lord Mitchell, with their business experience, to my noble friend Lord Cope and to my noble friend Lord Stoneham for his perceptive and practical comments about the risk of unintended consequences—gleaned, I think, from his very careful study and attendance every day in Committee.
Before turning to the amendments, I want to reassure the House about the Government’s unwavering commitment to tackling late payment. The measures we are taking forward in the Bill form part of a comprehensive package of measures to bring an end to the UK’s late payment culture. The Government are absolutely clear that large companies should lead by example and pay their small suppliers within 30 days. We need to shake up corporate culture to drive home our message—that it is not fair and not right to pay your suppliers late or use unfair payment terms.
That is why we are taking action in the Bill to require the UK’s larger companies to report on their payment practices, and we have already consulted on the detail of what this might look like. We proposed that companies report quarterly against a comprehensive set of metrics, including the proportion of invoices paid beyond 30, 60, 90 and 120 days and the average time taken overall to pay invoices. Therefore, there is a real incentive to show that you pay promptly and on time, and an opportunity for companies to explain if payment is late. It is a strong brake on bad behaviour, as my noble friend Lady Harding suggested.
This reporting will be rigorously monitored, with a company director required to sign it off, and breaches will be sanctionable by a criminal offence. Importantly, we will require companies to make this information public, so there will also be the power of transparency. The new reporting requirements will mean that poor payment practices are exposed, and it is this transparency that will drive a fundamental change in corporate behaviour. I also highlight that on Monday the Government published a summary of responses to our consultation. While the Government are still considering the evidence received, I am pleased that a clear majority of stakeholders agreed with our overall approach, although there were concerns about some aspects, including our very rigorous reporting requirements.
Last week, my right honourable friend Matthew Hancock MP also announced significant changes to the Prompt Payment Code. I know that the noble Lord, Lord Mendelsohn, and others have encouraged us to strengthen this, and the code will now promote 30-day payment terms as standard and enforce maximum 60-day terms. The change will be rigorously enforced by the new code compliance board, which will include people from business representative bodies who will investigate challenges made against signatories to the code by their suppliers. The compliance board will remove signatories found to be in breach of the code’s principles and standards. This will shine further light on poor payment practices. The Government are also seeking views on how to provide business representatives bodies with additional legal powers to challenge grossly unfair contractual terms or practices, which will build on existing protections for small businesses.
The noble Lord, Lord Mendelsohn, highlighted the issue of Lidl. The Government are clear that large companies including Lidl, which is a leading German supermarket chain, should lead by example and pay their small suppliers within 30 days. It is neither fair nor right to use unduly long payment terms. As I said earlier, we are already taking action in the Bill to require such companies to report on their payment practices through very tough requirements, including the detailed metrics that I have already described.
The noble Lord, Lord Lea, talked about the situation in the insurance industry and I will certainly look at the points that he raised. The noble Lord, Lord Mitchell, gave us a list of companies reported to be squeezing suppliers. This is further evidence, frankly, of the need for change and the action we are taking in this Bill and in the regulations made under it. He mentioned Diageo, which is already being investigated by the Prompt Payment Code administrator. The Government are being tough for small business, and we will take the necessary steps to stamp out poor practices.
I turn to the specific amendments. I recognise the strength of feeling that has been expressed and I am pleased to say I have been persuaded by some of the noble Lord’s arguments. I can confirm today that we will table amendments at Third Reading to insert the word “performance” into Clause 3, which was a concern that the noble Lord pressed in Committee to which we have listened. I also commit that we will use this power to require companies to report on the amount of interest owed on late payment because we agree that this will help to exert the necessary pressure on companies to make sure that their suppliers are fairly compensated. We will make express reference in the Bill to interest owed and paid. We will introduce amendments on both these points at Third Reading.
I now turn to the proposal to require companies to prepare a compensation plan on each instance that they fail to pay late payment interest. I am afraid that, on this point, I continue to believe that introducing this measure would lead to unintended and undesirable consequences. For example, businesses could lengthen their payment terms to avoid accidently having to pay out. If they do get caught by the requirement, there could be debates about whether payment plans provided cover for delaying tactics. While we are committed to tackling late payment, we are equally committed to trying to incentivise prompt payment with as little bureaucracy as possible. The discussions that we had with stakeholders indicated support for this view. These discussions reinforced the findings from our 2012 consultation that introducing further penalties would not tackle the problem of late payment. Instead, respondents called for greater transparency on payment practices, which this Bill delivers.
The noble Lord gave us some interesting feedback on the website. He will be glad to hear that BIS has just awarded the Chartered Institute of Credit Management £50,000 to improve that very website, so he is on the money. The improved website will go live later this month and I can only thank him for identifying this issue and sharing it with the House. I shall take it away and ensure that it is addressed urgently.
It is clear that the noble Lord and I are united in our mission to tackle late payment, but we must make sure that any interventions will work to the benefit of the very small businesses that we seek to protect.
I turn to the question of ensuring the report’s accuracy. Our consultation proposed that the reporting frequency be quarterly, as companies’ ability to pay or practices in paying trade creditors can change quickly. Therefore, we are not proposing that companies report in their annual report. Instead, we propose that the report should be signed off by the company’s director, with breaches sanctionable by criminal penalties, using the power in the Bill to mandate reporting. The summary of responses we have published shows broad support for this proposal. Respondents clearly feel that these measures would suffice to ensure the report’s accuracy and I therefore do not agree that we should require further assurances from an auditor.
I am grateful to noble Lords for their significant contribution to the scrutiny of these provisions. We have considered very carefully the proposals set out in the amendment and I hope that, with my commitment to bring back some changes at Third Reading, the noble Lord will feel able to withdraw the amendment.
Lord Mendelsohn
I thank the Minister for her extensive response to these amendments. I shall go through a few issues and then come back to them. In general, I thank the Minister for her very constructive and open approach throughout to these issues and to making improvements to the Bill. We share a great interest in and concern for helping to develop small businesses and doing what we can for them.
I am very grateful to the noble Baroness, Lady Harding. I had the great pleasure of talking about her, and our close connection, when she made her maiden speech. She is a remarkable business figure and I will address a number of the issues that she raised. The criticism has been made that we are trying to change culture through legislation. That is not our approach; it is the Government’s. The noble Baroness talked about the limitations of this. I have no doubt there are benefits to it, which I support, but I do not find myself on the same side of the argument as her on that one. We are adding duties and obligations because we have come to the conclusion that that is the way to address the size and scale of the problem. It is certainly true that legislation rarely changes the heart but, as the phrase goes, it can restrain the heartless. There are times when you have to use legislation as a lever to make things happen. I agree that the reporting requirements are an obligation, but they are a necessary one, and I hope that her support for them is heard by many other people in business.
I do not think that the issue of how customers and suppliers contract with each other comes up until the next set of amendments. They are slightly more complex so I will address that issue then. I want to say to the noble Baroness that I have become a bit of a junkie on the website. I am grateful that it is to get a £50,000 refresh, and perhaps even an app. Having looked through the Prompt Payment Code, I noticed that TalkTalk is not a signatory to it. We are talking about changing the culture, but if someone sitting in this House does not yet have a sense of how that culture should change, it is an issue when we come to address business at large. It is my feeling that culture change is insufficient in and of itself.
The noble Lord, Lord Stoneham, talked about being overly prescriptive, and he raised those concerns in Committee. I listened carefully to what he said and I have done my research on it. I felt at the time that the point was insufficient because of the scale of the problem and the way it is growing. When we look at how other countries with far less significant economic problems, or even problems in how to deal with this issue, we can see that they are the ones that have been infinitely more prescriptive. We can look at Ireland, while legislation in Germany passed just last year shows how that country has moved forward. It is only by being more prescriptive that we get clarity and avoid unintended consequences, which are more likely to arise in circumstances where a variety of alternative payment terms or arrangements are allowed to be put in place.
The noble Lord, Lord Cope, raised similar issues in Committee. Again, I listened carefully to him and I decided to take my cue from the GOV.UK website on the question of how we look at the dates. The website explains when a payment becomes late. It states:
“If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either: the customer gets the invoice”,
or,
“you deliver the goods or provide the service”.
That is how we reach the point where this can be tested.
I am grateful to the Minister and we are encouraged by some of the changes that have been made. We feel that the areas of performance and being able to identify the interest payments are useful steps. However, I am bound to say that my noble friend Lord Mitchell made a powerful speech, going through yet again those companies that have good records in a variety of areas but allow themselves to do what has become far too natural and far too easy in the context of the UK. We stand out from others because we are not as strong as we should be on dealing with prompt payment and people who get into late payments. The prize is there. We are talking about close to £60 billion, so putting even a small proportion of that sum into the economy will have a huge accelerating impact. We on this side think that being on the side of small businesses means getting more money racing through the economy. The need to increase employment prospects requires us to press the amendments and push to see whether we can get the economy moving by getting these late payments to small businesses sorted out much sooner than would otherwise be the case. Therefore, I wish to test the opinion of the House.
Baroness Neville-Rolfe
I thank noble Lords for tabling these amendments on unfair practices and the noble Lord, Lord Mendelsohn, for sharing his experience, including points of agreement. Unfair payment terms and practices hit small businesses the hardest and are simply unacceptable. I consequently have considerable sympathy with the intention behind these amendments.
Our intention is to drive a fundamental shift in payment culture—a paradigm shift in UK corporate behaviour to stamp out poor payment practices. Obviously, the key question is how we achieve this. One option is to seek to tackle each and every harmful practice as we spot it, but I suggest that this is futile. As the previous debate suggested, if businesses want to exert undue pressure on their suppliers, they are likely to find ways to do so. Because banning individual practices only tackles the symptoms, it will not drive a change in underlying corporate culture. We are doing something different and using a new transparency to drive change in corporate behaviour. The power of the new reporting requirement should not be dismissed. It will subject companies’ payment practices to full public scrutiny, thereby allowing poorer-performing companies to be named and shamed. In so doing, it will exert significant pressure on companies to move away from unfair practices.
The noble Lord, Lord Mendelsohn, mentioned the case of Premier Foods, which I believe shows that transparency can successfully lead to swift change in practices. Following public scrutiny of its “pay to stay” practice, which the noble Lord, Lord Mendelsohn, rightly described as egregious, Premier Foods moved quickly to simplify its controversial supplier list scheme. The Government are clear that large companies should not be using their economic power to place further strains on already hard-pressed small businesses. The Secretary of State has already asked the Competition and Markets Authority to consider the available evidence on “pay to stay” clauses, which I hope will be welcome to the noble Lords, Lord Mendelsohn and Lord Mitchell. The new reporting requirement will also elevate poor payment practices to become a boardroom issue. We have proposed that a company director signs off the report to ensure it is taken seriously at the very top.
We have tested this proposition with stakeholders, and most have shown little appetite for greater regulation on specific practices. Businesses in the UK value the freedom of contract that has been built up over hundreds of years but they strongly agree with the Government that increased transparency will help us to take significant steps to address the current imbalance in economic power which noble Lords have described so graphically. That is why we must focus our efforts on getting transparency right by putting in place a comprehensive, robust reporting requirement for all the UK’s larger companies. Clause 3 is already drafted sufficiently widely to allow the Government to require reporting on the subject of these amendments through secondary legislation.
I turn briefly to the detail of the amendments. Late payment legislation already sets a maximum 30-day period to quibble after the receipt of relevant goods and services. We sought views on this issue during our recent consultation. There continues to be little appetite for legislation. Our stakeholders tell us that they are reluctant to use current avenues to challenge due to fears of damaging relations with customers—a point which has already been made. We also heard concerns that the change, as proposed, could result in unintended consequences, with companies starting to dispute more invoices as a means of gaining time to review them. Our stakeholders have instead called for increased transparency on dispute resolution processes. The Government will therefore require companies to report on these as part of the mandatory reporting requirement.
We also consulted on unilateral changes to payment terms. As a matter of contract law, unilateral changes cannot be imposed on a contracting party after the contract has been agreed. However, in reality, smaller companies, as has been said, may feel that they have no option other than to agree when such changes to an existing contract are proposed by bigger companies. A ban as proposed would not prevent this practice, as it would not prevent bigger companies from seeking changes and would not address the reasons why smaller companies feel unable to resist such changes—while effectively rewriting the core principles of contract law. Instead, therefore, our stakeholders supported increased transparency to shine a light on poor behaviour. I again propose to mandate reporting on this in our reporting requirement.
Charging suppliers to join or remain on supplier lists and seeking to reverse fixed payment and apply retrospective discounts and charges are deeply concerning practices. Although we could put in place a blanket prohibition on these practices, they are but two of the ways in which larger companies can seek unreasonable commercial advantage from smaller suppliers. Our stakeholders believe that bans on specific practices would be easy to sidestep.
Once again, increased transparency will help address the economic imbalance involved. Our stakeholders support increased transparency on the use of “pay to stay” clauses. I can commit to requiring companies to report on these practices in the reporting requirement. We also commit to holding further discussions with stakeholders to discuss whether reporting on other practices mentioned, such as retrospective discounts or charges, should be mandated in the prompt payment report—which, of course, we have the power to do. I hope the noble Lord agrees that I have sought to address his concerns through the medium of transparency and, on that basis, will feel able to withdraw his amendment.
Lord Mendelsohn
I thank the Minister for that reply, although I have to say that I remain extremely concerned about part of the approach. I know that the Minister shares a great deal of the concerns about this and that she is a very practical person who has looked at different ways to deal with it. Talking about transparency, culture and the possibility that there will be attempts to sidestep this is rather similar to closing the door after the horse has bolted. We are in that situation now. The Minister says that doing something more prescriptive will obviate what she is trying to do on culture, but I happen to think that it will work, while her approach will not.
I will give the example of a good friend of mine—perhaps they will not be after I have raised this—who is a senior member of a company that uses a method called central distribution charges, which is effectively “pay to stay” by another means. It uses it in the UK, but not in Germany, France or Italy. In the end, that is because it is not allowed to use it, as it is not a proper term. My concern is that we can say, “They will sidestep it”, but we are in that situation now.
Companies come to all sorts of arrangements. We hear great stories from companies such as Next, Dunelm or John Lewis, where the price you pay is the price you pay, but there are far too few of them. Many others use a variety of measures to ensure that they meet a margin way in excess of what they have agreed the contract should deliver. That is our concern. It is wrong to say we can do this using the means of the reporting mechanism, because there are other contract terms you can use to sidestep the reporting mechanisms that we have. A much better and more effective way of doing this and stopping every such method is to create the architecture and a framework to look at what you can stop.
A very famous online company has a 40 to 50-day payment period. At 90 days they send fines, which you then have to contest. There is no individual you can speak to—it has to be done online. Eventually, you will get your payment terms, possibly within 180 days. They extend it through a variety of mechanisms which would not be covered by the existing provisions or by the transparency arrangements. Those are the problems which we are still some way from meaningfully addressing. It is very important for us to consider how we go further on these asymmetries and poor practices and to look at the sorts of things which others, using more prescriptive means, have been able to address through legislation or regulation.
There is a strong case for these amendments. I am conscious that the Minister has made some progress, if it is somewhat glacial compared to what I would prefer. However, on the basis that we can get the Government to take these matters seriously and that they are prepared to deal with the most egregious examples and to start dealing with where companies and poor practice ends up, I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara (Lab)
My Lords, Amendment 5 is in my name and that of my noble friend Lord Mendelsohn. I declare an interest in that my wife is a practising solicitor who deals with construction contracts. When we raised this issue in Committee I made the following points. Recent research shows that about £3 billion is outstanding within the construction industry, and only in that industry, by way of cash retentions; that the practice unfairly enhances the working capital of the party deducting them; and that most of those who retained moneys openly accepted that they added cash retentions to their working capital or actually reinvested them. The effect is that bodies that are commissioning work are also in effect borrowing from the small firms that are carrying out the work. This is counterproductive to good economic activity at a time when such firms are also having major problems in accessing finance.
The key issue is that cash retentions are being deducted from payments already earned. However, there is no statutory protection for the retained moneys that will ensure that they will in fact be available for release if, in the event, there are no uncompleted remedial works that need to be done. There is a good case for any retention funds to be kept separate from working capital, perhaps within an escrow account—as is now used for government contracts—or a separate trust account.
When the Minister responded to the debate, as well as outlining the new but still rather patchy approach to payments being adopted by the Government, she agreed that there were a number of issues of concern with the payment culture in the construction industry. But she said that the current statutory framework governing contractual terms on payment—which was introduced in 2011—with a prohibition on “pay-when-paid” clauses and a right to adjudication, would be sufficient to see out this unfortunate practice. She added that since 2014, the Government have been working with the industry to implement a payment charter that contains 11 commitments, including one specifically aimed at removing the need for retentions, with the intention of moving by 2025 to a position where retentions are no longer necessary.
The noble Baroness pointed out that the powers being taken in the Bill would be sufficient to gather the information needed for a review of current policy, and I take that point. But she was a little unconvincing about why it will take 10 years to gather the information about this issue, even if there were a need to go wider than just the construction industry. If this amendment is accepted, it would have far-reaching benefits for small businesses throughout the construction industry. They would not have to wait another 10 years before this practice is outlawed—but even if they did have to wait that long there is surely a case, which I have outlined above, for action now to require the use of escrow accounts for this type of payment. I beg to move.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for this amendment and for providing the opportunity for us to look again at the important matter of retention payments. Following Committee we have been busy. We have consulted with stakeholders on payment terms, and it is clear that the practice of retentions is an issue, as we suspected, largely confined to the construction sector. As with other payment issues in construction, issues with retentions go to the heart of the industry’s business models. These models are driven by a broad and diverse range of customers—and, of course, there is an extensive reliance on subcontracting. The work is project based and frequently short term, with no ongoing relationships. Typically, low levels of capitalisation mean that the industry is heavily reliant on cash flow.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Mitchell, for proposing the new clause, for his survey of finance for small and micro businesses, and for his welcome for some of the positive innovations that there have been in this sector in recent years. It was also extremely useful to have the comments of the noble Lord, Lord Myners, with his great experience in the City and in government, but I also heard the concern of my noble friend Lord Cope about the sweeping nature of the power. It was good to hear the comments of my noble friend Lord Leigh of Hurley.
The noble Lord has proposed a new duty on the Secretary of State to publish a review on alternative forms of finance available to small and micro businesses within a year of the commencement of this Act. I start by reassuring noble Lords that the Government share their conviction that small and micro businesses need greater access to alternative forms of finance. Lending to small business, as has been said, is still concentrated within the four largest banks, which account for almost 90% of business loans by volume. Overall rejection rates for loans and overdrafts are declining, but still stand at around one in four over the past 18 months. Access to appropriately regulated alternative sources of finance can provide a real counterbalance to the mainstream banking sector.
I fully agree with the noble Lord that we should seek transparency on the availability of alternative forms of finance. I disagree, however, that a new review is necessary as it would duplicate existing publications on small business finance. One of these publications is the British Business Bank’s report on small business finance markets, which was published in December 2014. Its main focus was on the increasing use of alternative forms of finance by small business. I believe that this is what noble Lords are largely seeking from this clause. I can confirm that the British Business Bank intends to publish its small business finance report annually. I am happy to commit today to place this report in the Library of the House when it is published again this year.
The British Business Bank’s publication sits alongside a number of other independent pieces of research into this important subject, including the Bank of England’s quarterly Trends in Lending report, last published in January, the quarterly independent SME Finance Monitor, most recently published last week and Professor Russel Griggs’s report on the banks’ lending appeals process, published this week.
My response to the noble Lord would not be complete without touching on an even more important report—the work of the Competition and Markets Authority, the new, independent competition regulator. The CMA is conducting a market investigation into the retail banking sector, including the provision of banking services to small businesses. It has a wide range of powers available if it finds there are problems in the sector. The existence of this investigation helps to respond to the points made by the noble Lord, Lord Myners. The CMA is due to report by April 2016 and I know that it will be of huge interest to this House. The Government will then respond to any recommendations made within 90 days. Any legislation that follows this response would, of course, be subject to parliamentary scrutiny in the usual way. I believe that we should let the regulator do its job and not pre-empt its recommendations with a concurrent review by the Secretary of State of how the banking sector is catering for the needs of SMEs.
Finally, I draw the noble Lord’s attention to the positive measures in this Bill to promote access to finance. Clause 1 removes a contractual barrier to invoice finance. Clause 4 provides for greater sharing of information through credit reference agencies. Clause 5 provides for the UK’s larger banks to be required to refer rejected finance applicants on to alternative finance providers. These provisions got a good degree of support across the House in Committee. I believe that all these measures will make a real difference to the availability of alternative finance for small business. Given the activity described, I am not convinced that a further report as proposed in this clause would be of merit. I hope that the noble Lord will feel reassured by what I have said and that he will feel able to withdraw his amendment.
Lord Mitchell
I thank the Minister for her reply. I thank the noble Lord, Lord Cope, for his insightful addition to what was said and on reflection I think that he may have a point on Clause 4. I also thank the noble Lord, Lord Leigh. He and I know each other well. I have never before heard the statement that he made but he has my email so he knows exactly where to send it. I also thank the noble Lord, Lord Myners—I find it very hard to say that and am tempted to say “my noble friend”—for making the comments that he did. I have always felt that the banks are, and act like, a cartel and that you cannot tell one from the other. It is really good that they are now starting to change and are being forced to change. If my particular area—digital technology—is making that happen, so much the better. Crowdfunding has been very exciting but many of the new challenger banks have been able to come into this because of the technology they are using. That is absolutely fantastic.
I thank the noble Baroness for her comments and feel very reassured that the Government are working in this direction. The facts are really clear. Whether we are in government or not, I would like to be standing here in a year’s time having a conversation like this with the facts at hand. I beg leave to withdraw the amendment.
The Earl of Lindsay (Con)
My Lords, I also have a problem with a large part of the amendment. I disagree with the argument of the noble Lord, Lord Stevenson, that putting some departments and regulators in the Bill would make it more flexible than using secondary legislation. The Bill provides a requirement for that secondary legislation to be debated by Parliament. My other concern is the very wide exemption that the amendment suggests for a large number of regulators that fall under the six departments cited. This would undermine and threaten a policy that has been developed specifically to support small businesses and would send an unhelpful message. The policy is simply aimed at improving the appeals and complaints processes of a regulator when dealing with small businesses.
We should not forget that driving greater efficiency, accountability and transparency into the interaction between regulators and those they regulate has to make sense, as does having a simpler, more effective, more transparent, less costly and better understood series of processes by which small businesses are able to challenge regulators’ decisions and behaviour. Ensuring that regulators have appeals and complaints processes that work well and are fit for purpose, that rectify wrongs with minimal delay and are sensitive to small businesses—and micro-businesses in particular—must be good news for the economy as well as for the objectives that regulators are seeking to deliver. I would be very uneasy at the thought of the Bill exempting the number of departments and the very large number of regulators that the amendment proposes. I agree about the EHRC, but I understand that the Government will use secondary legislation to exempt it from this section.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Stevenson, for his comments on Amendment 20, which would restrict the regulators to which the provisions on small business appeals champions can apply. It was also good to hear from my noble friends Lord Deben and Lord Lindsay.
Clause 18 already provides that the list of regulators to be covered by the appeals champions should be set out in regulations. A consultation on the list of regulators closed in January. We intend to publish a summary of the consultation and our response before Parliament rises, based on careful consideration. The Government’s response will then become the basis of the regulations which will bring regulators into scope. These regulations will be subject to affirmative resolution, so Parliament will have the opportunity to consider which regulators should be on the list. On other occasions, the noble Lord, Lord Stevenson, has called for just that affirmative resolution. Although the consultation has closed, we shall take into account representations that noble Lords have made during discussions on the Bill. I am coming on to reassure about the EHRC, but I encourage any noble Lord who has particular concerns about anything else to let me know: we will give them a fair hearing.
Listing inclusions and exemptions would make the Bill cumbersome and unwieldy. Pre-empting our case-by-case consideration through a blanket exemption is not the right way ahead. The amendment first seeks to exclude the EHRC. Noble Lords have linked this to the protection of the EHRC’s A status as a national human rights organisation. The Government share the determination to protect the commission’s status and we understand that, as a regulator, the EHRC is different and needs to maintain its independence from government.
The Government’s position is that the EHRC will not be in the scope of the champions policy. It was not included in our consultation on the list of regulators to be brought into scope. No specific regulatory functions of any other particular named body are listed for inclusion or exclusion in the Bill and it is not necessary to do so in relation to the regulatory functions of the EHRC. Doing so would set a precedent that might lead to overly complex legislation. We have never proposed to include the EHRC, and today I can make a commitment not to do so. The Government will not include the EHRC in the small business champions policy. I hope that noble Lords will accept that full, unequivocal and repeated assurance. In Committee, the noble Baroness, Lady Thornton, was kind enough to accept my assurance on this point, and the majority of noble Lords accepted similar assurances in respect of the growth duty during the passage of the Deregulation Bill. I hope that the House will be willing to do the same today.
The second part of the amendment proposes to exclude any regulator belonging to a list of departments. The proposal would exclude more than half of the regulators we propose to include. Many of them have considerable contact with small businesses. There is broad support for small business appeals champions to make sure that businesses have effective routes to regulators. The amendment would deny that assurance to care homes, which need to challenge rulings by the Care Quality Commission or businesses challenging inspections by the Health and Safety Executive. I do not understand why we should emasculate a policy that has such widespread backing.
The noble Lord, Lord Stevenson, asked whether the Government had decided to exclude a health regulator from the appeals champion policy. We have made no decisions yet, and we shall do so on a case-by-case basis. As I have said, if any noble Lord or regulator is in this situation, they should make representations to us. We intend to make a decision on the list and publish our response before the end of the Parliament.
This is not the growth duty. This is simply a policy that aims to improve public administration and provide an assurance that regulators have the procedures and processes in place to support business appropriately. We all agree that small businesses need a better deal, and we should be aiming to apply this policy to regulators where possible rather than looking at potentially wide exemptions. I hope that, in the circumstances, the noble Lord will feel reassured and that he will agree to withdraw the amendment.
Lord Stevenson of Balmacara
I thank all those who have contributed to the debate. Perhaps I may make one or two points about it. I would say to the noble Earl, Lord Lindsay, who obviously has great knowledge of and experience in this area, that I can understand why he might think so. However, I draw his attention to the fact that the intention in the second part of the amendment is to select a group of regulators equivalent or similar to the EHRC in the sense that they are required to be taken out of a broader approach. It does not attack all the regulators in a department. If he misunderstood that, I apologise, but it is clear that what we are trying to do here is to say that because we were not involved in drawing up the list of regulators, we are not absolutely clear which are in and which are not. In that sense, it is imperfect and we would have to be quite inventive, if the amendment were to be accepted, to come to the right conclusion. I accept that it is not as well done as it could have been. However, it has provoked a good debate and that is the point. Indeed, the noble Baroness has already accepted that there may be one or two regulators that might well be included in the list of the growth duty within the Deregulation Bill. That might not be appropriate for small businesses—and vice versa. We are in a situation where we are not sure how the lists will bottom out. It is that unease which I was trying to attack, and in that sense I hope that the noble Earl is reassured on the point.
It is worth reflecting on the fact that, to do what is required in the Bill, as I understand it, appointments would need to be made to various regulators at board level. That would have an impact on how these bodies operate. I do not think it is an entirely free-riding champion helping to resolve appeals. These are people who, by their constitutional and statutory position, will have to have an involvement in the day-to-day work of these regulators. By accepting this, we are accepting by implication that there will be a change—perhaps a beneficial one—to the way that some regulators will operate in the future; they will not do so as they were originally set up. Again, that is what I am trying to reflect in this debate.
However, I accept that, as presently drafted, the amendment would not achieve the ambitions we had for it and there may be better ways to approach this. It may be that the rather convoluted process whereby I think the noble Baroness was inviting individual Members of your Lordships’ House to write in with special and favourite regulators to be excluded will mean that we arrive at a resolution in an appropriate way. I am sure that this will come out all right in the wash, but at the moment it seems rather a complicated way of doing it.
I will say again that it will not be possible for either House of this Parliament to pick and mix within the secondary legislation. Either it must be accepted as it stands or we can vote against the whole of the SI. It is not fair to say that we will have a choice at the time when these regulations are going through. The choice will have to be made outside Parliament and before the Government, whichever Government they are, put forward the secondary legislation. We have to be realistic about the fact that there will not be the same level of scrutiny.
I broadly take the points which have been made. It will be interesting to see how they go through. We made it clear in Committee that we are not against the idea of there being appeals business champions, as it were. I think we agreed that we would call them “small business champions” in relation to regulation. It is a good idea but I am not quite sure whether it will work in practice; only time will tell.
Finally, on the EHRC, I am grateful to the noble Lord, Lord Deben, for his consistent support for this issue. If it is so clear in the minds of Ministers that the EHRC is not, will not and never can be part of the processes involved in this Bill or in the Deregulation Bill, why on earth can they not just accept that it would be sensible to table an amendment at Third Reading stating that the EHRC is not involved? That would peradventure put beyond doubt the question of whether the EHRC is ever around. There may be evil forces at work and there may not. We do not think there are, and we are not looking at it with suspicion. However, enough damage has already been done to the EHRC, for heaven’s sake, and what is left of it needs to be protected. It would be a positive and rather a noble thing for the Government to accept at this stage that it would be right to have that line in an amendment, just because the EHRC is so special, as the noble Lord said, and to be super-careful because of the particular nature of the commission. That is for the Minister to reflect on and perhaps to come back at Third Reading.
Baroness Neville-Rolfe
I very much take the point that the noble Lord has made. I am happy to consider whether we could put the EHRC into the Bill, but whether I can do that, I am not sure. Giving the commission that clarity seems to be widely supported around the House.
Lord Stevenson of Balmacara
That is a very generous offer and I think it would solve an awful lot of problems. Indeed, we have been discussing it week after week for the past two or three months. I would be very pleased if she can do this, but I repeat that I am happy to withdraw the amendment at this stage.
(a) ”
Baroness Neville-Rolfe
My Lords, government Amendments 21, 22 and 23 respond directly to our Committee debates regarding the small business appeals champion and the business impact target. Regarding the champion, the noble Lord, Lord Mendelsohn, made a number of helpful observations about how it might work in practice. He was keen to ensure that any guidance issued to the champions should be laid before both Houses as well as published. I made it clear in Committee that this was already our intention and I am pleased to confirm it with Amendments 21 and 22.
I turn now to the business impact target. I thank the noble Lord, Lord Stevenson, for his comments in Committee regarding the scope of the target. In particular, he raised concerns around the clarity of the coverage regarding voluntary and community bodies. I have reflected on this issue and I agree that there is more that we can do in the Bill to clarify it. I have therefore tabled Amendment 23, which is a relatively straightforward provision to simplify Clause 27(5). It will remove the current membership threshold of at least 21 individuals for unincorporated bodies that do not distribute any surplus to their members. As I am sure many noble Lords will be aware from their own work in the voluntary sector, such bodies can be adversely affected by redundant, ineffective or excessively burdensome regulation, just as much as businesses can. Therefore, including them within the scope of the business impact target makes a lot of sense. It will not harm the voluntary sector, but will help to ensure that any burdens from new regulations are minimised and that there is transparent reporting of impacts.
This Government have already made a number of changes that have made it easier to set up and run charities and social enterprises. Those include providing greater legal clarity on volunteer liability and supporting proposals to make criminal record checks simpler and less onerous. The amendment will mean that such bodies are not excluded from the definition of “small” and “micro” businesses in Clauses 33 and 34, meaning that they can benefit from any regulatory exemptions made by reference to that definition. I hope noble Lords will welcome the amendments, and I beg to move.
Lord Stevenson of Balmacara
This must be the shortest amendment ever considered in my time in the House. I look to the clerks for further guidance on these matters. The Minister suggested that we might welcome the amendments; we do welcome them.
(b) lay any such guidance or revised guidance before Parliament.”
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, we come today to Part 4 of the Bill and the much debated topic of the Pubs Code and the adjudicator. The problems we are trying to address in the pubs industry have a long history. The imbalance in bargaining power between tied tenants and their pub-owning companies, and the difficulties that arise from this imbalance, have been well documented by the BIS Select Committee in four reports over the course of 10 years.
Part 4 of the Bill introduces a statutory Pubs Code and an independent adjudicator to enforce it, to provide much needed protections for the 13,000 or so tenants who are tied to large pub-owning companies in England and Wales. Furthermore, the other place voted to add to the Bill a market rent only option for pub tenants, meaning that pub-owning companies will be required to offer their tenants the right to go free of tie in certain circumstances. The tenant would then pay a market rent for the pub but would be free to purchase beer and other products from any source.
As I set out at Second Reading, the Government have listened to the decision in the other place and accept that there should be a market rent only option. The amendments I am moving today seek to make the provision workable and mitigate the potential unintended consequences. The amendments, which are split into three separate clauses for clarity, set out a clear framework for the market rent only option, make provision for the procedures needed to deliver it, and provide for the adjudicator to resolve disputes. Our amendments will provide tied tenants with the right to a market rent only agreement at a number of trigger points, including at a rent review; at a lease renewal; when there is a significant and unexpected price increase; or if a local economic event occurs that is outside the tenant’s control. Although prospective tenants will not have the right to the market rent only option, our amendments provide that they will have the protection of the parallel rent assessment—PRA—which will show them how their tied deal compares with a free-of-tie deal.
Although I have not yet had the pleasure of meeting him, I pay tribute to my honourable friend Greg Mulholland for his tireless campaigning on behalf of pub tenants. I would also like to thank noble Lords from all sides of the House for the constructive discussions we have had in advance of today’s debate and the perceptive questions they have raised with me. I can assure the Committee that the Government are committed to making the market rent only provision workable and legally robust. That is why we have brought forward these amendments, which are needed to ensure that the benefit to pub tenants can be achieved.
For example, the market rent only clause introduced in the other place provided MRO to tenants on entering administration. Rather than provide protection for tenants, this could hasten the route to company liquidation, which would certainly not be in the tenant’s interests. The Government’s amendments attempt to address such unwelcome effects, which I will cover in more detail as the Committee progresses.
There may be some differences of opinion on the detail of the Government’s new clauses, which the House will rightly want to debate, but I encourage the Committee to accept these amendments today to ensure that a workable framework is in place as the basis for further discussion on Report. The Government’s new clauses set out in the Bill the key principles of the market rent only option, and I am sure that we will debate these during the course of today. Our new clauses provide for the details of the market rent only process and market rent only triggers to be set out in secondary legislation.
For example, this includes the point at which the market rent will begin to be paid. I know some would prefer this detail to be set out in primary legislation but this would not allow for the consultation that is essential to get this right. There has been very limited consultation because of the genesis of this clause. I believe that that is a risky way to legislate. A full public consultation will help to ensure that the process works as we all intend. The use of secondary legislation for this purpose also allows some flexibility if a review later demonstrates the need for a change of process.
I know that a number of my noble friends and other noble Lords have tabled amendments to the market rent only provisions. I think it would be right to let them speak before I try to respond to the amendments.
Lord Cope of Berkeley
That is as may be, but I hope, if the noble Lord thinks that I have diverted from my previous course of action, that that will strengthen the force of the remarks that I make.
Baroness Neville-Rolfe
My Lords, I do not know whether it is appropriate for me to stand up before noble Lords start to talk about the amendments, but I am essentially, as noble Lords know, a practical person, keen to try to progress the Bill and to do the right thing with today’s business on pubs. I will respond to the point that has just been made on consultation and reassure the noble Lord, Lord Snape, that Jo Swinson, my friend in the other place, held a round table with pub companies and another with tenants, both for the same amount of time. Officials have also had discussions with people on both sides of the debate throughout, while always trying to be balanced and objective. Ministers, advisers and officials have also had several meetings with Greg Mulholland since Report in the Commons, although it would be fair to say that he is keen to keep his clause exactly as it is. So far, that has made progress a little difficult.
Lord Snape
I thought I heard the Minister say that she has not met Greg Mulholland. It is surprising that a Minister in charge of a Bill in your Lordships’ House has not got round to meeting the person responsible for a major amendment to that Bill, although she rightly paid him a compliment for the work that he has done. Is there any reason why she did not meet him?
Baroness Neville-Rolfe
The noble Lord makes a good point. The Secretary of State and Jo Swinson have been intimately involved in all this. I have now taken over the yoke in this House. The next thing I was going to say is that I held an open-door session yesterday. Noble Lords were invited. I was surprised that more noble Lords were not able to come, but that might have been a timing issue. I am keen to get to know all the views of the Committee on this important issue. I joined the House of Lords because it is an important revising Chamber. We have to look at these things and get them right. Our door will be open between now and Report.
Clearly this group of amendments is very large, but I have already said that I would like to listen to what is being said by noble Lords on their amendments before I respond and comment on what we should do with our amendments. We are being very constructive; we are trying to seek a balance and to do the right thing. If we could get on and get into the detail we may find that we can narrow down some of our differences.
Lord Hodgson of Astley Abbotts
My Lords, when I was interrupted a minute or two ago I was explaining that I had some amendments here and that we had some doubts still, despite my noble friend’s assurances about the workability of what is now proposed. I should say to the noble Lord, Lord Whitty, who I think asked the question, that I do not propose to move my amendments today; I propose to have them discussed. I suspect that that is what he expected me to say, but then I suspect that he was not putting his question to me.
At this point I remind the Committee, as I did the House at Second Reading, that until a year ago I was a non-executive director of one of the six companies covered by the proposed code. The group of which I was a non-executive director had five breweries, two large ones and three small, stretching from Cumbria to Ringwood in the New Forest. It owns some 2,000 pubs, of which about 500 were managed, and the balance were tenanted in various forms.
This is a bit of housekeeping. The Captain of the Gentlemen-at-Arms has told me that it has been suggested that I did not declare this interest at Second Reading. For the record, I draw the attention of the Committee, and indeed the House, to col. 1289 of Hansard on 2 December, the date of the Second Reading of this Bill, in which I declared in terms the interest that I just declared. It was further suggested by someone that I did not declare my interest at the beginning of my speech. That is perfectly true; I did not. I think that the Companion does not require you to make your declaration at the beginning of the speech. The beginning of my speech was not about pubs; it was about pre-pack administrations and about the Government’s procurement policies as they affect small companies, in which I had no interest to declare. When we came to the pubs, I made the declaration that I have described, so I hope that we can draw a line under that question.
I thank my noble friend and her team of officials for the time they have given to discussing some of the operational problems that it is feared may occur. I thank the Government, having listened to some of the arguments that my noble friend has just briefly outlined for the Committee, which include a complete rewriting of Clause 42, which, as we realise, is the essential heart of the new regime. The amendments, as we have heard, were tabled last Thursday night, and it is fair to say that, given only three complete working days since, all parties are struggling to understand the full implications of what is now proposed. My noble friend Lord Cope of Berkeley had a sensible suggestion to achieve some permanence that we can then discuss and amend on Report if necessary. I do not suppose that CAMRA will agree with much of what I say but it may be persuaded by some of the arguments, and I suspect it would agree that we are struggling slightly with the flow of information that has come so late in the day.
I have tabled a number of amendments to Clause 42, which form part of a strategic whole. Before discussing the amendments in detail, I shall take a few minutes to discuss the shape of the pub industry and how those amendments would be to its long-term advantage. I begin by making three things clear. First, these amendments do not—I repeat, not—seek to overturn the House of Commons decision to introduce a market rent only option, the MRO. I think that that is probably a mistake; time will tell, but it may accelerate pub closures. However, the Government have decided to accept the decision, so I want to move on from that point.
Secondly, the amendments are designed to help to keep pubs open. The sector is under pressure from a wide range of adverse tides. There seems to be a view that somehow pubcos want pubs to close. A landlord needs a tenant as much as a tenant needs a landlord. That is particularly true of the company with which I was involved, which brewed its own beer in integrated premises, and it is through its own pub estate that a large proportion, 25% to 35%, of the product is sold. A closed pub is of no use in this regard, and closure even for a short period can be disastrous. If I may use the noble Lord, Lord Stevenson, as an example, if he is in the habit of having a pint on the way home from work and his normal hostelry is the Crown but it closes for refurbishment, he will not cease having his pint but will go to the King’s Head, elsewhere in the high street. It may be that as a result of the Crown having closed for a bit, his permanent patronage will be shifted to the King’s Head. In the company in which I was involved, when we undertook refurbishment we wanted it to be as quick and painless as possible to avoid upsetting our regular clientele.
Thirdly, these amendments are designed to iron out some of the idiosyncrasies and unevenness that, if not changed, will seriously affect future investment in the sector and its longer-term health. I am afraid that it is not realistic to believe that individual free house operators will have access to the sums of capital that large companies have at their disposal.
I turn to the industry. As I have said, the Bill affects only six companies, unless the Government accept Amendment 69A, tabled by the noble Lord, Lord Berkeley. It is not surprising that the issue of hybridity has raised its head and has had to be addressed in Clause 70(3). The six companies fall into two categories: two of them brew beer as well as owning pubs, which they sell in part through their own estate. They also sell in supermarkets, through independent pubs, free houses, off-licences and so on. I will refer to these as the integrated model. The other companies are pubcos. They do not brew beer; they very often buy their beer in from breweries operated by their rivals. They are clearly more focused on the rental levels available in their pubs.
As I explained at Second Reading, this rather counterintuitive structure of pure pubcos came about because of a parliamentary decision on the beer orders in the 1980s, which prevented breweries from owning more than 2,000 pubs. The disinvestment programmes forced on them resulted in what have become known as pubcos. They resulted from a parliamentary decision, which many argue had a completely unexpected and unintended consequence. We need to make sure that we do not set out today on a journey that has similar unintended consequences. By the way, some argue that the way in which this weakened the brewers weakened the whole of British beer on the pub market and led to the rise of foreign lagers, which are sold in every pub in the country. If your Lordships go into a pub you will be faced with Stella Artois, which is originally Belgian, Fosters and Castlemaine from Australia, Grolsch from Holland, Kronenbourg and, more recently, Peroni. Most, although not Peroni, are brewed here under licence but not owned in Britain at all.
Those two types of companies have differently aligned interests and objectives, but I would like the Committee to remember a further differentiation between managed and tied pubs. Managed pubs, as the title implies, are run by employees of the company who are paid a salary with a bonus and other fringe benefits. They are quite different from tied tenants, who are essentially self-employed small businessmen. All the issues about beer pricing and other conditions of the tie are of no interest to the manager, who is in effect running a branch office. I am very grateful to my noble friend for having made it clear in moving her amendment that managed houses have no place in the provisions of Part 4.
As I said at Second Reading, people feel strongly about pubs; even if they do not want to go to them, they like them to be there. Their disappearance is resented for removing an essential part of what people see as a community. Just how strongly people feel about pubs, though, even I underestimated. It is not often, working away as a humble Back-Bencher in the decent obscurity of your Lordships’ House, that a single sentence in a 13-minute speech can get one simultaneously on to the front pages of the Daily Mail and the Daily Telegraph and described as an Islamophobe to boot. For the record, let me set my sentence in context.
I said that the pub trade in all its forms—tied, untied and free—faces very adverse tides, which are resulting in pub closures. The adverse tides, in which I fear that the tie plays only a marginal part, include cheap alcohol in the supermarket, with an average price of £1.13 per pint compared to about £3 in the pub, so that people drink at home; the rise in the consumption of other beverages not normally associated with the pub, such as wine; the rise in regulation including drink-driving, the smoking ban and new licensing laws; rises in costs, including council tax; and deep-seated socioeconomic changes, including the deindustrialisation of parts of Britain—I used the example of the carpet trade in Kidderminster at Second Reading—and the arrival of people whose faith forbids the drinking of alcohol. That last point is not in any way and was never meant to be a criticism, as I am a great believer in religious tolerance in every direction. However, it means that such people are, quite understandably, unlikely to be persistent frequenters of premises which, under Clause 65(3), are defined as ones in which,
“one of the main activities carried on at the premises is the retail sale of alcohol to members of the public for consumption on the premises”.
As a result of these trends, in which sectors of the pub trade are closures now taking place? From the publicity being given, it would appear that the conclusion is that nearly all the closures are taking place in the tied sector. The truth, I am afraid, is rather different. Mr Doug Jack, an analyst at Numis, the City investment house, says in a paper that the closure rate in the free-of-tie sector is more than double the closure rate in the tied, tenanted, leased sector. There is a multitude of reasons for this, all connected to the fact that tied pubs also tie the pub company into the pub’s success or failure. As part of the rent is paid through the beer, the pub company is motivated to drive up beer volumes, which is why pub companies invest substantial amounts in capital expenditure, tenant support and rent concessions when good licensees are struggling.
Baroness Neville-Rolfe
My Lords, I thank all noble Lords who have spoken in a helpful discussion. When we saw the grouping we knew that it would be a marathon. I hope that noble Lords will forgive me if I make a lengthy 10,000 metre reply, so that the various questions that have been raised are answered.
I shall respond first to the noble Lord, Lord Berkeley, on timing, and secondly, to the noble Lord, Lord Mendelsohn, on his suggestion. I want to reassure the noble Lord that Clause 41 places a clear duty on the Secretary of State to introduce the Pubs Code within 12 months of Royal Assent. As government Amendment 89A sets out, this must include the MRO provision. The Government are completely committed to getting on with things and to swift implementation. I am also completely committed to open discussion in this House between now and Report. I will try to answer the points in this debate, but if I fail I would urge noble Lords to talk to me before Report, and I am sure that there will be further collective discussions.
I enjoyed the intervention of the noble Lord, Lord Mendelsohn, because he put today’s discussion into the context of small business policy where there is much consensus. I sense that he is trying to make progress. I agree that we should try to get the framework right today, if noble Lords agree, once they have listened to me, by agreeing the government amendments. Then we should discuss the issues and possible changes ahead of Report, including whether we have the right balance between the core Bill and the subordinate legislation, as he mentioned. We have thought about that quite a lot. I do not want to lose this important Bill, which would be a very serious unintended consequence, and timing is tight.
Before turning to the individual amendments, I thank my noble friend Lord Hodgson, who took the Floor for a long time, for bringing his knowledge of the industry to this important debate. He spoke of the impact of social change on pubs, which is an opportunity and a concern, and described a nuclear option, which is exactly what we want to avoid.
I now turn to Amendments 69ZC, 74ZB, 87A, 87B, 87C, 89ZA and 102B. I start by thanking the noble Lord, Lord Whitty, for his comments. We have certainly tried to listen to the other place and come up with provisions that achieve the objectives agreed, and to ensure that there is no avoidance in the system of the kind he described. These amendments set out the detailed definition of the market rent only option in the Bill. One effect is that the MRO will come into force on Royal Assent, before the Pubs Code Adjudicator existed. Market rent only and the protections it brings can work properly only if it is introduced with the code and with the adjudicator.
Clause 42, introduced in the other place, says:
“The Pubs Code shall include a Market Rent Only Option”,
so it would still require secondary legislation. The code must be introduced within a year, and under our Amendment 89A it must include MRO.
Secondly, and importantly, the amendment would not allow us to consult on the MRO process. As I have already said, given that it was introduced into the Bill only at a relatively late stage, it is incomplete in its design and it is important that we have some public consultation to ensure that the process works as intended. Following consultation, we will introduce the code by secondary legislation through the affirmative procedure.
Much of the detail of the triggers for MRO is more appropriate for secondary legislation. Clause 42 as drafted provides no detail on the terms of the new commercial tenancy and what an MRO-compliant tenancy would be. We wish to consult to get a stronger sense of what this constitutes and, similarly, what constitutes a “significant” increase in price and,
“an event outside of the tenant’s control … that impacts significantly on the tenant’s ability to trade”.
Companies and tenants affected by market rent only need the opportunity to comment on the process, not just the authors of Clause 42. The Government are committed to ensuring that MRO is robust and workable.
Turning to Amendments 75 to 78, 82A and 83 to 88, I am not convinced that these amendments are necessary. To respond first to the point made by the noble Lord, Lord Borwick, the market rent only clause introduced into the Bill in the other place outlines some of the process involved in obtaining a market rent only assessment and taking up the offer, but it does not set out a complete process of the kind he is seeking. The Government will consult on the detail of the process and set this out in secondary legislation. I have explained that there is a drop-dead date for the whole process.
Our intention is to follow the outline process in the Mulholland clause. So after the tenant requests a market rent only option, the first step will be for the pub-owning company to offer a market rent, which the tenant will accept or which will provide the basis for negotiation between the two sides. If the tenant and pub-owning company cannot agree a market rent only agreement within a certain period of time, the tenant and pub-owning company will jointly appoint and jointly pay for an independent assessor to determine the market rent for the pub.
Our amendments allow the code to stipulate that the existing agreement between the pub-owning company and tenant will prevail until the market rent only procedure concludes. To answer my noble friend Lord Hodgson, there is a power in government Amendment 89B to set out in the code that existing contractual arrangements remain in force until such time as the procedure comes to an end and the new market rent only contract starts.
If in the end the tenant opts for a market rent only agreement, this will constitute a new agreement between the tenant and pub-owning company. The terms of the agreement will need to be clear to the tenant before he accepts the offer. To be clear, at this point the pub-owning company can remove from the MRO agreement any special commercial or financial advantages—SCORFA—that the tenant was entitled to under the tied agreement. As I said earlier, we intend to consult publicly to ensure that the process works as intended.
On my noble friend Lord Hodgson’s Amendment 88 in particular, the only requirements for a lease to be MRO-compliant are set out in Clause 43(4). Other than this, it is up to the pub company to decide what the MRO lease or licence looks like. The pub company will be free to offer a new lease or tenancy without it being considered to be discriminatory.
Turning to Amendments 79, 81 and 89, in addition to consulting on the detailed process for MRO, we will consult on the detailed definitions of the trigger points for an MRO assessment. These will be set out in the statutory code, which is subject to affirmative resolution. Under our amendments the tenant would be entitled to the MRO option: at rent review; if the tenant renews their lease; when there is a significant price increase for tied products which was not reasonably foreseeable; and if an event occurs that is beyond the tenant’s control and meets the descriptors set out in the Pubs Code. The headlines would rightly be in the Bill but we need to set out the details in secondary legislation.
I confirm that the MRO trigger at the point of renewal applies to tenancy agreements that are protected by the Landlord and Tenant Act or which have a specific right of renewal clause in their tenancy agreement. Those tenants who are contracted out of the Landlord and Tenant Act will have the protection of the parallel rent assessment in any negotiations on a new lease at their existing pub. The trigger if there is a significant price increase which was not reasonably foreseeable at the beginning of the tenancy or at the point of a rent assessment would not include circumstances when a pre-agreed discount period ends.
By contrast, Amendments 79 and 89, tabled by my noble friend Lord Hodgson—
Lord Hodgson of Astley Abbotts
Can we therefore take it that the trigger points will not include the sale of a pub, provided the tenant’s position is protected, or a pubco going into administration?
Baroness Neville-Rolfe
My Lords, that is the proposal set out in the Government’s amendments.
Lord Stoneham of Droxford
Will the Minister confirm whether she is looking at any protection for people who, when a company is sold or goes into administration, move from a company that is covered by the threshold to one that is not?
Baroness Neville-Rolfe
My Lords, I hope I will cover that to the noble Lord’s satisfaction in a minute. I return to Amendments 79 and 89, which propose that only an unfair price increase would trigger the market rent only option. Our view is that this sets the bar unrealistically high. The purpose of this trigger point is to afford the tenant some protection if the pub-owning company increases the prices of its tied products significantly and unexpectedly, as this may have a large impact on the balance of risk and reward between the two parties. Similarly, the trigger of events occurring outside the tenant’s control is intended to protect tenants when the assumptions underlying their projected income and turnover change dramatically. We envisage that these events would include situations in which local economic factors impact on trade, such as the sad closure of a local factory. However, that would not include macroeconomic events such as a recession, or a change in the tenant’s personal circumstances.
Amendment 81 seeks to define events outside the tenant’s control by reference to the Local Government Finance Act 1988. However, that definition would not account for cases such as a change in local competition, which could have a significant impact on turnover. Public consultation on the specific phrasing of these triggers will help the Government to ensure that the trigger points are appropriately defined. In response to the noble Lord, Lord Hodgson, we expect to refer to the definition in the 1988 Act, but may need to expand on it. I have set out our thinking so far on the detail of the triggers and will come on to talk about administration and insolvency. We will consult on these but I am also happy to discuss further the ideas offered by the noble Lord, Lord Mendelsohn, before Report, if that would be helpful.
My noble friends Lord Hodgson of Astley Abbotts and Lord Howard of Rising have tabled Amendments 69A, 70 and 71 to set the threshold for the market rent only option at 500 tied pubs. I agree with them, and Amendment 91ZB would deal with this very point. As I think the Committee understands, this is intended to bring the threshold for MRO into line with the rest of Part 4 of the Bill. The Government do not have sufficient evidence of a problem in the free-of-tie pub sector to justify intervention there. Regulation of this market would result in pub tenants with commercial leases being treated differently from, and receiving additional protection to, other tenants with commercial leases. This difference is not justifiable on the evidence.
Conversely, Amendment 69A, tabled by the noble Lord, Lord Berkeley, seeks to amend the threshold to 100 or more tied pubs. Noble Lords will be aware that, after considerable debate in Committee, the other place voted to remove companies with fewer than 500 tied pubs from the scope of the Pubs Code and adjudicator. Those other companies expressed significant concerns about the requirements that complying with a statutory code would have placed on them. The Government listened carefully to the points raised and have decided to accept the will of the other place in terms of the cut-off.
I can reassure the noble Lord, Lord Berkeley, that the representative body for companies with fewer than 500 tied pubs, the Independent Family Brewers of Britain, has committed to continue funding the current industry dispute resolution services and to keep the industry framework code up to date. This will provide important protections for the tied tenants of family brewers, and seems a better approach than extending regulation to smaller operators such as St Austell Brewery in Cornwall—which he mentioned—or J W Lees in Manchester.
I also reassure the noble Lord that the Government have provided protection against avoidance of the code through changes in group structure. Clause 69(2) provides that any part of a group undertaking will contribute to the calculation of tied pubs for the purposes of the threshold. That means that the Pubs Code will apply to all parts of the group undertaking.
Lord Hodgson of Astley Abbotts
Again, I apologise for interrupting my noble friend, and I am grateful for the detailed response that she is giving. The example that she is giving about investment does not deal with the fact that beer is being sold. The beer companies want to sell their beer—25% to 30% of their beer is sold through their tied houses, their estate. If the legislation does not allow that, it knocks away a reason for investing. It is not sufficient to get a return on the capital—that is, the rent—it is also selling a product that they produce elsewhere in the group. That is, provided—to meet the point of the noble Lord, Lord Snape—that the tenant is free to buy it anywhere if he can buy it cheaper.
Baroness Neville-Rolfe
I thank the noble Lord for raising that point. There is a link to the stocking requirement, which I shall come on to talk about, as he suggests. I am not suggesting that investment is the easiest thing to deal with, because we all want investment in this important industry.
Perhaps I can mention a couple of final points before I move on from investment. One is my noble friend Lord Younger’s point about cash flow, which is a good point. If a tied tenant expresses an interest in choosing MRO, the pub company can make the argument about the benefits of the tie—for example, in managing tenant cash flow. That freedom will still exist. At that point, the tenant can choose to remain in a tied agreement. I am grateful to the noble Lord, Lord Mendelsohn, for entering the fray on this issue and suggesting a way forward on the question of securing pub company investment in pubs. I am happy to look at that further.
Further, enabling tenants to forgo the MRO in exchange for a promise of investment may risk intimidation of a pub in difficulty. That will probably not occur often, but it was a concern that we considered in trying to balance these things.
I turn to Amendment 89AA. I believe that it is designed to help to define a significant price increase in relation to a price increase that would trigger an MRO. It is important to get that definition right. It needs to be fair to pub companies and tenants alike. That is why the Government propose to consult on the definition and set the detail out in secondary legislation. I confirm that reference to wholesale price lists will be used in our consultation proposals for that definition.
Amendments 89AB and 89AC amend the MRO trigger for circumstances outside the tenant’s control that affect trade. The noble Lords opposite wish to confirm that all four of the conditions set out in subsection (9) of the proposed new clause in government Amendment 89A must be met for this trigger to be engaged. I can confirm that the current drafting of the clause delivers this effect.
Amendment 89AD relates to the same change of circumstances trigger and proposes to replace,
“an impact on the level of trade”,
with,
“an impact on the level of profitability”,
as the measure for that trigger. We consider that a focus on the tenant’s ability to trade addresses the key issues that affect the fair balance of risk and reward between pub company and tenant. The government amendments ensure that where changes in local economic circumstances affect tenant income, the protection of the MRO trigger will apply. To focus instead on profit would bring in issues such as rates, energy prices, wages and salaries. These issues could further impact on the income of the tenant but there is likely to be minimal impact. The amendments also introduce more complexity in terms of definition and measurement of a significant impact.
I believe that through Amendment 89AE, the noble Lords opposite are seeking to confirm that on the sale of a pub the other triggers for MRO would still apply. Where the new owner of the pub is covered by the code, then this is the case. Where the pub company purchasing the pub is below the threshold, the tenant will not have the MRO option but will have the protection of the voluntary industry code. This is consistent with the Government’s acceptance of the will of the other place to remove family brewers from the scope of our measures.
Amendment 89AF would introduce a power for the Secretary of State to provide an MRO trigger on transfer of title or administration in two specific circumstances. The first is if avoidance of MRO was the “sole or significant” reason for transfer of title or administration. The second is where,
“fewer than 500 pubs … are part of a group or have similar ownership to other companies”,
which own more than 500. I will deal later with the detail of the Government’s reasons for removing the transfer of title and administration trigger, but first I will focus on the specifics of the Opposition’s amendment.
We think it is extremely unlikely that the serious step of administration would be used to avoid MRO. No company considers insolvency lightly. Where a company is in financial difficulty, it will seek professional advice from an insolvency practitioner. It may be advised to restructure the business, which could involve selling off some parts of it. However, entering administration to avoid MRO would not achieve the objectives of administration, which is to rescue the business. For this reason, an insolvency practitioner would not recommend administration. It is also hard to imagine that pub companies would sell off high numbers of pubs purely to take themselves outside the scope of MRO and the code. Most of the pub companies in scope have over 1,000 pubs, so that would be a drastic step. I reassure noble Lords that where a tied pub is sold to another company covered by the code, MRO protections would continue to apply.
The amendment tabled would also provide a power to bring companies with fewer than 500 pubs into the scope of the code where they were part of a group or had similar ownership to other companies that cumulatively own more than 500 pubs. We share the noble Lords’ concern about the potential for gaming—for example, through the break-up of a pub company to avoid the threshold—but I confirm again that the Government have provided this protection in Clause 69(2). I am afraid that we are not clear whether there are companies with fewer than 500 pubs that have similar ownership to companies with more than 500. Nor, if there were, is there evidence that they should be brought into scope with reference to a concept of similar ownership.
Amendment 80, tabled by my noble friend Lord Hodgson, seeks to remove two of the trigger points in the MRO clause so that tenants will not have the right to MRO if their pub is sold or the pub-owning company goes into administration. The Government’s amendments should address my noble friend’s concern. In the case of the transfer of title trigger, the Government consider that other, more proportionate protections exist for tenants when their pub is sold to another owner, as any new owner would be bound by the tenant’s existing contractual rights. If the sale makes little difference to the pub, there is no problem. If it makes a significant difference to the trading position, another MRO trigger is already available—the trigger for circumstances outside the tenant’s control. The inclusion of the transfer of title trigger would have the unintended consequence of making the sale of pubs as going concerns less appealing to potential buyers, leading to fewer pubs and fewer pub tenancies. For these reasons, the Government wish to remove this trigger from the Bill.
The Government’s amended clauses also remove the trigger when a pub-owning company goes into administration. During administration, the company in administration may continue to operate. Tenants will continue to have their existing obligations towards the company in administration, and the company will continue to have its existing obligations to the tenants, acting through the administrator. If any of the other triggers for MRO are met during this period, such as if the company brings in a significant price increase, the tenant will still have the right to MRO. The primary aim of administration is to rescue the company, and this preserves jobs as well as value. Giving all the pub-owning company’s tenants the right to MRO at this critical point would be likely to reduce the value of the pub company’s estate. Pub-owning companies below the threshold are unlikely to buy the company’s pubs if the tenant could opt for the MRO option during the course of the sale. This would reduce the chances of rescuing the pub-owning company and could ultimately push the company into liquidation. Clearly, this would not be in the interests of the tied tenants, employees and suppliers of the former business and the creditors.
I want to clear up something which was raised by the noble Lord, Lord Snape. He expressed concern that the Government are trying to deny existing tenants the right to MRO. This is not the case. We have merely sought to remove two of the triggers to avoid unintended consequences that are detrimental to tenants. I should be happy to discuss this further with the noble Lord, as we are in the same place on objectives.
Lord Snape
I thought that it was the wicked noble Lord, Lord Hodgson, who was seeking to deny tenants this particular protection, not the Government.
Baroness Neville-Rolfe
Perhaps I can move on to further amendments.
The market rent only amendment introduced in the other place made provision to allow brewers who own tied pubs to require any tied tenants of theirs who elect to exercise MRO to continue to sell the brewery’s products, so long as the tenant may buy them from any source. Amendment 91ZA, which I am bringing forward today, provides in Clause 65 that stocking requirements, which satisfy the conditions in that clause, do not constitute a tie, so they can be included in an MRO offer. Under such a stocking requirement brewers can require their pub tenants to sell their products, limited to beer and cider. This focuses the measures on what pub-owning companies tell us are the products that concern them. Under Amendment 91ZA, the tenant must be able to buy this beer or cider from any source and be able to sell beer and cider produced by other companies.
I thank my noble friend Lord Hodgson for Amendment 69. I agree that the MRO provisions largely remove the need for the parallel rent assessment. However, the MRO option is available only to tenants with an existing tied agreement with their pub-owning company. As prospective tied tenants do not have the right to an MRO offer, we intend to retain the protection of the parallel rent assessment for them. This means that prospective tenants may request a parallel rent assessment, following rent negotiations with their pub company, upon paying a fee of £200. Together with the transparency provisions of the Pubs Code, this will ensure that prospective tenants can make an informed decision on whether a particular tied deal is fair and right for them. We also intend that those tenants who have contracted out of the Landlord and Tenant Act will have the protection of the parallel rent assessment in any negotiations on a new lease at their existing pub. This is because those tenants do not have a right to renew their lease and so will not have the right to the MRO option when they negotiate a further deal. I agree that the parallel rent provisions are no longer required for existing tied tenants who now have the MRO option, and Amendments 69ZA and 69ZB, which I have tabled, would deliver this.
I apologise for the marathon, but when I said that the Government were committed to MRO I really meant it. The government amendments before us are designed to make it workable. Unless we amend the clause, we risk ending up with an Act that is so anomalous and open to legal challenge that no Government, whatever their make-up, would be able to implement it effectively. Surely this is not the outcome that noble Lords are seeking. I urge the Committee to accept these amendments so that we have a legally robust foundation on which to build the continuing discussions ahead of Report. In the spirit of the discussion, I ask the noble Lord, Lord Whitty, who has the first amendment, whether he is now content for us to move the government amendments.
Lord Berkeley
Before we get to that, could the Minister please clarify what she said, quite a long time ago in a very interesting speech, about the timing of the introduction of the MRO? That has been changed in her amendments; the Bill says a maximum of one year. What is the actual timing? That is one of our big worries—that this could get kicked into the long grass.
Baroness Neville-Rolfe
I thank the noble Lord for raising that point. The confusion may arise because it is within 12 months of Royal Assent.
Lord Berkeley
If it will help the Minister to deal with this, I could speak for a little longer. I thank her for her comments generally in her necessarily long speech. She gave me a lot of comfort that what the Government are trying to do is the right thing. She prayed in aid the will of the Commons a number of times, and that is right. Of course, timing is one of those issues. I will be very pleased to hear what she has to say.
Baroness Neville-Rolfe
Before the noble Lord sits down and the noble Lord, Lord Whitty, takes the Floor, the answer is 12 months—but that is 12 months after the Bill comes into force. Apparently it will take two months for the Bill to go through to Royal Assent, so the maximum is 14 months. However, the message that I was trying to impart to the Committee is that we are determined to get on with this, push ahead and find workable solutions in that time.
Lord Whitty
My Lords, I am not sure that the Minister is procedurally correct to say that I have the first amendment. She has the first amendment in this group, which she can move at this point. Although mine is the first amendment on Clause 42, it is not the first one in this group. If she is asking whether she has said enough for me to roll over in relation to her own amendments, the answer is probably, “Almost, but with great regret”.
She has said that she is prepared to talk to all the parts of the industry involved, and she has done that in a very generous way. However, when she went through this clause by clause, there seemed to be fairly clear opposition to all the areas of concern that had been expressed by me, the noble Lord, Lord Stoneham, and my noble friends Lord Berkeley and Lord Snape. If she is prepared to say that all these things are open for discussion before we get to Report, I suppose that the sensible thing for me to do would be to say that I did not object to her clause. While I was clear on the conciliatory tone at the beginning, when it came to any individual item it seemed to be the firm position of the department to oppose it. However, it is not really my position to object at this point.
Baroness Neville-Rolfe
Okay. I welcome the lecture on procedure and apologise for not getting it right. As a new Minister, I am learning. The answer is yes, we are very open to discussion. What I was trying to do, I thought, was to be helpful in going through our thinking about why the various provisions were set out in the way that they were. I have already indicated that there are one or two places where I can see that the points made today would lead to further discussion. The answer is that we are open-minded and are keen to find a workable way forward, and are happy to do that in discussion in this House. I beg to move.
Lord Mendelsohn
I thank my noble friend Lord Berkeley for some excellent amendments. It is important to understand this in the context of the Bill. Amendment 68T addresses one of the big issues we have with information in commercial sectors, which works terribly to the disadvantage of small businesses. We think that very serious consideration should be given to this. Amendment 68U considers the opportunities to create market access for small businesses. That would be very useful and have many beneficial by-products, and would certainly trigger a great deal of capacity for small businesses to thrive in a sector with dominant market features.
I encourage the Government to look very sympathetically towards these amendments. There are issues with Amendment 68U. I did a quick calculation of what it might cost the industry; I do not think it is that much but I would be very interested if the Government came forward with whether or not they think there are any difficult parameters to it. I am not convinced that there are. It would be useful if the Government were to come forward very positively on this.
My noble friend Lord Whitty made a very important point in the previous group of amendments: it is nice to hear that matters will be taken seriously, but there was a great deal of anxiety on this side as we went through that group. As we get to other groups of amendments, such as the one beginning with Amendment 96ZB, we will look for greater assurances that these matters will be taken seriously. However, on small businesses, this is a very neat and useful group of amendments.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Berkeley, for these amendments. In the spirit of collaboration, perhaps I can explain why we see them as problematic and see whether he agrees.
Amendment 68T would require pub-owning companies to publish wholesale prices. Even if that requirement was limited to alcoholic drinks, it would make public the details of a commercial financial arrangement between two parties to the world at large—including the pub owner’s customers, if I have understood the amendment correctly. It is important to stress that in this Part of the Bill we are regulating the relationship between tied tenants and their pub companies. At no point in our consultations has the need to publish wholesale prices emerged as a requirement to address unfairness. To do so would be an additional piece of regulation for the sector on top of the regulation we are introducing. In a few cases, pub-owning companies that we expect to be covered by the code already publish their wholesale drink prices online. Others publish those prices on a site with access restricted to their own tenants. Others do not publish them at all. On beer prices, tied tenants will tend to pay higher prices for their beer than from an outside wholesaler. That is integral to the tied deal. We recognise that transparency is important, and the Pubs Code already provides that transparency where it is needed—in the relationship between the tenant and the pub-owning company. As I said, the Pubs Code will require the wholesale prices to be provided to the tenant, as well as the current and relevant price lists.
Turning to Amendment 68U on guest beer, when the Government consulted on the issues and evidence that preceded the drafting of these clauses, we included questions about guest beer. The reasons for rejecting that option were clearly set out in our response to the consultation. Some will remember that I come from an all-male family of very keen beer drinkers, so I sympathise with the point, but while there was considerable support for the right to stock a guest beer, there were concerns about the potential for this to undermine the tied model by reducing the alignment of interests between the tenant and the pub company. This was because many tenants would select a draught lager as guest beer, which would typically be the biggest-selling beer. The proposal in the noble Lord’s amendment seeks to address this concern by stipulating that the guest beer should be limited to a brand of cask-conditioned or bottle-conditioned beer. I understand that. Unfortunately, this raises potential competition law issues. We are advised that restricting the guest beer to a particular type is likely to be contrary to EU competition law.
I hope that that background shows that the Government have considered the noble Lord’s proposition seriously and that, in the circumstances, he will agree to withdraw the amendment.
Lord Berkeley
I am grateful to the Minister and to my noble friends for their responses. On Amendment 68T, I think that putting the price of beer charged to a tenant in the public domain may be going a little bit over the top, but if it is published on a website and available to the tenant that is fair enough. However, this comes to the imbalance between a small business—and tenants are, after all, very small businesses—and the pubco. The fact that these people did not understand that the price of beer may not have been what they thought shows something about the unbalanced and bad relationships that some of these pubcos clearly have with some of their tenants. I am not blaming anybody but they are small businesses. Maybe we could have a think about that and have a meeting to discuss it before Report.
Amendment 68U deals with guest beer. I spent the morning at DG Comp in Brussels today. I cannot say I was talking about beer but I know the people there well and I can always check on that. There are important issues here but perhaps we could have a discussion about this too. I would like to see guest beers in some of the tied pubs and I think many others would too. What beers they are would depend on what kind of beer you like drinking. That is enough of that, at this time of the night. I am grateful for the Minister’s response and look forward to further discussions. I beg leave to withdraw the amendment.
“Pubs Code: market rent option
(1) The Pubs Code must require pub-owning businesses to offer their tied pub tenants falling within section 67(1)(a) a market rent option in specified circumstances.
(2) A “market rent option” means the option for the tied pub tenant—
(a) to occupy the tied pub under a tenancy or licence which is MRO-compliant, and(b) to pay the market rent in respect of that occupation.(3) The Pubs Code may specify—
(a) circumstances in which a market rent option must or may be an option to occupy under a tenancy; (b) circumstances in which a market rent option must or may be an option to occupy under a licence.(4) A tenancy or licence is MRO-compliant if—
(a) taken together with any other contractual agreement entered into by the tied pub tenant with the pub-owning business in connection with the tenancy or licence it—(i) contains such terms and conditions as may be required by virtue of subsection (5)(a),(ii) does not contain any product or service tie other than one in respect of insurance in connection with the tied pub, and(iii) does not contain any unreasonable terms or conditions, and(b) it is not a tenancy at will.(5) The Pubs Code may specify descriptions of terms and conditions—
(a) which are required to be contained in a tenancy or licence for it to be MRO-compliant;(b) which are to be regarded as reasonable or unreasonable for the purposes of subsection (4).(6) Provision made under subsection (1) may, in particular, require a pub-owning business to offer a tied pub tenant a market rent option—
(a) in connection with the renewal of any of the pub arrangements; (b) in connection with a rent assessment or assessment of money payable by the tenant in lieu of rent;(c) in connection with a significant increase in the price at which any product or service which is subject to a product or service tie is supplied to the tied pub tenant where the increase was not reasonably foreseeable—(i) when the tenancy or licence was granted, or(ii) if there has been an assessment of a kind mentioned in paragraph (b), when the last assessment was concluded;(d) after a trigger event has occurred.(7) The Pubs Code may specify what “renewal” means in relation to a tenancy or a licence for the purposes of subsection (6).
(8) In subsection (6) “pub arrangements”, in relation to a tied pub, means—
(a) the tenancy or licence under which the tied pub is occupied, and(b) any other contractual agreement which contains an obligation by virtue of which condition D in section 65 is met in relation to the premises.(9) In this Part a “trigger event”, in relation to a tied pub tenant, means an event which—
(a) is beyond the control of the tied pub tenant,(b) was not reasonably foreseeable as mentioned in subsection (6)(c),(c) has a significant impact on the level of trade that could reasonably be expected to be achieved at the tied pub, and(d) is of a description specified in the Pubs Code.(10) In this Part “market rent”, in relation to particular premises at any time, means the rent which the premises might reasonably be expected to fetch at that time in the open market, on the assumption that condition B in section 65 continues to be met.”
Baroness Neville-Rolfe
I am grateful to the noble Lord, Lord Snape, for raising that point. First, I emphasise that we have accepted MRO; I do not renege on anything that I said at Second Reading. The detail of legislation has to be right. Let us by all means meet; let us meet soon; let us look at new Clause 42 alongside the old Clause 42 and engage on the differences and why we have done things, in good faith, in the way that we have. I would be very happy to agree to that process and I am grateful for the discussion that has taken place today. We are trying to do the right thing here.
“Market rent option: procedure
(1) The Pubs Code may—
(a) make provision about the procedure to be followed in connection with an offer of a market rent option (referred to in this Part as “the market rent option procedure”);(b) confer functions on the Adjudicator in connection with that procedure.(2) Provision made under subsection (1) may, in particular—
(a) make provision for the tied pub tenant to give notice to the pub-owning business that the tenant—(i) considers that circumstances are such that the pub-owning business is required to offer the tenant a market rent option, and(ii) wishes to receive such an offer;(b) require the appointment of a person (referred to in this Part as an “independent assessor”) to determine the market rent of the premises concerned in a case where the pub-owning business and the tied pub tenant cannot agree on that market rent;(c) require that appointment to be made by the pub-owning business and the tied pub tenant acting jointly or (where they cannot agree on a person to appoint) by the Adjudicator;(d) require the Adjudicator to set criteria which a person must satisfy in order to be appointed as an independent assessor;(e) specify that the determination of the market rent by the independent assessor must be conducted in accordance with provisions of documents specified in the Pubs Code;(f) where any document is specified for the purposes of paragraph (e), refer to the provisions of the document as amended from time to time.(3) The Pubs Code may make provision for—
(a) the tenancy or licence under which the tied pub is occupied, and(b) any other contractual agreement entered into by the tied pub tenant with the pub-owning business in connection with the tenancy or licence,as they are in force when a notice is given by virtue of subsection (2)(a), to continue to have effect until such time as the market rent option procedure has come to an end (regardless of whether any of the agreements would or could otherwise cease to have effect before that time).(4) The Pubs Code may, for the purposes of subsection (3), specify the circumstances in which the market rent option procedure is to be treated as having come to an end.”
Baroness Neville-Rolfe
My Lords, I hope that I can reassure my noble friend that the Pubs Code will be the subject of further formal consultation following Royal Assent. Furthermore, it will be a statutory instrument made under the affirmative procedure, and any future changes to the code will also be subject to that procedure. On Amendment 92, I reassure my noble friend that any change to the threshold for pub companies to be covered by the code must also be made by affirmative resolution, and must follow a review and full consultation.
On Amendment 96A, Clause 63 provides that the adjudicator can be abolished if, following a review, the Secretary of State is satisfied that the role of the adjudicator is no longer deemed necessary. It is only in the event of the Pubs Code having already been revoked and not replaced by the affirmative resolution procedure, as I have said, that the adjudicator would be abolished by the negative procedure. In those circumstances, the removal of the adjudicator is of course consequential on the abolition of the code, which would have been debated in both Houses. The adjudicator’s role is to enforce the Pubs Code; if Parliament has debated and agreed the decision to revoke the code, it seems entirely reasonable to abolish the adjudicator by negative procedure. I hope that this reassures my noble friend that he can withdraw his amendment.
Lord Hodgson of Astley Abbotts
I thank the Minister. I accept her explanation of all three amendments, and I beg leave to withdraw the amendment.
Lord Berkeley
My Lords, this amendment concerns how the adjudicator takes into account the various financial factors relating to a pub when considering what its market rent should be. We have a lot of pubs where I live in Cornwall, some of them very lovely ones on the waterfront. I do not know how much money they make but there is a feeling that if they were sold for desirable waterside residences, of which there are already an enormous number, they could probably fetch a much larger amount of money than they earn for the owners at the moment as pubs.
That may or may not matter, but there is an issue here of what the role of the pub is in a small community. It acts as a kind of community centre. It may be where people congregate at different times of the day. It keeps village life going. It would be a great shame if the value of a pub on the open market, for retail or as a house, made it in the interests of the landlords to sell it and try to change its use.
There was another example in the Guardian last Saturday, in a nice article on pubs generally, given by someone who works for a company called Paramount Investments:
“In north London if I am selling a pub as a development opportunity I might be able to ask £700,000-£1m for something that as a pub I would only be able to get £350,000-£450,000 for”.
It gives other examples in Marylebone and other places where property values are very high, as they are in London. The problem is wider than London and Cornwall; it could be in many places where the property value is high. In this amendment, which obviously is a probing amendment so the wording might not be quite right, I am trying to propose that in assessing the rent no allowance should be made for a change in value due to a change of use that could be achieved if the pub were no longer a pub. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for his amendment and I am looking forward to visiting some of his local pubs in Cornwall before long. To be brief, subsection (10) of the proposed new clause in government Amendment 89A makes it clear that a market rent is,
“the rent which the premises might reasonably be expected to fetch at that time in the open market”,
on the assumption that the sale of alcohol for consumption on the premises remains the main activity or one of the main activities of the premises. It is clear that the market rent is for the premises as a pub. I hope this reassures the noble Lord.
Lord Berkeley
I am very grateful to the Minister. The amendment came through after I went through all this. I am very grateful for her explanation and beg leave to withdraw the amendment.
“(5A) But condition D is not met if the contractual obligation is a stocking requirement.
(5B) The contractual obligation is a stocking requirement if—
(a) it relates only to beer or cider (or both) produced by the landlord or by a person who is a group undertaking in relation to the landlord, (b) it does not require the tied pub tenant to procure the beer or cider from any particular supplier, and(c) it does not prevent the tied pub tenant from selling at the premises beer or cider produced by a person not mentioned in paragraph (a).(5C) In subsection (5B), “beer” and “cider” have the same meanings as in the Alcoholic Liquor Duties Act 1979 (see section 1 of that Act).”
“(1) A person is a “pub-owning business” for the purposes of this Part—
(a) in the period beginning with the day on which the Pubs Code comes into force and ending with the following 31 March, if immediately before the Pubs Code comes into force the person was the landlord of 500 or more tied pubs;(b) in any subsequent financial year, if for a period of at least 6 months in the previous financial year the person was the landlord of 500 or more tied pubs.(1A) For the purposes of calculating the number of tied pubs of which a person (“L”) is the landlord, any tied pub the landlord of which is a person who is a group undertaking in relation to L is treated as a tied pub of which L is the landlord.”
Baroness Neville-Rolfe
My Lords, the tied model has long been part of our history. As my noble friend Lord Hodgson said, properly operated it can be beneficial to both pub company and tied tenant. However, as the Government made clear in their consultation response, the evidence has accumulated of problems of abuses of the tied relationship. In an online survey carried out in parallel with the Government’s consultation, 91% of more than 700 tenants identified the beer tie as the biggest challenge that they face. In the government amendments that I am moving we are focusing the market rent only option on the tied model, consistent with rest of this part of the Bill. All of this part will then apply to pub-owning companies which own 500 or more tied pubs.
In contrast, the MRO option inserted into the Bill in the other place would apply to companies with 500 pubs of any kind and one tenanted or leased pub. This would include free-of-tie pubs. As I have already said, the Government do not agree with that approach. There is some evidence of problems in the free-of-tie sector. Some free-of-tie tenants, for example, feel that their property insurance is too high. That is a common issue with commercial leases right across sectors. In the pub sector, by contrast, we have a large body of evidence of problems with tied pub agreements. The Government therefore wish to focus regulation where there is evidence of significant problems, not on the free-of-tie sector. I hope that the Committee will be content to support these amendments. I propose again to listen to noble Lords before responding to the other amendments in this group.
The Deputy Chairman of Committees (Baroness Stedman-Scott) (Con)
My Lords, I advise the Committee that if this amendment is agreed to it pre-empts Amendments 91A and 91AZA.
Lord Mendelsohn
My Lords, I have only a few points to make on these matters as the issues have already been covered quite well. However, I want to stress that these are highly important to our consideration of the Bill and we will look closely at the evolution of the Government’s thinking on them. We stand ready to work with the Government on these amendments and are content to move forward with them in the Bill, on the basis of there being discussion at a later time. However, we would be very concerned if there were no further changes.
We are concerned with how the thresholds are framed. We accept that the Government are focused on the pub-owning companies and we are highly supportive of that. We do not like the formulation that uses the phrase “tied pubs”. We believe there is an overwhelming case to use the terms we proposed—“tenanted” and “leased”—and we would like to see these in the Bill. We have some sympathy with the Government’s predicament on getting these definitions right, but we hope they are willing to show some flexibility on it. There is considerable concern that the situation can be gamed and that the provision of a power to the Secretary of State to vary the number of 500, and to grant exclusions, could be a serious and significant weakening of the Bill or a measure to ensure that anti-avoidance measures can be made more effective.
It is very important that there is a much clearer statement about what the dual-purpose clauses are and that what we put in the Bill is consistent with the work of the other place. It would be very useful if the Minister could give us much greater reassurance on that.
Baroness Neville-Rolfe
My Lords, I am grateful to my noble friends and to noble Lords for their amendments. We are, of course, happy to meet with noble Lords to discuss how these amendments work, the needs of small business and anti-avoidance. We agree with the noble Lord, Lord Mendelsohn, that reform should be about the tie. There is a difference in Committee this evening but a number of concerns have been expressed. These include the lack of draft regulations which, I am afraid, reflects the fact that MRO was a late amendment to this important Bill.
Having said that, perhaps I could talk a bit about the powers and then quickly address the amendments so that the Committee can understand where we are coming from, ahead of any discussions. First, any use of the power would need to be on the basis of strong evidence to justify the exclusion of a type of agreement or type of company. Without this evidence, it would be open to challenge. For example, if it were used to exclude one or two pub companies, it could be seen as a discriminatory use of the power and would lead to a high risk of successful legal challenge. Any attempt to undermine the principle of the legislation—that is, by exempting all pubs—would be an improper use of the power, as it would be subverting the will of Parliament.
Amendments 91AZA, 91BA and 91CA would include the free-of-tie market in the scope of our provisions. As I set out in my opening remarks, the evidence of the past 10 years, from the BIS Select Committee and the government consultation onwards, shows that the problems in the pub industry relate to abuses of the tied relationship. We do not have evidence of a problem in the free-of-tie or managed market.
Amendments 91A, 91B and 91C in the name of the noble Lord, Lord Berkeley, seek to lower the threshold to capture pub companies with 100 or more tied pubs. I have probably covered this ground adequately in our earlier discussions, and in the interest of time, if the noble Lord is happy, I will not repeat the points.
I should probably talk about the need for Clause 68; that might be helpful. It is an important clause, as it is the means by which we can ensure that the definition of a “tied pub” does not inadvertently capture a restaurant or hotel premises. We are already aware of a fish and chip restaurant chain that may meet the definition as set out in Clause 65, and it is possible that there could be other such cases. We would be happy to talk through that concern. We all think that we know a pub when we see one and we think we know the difference between a pub and a fish and chip shop, but increasing food consumption in pub, gastropubs and so on has made separation by legal definition more complex. Clause 68 provides a power for the Secretary of State to exempt a particular type of tenant or premises from the Pubs Code by secondary legislation so that only pub premises are in scope.
The noble Lords, Lord Stoneham and Lord Whitty, were concerned about pubcos turning tied pubs into free-of-tie pubs by coming under the threshold. The evidence that we have of abuse is in the tied market. As I said earlier, if pub companies turned pubs into free-of-tie pubs, their ability to exploit their tenants through the tie would be gone.
Lastly—and I am sorry because he spoke first—my noble friend Lord Howard championed small operators, which I was glad to hear, and queried the power of the Secretary of State to amend the threshold by way of secondary legislation. The Government are clear that the threshold we have proposed of 500 or more tied pubs is the right one, because it is designed to ensure that the Pubs Code and the market rent only option are targeted at the part of the market where we have a problem. However, legislation needs to be capable of responding to changes in the market that may come about in the longer term—for example, if new pub ownership models were to emerge that merited exclusion from all or part of the code.
I hope that we can agree the government amendments so that we have a base for further discussion ahead of, and on, Report. In view of the explanations I have given, I hope that noble Lords will not move their amendments.
Lord Snape
My Lords, I enter the debate with some trepidation after the way that it was introduced. I, too, will be very brief. I am grateful to the noble Lord, Lord Hodgson, for making my speech for me. He underlined the dangers of the amendment. Tenancies at will are where part of the problem lies. I go back to my daughter and son-in-law’s experience. They think that it must be wonderful to have a tenancy on a country pub with ivy round the door, great customers and all the rest of it. Of course, they will be treated very well by the pubcos. They will be looked after; their delivery will come on the proper day; lots of things will be done on their behalf. After a year, once they sign up, they will find out the reality of the situation. It is at that stage that many problems arise, despite the blandishments of the noble Lord, Lord Hodgson, so I hope that despite his honeyed words, the Minister will resist the temptation. I say to him: nice try but it will not wash, I am afraid.
Baroness Neville-Rolfe
My Lords, I thank my noble friend Lord Hodgson for his amendment on tenancies at will. I was very glad also to hear from the noble Lord, Lord Snape, given his great experience in the industry.
I agree with my noble friend that tenancy at will agreements are important in enabling pub companies to cover short-term gaps, to keep pubs trading in between tenants. They also allow the company time to complete due diligence on a new longer-term tenant. Temporary agreements can be useful to a prospective tenant as a trial run, prior to committing to a longer-term agreement. I have known ex-senior civil servants who have taken on pubs and found them quite a challenge.
In the other place, my honourable friend Jo Swinson committed to consider calls to exempt genuinely short-term agreements from the Pubs Code. These calls came from pub companies and some tenant groups. I can announce today that the Government will use the power in Clause 68 to exclude from the code tenancies at will and temporary agreements that do not extend beyond a certain limited period. This is to ensure that agreements that are meant to be temporary do not run on for long periods of time as a way of avoiding the code. This does not require an amendment to the Bill but, as part of the consultation on secondary legislation, we will consult on the length of agreements that should be exempted.
We have heard different views from stakeholders as to the length—including 12 months, as proposed by my noble friend—but we have also heard calls for six and nine months. Therefore, we will consult more widely on the length of any exemption period before bringing forward regulations. I hope my noble friend will feel able to withdraw his amendment.
Lord Hodgson of Astley Abbotts
I am very grateful to my noble friend for that commitment. I am not stuck on 12 months. All I think we should be trying to provide is a means for people to test out the possibility of becoming a tenant and, therefore, a reasonable period of time. It could be six or nine months; I am quite content about that. The important thing is we should have a regulatory-light opportunity for people to try it out and then if they decide that they want to make it their career, they get the full protections anticipated under the code. In those circumstances, I am happy to withdraw the amendment.
Lord Berkeley
I really cannot imagine how anyone would want to take a franchise like this. It is a variation on the old zero-hours contract, which we talk about. It could be a franchise with zero income and the hours being 24/7. Why should anybody want this contract? I will be interested to hear what the Minister says, but the pubcos must love it.
Baroness Neville-Rolfe
My Lords, I thank my noble friend Lord Hodgson for this amendment on franchises and the noble Lord, Lord Berkeley, for his intervention. Pub franchises are of course covered by these measures because they fall within the definition of a tied pub in Clause 65. I understand my noble friend’s argument that a pub franchise agreement based on a share of turnover, rather than a tied rent, can lead to a better alignment of interests between a pub company and a tenant.
However, there are other aspects of the pub company and tenant relationship that can lead to unfairness, in the same way as for more traditional tied pubs. The Pubs Code includes transparency protections for tied tenants to ensure that they are clear as to what they are signing up to. We believe that these protections and others in the code should be available for all tied pub tenants, including those with a pub franchise agreement. I can, however, provide some reassurance to my noble friend. If, as he says, price increases make no impact on the tenant in a franchise agreement, the MRO-only trigger for pricing will never apply to a franchise agreement. Should a franchisee exercise the MRO option the pub company will still be able to benefit from the stocking requirement, so the tenant could still be required to stock its beer and/or its cider. The pubs company’s obligation to provide services as part of the franchise agreement would of course fall away.
I am, however, afraid that we believe that to exempt franchises would leave a loophole in the legislation. Tied pubs could be converted to franchise pubs to gain exemption from the code. If pub franchise agreements seek to reduce some of the risks of the tied model for tenants by revenue-sharing, as my noble friend Lord Hodgson explained, we would welcome that. One would expect such agreements to be less likely to fall foul of the Pubs Code. In turn, one would expect those tenants to be more satisfied and less likely to request the MRO option. This is not a reason, however, for removing franchise agreements from the scope of the legislation where we remain uneasy about opening up a loophole. I appreciate my noble friend’s amendment but I hope that he will feel able to withdraw it.
““independent assessor” has the meaning given by section (Market rent option: procedure);
“market rent” and “market rent option” have the meanings given by section (Pubs Code: market rent option);
“market rent option procedure” has the meaning given by section (Market rent option: procedure);
“MRO-compliant”, in relation to a tenancy or licence, has the meaning given by section (Pubs Code: market rent option);”
“Fines on summary conviction in England and Wales: transitory provision
(1) Subsection (2) applies to any provision of this Act that provides that a person guilty of an offence triable either way is liable on summary conviction in England and Wales to a fine.
(2) In relation to an offence committed before section 85(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 comes into force, the reference to a fine is to be read as a reference to a fine not exceeding the statutory maximum.
(3) After section 1131 of the Companies Act 2006 insert—
“1131A Fines on summary conviction in England and Wales: transitory provision
(1) In relation to an offence committed before section 85(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 comes into force, in the provisions mentioned in subsection (2), “a fine” is to be read as “a fine not exceeding level 5 on the standard scale”.
(2) The provisions are—
(a) section 156A(7)(a);(b) section 167D(5)(a);(c) section 279D(5)(a);(d) section 853L(2)(a).(3) In relation to an offence committed before section 85(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 comes into force, in the provisions mentioned in subsection (4), “a fine” is to be read as “a fine not exceeding the statutory maximum”.
(4) The provisions are—
(a) section 790F(2)(b)(i);(b) section 790R(3)(b)(i);(c) section 1028A(11)(b)(i);(d) section 1032A(12)(b)(i);(e) paragraphs 7(1)(b)(i), 13(4)(b)(i) and 14(3)(b)(i) of Schedule 1B.””
The Earl of Lindsay
I am very much hoping that my noble friend will be able to reassure us that there are and have been instructive discussions with the Scottish Government on this point and that the dialogue with the Scottish Government has not come too late in the day for a co-ordinated cross-border approach, either via a Sewel Motion in this Bill or via parallel legislation introduced in Holyrood. Reassurance on these points is important in the context of this Bill, but it also has a wider importance.
Just last week, the Government published the document, Scotland in the United Kingdom: An enduring settlement, in which they stressed that it was essential that there was effective intergovernmental working and close collaboration between the United Kingdom and Scottish Governments. That statement restated an important recommendation from the Smith commission report, published in November 2014. That, in turn, restated a central recommendation of the Calman commission in 2009, on which I sat. This is the reason for my interest in my noble friend being able to reassure us that there has been timely, constructive dialogue between London and Edinburgh on this Bill and on this particular point.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for his amendment and for giving me the opportunity to say something about the application of these measures in Scotland. I am delighted to hear from my noble friend Lord Lindsay. I have discussed this matter with him and the noble Lord, Lord Reid, outside the Committee. The measures in Part 4 of the Bill apply to England and Wales only, of course. This is because regulation of tied pubs is a devolved matter in Scotland and it is for the Scottish Government to make their own legislation. Should they decide to legislate, they would not need any additional powers to be conferred by the UK Government.
My honourable friend Jo Swinson has recently written to the Scottish Minister for Business, Energy and Tourism encouraging the Scottish Government to consider bringing forward their own legislation in this area. My officials stand ready to assist as necessary. We understand that the Scottish Government have been engaging stakeholders from all sides of the debate and are considering whether there is evidence for a similar intervention in Scotland. I hope that the noble Lord will, therefore, accept that his amendment is not required.
Before I sit down, as this is the final day of the Committee, I should like to take a brief moment to put on record my thanks at the end of what—for some of us—has been a dry January, which has rightly ended with us talking about beer. First, I would like to thank all the patient Chairs of our Committee and those behind the scenes: Hansard, the clerks and the doorkeepers who have helped ensure our debates run smoothly and finish on time. I am also very grateful to my noble friends Lord Popat, Lord Newby and Lord Nash, on this side of the House, for their support in steering this Bill through Committee, and to my noble friend Lord Stoneham for being so loyal an attendee.
Furthermore, I would like to thank officials from the nine government departments who have been here to support the Government: BIS, the Treasury, HMRC, the Department for Education, UK Export Finance, DCLG, the Cabinet Office, the Ministry of Justice and DWP. We even talked about Gibraltar on the day that the noble Lord, Lord Mendelsohn, went missing and I would like to congratulate him on the refreshing new perspective he has brought to our work. I would also like to say how glad I was to see the noble Lord, Lord Stevenson, back today. I know he has been ill and we have had great collaboration with him and his colleagues.
Most importantly, I thank the noble Lords opposite, and all noble Lords who have been involved in the Committee, for their contributions to our debates. We have scrutinised the Bill in full, with some good and thorough debate. I have welcomed the spirit of co-operation that has been apparent even today. This is a vital Bill because small businesses are the engine of Britain. This Bill will help them innovate, grow and compete in many ways—from prompt payment to access to Government contracts. I look forward to noble Lords’ support for the Bill in its remaining stages to ensure that it reaches the statute book this spring.
Lord Mendelsohn
My Lords, I thank the Minister for her reply. On our amendment, all I would say is that between now and Report we will have some indication of where the Scottish Government are going, and we may well return to it in due course. At this stage, we would be very interested to hear her response.
I say from this side a strong thank you to the Chairmen, doorkeepers, officials, Hansard, and everyone else who has helped with these proceedings, and to colleagues for being such an interesting group in getting to grips with the Bill.
This is done in a spirit of co-operation. There are many occasions in politics where we are at daggers drawn, and many on which we find common cause. Sometimes we are in the middle. This is one where we are rather more towards one pole than the other. Our biggest criticism of the Bill is that it does not go far enough, but it would be churlish to say that that is a reason why we should not give it a great deal of co-operation. In that regard, I thank the noble Lord, Lord Popat, and the Minister, the noble Baroness, Lady Neville-Rolfe, for their contributions to the debate. I hope that in the weeks we have, on some of the more interesting issues, we can continue that spirit of co-operation. I beg leave to withdraw the amendment.
“( ) Section 13 (electronic paying in of cheques etc) comes into force—
(a) on the day this Act is passsed, for the purpose of enabling the making of regulations under section 89D of the Bills of Exchange Act 1882 (as inserted by section 13); (b) on 31 July 2016, for all other purposes.”
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, the power in Clause 144 is just one of a number of changes the Government are making to improve the whistleblowing framework. In particular, we are acting in this Bill to ensure that prescribed persons—mainly regulators—report annually on whistleblowing. The purpose of this is to make the existing process, which of course is provided for in the Employment Rights Act 1996, transparent and more effective. I think it is an important provision.
I know that the noble Lord, Lord Wills, is very passionate about this subject. I valued the meeting we had to discuss his very wide-ranging amendments and understand the issues around whistleblowing right across the piece. I reassure him that his desire to improve the way whistleblowing is handled is shared by this Government.
I am grateful to the noble Lord, Lord Low of Dalston, for his comments, including his emphasis on openness, which is, of course, a feature of this clause, and I commend the noble Baroness, Lady Mobarik, on her first intervention in this Committee and for a typically acute question, which I hope I will be able to answer.
This is an important debate. The Government are determined to protect and encourage whistleblowers. Indeed, I take this opportunity to congratulate the whistleblowers at Mid Staffordshire NHS in particular, but others too, on their courage—in the words of the noble Lord, Lord Young. Attitudes must change, as the noble Lord, Lord Wills, has highlighted, quoting the Prime Minister. That is why we are making a number of statutory and non-statutory changes in this Parliament to change the culture and improve and promote the whistleblowing framework. I believe that these changes, mainly outside the Bill, should be given the chance to take effect, and perhaps I can highlight them as I go through and comment on the various amendments.
I will begin, if I may, with Amendment 68. The Government agree that a code of practice and guidance for employers would help to promote the whistleblowing framework. This is why we are currently working with key stakeholders to create improved guidance and a non-statutory code of practice. We intend to publish these before the end of this Parliament. I strongly believe that educating employers on the benefits that whistleblowing can bring to an organisation will contribute to a positive cultural change in the way whistleblowing disclosures are handled.
Until now, the Government have expected the legal framework alone to drive behavioural change by encouraging employers to embrace whistleblowing, but clearly, from the evidence that we have, not least the examples that the noble Lord presented, the law alone is not having this effect. This is why the Government are taking steps to provide detailed guidance setting out how the law should be interpreted. We will keep this under review, and if this is not bringing about the change that we expect to see, we will consider introducing a statutory code of practice.
Amendments 64 and 65 look to amend the definition of a worker to include students in the healthcare sector and job applicants. This is a good call, and I can confirm that as a result of the Government’s call for evidence of 2013, we are making a change to bring student nurses and student midwives into the scope of the whistleblowing framework. It is the Government’s intention for this to be in place by 6 April. The statutory instrument has been laid before Parliament, and I believe there is a debate in the other place on 3 February.
The Government wish to extend the definition of “worker” further to include all students within the healthcare profession, although further work must first take place to design a legislative solution that works for the different professions within this sector. The different regulators in the healthcare sector have varying arrangements for registering professionals and training people, all of which needs to be taken into account. The noble Lord, Lord Wills, encouraged us to cover all healthcare students in the scope of PIDA. I can say that the Department of Health is beginning discussions with the relevant professional bodies about this work, and I am happy to undertake to keep him informed of progress, if that would be helpful.
Amendment 65 would extend the definition of “worker” to cover job applicants as a way to prevent whistleblowers being blacklisted and struggling to find new employment. The Government agree that those who have previously blown the whistle should not be disadvantaged when seeking new employment opportunities. That is why we are in the process of identifying the most suitable solution to address this issue, but it is a complex area, and we must ensure that any legislation would not have unintended consequences, such as creating an unfair burden on employers to prove either that they did not know that a person was a previous whistleblower or, if they did, that whistleblowing was not the reason for not hiring them. These kinds of scenarios could make recruitment processes unfair, burdensome or bureaucratic, and we have to see what we can do to get around that.
We must also ensure that employers are not unfairly exposed to the risk of tribunal claims from job applicants: for example, if they had no knowledge that an unsuccessful job applicant had previously blown the whistle, but found themselves drawn into an employment tribunal case, having been accused of causing detriment to a whistleblower.
I appreciate noble Lords’ input to suggested drafting of the legislation through this amendment, but there is work to be done to get this right and it will take time, beyond this Parliament, to reach a suitable solution. It would not be right to add this half-cooked work to a Bill designed primarily to help small business and not to introduce new burdens for employers. If this work is to get the support we need, we have to get it right.
Amendments 63 and 67 look to provide clarity to whistleblowers on gagging clauses, which I believe can be achieved without new legislation. The Government have made very clear that gagging clauses are completely unenforceable when there is a public interest concern to disclose. The new comprehensive guidance for whistleblowers, which I have mentioned, will emphasise that settlement or severance agreements do not prevent ex-employees from raising public interest disclosures. This is set out in Section 43J of the Employment Rights Act, so it is a speedy solution.
The noble Lord, Lord Wills, and I discussed the lessons of the useful report published by the NAO in 2013, which was also mentioned by the noble Lord, Lord Young. Although this confirmed, as he acknowledged, that gagging clauses do not prevent workers from raising legitimate public interest concerns, it also showed that the workplace culture, or lack of information, often leaves the worker feeling gagged. I accept that point, so the Government are introducing a number of measures aimed at changing cultural attitudes to whistleblowing. This should help to ensure that workplace environments do not leave workers feeling that they are unable to make a disclosure.
I turn to Amendment 62. The whistleblowing framework is in place to protect those who have blown the whistle: for example, the investment banker who has reported fraudulent practice in his bank or the construction worker who has exposed health and safety laws being ignored. Those who have been dismissed for any reason other than making a public interest disclosure and believe it to be unfair would need to seek redress under unfair dismissal provisions. From the research the Government carried out in 2013, through a call for evidence, this has not come up as an area for concern. Therefore, the Government consider that there is no case for this new legislation at present. However, if noble Lords feel there are issues in this area that need to be addressed, I would be keen to know, and to have examples, so that we can look at them.
Amendment 66 proposes to include “allegations” within the meaning of a disclosure of information. The Government agree with the Employment Appeal Tribunal decision in 2009, in the case of Cavendish Munro Professional Risks Management Ltd v Geduld, that the legislation should protect individuals who make a disclosure conveying information, not those who simply raise an allegation or expression of concern. For example, a worker stating simply that they had concerns that an employer did not follow health and safety laws would be making an allegation. If that same worker explained the reasons and facts—such as a door being wedged open, putting people at risk in the event of a fire—this would meet the criteria for it to be a public interest disclosure. This is quite a small change.
Amendments 68ZA to 68ZF would provide for a whistleblowing ombudsman and set out provisions as to how this would operate. I am grateful to the noble Lord for giving the Committee the opportunity to debate this. Its purpose would be to investigate failures in dealing with whistleblowing. However, I fear that if the ombudsman were drawn into investigating all issues reported by whistleblowers, its remit would be unmanageably broad. It would potentially span all issues covered by the many regulators as well as all criminal activity that the police would investigate. The equivalent US office is huge, and given the remit this would be a major undertaking, but as the noble Lord helpfully made clear, this is a probing amendment. I also noted the concerns of the noble Lord, Lord Stoneham, about doing things speedily. This is right and relevant.
In his powerful speech on his amendments, the noble Lord, Lord Wills, set out details of the functions that an ombudsman of this nature would have and provided a good checklist. Annual reporting and best-practice guidance were on that list. As I have already said in response to the noble Baroness, Lady Mobarik, the Government are already putting these measures into effect.
However, the Government recognise that one of the main issues that people have with the whistleblowing legislation is that it is not designed to address the issue reported by the whistleblower; it is designed mainly to address the employment dispute that might arise as a result of someone blowing the whistle. The noble Lord and I discussed this.
I am glad to say that the measure in this Bill will go some way to help ensure that the issue that is reported by the whistleblower is dealt with. Clause 144 introduces a duty on regulators and professional bodies that are listed as prescribed persons to report annually on the whistleblowing disclosures made to them. I believe that this will improve transparency in the way that disclosures are handled. Of course, culture matters, too—in fact, it probably matters more than anything, as Mid Staffordshire showed us—which is why we are well advanced on our national code.
I understand the noble Lord’s concerns and appreciate the work that has gone into preparing for this discussion, which is why I have tried to respond at length. We are making progress. We need to change the culture around whistleblowing, especially in the public sector, which seems to be behind best practice externally.
We are working across government and with external stakeholders to make sure that we get our guidance on whistleblowing right. Those stakeholders include Public Concern at Work, with which I know the noble Lord has worked closely to understand the concerns of those who blow the whistle. I hope that in the circumstances the noble Lord will agree not to press his amendments.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their amendments. I believe we share the same aim—that of ensuring the best outcomes for individuals who have been through an employment tribunal, and ensuring that they receive their awards. Our research indicates that, without enforcement, only 40% of awards are paid within six months. That is clearly scandalous. Our financial penalty clause is intended to incentivise prompt payment of employment tribunal awards and to prevent employers ignoring judgments by employment tribunals. It applies to all tribunals, awards and settlements conciliated by ACAS. Employers who have not paid the award will receive a warning notice from the enforcement officer. By paying the award in full, promptly, they will avoid a penalty. However, if they do not pay in full, they will be hit with a penalty of 50% of the award. If they continue not to pay, or to pay only part of the award, they can receive further penalties, each of 50% of the unpaid amount, as well as incurring interest on the outstanding award. We consider that encouraging prompt payment in this way is an effective way of dealing with a problem that we agree exists.
Before I return to the amendment, I will respond to the point made by the noble Lord, Lord Young, about employment tribunal fees. It is reasonable to move away from funding being provided largely by the taxpayer towards a more balanced process, whereby the £74 million cost of administering claims to the employment tribunal system are met in part by those who use the system and benefit from it. However, it is important to emphasise that the Government have been very careful to ensure that fee waivers are available for those people of limited means in order that they are not excluded from seeking redress through tribunals. As the noble Lord, Lord Stoneham, has already mentioned, helpfully, the Government—
Lord Young of Norwood Green
I hear what the Minister says, but surely there ought to be some concern—as I think the noble Lord, Lord Stoneham, mentioned—about a situation where, in some regions of England, the number of employment tribunals has dropped by 80%? Surely that is not an indication that 80% of claims were vexatious. Does she really not have any concern in this situation that fees are deterring people from bringing what could be completely fair and justifiable cases before an employment tribunal? The evidence we hear from trade unions, which are normally the buffer between the employee and employer, is that that is exactly what is happening.
Baroness Neville-Rolfe
My Lords, I am glad that the noble Lord intervened to register his concerns, which to some extent I share. That is why the Government have committed to reviewing the introduction of fees. We are considering the scope and timing of the review, and will bring forward our plans in due course. We need to understand what is going on here, of course, but I was trying to make a general point about trying to improve things. The provisions in the Bill are another example of our efforts to do just that—to ensure that there are fair results and that people who are given awards receive them in due time.
I turn to each of the amendments, acknowledging the spirit of them, but obviously, as is usually my wont, looking to make sure that we do not have any perverse effects. I will start with Amendment 68ZG, which is designed to include costs in the calculation of the money that is considered to be owed for the purposes of the penalty. It is worth noting that “costs” or, sometimes, “preparation time” awards—where people are not paying for attorneys—are made in only a tiny proportion of cases. Costs awards are not related to the compensation for the breach of employment rights—for example, in a case of discrimination—but to the way in which one of the parties has behaved during the tribunal process. A good example would be the deliberate, repeated late disclosure of documents. Indeed, last year only 242 costs orders were made to claimants—in the context of more than 42,000 claims. The Government do not believe that adding costs to the calculation will add a significant additional incentive to pay. But I am sympathetic to the noble Lord’s intention and will consider further whether we need to make a change ahead of Report.
Turning to Amendment 68ZH, we are clear that a penalty regime must incentivise prompt payment in full and not inadvertently reduce the likelihood of individuals gaining their full award. Allowing the penalty to be used to offset the award, as proposed in the amendment, would not, we fear, incentivise prompt payment of the award in full, which is our objective. The point of the penalty is to act as a deterrent and a sanction for non-payment. Conflating money owed to the claimant with a civil penalty would cause confusion and might raise questions about which liability had been met when money was paid. We believe it would be better to keep the civil penalty separate from the money owed to the individual. The clause already encourages an employer to make full and prompt payment to avoid a penalty altogether. As I have explained, the only way in which an employer can avoid a penalty is to pay up in full once they receive a warning notice. This seems to be the most effective approach.
Amendment 68ZJ seeks to introduce a naming scheme. As the noble Lord will be aware, there is already a scheme for the national minimum wage. We are considering naming as part of the Government’s overall approach to increasing the full and prompt payment of tribunal awards. We need to carefully consider the options to ensure that we find the most effective response. I would be happy to update noble Lords on our thinking ahead of Report.
Turning to Amendments 68ZK to 68ZM, I reassure the noble Lord that unpaid awards are already recoverable through the county court, or the sheriff court in Scotland, as they are treated as judgment debts. There is also a fast-track scheme in England and Wales where a court enforcement officer can pursue the money on the claimant’s behalf. Furthermore, interest accrues on those unpaid tribunal awards at 8% per annum. So there is an incentive to pay promptly and in full.
Finally, in response to Amendment 68ZMA, I hope I can provide further reassurance. As I have outlined, there are already a range of mechanisms by which an individual is able to enforce their tribunal award. In addition, under Clause 145, a government-appointed agent will impose penalties for non-payment. The penalty scheme we are introducing through this clause offers an alternative, cost-free way to ensure that the claimant gets the money they are owed. Therefore, the Government do not consider that there is a need to set up a further mechanism at this stage, but we shall continue to monitor the situation following implementation of the new penalty provision.
I hope that my explanations, including about our wider plans, have provided reassurance to the noble Lord and that he will be content to withdraw the amendment.
Lord Low of Dalston
Before the noble Lord, Lord Young, replies, I wonder if I might be permitted to say a word or two about Amendment 62ZMA. I am afraid I was not quick enough on the draw before the Minister rose to reply. I thought that more noble Lords would intervene on some of the earlier amendments so I missed my cue.
Since I am speaking slightly out of turn, I will not make all the points that I might have made in support of the amendment. I am very grateful to have heard what the Minister had to say but there is a considerable amount of concern about the effectiveness of regimes for enforcing the payment of awards. A number of suggestions have been made for addressing this problem. I wonder if the Minister might be prepared to meet me before Report to talk through some of the options and to see if we cannot slightly firm up the provisions that are already there and find a formula or mechanism which might be slightly more likely to deliver results than what is in place at the moment and, indeed, what is proposed by the Minister.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Low, for his comments. I would of course be delighted to host a meeting and go through these important issues—what we are doing, what we are not doing and how to find the best way forward in this important area so that the penalties work and the awards are paid.
Lord Young of Norwood Green
My Lords, I thank the Minister for her comprehensive reply. Are we satisfied? No, I do not think we are entirely, although I welcome the suggestion from the noble Lord, Lord Low, of a meeting; that is a useful and practical possible way forward. The research carried out in 2009 by the Ministry of Justice, which administers the system, showed that 49% of those employment tribunal awards—almost half—went unpaid in the first instance before any enforcement action was taken through the county court system. If it were 4% or 9%, we might say, “Okay, it’s not doing too badly”. Each case represents an individual who has fought their way through all those hurdles, got through to the employment tribunal and won an award but, no matter what the penalties are, they do not yet seem to be convincing the majority of employers. It is even worse in Scotland.
We still have real cause for concern. I have raised the fact that we have seen a dramatic decrease in people being prepared to go to a tribunal, and this seems to be adding insult to injury when they actually do go there. Nearly half the employers are able to say, “We can ignore it. We’re not bothered. We’ll see if we can weary the individual to the point where they won’t continue”. I am sure that some will not go through the county court because by that time they will have had enough. That is our concern.
Baroness Neville-Rolfe
My Lords, I reiterate that I also feel that the current situation is scandalous—I think that is the word I used—and the question is how we can best find measures that will solve the problem and bring the rate of payment in such areas much closer to what one might expect in other areas of the law. I hope that our meeting might assist with that.
Lord Young of Norwood Green
I think that I have made the necessary points, and I beg leave to withdraw the amendment.
Lord Young of Norwood Green
My Lords, we suggest that this new clause be inserted into the Bill. In the case of non-compliance, we believe it is justified that,
“any relevant remuneration the worker would have received in respect of holiday pay or other leave pay”,
ought to be included as part of the national minimum wage assessment. I beg to move.
Baroness Neville-Rolfe
I thank the noble Lord for his amendment and, indeed, for his succinct introduction, which I do not think I can quite match in responding to the amendment, which introduces a new clause to include holiday and other leave pay within the calculation of the minimum wage.
The Government do not consider that the amendment is necessary. That is because under the Working Time Regulations, a worker is entitled to a week’s pay for each week of leave, and there are already routes of redress if these payments are not made. A worker who believes that they have been underpaid can make a claim to an employment tribunal. This claim has to be submitted via ACAS, which will first offer early conciliation. Where holiday pay has not been paid, workers have a choice as to how they may claim the money they are owed. They can bring an action against their employer under Regulation 30 of the Working Time Regulations or they can bring an action for unlawful deduction of wages under Section 23 of the Employment Rights Act.
Both claims are brought in the employment tribunal. Where the worker is entitled to other leave pay which forms part of his or her wages, he or she will be able to claim any underpayments through an action for unlawful deduction under the Employment Rights Act. In addition, the early conciliation system allows for disputes over pay to be resolved before recourse is made to the tribunal, so without litigation. If a worker believes that he or she has not received the correct holiday pay, he or she can contact ACAS, which I am sure will be very helpful and will offer early conciliation. If that is not successful, a worker can take a claim to an employment tribunal. ACAS offers helpful guidance on holiday pay on its website.
The Government firmly believe that the holiday pay arrangements currently in place are sufficient and there is no evidence to suggest that enforcement in relation to holiday pay should be extended to the National Minimum Wage Act. I did, however, pick up the point from the earlier discussion that perhaps people do not always know what the routes for information and redress are. In writing to noble Lords, as I promised to do on the earlier amendment, I would be happy also to set out the arrangements on holiday pay so that people have a full understanding.
I hope that the noble Lord has found my explanation of the avenues that exist reassuring and will therefore agree to withdraw his amendment.
Lord Young of Norwood Green
I have listened carefully to the Minister’s response. We think there is a connection in that employers who fail to pay the minimum wage are often also in this situation, where they do not respect full holiday pay and leave entitlements. We will take into account the response and consider whether to come back to this on Report. In those circumstances, I beg leave to withdraw the amendment.
Lord Mitchell (Lab)
My Lords, I support my noble friend Lady Donaghy’s probing amendment. I have to make a declaration of interests. I am chairman of a company called Instant Impact. The principal business of that company is the recruitment of graduates from universities, which is obviously close to what we are discussing today.
“The condition of your birth does not determine the outcome of your life”.
Those are not my words, but those of an unlikely source, US Republican Congressman Paul Ryan, a staunch right-winger and not one we would expect to support the nanny state. Who among us could disagree with that?
Of course, in the Labour Party, we believe passionately that everyone should have an equal chance to succeed, no matter what his or her background may be, but the Conservative and Liberal Democrat parties are wedded to the same mantra: whatever our birth may be, each of us should have the same opportunity.
When most of us were young and seeking our first jobs, it really did not matter whether we had worked as interns. Indeed, the term barely existed. Sadly, all that mattered was where the candidate went to school and, more importantly, where the candidate went to university. In my case, Ealing Technical College probably did not stack up too highly. A good degree was a help, but not a necessity. A gentleman’s third-class honours was still acceptable with a wink and a rueful smile. That was true then, but no longer.
Today, the CV has become a rite of passage. It must be fine-tuned and honed, with not so much the right school, but certainly the right university and, without question, the right level of honours degree. The soft factors also count: sporting activity, cultural pursuits and charities supported. In a highly competitive world, whatever makes you stand out and interesting will help you to land the job you want. These days, young people need to include job experience on their CVs. They need to show that they have worked for a series of organisations and that they have become well rounded individuals. One of the ways that they do that is by becoming interns.
To the wealthy and well connected, getting their sons and daughters into suitable internships is relatively easy. I bet that many of us in the Room today have address books that other people would kill for. We have access to everyone who counts and, even if we do not, we have no problem in working the network to make sure that we get our children or grandchildren through the door. Some of us are able to fund our children if they do not get paid for their internship. After all, we can argue that it is the final part of their education and goes with the territory.
As a result, whole swathes of our economy are riddled with unpaid interns. The media, fashion, advertising and the new social media companies recruit unpaid interns at will, simply because they can. As has been said, how many Members of Parliament or Peers in our own Palace of Westminster have unpaid interns working in their offices or their constituencies? I do not know the answer but I would bet that the number is much higher than most of us suspect.
What happens if your parents do not have the contacts or are simply unable to fund you while you are working for nothing? I hope that the Government accept my noble friend’s amendment because we need more information about whether people are being exploited. If they are, I hope that the Minister will commit to looking at a four-week limit, as suggested by Intern Aware. I should like to hear the Minister’s views on this. I hope that she does not suggest—as the noble Lord, Lord Popat, did, when the noble Lord, Lord Storey, asked a Question in the House a few weeks ago—that we should refer to the Government’s Graduate Talent Pool for an answer. I have never heard of it and nor has anyone else I know. It really does not feature on the intern recruitment side. I also ask her not to suggest that HMRC has the powers to intervene and that it can hunt down any offenders. It is stretched to capacity, and anyhow it has other fish to fry.
There are many organisations that support the four-week limit. Axa, a major insurance company, says that a four-week limit to unpaid internships will ensure a fair opportunity for everyone. Ernst & Young says that young people deserve to be paid for the work that they do on internships, and if they do not, it is reprehensible. The wonderful Charlie Mullins, the founder of Pimlico Plumbers, a small business—which is not so small these days—says that it is completely reprehensible for companies to expect interns to work without pay. The ACCA has asked for an end to unpaid internships. RIBA expels members who use unpaid interns. UK Music says that interns should always be paid at least the national minimum wage. Lastly, the Times said in a recent editorial that the,
“abolition of unpaid internships is worthy and desirable”.
Under current national minimum wage law, an intern is entitled to pay only if they are working under a contract; of course, for a contract to exist it needs consideration. That means that if an intern receives nothing except expenses from their employer, the national minimum wage will not apply. The worst employers are exploiting this loophole and, under the law as it currently stands, there is little that can be done. The dice are loaded against those who cannot afford to take unpaid internships. The solution is not to discourage rich people from helping their children but to do a lot more to help clever kids who do not have wealthy parents.
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady Donaghy, for raising this issue and giving us the opportunity to have a debate. She brings great knowledge and experience of all employment matters, notably as a former chair of ACAS and now from her work at the CIPD.
Internships can and do provide valuable opportunities for young people taking their first step in the labour market, and we wish to encourage them. Speaking for myself, last July I had the very happy experience of taking an intern from a modest social background here in the House of Lords, and over the years I took a good number of interns when I worked in retail, as part of sixth-form studies or college vocational assignments. I tried to take people who might not otherwise get a chance to come in and get work experience; that is a great thing that employers, and indeed the public sector, can do.
The term “internship” is of course a relatively new concept—and, I am afraid, like so much else, a bit of an Americanism. As has been said, there is no definition of internships in UK legislation. Individuals undertaking an internship may be workers, employees or volunteers, depending on the reality of the situation and not their job title or what an employer decides should be set out in a contract.
The flexibility of our labour market is a source of pride and there are currently more people in work than ever. In the past year alone the number of people in work rose by 512,000, so employment is now at a record 30.8 million, providing valuable opportunities to young people. Of this remarkable growth, eight out of 10 were employees and eight out of 10 were in full-time jobs. In a labour market as flexible as the UK’s, there are a multitude of possible employment relationships that suit the employer and the individual, and this has to include short-term placements, internships and work experience. There is no single test to determine whether a contract of employment exists and whether an individual is an employee. Only an employment tribunal can determine whether a contract of employment exists. I appreciate that sometimes this can be confusing and unhelpful. Last October, my right honourable friend the Secretary of State announced a review of employment status—rightly, I think—to ensure that these issues are considered. We hope that the review will conclude in March.
The noble Baroness’s amendment asks the Government to publish a report which would assess the growth of internships over the past five years, their incidence by sector, their average length and the subsequent career choices of interns. We are not convinced that it makes sense to write the requirement for a report into the Bill. Internship and work experience policy is a matter for the Government to consider as part of their normal work on employment policy. As I have said, we are looking at the issue in the context of a review of employment status, conscious of the need to preserve good practice in relation to work experience, where it exists.
I understand the concerns raised about pay and social mobility, and that some young people will not know about the opportunities or be able to find internships. I assure noble Lords that the Government are keen to work with employers and young people to ensure access to high-quality graduate opportunities and that is why we fund the Graduate Talent Pool service—which more people have probably heard of now, as a result of the Question in the House answered by my noble friend Lord Popat and because of the discussions on this Bill. The service is free to employers and graduates and provides information on all aspects of internships.
My noble friend Lord Storey asked about volunteers. Genuine volunteers who are not workers and who willingly give their time for free are exempt from the national minimum wage. The Government’s Social Mobility Business Compact seeks to influence business to remove barriers to social mobility and to promote open and fair access to opportunities. This is what the noble Lord, Lord Watson, and my noble friend Lord Storey seem to be seeking. There are a number of strands to this, including work experience and paid internship opportunities. We are involving education providers—schools, colleges and universities —so that they build up links with business and other employers, including charities, which is another important area.
There is an issue about the entitlement to the minimum wage and I should explain that an intern’s entitlement depends on their employment status. If the intern is an employee or a worker, they are entitled to at least the national minimum wage from day one, and all other rights attached to their employment status. If the intern is a volunteer, they are not entitled to the national minimum wage but can receive reasonable out-of-pocket expenses. This may be the only way that people can get work experience. I worry that regulation could be perverse in its effect, especially with small businesses which probably cannot afford the great schemes we have been talking about that are provided by the big accountancy and insurance companies and so on. It is quite a complex subject.
Lord Mitchell
One word I did not hear—and I was listening very carefully—was “exploitation”. The feeling many of us have on this issue is that young people who are desperate to make sure that their CVs look good so that they can say that they have had the right experience are prepared to be exploited to make sure that their CV looks good. Many employers out there prey on them, and in many cases those situations where people are not paid can last for long periods of time. More than anything else, we want to address that.
Baroness Neville-Rolfe
I thank the noble Lord for that further clarification. There is a lot of common ground here. We need to address certain issues and, clearly, we are all keen to stamp out exploitation.
Baroness Donaghy
My Lords, I am very grateful to noble Lords who have taken part in the debate. I thank the noble Lord, Lord Storey, for his comments. Of course, there is no intention to interfere with the perfectly well known volunteer system or with anything to do with sandwich courses in universities. I think we all know what we mean when we talk about these cases, but we are not very strong on analysis, and we need to pin that down.
My noble friends have certainly pointed to the exploitation issue—that somebody can be very willing because of the future opportunities that an internship can give them. Because their family can support them they might grit their teeth and say, “Well, let’s put up with this for a few months, because it will open doors that otherwise will never be opened”. It is still exploitation. The vast majority of people that I am talking about do not even get through the front door; they do not even get through the door to enable themselves to become disgruntled, so that they can go for enforcement or to various websites to ask about it. They are outside this semi-privileged circle. That is the issue that I want to pinpoint.
Baroness Neville-Rolfe
It certainly has not been my experience—and I used to work outside London—that all internships are a gilded circle. Internships and work experience are quite broadly based in the cities of Britain, which is a very good thing. I am keen that that should continue in big firms and small firms, in the public sector and in the voluntary sector. We have to be careful that we do not take steps which, with the best will in the world, have a perverse effect, so it is right that we should debate these issues. Like the noble Baroness, I have a lot of passion to make these things work and to encourage more opportunities for more people.
Baroness Donaghy
I thank the Minister for that comment. I think that we are not too far apart on the need to identify and be more objective about what we are talking about. I am referring all the time in this amendment to unpaid internships. As I have said, I think that there is an element of exploitation. Perhaps any report or further discussion that we might have could look at some time limits that are acceptable. I am grateful for the Minister’s comprehensive reply. I will look at that in more detail but at this stage beg leave to withdraw the amendment.
Baroness Donaghy
I want to say a brief word about this because I must admit that I have a personal dislike of the phrase “zero-hours contracts”. Casual labour has existed for a very long time. It has had different names and different fashions have been followed. I think we are all aiming to ensure that while we do not completely get rid of a flexible labour market, basic employment rights are available to those who have spent any significant length of time in a particular job. We know what we are talking about here, do we not? There is the story of the burger operative—or whatever they are called—who was told that he was not working when not serving a customer. His pay was therefore suspended so that he was receiving pay only when he was serving customers. The argument then was, “Of course, the franchisee went beyond his remit”. That is a marvellous excuse made by some national brands; they can blame a local manager for doing something when the tone has probably been set at national level.
This could be extended to all sorts of other areas by saying, “You are not actually working”. I know that the noble Lord, Lord Stoneham of Droxford, used to work for the National Union of Railwaymen. I wonder if the same would apply to a train driver who is not driving his train while stopped at a signal, and therefore should perhaps not be paid until such time as the signal is green. That was how ridiculous some of these practices were on the ground. To go back to the reality of the casual world of work, as we know it in this country, those practices are not really funny. They are quite serious examples of exploitation so I make no apology for supporting my noble friend Lord Young on these amendments, if only to try to get to a situation where we are paring back all these gimmicky phrases and looking at people’s basic employment rights.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Young, for these amendments and for the debate we have had on this part of the Bill, which went slightly wider than the amendments. I ought to say that Labour did nothing about zero-hours contracts for 13 years. The number of them went up by 75% between 2004 and 2009. What we have done is to carry out a review into these contracts, so that we can deal with any abuse. As a result, we are banning the type of contracts which mean that employees are not allowed to work for any other employer, while still allowing people such as students to benefit from the flexibility that they offer.
We introduced Clause 148 to deal with this mischief and I am glad to hear the noble Lord’s support for it and my noble friend Lord Stoneham’s perceptive analysis. The noble Baroness, Lady Donaghy, rightly tried to improve our English and not talk about zero-hours contracts. It may be that like one of the terms we were struggling with earlier, the term is an Americanism. Wikipedia does not give its origin but I will hunt it down.
At present, an individual subject to exclusivity terms in their zero-hours contract cannot seek work elsewhere, regardless of whether the employer offers only occasional, minimal, or even no hours of work. Exclusivity terms are unfair for the individual who, as a result, is prevented from boosting their income or building on their work experience. Frankly, it is also damaging to the economy because it prevents people from reaching their full employment potential.
As my noble friend Lady Harding made clear at Second Reading, from her own experience of running a supermarket in Yeovil, zero-hours contracts are an important element of a flexible, vibrant labour market, and they work for employers and individuals alike. I even heard the shadow Business Secretary agreeing that sometimes people quite like to use them. However, I think that we also agree that people working under such a contract must get a fair deal.
The ban on exclusivity terms in zero-hours contracts, as set out in the clause, is straightforward. From the moment the clause commences, individuals can simply ignore an exclusivity clause and work for another employer as well if they wish. There is no process, no admin and no need to discuss this with the employer—I am not sure that people understand this—and any attempt by the employer to stop a second or third arrangement would be unenforceable. This is a major change and a reduction in employer flexibility, but one that we believe is right.
Amendment 68ZU seeks to provide a route of redress for zero-hours workers who need to enforce their rights, allowing for regulations to set out the details. The clause already provides for an order-making power that will allow for this.
Amendment 68ZW seeks to make the use of that order-making power mandatory. However, given the fact that routes of redress will be delivered through the order-making power, I am sure that the Committee will agree that in this case the amendment is unnecessary. The Government will have to bring forward regulations; otherwise, the ban on exclusivity terms in zero-hours contracts will have no meaning. For this reason, I do not believe that we need to make this amendment. The regulations that will be possible under the order-making power will also be able to address the issue of redress that is covered in detail in Amendment 68ZAB; that is, that an employment tribunal will have the power to consider claims related to the exclusivity ban, including providing remedies to the individual and issuing penalties to the employer. The Government recently consulted on using the order-making power. We are currently finalising the details with a view to publishing the government response shortly on how we plan to tackle avoidance.
Amendment 68ZZ suggests that the definition of an exclusivity term is too narrow. However, the Government have looked at this and consider the description in new Section 27A(3) of the Employment Rights Act 1996, which will be inserted by Clause 148, to be sufficiently broad. It covers any provision in a zero-hours contract that prohibits working for others, as well as terms that require an individual to seek permission from their employer to do so.
I believe that our approach will deal sensibly and effectively with both avoidance of the ban and routes of redress for individuals on a zero-hours contract who suffer a detriment. I hope that on this basis the noble Lord will agree to withdraw the amendment.
Lord Young of Norwood Green
The Minister indicates that the Government have had some consultation and regulations will be published. I wonder if she will give some timescale for those.
Lord Young of Norwood Green
Right. Obviously, as we said earlier, we welcome this measure. We are probing a bit to see whether or not the controls that the Minister referred to and the powers of the Secretary of State are sufficient. We will take into account the points that she made in her response, and we will consider whether we need to return to these issues on Report. In the mean time, I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I am grateful to noble Lords for their amendments and the opportunity further to debate aspects of zero-hours contracts. I am also grateful for the clarification by the noble Lord, Lord Young, that he does not want to get rid of all flexibility. I was also very glad that the noble Baroness, Lady Hollis, joined our discussion. Her three case studies demonstrate the need for Clause 148.
As I set out in our previous debate, the Government recently consulted on the matter of avoidance and routes of redress, including powers to go to employment tribunals and seek compensation. I am pleased to reassure the Committee that that is already possible under Section 27B in Clause 148.
Amendment 68ZX would require employers to offer fixed-hours contracts once an individual has worked regular hours as determined by regulations. The noble Baroness, Lady Hollis, mentioned six months. Before I respond, let us reflect on how those with zero-hours contracts feel about their employment. The CIPD survey published in November 2013 found that many individuals chose to work on a zero-hours contract and were found to be more content than those in permanent employment. I accept that there will be hard cases but these are overall comments. Zero-hours workers, when compared to the average UK employee, are just as satisfied with their job, happier with their work-life balance and less likely to think that they are treated unfairly.
To respond to the point made by the noble Baroness, Lady Hollis, fluctuating demand is not predictable. My noble friend Lady Harding told us about that at Second Reading from her experience. Even the noble Baroness acknowledged that there are sectors of the workforce and individuals—students, those in IT, the recently retired, and many others—who are happy with zero-hours contracts, and, of course, happier to have a job than not to have a job. Imposing restrictive criteria over how a zero-hours worker can be employed may have the perverse effect of discouraging employers from creating jobs at all.
I appreciate that that is not the noble Lords’ intention, but I know that the Committee will understand the risk of unintended consequences, because it is something that we consider a lot when we are trying to legislate in this House. There is a clear risk that employers will simply let people go, or offer no work at the end of a qualifying period to avoid converting the contract to fixed hours. It would also be very difficult to define what is meant by “regular hours” in all those different industries.
The Government have already made some changes in this area. The flexible working regulations were amended in June 2014 to ensure that any employee can request flexible working. That is just as relevant to someone on a zero-hours contract as it is to a permanent member of staff. If a zero-hours worker is an employee and can show 26 weeks’ continuous service, they can make a request for formalised hours or a particular shift pattern.
Amendment 68ZX also requires a right for zero-hours workers to be provided with financial compensation. As I understand it, that power is already provided for in the clause.
Baroness Hollis of Heigham
The Minister says that people are satisfied with that. I was just checking my statistics from the CIPD, in which only one in five older people prefer the contract that is being offered them; the other four-fifths would like regular hours. The problem is that you cannot run a second job alongside a first—which is the point of Clause 148, which we all welcome—unless you know what your hours in the first job will be. It is very simple. Unless you have the ability to turn it into a reliable, regular, predictable contract, with the exceptions that we all agree may well be necessary—in IT, arts events, so on and so forth—the freedom you are giving in Clause 148 will be partly illusory. You cannot do it.
Baroness Neville-Rolfe
I thank the noble Baroness for her clarification. This is not an easy area. I also note that she made a number of good points about bad employer practices. I will mention something we are doing that may help on all these points. We have already encouraged business groups and unions to develop codes of practice. Those need to be sector-specific and industry-led, as we think that creates the most impact. A one-size-fits-all solution from the centre will not work, for exactly the reasons that we are debating this afternoon. The guidance would include, for example, in what circumstances a zero-hours contract is appropriate and where it is not, and the kind of considerations mentioned by the noble Baroness will be relevant.
Amendment 68ZX also seeks powers for employment tribunals to enforce their own judgments. Well established court-based enforcement options are already available to enforce employment tribunal awards, such as the fast-track system or county court in England and Wales and the sheriff courts in Scotland. The primary function of the employment tribunal is of course to provide a forum in which parties can resolve their disputes and obtain a judgment. The employment tribunal does not have responsibility for the enforcement of the awards it makes to individuals. Tribunal-led enforcement of its own awards would represent a fundamental departure from the normal principles of civil justice and enforcement. If the enforcement of employment tribunal awards for zero-hours claims became a tribunal-led affair, many other employment tribunal and civil court users would begin to question why the tribunal or court did not pursue or enforce its judgments or awards.
Amendment 68ZAC suggests that zero-hours workers should be provided with information about their basic terms and conditions within two months of their start date. I agree that employers should provide their staff with clear terms and conditions, and I reassure noble Lords that employees are already entitled to a written—or, I think and hope, online—statement of the particulars of their employment arrangement. That entitlement applies to individuals on a zero-hours contract if their employment status is that of an “employee”. However, the Government acknowledge that there is a wider issue about whether all workers, regardless of their employment status, should be entitled to a written statement. That is being considered as part of the review of employment status, including the risks, impact and opportunities involved in any new arrangements, which I mentioned when we were discussing interns. Officials will report to Ministers on the outcomes in March.
The noble Baroness, Lady Hollis, also talked about the interlink between zero-hours contracts and jobseeker’s allowance or universal credit. Universal credit was of course designed to be responsive to fluctuations in earnings—it is different in that way, and to my mind better—so, for people who are working, financial support will be reduced at a consistent and predictable rate. In weeks where a claimant has lower or no income from their zero-hours contract, universal credit payments would increase.
Baroness Hollis of Heigham
The point is that if you are going to be paid only at the end of the month, what do you live on in the mean time? Just to make it clear, your universal credit payment will be paid in arrears at the end of the month. However, you learn only at the end of the second week that you do not have the income. Although I absolutely agree that UC will reflect the total earnings over the total month, what do you live on in weeks two and three?
Baroness Neville-Rolfe
The noble Baroness makes a point that bears on the universal credit payment system in the round. I think that the clause is actually helpful, compared to the status quo, if we make these changes on zero hours. I am advised that universal credit is paid in real time, so if the claimant informs the system in real time, they will get the money. I must apologise that I am not a welfare expert, I am a Business Minister.
Baroness Hollis of Heigham
Whether it is the handwriting or whatever, it is certainly the case that UC will be based on real-time information, but the payment will be made at the end of a month in arrears. Therefore you have the problem of income-smoothing when you have unpredictable hours, and we know that the hours of 75% of people on ZHCs vary every week. That is why, going back to Clause 148, I ask how you can run a second job with unpredictable hours if your first job has unpredictable hours. Your two employers may want you at the same time, but neither employer may want you at another hour.
Baroness Neville-Rolfe
The noble Baroness makes a good point. In a sense, that is a problem for employers, who could previously have a zero-hours arrangement that was exclusive. As I explained in opening, we have decided that that should not be the case in future. I am sure that the new arrangements will take some thinking about and settling in but, as far as I am concerned, if you are on a zero-hours contract, you can offer your services to—I do not know—two fashion magazines rather than just one. That is an excellent move forward. In any event, many people on zero-hours contracts who benefit so much from them, especially those in the categories that we were talking about, are not looking for universal credit, as the noble Baroness acknowledged.
I have probably taken this as far as I can this evening. I have tried to set out why we are proposing this, and I hope that the noble Lord will feel able to withdraw his amendment.
Lord Young of Norwood Green
I was interested when the Minister said that one of our amendments, seeking compensation if shifts were cancelled at short notice, was catered for in the Bill. I had another careful look and I presume that she is referring to new subsection (5)(c) on page 138, which states rather broadly:
“requiring employers to pay compensation to zero hours workers”.
It does not state in what circumstances. I would welcome some clarification. If that is not possible today, it is still an important issue that requires an answer in writing.
Baroness Neville-Rolfe
I thank the noble Lord for raising the issue. I was going to deal with it in my response, but decided not to because of the complexities. I can give him some comfort but the best thing is to consider the questions that he has asked and write to him and copy that to other noble Lords, because this is obviously an important issue.
Lord Young of Norwood Green
I think the noble Baroness for her response. It has been an interesting debate. I thank my noble friend Lady Hollis for her usual forensic analysis. We will need to consider our response in the light of the Minister’s answers. Although we do not necessarily have an agreement on this, we are seeking to improve the Bill. We are not seeking to abolish flexibility or all zero-hours contracts but we seek to create a fairer scenario for workers employed in those circumstances. With those caveats, I beg leave to withdraw the amendment.
Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 10 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Wheatcroft (Con)
My Lords, I take issue with these amendments. What we do not need is another report into the problems that small businesses face. There is no shortage of information on these problems, not least from the Federation of Small Businesses, to which the noble Lord referred. We know what the issues are. There is not enough finance available for small businesses. One of the things that this Bill attempts to do is make access to finance easier. It also includes lots of measures that will help small and medium-sized businesses. However, what those businesses need is action now, not another delay while another report is produced. As we get regular feedback on what the legislation does, that will become more than apparent. Organisations such as the federation will not hesitate to make clear what they think about what the Government are doing. This would be just another bureaucratic exercise when what we need is action.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, Amendment 1 asks that we report on the long-term needs of small and medium-sized businesses. In moving it, the noble Lord, Lord Mitchell, touched on the wider issues surrounding small business. I do not want to give the Committee another Second Reading speech. A lot of the issues that the noble Lord raised will come up on the various amendments that we discuss today, but I feel that we have done more to help small business than any Government before. This Bill is the latest evidence of that process.
In particular, I refute the claim that the Government are not doing enough to increase lending to small businesses. While the annualised figures remain negative, the tide is turning and there is a significant upward trend. According to the SME Finance Monitor report of November 2014, 71% of all loan and overdraft applications within the previous 18 months were successful. We support small business in many ways. Of course, a recovering economy—which this demonstrates—after probably the worst recession in history is a very important way to help entrepreneurs.
Turning to the amendment, first and foremost, through our industrial strategy the Government are working in partnership with industry to understand the future needs of all businesses and to set the long-term strategic direction. In each of our sector strategies we have joined forces with industry to set ambitions for the sector and our commitment is to invest in helping firms—including small firms—to access finance, skills, innovation and export opportunities so that we can compete internationally. I share the noble Lord’s aspirations for international success.
As well as engagement, we undertake in-depth research and analysis every year to fully understand small and medium-sized business needs. I draw attention in particular to the Small Business Survey, BIS’s flagship annual research project. Results from this are used to develop our business support policy and are also published so that private sector organisations working with small businesses can benefit from the insights. The survey is considered the country’s foremost source of knowledge about small business needs and is widely referenced.
Amendment 1 refers to specific areas of policy relating to small business. This is a good list and I take this opportunity to reassure the noble Lord that the Government are already researching and reporting on the needs of small businesses in these areas. I will give some examples. Last year, the British Business Bank published its strategic plan, setting out a long-term vision for the organisation that will deliver for smaller firms. Only last month, the bank published its first report on trends in business finance markets. The market gaps identified through this in-depth market analysis are feeding into the bank’s product development process. Important and interesting conclusions include the following: more businesses will seek finance for growth; a more diverse and vibrant supply of finance is needed—this Bill helps with that; and awareness and understanding of the range of finance options is not yet comprehensive enough. I am placing a copy of the report in the House Library. We expect future reports to be published on an annual basis.
Secondly, last year, UKTI published Britain Open for Business, an update to its five-year strategy for providing practical help to exporters. UKTI last year worked with 42,684 SMEs to provide a range of services designed to help companies enter new markets. This hands-on relationship allows UKTI to understand and catalogue the needs and challenges faced by these companies and to develop specific programmes to overcome perceived barriers to exporting. Last year, this included a first-time exporter’s package, a medium-sized business programme and an e-exporting initiative.
Lord O'Neill of Clackmannan (Lab)
Does this website cover the plethora of information sources which the noble Baroness has spent the last six or seven minutes identifying? In some respects, the report is just another tome gathering dust, but if we can have a website that is regularly updated and is accessible to the general public, as it were, perhaps that would go some way towards creating a report by other means.
Baroness Neville-Rolfe
I thank the noble Lord for his helpful intervention. Indeed, like him, I feel that we need greater awareness of the potential of GOV.UK and the internet for communicating with business, especially small business, in a much simpler and easier way. That is exactly Matthew Hancock’s intention. The plan is that this website, if it does not do so already, will cover all the sorts of things that you are talking about. Do have a look at it and if you feel there are other things that we should do, I am sure that we can. I am sorry about the parliamentary impropriety of referring to the noble Lord as “you”.
That brings me to a couple of final points. Just last month, which is a year since the publication of Small Business: GREAT Ambition, we announced that we had met a large commitment in that document by launching the Business Growth Service, joining up all of our support available for those businesses that have the right level of ambition, capability and capacity to improve and grow. So we are making progress with this overall and trying to bring together the offer for small business, which I feel is a theme that we will probably agree on in the course of this Committee.
The House can look forward next month to a report by my noble friend Lord Young of Graffham, the Prime Minister’s adviser on enterprise, who will produce his definitive paper on what impact the last five years of government work has had on small businesses in this country. I will ensure that interested Lords receive a copy.
Therefore, while I fully agree with the intention behind the amendments, I agree with my noble friend Lady Wheatcroft that we have enough reports. I do not believe that it is necessary to achieve the outcome that the noble Lord seeks in the way that he has proposed. I hope that he has found some reassurance from my lengthy explanation and is willing to withdraw the amendment.
Lord Flight (Con)
My Lords, I first declare an interest as chairman of the Enterprise Investment Scheme Association. This issue falls under the Treasury rather than the BIS, so it often gets ignored in terms of its crucial importance in raising equity capital for small businesses. Once you have the equity capital, you can gear up with borrowing. EIS, under Governments of both main parties, has raised more than £12 billion since it started; over the past three years, the amount raised has doubled in each of those years and is now well in excess of £2 billion for the current year. When the present Government came into power, one of the constructive things that they did was to go back to negotiate with the EU to widen the parameters of the EIS, which had been unhelpfully narrowed during the previous Labour Government. Equity finance for small business is almost more precious than debt finance, and there is a wider range of providers of debt finance now increasingly available. I want to register the point on a BIS Bill in a BIS debate today that the Treasury and the EIS is crucially important for small business.
Baroness Neville-Rolfe
My Lords, I was glad to hear of the experiences of the noble Lord, Lord Mitchell, and his success in running a business. Let us hope that there will be success for others in that direction as a result of the changes that we are making in the Bill. Having been brought up on a farm, which I suppose is the ultimate small business—and one that, I am afraid, failed, which is also a relevant experience—and shared a small garden company, I know exactly what the noble Lord is saying about the availability of finance, funding and cash flow. These are always incredibly important issues for small companies.
Turning to Amendment 2, I have some sympathy with the noble Lord’s proposal and general stance, and I should like to reassure noble Lords that the Government are currently consulting on this very issue.
The purpose of our clause is to make it easier for businesses to access invoice finance, which I agree is one of the most important sources of alternative finance around. The effect of the clause is to create a power for the Secretary of State to make regulations which can invalidate contractual barriers that inhibit small businesses’ use of invoice finance in the way that larger companies are able to operate. The Federation of Small Businesses, the IoD and the Asset Based Finance Association have all expressed support for this measure.
In the consultation, the Government outlined their preferred option for using the power, which is to nullify a ban on invoice assignments outright with some exceptions. The Government also requested views on how this measure would interact with supply chain finance, commercial confidentiality, financial services and land interests.
Clause 1 as currently drafted gives sufficient flexibility to allow the draft regulations to be adapted if the consultation provides strong evidence that in some situations an assignment can lead to unintended consequences. Conversely, if we accepted this amendment today, we would remove one possible way of dealing with anti-assignment clauses before having had the opportunity to consider the evidence from the consultation on the best way forward. Our consultation will close on 16 February and a summary of responses will be provided shortly after.
I hope that the noble Lord feels that his probe has been effective, that he finds the explanation reassuring and that he understands that we are on the case in consulting not only in writing but by having stakeholder discussions. On that basis, I hope that he will withdraw his amendment.
Lord Mitchell
I thank the noble Baroness for her reply. Of course, this report will come before the Report stage of the Bill, so we can come back to it as necessary. Again, I thank her. I think that most of her response was reassuring and I beg leave to withdraw the amendment.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their amendments and for providing the opportunity for us to debate this important matter of late payment. The Government are taking action to change the culture of late payment, but we know that there is still more to do. It is helpful to have the experience of noble Lords, including that of the noble Lord, Lord O’Neill, of how this has been working. We are serious about changing the culture and it is good to have my noble friend Lady Harding here to bring her experience of culture change. My right honourable friend Matt Hancock has made our intention very clear on a number of occasions and we are busily working on this, as I will explain.
Through the measures in the Bill, large and listed companies will have to publish information about their payment performance and practices. We are also strengthening the prompt payment code, which commits signatories to pay within agreed and clearly defined terms. I agree with the noble Lord, Lord Stoneham, that we have to be careful about not overregulating small business, but action is necessary in this area.
I will take each amendment in turn. On Amendment 3, it is common when introducing new regulations through a power to use the word “may”, but I can reassure noble Lords that the Government are fully committed to introducing a reporting requirement on payment practices. That is why we are already consulting on draft secondary regulations.
Turning to Amendments 4, 6 and 7 regarding the payment performance reports, the noble Lord, Lord Mendelsohn, raises a good point, and I am pleased to be able to reassure him that the clause as already drafted enables these matters to be dealt with by way of secondary legislation as far as they relate to information to be reported. In our current consultation, we are seeking views on many of these issues, for example on the enforcement regime. We will be considering carefully the arguments made, both here in this House and through our consultation, before deciding how best to proceed.
Our consultation document, Duty to Report on Payment Practices and Policies, published on 27 November, merits perusal. We are very open to comments and ideas, and noble Lords will see that good and bad supply practices would become public, company by company, every quarter in a preordained format on each company website. This transparency will change the culture in a way in which earlier measures have not succeeded in doing. We look forward to the responses and, as the noble Lord, Lord Mendelsohn, suggested, we will make sure that we look at who the responses are coming from, because obviously there are different interests here. We will publish a detailed summary of responses, once the consultation is closed, before the end of this Parliament.
To complement the consultation on paper and the discussions here in the House, we will hold a number of consultation round tables, which Matt Hancock will lead. We are having meetings with stakeholders, which will include small business groups and large business groups, and business representative bodies. The meetings will start next week and will run until 2 February, when the consultation closes. They will look at specific subjects of interest to the stakeholders who are gathered together, and will include the content and scope of reporting requirements, enforcement and monitoring of those requirements, supplier lists—an issue that has been mentioned—and how invoice dates should be tackled.
I am grateful to my noble friend Lord Flight for tabling his Amendment 5, and to him and my noble friend Lord Cope for their comments. Our prompt payment consultation also seeks views on which companies should be subject to the reporting requirement. We propose to exclude small and medium-sized companies from this obligation, using the definition in the Companies Act 2006. We chose this definition as businesses will already be familiar with it, making it easy for them to comply with it. Stakeholders advise us that if instead we relied on the definition used for research and development tax relief, as my noble friend proposed, it would reduce the number of companies in scope from around 18,000 to around 15,000.
My noble friend Lord Flight also mentioned Amendment 25, which relates to the definition of small and medium-sized businesses used for the credit data provision. I understand that that proposed definition is the one used by Her Majesty’s Revenue and Customs for the purposes of the research and development tax credit. We were planning to talk about this under Amendment 25. My noble friend Lord Newby hopes to be here for that, but he is detained on the Pension Schemes Bill; he has a rather awkward situation today, boxing and coxing with the other Bill on the Floor of the House today, as I hope the Committee will understand.
To conclude on Amendment 5, mandatory company reporting requirements are drawn largely from existing company legislation. This is why our starting point was the precedent that UK companies will be familiar with. In addition, given the scale of the problem—I think somebody mentioned £46 billion a year—and the relatively low estimated cost of this measure, at £33.8 million over 10 years, the Government think that it is important that as many companies as is proportionate should be required to report on payment terms. We are consulting on the issue and will consider all alternative proposals. In the mean time, it would be premature to accept the amendment.
On Amendment 9, many respondents to our 2013 discussion paper felt that introducing further penalties would be unlikely to tackle the problem of late payment. The Government also consider that the amendment could lead to wholly undesirable consequences if businesses lengthened their payment terms to avoid paying interest. In the other place, the Government committed to holding a round table on automatic payment of interest to test our current assumptions. We will report back on that issue before the end of March. In any case, by forcing companies to publish comparable information on their payment practices as I have described, we will put pressure on them to improve those very payment practices.
On Amendment 10, late payment legislation already sets a maximum 30-day period to quibble after the receipt of relevant goods and services. Stakeholders to whom we have spoken are unsure that additional legislation would achieve real change, but we will consult stakeholders to understand any concerns around quibble times.
As for unilateral changes to payment terms, it is poor payment practice to ask suppliers to accept blanket changes to payment terms, but in practice such requests are of course not imposed unilaterally. Rather, they are changes made with the agreement of both parties, even if the smaller party may feel that they have no option other than to agree. That was the problem described earlier. I am afraid that a ban as proposed in Amendment 10 would probably not prevent the practice, but we agree that more must be done to tackle exploitation of small suppliers. As I said, our current consultation proposes that companies should report on whether standard and maximum payment terms should be amended during each reporting period to help shine a light on such behaviour. I emphasise that that is out for consultation.
The practice of large companies asking existing suppliers to pay to join or remain on a supplier list, mentioned by the noble Lord, Lord Mendelsohn, is deeply concerning. As a result, we are currently consulting on the issue to understand how widespread concerns are about this and whether action should be taken. Obviously, a ban would apply economy-wide, because that is the nature of the provisions that we are debating today. It is imperative that any actions that we take are targeted and do not inadvertently prohibit the use of supplier lists, for example, where they are mutually beneficial to both parties. I can see circumstances where that might be the case.
Finally, turning to Amendment 11, while we already have a prompt payment code, we can and must do more to strengthen it. We have appointed an advisory board made up of code signatories and business representative bodies to steer this important work. We are currently surveying signatories and non-signatories to the code to test our initial proposals for strengthening its enforcement mechanisms, and considering whether it should have a maximum payment term. Introducing a maximum payment term would be a significant shift for the code. It is right that we use this consultation period to understand how all the options would work in practice.
I turn now to the proposals regarding writing to FTSE 350 companies. Perhaps I may mention that my right honourable friend made a commitment in the other place to write to all those companies to ask them to join the code. I just want to say that he will fulfil this commitment before the end of this Parliament, and of course I will be happy to write to noble Lords to inform them when that has been done.
I hope that the noble Lord feels reassured that we are making a lot of changes and that we are proceeding, albeit by secondary legislation, to do many of the things that have been discussed today. I hope also that he will agree that the amendment should be withdrawn.
Lord Flight
My Lords, I am not quite clear what the Minister was actually offering here, but I should stress that it is clearly completely inappropriate to treat companies with a turnover in excess of £25 million and more than 250 employees as large companies, which is what the Bill presently does. These small and medium-sized businesses are as much the victims of late payment as smaller companies. It is clear—and I trust that both sides of the Committee would agree—that the definition needs changing to an appropriate size, whether by using the R&D definition that fits reasonably well and on which Grant Thornton has done the research, or another definition. However, the SME definition is clearly inappropriate. I beg to move.
Baroness Neville-Rolfe
My Lords, I have already responded to my noble friend Lord Flight. This matter will be discussed again, not least under some later amendments. We have listened to what he said but, at this point, I would ask him to withdraw his amendment.
“( ) Until section 85(2) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 comes into force, in subsection (7)(a), “a fine” is to be read as “a fine not exceeding level 5 on the standard scale”.”
Baroness Neville-Rolfe
My Lords, this group of amendments makes a number of consequential and technical changes to the penalty levels set out in the Bill. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 includes a provision that, once commenced, will remove the upper limit on all fines of £5,000 and above in the magistrates’ courts. The Act also provides a power by order to increase the amounts of maximum fines at levels 1 to 4 available to magistrates for less serious offences.
The Bill was drafted on the assumption that both the £5,000 limit would have been lifted and levels 1 to 4 increased by the time it received Royal Assent. As this is not yet the case, it is necessary for some of the penalties provided by the Bill to be amended to operate satisfactorily whether or not the changes have come into force. The amendments ensure that the penalties in the Bill work whether or not the changes have taken place, without the need for further amendments to the Bill. This future proofing will apply in respect of a penalty for non-compliance with the proposed reporting requirement on payment performance, which we have just discussed.
We have considered carefully the appropriate level of penalties in the Bill. As the majority of the penalties are in Parts 7 and 8, I shall concentrate my remarks on these parts. The penalties in Parts 7 and 8 are designed to be consistent with the level and approach of existing Companies Act penalties. For example, the failure by a company to make its register of people with significant control available for inspection in new Section 790N(2) is subject to a level 3 fine. This is consistent with the existing penalty in Section 114 of the Companies Act for failure to make the register of members available for inspection.
I now turn to Amendments 45, 46, 57 and 58, which affect Schedules 3 and 5 to the Bill. Schedule 5 provides an option for private companies to keep information about their members and company officers on the public register at Companies House instead of having to keep registers containing this information. This option will also apply to the new register of people with significant control in Schedule 3. A company that takes advantage of this option must still keep precisely the same information on the public register as it would keep on its own register. It must keep the information up to date in the same way as it must keep its own register up to date. The aim of the offences and penalties in the new provisions is to mirror the offences and penalties for not adequately maintaining the information required in each company register.
During our review of the penalties, we discovered that there are a couple of instances where the penalties do not mirror each other. Amendments 45, 46, 57 and 58 correct this to ensure that the penalties are consistent. For example, the fine for not keeping a register of members is set at level 3. As currently drafted, the penalty for a company that chooses not to keep a register of members and does not provide Companies House with information about its members is set at level 4. Amendment 58 replaces this with a level 3 fine to ensure that the penalties are consistent. I very much hope that noble Lords will support these essentially technical amendments. I beg to move.
Lord Bach (Lab)
My Lords, I thank the Minister for explaining these government amendments so clearly. She will be relieved to hear that we will not seek to oppose them.
Of course, the Minister is right because, more than 32 months after the LASPO Act received Royal Assent, the Government have not got round to implementing Section 85 of it. That Act was a terrible piece of legislation but the one exception to it was Part 3—in which Section 85 is to be found. While I would very much welcome the chance of explaining to the Committee why it was such a dreadful Act, I will resist that temptation this afternoon.
Part 3 deals with sentencing and punishment of offenders and was widely supported across both Houses. I have two questions for the Minister—I am sure they are both quite easy ones for her. First, why have the Government not acted sooner to implement Section 85? It has been almost three years now and the changes required statutory instruments which have just not been brought before Parliament. An explanation would be welcomed by the Committee. Secondly, what are the Government’s proposals now to bring forward those statutory instruments, and will they be completed by the time that Parliament prorogues for the general election? If the noble Baroness is not in a position to answer those two questions now, she can write to me in due course.
Baroness Neville-Rolfe
My Lords, I am grateful to noble Lords for their support for the government amendments. The regulations in question relating to LASPO were laid on 17 December. They are necessary to accompany the commencement of the unlimited fines provision, and before they can be approved, they of course need to be debated in both Houses of Parliament. We hope that unlimited fines can be brought into force before Parliament is dissolved in March.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for Amendment 12 on the important matter of retention payments and for initiating an interesting and important debate. Although his proposed new clause is very widely drafted, it is clear from our discussions that the focus is actually on the construction sector. The Government are clear that there are a number of issues with the payment culture in the construction industry. I am also grateful to the noble Baroness, Lady Donaghy, for adding her reflections. Retentions are clearly part of that wider culture. We believe that we are most likely to make progress by dealing with the wider picture rather than focusing on specific details; namely, looking to address the cause rather than the symptoms. That is why we are working with the industry on a number of fronts.
These include the Housing Grants, Construction and Regeneration Act 1996, as amended in 2011, which sets out a statutory framework governing contractual terms on payment. This introduces some basic rights such as the prohibition of so-called “pay-when-paid” clauses and the right to adjudication; that is, a contractual dispute resolution process, which I think we have agreed in other debates in this Room is very important. Recognising the importance of Government in this game because we are such a big customer, as the noble Lord, Lord O’Neill, mentioned, we are using procurement to introduce innovative new practices in our own operations such as the use of so-called “project bank accounts” which will change the payment dynamic on construction projects by facilitating payments directly to sub-contractors. These are a form of escrow account which holds the money that is used to pay sub-contractors as work is completed and is not dissimilar to the trust idea mentioned by the noble Lord, Lord Stevenson.
We are also working with the industry through its Construction Leadership Council and the Institute of Credit Management to implement a payment charter that contains 11 commitments, including one specifically to remove the need for retentions. As we have heard, Amendment 3 aims to introduce a power to impose a reporting requirement on the narrow practice of retaining money, mainly because of concerns about the construction industry. We do not believe that this is necessary. The Government are already able to include a new obligation to report on retention practices through the powers we are taking in this Bill. That deals with the reporting part.
I turn now to the underlying substance of retentions. We are also working with industry through the Construction Leadership Council to move to a position where retentions are no longer necessary by 2025, which is of course an end date. I am sure that noble Lords will agree that removing retentions needs to go hand in hand with defect-free work, particularly on one-off contracts.
Supply arrangements in construction are often project based, frequently short term and can involve payments for partially completed and therefore hard to value work. Clients need some sort of guarantee that, should defects emerge within a reasonable period—and it can be as much as 12 to 24 months, although on one’s own private building work at home it is usually about six months—there has to be some remedy. Retentions were the way devised for dealing with this, and to move forward a workable alternative has to be found. I suspect that that may be something to do with the long timescales that we see here. Moreover, we are seeking evidence on the prevalence of this issue in other sectors beyond construction—but also in construction itself—in the stakeholder groups and on the payment terms consultation that I mentioned in the previous discussion. So we will have a better idea of what the current situation is and how the changes that we propose on the reporting of payment terms and timescales will affect matters, not only in construction but elsewhere. That will help to establish the need for further government action. On this basis, I would ask the noble Lord to withdraw his amendment.
Lord O'Neill of Clackmannan
The Minister made the point that, as the main customer, the Government have started a number of projects with project bank accounts. Before we get to the next stage, could she provide us with an indication of which departments are entering into this? My understanding is that it is fairly patchy and that some departments—for example, the Ministry of Defence—have been somewhat less than enthusiastic about changing their procurement practices. It would be helpful if we could get a picture of what is actually happening. I know that it is limited and I am not going to criticise the Government for the size of the operation; it is about the number of departments that are willing to participate. That is as important as anything. Some of them seem to be enthusiastic while others are a bit less so. It would be useful to find out, and it might even help if we named and shamed them.
Baroness Neville-Rolfe
My Lords, one of the pleasures of this Bill is that I already deal with eight government departments. This will increase the list, and I shall certainly take away that request and write to the noble Lord.
(b) ”
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord for setting out his thinking on these amendments. I shall comment in turn on the two amendments, taking Amendment 31 first.
The powers in Clause 11 are deliberately drawn as widely as possible to enable UK Export Finance to provide wide-ranging and flexible support, and to respond quickly and imaginatively to changes in market conditions. Our intention is for UK Export Finance to have the widest possible ability to support UK-based firms in their involvement with exporting, whether these firms are existing exporters, those in exporting supply chains or aspiring exporters.
The current requirement for a connection between the department’s support and an actual or contemplated export has made it difficult for the department to respond to the needs of exporters in certain cases, especially in relation to support for the general business of an exporter or a supply chain company. We share the aim that has been expressed today of maximising government support for exports and of maximising the awareness of that support among UK businesses. However, by delaying commencement, this amendment could serve to delay the introduction of new facilities for UK businesses to seek new opportunities and win export contracts that would help us increase UK trade, the aim set out in the Britain Open for Business update announced by the Prime Minister last year.
In view of the points that were made earlier by the noble Lord, Lord Mitchell, I should say that when it comes to promoting British exports, this Government have done an enormous amount. I pay tribute to my noble friend Lord Popat, who is playing an important part in the passage of this Bill. It was on his recommendation that your Lordships’ House established a Select Committee under the chairmanship of my noble friend Lord Cope, who spoke earlier, examining the ways that the Government could support and encourage SMEs to export. That was a very valuable initiative, which reported in March 2013. The Government accepted all 23 of its recommendations, including measures on credit risks for SME exporters and better publicity for services provided by the Government.
We are absolutely committed to increasing British exports to rebalance our economy. As recently as the Autumn Statement, the Chancellor outlined a £45 million package to increase exports, including £20 million for first-time investors. That is in addition to work to increase UKTI’s presence in emerging markets and our work since 2010 to put a much greater emphasis on trade and economic growth in our diplomatic relations. The additional funding that this Government have provided for UKTI has allowed it to double the number of businesses helped since 2010, and we are on track to support more than 50,000 businesses this year. I echo the points made by my noble friend Lord Leigh of Hurley about the export effort for SMEs that he observed on his trip to China with the Prime Minister. Less glamorously, I saw the results for myself on a week’s visit to China in September. I was impressed both by the programme and performance of UKTI and by the scale of business involvement. Again, it was a mixture of SMEs, larger businesses and legal experts.
UK Export Finance is referred to several times in these amendments. In 2011, the Government reintroduced, after 20 years, UK Export Finance support for goods usually sold on shorter terms of credit—mainly those supplied by smaller companies. So far in this financial year, around 120 companies have benefited from direct UK Export Finance support, and almost 80% of them are smaller firms. Companies in the supply chains of exporters benefit indirectly from UK Export Finance support. We want them to benefit directly, hence the provisions in the Bill. UKEF is keenly aware of the need to improve awareness of it among smaller exporters. Last year, the British Exporters Association scored the product range of UK Export Finance at nine out of 10, while the Global Trade Review voted UK Export Finance the world’s best export credit agency. So we are making progress. Awareness of UKTI has also increased significantly over four years, from an average of 51% in 2010 to 65% now.
The noble Lord spoke at greater length to Amendment 32, touching on a very important area. It is of course government policy, informed by an extensive public consultation conducted in 2009-10, that UK Export Finance will comply with international agreements which apply to export credit agencies. UK Export Finance complies with the OECD common approaches, which set out how export credit agencies should undertake due diligence on the environmental and human rights impacts of projects falling within their scope. The OECD common approaches make reference to the UN guiding principles. In undertaking environmental and human rights due diligence in line with the common approaches, it is the practice of UK Export Finance to apply the 2012 performance standards of the International Finance Corporation. These are recognised as comprehensive standards. UK Export Finance is taking an active and leading role in further OECD consideration of human rights issues, which will inform possible changes to the OECD common approaches, should they be agreed.
I pause to comment on the example of fossil fuels given by the noble Lord, Lord Stevenson. UK Export Finance has not supported any transactions in violation of the coalition agreement’s pledge to support green technologies rather than invest in dirty fossil fuel energy production. The Secretary of State made it clear in a Written Ministerial Statement in July that “dirty fossil fuel” should be taken as referring to projects that produce pollution in excess of international environmental standards. The practice of UK Export Finance is not to support such projects.
As I have already said, UK Export Finance complies with the OECD common approaches and has a dedicated environment advisory team that reviews the environmental, social and human rights issues of projects covered by the common approaches prior to the department agreeing to provide support. I hope that gives some comfort. Against this background, the Government consider it neither necessary nor appropriate to impose a statutory duty on the Secretary of State to have regard to only one set of principles—which are, in any case, already taken into account through UKEF’s adherence to the common approaches.
On the second part of the amendment, the common approaches set out how export credit agencies such as UK Export Finance must take account of environmental, social and human rights issues. In line with this, UKEF requires that projects with significant ethical risks are subject to a full impact assessment and that international standards regarding environmental, social and human rights issues are complied with before it provides export credit finance support. UKEF will also monitor these issues throughout the life of projects where relevant, sometimes over periods as long as 10 years.
I was glad to hear the noble Lord, Lord Stevenson, make reference to various changes and improvements made in recent years, including the Bribery Act. That has been pivotal in clamping down on corruption. UK Export Finance also conducts due diligence on the contracts it supports to ensure that they are not tainted by corruption and that the risks associated with dealing with the parties are acceptable. This includes but is not limited to warranties from exporters and checks against prohibition lists maintained by multilateral development organisations such as the World Bank.
The Secretary of State also benefits from the advice of the independent Export Guarantees Advisory Council, whose remit is to advise on UKEF’s application of its ethical policies. The annual report of the chair of the Export Guarantees Advisory Council is published alongside UKEF’s own annual report, which lists the transactions supported by UKEF each year.
I hope that noble Lords are reassured that UKEF takes appropriate consideration of ethical issues in its decision-making and therefore will agree that it is not necessary to place a new statutory requirement upon the Secretary of State. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her very expansive response. I appreciate the effort that went into it. I know it is not her direct area of responsibility and I am sure that she received assistance from others. They put together a good response and I appreciated listening to it. I was also remiss in not paying tribute to the work of the noble Lord, Lord Popat, which has been referred to in the Committee before and is worthy of further comment. His is a terrific initiative and is doing well. The noble Lord, Lord Livingston, and his predecessor have also done a terrific job, which we support. The export champions, many of whom sit in this House, do a great job right across the world.
We are all on the same side here. Obviously, we recognise that we need more exports. We cannot become the nation that we want to be or enjoy the economic success that we all think we should have if we do not radically increase the amount and volume of our exports. We can take that as common ground. But—there is always a “but”—while I agree that we need to maximise support for exports and we accept that there is a long way to go, it does not have to be a zero-sum game. It is possible—many countries do this—to have regard to the terrible impacts of extractive industries, the difficulty of ensuring responsible trading and the respect for human rights in all aspects of activity, and not to be guided always by, in some senses, the lure of more arms sales. Of course, we have special regimes for them, but it is still very difficult to get a proper sense of what is happening there because they tend so much to dominate the work of both UKTI and UKEF.
Issues were brought up by my brief example, and there are many others. I accept the fact that since 2012, although that is not a long time ago, UKEF has not been involved in supporting the export of dirty fossil fuels—although I note that the quotation we were both referring to states that the situation is that it has not publicly financed new coal-fired plant overseas,
“except in rare circumstances in which the poorest countries have no feasible alternative”.
That seems to me to be a large door through which many rather undesirable practices may have taken place, but I have no evidence of that. However, it makes the point again that it may be that how we are interpreting things is good at the moment, but without statutory underpinning, how can we give sufficient support to people in order to ensure that good practice continues in the long run?
The proposals set out in Amendment 32 are not onerous. The Minister said that she felt that the amendment simply sets out what is common practice now in relation to promoting UK government adherence to the UN guiding principles. That is fine, so why not let us have that in legislation and all agree on it? Further, preparing a report for both Houses of Parliament might well be a way of bringing up some of the issues that do bear on this debate: for example, what exactly is the interaction between the moral and ethical standards we are looking at on the one side and the success or otherwise of exporting around the world?
However, I hear what has been said and I know that this is a complex and difficult area. The work that is going on in government is in some sense at the right level and indeed is of a standard that the rest of the world could easily emulate. However, we must not lose sight of this because it is important and it will have long-term consequences, both good and bad, if we do not get it right. With that, I beg leave to withdraw the amendment.
Income Tax: Top Rate
Baroness Neville-Rolfe Excerpts(10 years, 4 months ago)
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Lord Newby
It is partly because their income has gone up, but proportionately it is because they are prepared to pay the tax. As noble Lords opposite know, and as the noble Lord, Lord Lawson, has just demonstrated, when you get to very high levels of tax and very wealthy people, whether they pay it or not is not simply a question of whether they get a demand from HMRC.
Baroness Neville-Rolfe (Con)
My Lords, will my noble friend also comment on the beneficial effect of the decline in corporation tax—a business tax—which has had the effect of bringing some of our best companies back to London?
Lord Newby
My Lords, the Government are very keen to ensure that the tax regime is internationally competitive. That is the effect of the corporation tax changes. As the noble Baroness said, it is having a number of beneficial effects.
Budget Statement
Baroness Neville-Rolfe Excerpts(10 years, 7 months ago)
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Baroness Neville-Rolfe (Con)
My Lords, I am glad to be following the noble Lord, Lord McKenzie of Luton, and to be able to express a contrary view.
When the coalition Government took office in 2010, the country was in desperate need of a credible plan to eliminate the deficit and to manage the national debt. They adopted such a plan knowing that it would take several years and that there would be a great deal of criticism along the way. The Government were faced with an Opposition consistently critical and negative, whose alternative appeared to consist of inviting us to spend our way out of debt.
Given the great reliance of the UK economy on banking—greater than that of any other major economy—the turnaround was always going to be slow and painful. The welcome return to sustainable economic growth—I like the word “sustainable”, unlike the noble Lord, Lord Skidelsky—has vindicated the Government’s approach. Even so, there is a long way to go until the deficit reaches acceptable levels, as the noble Lord, Lord Desai, explained so clearly. The present path—call it austerity if you will—must be sustained. If anything, deficit reduction should be speeded up.
The deficit and the national debt, and the return to growth, are clearly the most important economic matters before us as a country, and have been well aired today. However, I want to concentrate on some supply-side aspects of the Budget that are essential to future prosperity. First, we should have fewer Budgets and Financial Statements. These provide opportunities to tinker, regulate and add complexity to the vast financial rulebook, which is unscrutinised by this House, as other noble Lords have said, but consume ever more resources in the public and private sectors. However, with the supply side in mind, I commend the Government for the sweeping reforms of our pension system in last week’s Budget. By reducing the constraints on individual choice, the reforms will revolutionise the way in which Britons save for retirement.
There is a risk that a few will blow their small pensions irresponsibly. We must, of course, allow for this in the cost-benefit projections and work through the details. However, we should trust people as we trusted them to buy their council houses—also substantial assets. The change to the rules on annuities, which many will still opt to go for, is the kind of radical supply-side reform that transforms people’s lives. Transformation was also the word used by my noble friend Lord Bourne of Aberystwyth. Such reforms have been absent for too long.
I was impressed by this year’s Red Book—a cornucopia of interesting information, simply written, and also, as we have heard, favourite bedside reading for my noble friend Lord Northbrook. I was struck by what it shows about the path of future taxation: national insurance, up from £107 billion this year to £138 billion in 2018-19; capital gains tax, more than doubling from £3.9 billion to £9 billion; and business taxes, close to my heart as a retired retailer, up from £26.6 billion to £32.3 billion, despite attempts to slow their growth. What a pleasure, I should perhaps say, to hear from the right reverend Prelate the Bishop of Chester about the social institutions that helped Sir Terry Leahy, also of Tesco, to make his way up from working-class Liverpool.
As a member of the business community, I have always been concerned about our standing in the world and have championed UK competitiveness. We have been lucky to have been served so well by Trade Ministers on both sides of this House, most recently by my noble friends Lord Green of Hurstpierpoint and Lord Livingston of Parkhead. Therefore, I welcome the improvements to export finance, to export support and, indeed, to the cost of long-haul flights announced in the Budget. Perhaps the Minister can let us have more details on the costs and the timing of these initiatives when he responds to my noble friend Lord Sheikh.
Those are of course only some of the ways in which government can help our exporters. Perhaps even more important than finance or trade missions is the support provided by our embassies on local political and administrative issues, which can, in my experience, be the difference between a successful and a very troublesome investment. More generally, the drivers of competitiveness and hence success, including export success, are: low taxes, where we have done so well on corporation tax—the Chancellor’s best policy for business, although more can be done, as others have said; the exchange rate and energy costs, the terms of trade, well explained by my noble friend Lord Razzall; and encouraging enterprise, education and infrastructure investment.
On enterprise, I hope that the doubling of the annual investment allowance will, by encouraging capital spending, improve productivity—an issue about which many noble Lords have expressed original and interesting views. However, government action is less important to enterprise and small business than the overall climate. Business will succeed and improve productivity only if it has the confidence to take risks and to invest. Our accelerating growth and the rise in employment to a record 30.4 million by the end of this year will certainly help. We have heard that for every job lost in the public sector over the past three years, we have created four in the private sector—I would add that many of these new jobs are in small firms—which in my view is better for long-term prosperity.
However, in business we also have to believe that success will be sustained and that we can get ahead in the longer term. This depends primarily on education. The Secretary of State is doing many good things. Free schools are rightly identified in the Red Book as a growth driver and now number 174. We just need more of them—even more “vigour”, in the words of my noble friend Lord Horam. I also welcome the 50 university technical colleges, fulfilling the dream of my noble friend Lord Baker of Dorking, and the 46 studio schools.
However, let us learn from Germany in this area too. Trades are learnt from sitting alongside experienced master craftsmen and engineers, and employers have a big role in vocational course design and standards. Therefore, there is more to do but I was delighted to see that apprenticeship starts have reached 1.6 million in this Parliament. These are helping many young people into the skilled jobs that we need in a productive modern economy, in manufacturing, ICT and services.
The Budget also helps long-term competitiveness by finding resources for infrastructure investment—not only the housing projects already mentioned, but the Mersey Gateway Bridge, the improvement to the overcrowded M4 in Wales, the A1 north of Newcastle, and continued rail improvement in our ever-expanding and congested capital, building on the miracle of Crossrail.
I end on a final theme, which is how we simplify what the public sector does so that we waste less money, make fewer mistakes and make it easier to do business. I was glad to hear of the Prime Minister’s ambition to see us ranking in the top five countries in the world in which to do business, and would like to refer to the World Bank Group data on this, kindly provided by the Library. Singapore, Hong Kong, New Zealand, the United States and Denmark top the chart at present. In the UK we already do well in the provision of credit and protection of investors. However, it is depressing to see that we score badly in the time that it takes to enforce contracts, register property, get construction permits or start a business, and even in the time it takes to pay taxes.
The proposed simplification of the tax system, though not new, is important. As someone who has campaigned for the politically unattractive combination of income tax and NICs, I am glad to see a small advance: allowing the self-employed to pay class 2 NICs through self-assessment.
How can we build a coalition for a simpler, less bureaucratic and less costly Britain? My vision is for a rule book that is half the size of what we have at present, with half the number of regulators, half the number of quangos and half the number of tsars as we shut things down as well as set up important new things.
We also need a new culture of good implementation that prevents the expensive crises that we see everywhere, from Stafford to the west coast main line, and the new regulation that often follows. Reliable delivery is one of the best things that the best in the private sector can teach the public sector.
I welcome the progress that the Minister has described but we need to keep our nerve, stay on the stony road and gradually bring our plans to fruition.