Small Business, Enterprise and Employment Bill
Baroness Neville-Rolfe Excerpts(9 years, 11 months ago)
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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, 11 months ago)
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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, 5 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, 9 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.