draft Deregulation Act 2015 and small business, enterprise and employment act 2015 (Consequential Amendments) (Savings) regulations 2017

Bill Esterson Excerpts

Monday 27th March 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Flello.

The Minister has set out the provisions of the draft regulations concisely, but I wish to ask her to clarify a number of points. She mentioned, as do the explanatory notes, that the draft regulations will update the Administration of Insolvent Estates of Deceased Persons Order 1986 and the Insolvent Partnerships Order 1995. Will they update only those two measures or will they affect insolvency legislation more widely?

Some questions spring to mind about the creditors meeting. As the Minister said, creditors often do not attend creditors meetings. Will she set out the circumstances in which it is envisaged that a decision will be taken not to hold a creditors meeting, and on whose authority such a decision will be taken? There are reasons why creditors meetings are sometimes beneficial—it is not entirely out of the ordinary for creditors to feel that they would prefer to replace the nominated insolvency practitioner at those meetings—so it would be helpful to understand the circumstances exactly.

Will the Minister tell us the expected savings from the use of electronic communications and the anticipated increase in payments to creditors in the form of dividends? Is a review likely to be held of the success in delivering those savings and that increase in dividends once the regulations are in force? If so, in what way?

I agree that the proposals will save time and money. Using electronic processes makes perfect sense, although there are always questions about how creditors are guaranteed to receive communication electronically. What checks will be in place and what assurances can she give that all creditors will receive their correspondence in that way? What confirmation will be made that they are receiving electronic communications?

The Minister made the point that if a dividend is secured, all creditors will be notified, whether or not they have chosen to receive communications. Will that notification be made on paper, electronically, or by a combination of both methods? I look forward to her response.

[Margot James]

In response to the hon. Gentleman’s questions, physical meetings may be requested when 10% of the value of creditors have deemed that they would prefer to take decisions via correspondence and electronic communications. On the changes to how decisions are made, he asked what saving the Government think they can achieve by abolishing physical meetings. We estimate that the total benefit to creditors will be approximately £6 million or more each year from including the removal of the requirement to hold a final meeting as well as of the default physical meeting as a way of agreeing decisions.

To answer the hon. Gentleman’s first question, it is just the two regulations that we are discussing today. I am grateful to him for his questions, and I hope that we can agree that the regulations will bring important benefits. I said that it is just the two regulations that we are discussing; that covers legislation on the main insolvency elements relating to administration and the deceased and insolvent partnerships order.

[Bill Esterson]

I asked whether the Minister could give an example of the circumstances in which the creditors meeting would not be held. I am not entirely sure whether she answered or not; she might have done right at the start. Perhaps she would clarify that point for me.

[Margot James]

I hope that I understand the hon. Gentleman’s question correctly. The physical meetings will not be required when 10%, in terms of the value of the creditors, decree that it is acceptable to go ahead without physical meetings and to revert to electronic communication. I hope that I have understood him correctly in that regard, and I hope that we can agree that the regulations will bring benefits in updating the legislation to ensure that it is efficient and effective and delivers the best returns possible for those affected by insolvency. I commend the regulations to the Committee.

Question put and agreed to.

Intellectual Property (Unjustified Threats) Bill [Lords]

Bill Esterson Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 21st March 2017 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

I beg to move, That the clause be read a Second time.

Intellectual property makes a significant contribution to the UK economy each year. In 2014, UK firms invested an estimated £133 billion in knowledge assets, compared with £121 billion in tangible assets. As the Intellectual Property Office notes, UK investment in intangible assets that are protected by intellectual property rose from £47 billion in 2000 to £70 billion in 2014, and is estimated to represent 4.2% of total GDP. What is more, the UK system of regulating intellectual property is considered to be one of the best: it was rated No. 3 by business in the 2016 Taylor Wessing global IP index in respect of obtaining, exploiting and enforcing the main types of intellectual property rights. It is clear that intellectual property is of great importance to the UK economy, so the impact of leaving the European Union on IP and the provisions in the Bill is vital to the economy. It is of great interest to businesses, which value certainty, and it is crucial to potential investors in businesses in the United Kingdom.

The Bill will apply to patents, trademarks and designs. The Minister stated in Committee, and in a written answer on 20 October last year, that the European Patent Office was established by international treaty and that our participation in its work will be unaffected by our leaving the EU. The suggestion is that patents will be relatively untouched by Brexit; it is to be hoped that the Minister’s confidence is not misplaced. Several IP rights that derive from EU regulations will no longer apply to the UK, and the impact of Brexit is far from clear at this stage. As the Chartered Institute of Patent Attorneys recently commented:

“The continued validity of these rights in the UK is uncertain. Transitional agreements may be negotiated to allow time for rights holders to convert these into national rights or to file separate national rights... The government has remained silent on whether or not it intends to implement the new Trade Mark Directive into UK domestic law.”

The Minister signalled in Committee the Government’s intention to ratify the unified patent court agreement by the end of April. The court will deal with disputes relating to European patents and help the business that the Bill seeks to assist by removing the threat of unjustified litigation—a point made by my hon. Friend the Member for Garston and Halewood (Maria Eagle) in Committee. Will we still be members of the court after we leave the EU? The court is part of the effort to reduce costs across jurisdictions and make it easier to do business. As we prepare to leave the EU, the last thing we need is additional costs on businesses, so clarity is needed about our membership of the court. The Minister said in Committee that decisions had not yet been taken, so will he provide an update and confirm that he understands just how important it is that we minimise costs across jurisdictions, including those relating to intellectual property rights? What is his view on our potential membership of the patent court after we leave the EU?

The CIPA said:

“For the UK to continue participating after Brexit, there would need to be a new international agreement with the participating Member States and the UK to provide compatibility with EU law... If the UK does not remain a member of the UPC…there will be a need for further transitional provisions to protect any rights acquired or cases in progress at the time the UK leaves. It is still unclear whether UK European Patent Attorneys will be able to represent parties in the different Divisions of the UPC after Brexit.”

It went on to say:

“CIPA has a strong preference for the UK to participate in the UP and UPC system, if a solid legal basis for this can be agreed.”

Given the UK’s leading position in patents and patent law, it makes sense to do all we can to maintain our position and to ensure that confidence in our position remains as high as possible. It is important that we avoid taking a step backwards on IP law and losing the potential benefits that the development of single European patent protection will bring. The economic and competitive advantages of such protection are clear enough. The alternative of having a separate UK system, with the likely need for rights holders to apply for UK and EU protection separately, will mean additional burdens for UK businesses and for our economy, compared with the UK remaining a central part of the European-wide patent system.

As my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) said in Committee, it is vital that the Minister takes all steps to ensure that patent law and IP law more generally do not take a retrograde step following Brexit. IP is how innovation is rewarded; it is fundamental to ensure our ability to deliver a high-pay economy and prosperity, and to Britain’s promise that the next generation is better off than the previous one. Since 2010, we have seen living standards fall while the economy as a whole has grown. The people of this country cannot afford to miss opportunities, including this one. The alternative of a race to the bottom, a low-wage economy and our competing as some kind of tax dodger’s paradise off the coast of continental Europe will not deliver better living standards.

Intellectual property is one of many ways in which we must build on our success as a country and not allow decline. How intellectual property rights are protected, and how they are seen to be protected during the Brexit negotiations, will be crucial to delivering and enhancing business and investor confidence and to getting the best possible outcome from the negotiations. The Prime Minister may not wish to give a running commentary, but she and her Ministers need to reassure businesses, their staff and the whole country that everything is being done to secure our future. That is why I tabled the new clause to call for the Government to review the impact of Brexit on the IP provisions in the Bill.

A report after a year would not only help to bring sovereignty back to Parliament—something we heard a great deal about during the referendum debates—but help UK businesses and foreign investors to understand the post-Brexit intellectual property world with respect to the provisions in the Bill. The protections being harmonised in the Bill are important to help to protect our businesses, ensure a fair market and encourage entrepreneurs and inventors, and especially to ensure opportunity for smaller businesses. Nevertheless, those businesses, entrepreneurs and inventors all want to know, as far as possible, what the arrangements and relationships with the EU will be like post-Brexit.

The law firm Charles Russell Speechlys says:

“Discussions are taking place regarding the post-Brexit options for IP. National IP rights are unlikely to be affected post-Brexit. Pan-European IP rights will be affected. Trade marks and designs are likely to be the IP rights most affected but it will impact on other IP rights as well.

On leaving the EU, the UK will no longer automatically be covered by EU trade marks. An orderly transitional period is expected with the potential to split existing EUTMs into UK national and EUTMs post-Brexit (subject to negotiation and relevant supporting legislation). Trade mark owners will need to reinstate lapsed UK marks which have been subsumed into EUTMs by seniority but it is not yet clear how that will work.”

--- Later in debate ---

[The Minister for Universities, Science, Research and Innovation (Joseph Johnson)]

This new clause would require the Secretary of State to issue a report on the impact of the Government’s plans for exiting the European Union on the provisions in the Bill within 12 months of it coming into force.

The Bill does not take forward any EU obligations. The IP unjustified threats provisions do not derive from EU law. They are “home grown” provisions that were first enacted for patents back in the 19th century. The important protections provided by the Bill will not in themselves be changed by Brexit. Businesses pushed for clarity and certainty about how they can contact others over IP disputes, and the Bill will deliver that. Our leaving the EU does not alter that. Of course some IP rights are EU-wide, and the Bill will apply properly to those rights. The threats regime will be consistent across all relevant rights that have effect in the UK.

Furthermore, the Bill will ensure that our UK threats regime works appropriately with the proposed unitary patent and unified patent court when they come into effect. The hon. Member for Sefton Central (Bill Esterson) asked about the UPC following our exit from the EU. The options for the UK’s intellectual property regime after our exit, including our relationship with the unified patent court, will be the subject of negotiation, and it would be wrong to set out unilateral positions in advance. None the less, our efforts will be focused on seeking the best deal possible in negotiations with our European partners, and we want that deal to reflect the kind of mature co-operative relationship that close friends and allies enjoy.

As long as we are members of the EU, the UK will continue to play a full and active role, and making sure the IP regime continues to function properly for EU-wide rights is an example. The UK’s involvement in the EU IP framework after exit is not a matter for the Bill; it will be part of the EU exit negotiations, which of course have not yet begun. It is likely that those negotiations will still be in progress at the point at which the new clause would require us to report. Publishing the suggested report would be unnecessary and could well undermine our ability to negotiate the best deal for Britain in this area.

The hon. Gentleman asked about EU-wide IP rights on Brexit. Of course we are already talking to businesses and to other stakeholders about this important issue. There will be time to address it fully and properly during exit negotiations. Naturally, we will want to see the best outcome and one that supports our innovative businesses. He asked also about EU trade marks and designs. We recognise that users will want clarity over the long-term coverage of those rights. We acknowledge the importance of involving users in the consideration of these issues, and we are working with stakeholders at the moment to gather views on how to address their concerns.

The hon. Gentleman asked on a number of occasions about the EU trademark reform package and the directive. On balance, we think that the reform package is a good one, with modernisations that will make the overall system easier and cheaper for businesses to use.

We are committed to getting the right deal for the UK and we will work with Parliament to ensure a smooth and successful exit. The new clause would not help us in any of this work; it is unnecessary and potentially harmful to the UK’s interests. For that reason, I ask the hon. Gentleman to withdraw the new clause.

[Bill Esterson]

I am glad that the Minister said that he was already having discussions with businesses; that is incredibly important. I urge him to make it clear very publicly, sooner rather than later, exactly what the nature of those discussions are. Businesses are already exceedingly worried about the consequences for intellectual property. I thank him for picking up the points that I made about the relationship between EU patent law and UK patent law. I think that he understands that a great deal of reassurance is needed. I do not agree that we would make life more difficult by having this requirement on Government. In fact, it is a sensible move. I would be surprised and very concerned if we did not see a degree of reporting back during negotiations on these and many other matters. None the less, he has put forward the Government’s view in response to the points that I have raised, so I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.



Clause 1

Patents

[Bill Esterson]

I beg to move amendment 1, page 2, line 15, after “do,” insert “or claims to do,”.

This amendment deals with people or companies who hold themselves out as the primary infringer: ie, they claim to be the manufacturer or importer of a product (and therefore can be written to freely) when, in fact, they are not. A definition is provided in amendment 3.

[Mr Speaker]

With this it will be convenient to discuss the following:

Amendment 2, page 2, line 19, at end insert—

“(4A) A threat of infringement proceedings is not actionable if the threat—

(a) is made to a person mentioned in subsection (4), and

(b) relates to—

(i) potential future acts of infringement, or

(ii) other acts of infringement

which are fundamentally similar to the current alleged act of infringement.”

This amendment would allow communications from the rights holder to the primary infringer to also refer to secondary infringing acts (by the primary infringer), without it constituting a threat.

Amendment 3, page 2, line 24, at end insert—

“(7) In subsection (4)(a) “claims to do an act” means the person makes an explicit claim in public that they are the manufacturer or importer of the product or process.”

This amendment provides a definition of “claims to do” in amendment 1.

[Bill Esterson]

Amendments 1 and 3 are related to primary infringers and those who claim “to do”. Amendment 1 addresses the concern about the impact on those who claim to make a product and the potential for action to be taken against them. Amendment 3 defines “claims to do”.

We are dealing here with communication and threats. As the Bill stands, the onus is on a rights holder not to communicate with a party that claims to be a primary infringer of rights. The example that springs to mind is that of an own-label brand in a supermarket. Under the Bill, a manufacturer who believes that a product contravenes their rights may not communicate with the supermarket unless they are confident that there is no other way of finding out who the manufacturer really is. The problem is that smaller manufacturers wanting to challenge the bigger players may not have the expertise or access to expertise needed to comply with the provisions of the Bill. They do not have the staff, time or money to engage legal services or to search for the true identity of the manufacturer. The Minister said in Committee that if action were taken against a rights holder, they would be able to defend themselves in court. Now, that is entirely accurate in legal terms, but the problem is that smaller organisations lack the resources to be able to do so.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

As I think I said.

[Bill Esterson]

As my hon. Friend may well have said in Committee.

The problem is one of imbalance. Our court system necessarily favours those who have the deepest pockets and the greatest resources, and that does not mean smaller businesses. Will smaller businesses risk winning or losing in court? Will they have the money to defend themselves against an action, or will they think it is worth defending their intellectual property in the first place? It will be for the courts to decide whether a rights holder could have found out who the primary infringer was. For smaller businesses, it could well be a tough choice as to whether they believe the court will back them when they say in court that they did not realise that they should not have contacted the apparent infringer.

If not through what I am proposing, and what my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) proposed in Committee, how does the Minister propose to ensure that there is a level playing field between protecting the rights holder, especially the smaller rights holder, and preventing unjustified threats, especially where the rights holder is the smaller party? How does he propose to guarantee smaller businesses the ability to operate on a level playing field? To be entirely fair to the Minister, I completely understand that that is the purpose of the whole Bill. My thanks go to the Law Commission for its work in delivering to such an objective. The Bill very much has in mind the need to balance protection and encouragement for innovators, entrepreneurs and investors with the need to ensure a fair market and to prevent unfair and exploitative competition. However, there appears to be a degree of ongoing potential for imbalance in the legislation regarding those who claim to be the manufacturer or the primary infringer, and the Minister’s answers in Committee did not go far enough to guarantee that smaller businesses will be protected.

Amendment 2 would address some further concerns of smaller businesses that lack the resources for legal advice and that may fall foul of the Bill’s narrow remit. The amendment addresses the problems where a rights holder challenges not just the primary infringement but secondary acts of infringement. The rights holder may wish to prevent future infringement or to comment on related infringements of a similar nature. The amendment would minimise the fallout from inadvertent infringements. The amendment would not penalise a rights holder for mentioning secondary infringements when such communication was about potential future infringements or similar current infringements. The Chartered Institute of Patent Attorneys raised the concern that future infringements are excluded as the Bill is now drafted.

It seems reasonable to ask an infringer to stop now and in the future, and not to carry out similar infringements, so amendment 2 also deals with the concern of smaller businesses that lack the resources or expertise to ensure that all their communications are strictly compliant with the Bill’s provisions. I agree with the Minister that rights holders ideally should get their communications right, and that is a large part of the thrust of the Bill, but my concern is that the lack of access to legal expertise for smaller businesses could be a real problem.

--- Later in debate ---

[Joseph Johnson]

One of the key purposes of the Bill is to simplify an important but complex area of intellectual property law, making it more accessible and easier to use. One way in which it does this is by setting out a clear statement of those acts that a rights holder can safely refer to in a communication, and that will not trigger an unjustified threats action. This helps to encourage rights holders to communicate with the trade source of an alleged infringement. It would include those who manufacture or import patented products or use patented processes, for example. Such acts are known as primary infringements.

Amendments 1 and 3 seek to make it allowable to approach someone who explicitly claims to be a primary infringer. I am not convinced that there is problem that needs to be solved, but, in any event, there are two key points. First, under the reforms as they stand, a rights holder can already communicate with potential infringers of all types, including those identified by amendments 1 and 3. The Bill provides clear guidance on how this can be done. The provisions therefore make it easier for parties, including small and medium-sized enterprises, to communicate and resolve issues without the need for litigation. Secondly, it is perfectly allowable to make a threat to anyone so long as that threat refers only to manufacturing and importing, or other primary acts. Someone making such a threat would not be at risk of being sued, even if the recipient was falsely claiming to do those acts. For these reasons, as well as the additional complexity introduced, I do not accept that amendments 1 and 3 are appropriate.

Moving on to amendment 2, I agree it is important that issues of infringement can be raised early, before real commercial damage is done. For that reason, the Bill already allows threats to be made in relation to future or intended acts of primary infringement, so amendment 2 adds nothing in that regard. Furthermore, the Bill already allows the rights holder to refer to certain secondary acts when communicating with an alleged primary infringer. When someone is manufacturing an allegedly infringing product, the rights holder can also discuss the retailing of that same product. Users wanted this, as it is pragmatic and helps to save time and money, but it would not be right to extend this further and allow threats to be made to that same manufacturer about the retail or stocking of other products that they did not make themselves. That could damage businesses that retail products acquired from a legitimate manufacturer, and would disrupt the ability of that legitimate manufacturer to operate in the marketplace—an outcome that the threats provisions exist to prevent.

Finally, it is highly uncertain for businesses what would be considered to be “fundamentally similar” acts of infringement, as set out in the amendment, and litigation on the meaning would no doubt ensue. If the intention is to capture only similar products, I do not think that is achieved.

These amendments would introduce additional and unwelcome complexity. They would blur the line between who is protected from threats and who can safely be approached. Rather than benefiting rights holders, this could instead make getting legal advice more difficult and costly. For those reasons, I ask the hon. Gentleman to withdraw his amendments.

[Bill Esterson]

We appear to have rehearsed, more or less word for word, what happened in Committee. I am disappointed by the Minister’s responses, because he does not appear to have picked up on the concern about the imbalance between larger and smaller businesses—a fundamental element of what we think is missing from the Bill as drafted. I would like greater clarity from him, but perhaps that will come as the Bill is implemented. I urge the Government to consider the impact on smaller businesses. On own label, apparently once the rights holder has found out that an own label product is not made by a supermarket, such action would have to cease or it would be covered by the legislation. That was certainly our intention in the amendment.

I hope that our points about the need to protect smaller businesses have been well made. I thank the Minister for his responses, and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Third Reading

--- Later in debate ---

[Bill Esterson]

I join the Minister in saying that the provisions of this Bill are, overall, exactly what is needed to create a level playing field and support and encouragement for innovation and creativity. Those who develop ideas need to have their ideas protected and supported, and bringing together the different elements of intellectual property legislation in the way that this Bill does is very much the right way to go. I mentioned on Report some of the figures and the benefits derived from the fact that the UK has one of the finest IP systems in the world. We must do all in our power to ensure that that continues because it is one of the reasons that this country is an attractive place for investment, and that is one of the reasons we must be optimistic about our future, despite the many challenges that we currently face, particularly the uncertainty around Brexit.

However, we have raised concerns throughout this process. It is a shame that there was not more in the Bill about alternative dispute resolution. The opportunity to tighten things up in relation to smaller businesses would have been welcome, but that has not happened. We need to reward innovation and entrepreneurs, and to balance that against the creation of a fair market and a successful economy. The Minister mentioned the industrial strategy Green Paper. It is critical to the success of the industrial strategy that our intellectual property system functions as well as possible. I hesitate to say that I look forward to how this will develop during the Brexit negotiations, but we certainly need to work extremely hard to make sure that the success of our IP system is retained during those negotiations because of the very close linkage between IP in this country and across the European Union. The Minister mentioned the protection for legal advisers. That is a welcome step forward, as is the clarity and consistency achieved by this Bill. We certainly support its core principles and the overall aims and objectives that have been achieved.

I add my thanks to the Law Commission, to those who have worked on the Bill, and to those who served on the Bill Committee. I hope that the Bill will achieve what is intended for it.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

I must say that that is the most efficient debate on a Bill I have ever seen in this House, and I think that somebody somewhere ought to be commended for it.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 14th March 2017 Commons Chamber

[Margot James]

As my hon. Friend knows, I am a great lover of small businesses and entrepreneurs, and I think that I can speak for the rest of the Government in that regard. He knows that the EU governs time limits and caps on the EIS at the moment. What happens following the Brexit negotiations will be a matter for the Treasury.

[Bill Esterson (Sefton Central) (Lab)]

I do not think that small businesses are really feeling the love after last week’s Budget. A report by the Federation of Small Businesses entitled “37 problems and tax is one” states that the

“proposed National Insurance tax grab on this group is an absolute kick in the teeth, just at a time when we need to create more entrepreneurs, not fewer.”

The Minister says that the Government consult the Federation of Small Businesses, but perhaps they might listen to it in future and do what it suggests as well.

[Margot James]

The small business world must feel more love from this Government than it would from Labour, were it to take our place in government.

On the hon. Gentleman’s specific question, I know that the FSB lobbied hard on a number of points, including national insurance, business rates and the quarterly reporting of tax accounts. On the latter two, it was very pleased with what the Chancellor provided. With regard to national insurance, the hon. Gentleman knows that more than 60% of people who are self-employed will actually benefit from the changes mooted by the Chancellor last week.

Draft Reporting on Payment Practices and Performance Regulations 2017 Draft Limited Liability Partnerships (reporting on Payment Practices and Performance) Regulations 2017

Bill Esterson Excerpts

Thursday 9th March 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Turner. The Minister quite rightly said that it is important that we do all we can to support business in this country, and in particular smaller businesses. That is exactly what improving payment practices should achieve. There is, of course, a big irony here, the day after the Budget, when many people who run small firms and are self-employed are scratching their heads, comparing the Prime Minister’s previous comments about the UK being the best place to start and grow a business with the broken promise on not increasing national insurance contributions.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

On that point, it would be very helpful if the hon. Gentleman could inform us of the Labour party’s policy.

[Bill Esterson]

The Conservatives are in government. It is a shame that they promised in their manifesto not to put up national insurance contributions and then went and did exactly that.

We have better news today. As the Minister rightly said, according to the Bacs report, £26 billion is owed in late payments. She mentioned the importance of attacking that, which the regulations will contribute to. She also mentioned the potential cost to business of the regulations of £17.7 million. The latest Bacs report cited a figure of £2.5 billion a year for the cost to business of late payments, and said that 50,000 business deaths will result if we do not do something about it. She quite rightly said that the investment of £17.7 million will reap an extremely positive return to the UK economy and businesses. That is why we broadly support the proposals and will not oppose the regulations.

There has been a delay in bringing forward the regulations, but I am glad they are now here. This is not a silver bullet; it is one of a number of tools needed to change a UK business culture where it has been seen as acceptable to pay small firms late. There has been systematic poor practice in the day-to-day business approach of some larger firms, which use it for their own credit management and to their own benefit, to the detriment of their smaller suppliers.

We need two things to address the imbalance of power in supply chains. First, the regulations must be robustly enforced, with substantial fines and consistent sanctions against businesses that pay late and/or fail to report fully. Secondly, we need the published reports to be accessible and easily searchable, which would follow through on the “name and shame” element behind the regulations, as well as allowing small businesses to review potential clients’ payment practices.

We also want more robust, wide-ranging action on late payments that goes far beyond the encouragement or very veiled threats to late-paying large firms that have typified the approach of Conservative Governments —not just this one, but in previous years. That includes having the right person appointed to the role of Small Business Commissioner, which the Minister mentioned—someone with a background in small business and an expertise in the supplier side of business contracts. The Government also need to push forward with the corporate governance Green Paper, which has been discussed, ensuring that small business suppliers are represented at board level in large firms. That is a crucial element in making sure that the kind of level playing field hinted at can be achieved.

Who and what do the regulations affect? Companies and partnerships fall within scope of the two sets of regulations if they are medium-sized or above, which means having more than 250 employees. Contracts fall within scope if they are for goods, services or intangible assets—although I think I am right in saying that they do not include financial services—and if they are covered by the law of any part of the United Kingdom, unless they are specifically excluded from that by both parties. What happens if a firm falls below or goes above the threshold of 250 employees during the reporting period? Will that firm have to report on their payment practices for the whole or part of the period?

The regulations mean that qualifying companies and partnerships will have to report descriptions of their standard payment terms and of their dispute resolution process, where there is a payment issue with a supplier. What will happen in the event of some of the sharp practices that have led us to need these regulations—for example, where a company queries an invoice on the last day before payment is due and then the clock starts to run again, which is a well-known tactic used by some larger companies? What will the impact of such challenges be? How will the regulations affect the reporting in that kind of example? How will the reporting be policed? Without proper teeth, who is to say whether the reporting by companies is accurate? Will it be policed through the audit process, and how detailed will that policing be?

The regulations also require statements about payment practices and policies, including the availability of electronic invoicing, supply chain finance and whether businesses are members of a payment code of conduct—the Minister mentioned the prompt payment code, which I shall return to later—and statistics about performance for each reporting period, including the proportion of payments due in the reporting period that were not paid within the contractual payment period. Again, what is the mechanism for ascertaining whether that is happening? There will also be statements about the proportion of payments made in the reporting period that were made within the timeframes of one to 30 days late, 31 to 60 days late and more than 60 days late. I will come back to the point about more than 60 days, as there is a potential inconsistency with existing regulations.

Another reporting requirement is the average number of days taken to make payments, which is calculated by adding the number of days it took to make all the relevant payments and dividing it by the number of payments. Successive Governments have tried and failed to tackle the problem. Various approaches have been tried, from praising good payment practices, creating intra-industry codes, setting up a Small Business Commissioner and introducing the innovation of a right to interest on late-paid bills. The latest initiative is to require large firms to disclose their payment practice and performance.

Conservative Governments in the 1990s opted for what was described as moral encouragement—naming and shaming—and shied away from more concrete steps, such as statutory rights to interest on unpaid bills. In the 1990s, businesses were able to claim interest only if a term to that effect was included in the contract or if the courts decided to award interest in their favour in the course of the recovery proceedings. When the Labour Government came to power in 1997, they introduced the Late Payment of Commercial Debts (Interest) Act 1998 to give companies legal remedies beyond those of the normal commercial courts. EU legislation followed that approach and extended creditors’ rights further. However, none of those changes, whether voluntary or on a statutory footing, changed the tide on late payments. Will the measures that are being finalised today change the situation?

In 1993, the Forum of Private Business estimated that 89% of small and medium-sized businesses were paid late. On average, they were paid 51 days after the due date. Twenty three years later, the Federation of Small Business, in “Time to Act: the economic impact of poor payment practice”, reported that 61% of small businesses are paid late, with an average payment delay of six weeks. Moreover, in 2016 the Federation of Small Business found that 30% of payments are typically late. That number was up from 2011, when it was only 28%. Hon. Members who are paying attention will have noticed that some of those figures say slightly different things. That is because different organisations use different data and baselines.

The 2011 EU directive on combating late payment in commercial transactions already states that the period for payment in a business-to-business contract should never exceed 60 calendar days—I said I would come back to that point. In these regulations, the Government are asking businesses and partnerships to report what percentage of their payments are made after 60 days. Is it not inconsistent merely to ask businesses about their payment practice after 60 days when the legal framework already says it is illegal to go beyond that 60-day period? It does not sound like a very good sign to me.

Another example of where more needs to be done is the prompt payment code. Although the total number of signatories is 1,936, according to the Government website, very few of them are medium-sized or large private sector firms. When NHS trusts, councils, Government Departments and so on are taken out, there are just 184 signatories with a turnover of more than £500 million a year, a further 84 with a turnover of between £100 million and £500 million year, and 110 with a turnover of between £25 million and £100 million. That means that only 378 firms with a turnover of more than £25 million have signed up to the prompt payment code. According to figures from the Department for Business, Energy and Industrial Strategy, there are 7,000 large firms in the United Kingdom. How will the regulations help us to move from the 378 that have signed up to the prompt payment code to all 7,000 carrying out the practices in the regulations, which is what we all want to see?

Is the duty to change what we need? While we are supportive of any measures to tackle late payment, in particular requiring larger firms to lay out their payment practices, all this prompts the question whether we are throwing another policy at a problem that has persistently withstood the “moral encouragement” approach. The duty in the regulations has the potential to do a lot more than that, but only if specific actions are taken. The reports will be published, to use the Minister’s words, on a Government web-based service, and they are due to be published within 30 days after the last day of the reporting period, which I assume means the tax-reporting period.

How will simply saying, “It will be published online,” help the smaller companies, which need to understand their potential customers’ payment practices before deciding whether to contract with them? The web-based service needs to be easily searchable. It needs to show how different companies compare with each other and to show what the industry standard is. For small businesses to benefit from the regulations and for us to create the kind of balance between large and small firms that the Minister rightly referred to, the system needs to operate effectively. How the web-based service is run will be crucial, so can she say more about how it will work? If it works properly, we could see a step change in the way that smaller firms are treated by their larger customers.

This is not just fine detail. The danger, as we have seen, is that attempted actions on late payment amount to just moral grandstanding, rather than creating effective tools to tackle this scourge, which, as the Minister and I have both said, delays payments amounting to £26 billion at any one time. The regulations require companies to provide a statement on whether their payment practices and policies allow them to deduct money from payments as a charge to a supplier to remain on the qualifying company’s list of suppliers or potential suppliers. That is clearly a step forward, but there is another problem, which has not been addressed in these regulations, namely the ability of companies to award themselves a discount for early payment. That has been excluded from the regulations, and I will come on to what the Government response to the consultation said on that point.

The courts have a fairly broad take on what standard payment terms are, and obviously they will be the terms used in the vast majority of contracts. It would be for the company to prove in dispute that tweaks such as discounts are standard and known to all their contracting partners. I would be surprised if deductions for paying on time were considered to be so standard as to be not worth recording, but we can be reasonably certain that where there is wooliness, some of those most likely to cut corners will do just that. If we are going down the route of closing off loopholes, as the stipulation on deductions for remaining on a supplier’s list suggests, we ought to go the full way and explicitly include deductions that allow companies to pay less for paying early.

The draft regulations were going to include a requirement to report on interest owed for late payments. However, that requirement has been dropped. The Government response to the consultation says:

“Several issues emerged through further engagement with businesses. Feedback suggested that most businesses do not routinely record how much late payment interest they may be liable for, and would therefore require costly upgrades to software in order to report the total liability. Linked to this is the fact that a claim for interest under the Late Payment Act may be brought up to six years later. Businesses felt that requiring reporting to cover the previous six years would be particularly difficult because the data may not have been recorded in a way that allowed extraction. The costs associated could be substantial and could result in a figure that would be difficult for users of the data to interpret, as it would cover a different time period to other metrics which are limited to the six month reporting period.

We believe that businesses should focus their efforts on not incurring interest by paying on time, rather than calculating potential interest. This will be kept under review. We will also take into account the lessons that the introduction of reporting on interest liable in the public sector can teach us, once it has been introduced in April 2017.”

Perhaps the Minister will give us some more information on what is meant by “kept under review”.

The business response to the consultation was, “We don’t record that”, but that is a pretty poor excuse. Previously we have made the case, including during the Committee stage of what became the Small Business, Enterprise and Employment Act 2015, that interest should be applied automatically to late payments, because it is too onerous for small businesses to go after much bigger clients themselves. First, they do not have the internal resources to do so or to take legal action. Secondly, and probably more to the point, such action could damage a major contract, which might represent the majority of the supplier’s revenue. That has always been one of the problems, but the commercial reality is that a supplier challenging its big customers runs the risk of losing them for future business. That is one of the key challenges in dealing with the problem.

The Government response, quoting business submissions to the consultation, drives that point home. Businesses do not record such matters and they do not have the software to manage interest on late payments, because the threat of a small supplier slapping interest on their late payments is so remote that there is no incentive for them to do so. Perhaps the Government should consider such an incentive. After all, records have to be kept for seven years for audit purposes—I think it is 10 years for plcs; the Minister can correct me if I am wrong—so that kind of recording would sit naturally alongside existing requirements to record account information.

The good thing about the draft regulations is that they start to recognise that, because of the deep imbalance of power in supply chains, we cannot simply leave the problem to suppliers to fix. Obviously, automatically applying interest to late payments would be preferable, but a decent first step would be to require the recording and reporting of interest owed. That would serve as a wake-up call for large firms about how much they might find themselves out of pocket because of their behaviour, and as an easy way for suppliers to see how much they could collectively be entitled to, in particular from persistent late payers.

We broadly support the aims of the draft regulations. I have posed a number of questions. My sense is that this is the start of the process and not the end, and that there is room for improvement, adaptation and addition to the regulations, not least when the Small Business Commissioner is in post. Will the Minister tell us when that will be? I look forward to her response.

Intellectual Property: British Economy

Bill Esterson Excerpts

Tuesday 28th February 2017 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

I congratulate the hon. Member for Selby and Ainsty (Nigel Adams) on securing this important debate. There has been a large amount of agreement across the Chamber on the nature of the challenges and what we are asking the Government to address.

Intellectual property is the sum of a person’s or a business’s creativity and unique knowledge: their industrial designs, trademarks and inventions. Intellectual property gives ownership to ideas. It secures, for the creator, a stake in the value generated by their creations. Whether we are talking about the knowledge economy, the digital sector, high-end manufacturing or renewable energy, the UK has a deserved global status in all those fields. We have that status not just because British people are particularly good at having ideas, but because we are very good at safeguarding the ownership of those ideas, although, as we heard in great detail from hon. Members, we have a significant amount more to do to protect that ownership. Intellectual property is a catalyst for growth and jobs—for a successful economy. That is becoming increasingly apparent and it will be increasingly important if we are to be an economy of high pay and prosperity, and not an economy of low skill and low wages, competing on the basis of price alone, in an uncertain world.

As the hon. Member for Selby and Ainsty said, the Digital Economy Bill has only three clauses on intellectual property. He is right to make that point and to say that the Government need to give the area of IP far greater attention. He, along with a number of other hon. Members, spoke about the impact of piracy on investment and emerging talent, the threat to the creative industries’ revenues that that brings, and the importance of the code of practice. As my hon. Friend the Member for Cardiff West (Kevin Brennan) pointed out, if we have a code, there needs to be proper enforcement, and the Government have a vital role in ensuring that enforcement takes place.

As the hon. Member for Selby and Ainsty said, it is easy to bash big companies. We need to be careful about doing that and should praise them when they get things right—the code of practice is a prime example—although I hope he agrees that those big companies should pay their taxes where they generate their profits. He spoke about the safe harbour laws and touched on some of the challenges for IP as we leave the European Union. He was right to raise those challenges, which I look to the Minister to respond on. I will come back to that a bit later.

My hon. Friend the Member for Cardiff West made the point that there is large-scale agreement on the need for IP policy. He mentioned IPTV, which gives access to content without rewards to the creators but with enormous rewards to criminals who are out of our reach overseas. While he was speaking I searched on Google for IPTV and came up with Amazon, eBay and Gumtree offering very low-priced mechanisms for accessing such content. It is there, easily available in front of us, and hon. Members have pointed out just how widespread access to it is.

I am afraid that I have to agree with Members about the slow response in the Digital Economy Bill, which has happened despite the Government accepting the need for action. My hon. Friend the Member for Cardiff West raised the seriousness of the problem and expressed frustration about the lack of action on Members’ amendments tabled during the Commons stages of the Bill. Will the Minister tell us why there is such a lack of action?

My hon. Friend the Member for Newport East (Jessica Morden) rightly praised the staff based in her constituency and the excellent work they do at the Intellectual Property Office. She said, importantly, that the Government need to invest in the staff’s work for the long term because of the critical nature of IP to the success of our economy. I hope the Government will do just that.

My hon. Friend the Member for Cardiff West talked about the difference between good and bad regulation. Good regulation helps business and the economy, and that includes the need to protect smaller businesses when it comes to copyright and unregistered design rights. He and the hon. Member for Selby and Ainsty rightly highlighted the need for a proper approach from the Government on safeguarding online. That point was extremely well made and well heard; I believe it is also understood by Government. My hon. Friend talked about the damage to exports if we do not get our approach to IP right. As we leave the EU, trade deals will be important for exports, and IP is a crucial part of that agenda. The hon. Member for Glasgow North (Patrick Grady) rightly talked about the exploitation we have seen of the world wide web, and the challenges that have grown since 1993.

The hon. Member for North Antrim (Ian Paisley) spoke of the loss of revenues to the Government from illicit fuel sales—I think he said that 40% of fuel sales in Northern Ireland are illicit—and made the comparison between fuel sales and the importance of preventing illicit sales online. I was grateful to him for expressing his lack of understanding of technology and products such as Spotify—I am glad I am not the only one in the room who faces such challenges with my children and their access online.

The hon. Gentleman and others spoke of the need for fairness to the performer in benefiting from their own intellectual property. He said that there is an opportunity for the UK to provide the gold standard for IP as we leave the EU. I think we should be doing that anyway—that should have been our priority regardless of whether we were staying or leaving. It is crucial we do so in the time we have left before we finally leave. We should not be waiting to leave to achieve that goal. He made a very important point about the case for a Government role in creating a fair market and a level playing field so that industry can thrive and performers can receive the appropriate rewards for their industry, innovation, creativity and hard work.

The hon. Member for Perth and North Perthshire (Pete Wishart) was the second member of MP4 to speak in the debate. I did wonder whether he was going to contribute for the other two members as he went on, to make up for them not being here. He made some good points. He spoke about the challenge of leaving the EU and the importance of the digital single market, and called on the Government to use our remaining time to help shape the agenda before we leave. He repeated the concerns of my hon. Friend the Member for Cardiff West about how slow the Government have been in responding to protection against theft.

The UK’s system of regulating IP is considered to be one of the finest in the world, rated number three by business in the 2016 Taylor Wessing global IP index in respect of obtaining, exploiting and enforcing the main types of IP rights: trademarks, patents and design rights. The investment pays off—intellectual property makes a significant and growing contribution to the UK economy. As the Intellectual Property Office notes, UK investment in intangible assets protected by intellectual property rights has risen from £47 billion in 2000 to £70 billion in 2014 and has been estimated at 4.2% of total GDP. It is therefore clear that intellectual property is of great importance to the UK economy.

We welcome the Government’s recognition of the importance of IP in the industrial strategy Green Paper. Investment in science, research and innovation is one of the 10 pillars of the Green Paper and, as part of that, the Government are

“reviewing how to maximise the incentives created by the Intellectual Property system to stimulate collaborative innovation and licensing opportunities”.

I hope that that is going to include university spin-outs and making sure that we make full benefit of the commercial applications that come from them.

Labour is committed to investing the full 3% of GDP in research and development, and has long called for the Government to improve their record. That is the level of investment needed to place rocket boosters under the R and D pillar of the industrial strategy, and I hope we will see more of it from Government. Sadly, we have seen a decline in Government spending on R and D from 0.56% of GDP in 2009 to 0.49% in 2013. That is considerably lower than the OECD average of 0.7% and the EU average of 0.64%, so more needs to be done by the Government on investment in R and D.

IP is crucial to the success of the economy and business, and to those in industry—especially those in the creative industries, as we have heard. Clear, early action is needed on piracy, on arrangements for leaving the European Union and on making IP a key part of the success of our economy. I look forward to the Minister’s reply.

Draft Economic Growth (Regulatory Functions) Order 2017 Draft Growth Duty Statutory Guidance

Bill Esterson Excerpts

Tuesday 28th February 2017 General Committees

[Margot James]

It is a pleasure to serve under your chairmanship, Mr Brady.

The order will support regulatory bodies in the UK in creating a healthier business environment by making regulation more proportionate, transparent and accountable. The Government are committed to ensuring that regulation supports growth and does all it can to unlock productivity in the UK. Better regulation is central to the Government’s desire to make the UK the best place in the world to start and grow a business, and a key part of our commitment to driving economic growth and boosting productivity. The Government delivered savings of £10 billion to business over the last Parliament, and we have committed to achieving a further £10 billion of deregulatory benefit for UK businesses in this Parliament through our business impact target.

In the Deregulation Act 2015, we introduced a duty for regulators to

“have regard to the desirability of promoting economic growth”—

the growth duty. Alongside the business impact target, that duty supports a positive shift in how regulation is delivered. It will help to reduce the regulatory burdens that hold businesses back and prevent them from getting on with doing business. The result will be another step forward in ensuring that regulation supports growth by freeing up businesses to innovate, creating greater prosperity and opportunity for all.

The 2015 Act establishes the economic growth duty as a legislative requirement for persons exercising a regulatory function. The draft order sets out the specific regulatory functions to which the duty applies, and the statutory guidance has been produced alongside it to assist regulators in fulfilling their new responsibilities at both strategic and operational levels.

Proportionate delivery of regulation plays an important role in supporting competitive markets and improving social and environmental outcomes. Regulatory enforcement that is not proportionate and risk-based imposes unnecessary costs on business, creates uncertainty and undermines investment. How regulation is enforced can have significant effects on businesses’ ability and willingness to invest and grow. In particular, there is evidence to suggest that some regulators fail to take sufficient account of the economic consequences of their actions and place unnecessary burdens on businesses in the exercise of their regulatory functions. To address that, in the 2012 autumn statement, the then Chancellor announced several measures designed to create a healthier business environment by making regulation more proportionate, transparent and accountable.

[Bill Esterson (Sefton Central) (Lab)]

The Minister refers to what the then Chancellor said and mentions that some regulators have not acted supportively for business and economic growth. Will she give an example of a regulator or a case in which that is supposed to have happened?

[The Chair]

Before the Minister resumes, let me say that because the Question has not been put yet, it is not technically possible for her to accept interventions. Of course, whatever the Minister says now is entirely up to her, but it is important that the Committee should be aware of the appropriate rules of order.

[Margot James]

I am extremely grateful, Mr Brady, as I am sure the shadow Minister is, for that point of learning, which was not enforced yesterday.

I will not comment on individual regulators, but I see from time to time examples where regulation is applied without sufficient concern for the ways of working in particular sectors. If those regulators were more sensitive to the ways of working, they would apply the regulations to no less effect and with less imposition on the companies concerned.

Although many regulators consider the impact of their actions on economic growth, some do not. Indeed, some regulators think they are unable to take account of growth because they do not have a statutory requirement to do so or their statutory objectives do not refer to growth. Requiring regulators to have regard to economic growth in this way will address the uncertainty of regulators that feel at the moment that they cannot have regard to economic growth and will put the obligation on a statutory footing, thereby complementing regulators’ other legal obligations.

The growth duty will help regulators to carry out their functions in a way that is conducive to economic growth, and will ensure that regulatory action is taken only when needed and that any action taken is proportionate. It will therefore encourage regulators to develop more mature and productive relationships with the sectors and businesses that they regulate, driving up the accountability of regulators to the business community. That will help to deliver our aspirations for greater productivity and growth in the economy.

Public consultations were carried out in 2014 and 2015, and there was a further consultation on the scope of the business impact target. Responses were received from a broad cross-section of stakeholders. The majority of respondents to the consultation on the growth duty agreed that regulators should have regard for economic growth and should be accountable for whether they have properly considered business growth in their decision making. One respondent said that

“businesses need to have proportional regulatory burdens that can be monitored and dealt with efficiently so they can focus on growth.”

Another stated that

“regulators should always have a dual responsibility to regulate and to promote economic growth…the two should not be mutually exclusive.”

There were a small number of objections to the inclusion in scope of particular regulators. Those were mainly based on arguments related to the amount of regulatory activity undertaken or the fact that the organisation did not have any regulatory functions.

Having considered those responses, the Government are satisfied that it is appropriate to bring the regulators listed in the instrument within scope of the duty. This measure is an important step towards creating a healthier business environment by making regulation more proportionate, transparent and accountable. I commend the regulations to the Committee.

[Bill Esterson]

rose—

[Patrick Grady (Glasgow North) (SNP)]

rose—

--- Later in debate ---

[Bill Esterson]

It is a pleasure to serve under your chairmanship, Mr Brady, not least because you have created an interesting dilemma. The Minister and I, as well as other Members here, sat in a Committee such as this last week and were told that the Scottish National party spokesperson should speak first. The hon. Member for Glasgow North would do so, had he indicated before me that he wished to speak. However, you are in the Chair, Mr Brady.

[The Lord Commissioner of Her Majesty's Treasury (Stephen Barclay)]

The Chair is always right.

[Bill Esterson]

Indeed, so I shall continue. The Chair from last week—

[Stephen Barclay]

Let’s ask them about it.

[Bill Esterson]

The Government Whip, from a sedentary position, is being extremely helpful, which happens rarely. I take it that we can now take interventions.

[The Chair]

Indeed.

[Bill Esterson]

Thank you for that clarification, Mr Brady.

The Minister set out the case for the regulations. She commented in particular on the Government’s commitment, of which I have no doubt, to create a positive business environment across the UK and to unlock productivity by enabling businesses to invest and grow, as the explanatory notes state. I completely agree with that. The explanatory notes go on to say:

“The way in which regulation is enforced can have significant effects on businesses’ ability and willingness to do this”.

I also agree with that statement. It is a real shame that, when she responded to my incorrect intervention, she chose not to give an example of a regulator that has failed, as the notes state,

“to take sufficient account of the economic consequences of their actions and place unnecessary burdens on business in the exercise of their regulatory functions.”

It would be extremely helpful for Members if we were properly evidenced in our decision making to make sure that the intention of supporting growth and business success is most likely to be achieved by passing these regulations. The success of our economy, its growth and the prosperity of us all are fundamentally important to what the Government are trying to achieve, and that is helped by properly evidenced approaches to policy.

When the Minister responds, perhaps she will consider whether she can give specific examples of regulators where those concerns have been justified. It is right that we attempt to reduce unnecessary regulations, but good, smart regulations underpin fair markets and help to create a level playing field for smaller firms, start-ups and growth companies. They help to create jobs and prosperity. They are essential to the economy and to safety as well. The example of the 2012 Olympics in this country, where nobody died during the construction phase, is a tribute to the success of our regulatory regime. The building of the football stadiums for the 2022 Olympics is in stark contrast, given the death and injury toll for workers on those games. What went on there is a scandal.

Smart regulations protect the safety and rights of workers and businesses, support competition and prevent undercutting and exploitation. We have seen what goes wrong when those things do not happen, whether it is Sports Direct or the actions of Sir Philip Green. Members on both sides of the Committee who support a reduction in regulation should not forget the importance of the financial crisis and the fact that the lack of regulation or safety mechanisms to prevent the excesses of large parts of the financial sector in this country—let alone what went on around the world—was a key contributor to the crisis. We need better regulation, not none, whichever sector we are looking at. As the Federation of Small Businesses said in the Deregulation Bill Committee evidence sessions, people ask only for an avoidance of duplication, to avoid wasting of time as regulations are developed and implemented—not no regulation at all. That informs our response to what is before the Committee today. In the Labour Government, we had the Better Regulation Commission, which reduced the cost of regulation to business in this country by £3 billion a year. It is ironic that we are looking at the growth duty from the Deregulation Act, given that that Act introduced significant additional amounts of regulation for business.

Regulators decide for themselves the balance between promoting growth and applying the regulations for which they are responsible. That will continue to be the case with these regulations. However, how do they know the right balance to strike when they have to respond or be accountable for the regulations?

In Committee debates on the Deregulation Bill, in both the Commons and the Lords, the question was raised of what would happen if there was a challenge—if there was a claim by businesses that the duty for economic growth had been misapplied. The point was made, and accepted by Ministers, that we could see judicial review. That was said by the Minister in Committee.

If that were the case, under pressure from large companies with deep pockets, regulators, most of whom are small with limited resources, would have to decide whether to defend themselves. The potential for significant pressure being brought to bear on the regulator by the strongest in our economy is very real and was raised throughout the passage of the Bill. What is the right balance? There are competing needs and duties between regulation and the economic duty. One part of an economy would want to see one approach applied, another would want to see a different one.

Good regulation should promote growth and act in the best interests of the industry for which the regulator is responsible. A regulator’s duty should be both to support an industry and to ensure compliance with regulations, as is already the case. Why the need for this specific, spelled-out additional duty—the extra requirement of compliance with the growth duty? That comes back again to the lack of specific examples of where it is not happening at the moment, and it makes clear the need to obtain an answer from the Minister.

The Government often say that they want fewer regulations and less intervention, yet here there is more. The question whether the actions of the regulator will support growth will depend on the interests of the person or organisation viewing the way in which the regulator applies that duty. In the nuclear industry, the regulator clearly has a significant responsibility for safety but could take the view that it has to pursue that even further because failure of safety in the nuclear industry would lead to complete economic failure as well. That point was made by a Conservative member of the Bill Committee.

Another example was given by the Institute of Directors in evidence to the Bill Committee. It said that the regulator in a particular sector might not be helping growth in the view of one individual, and some of the evidence suggested the potential for legal challenge and judicial review. Big business might think that regulations hamper growth, although smaller firms say the complete opposite. In that case, if there are conflicting views of what constitutes supporting growth, how will the regulator respond? What decision will they make? What is the basis for that decision?

The big firms will want their interests to be prioritised and those same big firms are in the strongest position to challenge the decisions by the regulator through the courts. That is why, in Committee, the Labour party tabled an amendment requiring regulators to produce an annual report on how they have interpreted these regulations to support small and medium-sized enterprises, to try to ensure support for the creation of a level playing field and a fair market.

Sadly, the Government rejected that amendment. That was a great shame, so perhaps, once these regulations are put into action, the Minister will return to that point and consider whether the measure is something that should be introduced. We perceived it as a way of reducing the potential for legal challenge and judicial review and reducing some of the unforeseen consequences of this additional requirement on regulators.

It is clear that if there is a significant amount of legal challenge—if the lawyers are involved—this could amount to a lawyers’ charter. We would see economic growth as a result of greater sums spent on lawyers, but I do not think that is quite what the Government had in mind. We need to be mindful of the danger of significant legal challenge.

We also need to consider the balance between short-term economic activity and the longer-term effect of what regulators will have to do as a result of the duty. A decision to act in the short term to cut costs of regulation by less application could result in growth— absolutely. However, if that leads to longer-term corner cutting, it would be counterproductive in the long run and growth would be lower. How will regulators make those decisions? Will they be allowed to make them without facing undue pressure for short-term decisions that are not in the interests of the wider economy, and how will that contradiction be overcome?

Safety in many sectors—food, water, nuclear or construction—comes with an additional cost to business, but accidents have a far greater longer-term cost, so getting those balances right is fundamental. The Government say they want growth. The question of short-term versus longer-term interests of businesses is tied up in the kind of growth we want and its sustainability. The threat of legal challenge, the difficulties it will cause to regulators, the additional time and cost pressures on the regulators are surely not what is intended. I wonder whether the threat of legal challenge might lead to less sensible application of good regulation.

If the Government really want to achieve the growth that they have set out—we see that with the development of the industrial strategy Green Paper—support for business and a high-pay, successful niche economy is the only way for this country to thrive. To avoid going in the opposite direction—the Prime Minister warned of the alternative of a low-wage economy; a tax dodgers’ paradise off the shores of the continent, along the lines of the Cayman Islands or Singapore—we have to get this kind of measure right. We have to get its application right, otherwise we will see the unintended consequences in the longer term and not the success that I think we all agree is needed.

I look forward to the Minister’s answers. We really need to get the balance between short term and long term right, otherwise the growth duty will not end up being the success that it should be.

--- Later in debate ---

[Margot James]

I thank hon. Members for their questions. Both the hon. Member for Glasgow North and the shadow Minister discussed the nature of regulation and I think there is some agreement—I would hope so anyway —that we are about better regulation, smarter regulation and regulation that is appropriate to the sector of society or the economy it is attempting to regulate.

I would like to put on record the fact that the notion that the Prime Minister was espousing some alternative for this country—its being, as the shadow Minister mentioned, a low-wage tax dodgers’ country on the edge of Europe—is the absolute antithesis of her aspirations. The notion of regulation is very important to the industrial strategy. We want to achieve a state where the regulators have a responsibility, as do all sectors of the economy and businesses operating within it, to support the economic growth that we all depend on. The shadow Minister said surely they were doing that already. Many do, and that is a good thing, but because they do not have a statutory obligation to ensure they have a duty to promote growth alongside their other responsibilities, some of them are not aware of it or, worse still, some think they do not have to do so. That is the purpose of the measure, and the response of the Federation of Small Businesses was that it would be a good thing if all regulators realised they had a responsibility to promote growth where appropriate. [Interruption.] Does the hon. Member for Sefton Central wish to intervene? I get a sense that he does. I am quite happy to give him the floor.

[Bill Esterson]

It is baffling, Mr Brady. The Minister has said twice that there is concern about regulators that are not promoting growth, but she is not giving us any examples. Without a proper evidence base, it is extremely troubling that the Government are doing something that does not stack up, that lacks the support to say that it is needed. Just one example, please—that is all we are asking for.

[Margot James]

I am not going to name individual regulators. The hon. Gentleman can read the consultation that lies behind the introduction of this regulation, from which I am sure he can get a feel for the sectors that are in need of this duty.

Talking in the abstract, we want to see regulators providing more proportionate decisions; we want to see a reduction in administrative burdens, inspection costs, duplication of information, and reliance just on external contractors. Businesses do not want to feel that regulators are faceless bureaucrats, but that they are approachable and supportive of their overall success. Some regulators are better at that than others. The purpose of the measure is to try to bring the rest up to the standards of the best. For more detail, I urge the hon. Gentleman to read the consultation.

Turning to other matters that the hon. Gentleman raised, he cited the Olympics as a regulatory success, and contrasted them with the financial crisis. He said there was not enough regulation to deal with that and the fact that, in his words, “all parties were on the side of less regulation.” I do not think that was the case. As my hon. Friends have pointed out, there were 6,000 pages to regulation at the time. The root cause of the problem was not the lack of regulation, it was the impossibility of enforcing those regulations, and the fact that there were too many regulators with a finger in the pie.

We want to see regulators balance their regulatory purpose with their duty to promote growth. The hon. Gentleman was concerned about legal challenges and the imbalance of power between large companies and relatively lightly resourced regulators. While, in principle, it is possible for a legal challenge to be brought, the statute and the regulations require that regulators have regard to the desirability of promoting economic growth. Providing a regulator does so, a legal challenge would fail, so there is no real prospect of a court being asked to consider the particular balance being struck by a regulator. That balance is up to the regulator and if they have good reason for their decision—if they have considered their duty to promote economic growth but concluded that, on that occasion, it is trumped by another of their other duties—they will merely have to demonstrate that reasoning. I hope that that reassures the hon. Gentleman.

The growth duty is a key element of our agenda to improve regulation in the UK, and these regulations will support a positive shift in the way in which regulation is delivered by reducing the unnecessary burdens that hold business back and prevent them from getting on and doing business. They will therefore help to ensure that regulation supports growth, and will create a healthier business environment by making regulation more proportionate, transparent and accountable.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Economic Growth (Regulatory Functions) Order 2017.

Draft Growth Duty Statutory Guidance

Resolved,

That the Committee has considered the draft Growth Duty Statutory Guidance.—(Margot James.)

Draft Business Impact Target (Relevant Regulators) Regulations 2017

Bill Esterson Excerpts

Monday 27th February 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Ryan. I have not done so before, and I look forward to it. The Minister has very briefly set out the Government case for the regulations, and I will raise a series of concerns and challenges, to which I would like her to respond.

The Minister went over the Government’s one-in, two-out approach in the last Parliament, yet here we are, adding regulation to the regulators. At first glance, it looks like more regulation, not less. A long list of regulators that will see additional claims on their time and effort is included in the regulations. The Government’s claims to want to see less regulation do not always stand up to challenge, but that is not the main point. We have debated the impact of quarterly reporting before, and I am sure we will debate it again. Time, bureaucracy and cost are associated with the requirement for businesses to report their tax affairs every three months. The Federation of Small Businesses estimates that the proposal will create £2,600 a year of extra cost. We have extra regulation and extra costs to business from a Government who say they want less.

I turn to the matter at hand. A number of concerns emerged in going through the regulations. The challenge is to balance properly the short-term requirement on regulators to reduce the amount of work they are doing with the long-term impact. Has that long-term impact been measured? Has the impact assessment adequately looked at what some of the challenges, concerns and impacts may be, especially when we are talking about public safety and health? A number of the regulators concerned, including the Care Quality Commission, the Chief Inspector of Drinking Water and the Food Standards Agency, cover one if not both of those areas. Those are three examples; I could mention many more where public safety and health are paramount.

The concern must be that, in the Government asking or requiring regulators to reduce their impact on business, corners are not cut and that public health and safety are not put at risk. Can the Minister answer this simple question: what is the mechanism to avoid an increase in risk in any of the agencies referred to in the schedule and the papers in front of us? The Financial Conduct Authority is included in the regulations, and we are all acutely aware of the important lessons of the financial crash. What is the mechanism for ensuring that the reduction in the requirements on the FCA will not lead to additional problems in the financial sector, such as the crash from which some would argue we are yet to recover? That is a great concern, and that was expressed in the consultation. The point about caution and the analysis made by a range of these agencies needs a detailed answer from the Minister. I am sure that she will have that answer by the time I have finished.

I move on to the wider financial elements of the regulations. It is apparent that savings can be quickly made by reducing the activities of the regulators, but will those savings lead to longer-term costs? What work have the Government done to ensure that cost concerns and economic concerns, as well as concerns about health and safety, are being considered for the longer term? What would be the point of making short-term savings? The Minister and her colleagues in her Department and across Government are rightly committed to long-term growth, and they are happily now committed to an important industrial strategy, which was not the case with some of her predecessors. How can we be sure that the reductions in regulation will not lead to longer-term cost?

I will give an example that was raised in the Small Business, Enterprise and Employment Bill Committee by my hon. Friend the Member for Wakefield (Mary Creagh). She talked about the challenges of getting environmental regulation right. She quoted evidence that suggested that the benefits of environmental regulation—some of which can be quantified straightaway and some of which take longer—cover the costs three times over. The implication of that analysis is that, if environmental regulation is reduced, costs increase in the long term. How will increased costs to the economy and to business be avoided by reducing regulation, whether that is for the environment or the range of other areas covered by the organisations listed in the schedule?

If the Minister could answer those questions, I would be extremely grateful. I am sure it is not the Government’s intention to lose out in the long run just to make a short-term gain and to get some headlines on reducing red tape. We on the Opposition Benches fully support the need to reduce big business regulation, to improve conditions for business, to make the economy more vibrant and to create fair markets. If changes to regulation can help to achieve those objectives, that is absolutely the right way to go, but if they reduce the potential for a stronger economy in the long run, that cannot be right.

It came up during the consultation that a request from business is absent from the draft regulations. Tax accounts for a large amount of regulation that causes huge cost to business and which businesses object to massively, so why are HMRC and other bodies responsible for tax not covered by the regulations? That would be an obvious place to start and an obvious way to reduce regulation, bearing in mind the absolute purpose of reducing the cost to business. I am curious to hear the Minister’s answer to that question, which was raised in the consultation, and I look forward to her other answers. Perhaps I will pursue certain issues further through interventions as she responds.

--- Later in debate ---

[Margot James]

I will start by clarifying the purpose of the regulations, in response to the questions asked by the hon. Member for Rutherglen and Hamilton West. The measures do not direct regulatory bodies to reduce regulation. They are about bringing them into the scope of the Enterprise Act such that the regulators listed will be required to assess the economic impact on business of their activities that qualify against the target. That assessment will be verified by the independent Regulatory Policy Committee, so there are safeguards in place. I hope that that reassures the hon. Lady.

On the questions asked by the shadow Minister, the hon. Member for Sefton Central, we agree that we are not after more regulation with these provisions. This sensitive approach to regulators brings them into scope such that they have to assess the economic impact of the regulations for which they are responsible. It is not a directive to the regulatory bodies to reduce regulation. Our concern in respect of regulators is that the regulations are designed to ensure that business benefits from reduced costs in complying with regulations. That does not mean they might receive less regulation, but we want them to be given every opportunity for reduced cost in compliance with regulations, so there is greater emphasis on reporting and transparency among the regulators that have been brought into scope through the regulations.

As the hon. Gentleman mentioned, tax is exempt from the target and therefore exempt from the regulations. I reassure him that HMRC is subject to a separate target of reduced regulation as regards the tax regime. Its target is that it should reduce the impact of tax regulations by £400 million by 2020. So it is subject to a reduced regulatory target, but that is not part of the business impact target—there is a separate target for which it will be held to account.

[Bill Esterson]

I am grateful for the Minister’s explanation, but it baffles me. At the start of my remarks, I mentioned quarterly reporting and the estimate by the Federation of Small Businesses of the average cost—£2,600 a year—to businesses. If HMRC is increasing costs to millions of businesses across the country in that way, it really is going to struggle to hit that target—unless she can tell me something I have completely missed.

[Margot James]

It is always difficult when one is talking about a measure that is currently under discussion. The requirement on businesses to report quarterly and digitally to the Revenue for their taxes will be introduced, but the exact mechanics of that proposition are still under discussion and review. The FSB, which I met to discuss the issue, accepts that this is not set in stone yet. It is, in fact, quite encouraged by the response it has received from the Treasury on the threshold below which businesses would not have to comply with the regime. I think it does accept that in the long run this new quarterly approach and the digitisation of tax returns will save business money, while it does not dispute that it will perhaps have a regulatory burden effect on some businesses in the short term. As I said, it is a bit premature to be bandying figures around when we do not know the exact shape of the new digitisation of tax and quarterly reporting requirement.

I will move on to the concerns that the hon. Gentleman rightly raised about regulators such as the Food Standards Agency and others in health and safety—Public Health England and so forth. I draw his attention to the exclusions; there is a list of exemptions from what we are debating this afternoon. The exemptions include any regulations relating to civil emergencies and relevant to the delivery of large infrastructure projects. He also mentioned the FCA, and there is an exemption to any provisions relating to systemic financial risk. There is a large number of exemptions and that is how we have tried to allay concerns such as those he expressed.

[Bill Esterson]

I am grateful for that explanation, but who will determine what is in and out of scope? Many people will be extremely concerned about all those points but, to take the FCA as an example, who will make the determination? How will we know in advance whether something will contribute to a future financial problem or indeed a crisis? Is there not a danger it will be too late? What is the mechanism for avoiding that happening?

[Margot James]

Each regulator has to provide an assessment of where it sees the impact of its regulatory activity being. That is then assessed by the Regulatory Policy Committee and, ultimately, Parliament can hold Ministers to account. The scope is designed to ensure that agencies ensure that the impact of their regulations is fully transparent. The environmental regulation impacts are included in that.

I am confident that savings are not going to lead to additional long-term costs. We are not necessarily reducing regulation. The measure is about minimising the cost to business to achieve the outcome that the regulations require.

I thank Members for their comments in Committee. The business impact target plays a central role in the Government’s agenda to improve the quality of regulation in the UK. Businesses tell us that the actions of regulators are as important as the content of legislation in determining their experience of regulation. The draft regulations will provide greater clarity and transparency for business about the impacts of the regulatory activities of Government and independent regulators. They will do so without undermining the core purpose of those regulators, and they will help to deliver smarter regulation, creating a healthier business environment, which will be good for British business.

Question put and agreed to.

Draft Claims in Respect of Loss or Damage arising from Competition infringements (Competition act 1998 and other enactments (amendment)) regulations 2017

Bill Esterson Excerpts

Wednesday 22nd February 2017 General Committees

[Bill Esterson (Sefton Central) (Lab)]

I broadly agree with the Minister. We support the implementation of the regulations. It is absolutely right that we do so, because this is about ensuring fair markets and, as she said, the protection of consumers and of smaller businesses. It is really important for the success of our vibrant economy that we do all those things and, as she said, that we retain the principle that cartels cause harm.

It is very good to hear the Minister express support for that principle. Opposing undercutting and exploitation is crucial, and that applies to suppliers, workers and consumers. The regulations are consistent with those principles. She mentioned the Consumer Rights Act and how the regulations build on legislation already on the UK statute book. She also mentioned the fact that this country has a proud record and is ahead of the curve on many of the areas she covered.

I am happy to support the regulations. However, a number of questions arise from what the Minister said and from the legislation, not least what will happen to the regulations after we leave the European Union. Many businesses wish to avoid divergence of regulation as far as possible. What is the Minister’s response to that?

The Minister said that the provisions may take some time to take effect. Perhaps she could be a bit more prescriptive in describing the timescale. It might be suggested that she is saying they will not take effect at all because we will have left the EU before they come into effect, which would seem rather odd, to say the least. Will she explain the exact position of the regulations after we leave the EU and say whether, indeed, they will come into effect at all before we leave the EU?

The Minister mentioned what happens down the supply chain and the way that SMEs are involved. My understanding, from what she said, is that the regulations allow a degree of protection for smaller firms that are involved through supply chains. Something that springs to mind is the way in which the Groceries Code Adjudicator operates. The GCA has only direct suppliers in scope. There are about 7,000 of them, and something like 300,000 indirect suppliers in the grocery market. I appreciate that the Minister may need to come back to me on this, but I wonder whether the regulations have implications for the way in which the GCA operates. Would they result in a change in its role and would they draw in indirect suppliers in the grocery sector? That point occurred to me as I listened to the Minister.

The energy market is a good example of long-standing concern about cartels in this country. The Competition and Markets Authority inquiry looked at the problems of cartels and the big six. There is significant concern, some of it voiced by the Government—I think the Prime Minister has mentioned it—about continuing problems in the energy market and high prices, which have risen significantly in recent times.

The inquiry discussed the challenge of vertical integration and the relationship between supply and retail. It considered whether the relationship was healthy and whether the way in which the big six operated meant that more intervention was needed to help consumers and smaller entrants to the market. Will the regulations assist with challenges in the energy market? Will they, in the Minister’s opinion, be part of an opportunity for new entrants and consumers to challenge pricing and the service they receive in the energy market?

We fundamentally support the regulations, because in principle they are helpful to the achievement of fair markets and enterprise. We shall not oppose them. However, if the Minister can answer my questions either today or in writing, I shall be extremely grateful.

[The Chair]

Ms Gibson.

--- Later in debate ---

[Margot James]

I thank hon. Members for their questions. I shall first answer the shadow Minister’s question on Brexit, together with that of the hon. Member for North Ayrshire and Arran. In line with other European directives, all European law will be transposed into UK law via the great repeal Bill, and this measure is no exception. It is not necessarily possible to give a view about what will happen next in all cases, but I can safely say that the Government will not only transpose the directive into UK law but will recommend that it remains UK law. We have always been against cartels, and we remain against cartels. We accept that there are advantages in the parts of the directive that we have introduced and which will strengthen UK competition law vis-à-vis cartels. As for the time it will take for the measure to take effect, it was initially a bit more difficult for me to understand that.

[Bill Esterson]

If this remains in UK law and European competition law changes over time, what would happen?

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 31st January 2017 Commons Chamber

[Greg Clark]

My hon. Friend is absolutely right and, as a councillor, he knows how important it is that that very direct connection is made. It is one of the measures going through the House that I was proud to have proposed when I was Secretary of State for Communities and Local Government, and it is something for which local government has long campaigned. I am delighted that it was this Conservative Government who were able to deliver it.

[Bill Esterson (Sefton Central) (Lab)]

Bank lending is essential for local business success, and yesterday’s HBOS convictions are a stark reminder of the way that smaller businesses were treated by some banks during the financial crisis. Does the Secretary of State accept that lending has fallen over the last year? What is he doing to give confidence in the banks, unlock support and increase lending?

[Greg Clark]

The hon. Gentleman is absolutely right to draw attention to the misbehaviour of the banks, especially with regard to small businesses, when they were inadequately supervised as a result of the destruction of the supervisory regime under the previous Labour Government. That has now been put on a much sounder footing. He will know that the lending opportunities for small businesses have been transformed, but the industrial strategy Green Paper is very clear that we want to make further opportunities available, particularly outside London and the south-east.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 13th December 2016 Commons Chamber

[Jesse Norman]

My hon. and learned Friend is right. She will know that I have been a pretty tireless campaigner for superfast broadband, especially in relation to BT and Openreach. I agree with her about the importance of broadband. The autumn statement announced a £1 billion package for fibre and 5G connectivity, prioritising business connections across the UK. That follows the superfast broadband programme, which is due to deliver 91% coverage in South East Cambridgeshire by mid-2017 and a new universal service obligation.

[Bill Esterson (Sefton Central) (Lab)]

Fifty thousand businesses die unnecessarily every year because of late payment. Some £31 billion is owed and small firms alone spend £10 billion chasing outstanding invoices. While the duty to report and the small business commissioner have been much delayed, just 378 of the largest 55,000 businesses have signed up to the prompt payment code. When will the Conservative Government start doing something about the scourge of late payment? Put some teeth into it, so that small businesses can act.

[Jesse Norman]

The hon. Gentleman is right to point the finger squarely at the issue of late payment. It is a serious matter that we will continue to press forward on, but one must see it in the context of the thriving small business economy that I have outlined.