Enterprise Bill [ Lords ] (Eighth sitting)
Debate between Bill Esterson and Catherine McKinnell(8 years, 9 months ago)
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Bill Esterson (Sefton Central) (Lab)
Thank you very much, Sir David. It is wonderful to hear Government Members welcoming me so warmly back to my feet this afternoon. We made early inroads into the topic of Sunday trading. I pointed out the Government’s failure to publish an impact assessment before we got to this stage. It is not the first time in our proceedings that we have been missing important information before discussing amendments or clauses. We are operating without some of the facts, which is regrettable on top of the delays that I referred to before lunch. Many Members were unaware that Sunday trading would be before us. It was first announced on Second Reading that it would be a part of the Bill.
What a way to proceed. We have to wonder what is behind a very late and fundamental change to the Bill. It is the most controversial part of the legislation. It has far-reaching consequences for the business practices and livelihoods of thousands of shopkeepers and their staff, the staff of large retailers, families, communities and faith groups across the country. I spoke on Tuesday about the suspicious neutering of the pub code, as Lord Mendelsohn described the consultation that the Government published on the code.
The way in which the Government have attempted to change Sunday trading is certainly suspicious, but it goes way beyond neutering when describing the impact on smaller retailers, shopkeepers and their families. I suspect that the Churches and others who want to keep Sunday special would say that abandoning the Sunday trading compromise agreed 22 years ago amounts to an all-out assault that goes way beyond the term “neutering”.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
My hon. Friend is making an important point. The Churches are very vocal in their campaign to keep Sunday special, but is he aware that a huge number of people of no faith also want to keep Sunday special? They need to be highlighted as much as those who for religious reasons wish to keep the day special.
Bill Esterson
I completely agree. The matter concerns not only people of faith, but everybody in this country. It is important to have one day a week when the pace of life is less hectic so that we are not on a 24/7 treadmill of consumerism and taking every opportunity to buy goods in our high streets and shopping centres. I am sure the Minister will comment that online shopping is available 24/7, but that is another matter that I will return to later.
The Government’s consultation on changes to Sunday trading was held for just two weeks in the summer holiday, although they took five months to publish the results. In the publication, for some reason the Government omitted to tell us how many people were in favour of the changes and how many were not. They told us only that lots of big businesses were, perhaps unsurprisingly, in favour. We were not told the results of all 7,000 responses.
It is important to appreciate the scale of the impact of the proposals. Any regulatory changes to operations in the retail sector will have an enormous knock-on effect on the economy as a whole. A September 2015 report by Oxford Economics found that the sector accounts for 9.2% of all jobs in the UK—more than 3 million people—and that 50,000 small local convenience stores employ 386,000 people. Any regulatory changes will have significant ramifications for the sector as a whole, in particular for convenience stores, small shops, their staff and the local communities they serve.
For a significant proposal that generates such keen debate, a responsible approach would have been to undertake a robust economic analysis, a transparent consultation and honest engagement with interested parties, and to decide upon a dedicated legislative mechanism to deliver reforms on that basis. Sadly, that is not what the Government have done. Extended Sunday trading hours would not produce any more sales and would simply spread existing sales from small stores to large stores and over more hours. Unless the Government are advocating more consumer credit and an increase in the level of personal unsecured debt, how could it be otherwise?
The Oxford Economics study drew two clear conclusions: first, there would be no overall increase in retail spending; and secondly, there would be significant displacement of spending from smaller to larger retailers, damaging those 50,000 convenience stores. The report states that
“devolving Sunday trading decisions to local authorities, and the subsequent liberalisation that can be expected to occur, will have only a small impact on the retail sector as a whole, whether positive or negative. However, the displacement of spending from small to large stores may have an impact on employment patterns within the sector that can be expected to manifest itself in job losses at a local level.”
There would be not only a change in spending, but an impact on employment, so there is no overall economic benefit to offset the significant harm caused by the proposal to employment, small business owners, and shop workers and their families.
I turn to the process that we went through to get to this point in Committee. No amendments, impact assessment or economic analysis were published and still no family test has been released either.
Catherine McKinnell
I am listening carefully to my hon. Friend, and I must say that I am a little baffled about the evidence on which the Government based their decision to change Sunday training hours and where they believe the economic benefit will come from. From any studies or information from the Government that my hon. Friend has read, does he know where the economic benefit will fall?
Bill Esterson
It is a very good question. Without an impact assessment, we are in the dark about where the evidence for the changes comes from and what the evidence is for the economic effect. As I mentioned before, the elements of the consultation that the Government have published mention only the responses from, we presume, a relatively small number of very large businesses, which favour the changes overall, and make no reference to the numbers of people who favoured or opposed the changes. We have limited evidence about what has happened. I have tried to look for some evidence and there are some studies, which I shall come to later.
Parliament should have the opportunity to digest and scrutinise the evidence, put forward by the Government. It is simply unacceptable that the new clauses were dropped in with no notice on Second Reading. The answers to parliamentary questions asking where the impact assessment is were published on Monday. The Minister said that an impact assessment had been carried out and that it would be published, but she did not say when. Perhaps either she or the Minister for Housing and Planning, who has moved the new clause, can tell us later when that impact assessment will be published, although it is bizarre that we are debating the Bill without sight of the results of the impact assessment.
The Minister mentioned Knightsbridge and I mentioned the Harrods clause earlier. There are two high streets that benefit, Oxford Street and Knightsbridge, if they can be described as high streets. They are represented by the New West End Company. However, they are very different from almost any other high street or main shopping area of a high street anywhere else in the country. To base a policy on what happens in Knightsbridge or in Oxford Street really is a very strange way to proceed.
Catherine McKinnell
The Minister for Small Business, Industry and Enterprise, who is not the Minister dealing with this new clause, is chuntering from a sedentary position that the provision is entirely discretionary. Perhaps she does not understand the nature of market forces.
Bill Esterson
The Minister certainly claims that she understands market forces; she does so often.
I have mentioned before that this could be described as a domino clause, because those local authorities that do not implement it may well be influenced by what goes on in neighbouring authorities that do implement it. I guess that is a form of market forces. Perhaps it is the forces between neighbouring local authorities around the country that will, in the end, force everybody to comply and to relax Sunday trading rules for all.
Sadly, the Government’s consultation is an advocacy document for devolving Sunday trading rules. The Government have ducked and dived, parried all the evidence that has been presented to them, and blindly focused on what they want to hear, as they have only quoted selectively from the consultation. We can assume that that is the case, because of the 7,000 responses to the consultation received by the Government, they have focused their analysis on just three groups: large and medium-sized businesses; business representative bodies; and local councils. In other words, they are focusing on the people who stand to gain the most.
Using a very small sample from the 7,000 responses, the Government found what was undoubtedly for them the palatable figure of 76% of respondents supporting devolution in order to make their case, but there was only 76% support among those three groups. The Government have ignored, and not published, the figures that show the concern among small business owners, high streets, shop workers, families and family groups, and, indeed, faith groups. The people who will be affected the most by the change are being completely ignored in this process.
Since the beginning of the year, the Department for Business, Innovation and Skills has published five consultation responses, all of which have included a breakdown of respondents and analysis of their position, and how many responses in total are in favour of a proposal and how many responses in total are opposed to it. That has happened on a range of issues. However, that has not occurred for the consultation on Sunday trading reform. Why is that? It is because the Government know that their proposals are not backed by the majority of the public and the majority of stakeholders.
In making their case for Sunday trading reform, the Government have also used evidence that is laughably out of date to support their case. I will focus on three key pieces of evidence that the Government have used to make their case and to deal with the question that my hon. Friend the Member for Newcastle upon Tyne North asked earlier, in order to outline why the Government are misguided.
The first is Swedish sales data. The BIS press release announcing the Government response to the consultation of last August proudly stated that a change in Sunday trading resulted in a 5% increase in turnover in Sweden. In order to get that figure and find that 5% increase, the Government went all the way back to Sweden in 1972, when ABBA were formed. I am sure that somebody will be able to think of a suitable ABBA song to describe the appropriateness or otherwise of the way the Government have used that data. [Interruption.] I feel an intervention is coming.
Catherine McKinnell
Another concern about the impact of the changes on small convenience stores might be at a tangent to the debate, but what occurred to me because of the situation in my local area is that post offices are increasingly being located in convenience stores precisely because they are struggling to survive independently on the high street. By putting convenience stores at greater risk, we are also putting our post office services at greater risk. The Minister should bear that in mind.
Bill Esterson
So the Minister should. My hon. Friend must have been reading my speech over my shoulder—which would have been a remarkable achievement given that I am a little bit taller than she is—because I was about to say that the National Federation of SubPostmasters has also expressed its concerns about the impact of Sunday trading reforms on post offices.
We have a network of only 11,500 post offices because most of them are integrated into local convenience stores—the point that my hon. Friend was making—and those host businesses in effect subsidise the post office. A number of convenience stores and the National Federation of SubPostmasters have expressed concerns that as retail trade in their stores declines due to extended Sunday trading for large stores, those post offices will be put at risk.
Catherine McKinnell
To elaborate, I know from personal experience and local feedback that often Sundays out of hours are the only time at which many people use the convenience stores and so become aware that the post office services are available there. The Sunday footfall is important for those convenience stores.
Bill Esterson
That is right. The great British compromise that we have at the moment gives small retailers a one-day-a-week competitive advantage—it is a slight one, because they are not open for the whole day—and helps, as my hon. Friend said, to raise awareness that there is a post office in those convenience stores. Without that one-day advantage, there is bound to be less awareness of the post offices, which will have an impact on their ability to be successful.
I turn to online shopping. Extending Sunday trading hours will not help high streets to compete with online retailers. For some reason, the Government believe, as the Minister told us, that people shop online because of variations in trading hours on Sundays. There is no link in either consumers’ minds or behaviour between early morning and evening restrictions in Sunday opening hours and their use of the internet for shopping. That is supported by polling completed by Populus of 2,008 members of the public. It asked respondents whether they had shopped online during the Christmas period, with two thirds stating they had. Those respondents were asked to say why they had chosen to shop online and, unsurprisingly, none of them referenced Sunday trading hours as a reason.
Ministers continue to remind us that they are not changing the Sunday trading laws but just devolving the decision to local authorities or, as the Minister said, to local leaders. It is not the whole community, but one person in each local authority.
Bill Esterson
No, that is the responsibility of one of the Minister’s colleagues in the Department for Communities and Local Government.
Catherine McKinnell
My hon. Friend raises an important point in questioning whether the Minister is responsible for high streets. He shakes his head to show that he is not, but it would be interesting to know whether he has spoken to the Minister responsible for the issue about the impact it will have on high streets.
Bill Esterson
The CLG Ministers might not have consulted the rest of the country, published the impact assessment or told us how much opposition there is to the measure, but we can probably assume that they talk within their team.
Catherine McKinnell
My hon. Friend is making a brilliant speech. I must go back to his reference to Sweden, ABBA and 1972 and put on the record my concern that decision making will become all about money, money, money rather than the wider community concerns on which all planning decisions should be made.
Bill Esterson
I thank my hon. Friend, because that was worth the half-hour wait. That was very good and she is quite right, of course. I will not try to improve on it.
Bill Esterson
And my hon. Friend makes the point brilliantly. It is a very serious point. Of course, the Government would say that what might be called trivial points about local decision making—I do not think that they are at all trivial—mean nothing because, at the end of the day, consumers want change and shop workers want the opportunity to work more hours and earn more money. In fact, the Minister did say that.
Again, the Government are ignoring the facts. In September, research from Populus showed overwhelming support for the existing Sunday trading compromise, with two thirds of the public supporting the existing measures. The majority—61%—agree that Sunday is different from the rest of the week as it enables shared time with family and friends. Only one in eight people thinks that there is not enough time to shop under the current Sunday trading hours. One in eight. We are changing the law to ignore the views of seven in eight. That is remarkable.
Sunday trading laws work for the country. They are an important part of the fabric of our society. Sunday is a communal day of rest when people of faith or no faith can spend time with their family and friends and recharge their batteries for the rest of the week. The same is true for shop workers, the most important stakeholders in this debate whose views are completely ignored by the Government.
Some 91% of shop workers do not want a change in Sunday trading laws. They support the current compromise that allows them to spend a couple of hours a week with their families. Let us not underestimate how important that is for shop workers who already work more weekend hours. Some 63% of people employed in retail are already working overtime, compared with an average of 57% across all sectors. Barely half the people who work in retail report being satisfied with the amount of leisure time they have, suggesting that many experience a squeeze on the time they have available to spend with their partners and children.
Shop workers already face significant pressure to work on Sundays. They currently have the right to opt out of Sunday working if they give written notice to their employer with a notice period of three months. As the Minister told us, the Government have proposed to enhance the opt-out for shop workers in larger stores by reducing the notice period to one month. Staff will be able to opt out of working hours that are additional to their normal Sunday hours, which are averaged over a 12-week period. There is simply no evidence that the existing opt-out rules help to protect Sundays for shop workers, so it is clearly questionable for the Government to suggest that extending the opt-out rules will alleviate pressure on staff in the sector, if and when the legislation is passed and implemented.
The fact is that many shop workers are unable to use the Sunday working opt-out because of pressure from management. To ensure that they can cover all shifts whenever necessary, retail managers request seven-day flexibility from staff. Those who apply for a job invariably have to complete an availability schedule as part of their application. If they do not include availability on Sundays, they are not offered an interview. Employment contracts in retail then stipulate that staff have to give availability across the days and times that they have indicated. If staff ask to opt out of Sunday working, they can be told that they are not fulfilling their contract.
One USDAW member described it as follows:
“Sundays used to be a day of rest. Now my contract says 5 over 7”—
that is, they have to work for any five days in a week. Another said:
“My employer now only takes on part-timers willing to work every weekend.”
In fact, an independent survey in September 2015 of more than 10,000 USDAW members working in large stores found that 58% are already under pressure to work on Sundays when they do not want to. One member responding to the survey said:
“I’ve been told I’d be letting the team down if I don’t work extra on a Sunday. If we refuse a request to work extra then they are extremely unlikely to honour a request for an appointment or for time off”.
Catherine McKinnell
The Minister says that it is not compulsory, but she seems to misunderstand completely the nature of market forces and retail competition.
Catherine McKinnell
As my hon. Friend says, perhaps the Minister has never played dominoes.
Enterprise Bill [ Lords ] (Fourth sitting)
Debate between Bill Esterson and Catherine McKinnell(8 years, 9 months ago)
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Bill Esterson
Indeed. Honesty from the Minister—I like that.
I would have more sympathy with the Minister for Housing and Planning if the proposals had been made a little earlier than the evening before the Committee started, but there we are.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
Despite the attitude of Conservative Members, mumbling, “Get on with it”, my hon. Friend is making an important point. There has not been sufficient time to consider the significant changes and their ramifications, which my hon. Friend is setting out. He rightly says that they have wide-ranging implications that need proper consideration.
Bill Esterson
My hon. Friend is absolutely right and I thank her for reiterating the point.
Amendment 65 seeks to ensure that there is an assessment of whether there is a simplification. Several amendments have emphasised the need to consider properly and report the impact of changes in regulations. The strength of feeling, particularly about Sunday trading and changing the rules in the way in which the Government propose in the new schedule, shows the need to take great care. The change is considerable and it will have a profound effect throughout the country, and between the regions and the nations of the United Kingdom. It is regrettable that the proposal was not introduced in the Lords, as the measure is a Lords Bill, and earlier so that people were aware of it before Second Reading, and that we did not have longer to look at the new schedule than last Monday, on the evening before it was tabled.
Catherine McKinnell
Does my hon. Friend have a proper understanding of why the amendments came so late in the day? Have the Government explained the lateness of their addition to the Bill?
Enterprise Bill [ Lords ] (Second sitting)
Debate between Bill Esterson and Catherine McKinnell(8 years, 9 months ago)
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Bill Esterson
The clause deals with the definition of small businesses. I do not intend to detain the Committee for long on this subject, but it is important to consider what it says. There have been wide-ranging debates in the Lords and here about what the small business commissioner ought and ought not to do. The clause, which defines the small business commissioner and who they will serve, is an opportunity to reflect on the importance of exactly that remit.
Although debate on the Bill has covered a variety of issues, I believe that on both sides it has had at its heart the recognition of the value of small businesses to the UK economy. Members across the House have had an opportunity to offer valuable support to the companies and entrepreneurs that fall within the definition laid out in the clause. The debate is an opportunity to speak about the importance of small businesses, but the Bill carries an opportunity to boost the prospects of companies all over the UK.
What are we talking about when we lay down these technical definitions of a small business? There are now thought to be 5.2 million small businesses in the UK. They employ 48% of the UK’s workforce and, on the back of sheer hard work, account for 33% of private sector turnover. The definitions laid out in the clause single out incredibly hard-working people. My wife still runs a small business and is a constant reminder to me of how much effort and how many sleepless nights it takes to start, grow, run and maintain a business—all those things and more. The Bill is for those who deserve our support on late payment, which is one of the most vexing issues facing small businesses today and one that we simply have not done enough to resolve. It is also one of the issues that my wife lobbies me on almost daily.
The Bill presents us with an opportunity radically to change the outlook for some of the most important contributors to our economy. It offers the small businesses in the definition some level of support or guidance on late payments, but it could serve the business owners or the budding entrepreneurs also captured in the definition who have brilliant ideas but do not have the knowledge base needed to grow. It could serve the businesses that are struggling with not only late payments but investment challenges, ongoing legal disputes, access to finance, lack of mentoring and difficulties with public sector and private sector clients.
The clause captures a body of people whose challenges go far beyond late payment and who need far more than supportive words and signposting to systems that, as time has shown us, simply have not tackled the problem. All the challenges they face are tackled by specialists in big companies, but the definition in the clause demarcates a group who largely are so busy keeping the wheels of local economies turning that they do not have time to be legal or financial experts. The Bill is an opportunity for us to provide them with real support.
Beyond the technical definitions laid out in the clause are the owners of 5.2 million small UK businesses. If they are not watching this debate, they will still feel over the coming months and years the outcome of whether we focus on limited support for the specific challenge they face or whether we take this chance to offer meaningful answers to some of the key issues that stifle their growth and prosperity—and by extension, the growth and prosperity of the local economies in which they operate.
We would like the small business commissioner’s remit to go much further than the one in the Bill. Even if we just focus on late payments, it does not take a great deal of prodding of the definitions to see how limited the scope of support is. One fifth of UK small businesses—more than 1 million firms—have experienced or come close to insolvency as a result of a total estimated by BACS to be £26.8 billion in outstanding late payments. Sage estimates a significantly higher figure—I cannot remember it.
Bill Esterson
I thank my hon. Friend. The Government’s proposed small business commissioner is likely, according to the Government’s own predictions, to help just 500 small businesses a year. The commissioner will serve as a signposting service to mediation services that already exist and have failed to deal with the crippling problem of late payment in the past. In fact, it was the Minister’s colleague, the hon. Member for Huntingdon (Mr Djanogly), who said on Second Reading:
“On capacity, the new £1.1 million SBC website should handle 390,000 disputes from 70,000 businesses, yet the SBC will deal with only 500 complaints a year. That gives rise to the question of what will happen with the rest of the disputes and what the real impact of the proposal will be. Could the site cope with the workload of significant numbers qualifying for assistance? That remains unclear.”—[Official Report, 2 February 2016; Vol. 605, c. 828.]
That is just the website, which the Minister mentioned. The small business commissioner will employ only a handful of staff, and there is nothing in the Bill to say that they will be legal, financial or even business experts.
We have to be honest when we look at the definitions laid out in the clause. The aspiration to support small business is lofty and laudable, but it prompts a question: without the legal clout of the Australian small business commissioner or the wide-ranging agreement with the US Small Business Administration, and without anything like the budget or staff numbers of either of them, how many such companies is the legislation actually likely to help?
Enterprise Bill [ Lords ] (First sitting)
Debate between Bill Esterson and Catherine McKinnell(8 years, 9 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Sir David.
Does my hon. Friend share my view that this is such an important issue for small businesses because we know that the issue of late payment, in particular, is a real challenge for them? It is in the Government’s interest that this body is as influential and powerful as it can be and that those small businesses see it as a visible presence and feel that it is their champion, not the Government’s or anybody else’s.
Bill Esterson
My hon. Friend is absolutely right. This is why we have tabled not just these amendments, but others, which are about making the post as effective as possible, so that it really is about championing business. This is the Enterprise Bill: it is about promoting enterprise as best we can. Small businesses are absolutely critical to driving enterprise, pushing forward productivity and improving the overall state of the economy. Getting this post right is a great opportunity to do just that. The interventions of both my hon. Friends just now demonstrate the importance of getting that appointment process right, so that the best person possible is appointed. As my hon. Friend the Member for Wakefield said, opening it up to the widest field possible is an important way of doing just that.
The commissioner will be someone whose terms of reference are quite clear. As things stand, he will be the creature of, and appointed by, the Secretary of State, and will have little security of employment, given the ability of the Secretary of State to dismiss him or her at the drop of a hat. He will be capable of being thrown out at the whim of a Minister. It would afford the business community a sense of confidence if our amendments were adopted. A small business that has problems with payment and other concerns about administration will find that this place person is in a job that affords the small business little or no protection or opportunity for redress of an independent character. At the end of the day, the operation of the office, as things stand, will be subject to the most minimal scrutiny and the report will be given, not to Parliament, but to the Secretary of State alone, which leaves one with grave concerns.
In the other place, the Minister said that if the commissioner was ineffective, there would be grounds for abolition. Surely the point is to set the post up in the first place to ensure that it is effective by giving him or her the necessary powers and independence. That means being outside the control or remit of the Department or the Secretary of State.
The Regulatory Reform Committee made an assessment which said:
“We therefore consider that it is inappropriate for the Bill to confer on the Secretary of State a Henry VIII power to abolish the Small Business Commissioner without any of the procedural restrictions (beyond the need for an affirmative resolution in each House) of the nature set out in the Public Bodies Act 2011, particularly that requiring consultation”.
I am concerned, as are my hon. Friends, that the general perception of how this provision was planned and developed under-appreciated the role that the body should play. The estimate is that it will deal with 500 complaints. I mentioned the Victoria commission in Australia. It dealt with 430 complaints of a comparative nature in its first year. Victoria is a state with 5.8 million people, a GDP perhaps one-tenth the size of that of the UK and with perhaps one-fifteenth of the number of small businesses. It had 430 cases, while our commissioner is planning to handle 500. That does not seem very ambitious for the role of the small business commissioner. Perhaps that is related to the way that it has been set up as part of the Department, reporting directly to the Secretary of State.
If the small business commissioner is set up only to address a tiny amount of work, it might raise the question how serious the Government are about making a difference to small businesses. Some might even suspect that the Government do not really intend for the office to be a great success and that therefore they will be in a position to deliver abolition down the line. It would be a great shame if that were the case.
The Government say that they envisage the role of the small business commissioner evolving over time. The workload grows and as businesses grow accustomed to the idea that there is someone to turn to, that is a likely development. If that happens, how will the office cope with the increased workload? Perhaps the Minister will consider that in her response. Remember, BIS faces sizable budget cuts. How will the small business commissioner be protected from those cuts, let alone be in a position to recruit additional staff?
We know that late payment is a significant problem, as my hon. Friend the Member for Newcastle upon Tyne North reminded us in her intervention. The 500 anticipated cases a year will be the tip of the iceberg. What will happen if the small business commissioner does not have the opportunity to expand his or her office? The issue of who appoints and whether the office can be abolished by Ministers is part of the wider question of whether the office will be effective or not, a point made very well on Second Reading by the hon. Member for Huntingdon (Mr Djanogly). It was also made many times by Members of the other place across the parties.
Catherine McKinnell
My hon. Friend is making a very important point. I wonder whether the Government have considered the importance of the role of the small business commissioner and the number of businesses that are likely to get in touch with them, because there is such a gap in the market for advice for small businesses. I know that from my constituency postbag, many small businesses come to me looking for advice and signposting for where they can get help and advice. My hon. Friend rightly points out that the proper resourcing and independence of the post are important for businesses to feel confident in the service provided.
Catherine McKinnell
To clarify, I feel the reason so many businesses come to me as an MP for advice on this issue is because the support and assistance provided to small businesses under the previous Labour Government disappeared in 2010. That has had a huge impact on small businesses and their ability to understand and navigate the system to find help and advice. Therefore, they come to their MP. I am always pleased to hear from businesses but it is a gap in the system in that they do not know where to go locally.
Bill Esterson
That is an excellent point. Like my hon. Friend, I find myself performing some of the roles and responsibilities set out for the small business commissioner on behalf of my constituents. Having been owner of a small business, I have sometimes been able to point them in the right direction. We would expect the small business commissioner to be in a position to give advice, support and encouragement. Later amendments will look at how that might be achieved if that office is to be given additional responsibilities.
Bill Esterson
Thank you, Sir David. I apologise for omitting your title earlier. I thank the Minister for her brief response, but I do not think that she has really answered the questions we posed. I am glad that there is broad agreement about the value to the economy of small businesses, and I reiterate that our approach to part 1 of the Bill is about trying to strengthen the post as much as possible so that businesses and the wider economy really can benefit from it. I understand why the post has been set up to look at late payments, rather than at some of the wider issues, as the problem of late payments has existed for more years than many of us will remember. I understand why the Government have gone down that route, although it is a shame that the commissioner has not been set up to draw on some of the successful experiences as well as the remits of the arrangements in America and Australia.
The Minister said that the commissioner would not—I am not sure whether she said “could not”, so I will assume that she said “would not”—be abolished at will. However, the role can be abolished by affirmative resolution of both Houses and, in Parliament, that is pretty close when one party has an overall majority in the Commons. It is unlikely that the Lords would object. I take on board the point that if it were proved that the commissioner was not up to the job, the commissioner would be removed, but there is a difference between that and abolishing the post.
The Minister said that the small business commissioner needs to command the respect of large and small businesses alike. I completely agree but there is a concern among the representative organisations that the lack of independence that comes from being an effective part of the Department will make it difficult for the commissioner to command that respect, particularly the respect of the small business community. Large business is effective at lobbying and has effective relationships with the Government, and that is much harder for individual small businesses and for small businesses collectively.
Catherine McKinnell
The Minister gave a short but fairly robust response to some of the concerns that our amendment seeks to address. Would my hon. Friend agree that it is not just about the reality—whatever that might be—but about the perception as well? It is really important for small businesses to have confidence in the commissioner. Perhaps the Minister is not taking on board some of the concerns that people have, whether real or perceived, about the Government’s relationship with big business.
Bill Esterson
That is right. We are trying to achieve a level playing field. This is not about preferring small business over large, it is about making sure that the relationship is equitable. In the same way, the Groceries Code Adjudicator was set up to make sure that the behaviour of some of the large supermarkets was not excessive and their relationship with their suppliers was fair and equitable.
I did not get the sense of an answer or a justification of why this should not be a Crown appointment. I thought the Minister’s argument could equally have reached the conclusion that it should have been a Crown appointment. For that reason, I would like to test the will of the Committee and press the amendment to a vote.
Question put, That the amendment be made.
Bill Esterson
My right hon. Friend makes a very good point. The public sector is an incredibly important part of the economy in many parts of the country. We have a collective responsibility, whether in Parliament or elsewhere, to get this right and ensure that the public sector is doing its bit. That is really important.
Catherine McKinnell
Speaking of areas of the country that depend on these issues, I have a useful figure that may help my hon. Friend. The accounting, payroll and human resources corporation Sage, which is based in my constituency, has suggested that £55 billion in outstanding invoices is currently owed to the UK’s small and medium-sized businesses. That is an astounding figure and of great concern. The CBI’s recent survey of north-east SMEs found that 53% of the worst offenders are large firms, but that a third come from the public sector, so the public sector represents a significant proportion of the significant sum of money that is outstanding.
Bill Esterson
Yes, and those figures are higher than in the 2012 Federation of Small Businesses survey. The figures demonstrate that, as I touched on earlier, the smallest firms that lack the ability to pursue cases are the most vulnerable to the problem of late payment, wherever it comes from. Certainly in the case of the public sector, we have a duty and a responsibility to ensure that payment is on time and to look after the smallest firms in particular and business in general. That is an important part of what the Government should be doing to encourage and generate our enterprise culture—this is the Enterprise Bill—and to ensure that the economy is successful through the support that the public sector can give to business.
I was talking about the four Departments that the National Audit Office looked at in detail: the Ministry of Defence, the Home Office, the Department for Business, Innovation and Skills and the Cabinet Office. The National Audit Office shows that those Departments’ apparently good payment record is skewed by a high volume of low-value e-transactions with a few large suppliers. Those payments are dominated by large companies, such as the ones the Departments use to book train tickets and order office supplies. Basically, Departments can get close to hitting their payment performance targets just by using their procurement cards and by paying their e-invoices from a few large companies straightaway.
If we dig past the misleading top line and look past the e-invoices from large companies, we see a different picture. None of the four Departments that the NAO looked at measures its performance in paying SMEs, which typically use paper invoices. Looking at the average payment time for paper invoices shows that the time taken by the four Departments to hit the 80% payment target jumps from five days to between three and seven weeks—a very different picture.
The Asset Based Finance Association conducted research in 2014 that showed that the average wait for payment is still in excess of 40 days for some local authorities, and that the average wait for payment from local authorities is virtually unchanged over the past six years, from 17.7 days then to 17.3 days more recently. EU directive 2011/7 makes make it mandatory for all public authorities to settle invoices in a maximum of 30 days from receipt. It is aimed at making pursuing payment a simpler process across the European Union and making payment on time the norm. One point that occurs to me from my experience of invoicing is that sometimes the date on which an invoice is received is a matter of great debate, because accounting departments may say that they have not received an invoice for many days, if not weeks. It will be interesting to see how that is to be defined; there are ways around the problem using electronic invoicing or recorded postal delivery, or suchlike, but most SME invoicing does not happen in those ways.
Under the directive, the failure of public authorities to pay within 30 days leads to interest of 8% being added from day one of late payment, subject to agreement on when the late payment is recognised. There is an admin fee of £40, £70 or £100, depending on whether the invoice is under £1,000, under £10,000 or over £10,000. That is a step in the right direction. However, the Local Government Association released a paper in 2014 saying that there is no evidence of any public authorities automatically adding the penalties when invoices are paid late. The Institute of Credit Management has said it is not aware that interest is automatically being paid. The House of Commons Library has also confirmed that it has not seen evidence of public authorities automatically adding the penalties—so the question is, how is this going to happen unless there is automatic addition of interest and penalties?
Although the user guide is clear, the automatic nature of the obligation is less clear when we review the specific statements in both the EU directive on late payment and the Late Payment of Commercial Debts Regulations 2013. Essentially, without automatic penalties, the interest and admin fees imposed for late payments still require SMEs to stick their head above the parapet and challenge their public sector customers. As I am sure all hon. Members are aware, that is a real problem. Once businesses start to challenge their own customers, they risk losing their custom later on, which is a real dilemma. It is the same dilemma that small businesses face with large suppliers, and it happens in the public sector as well. It is about businesses being asked to sour relations with their own customers.
I have an example from my own constituency. One start-up company had a contract with a public authority. The company was paid 30 days after the five-day terms laid out in the invoice. It had paid up front for the supplies needed to carry out the work, so it was left in a precarious financial position within six months of starting up. It could have made use of the rights available to it within existing legislation—a £70 administration fee and interest on the contract value. However, when the debtor did not automatically add the interest and fee, the company chose not to pursue it. It told me:
“As a start-up, repeat business with the public sector is no different to repeat business with the private sector: we rely on both to get by, and we know that they have more options than we do about who to do business with. Of course we don’t have to keep quiet, avoiding admin fees and interest on invoices—just like they don’t have to use us again. It’s a bad situation when you’re lurching from one loan to the next because you aren’t getting the money you’re owed. But whether it’s the public or private sector it’s the same point—you don’t bite the hand that feeds you.”
The Bill sets up the small business commissioner only to address complaints or disputes against large businesses. It currently excludes complaints against public sector organisations. Many small businesses find trading with the public sector very difficult, and we have seen some of the reasons why.